<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 (S) 240.14a-11(c) or (S) 240.14a-12
Capital Re Corporation
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
CAPITAL RE CORPORATION
1325 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1998 Annual Meeting of Stockholders of Capital Re Corporation will be
held at corporate headquarters, 1325 Avenue of the Americas, New York, New
York 10019, on Wednesday, May 20, 1998 at 10:00 a.m. for the following
purposes:
1. To elect a Board of Directors for the ensuing year.
2. To consider and act upon such other business as may properly come
before the meeting.
Whether or not you expect to attend the meeting, you are requested to sign,
date and return the enclosed proxy as promptly as possible in the enclosed
stamped envelope.
By Order of the Board of Directors
/s/ Alan S. Roseman
Alan S. Roseman
Secretary
New York, New York
April 20, 1998
<PAGE>
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1998
This Proxy Statement is furnished on or about April 20, 1998 to stockholders
of Capital Re Corporation (the "Corporation"), 1325 Avenue of the Americas,
New York, New York 10019, in connection with the solicitation by the Board of
Directors of the Corporation of proxies to be voted at the Annual Meeting of
Stockholders. The stockholder giving the proxy has the power to revoke the
proxy at any time before it is exercised. Such right of revocation is not
limited by or subject to compliance with any formal procedure.
The cost of soliciting proxies will be borne by the Corporation. Copies of
solicitation material may be furnished to brokers, custodians, nominees and
other fiduciaries for forwarding to beneficial owners of shares of the
Corporation's Common Stock, and normal handling charges may be paid for such
forwarding service. Solicitation of proxies may be made by mail, personal
interview, telephone and telegraph by officers and other management employees
of the Corporation, who will receive no additional compensation for their
services.
At the close of business on April 20, 1998, there were 15,926,562 shares of
the Common Stock of the Corporation outstanding and entitled to vote at the
meeting. Only stockholders of record on April 20, 1998 will be entitled to
vote at the meeting, and each share will have one vote.
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
Nine directors are to be elected. It is intended that the votes represented
by the proxies will be cast for the election as directors (for a term of one
year or until their successors are chosen and qualified) of the persons listed
below. Each of the nominees is currently a director of the Corporation.
The following table presents information concerning persons nominated for
election as directors of the Corporation, including their current membership
on committees of the Board of Directors, principal occupations or affiliations
during the last five years and certain other directorships held.
Michael E. Satz.................... Chairman--Nominating Committee and
Member-- Investment Committee. Mr. Satz,
age 49, has been President and Chief
Executive Officer of the Corporation
since its founding in 1988 and Chairman
of the Board since 1989. From 1985 to
1988, Mr. Satz was Senior Executive Vice
President and Chief Operating Officer of
AMBAC Indemnity Corporation. Mr. Satz is
also a director of Financial Structures
Limited, a specialist in underwriting
residual value insurance.
Harrison W. Conrad, Jr. ........... Member--Compensation Committee,
Investment Committee and Nominating
Committee. Mr. Conrad has been self-
employed as a financial adviser since
September 1995. Prior thereto, Mr. Conrad
was with J.P. Morgan & Company, Inc. Mr.
Conrad, 63, has been a director of the
Corporation since December 1996.
1
<PAGE>
Richard L. Huber................... Member--Audit Committee. President and
Chief Executive Officer of Aetna Inc.
since August 1997. Mr. Huber was Vice
Chairman for Strategy and Finance of
Aetna Life & Casualty Co. from February
1995 until July 1997, Managing Director
of Grupo Wasserstein Perella from August
1994 until February 1995 and Vice
Chairman of Continental Bank Corporation
from January 1990 to July 1994. Mr.
Huber, age 61, has been a director of the
Corporation since March 1993 and is also
a director of Aetna Inc.
Steven D. Kesler................... Member--Compensation Committee,
Investment Committee and Nominating
Committee. President of Constellation
Investments, Inc. ("Constellation"), an
indirect subsidiary of Baltimore Gas and
Electric Company, since 1988. From 1985
to 1987, Mr. Kesler was Treasurer and
Assistant Secretary for Constellation
Holdings, Inc., the parent of
Constellation. Mr. Kesler, age 46, has
been a director of the Corporation since
its founding in 1988.
Philip Robinson.................... Chairman--Audit Committee. Mr. Robinson
was Chairman of Sunbury Investment Co.
Ltd. from 1985 to 1994 and a director of
CLF Municipal Bank from 1993 to 1996. Mr.
Robinson, age 72, has been a director of
the Corporation since March 1993.
Edwin L. Russell................... Member--Compensation Committee and
Nominating Committee. Chairman of the
Board of Directors, President and Chief
Executive Officer of Minnesota Power &
Light Company ("Minnesota Power") since
1995. From 1989 to 1995, Mr. Russell was
Group Vice President of J.M. Huber Corp.
Mr. Russell, age 53, has been a director
of the Corporation since December 1996
and is also a director of Utech, American
Paging, Inc. and Tennant Co.
Dan R. Skowronski.................. Member--Audit Committee. General Counsel
of Constellation Holdings, Inc. since
September 1994. Mr. Skowronski has been
an attorney with Constellation Holdings,
Inc. since January 1989. Mr. Skowronski,
age 48, has been a director of the
Corporation since December 1994.
