<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 Section 240.14a-11(c) or Section
240.14a-12
ENHANCE FINANCIAL SERVICES GROUP, 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:
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(2) Aggregate number of securities to which transaction applies:
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(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:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
ENHANCE FINANCIAL SERVICES GROUP INC.
335 Madison Avenue
New York, New York 10017
April 28, 2000
Dear Shareholder:
You are cordially invited to attend the 2000 annual meeting of
shareholders of Enhance Financial Services Group Inc. The meeting will be held
at The Sky Club, 200 Park Avenue, 56th Floor, New York, New York, at 9:00 a.m.,
local time, on Thursday, June 1, 2000. The accompanying notice and proxy
statement describe the proposals to be submitted to shareholders at the meeting.
We urge you to read this information carefully.
I look forward to welcoming you personally at the annual meeting.
However, whether or not you expect to attend, please complete, sign, date and
return the accompanying proxy card in the enclosed envelope in order to ensure
that your shares will be represented at the meeting. This will not limit your
rights to attend or to change your vote at the meeting.
We appreciate your cooperation and interest in Enhance Group.
Sincerely,
/s/ Daniel Gross
Daniel Gross
President and
Chief Executive Officer
<PAGE>
[LOGO]
ENHANCE FINANCIAL SERVICES GROUP INC.
335 Madison Avenue
New York, New York 10017
--------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
--------------------------------------------------
The annual meeting of shareholders of Enhance Financial Services Group
Inc. will be held at The Sky Club, 200 Park Avenue, 56th Floor, New York, New
York, on Thursday, June 1, 2000, at 9:00 a.m., local time, for the following
purposes:
(1) To elect 11 directors;
(2) To ratify the appointment of Deloitte & Touche LLP as the
independent auditor of Enhance Group and its consolidated
subsidiaries for 2000; and
(3) To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The close of business on April 21, 2000 has been fixed as the record
date for determining shareholders entitled to notice of and to vote at the
meeting.
By Order of the Board of Directors,
Samuel Bergman
Secretary
April 28, 2000
IMPORTANT: Whether or not you plan to attend the meeting, a return envelope
requiring no postage if mailed in the United States is enclosed for
your convenience in mailing the enclosed proxy.
<PAGE>
ENHANCE FINANCIAL SERVICES GROUP INC.
335 Madison Avenue
New York, New York 10017
------------------------------------------------
PROXY STATEMENT
------------------------------------------------
This proxy statement is furnished to the holders of common stock, par
value $.10 per share (the "Common Stock"), of Enhance Financial Services Group
Inc., a New York corporation ("Enhance Group" and, together with its
consolidated subsidiaries, the "Company"), in connection with the solicitation
of proxies by the board of directors for use at the annual meeting of
shareholders of Enhance Group to be held on June 1, 2000 and any adjournment or
adjournments thereof. A copy of the notice of meeting accompanies this proxy
statement. It is anticipated that the mailing of this proxy statement will
commence on or about May 1, 2000.
Only shareholders of record at the close of business on April 21, 2000,
the record date for the meeting, will be entitled to notice of and to vote at
the meeting. On the record date, Enhance Group had issued and outstanding
38,169,007 shares of Common Stock, which are the only securities of Enhance
Group entitled to vote at the meeting, each share being entitled to one vote.
Under the New York Business Corporation Law (the "BCL") and Enhance
Group's by-laws, the presence, in person or by proxy, of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum of the
shareholders to take action at the annual meeting. For this purpose, shares
which are present, or represented by a proxy, at the annual meeting will be
counted for quorum purposes regardless of whether the holder of the shares or
proxy fails to vote on any particular matter or whether a broker with
discretionary authority fails to exercise its discretionary voting authority
with respect to any particular matter. Once a quorum of the shareholders is
established, under the BCL and Enhance Group's by-laws, the directors standing
for election must be elected by a plurality of the votes cast and any other
action to be taken, including the ratification of the appointment of the auditor
for 2000, must be approved by a majority of the votes cast. For voting purposes,
abstentions and broker non-votes will not be counted in determining whether the
directors standing for election have been elected or whether any other action
has been approved.
Shareholders who execute proxies may revoke them by giving written
notice to the secretary of the meeting at any time before such proxies are
voted. Attendance at the meeting will not have the effect of revoking a proxy
unless the shareholder so attending so notifies the secretary of the meeting in
writing at any time prior to the voting of the proxy.
The board of directors does not know of any matter other than the
election of directors and the ratification of the appointment of the auditor for
2000 that is expected to be presented for consideration at the meeting. However,
if other matters properly come before the meeting, the persons named in the
accompanying proxy intend to vote thereon in accordance with their judgment. All
proxies received pursuant to this solicitation will be voted except as to
matters where authority to vote is specifically withheld, and, where a choice is
specified as to the proposal, they will be voted in accordance with such
specification. If no instructions are given, the persons named in the proxy
solicited by the board of directors of Enhance Group intend to vote for the
nominees for election as directors of Enhance Group listed herein beneath the
caption "Election of Directors" and for the ratification of the appointment
of Deloitte & Touche LLP as auditor for 2000.
<PAGE>
The Company will bear the cost of the meeting and of soliciting
proxies, including the cost of mailing the proxy material. In addition to
soliciting by mail, directors, officers and regular employees of the Company
(who will not be specifically compensated for such services) may solicit proxies
by telephone or otherwise.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of April 15, 2000 by (a) each
shareholder known to Enhance Group to be the beneficial owner, within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of more than 5% of the outstanding shares of Common Stock; (b)
each director and nominee for director of Enhance Group; (c) each of the Chief
Executive Officer and the four other most highly compensated executive officers
of Enhance Group; and (d) all executive officers and directors of Enhance Group
as a group. Unless otherwise indicated, the address of each such person is c/o
Enhance Financial Services Group Inc., 335 Madison Avenue, New York, New York
10017.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES (1) PERCENT OF CLASS
- ---------------- -------------------- ----------------
<S> <C> <C>
Swiss Reinsurance Company 3,400,000 (2) 8.9
Mythenquai 50/60
8022 Zurich, Switzerland
Morgan Stanley Dean Witter & Co. 2,597,080 (3) 6.8
1585 Broadway
New York, New York 10036
Legg Mason, Inc. 2,213,235 (4) 5.8
100 Light Street
Baltimore, Maryland 21202
Lazard Freres & Co. LLC 1,927,930 (5) 5.1
30 Rockefeller Plaza
New York, New York 10020
Allan R. Tessler................................. 506,500 (6)(7) 1.3
Wallace O. Sellers............................... 843,800 (6)(7) 2.2
Daniel Gross..................................... 1,352,500 (6) 3.5
Samuel Bergman................................... 211,700 (6) *
Richard J. Dunn.................................. 48,093 (6) *
Tony M. Ettinger................................. 111,200 (6) *
Brian C. Kleinberg............................... 5,000 (6) *
Brenton W. Harries............................... 36,500 (7) *
David R. Markin.................................. 245,477 (7)(8) *
Jay A. Novik..................................... 28,000 *
Robert P. Saltzman............................... 164,500 (7)(9) *
Richard J. Shima................................. 37,166 (7) *
Spencer R. Stuart................................ 37,606 (7)(10) *
Frieda K. Wallison............................... 40,772 (7) *
Jerry Wind....................................... 26,386 (7) *
All executive officers and directors as a group 4,018,451 (11) 10.0
</TABLE>
- ----------------
* Less than 1%
2
<PAGE>
(1) The table in this section is based upon information supplied by directors,
officers, and principal shareholders and Schedules 13D and 13G, if any,
filed with the Securities and Exchange Commission. Unless otherwise
indicated in the footnotes to the table and subject to the community
property laws where applicable, each of the shareholders named in this
table has sole voting and investment power with respect to the shares shown
as beneficially owned by him or her.
