<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
</TABLE>
HCC INSURANCE HOLDINGS, INC.
-------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CHRISTOPHER L. MARTIN
-------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
OR 14A-6(i)(3).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
----------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
*Set forth the amount on which the filing fee is calculated and state how
it was determined.
/ / 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:
----------------------------------------------------------
</TABLE>
<PAGE>
HCC INSURANCE HOLDINGS, INC.
13403 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040-6094
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 18, 2000 AT 9:30 A.M.
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of HCC Insurance Holdings, Inc. (the "Company") will be held on
Thursday, May 18, 2000 at 9:30 a.m. Houston time, at the offices of the Company,
13403 Northwest Freeway, Houston, Texas, 77040-6094 for the following purposes:
1. To elect twelve (12) Directors to serve until the next Annual Meeting of
Shareholders and until their successors are elected and qualify; and
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on April 10, 2000, as
the record date for determining those Shareholders who are entitled to notice
of, and to vote at, the Meeting. A list of such Shareholders will be open to
examination by any Shareholder at the Meeting and for a period of ten days prior
to the date of the Meeting during ordinary business hours at 13403 Northwest
Freeway, Houston, Texas. A copy of the Annual Report of the Company for the
fiscal year ended December 31, 1999, is enclosed.
By Order of the Board of Directors,
CHRISTOPHER L. MARTIN,
SECRETARY
Houston, Texas
April 18, 2000
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE MARK, SIGN
AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED PREPAID ENVELOPE TO
ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. IF YOU ATTEND THE
MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO, EVEN IF YOU HAVE
PREVIOUSLY SENT IN YOUR PROXY.
<PAGE>
HCC INSURANCE HOLDINGS, INC.
13403 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040-6094
------------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 2000
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is first being mailed on or about April 18, 2000 to
Shareholders of HCC Insurance Holdings, Inc. (the "Company"), in connection with
the solicitation by the Board of Directors of the Company of proxies to be voted
at the Annual Meeting of Shareholders to be held on Thursday, May 18, 2000, at
9:30 a.m. Houston time, at the offices of the Company, 13403 Northwest Freeway,
Houston, Texas 77040-6094, or any adjournment or adjournments thereof (the
"Meeting"). A Shareholder giving a 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 Company. Copies of
solicitation material may be furnished to brokers, custodians, nominees and
other fiduciaries for forwarding to beneficial owners of shares of the Company'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 facsimile by officers and other management employees of the
Company, who will receive no additional compensation for their services.
Only Shareholders of record on April 10, 2000 (the "Record Date") will be
entitled to vote at the Meeting, and each share will have one vote. At the close
of business on the Record Date, there were 49,223,648 shares of the Company's
Common Stock outstanding and entitled to vote at the Meeting.
The majority of the outstanding shares of the Company's Common Stock,
represented in person or by proxy will constitute a quorum at the Meeting. The
election of Directors will be determined by a plurality of the votes cast if a
quorum is present. The Board of Directors does not anticipate calling for a vote
on any matter other than those described herein.
Abstentions and broker non-votes are each included in the determination of
the number of shares present and voting for purposes of determining the presence
of a quorum. Each is tabulated separately. A proxy submitted by a Shareholder
may indicate that all or a portion of the shares represented by such proxy are
not being voted by such Shareholder with respect to a particular matter. This
may occur, for example, when a broker is not permitted to vote stock held in
street name on certain matters in the absence of instructions from the
beneficial owner of the stock. The shares subject to any such proxy which are
not being voted with respect to a particular matter (the "Non-Voted Shares")
will be treated as shares not present and entitled to vote on such matter,
although such shares may be considered present and entitled to vote for other
purposes and will count for purposes of determining the presence of a quorum.
Shares voted to abstain as to a particular matter will not be considered
Non-Voted Shares. The election of Directors requires a plurality of the shares.
Thus, abstentions and Non-Voted Shares will not affect the outcome of the
election of Directors.
1
<PAGE>
STOCK OWNERSHIP OF CERTAIN PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date by (a) each person
known by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock, (b) each Executive Officer of the Company named in the Summary
Compensation Table, (c) each director, and (d) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF COMMON STOCK
NAME BENEFICIAL OWNERSHIP(1)(2) OUTSTANDING
- ---- -------------------------- ------------
<S> <C> <C>
Ariel Capital Management, Inc. .......................... 5,007,175(3) 10.2%
307 North Michigan Avenue
Chicago, Illinois 60601
Stephen L. Way .......................................... 4,968,419 9.9%
13403 Northwest Freeway
Houston, Texas 77040-6094
Capital Research & Management Company ................... 3,055,600(4) 6.2%
333 South Hope Street
Los Angeles, California 90071
Stephen J. Lockwood ..................................... 2,887,335 5.9%
27 Congress Street, Suite 108
Salem, Massachusetts, 01970
Beck, Mack & Oliver LLC ................................. 2,789,292(5) 5.7%
330 Madison Avenue
New York, New York 10017
Frank J. Bramanti ....................................... 948,738(6) 1.9%
John N. Molbeck, Jr. .................................... 230,000 *
Allan W. Fulkerson ...................................... 207,500(7) *
Walter J. Lack .......................................... 190,000 *
James R. Crane .......................................... 122,500 *
J. Robert Dickerson ..................................... 79,000 *
Edward H. Ellis, Jr. .................................... 69,334 *
James M. Berry .......................................... 56,750 *
Edwin H. Frank, III ..................................... 53,150(8) *
Patrick B. Collins ...................................... 45,000 *
Marvin P. Bush .......................................... 42,000(9) *
Benjamin D. Wilcox ...................................... 22,000 *
All directors and executive officers as a group
(14 persons) .......................................... 9,921,726 19.4%
</TABLE>
- ------------------------
* Less than 1%.
(1) Directors and executive officers have sole voting and investment powers of
the shares shown unless otherwise indicated.
(2) Includes shares which directors and executive officers have the right to
acquire upon the exercise of options within 60 days from the Record Date,
including the following: Stephen L. Way--887,500 shares; Frank J.
Bramanti--640,180 shares; John N. Molbeck, Jr.--130,000 shares; Edward H.
Ellis, Jr.--68,334 shares; Allan W. Fulkerson--47,500 shares; James M.
Berry, J. Robert Dickerson and Edwin H. Frank, III,--42,500 shares each;
Patrick B. Collins--40,000 shares; James R. Crane and
2
<PAGE>
Marvin P. Bush--22,500 shares each; Walter J. Lack--27,500 shares;
Stephen J. Lockwood--12,500 shares; and all directors and executive officers
as a group--2,026,014 shares.