Barbara D. Stewart................. Member--Audit Committee and Investment
Committee. President of Stewart
Economics, Inc. since 1981. Ms. Stewart,
age 54, has been a director of the
Corporation since December 1996 and is
also a director of Insurance Services
Office, Inc. and National Grange Mutual
Insurance Company.
Jeffrey F. Stuermer................ Chairman--Investment Committee and
Member-Audit Committee. Manager, Tax for
Minnesota Power since January 1992. Mr.
Stuermer was Manager, Investments for
Minnesota Power for at least five years
prior to January 1992. Mr. Stuermer, age
50, has been a director of the
Corporation since its founding in 1988.
2
<PAGE>
The Corporation, certain management and other stockholders, and Minnesota
Power and Constellation (the "Institutional Stockholders") are parties to a
Stockholders' Agreement dated as of January 17, 1992, as amended (the "1992
Stockholders' Agreement"). The 1992 Stockholders' Agreement requires each
party thereto to vote the shares of Common Stock it holds at all elections of
directors in favor of the person then serving as Chief Executive Officer, two
persons designated by each Institutional Stockholder holding at least 13% of
the outstanding voting stock of the Corporation, and one person designated by
each Institutional Stockholder holding at least 8% and up to 13% of that
stock. Under this arrangement each of Minnesota Power and Constellation
currently has the right to designate two persons for election to the Board of
Directors, and all parties to the 1992 Stockholders' Agreement, beneficially
owning 39.18% of the outstanding Common Stock in the aggregate, are obligated
to vote their shares in favor of election of those persons and Mr. Satz, who
is currently serving as Chief Executive Officer. Stockholders who are not
parties to the 1992 Stockholders' Agreement are not obligated to vote their
shares for the persons designated under the 1992 Stockholders' Agreement. The
parties to the 1992 Stockholders' Agreement have also agreed to vote for the
removal of a designated director only for cause or if requested by the
designating Institutional Stockholder. Under the 1992 Stockholders' Agreement,
Jeffrey F. Stuermer and Edwin L. Russell are designees of Minnesota Power and
Steven D. Kesler and Dan R. Skowronski are designees of Constellation. See
"Beneficial Ownership of Common Stock."
The 1992 Stockholders' Agreement also grants each Institutional Stockholder
certain registration rights with respect to Common Stock held by it. One or
more holders of at least 10% of the Institutional Stockholders' aggregate
holdings of Common Stock may request the Corporation to register shares of
Common Stock held by them on two occasions. Both Minnesota Power and
Constellation own sufficient shares to exercise such rights individually. In
addition, Institutional Stockholders have limited rights to include shares in
offerings initiated by the Corporation.
Steven H. Newman, who has served as a director of the Corporation since
1995, is not standing for re-election.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee, a Nominating
Committee, a Compensation Committee and an Investment Committee.
The Audit Committee, which in 1997 consisted of Messrs. Huber, Robinson,
Skowronski and Stuermer and Ms. Stewart, is responsible for recommending the
selection of independent accountants, reviewing the independent accountants'
assessments of the adequacy of the Corporation's internal control system and
of the appropriateness of accounting principles and financial disclosure
practices, and reviewing the scope and results of the internal and external
audit process. This Committee met four times during 1997.
The Nominating Committee, which in 1997 consisted of Messrs. Satz, Conrad,
Kesler, Newman and Russell, is responsible for recommending to the full Board
of Directors potential nominees for directors. This Committee did not meet
during 1997. The Nominating Committee will consider nominees recommended by
the stockholders of the Corporation. Any stockholder wishing to recommend a
nominee to the Nominating Committee should send a letter addressed to Mr.
Satz, at the Corporation's address, setting forth the name of the nominee
being recommended together with a description of his or her qualifications.
The Compensation Committee, which in 1997 consisted of Messrs. Conrad,
Kesler, Newman and Russell, is responsible for determining the compensation of
senior officers of the Corporation, reviewing the compensation plans and
programs of the Corporation and administering the 1992 Stock Option Plan, the
1997 Employee Stock Option Plan, the Annual Incentive Plan and the Performance
Share Plan. This Committee met eight times during 1997.
The Investment Committee, which in 1997 consisted of Messrs. Satz, Conrad,
Kesler, Newman and Stuermer and Ms. Stewart, is responsible for approving the
Corporation's investment guidelines and policies and reviewing investment
strategy and management. This Committee met four times during 1997.
3
<PAGE>
ATTENDANCE AT MEETINGS
During 1997, the Board of Directors held four meetings. Each director of the
Corporation attended 75% or more of all Board of Director meetings (held
during the period during which he or she was a director) and meetings of each
committee on which he or she served (held during the period during which he or
she served on such committee).
DIRECTORS' FEES
The Corporation has adopted a policy of paying fees to non-employee
directors in the amount of $25,000 per year plus $1,000 for each meeting of
the Board attended and $500 (or $1,000 in the case of the Committee Chairman)
for each meeting of each Committee thereof attended. These directors (other
than those designated by the Institutional Stockholders) also participate in
the Directors' Stock Option Plan, under which each receives an option to
purchase 1,500 shares of Common Stock each year during the first three years
beginning with his election to the Board. Mr. Huber and Mr. Robinson have each
received options to purchase 1,500 shares in each of 1993 and 1994; each of
them and Mr. Newman received options to purchase 1,500 shares in 1995; Mr.