(2) See "Certain Relationships and Related Transactions" for information
regarding an agreement between Enhance Group and Swiss Reinsurance Company
("Swiss Re") regarding future sales and purchases by Swiss Re of voting
shares of Enhance Group.
(3) On February 9, 2000, Morgan Stanley Dean Witter & Co. ("MSDW&Co") and its
wholly-owned subsidiary, Morgan Stanley Dean Witter Investment Management
Limited ("DWIM"), 25 Cabot Square, Canary Wharf, London E14 4QA, England,
jointly filed an amendment to their joint Schedule 13G describing their
respective ownership of shares of Common Stock at December 31, 1999 as
follows: MSDW&Co has shared voting power over 2,097,780 shares of Common
Stock and shared dispositive power over 2,597,080 shares of Common Stock,
and DWIM has shared voting power over 1,784,322 shares of Common Stock and
shared dispositive power over 2,245,722 shares of Common Stock. Accounts
managed on a discretionary basis by DWIM are known to have the right to
receive or the power to direct the receipt of proceeds for the dividends
from the sale of such shares of Common Stock. No such account holds more
than 5% of outstanding shares of the Common Stock.
(4) On February 16, 1999, Legg Mason, Inc. filed a Schedule 13G describing its
ownership of shares of Common Stock at December 31, 1998 as follows: Legg
Mason, Inc. has sole voting and dispositive power over 2,126,500 shares of
Common Stock and shared voting and dispositive power over 86,735 shares of
Common Stock. Such shares of Common Stock are held by various identified
subsidiaries of Legg Mason, Inc. and by various of their clients, all of
which have the power to dispose of the shares held by them.
(5) On February 3, 2000, Lazard Freres & Co. LLC ("LF&Co.") filed a Schedule
13G describing its ownership of shares of Common Stock at December 31, 1999
as follows: LF&Co. has sole voting power over 1,589,605 and sole
dispositive power over 1,927,930 shares of Common Stock. Clients of LF&Co.
have the right to receive dividends and proceeds of sale of the Common
Stock. To the knowledge of LF&Co., no such person has an interest relating
to more than 5% of the Common Stock.
(6) Includes the shares set forth in (a) Column A below issuable to the named
director or officer upon the exercise of currently exercisable stock
options granted under Enhance Group's employee stock option programs and
(b) Column B below owned by the named officer's spouse and children or in
trusts of which such officer is a trustee (as to which shares such officer
disclaims beneficial ownership).
3
<PAGE>
<TABLE>
<CAPTION>
NAME A B
---- - -
<S> <C> <C>
Allan R. Tessler 44,000 4,000
Wallace O. Sellers 308,300 517,000
Daniel Gross 932,500 204,000
Samuel Bergman 202,500 9,200
Richard J. Dunn 48,000 -0-
Tony M. Ettinger 111,000 -0-
Brian C. Kleinberg 5,000 -0-
</TABLE>
(7) Includes shares issuable upon the exercise of the currently exercisable
portion of options granted to such director under the Non-Employee-Director
Stock Option Plan (as amended, the "Directors' Option Plan"), as follows:
Allan R. Tessler -- 18,500 shares; Wallace O. Sellers -- 14,500 shares;
Brenton W. Harries -- 34,500 shares; David R. Markin -- 34,500 shares;
Robert P. Saltzman -- 14,500 shares; Richard J. Shima -- 26,500 shares;
Spencer R. Stuart -- 34,500 shares; Frieda K. Wallison -- 34,500 shares;
and Jerry Wind -- 14,500 shares.
(8) Includes 200,000 shares held in a limited partnership in which Mr. Markin
and his wife are the limited partners and a trust controlled by Mr. Markin
is the general partner.
(9) Includes 150,000 shares held in a living trust account of which Mr.
Saltzman and his wife are co-trustees.
(10) Mr. Stuart's wife holds a durable power of attorney granting her joint
voting and dispositive power over the shares owned by Mr. Stuart.
(11) Includes 226,500 shares issuable to the directors of Enhance Group who
are not employees of the Company upon the exercise of the currently
exercisable portion of stock options granted to them under the
Directors' Option Plan; 1,858,800 shares issuable to the executive
officers upon the exercise of currently exercisable options granted to
them under the 1987 Long Term Incentive Plan for Key Employees, as
amended, and the 1997 Long Term Incentive Plan for Key Employees, as
amended (the "1997 Incentive Plan"); and 734,200 shares owned by spouses
of executive officers in trusts of which such officers are trustees or
by executive officers or their spouses as custodians for their children.
Such persons disclaim beneficial ownership of such shares owned by their
spouses, individually or as custodians, or by such trusts.
4
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
INFORMATION REGARDING NOMINEES
At the meeting, 11 directors are to be elected, each to hold office
(subject to Enhance Group's by-laws) until the next annual meeting of
shareholders and until his or her successor has been elected and qualified. If
any nominee listed in the table below should become unavailable for any reason
to serve as a director, which management does not anticipate, the proxy will be
voted for any substitute nominee or nominees who may be selected by management
prior to or at the meeting, or, if no substitute is selected by management prior
to or at the meeting, for a motion to adjourn the meeting until a substitute
nominee or nominees shall be selected. The information concerning the nominees
has been furnished by them to Enhance Group and is current as of April 15, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH ENHANCE GROUP
- ---- --- ---------------------------
<S> <C> <C>
Allan R. Tessler 63 Chairman of the Board
Wallace O. Sellers 70 Vice Chairman of the Board
Daniel Gross 57 President, Chief Executive Officer and director
Brenton W. Harries 72 Director
David R. Markin 69 Director
Jay A. Novik 55 Director
Robert P. Saltzman 57 Director
Richard J. Shima 60 Director
Spencer R. Stuart 77 Director
Frieda K. Wallison 57 Director
Jerry Wind 62 Director
</TABLE>
Mr. Tessler has held the position with Enhance Group set forth above
from its inception. Since 1987, he has served as Chairman of the Board and
Chief Executive Officer of International Financial Group, Inc., a merchant
banking concern. From 1992 to December 1999, he served as Co-Chairman of the
Board and Co-Chief Executive Officer of Data Broadcasting Corporation ("DBC"), a
provider of market data services to the investment community, thereafter to
February 2000 as Co-Chairman of the Board of DBC and since then as director of
DBC. Since March 2000, Mr. Tessler has served as Chief Executive Officer of
Jackpot Enterprises, Inc. ("Jackpot"), a manufacturer of gaming devices and
Internet investment holding company which seeks to incubate innovative,
Internet-related business-to-business and e-service enterprises and to support
the migration of traditional businesses to the Internet. Mr. Tessler is also
Chairman of the Board of Jackpot and Checker Holdings Inc. and a director of The
Limited, Inc., Allis-Chalmers Corporation and Marketwatch.com.