(3) Ariel Capital Management, Inc. reported that it is an investment advisor
deemed to be the beneficial owner of a total of 5,007,175 shares of the
Company's Common Stock. The foregoing information was obtained from a
Schedule 13G dated February 10, 2000 filed with the Securities and Exchange
Commission (the "SEC").
(4) Capital Research and Management Company reports that it is an investment
advisor deemed to be the beneficial owner of 3,055,600 shares of the
Company's Common Stock. The foregoing information was obtained from a
Schedule 13G dated February 10, 2000 filed with the SEC.
(5) Beck, Mack & Oliver LLC reported that it is an investment advisor with
shared dispositive power over 2,789,292 shares of the Company's Common Stock
held by its investment advisory clients. The foregoing information was
obtained from a Schedule 13G dated January 7, 2000, filed with the SEC.
(6) Includes 750 shares owned of record by Mr. Bramanti's wife in trust for his
children and 2,250 shares owned of record by his children. Mr. Bramanti
disclaims beneficial ownership of such shares.
(7) Mr. Fulkerson is a director, shareholder and President of Century Capital
Management, Inc., a registered investment advisor, which exercises both
voting and investment power with respect to 150,000 shares owned of record
by Century Capital Partners, L.P. ("Century"). Although Mr. Fulkerson may be
deemed to beneficially own the 150,000 shares owned of record by Century, he
disclaims beneficial ownership of such shares, except to the extent of his
actual pecuniary interest therein.
(8) Includes 1,200 shares owned of record by Mr. Frank's children. Mr. Frank
disclaims beneficial ownership of such shares.
(9) Includes 2,500 shares owned of record by Winston Holdings, LLC, a limited
liability company in which Mr. Bush has an ownership interest. Mr. Bush
disclaims beneficial ownership of such shares, except to the extent of his
actual pecuniary interest therein.
3
<PAGE>
PROPOSAL I--ELECTION OF DIRECTORS
The Board of Directors has set the number of Directors to be elected at the
Meeting at twelve, each Director is to hold office until the next Annual Meeting
of Shareholders and until his successor is elected and qualified. It is intended
that the votes represented by the proxies will be cast for the election as
Directors of the persons listed below. A plurality of shares present at the
Meeting cast in favor of a nominee is required for the election of each of the
nominees listed below. Each of the nominees is currently a Director of the
Company.
The following table presents information concerning persons nominated for
election as Directors of the Company, including current membership on committees
of the Board of Directors, principal occupation or affiliations during the last
five years and certain directorships held.
Although the Board of Directors does not contemplate that any of the
nominees will be unable to serve, if such a situation arises prior to the
Meeting, the persons named in the enclosed form of Proxy will vote in accordance
with their best judgment for a substitute nominee.
INFORMATION REGARDING NOMINEES FOR DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION SERVED THE
NAME DURING THE PAST FIVE YEARS AGE COMPANY SINCE
- ---- ------------------------------------------------ -------- -------------
<S> <C> <C> <C>
Stephen L. Way.......... Mr. Way founded the Company in 1974 and has 51 1974
served as a Director, Chairman of the Board of
Directors and Chief Executive Officer of the
Company since its organization. He served as
President from the Company's founding until May,
1996. Mr. Way is the Chairman of the Executive
Management Committee and the Strategic Planning
Committee. Mr. Way is also a member of the
Investment Committee and as a Director and
Officer of various of the Company's
subsidiaries. Mr. Way is a Director of Fresh Del
Monte Produce, Inc. NYSE (symbol: FDP) and a
Director of Bradstock Group plc. London Stock
Exchange (symbol: BDK).
James M. Berry.......... Mr. Berry is the retired Vice Chairman of 69 1992
NationsBank of Texas, N.A., a subsidiary of
NationsBank N.A. (now BankAmerica Corp. NYSE
(symbol: BAC)) having served in such capacity
from August, 1988 until December, 1992. Since
May, 1995 Mr. Berry has been the Executive Vice
President, Finance of Belk Stores Services, Inc.
Mr. Berry has served as a Director of the
Company since March, 1992 and is also a member
of the Audit Committee and the Investment
Committee. Mr. Berry serves as a Director of
Williams-Sonoma, Inc. Nasdaq (symbol: WSGC).
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION SERVED THE
NAME DURING THE PAST FIVE YEARS AGE COMPANY SINCE
- ---- ------------------------------------------------ -------- -------------
<S> <C> <C> <C>
Frank J. Bramanti....... Mr. Bramanti is a Director and Executive Vice 43 1980
President of the Company and since 1982, has
served in various capacities, including
Director, Secretary, Chief Financial Officer and
from June, 1997 to November, 1997, interim
President. Mr. Bramanti is a member of the
Executive Management Committee, the Strategic
Planning Committee and the Investment Committee.
Mr. Bramanti is also a Director and Officer of
various of the Company's subsidiaries.
Marvin P. Bush.......... Mr. Bush is the President of Winston Capital 43 1999
Management, LLC, a registered investment adviser
which specializes in hedge fund investments, and
the founder and a Managing Director of Winston
Partners, L.P. Mr. Bush was first elected as a
Director in May, 1999 and is also a member of
the Investment Committee. Mr. Bush serves on the
Board of Directors of Fresh Del Monte Produce,
Inc. NYSE (symbol: FDP). He is a member of the
Board of Trustees for the George Bush
Presidential Library.
Patrick B. Collins...... Mr. Collins is a retired partner of the 71 1993
international accounting firm of
PricewaterhouseCoopers LLP, where he held that
position from 1967 through 1991. Mr. Collins has
served as a Director of the Company since
December, 1993 and is a member of the Audit
Committee. Mr. Collins is a Director of
Transcoastal Marine Services, Inc. Nasdaq
(symbol: TCMS).
James R. Crane.......... Mr. Crane is the Chief Executive Officer, 46 1999
President and Chairman of the Board of Directors
of EGL Inc. Nasdaq (symbol: EAGL), the company
he founded in 1984. Mr. Crane was first elected
as a Director in May, 1999 and is also a member
of the Compensation Committee.
J. Robert Dickerson..... Mr. Dickerson is an attorney and has served as a 58 1981
Director of the Company since 1981.
Mr. Dickerson is also the Chairman of the Audit
Committee.