Conrad, Mr. Newman and Ms. Stewart each received options to purchase 1,500
shares in 1996 and 1997; and Mr. Conrad and Ms. Stewart will each receive
options to purchase 1,500 shares in 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires the Corporation's directors,
executive officers and 10% stockholders to file reports of beneficial
ownership of equity securities of the Corporation and to furnish copies of
such reports to the Corporation. Based on a review of such reports, the
Corporation believes that, during the fiscal year ended December 31, 1997, all
such filing requirements were met, except that Alan Roseman, Laurence
Donnelly, Jerome Jurschak, Harrison Conrad and Barbara Stewart each made late
filings with respect to one grant of stock options in 1997. In addition, Alan
Roseman and Jerome Jurschak each made late filings with respect to one grant
of stock options in 1996 and one grant of stock options in 1995, David Buzen
made a late filing with respect to one grant of stock options in 1995 and
Jerome Jurschak and Joseph Swain each made late filings with respect to one
grant of stock options in 1992.
OTHER INFORMATION
LOANS TO MANAGEMENT
Tax Equalization Loans. In order to equalize the after-tax economic benefits
of participation by executives in the Corporation's 1988 Stock Incentive Plan
(the "1988 Plan"), the Corporation made certain loans to employees awarded
shares of restricted stock under the 1988 Plan. Each of these loans bears
interest at the "Applicable Federal Rate" as determined from time to time in
accordance with Section 7872(f)(2) of the Internal Revenue Code of 1986, as
amended. The Corporation has agreed to forgive the interest on these loans and
has granted bonuses to loan recipients to pay their income taxes attributable
to that forgiveness. Each such loan is due and payable on the earlier of three
years after the termination of employment with the Corporation or the
realization by the employee of gain on the sale of restricted Common Stock
granted under the 1988 Plan. The amounts of certain of these loans outstanding
as of December 31, 1997 are as follows: Mr. Satz, $402,343; Mr. Jurschak,
$112,612; Mr. Buzen, $87,132; and Mr. Donnelly, $119,151.
Secured Loan Program. From September 1990 until April 1992, the Company had
in effect the Secured Loan Program under which designated executive officers
(limited to the President and Executive Vice Presidents of the Corporation)
could borrow from the Corporation up to 50% of the book value of the
borrower's then vested shares of restricted Common Stock awarded to the
borrower under the 1988 Plan described above. These loans were in addition to
any loans which eligible borrowers may have had outstanding from time to time
under the Corporation's tax equalization loan program adopted in connection
with the 1988 Plan. Interest on the unpaid principal balance of these loans
accrues at a rate equal to 1% over the rate on five-year U.S. Treasury Notes
as
4
<PAGE>
of the date immediately preceding the date of the borrowing, and is payable
annually on March 1 of each year. The loans are due and payable in full no
later than five years from the date of borrowing. To secure the repayment
obligation, the borrowers pledged to the Corporation certain shares of
restricted Common Stock issued to them under the 1988 Plan.
In September 1990, the Corporation made a $750,000 loan to Mr. Satz; in
January 1991, the Company made a $50,000 loan to Mr. Satz; and in May 1991,
the Company made a $200,000 loan to Mr. Satz. These loans were consolidated
and refinanced in September 1995 and Mr. Satz executed a new promissory note
in the amount of $1,139,109.42. Interest on the unpaid principal balance
accrues at the applicable Federal Rate provided under the Internal Revenue
Code and is due on March 1 of each year. One hundred thousand dollars of the
principal amount was paid on March 1, 1997 and the same amount is due and
payable each March 1 thereafter through March 1, 2000. The remaining unpaid
principal balance is due on March 1, 2001.
Other Loan. Laurence C. D. Donnelly, Executive Vice President of the
Corporation, has an outstanding loan payable to the Corporation in the amount
of $30,000, which bears interest at the "Applicable Federal Rate" determined
from time to time pursuant to the Internal Revenue Code. The Corporation has
agreed to forgive payment of the annual interest. The loan is due and payable
on the earliest to occur of (i) the third anniversary following the
termination of his employment by the Corporation other than termination for
cause, (ii) five days after the termination of his employment by the
Corporation for cause or (iii) the realization of any proceeds on the sale of
the stock securing the loan. The loan is secured by a pledge of certain shares
of Mr. Donnelly's Common Stock of the Corporation obtained under the 1988
Plan.
See "Compensation Committee Interlocks and Insider Participation" on page
13.
5
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of February 27, 1998
(unless otherwise specified) with respect to the beneficial ownership of the
Corporation's Common Stock by each person who is known to the Corporation to
beneficially own more than 5% of the outstanding shares of Common Stock, each
director, each Named Officer (as defined below), and all directors and
executive officers as a group. Unless otherwise described below, all shares
are held with sole voting and dispositive power by the parties shown.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
- ------------------- ------------ --------
<S> <C> <C>
Minnesota Power(1)..................................... 3,265,740 20.52%
30 W. Superior Street
Duluth, Minnesota 55802
Constellation Investments, Inc.(1)..................... 2,481,920 15.59%
250 W. Pratt Street, 23rd floor
Baltimore, Maryland 21201
J.P. Morgan & Co. Incorporated......................... 1,567,900(2) 9.85%
60 Wall Street
New York, New York 10260
Michael E. Satz(1)..................................... 264,575(3) 1.66%
Harrison W. Conrad, Jr................................. 3,100(4) *
Richard L. Huber....................................... 4,500(5) *
Steven D. Kesler.......................................