Mr. Sellers has held the position with Enhance Group set forth above
since 1995, and he also serves as a consultant to the Company. Prior thereto, he
served as President, Chief Executive Officer and a director of Enhance Group and
Chairman of the Board and Chief Executive Officer of the Insurance Subsidiaries
from their inception. Mr. Sellers also serves as a director of Danielson Holding
Corporation.
Mr. Gross has held the positions with Enhance Group set forth above and
has served as Chief Executive Officer of the Insurance Subsidiaries since 1995.
Prior thereto, he held senior executive positions with Enhance Group and Enhance
Re from their inception and was among the founders of the
5
<PAGE>
Company in 1986. Previously, he held various insurance industry positions,
including serving as co-founder and Chairman of F.G. Holding Company, Kramer
Capital Consultants and various senior executive capacities for Colonial Penn
Group. Mr. Gross also serves as a director of MGIC Investment Corporation.
Mr. Harries has served as a director of Enhance Group since 1991,
having previously served as a director of the Insurance Subsidiaries since 1986.
He has been retired since 1986, having previously served from 1985 as President
of Global Electronic Markets Company, a joint venture of McGraw-Hill and
Citicorp dealing in electronic trading of commodities. Mr. Harries also serves
as a trustee of the Alliance Funds, Inc.
Mr. Markin has served as a director of Enhance Group since 1986. He
has served as President of Checker Motors Corporation for more than five
years. From 1989 to 1996, he also served as President and Chief Executive
Officer of International Controls Corp. and its successor corporation, Great
Dane Holdings, Inc. Mr. Markin also serves as a director of Jackpot and DBC.
Mr. Novik has served as a director of Enhance Group since June 1999. He
is currently a private investor and serves as a director and vice chairman of
several U.S. subsidiaries of Swiss Reinsurance Company. From 1977 to January
1999, Mr. Novik served in various senior management capacities with Swiss Re.
Mr. Saltzman has served as a director of Enhance Group since 1996. He
has been President and Chief Executive Officer of Jackson National Life
Insurance Company since 1994.
Mr. Shima has served as a director of Enhance Group since 1993. He has
been an independent consultant since 1993, having previously thereto from 1992
served as Managing Director of Russell Miller, Inc., an investment banking
concern specializing in the insurance industry. Mr. Shima also serves as a
director of CTG Resources, Inc. and a trustee of the Evergreen Mutual Funds.
Mr. Stuart has served as a director of Enhance Group since 1992, having
also served as a director of Asset Guaranty from its inception until 1995. He
has for over ten years served as an independent consultant regarding
organizational and personnel matters. He served from 1990 to 1992 as Chairman of
the Council of Management Advisors of Dean Witter Reynolds Inc. He is the
founder and honorary chairman of Spencer Stuart Executive Recruiting
Consultants.
Ms. Wallison has served as a director of Enhance Group since 1992,
having also served as a director of each of the Insurance Subsidiaries since its
inception until 1995. She currently is a private investor, having retired from
the law firm of Jones, Day, Reavis & Pogue in 1998, where since 1983 she had
been a member, resident in its Washington, DC office.
Mr. Wind has served as a director of Enhance Group since 1996. He has
been on the faculty of the Wharton School of the University of Pennsylvania
since 1967, currently serving as The Lauder Professor and Professor of
Marketing. He also serves as a business consultant to several publicly and
privately held U.S. and non-U.S. corporations and has served on the editorial
boards of and as a contributor to numerous journals on marketing.
6
<PAGE>
MEETINGS OF THE BOARD AND COMMITTEES
The board of directors of Enhance Group holds regular quarterly
meetings and special meetings as and when necessary. The board held seven
meetings during 1999.
The Executive Committee of Enhance Group's board of directors is
authorized to exercise all powers of the board of directors except as otherwise
provided by New York law. The members of the Executive Committee are Messrs.
Gross, Harries, Sellers, Stuart and Tessler. The committee held one meeting
during 1999.
The functions of the Audit Committee are: to assist the board of
directors in fulfilling its fiduciary responsibilities as to the system of
internal controls, accounting policies and reporting practices of the Company
and the sufficiency of auditing relative thereto; to make recommendations to the
board of directors regarding the independent auditor to be nominated for
approval by the board of directors and ratification by the shareholders; to
review the independence of such auditor and monitor the professional services it
provides; to approve the scope of the annual audit activities of the independent
auditors; and to review audit results. The committee consists of Messrs. Salzman
(Chairman), Harries and Shima. The committee held four meetings during 1999.
The functions and composition of the Compensation and Nominating
Committee are set forth below under "Executive Compensation - Report of
Compensation and Nominating Committee." The committee held four meetings during
1999.
The board of directors has four additional standing advisory
committees, and it may from time to time form additional committees to render
advice with respect to certain of its operations.
Each director who is standing for re-election to the board of
directors, all of whom served during 1999, attended at least 75% of the
meetings held during the year (or that portion of the year during which the
director served on the board of directors) by the board of directors and by
all committees of the board of directors on which such director served.
7
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION AND NOMINATING COMMITTEE
GENERAL. The Compensation and Nominating Committee of the board of
directors of Enhance Group consists and throughout 1999 consisted exclusively
of directors of the Company who are neither employees nor, with the exception
of Allan R. Tessler, the Chairman of the Board of Enhance Group, officers of
the Company. The committee reviews and makes recommendations to the board of
directors with respect to the remuneration of the Company's senior officers
and the terms and conditions of all employee benefit plans or changes
thereto, all of which recommendations with respect to 1999 compensation were
accepted. The sole exception to the foregoing with respect to the scope of
authority of the Compensation and Nominating Committee relates to decisions
about awards of stock options under the 1997 Incentive Plan, which are made
solely by a subcommittee comprising the members of the Compensation and
Nominating Committee excluding Mr. Tessler.
Set forth below is a report submitted by the members of the
Compensation and Nominating Committee in their capacity as such addressing the
Company's compensation policies for 1999 as they affected Daniel Gross,
President and Chief Executive Officer of the Company during 1999, and the other
four executive officers of the Company who were for 1999 the Company's most
highly paid executive officers.
COMPENSATION PROGRAM PRINCIPLES. The Company's compensation philosophy
reflects the belief that to be meaningful, compensation must be closely aligned
with the overall performance and goals of the Company. To that end, the Company
establishes annual goals on a Company-wide business-performance level, a
unit/function level and an individual performance level. Improved return on
equity and earnings per share relative to a comparator group comprising other
financial guarantors were the principal financial measures for Company
performance. For executive officers, individual performance measures reflected
the results of their business or functional unit against key goals. The
Company's total-compensation program is based on a mix of fixed compensation
(base salary), compensation-at-risk (incentive bonus) and stock option awards.