Edwin H. Frank, III..... Mr. Frank is a co-founder and the Chairman of 50 1993
FileControl.Com Incorporated
("FileControl.Com"). Prior to 1999, Mr. Frank
was the President of Underwriters Indemnity
Holdings, Inc., a subsidiary of RLI Corporation
NYSE (symbol: RLI), and its former controlling
shareholder, having served in such capacity
since 1985. Mr. Frank has served as a Director
of the Company since May, 1993 and is also a
member of the Compensation Committee.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION SERVED THE
NAME DURING THE PAST FIVE YEARS AGE COMPANY SINCE
- ---- ------------------------------------------------ -------- -------------
<S> <C> <C> <C>
Allan W. Fulkerson...... Mr. Fulkerson is the President and a Director of 66 1997
Century Capital Management, Inc., a registered
investment advisor which specializes in the risk
management and insurance industry, and President
and a Director of Massachusetts Fiduciary
Advisors, Inc., also a registered investment
advisor. In addition, since 1976, he has served
as Chairman and Trustee of Century Shares Trust,
a mutual fund established in 1928 which invests
exclusively in insurance companies and banks.
Mr. Fulkerson has served as a Director of the
Company since May, 1997 and is the Chairman of
the Investment Committee. Mr. Fulkerson is a
Director of Mutual Risk Management, Ltd. NYSE
(symbol: MM) and Wellington Underwriting plc.
London Stock Exchange (symbol: WUN).
Walter J. Lack.......... Mr. Lack is an attorney and a shareholder in the 52 1981
law firm of Engstrom, Lipscomb & Lack, A
Professional Corporation in Los Angeles,
California. Mr. Lack has served as a Director of
the Company since 1981 and is also the Chairman
of the Compensation Committee. Mr. Lack is a
director of Microvision, Inc. Nasdaq
(symbol: MVIS) and SuperGen Inc. Nasdaq
(symbol: SUPG).
Stephen J. Lockwood..... Mr. Lockwood is the Vice-Chairman of the Board 52 1981
of Directors and until his retirement in
December, 1999, was the Chief Executive Officer
of the Company's subsidiary, LDG Reinsurance
Corporation since 1988. Mr. Lockwood has served
as a Director of the Company since 1981.
Mr. Lockwood is a Director of four mutual funds
managed by The Dreyfus Corporation, a subsidiary
of Mellon Bank Corporation NYSE (symbol: MEL).
John N. Molbeck, Jr..... Mr. Molbeck is a Director, President and Chief 53 1997
Operating Officer of the Company, having served
in such capacity since November, 1997. Prior to
joining the Company, Mr. Molbeck was the
Managing Director of Aon Natural Resources
Group, a subsidiary of Aon Corporation NYSE
(symbol: AOC) which specializes in energy
related insurance and reinsurance. Mr. Molbeck
is a member of the Company's Executive
Management Committee, the Strategic Planning
Committee and the Investment Committee and is
the Chairman of the Senior Management Committee.
He is also a Director and Officer of various of
the Company's subsidiaries.
</TABLE>
6
<PAGE>
INFORMATION REGARDING EXECUTIVE OFFICERS WHO ARE NOT NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION SERVED THE
NAME DURING THE PAST FIVE YEARS AGE COMPANY SINCE
- ---- ------------------------------------------------ -------- -------------
<S> <C> <C> <C>
Edward H. Ellis, Jr..... Mr. Ellis is the Senior Vice President and Chief 57 1997
Financial Officer of the Company. Prior to
joining the Company in October, 1997, Mr. Ellis
served as a partner with the international
accounting firm of PricewaterhouseCoopers LLP
from November, 1988 to September, 1997
specializing in the insurance industry.
Mr. Ellis is a Certified Public Accountant with
over 34 years of public accounting experience.
Mr. Ellis is a member of the Company's Executive
Management Committee, the Strategic Planning
Committee and the Investment Committee.
Mr. Ellis is also a Director and Officer of
various of the Company's subsidiaries.
Benjamin D. Wilcox...... Mr. Wilcox is the President and Chief Executive 56 1998
Officer of the Company's largest subsidiary,
Houston Casualty Company ("HC") and its
subsidiaries, U.S. Specialty Insurance Company
and HCC Life Insurance Company. Mr. Wilcox is
also the Chairman of the Board of Directors of
the Company's subsidiary, Avemco Insurance
Company. Prior to joining the Company in
December, 1998, Mr. Wilcox served as a Senior
Vice President of Aon Risk Services, Inc., a
subsidiary of Aon Corporation which specializes
in marine and energy insurance and reinsurance.
Mr. Wilcox is a member of the Company's
Executive Management Committee and the Strategic
Planning Committee and is also a Director and
Officer of various of the Company's other
subsidiaries.
</TABLE>
7
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1999, the Board of Directors met three times. Each Director attended
75% or more of the meetings of the Board or the meetings of any committee on
which he served, with the exception of Messrs. Bush and Crane, who were elected
to the Board of Directors in May, 1999. The Board of Directors has standing
Audit, Compensation and Investment Committees. It does not have a standing
Nominating Committee.
AUDIT COMMITTEE
The Audit Committee is composed entirely of outside Directors who are not
officers or employees of the Company and with whom the Company does not have a
business relationship. In the opinion of the Board, these Directors are
independent of management and free of any relationship that would interfere with
their exercise of independent judgment as members of this committee. The current
members of the Audit Committee are James M. Berry, Patrick B. Collins, and
J. Robert Dickerson (Chairman). In September, 1999, Mr. Dickerson assumed the
position of Chairman of the Audit Committee which was previously held by
Mr. Collins. The Audit Committee held four meetings in 1999.
The Audit Committee recommends to the Board of Directors the selection of
the Company's outside auditors and reviews with the independent auditors the
scope and results of the Company's audits, the Company's internal accounting
controls and the professional services furnished by the independent auditors to
the Company.
PricewaterhouseCoopers LLP ("PWC") audited the accounts of the Company and
its subsidiaries for the fiscal year ended December 31, 1999 and has served as
the Company's auditors since 1987. In February, 2000, PWC informed the Company
that they may not have been in compliance with the auditor independence
standards established by the SEC and certain accounting regulatory bodies. Such
potential non-compliance by PWC related to a delay in the payment of capital and
retirement funds to a member of the Company's senior management and a member of
the Board of Directors who were former partners of PWC. PWC has assured the
Audit Committee that such delayed transfer of funds did not affect the quality
or integrity of its audits of the Company's financial statements and that it
presently complies with all applicable auditor independence requirements.