Steven H. Newman....................................... 9,500(6) *
Philip Robinson........................................ 4,500(7) *
Edwin L. Russell.......................................
Dan R. Skowronski......................................
Barbara D. Stewart..................................... 3,000(8) *
Jeffrey F. Stuermer
Jerome F. Jurschak(1).................................. 228,275(9) 1.42%
David A. Buzen......................................... 136,625(10) *
Laurence C.D. Donnelly................................. 138,860(11) *
Joseph W. Swain, II.................................... 72,775(12) *
All Directors and Executive Officers as a group (15
persons).............................................. 865,710(13) 5.24%
</TABLE>
- --------
* Less than 1%
(1) Parties to the 1992 Stockholders' Agreement. Constellation is an indirect
subsidiary of Baltimore Gas and Electric Company. Under the voting
provisions of the 1992 Stockholders' Agreement, each Institutional
Stockholder party to the 1992 Stockholders' Agreement may be deemed to
have shared voting power with respect to the shares of all parties to the
1992 Stockholders' Agreement and, accordingly, for certain limited
purposes of the Federal securities laws, each Institutional Stockholder
may be deemed to be the beneficial owner of the shares beneficially held
by all parties to the 1992 Stockholders' Agreement.
(2) Based on a Schedule 13G filed with the Securities and Exchange Commission
for the year ended December 31, 1997.
6
<PAGE>
(3) Includes 64,375 shares Mr. Satz has the right to acquire within sixty
days through exercise of outstanding options.
(4) Includes 3,000 shares Mr. Conrad has the right to acquire within sixty
days through exercise of outstanding options.
(5) Includes 4,500 shares Mr. Huber has the right to acquire within sixty
days through exercise of outstanding options.
(6) Includes 4,500 shares Mr. Newman has the right to acquire within sixty
days through exercise of outstanding options.
(7) Includes 4,500 shares Mr. Robinson has the right to acquire within sixty
days through exercise of outstanding options.
(8) Includes 3,000 shares Ms. Stewart has the right to acquire within sixty
days through exercise of outstanding options.
(9) Includes 123,275 shares Mr. Jurschak has the right to acquire within
sixty days through exercise of outstanding options.
(10) Includes 108,775 shares Mr. Buzen has the right to acquire within sixty
days through exercise of outstanding options.
(11) Includes 117,775 shares Mr. Donnelly has the right to acquire within
sixty days through exercise of outstanding options.
(12) Includes 72,425 shares Mr. Swain has the right to acquire within sixty
days through exercise of outstanding options.
(13) Includes an aggregate of 608,500 shares that the executive officers and
directors have the right to acquire within sixty days through exercise of
outstanding options.
7
<PAGE>
COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities to the Corporation for the fiscal years ended
December 31, 1997, 1996 and 1995 of the Chief Executive Officer and the other
four most highly compensated executive officers of the Corporation as of
December 31, 1997 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------- ------------------------
STOCK
NAME AND OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) (SHARES) COMPENSATION(3)
- ------------------ ---- -------- -------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Satz........ 1997 $488,000 $623,400 $14,328 25,500 $107,353
Chairman of the Board, 1996 $463,000 $680,000 $14,087 58,000 $110,518
President and Chief 1995 $441,000 $670,000 $15,097 50,000 $109,851
Executive Officer
Jerome F. Jurschak..... 1997 $340,000 $317,900 $ 5,707 18,000 $ 67,352
Executive Vice 1996 $323,000 $335,000 $ 5,610 26,800 $ 68,089
President 1995 $308,500 $315,000 $ 6,013 24,500 $ 63,753
David A. Buzen......... 1997 $295,000 $275,800 $ 4,415 18,000 $ 54,456
Executive Vice 1996 $280,000 $285,000 $ 4,341 26,800 $ 50,132
President, and Chief 1995 $225,000 $180,000 $ 4,652 20,500 $ 43,890
Financial Officer
Laurence C.D. Donnelly. 1997 $295,000 $275,800 $ 7,558 18,000 $ 58,655
Executive Vice 1996 $280,000 $285,000 $ 7,431 26,800 $ 56,469
President 1995 $225,000 $220,000 $ 7,964 24,500 $ 51,734
Joseph W. Swain, II.... 1997 $245,000 $208,300 -- 18,000 $ 43,228
Executive Vice 1996 $229,000 $230,000 -- 21,500 $ 42,584
President 1995 $218,500 $200,000 -- 20,500 $ 41,456
</TABLE>
- --------
(1) See the Compensation Committee Report on Executive Compensation below for
a description of the Incentive Plan.
(2) Represents amounts paid to the Named Officers for taxes attributable to
the forgiveness of interest on the loans described under "Other
Information--Loans to Management--Tax Equalization Loans."