The proportion of a given employee's at-risk to fixed compensation increases
with the increase in the employee's level of responsibility within the
Company, reflecting, in turn, the greater impact of that employee's
contribution on the Company's overall performance. As a result, at lower levels
the fixed portion of total compensation represents a far greater proportion of
total compensation than at the more senior levels.
Each employee in the organization has an identified target bonus that
correlates to a performance level which "meets expectations." Performance which
does not meet expectations merits an actual bonus award, if any, below the
target, while exceptional performance typically translates into a bonus award
which exceeds the target. The amount of the cash pool from which bonuses are
drawn is a function of both the Company's performance relative to its financial
goals and the business/staff unit's performance in relation to its annual goals.
The stock option grants are a function of the employee's organizational
level, the employee's individual performance against goals and the Company's
performance.
8
<PAGE>
In addition, the Company uses signing bonuses and stock options granted
on the date of hire as strategic tools to meet the intense competition for the
highly qualified and marketable executive officers it is recruiting.
COMPENSATION PROGRAM COMPONENTS. The particular components of executive
officer compensation are as follows:
FIXED SALARY. Salary levels are determined largely through comparisons
with other financial services firms, including financial guaranty insurers. Many
of those publicly held companies in the comparison group are included in the
larger group of financial services and insurance companies listed in the
Standard & Poor's Financial Index, which has been used for purposes of the stock
performance graph contained below in this proxy statement. However, certain of
the financial guaranty companies in the group used for compensation comparison
purposes are not publicly held and are therefore not included in the stock
performance index. The companies in the comparison group were chosen for the
high degree of comparability of their businesses and financial performance to
those of the Company, as well as for the ready availability of their
compensation structure.
Actual salaries are based on job evaluations, which reflect
responsibility level, experience and individual performance expectations. Thus
far, they have been reflective of competitive salary ranges and market
comparisons. Salary levels for executive officers are regarded by the Company as
competitive within a range that the Compensation and Nominating Committee deems
reasonable and necessary. The increases in executive officer salaries with few
exceptions have been relatively modest and within a narrow band, with greater
compensation differentiation being effected through the cash bonuses and stock
options grants.
COMPENSATION-AT-RISK (INCENTIVE BONUSES). The Compensation and
Nominating Committee established a bonus pool at the conclusion of the year
based on accounting and financial results and the achievement of strategic
goals. The bonus pool was then allocated, with allocations based on performance
results against goals, first for each of the business and staff units, and then
for all employees based on individual performance results against goals.
Additionally, the officers who participated in the successful formation and
launching in 1996 of one of the Company's key ventures, Credit-Based Asset
Servicing and Securitization LLC ("C-BASS") participated in a separate pool
based on the 1999 profits of that venture.
STOCK OPTIONS. The 1997 Incentive Plan was adopted for the purpose of
providing, through the grant of long-term incentives, a means to attract and
retain key personnel and to provide to participating key employees long-term
incentives for sustained high levels of performance. Stock options serve to
reinforce the alignment between individual and Company performance. As such,
they provide additional incentive for officers to work toward the Company's long
term goals and strategy as a means to build personal wealth. Stock options also
provide a significant impetus for equity ownership.
Substantially all grants under the 1997 Incentive Plan and its
predecessor plan have been in the form of stock options. As described above, the
awardees of stock options under these plans and the sizes of the grants are
determined by a subcommittee of the Compensation and Nominating Committee
comprising its members who are outside directors. In general, the amounts of
annual option awards reflect both organizational level and performance
achievements. In deciding whether to grant an awardee additional stock options,
the subcommittee does not generally consider whether the awardee had received a
stock option grant in the previous year. It often does consider the grants
previously made to the awardee in the aggregate.
9
<PAGE>
Reflecting the Company's objective of aligning the long range interests
of its employees with those of the Company and Enhance Group shareholders,
substantially all stock options granted to date under the plans vest, subject to
continuation of employment and other terms of the stock options grants, at the
rate of 25% per year during the consecutive four-year period beginning one year
after the date of grant. All such stock options expire approximately ten years
after grant, subject as to certain options to continuation of employment. The
exercise prices of all stock options granted under the plans since public
trading of the Common Stock commenced have been equal to the closing market
prices of the Common Stock on the dates of grant, or if later, the dates of
commencement of employment.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. In determining the
compensation of Daniel Gross, Chief Executive Officer of the Company, the
Compensation and Nominating Committee took into account best practices in
executive compensation based on compensation reviews by several independent
consulting firms, as well as prevailing compensation levels for chief executive
officers of comparable companies in the diversified financial services and
financial guaranty industry.
The committee also considered the Company's several successful
developments during the year, several of which were expected to increase
shareholder value over the longer term. These included the continued
outstanding performance of C-BASS; the joint acquisition (with Mortgage
Guarantee Insurance Corporation) of another credit-based enterprise, Sherman
Financial LLC, which exceeded its performance targets for its first year; a
significant increase in net premium written, the hiring of a new Chief Financial
Officer, capping a lengthy search; a significant upgrade of Insurance Businesses
Group staff, highlighted by the hiring of a new head of that unit and other
highly talented and qualified staff and the concurrent reorganization of that
unit; completion of an acquisition and reorganization of the Company's interest
in Latin America, creating the largest surety company in Brazil; and the
acquisition of partnership interests owning REMIC residuals projected to
generate significant future call options cash flow and ancillary tax benefits.
The committee further took note of certain disappointments, including declines
in pre-tax income, net premium written on financial guaranty reinsurance and
Enhance Group's Common Stock price; the downgrade by Moody's Investor Services,
Inc. of the financial strength rating of Enhance Re; continued losses in Singer
Asset Finance Company, L.L.C. ("Singer"); and the continued capital constraint
experienced by the Company.
Based on the foregoing review of mixed results yet continuing positive
assessment of Mr. Gross's leadership, the recommendation of the Compensation and
Nominating Committee to the board of directors resulted in the fixing of Mr.
Gross's salary for 2000 at $675,000 and the grant to him at year-end of a
`below-target" cash incentive bonus of $561,000. Mr.Gross also received a
"below-target" stock option award for 125,000 shares.
COMPENSATION AND NOMINATING COMMITTEE
Spencer R. Stuart - Chairman
David R. Markin
Robert P. Saltzman
Richard J. Shima
Allan R. Tessler
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers, based on salary and bonus earned during
1999. Except as described below under "Agreements with Executive Officers" and
"Severance Plans," the Company has not entered with any executive officer into
(i) an employment agreement or (ii) any compensatory plan or arrangement which
is activated upon the resignation, termination or retirement of the executive
officer or upon a change in control of the Company or a change in the executive
officer's responsibilities following a change in control.