The Audit Committee has recommended to the Board of Directors that PWC be
designated as the Company's independent certified public accountants for the
Year 2000 and based upon such recommendation, the Board of Directors has
designated PWC as such. Representatives of PWC are expected to be present at the
Meeting, will have an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions from Shareholders.
COMPENSATION COMMITTEE
The Board of Directors has a Compensation Committee which consists of three
outside Directors who are not officers or employees of the Company ("Nonemployee
Directors"). The current members of the Compensation Committee are James R.
Crane, Edwin H. Frank, III, and Walter J. Lack (Chairman). Mr. Lack has been the
Chairman of the Compensation Committee since September, 1999. The Compensation
Committee met three times during 1999. The Compensation Committee monitors
compensation arrangements for senior management employees for consistency of
corporate objectives with the interests of the Company's Shareholders; approves
salary and non-salary compensation for senior management; recommends bonus
programs to the Board of Directors; and administers the Company's stock option
plans. See "Report of the Compensation Committee" below.
8
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or has been an officer or
employee of the Company or any of its subsidiaries. No Executive Officer of the
Company served as a member of the Compensation Committee. No Executive Officer
of the Company served as a member of the compensation committee (or other board
committee performing similar functions or, in the absence of any such committee,
the entire board of directors) of another corporation, one of whose executive
officers served on the Compensation Committee or as a Director of the Company.
No Executive Officer of the Company served as a director of another corporation,
one of whose executive officers served on the Compensation Committee. Mr. Lack
is a shareholder in the law firm of Engstrom, Lipscomb & Lack, A Professional
Corporation, with which the Company has a business relationship. This business
relationship is described below under "Certain Relationships and Related
Transactions."
INVESTMENT COMMITTEE
The Investment Committee is composed of three Nonemployee Directors and
certain executive officers of the Company. The current members of the Investment
Committee are Stephen L. Way, James M. Berry, Frank J. Bramanti, Marvin P. Bush,
Edward H. Ellis, Jr., Allan W. Fulkerson (Chairman), and John N. Molbeck, Jr.
The Investment Committee was formed by the Board of Directors in August, 1999.
The Investment Committee is charged with establishing investment policies for
the Company and its subsidiaries and directing the investment of the funds of
the Company and its subsidiaries in accordance with those policies. Previously,
the Company's investment policies were established by the entire Board of
Directors. In December, 1999, the Investment Committee recommended and the Board
of Directors approved the appointment of New England Asset Management, Inc., a
subsidiary of Berkshire Hathaway, Inc. NYSE (symbol: BRK), to manage the
investment portfolio of the Company in accordance with the Company's investment
policies. The Investment Committee met twice in 1999.
COMPENSATION OF DIRECTORS
A Director who is an employee of the Company is not compensated for services
rendered as a member of the Board of Directors or any committee of the Board.
During 1999, the Nonemployee Directors received cash compensation consisting of
a fee of $2,500 for each meeting of the Board of Directors attended. An
additional fee ranging from $750 to $2,000 was paid to each committee member and
from $1,500 to $3,000 was paid to the committee chairman for each Audit,
Compensation or Investment Committee meeting attended. The Company also
reimburses its Directors for travel, lodging and related expenses incurred in
attending Board or committee meetings. In addition, as with all new Nonemployee
Directors of the Company, upon their election Messrs. Bush and Crane received an
option to purchase 12,500 shares of the Company's Common Stock as a new member
grant of options under the Company's 1996 Nonemployee Director Stock Option
Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of Engstrom, Lipscomb & Lack, A Professional Corporation,
represents the Company and certain of its insureds regarding claim-related
matters. Mr. Lack, a Director of the Company and a member of the Compensation
Committee, is a shareholder of the firm.
During 1997, the Company committed to make a $5.0 million investment as a
limited partner in Century Capital Partners II, Ltd. (the "Partnership"), an
investment partnership which specializes in investing in small and start-up
insurance companies. Mr. Fulkerson, a Director of the Company, is a managing
member of CCP Capital II, LLC, the Partnership's general partner and a director,
shareholder and President of Century Capital Management, Inc., the investment
advisor to the Partnership. At December 31, 1999, $2.3 million had been invested
under this commitment.
9
<PAGE>
Underwriters Indemnity Holdings, Inc. ("UIH") is a property and casualty
insurance group in which HC owned an interest and whose former President and
controlling shareholder, Mr. Frank, is a Director of the Company and a member of
the Compensation Committee. In January, 1999, HC sold its 21% interest in UIH to
an unrelated third party, RLI Corporation ("RLI"), in connection with RLI's
acquisition of all of the outstanding shares of UIH. In connection with such
transaction, HC received a 20% interest in FRI Holdings, Inc. ("FRI"), an entity
in which Mr. Frank is the controlling shareholder. FRI holds a 17% interest in
FileControl.Com, an entity in which Mr. Frank owns a 17% interest and of which
he is a co-founder and Chairman. In October, 1999, HC also acquired a 13%
interest in FileControl.Com for $750,000 as an investment.
In June, 1994, the Company entered into an arrangement with an entity owned
by Mr. Way, pursuant to which the Company pays the operating expenses for
providing transportation services to employees, Directors and clients of the
Company. The Company, however, provides its own employees to operate the
equipment. During 1999, the Company paid $917,600 to this entity. None of these
funds were paid directly to Mr. Way.
In the opinion of management, the terms of the above four arrangements are
fair and reasonable and as favorable to the Company as could have been obtained
from a wholly unrelated party.
On December 31, 1997, Mr. Bramanti, Executive Vice President and a Director
of the Company, borrowed $100,000 from the Company, evidenced by a Promissory
Note. Such loan bears interest at a rate of 5.75% per annum and is due in full,
together with accrued interest, on December 31, 2000. The entire amount of the
loan was outstanding as of the Record Date.
The Company has entered into an employment agreement with each of
Messrs. Way, Molbeck, Bramanti, Wilcox and Ellis. A summary of the principal
terms of such employment agreements is included under the caption "Employment
Agreements" below.
There are no family relationships among the Executive Officers and
Directors, and there are no arrangements or understandings between any officer
or any other person pursuant to which that officer was elected.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act"),
requires the Company's Directors and Executive Officers and persons who own more
than 10% of a registered class of the Company's equity securities to file
initial reports of ownership and changes in ownership with the SEC. Such
officers, Directors and Shareholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on a
review of the copies of such forms furnished to the Company and written
representations from the Company's Directors and Executive Officers, all persons
subject to the reporting requirements of Section 16(a) filed all required
reports on a timely basis, except Mr. Way, who did not timely report the
exercise of a stock option in November, 1999. Mr. Way's report of such
transaction was subsequently filed.