(3) "All Other Compensation" for 1997 includes the following: (i)
contributions to the Corporation's 401(k) Plan in the amount of $9,500 for
each of the Named Officers; (ii) premiums paid by the Corporation pursuant
to a split-dollar life insurance plan in the amount of $24,000, $17,500,
$10,850, $10,000 and $11,400 for Messrs. Satz, Jurschak, Buzen, Swain and
Donnelly, respectively; (iii) contributions to the Corporation's qualified
profit sharing plan in the amount of $8,000 for each of the Named
Officers; (iv) contributions to the Corporation's non-qualified profit
sharing plan in the amount of $50,366, $25,727, $20,980, $15,728 and
$20,980 to Messrs. Satz, Jurschak, Buzen, Swain and Donnelly,
respectively; and (v) interest forgiven on loans in the amount of $15,487,
$6,625, $5,126, and $8,775 for Messrs. Satz, Jurschak, Buzen and Donnelly,
respectively. "All Other Compensation" for 1996 includes the following:
(i) contributions to the Corporation's 401(k) Plan in the amount of $9,000
for each of the Named Officers; (ii) premiums paid by the Corporation
pursuant to a split-dollar life insurance plan in the amount of $24,000,
$17,500, $10,850, $10,000 and $11,400 for Messrs. Satz, Jurschak, Buzen,
Swain and Donnelly, respectively; (iii) contributions to the Corporation's
qualified profit sharing plan in the amount of $8,250 for each of the
Named Officers; (iv) contributions to the Corporation's non-qualified
profit sharing plan in the amount of $54,042, $26,825, $16,992, $15,334
and $19,192 for Messrs. Satz, Jurschak, Buzen, Swain and Donnelly,
respectively; and (v) interest forgiven on loans in the amount of $15,226,
$6,514, $5,040 and
8
<PAGE>
$8,627 for Messrs. Satz, Jurschak, Buzen and Donnelly, respectively. "All
Other Compensation" for 1995 includes the following: (i) contributions to
the Corporation's 401(k) Plan in the amount of $9,000 for each of the Named
Officers; (ii) premiums paid by the Corporation pursuant to a split-dollar
life insurance plan in the amount of $24,000, $17,500, $7,500, $10,000 and
$7,900 for Messrs. Satz, Jurschak, Buzen, Swain and Donnelly, respectively;
(iii) contributions to the Corporation's qualified profit sharing plan in
the amount of $8,250 for each of the Named Officers; (iv) contributions to
the Corporation's non-qualified profit sharing plan in the amount of
$52,283, $25,202, $13,739, $14,206 and $17,338 for Messrs. Satz, Jurschak,
Buzen, Swain and Donnelly, respectively; and (v) interest forgiven on loans
in the amount of $16,318, $3,801, $5,401 and $9,246 for Messrs. Satz,
Jurschak, Buzen and Donnelly, respectively.
OPTION GRANTS
Shown below is information on grants to the Named Officers of stock options
pursuant to the Corporation's 1992 Stock Option Plan during the year ended
December 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE OR
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME OPTIONS GRANTED (#) FISCAL YEAR 1997 ($/SH)(1) DATE PRESENT VALUE (2)
- ---- ------------------- ---------------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Michael E. Satz......... 25,500 8.43% $43.00 02/13/07 $490,748
Jerome F. Jurschak...... 18,000 5.95% $43.00 02/13/07 $346,410
David A. Buzen.......... 18,000 5.95% $43.00 02/13/07 $346,410
Laurence C.D. Donnelly.. 18,000 5.95% $43.00 02/13/07 $346,410
Joseph W. Swain, II..... 18,000 5.95% $43.00 02/13/07 $346,410
</TABLE>
- --------
(1) The exercise price was equal to the closing price of the Corporation's
Common Stock on the date of grant as reported on the New York Stock
Exchange-Composite Transactions. The options vest over a four year period
commencing February 13, 1997.
(2) Based on the Black-Scholes option pricing model commonly used in valuing
executive stock options. The actual value, if any, an executive may
realize will depend on the excess of the stock price over the exercise
price on the date the option is exercised, so that there is a reasonable
likelihood that the value realized by an executive will not be at or near
the value estimated by the Black-Scholes model. The estimated values under
that model are based on arbitrary assumptions as to variables such as
interest rates, stock price volatility and future dividend yield.
AGGREGATE OPTION EXERCISES IN 1997 AND YEAR-END VALUES
The following table provides information on option exercises in 1997 by the
Named Officers and the value of such officers' unexercised options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT 12/31/97 AT 12/31/97(1)
ACQUIRED REALIZED ------------------------- -------------------------
NAME ON EXERCISE 1997 UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- EXERCISABLE ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Satz......... 32,850 $1,164,498 18,825 106,175 $ 609,589 $3,289,239
Jerome F. Jurschak...... -- -- 99,825 56,475 $ 4,111,817 $1,686,139
David A. Buzen.......... 6,000 $ 160,500 87,075 53,725 $ 3,578,427 $1,578,186
Laurence C.D. Donnelly.. -- -- 95,075 55,725 $ 3,909,927 $1,654,311
Joseph W. Swain, II..... 12,500 $ 384,063 58,050 48,750 $ 2,359,159 $1,413,766
</TABLE>
- --------
(1) Based on the closing price as reported on the New York Stock Exchange-
Composite Transactions of the Corporation's Common Stock on that date
($62.625).