<TABLE>
<CAPTION>
Long-Term
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
Securities Underlying
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS
- --------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Daniel Gross 1999 $660,000 $ 561,000 125,000
President and Chief 1998 530,000 1,060,000 200,000
Executive Officer 1997 500,000 1,150,000 350,000
Tony M. Ettinger 1999 450,000 600,000 95,000
President, Credit-Based 1998 288,850 360,000 70,000
Businesses, Alliances and Ventures 1997 273,863 260,000 40,000
Richard J. Dunn 1999 275,000 380,000 65,000
Executive Vice President 1998 227,370 227,370 33,000
1997 214,500 140,000 24,000
Samuel Bergman 1999 338,000 225,000 27,000
Executive Vice President 1998 331,250 210,000 30,000
and Secretary 1997 313,281 200,000 28,000
Brian C. Kleinberg (1) 1999 300,000 250,000 129,000 (2)
Executive Vice President and
President of Singer
</TABLE>
- ------------------
(1) Became an officer of the Company in January 1999.
(2) Includes stock options for an aggregate of 104,000 shares of Common Stock
granted to Mr. Kleinberg upon and shortly after commencement of his
employment. See "Agreements with Executive Officers."
OPTION/SAR GRANTS DURING 1999
The following table provides information regarding stock options/SARs
granted to the named executive officers during 1999:
11
<PAGE>
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to
Name and Options Employees in Exercise or Grant Date
PRINCIPAL POSITION GRANTED (1) FISCAL YEAR BASE PRICE EXPIRATION DATE PRESENT VALUE(2)
- ------------------ ----------- ------------- ----------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Daniel Gross 125,000 8.9 $16.44 12/31/09 $6.47 (3)
President and Chief
Executive Officer
Tony M. Ettinger 95,000 6.8 16.44 12/31/09 6.47 (3)
President, Credit-Based
Businesses, Alliances
and Ventures
Richard J. Dunn 65,000 4.6 16.44 12/31/09 6.47 (3)
Executive Vice
President
Samuel Bergman 27,000 1.9 16.44 12/31/09 6.47 (3)
Executive Vice
President and Secretary
Brian C. Kleinberg 79,000 5.6 29.38 12/31/08 12.11 (4)
Executive Vice 25,000 1.8 21.44 02/28/09 9.56 (5)
President and President 25,000 1.8 16.44 12/31/09 6.47 (3)
of Singer
</TABLE>
- --------------------
(1) Stock options granted pursuant to the 1997 Incentive Plan. These stock
options vest, subject to continuation of employment, in 25% increments
during the consecutive four-year period commencing on the last date of the
month of grant. The stock options are not transferable except by the laws
of descent and distribution and, accordingly, may be exercised during the
life of the optionee only by the optionee or the optionee's legal
representative and after the optionee's death only by the beneficiary
previously designated by the optionee.
(2) The present value is, as to each stock option grant, based upon the
Black-Scholes option valuation model applied as of the date the grant is
approved by the Compensation and Nominating Committee of Enhance Group's
board of directors. The valuation assumes no specific time of exercise
since this is viewed by the Company as entirely indeterminate, but it takes
into account the term of the option, ten years in each case. 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
there is no assurance the value realized will be at or near the value
estimated by the Black-Scholes model.
(3) The Black-Scholes option valuation assumes a volatility of 47.98% over a
12-month daily volatility period, a risk-free rate of return of 6.03%, a
dividend yield of 1.49% and a discount due to the risk of forfeiture of
21.7%.
12
<PAGE>
(4) The Black-Scholes option valuation assumes a volatility of 55.03% over a
12-month daily volatility period, a risk-free rate of return of 5.34%, a
dividend yield of 0.87% and a discount due to the risk of forfeiture of
21.7%.
(5) The Black-Scholes option valuation assumes a volatility of 49.28% over a
12-month daily volatility period, a risk-free rate of return of 5.29%, a
dividend yield of 1.01% and a discount due to the risk of forfeiture of
21.7%.
AGGREGATED OPTION/SAR EXERCISES DURING 1999
AND FISCAL YEAR-END OPTION VALUES
- -------------------------------------------
The following table provides information as to the named executive
officers regarding stock option exercises and the number and value of stock
options/SARs held by them at December 31, 1999.
<TABLE>
<CAPTION>
No. of Securities Underlying
Unexercised Stock Value of Unexercised In-the
Shares Options/SARs at Money Options/SARs at
Name and Acquired Value DECEMBER 31, 1999 DECEMBER 31, 1999 (1)
----------------- ---------------------
PRINCIPAL POSITION ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel Gross -0- -0- 932,500 487,500 $4,037,710 -0-
President and Chief
Executive Officer
Tony M. Ettinger -0- -0- 111,000 175,750 259,905 -0-
President, Credit-Based
Businesses, Alliances
and Ventures
Richard J Dunn -0- -0- 48,000 106,000 64,680 -0-
Executive Vice President
Samuel Bergman -0- -0- 202,500 70,500 1,019,400 -0-
Executive Vice President
and Secretary
Brian C. Kleinberg -0- -0- 19,750 109,250 -0- -0-
Executive Vice President
and President of Singer
</TABLE>
- -------------------------
(1) Calculated on the basis of (a) the excess of the closing price of the
Common Stock as reported by the New York Stock Exchange on December 31,
1999 over the stock option exercise price multiplied by (b) the number of
shares of Common Stock underlying the stock option.
13
<PAGE>
PENSION PLAN AND RESTORATION PLAN
The Company maintains a defined benefit pension plan named the "Enhance
Reinsurance Pension Plan" (the "Pension Plan") which is intended to be a
tax-qualified plan under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). All employees of the Company (other than Singer and
Van-American Companies, Inc.) who have attained age 21 and who have completed at
least one year of service are eligible to participate in the Pension Plan. The
Pension Plan provides a normal retirement benefit at normal retirement (the
earlier of the date on which a participant (a) has attained age 65 and completed
five years of participation or (b) has attained age 62 and completed 10 years of
participation) equal to 2.25% of the participant's compensation multiplied by
his or her years of service up to his or her first 15 years, plus 1.75% of the
participant's compensation multiplied by his or her years of service for his or
her next 10 years, plus 1% of the participant's compensation multiplied by his
or her years of service for his or her next five years. Compensation is defined
as the average of the participant's three highest consecutive years of earnings.
(See Note 2 to the table below regarding the maximum compensation considered
"earnings" for the foregoing purposes. No such maximum applies with respect to
the determination of compensation for purposes of the Summary Compensation Table
above.) A participant whose service terminates prior to normal retirement is
eligible for a benefit at the normal retirement date based on the participant's
compensation and years of service at the date of termination multiplied by the
vested percentage. The actuarial equivalent of such vested benefit may be
distributed in a lump sum prior to normal retirement age. The vested percentage
of a participant increases 20% per year beginning after two years of service,
such that his or her vested percentage is 100% after six years. For purposes of
determining a participant's retirement benefit and vested percentage, "years of
service" and "years of participation," while not synonymous, include service
with the Company and certain service with predecessor employers.