10
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain information concerning compensation
paid or accrued by the Company to or on behalf of the Company's Chief Executive
Officer and the other four most highly compensated Executive Officers serving at
December 31, 1999 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- ------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- ------------------ -------- ----------- ---------- ----------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Stephen L. Way(1) .........
Chairman of the Board of 1999 800,000 -- 269,829 200,000 73,276
Directors and Chief 1998 800,000 50,000 82,357 525,000 62,223
Executive Officer 1997 800,000 -- 64,567 387,500 62,817
John N. Molbeck, Jr.(2) ... 1999 525,000 -- 38,992 50,000 15,027
President and Chief 1998 500,000 50,000 29,056 200,000 7,864
Operating Officer 1997 60,417 -- -- -- 333
1999 325,000 -- 27,535 -- 13,062
Frank J. Bramanti(3) ...... 1998 325,000 50,000 27,254 275,000 13,473
Executive Vice President 1997 250,000 17,219 27,044 45,000 12,580
Benjamin D. Wilcox(4) ..... 1999 300,000 50,000 18,632 100,000 5,274
President and Chief 1998 20,577 -- 121 -- 222
Executive Officer of HC 1997 -- -- -- -- --
Edward H. Ellis, Jr.(5) ... 1999 240,000 25,000 -- 25,000 13,748
Senior Vice President and 1998 225,000 25,000 -- 10,000 5,476
Chief Financial Officer 1997 56,250 -- -- 25,000 450
</TABLE>
- ------------------------
(1) Other annual compensation includes for 1999, 1998, and 1997, respectively,
$34,763, $34,460, and $33,073 for automobile expenses; and $35,066, $47,897,
and $31,494 for miscellaneous expenses and for 1999 includes $200,000 for
utilization of Company employees. All other compensation includes for 1999,
1998 and 1997, respectively, $63,676, $56,623, and $53,317 for life and
disability premiums and $9,600, $9,600,and $9,500 for contributions by the
Company under the Company's 401(k) Plan. In addition, in 1999, 1998 and
1997, respectively, $129,345, $122,023, and $108,000 of interest accrued on
Mr. Way's deferred compensation.
(2) All other compensation for 1999, 1998 and 1997 respectively, includes life
and disability premiums of $5,427, $3,603,and $333 and contributions of
$9,600 and $4,261 by the Company under the Company's 401(k) Plan for 1999
and 1998, respectively. Information for 1997 includes compensation paid to
Mr. Molbeck from November 18, 1997, the date of his employment as President
of the Company.
(3) Other annual compensation includes for 1999, 1998 and 1997, respectively,
automobile expenses of $25,992, $27,757, and $25,797. All other compensation
for 1999, 1998, and 1997, respectively, includes life and disability
premiums of $3,462, $3,873, and $3,080, and contributions of $9,600, $9,600,
and $9,500 by the Company under the Company's 401(k) Plan.
(4) All other compensation for 1999 and 1998, respectively, includes life and
disability premiums of $5,274 and $222. Information for 1998 includes all
compensation paid to Mr. Wilcox from December 7, 1998,
11
<PAGE>
the date of his employment as President and Chief Operating Officer of HC
and its insurance company subsidiaries.
(5) All other compensation for 1999, 1998 and 1997, respectively, includes life
and disability premiums of $4,148, $2,071 and $450 and contributions of
$9,600 and $3,405 by the Company under the Company's 401(k) Plan for 1999
and 1998, respectively. Information for 1997 includes all compensation paid
to Mr. Ellis from October 1, 1997, the date of his employment as Senior Vice
President and Chief Financial Officer of the Company.
STOCK OPTIONS
The following table provides details regarding stock options granted to the
Named Executive Officers during 1999. In addition, in accordance with SEC rules
there are shown the hypothetical gains or "option spreads" that would exist for
the respective options. The gains are based on assumed rates of annual
compounded growth in stock price of 5% and 10% from the date the options were
granted over the full option term. The actual value, if any, an executive may
realize will depend on the spread between the market price and the exercise
price on the date the option is exercised. The 5% and 10% assumed rates of
growth are for illustrative purposes only. They are not intended to predict
future stock prices, which will depend on market conditions and other factors
such as the Company's performance.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
TOTAL OPTIONS OF SHARE PRICE APPRECIATION
NUMBER OF GRANTED TO EXERCISE OR FOR OPTION TERM(1)
SECURITIES UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---- --------------------- ------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stephen L. Way........... 200,000 10.70 $16.375 02/12/05 1,114,000 2,526,000
John N. Molbeck, Jr...... 50,000 2.67 16.375 02/12/05 278,500 631,500
Frank J. Bramanti........ -- -- -- -- -- --
Benjamin D. Wilcox....... 100,000 5.35 16.375 02/12/05 557,000 1,263,000
Edward H. Ellis, Jr...... 25,000 1.34 16.375 02/12/05 139,250 315,750
</TABLE>
- ------------------------
* Less than 1%.
(1) Potential gains are net of the exercise price, but before taxes associated
with the exercise. These amounts represent certain assumed rates of
appreciation only, based on SEC rules. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock,
overall market conditions and the optionholders' continued employment
through the vesting period. The amount reflected in this table may not
necessarily be achieved. One share of stock purchased at $16.38 in 1999
would yield profits of $5.57 per share at 5% appreciation over six years, or
$12.63 per share at 10% appreciation over the same period. Amounts shown
under the "Potential Realizable Value" columns have been calculated by
multiplying the exercise price by the annual appreciation rate shown
(compounded for the term of the options), subtracting the exercise price per
share and multiplying the gain per share by the number of shares covered by
the options.
12
<PAGE>
STOCK OPTION EXERCISES AND HOLDINGS
The following table shows stock options exercised by the Named Executive
Officers during 1999, including the aggregate value of gains on the date of
exercise. In addition, this table includes the number of shares covered by both
exercisable and non-exercisable stock options as of the end of 1999. Also
reported are the values for "in-the-money" options which represent the positive
spread between the exercise price of any such existing stock options and the
year end price of the Company's Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen L. Way.............. 39,400 $115,537 812,500 4,800 -- $26,340
John N. Molbeck, Jr......... -- -- 130,000 120,000 -- --
Frank J. Bramanti........... 81,232 311,872 540,180 -- $345,738 --
Benjamin D. Wilcox.......... -- -- -- 100,000 -- --
Edward H. Ellis, Jr......... -- -- 68,334 16,666 -- --
</TABLE>
- ------------------------
(1) The values were determined on the basis of the closing stock price of
$13.1875 at fiscal year end December 31, 1999, and equal the aggregate
amount by which the market value of the option shares exceeds the exercise
price of such options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with the CEO and each of
the Named Executives which set forth the general terms and conditions of each
Executive's employment by the Company for the period commencing January 4, 2000.
