SCHEDULE 14A
Information Required in Proxy Statement
Reg. ss. 240.14a-101
SCHEDULE 14A INFORMATION
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[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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paid previously. Identify the previous filing by registration statement
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<PAGE>
FSA
Financial Security Assurance Holdings Ltd.
350 Park Avenue, New York, New York 10022
March 24, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of
Shareholders of Financial Security Assurance Holdings Ltd., which will be held
at 9:00 a.m. (New York City time) on Thursday, May 8, 1997, at the offices of
the Company at 350 Park Avenue, 13th Floor, New York, New York 10022. We
encourage you to join us at the meeting, where you will have an opportunity to
ask questions about our business and operations.
This year you are being asked to elect 15 directors and to approve the
Company's selection of independent auditors for 1997. These proposals are
described in the attached proxy statement, which you are encouraged to read
fully.
Whether or not you plan to attend the meeting, you can ensure that your
shares are represented properly by completing, signing and dating your proxy
card and returning it in the enclosed envelope.
Sincerely,
JOHN J. BYRNE ROBERT P. COCHRAN
John J. Byrne, Robert P. Cochran,
Chairman President
<PAGE>
Financial Security Assurance Holdings Ltd.
Notice of Annual Meeting of Shareholders
To the Shareholders of Financial Security Assurance Holdings Ltd.:
The annual meeting of the shareholders of Financial Security Assurance
Holdings Ltd. (the "Company") will be held at the offices of the Company at 350
Park Avenue, 13th Floor, New York, New York 10022, on Thursday, May 8, 1997, at
9:00 a.m., New York City time, for the following purposes:
Proposal 1: To elect 15 directors of the Company for terms expiring
at the 1998 Annual Meeting;
Proposal 2: To approve the appointment by the Board of Directors of
Coopers & Lybrand L.L.P., certified public accountants,
as independent auditors for the Company for the year
1997;
and to transact such other business as may properly come before the meeting or
any adjournment thereof.
Shareholders of record at the close of business on Thursday, March 20,
1997, will be entitled to vote at the meeting, whether in person or by proxy.
Please complete, sign and date the enclosed proxy card as soon as possible and
return it in the envelope provided. Shareholders who attend the meeting may
revoke their proxies and vote in person, if they wish to do so.
By order of the Board of Directors,
BRUCE E. STERN
Bruce E. Stern,
Secretary
350 Park Avenue
New York, New York 10022
March 24, 1997
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
PROXY STATEMENT
Your proxy in the form enclosed is hereby solicited by the Board of
Directors of Financial Security Assurance Holdings Ltd. (the "Company"). Your
proxy once given may be revoked by you at any time prior to its use. The shares
represented by the proxies received will be voted at the meeting, or any
adjournment thereof, in accordance with such specifications as are made therein
or, if no such specifications are made, in accordance with the recommendation of
the Board of Directors.
The record date for the determination of shareholders entitled to vote at
the meeting was March 20, 1997. On the record date, there were outstanding
30,964,349 shares (including 984,629 shares owned by a trust on behalf of the
Company but excluding 1,311,952 shares actually owned in treasury) of the
Company's common stock, par value $.01 per share ("Common Stock"), and 2,000,000
shares of the Company's Series A Convertible Redeemable Preferred Stock, par
value $.01 per share ("Preferred Stock"), constituting all the outstanding
voting securities of the Company. Each share is entitled to one vote, with the
holder of the Preferred Stock voting together as a single class with the holders
of the Common Stock.
The mailing address of the principal executive offices of the Company is
350 Park Avenue, New York, New York 10022. This Proxy Statement and the
accompanying Notice of Annual Meeting of Shareholders and proxy card are being
mailed, on or about March 24, 1997, to shareholders of record at the close of
business on the record date.
PROPOSAL 1: ELECTION OF DIRECTORS
All the Company's directors are elected at each annual meeting of
shareholders. At the 1997 Annual Meeting, the shareholders will elect 15
directors to serve for a term expiring at the 1998 Annual Meeting.
During 1996, Kozo Kusakari, who served as a director of the Company since
June 1991, retired from the Board, and the Board elected Toshiki Kaneda to fill
the resulting vacancy. Mr. Kaneda is standing for re-election. Mr. Kusakari, age
54, was the General Manager of the Guarantee and Credit Underwriting Department
of The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine"), and Mr.
Kaneda, age 48, is the General Manager of the Non-Marine Underwriting Department
of Tokio Marine and the President of Tokio Marine Loan Clerical Service Co.,
Ltd. The Board gratefully acknowledges Mr. Kusakari's contributions to the
Company during his tenure as a director.