The following table illustrates annual pension benefits payable under
the Pension Plan assuming retirement at normal retirement age at various levels
of compensation and years of service. Such benefits are based on a straight life
annuity and are not subject to any deduction for Social Security or other offset
amounts.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
HIGHEST
AVERAGE
EARNINGS YEARS OF SERVICE
-------- ----------------------------------------------------------------------------
15 20 25 30 35*
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$100,000 $33,750 $42,500 $51,250 $56,250 $56,250
125,000 42,188 53,125 64,063 70,313 70,313
150,000 50,625 63,750 76,875 84,375 84,375
175,000(2) 59,063 74,375 89,688 98,438 98,438
200,000(2) 67,500 85,000 102,500 112,500 112,500
225,000(2) 75,938 95,625 115,313 126,563 126,563
250,000(2) 84,375 106,250 128,125 140,625(1) 140,625(1)
300,000(2) 101,250 127,500 153,750(1) 168,750(1) 168,750(1)
400,000(2) 135,000(1) 170,000(1) 205,000(1) 225,000(1) 225,000(1)
450,000(2) 151,875(1) 191,250(1) 230,625(1) 253,125(1) 253,125(1)
500,000(2) 168,750(1) 212,500(1) 256,250(1) 281,250(1) 281,250(1)
</TABLE>
- ------------------------
* Plan limits service to 30 years for benefit purposes.
14
<PAGE>
(1) These are hypothetical benefits based upon the Pension Plan's normal
retirement benefit formula. The maximum annual benefit permitted under
Section 415 of the Code in 1999 and 2000 is $130,000.
(2) The benefits shown corresponding to these compensation ranges are
hypothetical benefits based upon the Pension Plan's normal retirement
benefit formula. Under Section 401(a)(17) of the Code, a participant's
compensation in excess of a specified maximum (as such may change from time
to time in the future, the "Code Maximum") is disregarded for purposes of
determining highest average earnings. (Such specified maximum amount (as
adjusted to reflect cost of living increases) was $235,840 for the plan
year beginning November 1, 1993, decreasing to $150,000 for plan years
beginning November 1, 1994, November 1, 1995 and November 1, 1996,
increased to $160,000 for plan years beginning November 1, 1997, November
1, 1998 and November 1, 1999, and will increase to $170,000 for plan years
beginning November 1, 2000.)
In addition, Enhance Group adopted, effective July 1, 1999, a
non-qualified restoration pension plan (the "Restoration Plan"). All employees
of the Company eligible to participate in the Pension Plan and who receive total
annual compensation in excess of the Code Maximum and above are eligible to
participate in the Restoration Plan. The Restoration Plan provides a retirement
benefit supplemental to benefits provided by the Pension Plan equal to 1.75% of
the participant's compensation above the Code Maximum multiplied by his or her
years of service up to his or her first 25 years, plus 1.0% of the participant's
compensation above the Code Maximum multiplied by his or her years of service
for his or her next five years. Compensation is defined as the average of the
participant's three highest consecutive years of earnings. The vested percentage
of a participant will be the lower of (a) 20% per year of service beginning
after two years of service such that his or her vested percentage is 100% after
six years, and (b) such other rate per year as will cause a given participant to
be fully vested at age 60. For purposes of determining a participant's
retirement benefit and vested percentage, "years of service" and "years of
participation," while not synonymous, include service with the Company and
certain service with predecessor employers. Also, for purposes of the
Restoration Plan, in addition to each such executive officer's actual years of
service, upon becoming fully vested under the terms of the Pension Plan, Mr.
Ettinger will be credited with five additional years of service, and each other
participant in the Restoration Plan who is or subsequently becomes an executive
officer of Enhance Group at the level of Executive Vice President and above will
be credited with additional years of employment services under the Restoration
Plan equal to the excess of five over the actual years of employment service
credited to that officer under the Restoration Plan prior to its effective date.
As of December 31, 1999, Messrs. Gross, Ettinger, Dunn, Bergman and
Kleinberg had twelve, four, four, seven, and zero years of service and
participation, respectively, under both the Pension Plan and the Restoration
Plan.
AGREEMENTS WITH EXECUTIVE OFFICERS
- ----------------------------------
Enhance Group and Elaine J. Eisenman, Executive Vice President of
Enhance Group, are parties to an agreement which entitles Ms. Eisenman to the
following in the event of her discharge by Enhance Group or a material
diminution in her title, authority, management responsibilities or
compensation for any reason other than for "Cause," as therein defined
leading to her resignation as an employee of the Company: one year's
severance payment equal to her then salary plus that year's target bonus
(equal to 50% of her then salary); continued vesting during the one year's
severance payment period of outstanding stock options previously granted to
her under Enhance Group's employee compensation plans; and
15
<PAGE>
continuation at Enhance Group's expense during the one year's severance
payment period of employee medical and other benefits.
Enhance Group and Brian C. Kleinberg, Executive Vice President of
Enhance Group and President and Chief Executive Officer of Singer are parties
to an agreement which provides for the payment of an annual base salary of
$300,000 per year plus an annual target bonus of not less than 50% of his
then base salary (or such higher rate consistent with Enhance Group's senior
executive compensation programs); provided that his bonus for 1999 was
required to equal or exceed $250,000 (to have been prorated should his
employment have been terminated prior to the expiration of twelve months by
Enhance Group other than for cause or by Mr. Kleinberg for good reason).
Also, in connection with the Management Severance Protection Program
described below, for 1999 Mr. Kleinberg's prior year's annual bonus is to
equal the average of the bonuses awarded to Enhance Group's Executive Vice
Presidents for 1998. Under the agreement, Mr. Kleinberg was granted upon
commencement of employment an option to purchase 79,000 shares of Common
Stock. In addition, in March 1999, Enhance Group granted Mr. Kleinberg a
stock option under the 1997 Incentive Plan for 25,000 shares in lieu of
establishing at the start of 1999 a cash incentive compensation program for
Mr. Kleinberg based on the performance of the Singer businesses in 1999 and
in order to compensate Mr. Kleinberg for a portion of the anticipated 1999
income which he forewent by having departed his prior employment to become an
employee of the Company.
SEVERANCE PLANS
- ---------------
In 1999, the Company established the Severance Pay Plan, pursuant to
which any employee of the Company whose employment is terminated by the Company
other than for cause or as a result of a sale of a business of the Company where
the acquirer makes a bona fide job offer to the employee is automatically
entitled to cash severance in a lump sum equal to two weeks' salary.
The Company's Management Severance Protection Program provides for the
payments and benefits to be accorded to officers in the event of the termination
of their employment by the Company under certain circumstances. The program is
designed to attract new, highly qualified officers by establishing a competitive
level of severance, to reduce uncertainty and to retain officers who may
otherwise depart upon a potential change in ownership, to maintain the
objectivity of Enhance Group's senior officers in the face of potential job loss
in a "change of control" (as defined below) transaction and to minimize the need
for negotiation of individual severance arrangements upon the termination of an
officer's employment with the Company.
Under the Management Severance Protection Program, an officer of
Enhance Group with a title of at least Vice President who is terminated by the
Company without cause or who departs with good reason (an "Involuntary
Termination Event") and who executes a severance agreement as requested by the
Company is entitled to cash severance equal, when added to that provided under
the Severance Pay Plan, to a number of months (up to one year) of base salary
plus, in the case of senior officers with a title of at least Senior Vice
President, a prorated bonus based on such officers' prior year's annual bonus,
such number of months of salary and proration of bonus to be based on such
officers' tenure with the Company. In addition, covered officers are entitled to
receive outplacement assistance and remain covered under the Company's welfare
benefit programs for a period of time after such termination.