9
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on its policies with respect to the compensation of executive
officers. The report is not deemed to be "soliciting material" or to be
"filed" with the Securities and Exchange Commission (the "SEC") or subject to
the SEC's proxy rules or to the liabilities of Section 18 of the Securities
Exchange Act of 1934 (the "1934 Act"), and the report shall not be deemed to
be incorporated by reference into any prior or subsequent filing by the
Corporation under the Securities Act of 1933 or the 1934 Act.
Decisions on compensation of the Corporation's executive officers generally
are made by the Compensation Committee of the Board of Directors. No member of
the Compensation Committee is an employee of the Corporation. During 1997, the
Committee consisted of Steven Newman (Chairman), Harrison W. Conrad, Jr.,
Steven D. Kesler and Edwin L. Russell. In addition, Barbara D. Stewart served
on the Committee during 1997; however, she resigned from the Committee in
September 1997 in order to serve on the Audit Committee of the Board of
Directors. All decisions by the Compensation Committee relating to the
compensation of the Corporation's executive officers are reviewed by its full
Board, except for decisions concerning grants under the Corporation's 1992
Stock Option Plan and 1997 Employee Stock Option Plan.
Compensation Policies Toward Executive Officers.
The Compensation Committee's executive compensation policies are intended to
provide competitive levels of compensation that reflect the Corporation's
annual and long-term performance goals, reward superior corporate performance,
recognize individual initiative and achievements, and assist the Corporation
in attracting and retaining qualified executives. Compensation levels are
based on a number of factors, including a comparison of compensation levels
with other financial services firms and the four publicly traded financial
guaranty insurance companies, adjusted somewhat to reflect relative size and
maturity. These four companies are AMBAC Indemnity Corp., Enhance Financial
Services, Inc., Financial Security Assurance, Inc. and MBIA, Inc. This group
is more limited than the SNL Customer Peer Index peer group utilized in the
performance graph on page 13, which includes a broad group of banking,
insurance and other financial institutions. The Compensation Committee expects
that compensation for the Named Officers will generally fall within the median
to high end of the range for the financial guaranty insurance company
comparison group. In 1997, this expectation was met. Compensation for each of
the Named Officers, as well as other senior executives, consists of three
basic elements: base salary, annual incentives and longer-term incentive
compensation. The base salaries are fixed at levels which the Compensation
Committee believes are comparable to those of executives of similar status in
the financial guaranty insurance group. In addition to base salary, each
executive officer is eligible to receive an annual bonus tied to the
Corporation's success in achieving certain annual performance measures, as
well as individual performance. The Board of Directors and the Compensation
Committee also believe that longer-term incentives are appropriate to motivate
and retain key personnel and that stock ownership by management is beneficial
in aligning management's and stockholders' interests in the enhancement of
stockholder value. Accordingly, the Compensation Committee has a policy of
considering annual grants of stock options to executive officers under the
1992 Stock Option Plan and the 1997 Employee Stock Option Plan (which replaced
the 1992 Stock Option Plan).
The following describes in more specific terms the three elements of
compensation that implement the Committee's compensation policies, with
specific reference to compensation reported for 1997:
BASE SALARY. Each year the Chief Executive Officer recommends to the
Committee a base salary level for each of the Named Officers and Senior Vice
Presidents. In formulating such recommendations, the Chief Executive Officer
considers comparison surveys done by the Corporation and outside advisers
regarding the financial guaranty companies mentioned above, other more general
national survey data and performance judgments as to the past and expected
future contributions of the individual senior executives. The Committee then
reviews the recommendations and fixes the base salaries of each of the
executive officers and of the Chief Executive Officer based on such available
competitive compensation data and the Committee's assessment of each officer's
past performance and its expectation as to future contributions.
10
<PAGE>
ANNUAL BONUS PLAN. An Annual Incentive Plan for Covered Executives (the
Chief Executive Officer and the four other most highly compensated officers)
was approved by stockholders at the 1997 Annual Meeting of Stockholders.
Awards under the Incentive Plan are intended to qualify as "performance-based
compensation" under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), which allows the Corporation to take a deduction for
income tax purposes for all amounts paid by the Corporation under the
Incentive Plan.
Qualified performance-based compensation must be paid solely on account of
the attainment of one or more objective performance goals established in
writing by the Compensation Committee while the outcome is substantially
uncertain. Performance goals can be based on one or more business criteria
that apply to an individual, a business unit or the corporation as a whole,
but need not be based on an increase or positive result under the business
criterion selected. The Compensation Committee is prohibited from increasing
the amount of compensation payable if the performance goal is met; however,
the Committee is permitted to reduce or eliminate compensation even if the
performance goal is attained. In its discretion, the Committee may award a
bonus amount outside the Incentive Plan.
Corporate performance is measured by reference to factors which reflect
objective performance criteria over which management generally has the ability
to exert some degree of control. These corporate performance factors are (i)
quality of assumed business, (ii) earnings per share, (iii) investment
portfolio performance, (iv) net income, (v) operating ratios, (vi) return on
average equity and (vii) written premium. Performance goals may include
positive results, maintaining the status quo or limiting economic losses. The
maximum annual bonus that can be granted under the Plan to any executive
officer of the Corporation cannot exceed one hundred seventy-five percent
(175%) of the individual's base salary at the commencement of the performance
period.