Each of the Executives has the right to voluntarily terminate his employment at
any time. The following summarizes the terms of each of these Agreements:
STEPHEN L. WAY
Pursuant to the terms of the Employment Agreement between the Company and
Stephen L. Way (the "CEO Agreement"), Mr. Way has agreed to serve as Chairman of
the Board and Chief Executive Officer of the Company through December 31, 2002,
and will receive an annual base salary of $800,000. Mr. Way is also entitled to
certain other perquisites, including use of Company automobiles, certain club
memberships, extended medical coverage and reimbursement for estate planning
expenses. The CEO Agreement further provides that upon its termination, Mr. Way
will serve the Company as a consultant for a period of five years and receive
$450,000 per year. In the event Mr. Way's employment is terminated as a result
of his death or disability, he or his legal representative will be entitled to
receive the compensation he would have otherwise been entitled to receive
throughout the remaining term of the CEO Agreement. In addition, any unvested
stock options will immediately vest. Mr. Way will be entitled to receive all of
the sums otherwise due to him under the CEO Agreement in the event Mr. Way's
employment is terminated other than: (i) by the Company for Cause; or (ii) by
Mr. Way without Good Reason after a Change of Control. The Company will also
reimburse Mr. Way if there are any payments made to him which are subject to any
excise taxes. If the CEO Agreement is terminated, Mr. Way has agreed to certain
provisions relating to non-competition, confidentiality and non-solicitation of
customers and employees.
13
<PAGE>
JOHN N. MOLBECK, JR.
Pursuant to Mr. Molbeck's Employment Agreement, Mr. Molbeck will act as
President of the Company through December 31, 2002 and will receive a salary of
$600,000 per year. In addition, Mr. Molbeck will be entitled to an annual bonus
payment of $150,000 if the Company's net earnings per share increases by at
least 10% from the net earnings of the immediately preceding year. Mr. Molbeck
is also entitled to certain perquisites, including use of a Company automobile,
certain club memberships, life insurance, extended medical coverage in certain
circumstances and reimbursement for estate planning expenses. The Molbeck
Agreement further provides that, upon its termination, Mr. Molbeck will serve
the Company as a consultant for ten years and receive $200,000 per year. If a
consultant, Mr. Molbeck will be required to perform certain minimum hours of
consulting services. In the event Mr. Molbeck's employment is terminated as a
result of his disability, his options will continue vesting for one year and he
will receive his contracted for compensation. Thereafter, he will receive 50% of
such compensation throughout the remaining term. Mr. Molbeck's consulting fee
will not terminate upon his death or disability. Mr. Molbeck will be entitled to
receive all sums otherwise due under the Molbeck Agreement in the event
Mr. Molbeck's employment is terminated other than: (i) by the Company for Cause;
or (ii) by Mr. Molbeck without Good Reason after a Change of Control. The
Company will also reimburse Mr. Molbeck if there are any payments made to him
which are subject to excise taxes. If the Molbeck Agreement is terminated,
Mr. Molbeck has agreed to certain provisions relating to non-competition,
confidentiality and non-solicitation of customers and employees.
FRANK J. BRAMANTI
Mr. Bramanti has entered into an Employment Agreement effective as of
January 4, 2000, which expires on December 31, 2002. Mr. Bramanti will act as an
Executive Vice President for the Company and will receive $350,000 salary for
the calendar year beginning January 1, 2000, and increasing by $25,000 for the
annual periods beginning January 1, 2001 and 2002. Pursuant to Mr. Bramanti's
Employment Agreement, on January 1, 2003, his employment will terminate and
thereafter he will serve as a consultant for the Company at an annual rate of
$200,000, decreasing by $50,000 for each of the next two years. The terms of
Mr. Bramanti's consulting agreement are substantially similar to those of
Mr. Molbeck, including his perquisites and rights upon termination, death or
disability, except Mr. Bramanti is not entitled to any earnings-related bonuses.
If the Bramanti Agreement is terminated, Mr. Bramanti has agreed to certain
provisions relating to non-competition, confidentiality and non-solicitation of
customers and employees.
BENJAMIN D. WILCOX
Mr. Wilcox has entered into an Employment Agreement effective as of
January 4, 2000, which expires on December 31, 2002. Mr. Wilcox will act as
Senior Vice President of the Company and President and Chief Operating Officer
of HC. Mr. Wilcox will receive a salary of $315,000 for the calendar year
beginning January 1, 2000, and increasing by $15,000 for each annual period
beginning January 1, 2001. He will also receive an annual bonus of not less than
$50,000. The Employment Agreement also provides that upon its termination,
Mr. Wilcox will serve the Company as a consultant for a period of three years
and receive $200,000 per year. With the exception of earnings-related bonuses,
the terms of Mr. Wilcox's consulting agreement are substantially similar to
those of Mr. Molbeck. Mr. Wilcox is also entitled to certain perquisites,
including a car allowance, certain club memberships, and life insurance.
Mr. Wilcox's rights upon termination, death or disability are similar to those
provided to Mr. Molbeck. If the Wilcox Agreement is terminated, Mr. Wilcox has
agreed to certain provisions relating to non-competition, confidentiality and
non-solicitation of customers and employees.
EDWARD H. ELLIS, JR.
Mr. Ellis has entered into an Employment Agreement effective as of
January 4, 2000, which expires on December 31, 2002. Mr. Ellis will act as
Senior Vice President and Chief Financial Officer of the Company
14
<PAGE>
and will receive a salary of $250,000 for the calendar year beginning
January 1, 2000, and increasing by $25,000 for each annual period beginning
January 1, 2001. Mr. Ellis' rights upon termination, death or disability are
similar to those provided to Mr. Molbeck. If the Ellis Agreement is terminated,
Mr. Ellis has agreed to certain provisions relating to non-competition,
confidentiality and non-solicitation of customers and employees.
REPORT OF THE COMPENSATION COMMITTEE
During 1999, the Compensation Committee (the "Committee") consisted of
J. Robert Dickerson, Edwin H. Frank, III and Walter J. Lack. In September, 1999
Mr. Lack assumed the position of Chairman of the Committee which was previously
held by Mr. Dickerson. In February, 2000, James R. Crane assumed
Mr. Dickerson's position on the Committee.