16
<PAGE>
Under the program, senior officers of Enhance Group who undergo an
Involuntary Termination Event within a specified time after a change of
control are entitled to cash severance in a lump sum equal to two or three
times (depending on level of seniority) their then annual compensation
(including a bonus component represented by the prior year's bonus). These
senior officers are also entitled to receive a bonus for the year of
termination pro rata through the date of termination and become immediately
and fully vested in the Restoration Plan. In addition, these senior officers
are entitled to receive outplacement assistance, remain covered under the
Company's welfare benefit and perquisite programs and are entitled to
continue to participate in the Company's 401(k) program (including the
receipt of Company matching contributions) for a period of time following
termination. Furthermore, all options and other long-term incentives
previously granted to employees and directors of the Company become
immediately vested upon a change in control, regardless whether their service
is terminated. Enhance Group has entered with each officer entitled to
benefits (in addition to that described in the preceding sentence) under the
Management Severance Protection Program upon a change of control into an
agreement setting forth such benefits in detail.
As used in the Management Severance Protection Program, a "change of
control" means (a) the acquisition by one person or entity of at least 35% of
Enhance Group's outstanding voting stock, (b) a change in the majority of the
board of directors of Enhance Group, (c) the consummation of a merger,
consolidation or reorganization unless more than 65% of the continuing interest
in the surviving entity is retained by Enhance Group's shareholders immediately
prior to such transaction, (d) a liquidation, dissolution or sale of all or
substantially all of the assets of the Company, or (e) the acquisition by one
person or entity of over 50% of the voting stock or assets of a given
business unit, which latter category qualifies as a change in control for
purposes of the program as concerns only an officer of the Company holding a
position of at least Senior Vice President and (i) for whom at least 50% of
his or her annual goals are attributable to the operations, results or
performance of that subsidiary or (ii) who is designated as corporate staff
of the Company.
OTHER SENIOR EXECUTIVE OFFICER COMPENSATION
- -------------------------------------------
The Company's flexible perquisite allowance program is intended to
encourage senior executive officers of the Company to avail themselves of a
range of business-related benefits for which they are not otherwise eligible for
reimbursement by the Company, including but not limited to, club memberships,
parking at the Company's offices, automobile transportation service to and from
the Company's offices, personal development and individual financial services.
Beginning in 1999, in January of each year, the President of Enhance Group is
paid $30,000 and each President of a business unit and Executive Vice President
of Enhance Group is paid $15,000 pursuant to this program on a non-accountable
basis.
In addition, the Company has arranged and pays the premium for
supplemental long-term disability insurance for each officer of Enhance Group
holding a title of Executive Vice President or above, in addition to the
$7,500 maximum monthly benefit available to all employees of the Company, up
to an aggregate $25,000 maximum monthly benefit. This insurance also provides
benefits for partial disability and cost of living increases in payments
under the policy.
17
<PAGE>
DIRECTORS' COMPENSATION
- -----------------------
FEE COMPENSATION. Directors who are employees of the Company receive
no fees or other compensation for services rendered as members of the board of
directors of Enhance Group. Mr. Tessler received a basic fee of $105,000 in
1999, and each other director of Enhance Group who is not employed by the
Company received a basic fee of $16,000. In addition, each such outside director
who also served as chair of any committee of the board received in 1999 an
additional $5,000 for all committees chaired by such director. Each outside
director also received an additional $2,000 for each regular meeting of the
board of directors attended plus $1,250 for each committee meeting attended
which was held on a day other than a day on which the board met. No directors'
fees were payable to corporate shareholders in respect of directorships occupied
by their designees. All directors are reimbursed for travel and related expenses
incurred in attending meetings of the board or committees.
The Director Stock Ownership Plan, as amended, allows each outside
director to elect to receive up to 100% of the aforesaid fees in the form of
shares of Common Stock valued at the closing price of the Common Stock on the
New York Stock Exchange on that date. Each outside director is entitled to make
a new election annually for the coming year's fees.
NON-EMPLOYEE-DIRECTOR STOCK OPTION PLAN. Pursuant to the Directors'
Option Plan, on each December 31, each outside director of Enhance Group or
either Insurance Subsidiary is granted a non-qualified stock option to purchase
7,000 shares of Common Stock at an exercise price equal to the closing price of
the Common Stock on the New York Stock Exchange on that date. There are reserved
for issuance upon the exercise of options under the Directors' Option Plan
800,000 shares of Common Stock (subject to anti-dilutive adjustment), of which
options for 496,666 shares were subject to outstanding options after the option
grants made on December 31, 1999.
Stock options granted under the Directors' Option Plan become
exercisable as to one half the shares subject thereto on each of the first and
second anniversaries of grant, subject to continuation of service on the board
of directors and other terms of the stock option grants; expire on the tenth
anniversary of the date of grant; are not transferable except by the laws of
descent and distribution; and, accordingly, may be exercised during the life of
the optionee only by the optionee or the optionee's legal representative and
after the optionee's death only by the beneficiary previously designated by the
optionee. The unvested portion of an outstanding stock option lapses upon the
resignation or removal of the optionee from the boards of directors of Enhance
Group and the Insurance Subsidiaries.
NON-COMPETITION AGREEMENTS
- --------------------------
Messrs. Tessler, Sellers and Gross are parties to non-competition
agreements with Enhance Group prohibiting them from, among other things,
competing with the Company for a period of two years following their respective
cessation of employment by or service to the Company.
18
<PAGE>
PERFORMANCE GRAPH
- -----------------
Set forth below is a line graph comparing the cumulative total return
to shareholders on the Common Stock with the cumulative total returns of
companies included in the Standard & Poor's 500 Index (excluding dividends) and
the Standard & Poor's Financial Index. The graph assumes that the value of the
investment in the Common Stock and each index was $100 at January 1, 1995 and
that all dividends were reinvested.