For 1997, the specific performance annual corporate performance measures
which the Committee believed reflected these factors and which highlighted the
specific performance of departments within the Corporation were (i) combined
ratio, (ii) gross written premium, (iii) investment portfolio, (iv) earnings
per share and (v) return on average equity. In 1997 each of these measures was
assigned a target result. At the end of the year, actual results were compared
to the target, the positive or negative deviation was compared for each
measure and, based on the pre-established weighting of each measure, an
overall Corporate Performance Rating was derived. For 1997, the Committee
determined that the Corporation had exceeded the target amount on an overall
basis for the five performance measures and therefore assigned a Corporate
Performance Rating for 1997 that was above the target rating. Bonuses for
1995, 1996 and 1997 for each of the Named Officers, computed using the
Corporate Performance Rating, appear under the caption "Bonus" in the Summary
Compensation Table on page 8.
LONG TERM COMPENSATION THROUGH STOCK OPTIONS. The Corporation has adopted
its 1992 Stock Option Plan (the "1992 Plan") and its 1997 Employee Stock
Option Plan (the "1997 Plan") to provide for discretionary grants of stock
options to employees as a means of achieving the goal of creating long-term
compensation incentives. Option grants are considered annually and are made at
fair market value on the date of grant. All options granted under the 1992
Plan and the 1997 Plan vest cumulatively to the extent of one-fourth of the
amount granted on each of the first four anniversary dates of the date of
effectiveness of such grants. Individual option grants were made by the
Committee in 1997 based upon recommendations of the Chief Executive Officer
and the Committee's own deliberations as to the individual's contribution to
the Corporation, overall level of compensation and seniority. In 1997, the
Committee determined the total number of options to be awarded largely based
upon the Committee's assessment of the median level of options awarded on a
normalized basis by the financial guaranty companies surveyed. In addition, a
proxy study of comparable companies as well as the financial guaranty
companies was completed by outside consultants for use in determining stock
option grants.
PERFORMANCE SHARE PLAN. In 1996 the Committee and the Board approved a
Performance Share Plan which was approved by the stockholders at the 1997
Annual Meeting of Stockholders. This plan is intended as a
11
<PAGE>
further long-term compensation arrangement under which awards are made during
periodic eligibility periods based upon achievement of specific performance
goals. These awards will be ultimately paid in a combination of stock and cash
if the performance goals are achieved.
Mr. Satz's 1997 Compensation
Mr. Satz generally participates in the same executive compensation plans and
arrangements available to the other senior executives. Accordingly, his
compensation also consists of annual base salary, annual bonus and long-term
equity-linked compensation. The Compensation Committee's general approach in
setting Mr. Satz's compensation is to be competitive with the financial
guaranty company comparison group, but to have a large percentage of his
target compensation based upon objective long-term performance criteria.
In accordance with the Annual Incentive Plan for Covered Executives, Mr.
Satz's bonus award was mathematically determined using the Corporate
Performance Rating. As discussed above, the Corporation exceeded its target
corporate performance in 1997 and an above-target Corporate Performance Rating
was assigned. Mr. Satz's stock option award in 1997 reflects the Committee's
emphasis on long-term compensation as a large component of total compensation.
Deductibility of Compensation
Under Section 162(m) of the Internal Revenue Code, a publicly traded company
is prohibited from receiving a tax deduction for compensation in excess of $1
million paid to the chief executive officer or any of its four other most
highly compensated executive officers for any fiscal year. The prohibition
does not apply to certain performance-based compensation. The Company's 1992
Plan and 1997 Plan have been structured in such a way that the Committee
expects option grants under the plans to be treated as performance-based
compensation which may be excluded from the deductibility limit. The Annual
Incentive Plan for Covered Executives and the Performance Share Plan approved
by the stockholders at the 1997 Annual Meeting of Stockholders also qualify as
performance-based compensation plans under the Internal Revenue Code. The
Corporation's executive officer compensation for 1997, which is subject to the
deductibility limit, did not exceed $1 million with respect to any one
executive.
Submitted by the Members of the Compensation Committee:
Steven H. Newman, Chairman
Harrison W. Conrad, Jr.
Steven D. Kesler
Edwin L. Russell
12
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The following graph shows a comparison of cumulative total returns for an
investment in the Common Stock of the Corporation, the S&P 500 Composite Index
and the SNL Customer Peer Index from December 31, 1992 through December 31,
1997. This graph is not deemed to be "soliciting material" or to be "filed"
with the SEC or subject to the SEC's proxy rules or to the liabilities of
Section 18 of the 1934 Act, and the graph shall not be deemed to be
incorporated by reference into any prior or subsequent filing by the
Corporation under the Securities Act of 1933 or the 1934 Act.
- --------------------------------------------------------------------------------
Capital Re Corporation
- --------------------------------------------------------------------------------
Total Return Performance
[LINE GRAPH APPEARS HERE]
Capital Re Corporation S&P 500 SNL Custom Peer Index
---------------------- ------- ---------------------
12/31/92 100.00 100.00 100.00
12/31/93 122.15 110.08 101.66
12/31/94 131.04 111.53 95.65
12/31/95 148.34 153.44 141.04
12/31/96 226.41 188.52 179.52
12/31/97 303.03 251.44 262.91
- --------------------------------------------------------------------------------
Assumes $100 invested in KRE, S&P 500 and SNL Custom Peer Group Indices at the
close of business on 12/31/92 with all dividends reinvested at month end.