All decisions by the Committee relating to the compensation of the Company's
Executive Officers are reviewed and approved by the full Board of Directors. The
philosophy of the Company's compensation program is to employ, retain and reward
executives capable of leading the Company in achieving its business objectives.
These objectives include creating and then preserving strong financial
performance, increasing the assets of the Company, positioning the Company's
assets and business operations in geographic markets and industry segments
offering long-term growth opportunities, enhancing shareholder value and
ensuring the survival of the Company. The accomplishment of these objectives is
measured against conditions prevalent in the industry within which the Company
operates. In recent years these conditions reflect a highly competitive market
environment and rapidly changing overall industry market conditions.
The available forms of executive compensation include base salary, cash
bonus awards and stock options. Performance of the Company is a key
consideration. The Company's compensation policy recognizes, however, that stock
price performance is only one measure of performance and, given industry
business conditions and the long-term strategic direction and goals of the
Company, it may not necessarily be the best current measure of executive
performance. Therefore, the Company's compensation policy also gives
consideration to the Company's achievement of business objectives when
determining Executive Officer compensation. An additional objective of the
Committee has been to reward Executive Officers with equity compensation in
addition to salary in keeping with the Company's overall compensation
philosophy, which attempts to place equity in the hands of its employees in an
effort to further instill shareholder considerations and values in the actions
of employees and Executive Officers. The Committee strongly believes that the
interests of its employees and Executive Officers must be closely aligned with
those of its Shareholders.
The Committee has, with the approval of the full Board of Directors,
determined that the interests of the Company and its shareholders are best
served by the Company's entering into multi-year employment agreements with
certain Executive Officers, including the Chief Executive Officer and the Named
Executive Officers. The Committee believes that such multi-year employment
arrangements benefit the Company and its Shareholders by permitting the Company
to attract and retain Executive Officers with demonstrated leadership abilities
and to secure the services of such Executive Officers at agreed upon terms over
an extended period of time. The compensation payable to the subject Executive
Officers pursuant to the employment agreements is consistent with the
compensation policies of the Company as established by the Committee. In early
2000, the Company entered into new employment agreements with the Chief
Executive Officer and the Named Executive Officers. A summary of the principal
terms of such Executive Officer employment agreements is included under the
caption "Employment Agreements" above.
Compensation paid to Executive Officers is based upon a Company wide salary
structure consistent for each position relative to its authority and
responsibility compared to industry peers. Stock option awards have been used to
reward Executive Officers and to retain them through the potential of capital
15
<PAGE>
gains and equity buildup in the Company. In 1999, the number of stock options
granted, whether in conjunction with a written employment agreement or
otherwise, was determined by the subjective evaluation by the Committee of the
executive's ability to influence the Company's long term growth and
profitability. The Board of Directors believes the award of stock options
represents an effective incentive to create value for the shareholders.
The Committee's executive compensation policies are intended to provide
competitive levels of compensation in order to attract and retain qualified
officers. Compensation for each of the Executive Officers, as well as other
officers, consists of three basic elements: base salary, cash bonuses and
long-term incentive compensation. The base salaries are fixed at levels which
the Committee believes are comparable to those of executives of similar status
in the property and casualty insurance industry. Each Executive Officer is also
eligible to receive an annual bonus dependent upon the Company's success as well
as an assessment of the performance and contribution of each Executive Officer
of the Company for the year. The Committee feels that longer-term incentives are
appropriate to motivate and retain key personnel and that stock ownership by
management is beneficial in aligning management and Shareholder interests in the
enhancement of Shareholder value.
In 1999, the Committee reviewed base salary and annual bonus recommendations
made by the Chief Executive Officer based upon his assessment of the performance
of individual Executive Officers and his assessment of each Executive Officer's
past performance and expectation as to future contributions. The Committee then
formulated its own recommendations which were submitted for approval to the
Board of Directors. The Chief Executive Officer and other Executive Officers
also made recommendations to the Committee concerning the grant of stock options
to other officers.
CHIEF EXECUTIVE OFFICER COMPENSATION
As referenced above, the Company previously entered into an employment
agreement with Mr. Way upon terms approved by the Committee, pursuant to which
Mr. Way would serve as Chairman of the Board of Directors and Chief Executive
Officer of the Company. Such agreement was terminated and a new agreement
entered into in early 2000. The terms of Mr. Way's 1999 compensation are
consistent with the terms of his then applicable employment agreement. A summary
of the principal terms of Mr. Way's current employment agreement is included
under the caption "Employment Agreements" above. The Committee believes the
Chief Executive Officer's cash compensation for 1999 and as contemplated by the
employment agreement is warranted by the Company's continuing performance in
light of overall adverse market conditions in many of the Company's lines of
business and the substantial growth experienced by the Company under his
leadership. The Company's underwriting experience continues to be exceptional
and during the period 1997 through 1999, the Company's average combined ratio
was 88.6%, before the effects of the provision for reinsurance recorded in 1999,
as compared with the industry's average of 105%. This places the Company's
performance at the uppermost performance levels within the industry, a position
it has maintained since 1992. During the period, the Company's gross written
premium increased from $346.4 million to $568.3 million, an increase of 64%,
management fees increased from $51.0 million to $90.7 million, an increase of
78%, commission income increased from $24.2 million to $54.6 million, an
increase of 125% and total revenue increased from $280.3 million to
$341.9 million, an increase of 22%. In addition, during 1999, the Company
completed two major acquisitions. In January, 1999, the Company acquired PEPYS
Holdings, Limited, the parent corporation of Rattner Mackenzie Limited, a London
based reinsurance intermediary operation. In December, 1999, the Company
acquired all of the outstanding shares of the publicly traded The Centris
Group, Inc., the parent corporation of a group of insurance companies and
underwriting agencies principally operating in the medical stop-loss line of
business. Each of such operations is complimentary to the Company's current
operations and is expected to make significant contributions to the Company's
future operations.
Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), generally
disallows a tax deduction to public companies for compensation over
$1.0 million paid to the corporation's Chief
16
<PAGE>
Executive Officer and the four other most highly compensated Executive Officers.
The Company believes that Section 162(m) does not apply to stock options
currently outstanding or subsequently granted under the Company's existing stock
option plans.