[GRAPH]
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES Cumulative S&P 500 S&P
DATE EFS Cumulative FINANCIAL
<S> <C> <C> <C> <C>
1/1/95 100.00 100 100
1/31/95 102.19 102.59 106.42
2/28/95 103.65 106.59 112.31
3/31/95 99.80 109.73 112.69
4/28/95 99.80 112.95 116.81
5/31/95 104.93 117.46 125.90
6/30/95 114.27 120.19 126.57
7/31/95 112.79 124.17 130.28
8/31/95 119.43 124.49 137.65
9/29/95 121.43 129.74 146.38
10/31/95 120.69 129.27 142.16
11/30/95 142.90 134.94 152.43
12/29/95 158.25 137.54 153.97
1/31/96 144.13 142.22 162.04
2/29/96 144.87 143.54 165.13
3/29/96 164.78 144.92 167.00
4/30/96 161.80 147.06 164.04
5/31/96 172.99 150.84 167.61
6/28/96 167.62 151.42 169.44
7/31/96 174.35 144.73 166.00
8/30/96 172.11 147.79 171.60
9/30/96 198.15 156.10 183.30
10/31/96 200.40 160.40 197.01
11/29/96 205.65 172.52 215.95
12/31/96 219.76 169.10 208.15
1/31/97 221.27 179.66 225.33
2/28/97 207.72 181.07 234.17
3/31/97 238.49 173.64 217.57
4/30/97 232.45 184.00 233.20
5/31/97 252.07 195.19 244.08
6/30/97 265.57 203.93 257.43
7/31/97 302.64 220.16 288.14
8/31/97 279.94 207.83 266.64
9/30/97 332.06 219.21 288.18
10/31/97 320.31 211.90 282.21
11/30/97 338.88 221.70 293.34
12/31/97 361.53 225.50 308.04
1/31/98 337.99 227.99 299.30
2/28/98 377.10 244.43 327.45
3/31/98 422.58 256.93 346.09
4/30/98 417.64 259.52 351.83
5/31/98 396.34 255.06 343.33
6/30/98 411.46 265.42 357.71
7/31/98 382.51 262.60 357.77
8/31/98 306.31 224.67 275.32
9/30/98 361.14 239.06 280.87
10/31/98 300.06 258.49 314.83
11/30/98 358.85 274.15 336.36
12/31/98 367.22 289.94 343.25
1/31/99 306.02 302.06 350.45
2/28/99 289.95 292.68 355.06
3/31/99 282.27 304.38 368.67
4/30/99 253.89 316.17 393.76
5/31/99 240.08 308.72 371.87
6/30/99 243.12 325.83 387.26
7/31/99 255.43 315.67 363.24
8/31/99 252.35 314.11 346.53
9/30/99 218.47 322.71 328.25
10/31/99 225.42 343.12 382.34
11/30/99 211.52 350.10 364.11
12/31/99 201.46 370.70 356.92
</TABLE>
19
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Enhance Group and Swiss Re are parties to an agreement pursuant to
which Swiss Re has agreed that, subject to certain exceptions, neither Swiss Re
nor any of its affiliates will until the year 2006 (a) acquire, alone or as part
of a group, any voting securities of Enhance Group (or securities convertible
into such voting securities) which would result in Swiss Re (together with its
affiliates) or such group owning beneficially more than 15% of Enhance Group
voting securities outstanding or (b) dispose of Enhance Group voting securities
to any person or group which disposition would give such person or group
beneficial ownership of or the right to acquire more than 15% of Enhance Group
voting securities outstanding.
Pursuant to a registration rights agreement, dated October 31, 1986, as
amended, between Swiss Re and Enhance Group, Swiss Re has one demand and
unlimited piggyback registration rights, subject to certain limitations.
Substantially all the expenses of any future demand or piggyback registration
are to be borne by Enhance Group. The registration rights agreement contains
cross-indemnification covenants by Enhance Group, on the one hand, and Swiss Re,
on the other hand, for damages sustained and expenses incurred resulting from
material misstatements or omissions in connection with any such offering.
Since January 2000, Enhance Group and Swiss Re have each owned 45%
equity interests in SBF Participacoes Ltda, a Brazilian insurance holding
company which is the parent holding company of UBF Garantias & Seguros SA, one
of Brazil's largest credit insurance and surety insurance companies ("UBF"). UBF
owns a majority interest in Seguradora Brasileira de Fiancas SA, an entity in
which Enhance Group and Swiss Re each owned a 25% equity interest since November
1997, which they had purchased for respective initial investments of $3.3
million.
20
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF AUDITOR
The firm of Deloitte & Touche LLP (including its predecessor firm),
independent certified public accountants, has audited the books and accounts of
the Company since its inception, and the board of directors desires to continue
the services of this firm for 2000. Accordingly, the board recommends that the
shareholders ratify the appointment by the board of directors of the firm of
Deloitte & Touche LLP as the independent auditor of the Company for 2000.
Representatives of Deloitte & Touche LLP are expected to be available
at the annual meeting to respond to appropriate questions and will be given the
opportunity to make a statement if they desire to do so.
Shareholder ratification of the selection of Deloitte & Touche LLP as
the Company's independent auditor is not required by Enhance Group's by-laws or
otherwise. However, the board of directors is submitting the selection of
Deloitte & Touche LLP to the shareholders for ratification as a matter of good
corporate practice. If the shareholders fail to ratify the selection of Deloitte
& Touche LLP, the board will reconsider whether or not to retain the firm. Even
if the selection is ratified, the board in its discretion may direct the
appointment of a different auditing firm at any time during the year if the
board of determines that such a change would be in the best interests of Enhance
Group and its shareholders.
SHAREHOLDER PROPOSALS
Shareholders who intend to present proposals at Enhance Group's year
2001 annual meeting of shareholders must submit their proposals to the Secretary
of Enhance Group on or before December 31, 2000. Such proposals must also meet
the other requirements of the rules of the Securities and Exchange Commission
relating to shareholders' proposals.
By Order of the Board of Directors,
Samuel Bergman
Secretary
April 28, 2000
21
<PAGE>
ENHANCE FINANCIAL SERVICES GROUP, INC.
ANNUAL MEETING OF SHAREHOLDERS -- JUNE 1, 2000
P P R O X Y
R THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ENHANCE FINANCIAL SERVICES GROUP INC. ("ENHANCE GROUP").
O
The undersigned hereby appoints Daniel Gross and Samuel Bergman,
X and each of them, with full power of substitution, to represent and vote
on behalf of the undersigned all of the shares of Enhance Group common
Y stock, par value $.10 per share, which the undersigned is entitled to vote
at the Annual Meeting of Shareholders to be held on June 1, 2000, and at
any adjounment or adjournments thereof, hereby revoking all proxies
heretofore given with respect to such shares, upon the following
proposals more fully described in the notice of and proxy statement for
the meeting (reciept of which is hereby acknowledged).
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND 2.
-----------
SEE REVERSE
SIDE
-----------
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
<PAGE>
Please mark your
/X/ vote as in this 3505
example.
The board of directors recommends a vote FOR proposals 1 and 2.
FOR WITHHOLD
all nominees AUTHORITY
listed (except as to vote for all
marked in the contrary) nominees listed
1. Election
of / / / /
Directors
For, except vote withheld from the following nominee(s):
- --------------------------------------------------
Nominees:
Daniel Gross, Brenton W. Harries,
David R. Markin, Jay A. Novik,
Robert P. Saltzman, Wallace O. Sellers,
Richard J. Shima, Spencer R. Stuart,
Allan R. Tessler, Frieda K. Wallison,
Jerry Wind.
FOR AGAINST ABSTAIN
2. Ratification of appointment of
Deloitte & Touche LLP to serve / / / / / /
an outside auditor for 2000.
3. In their discretion upon such other maters as may properly
come before the meeting.
I will attend the / / I will not be attending / /
meeting. the meeting.
PLEASE SIGN, DATE, AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE(S)_________________________________________DATE________________, 2000
Please sign exactly as name appears to the left. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnersnip, please sign in partnership name by
authorized person.