- --------------------------------------------------------------------------------
SNL Custom Peer Index includes the following companies: ACE Limited, Alleghany
Corporation, Ambac Financial Group, Inc., Amerin Corporation, CapMAC Holdings
Inc., CMAC Investment Corporation, Enhance Financial Services Group Inc.,
Everest Reinsurance Holdings, Inc., EXEL Limited, Fidelity National Financial,
Inc., Financial Security Assurance Holdings Ltd., First American Financial
Corporation, Frontier Insurance Group, Inc., HSB Group, Inc., LandAmerica
Financial Group, Inc., Markel Corporation, MBIA Inc, MGIC Investment
Corporation, Mid Ocean Limited, NAC Re Corp., Old Republic International
Corporation, PMI Group, Inc., Stewart Information Services Corporation, Terra
Nova (Bermuda) Holdings, Ltd., Transatlantic Holdings, Inc., Trenwick Group
Inc., Triad Guaranty Inc., and W.R. Berkley Corporation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Harrison W.
Conrad, Jr., Steven D. Kesler, Steven H. Newman and Edwin L. Russell. Mr.
Kesler is an officer of Constellation, and serves on the Board of Directors as
Constellation's designee pursuant to the 1992 Stockholders' Agreement. Mr.
Russell serves on the Board of Directors as Minnesota Power's designee pursuant
to the 1992 Stockholders' Agreement.
13
<PAGE>
VOTING PROCEDURES
Shares can be voted only if the stockholder is present in person or by
proxy. Whether or not you plan to attend in person, you are encouraged to sign
and return the enclosed proxy card. The representation in person or by proxy
of at least a majority of the outstanding shares entitled to vote is necessary
to provide a quorum at the meeting. Directors are elected by a plurality of
the affirmative votes cast.
Abstentions and "non-votes" are counted as present in determining whether
the quorum requirement is satisfied. Abstentions and "non-votes" are treated
as votes against proposals presented to stockholders other than elections of
directors. A "non-vote" occurs when a nominee holding shares for a beneficial
owner votes on one proposal, but does not vote on another proposal because the
nominee does not have discretionary voting power and has not received
instructions from the beneficial owner.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Ernst & Young LLP has acted as the Corporation's
independent public accountants for the year ended December 31, 1997.
Representatives of Ernst & Young LLP are expected to be present at the
stockholders meeting and will have an opportunity to make a statement if they
desire and to respond to appropriate questions.
STOCKHOLDER PROPOSALS
All stockholder proposals intended to be presented at the 1999 Annual
Meeting of the Corporation must be received by the Corporation not later than
December 21, 1998 and must otherwise comply with the rules of the Securities
and Exchange Commission for inclusion in the Corporation's proxy statement and
form of proxy relating to that meeting.
OTHER MATTERS
Management knows of no matters to be presented for action at the meeting
other than those mentioned above. However, if any other matters properly come
before the meeting, it is intended that the persons named in the accompanying
form of proxy will vote on such other matters in accordance with their
judgment of the best interests of the Corporation.
By Order of the Board of Directors
/s/ Alan S. Roseman
Alan S. Roseman
Secretary
14
<PAGE>
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE CAPITAL RE CORPORATION
Proxy Solicited on behalf of the Board of Directors
ANNUAL MEETING OF STOCKHOLDERS - MAY 20, 1998
The undersigned holder of the Common Stock of Capital Re Corporation (the
"Company") acknowledges receipt of the Proxy Statement and Notice of Annual
Meeting of Stockholders, dated April 20, 1998 and hereby constitutes and
appoints Michael E. Satz, Jerome F. Jurschak and Alan S. Roseman, or any of them
acting singly in the absence of the others, the true and lawful proxy or proxies
for and in the name of the undersigned to vote the shares of Common Stock that
the undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held on Wednesday, May 20, 1998, and at any adjournments there of.
With- For All
(a) Election of Directors For hold Except
(except as marked to the contrary [_] [_] [_]
below):
Michael E. Satz, Harrison W. Conrad, Jr., Richard L. Huber, Steven D.
Kesler, Philip H. Robinson, Edwin L. Russell, Dan R. Skowronski, Barbara D.
Stewart, Jeffrey F. Stuermer.
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
(b) In their discretion on such matters as may properly come before the meeting
or any adjournments thereof.
Shares represented by all properly executed proxies will be voted in
accordance with the instructions appearing on this proxy. In the absence of
specific instructions, proxies will be voted FOR the election of Directors named
above and in the best discretion of the proxy holders as to any other matters.
Execute proxy exactly as your name appears on this form. If stock is
registered in more than one name, each joint owner should sign. When signing as
trustee, executor or other fiduciary, please so indicate.
--------------------------------
Please be sure to sign and date Date
this Proxy in the box below.
- -------------------------------------------------------------------------------
- ---- Stockholder sign above --------- Co-holder (if any) sign above -----------
+ +
- --------------------------------------------------------------------------------
/\ Detach above card, sign, date and mail in postage paid envelope provided. /\
CAPITAL RE CORPORATION
- --------------------------------------------------------------------------------
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- --------------------------------------------------------------------------------