Section 162(m) further provides that qualifying performance-based
compensation will not be subject to the deduction limit if certain requirements
are met. The Company currently intends to structure grants under future stock
option plans in a manner that complies with this statute. The Company does not
currently intend to structure the discretionary annual bonus for Executive
Officers to comply with Section 162(m). Such bonuses do not meet
Section 162(m)'s requirement that they be "payable solely on account of the
attainment of one or more performance goals." Therefore, the Committee believes
the annual discretionary bonuses, as currently structured, better serve the
interests of the Company's Shareholders, by allowing broader discretion in
recognizing an Executive Officer's contribution and performance.
In connection with the compensation of the Company's Executive Officers, the
Committee is aware of Section 162(m) of the Code as it relates to deductibility
of qualifying compensation paid to Executive Officers. The Committee believes
that compensation to be paid in 2000 may exceed the deductibility limitations on
non-excluded compensation to certain of the Company's Executive Officers.
Walter J. Lack (Chairman)
James R. Crane
Edwin H. Frank, III
17
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for an
investment of $100 made on December 31, 1994 in the Common Stock of the Company,
the NYSE Composite Index and the Nasdaq Insurance Stock Index. The graph assumes
that all dividends were reinvested.
TOTAL RETURN PERFORMANCE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN PERFORMANCE
<S> <C> <C> <C>
INDEX VALUE
HCC Insurance Holdings, Inc. NYSE Composite NASDAQ Insurance Index
12/31/94 $100.00 $100.00 $100.00
12/31/95 $176.19 $131.31 $142.05
12/31/96 $286.41 $156.33 $161.92
12/31/97 $254.83 $203.71 $237.52
12/31/98 $211.56 $237.43 $211.58
12/31/99 $161.32 $259.15 $164.29
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDING
---------------------------------------------------------------
INDEX 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
HCC Insurance Holdings, Inc................ 100.00 176.19 286.41 254.83 211.56 161.32
NYSE Composite............................. 100.00 131.31 156.33 203.71 237.43 259.15
Nasdaq Insurance Index..................... 100.00 142.05 161.92 237.52 211.58 164.29
</TABLE>
OTHER BUSINESS
The Board of Directors has no knowledge of any other matter to be submitted
at the Meeting. If any other matter shall properly come before the Meeting, the
persons named in the Proxy will have discretionary authority to vote the shares
thereby represented in accordance with their best judgment.
18
<PAGE>
SHAREHOLDER PROPOSALS
Any Shareholder proposal intended to be presented for consideration at the
2001 Annual Meeting of Shareholders and to be included in the Company's Proxy
Statement must be in proper form and received by the Secretary of the Company at
the principal executive offices of the Company by the close of business on
December 17, 2000. It is suggested that a proponent submit any proposal by
Certified Mail--Return Receipt Requested and all proposals should be sent to the
attention of the Secretary.
FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON REQUEST OF ANY SUCH PERSON, A COPY OF THE ANNUAL REPORT OF THE
COMPANY ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, AS FILED WITH
THE SEC, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO BUT NOT THE
EXHIBITS. REQUESTS FOR COPIES OF SUCH REPORT SHOULD BE DIRECTED TO FRANK J.
BRAMANTI, EXECUTIVE VICE PRESIDENT, HCC INSURANCE HOLDINGS, INC.,
13403 NORTHWEST FREEWAY, HOUSTON, TEXAS 77040-6094. COPIES OF ANY EXHIBIT TO THE
FORM 10-K WILL BE FORWARDED UPON RECEIPT OF A WRITTEN REQUEST THEREFOR ADDRESSED
TO MR. BRAMANTI.
EACH SHAREHOLDER WHO DOES NOT EXPECT TO ATTEND THE ANNUAL MEETING OF
SHAREHOLDERS IN PERSON IS URGED TO EXECUTE THE PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED
STATES.
By Order of the Board of Directors,
CHRISTOPHER L. MARTIN,
SECRETARY
Dated April 18, 2000
19
<PAGE>
HCC INSURANCE HOLDINGS, INC.
ANNUAL MEETING OF SHAREHOLDERS - TO BE HELD MAY 18, 2000
THE BOARD OF DIRECTORS SOLICITS THIS PROXY
The undersigned hereby constitutes and appoints Frank J. Bramanti and
Christopher L. Martin, each of them, acting in the absence of others, as
proxies of the undersigned, with full power of substitution in the premises
to each of them, to appear and vote, as designated herein, all shares of
stock of the Common Stock of HCC Insurance Holdings, Inc. (the "Company")
held of record by the undersigned on April 10, 2000 at the Annual Meeting of
Shareholders of the Company to be held at the offices of the Company, 13403
Northwest Freeway, Houston, Texas 77040-6094 on May 18, 2000, at 9:30 a.m.,
Central time, and at any and all postponements or adjournments thereof (the
"Meeting").
When properly executed, this proxy will be voted as designated below by
the undersigned. If no choice is specified, the proxy will be voted "FOR" the
election of all nominees for Director listed below, and, according to the
discretion of the proxy holders, on any other matters that may properly come
before the Meeting or any and all postponements or adjournments thereof.
(Continued and to be signed on reverse side.)
^ FOLD AND DETACH HERE ^
<PAGE>
HCC INSURANCE HOLDINGS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY / /
For Withhold For All Except nominee(s)
All All Except number(s) written below
1. Election of Directors / / / / / /
------------------------
01-James M. Berry, 02-Frank J. Bramanti, 03-Marvin P. Bush, 04-Patrick B.
Collins, 05-James R. Crane, 06-J. Robert Dickerson, 07-Edwin H. Frank, III,
08-Allan W. Fulkerson, 09-Walter J. Lack, 10-Stephen J. Lockwood, 11-John N.
Molbeck, Jr., 12-Stephen L. Way
2. In their discretion, the proxies are authorized to vote upon such business as
may properly come before the Meeting or postponement or any adjournment
thereof.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders, the Proxy Statement for such meeting, and the Annual
Report of HCC Insurance Holdings, Inc. for the fiscal year ended December 31,
1999.
------------------------------------------------------
SIGNATURE OF SHAREHOLDER
------------------------------------------------------
SIGNATURE OF SHAREHOLDER
(if jointly held)
Dated__________________________, 2000
Note: Please sign exactly as your name appears on
this card. On joint accounts each joint holder
should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give
your full title as such. If a corporation, please
sign in full corporate name by President or other
authorized person. If a partnership, please sign
in partnership name by authorized person.
^ FOLD AND DETACH HERE ^
CONTROL NUMBER
PLEASE MARK, SIGN, DATE, AND RETURN YOUR PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE.