The names of the nominees being presented for consideration by the
shareholders, their ages, the years, if any, they have been directors of the
Company, their principal occupations over the past five years, their current
positions with the Company and certain other directorships held by them are set
forth below. The number of shares of the Company's stock owned by the nominees
is set forth below under "Ownership of the Company". As used herein, "FSA" means
Financial Security Assurance Inc., the Company's principal operating subsidiary;
"Fund American" means Fund American Enterprises Holdings, Inc.; "FAE" means Fund
American Enterprises, Inc., a subsidiary of Fund American; "Fireman's Fund"
means Fireman's Fund Insurance Company, formerly a subsidiary of Fund American;
"Source One" means Source One Mortgage Services Corporation, a subsidiary of
FAE; "White Mountains" means White Mountains Holdings, Inc., a subsidiary of
Fund American; "Tokio Marine" means The Tokio Marine and Fire Insurance Co.,
Ltd.; "U S WEST" means U S WEST, Inc.; "USWCC" means U S WEST Capital
Corporation, a subsidiary of U S WEST; "CGC" means Capital Guaranty Corporation,
which merged with a subsidiary of the Company on December 20, 1995; and "CGIC"
means Capital Guaranty Insurance Company, CGC's principal operating subsidiary.
At March 20, 1997, (i) Fund American, Tokio Marine and USWCC owned
<PAGE>
approximately 11%, 6% and 39%, respectively, of the Common Stock, with Fund
American having various voting rights in respect of certain shares owned by
USWCC, and (ii) Fund American owned 100% of the Preferred Stock. See "Ownership
of the Company" for further information regarding such share ownership. See
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" for further information regarding
certain arrangements among the Company, Fund American, Tokio Marine and U S
WEST.
The shares represented by all proxies received will be voted for these
nominees, except to the extent authority to do so is withheld as provided for in
the enclosed proxy card. If any such nominee should be unable or unwilling to
serve (an event not now anticipated), all proxies received will be voted for the
person, if any, designated by the Board of Directors to replace such nominee.
The Board recommends a vote FOR the election of all nominees for
director.
John J. Byrne
Age 64............... Chairman of the Board of Directors and Director of
the Company since May 1994. Chairman of the Board of
Directors and Chief Executive Officer of Fund
American since 1985 and President of Fund American
since 1990. From 1989 through 1990, Mr. Byrne was
Chairman of the Board of Directors of Fireman's Fund.
Prior to joining Fireman's Fund, Mr. Byrne was
Chairman and Chief Executive Officer of GEICO
Corporation. Mr. Byrne is also Chairman of FAE, and
was Chairman of White Mountains until February 1997.
Mr. Byrne is an advisory director of Lehman Brothers
Holdings, Inc. and Mid America Apartment Communities,
and a director of Terra Nova (Bermuda) Holdings Ltd.
Robert P. Cochran
Age 47............... President and Chief Executive Officer of the Company
and of FSA since August 1990. Mr. Cochran has been
Chairman of FSA since July 1994, and a director of
the Company since August 1990 and of FSA since July
1988. From September 1990 until December 1993, Mr.
Cochran was a director of USWCC. Prior to joining the
Company in 1985, Mr. Cochran was managing partner of
the Washington, D.C. office of the Kutak Rock law
firm. Mr. Cochran is a director of Fund American and
White Mountains Holdings, Inc.
Michael Djordjevich
Age 60............... Vice Chairman of the Board of Directors and Director
of the Company since February 1996. Mr. Djordjevich
served as President and Chief Executive Officer of
CGC and CGIC from 1986 to December 1995, and as
Chairman of CGC from 1992 until December 1995. Prior
to 1986, Mr. Djordjevich was President and Chief
Executive Officer of USF&G Financial Security
Company, which managed the financial guaranty
business of United States Fidelity & Guaranty. Prior
thereto, he held numerous positions at Fireman's
Fund, including Vice President of Financial Insurance
from 1983 to 1985 and Vice President and Treasurer
from 1974 to 1983.
Robert N. Downey
Age 61............... Director of the Company since August 1994. Mr. Downey
has been a limited partner since 1990, and a general
partner from 1976 until 1990, of Goldman, Sachs & Co.
At Goldman, Sachs & Co., Mr. Downey served as head of
the
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<PAGE>
Municipal Bond Department and Vice Chairman of the
Fixed Income Division. Mr. Downey was a Director of
the Securities Industry Association from 1987 through
1991 and served as its Chairman in 1990 and Vice
Chairman in 1988 and 1989. He was also formerly
Chairman of the Municipal Securities Division of the
Public Securities Association and Vice Chairman of
the Municipal Securities Rulemaking Board.
Anthony M. Frank
Age 65............... Director of the Company since February 1996. Mr.
Frank was a director of CGC from February 1994 until
December 1995. He has been Chairman of Belvedere
Capital Partners, General Partner of the California
Community Financial Institutions Fund, since 1994. He
was Postmaster General of the United States from 1988
to 1992 and, prior thereto, served as Chairman and
Chief Executive Officer of First Nationwide Bank from
1971 to 1988. Mr. Frank is a director of Charles
Schwab Inc.; Bedford Properties Inc.; Irvine
Apartment Communities, Inc.; Living Centers of
America, Inc.; General American Investors, Inc.;
Temple-Inland, Inc.; and Crescent Real Estate
Equities.
Toshiki Kaneda
Age 48............... Director of the Company since November 1996 and FSA
since October 1996. Mr. Kaneda has been General
Manager of the Non-Marine Underwriting Department of
Tokio Marine and President of the Tokio Marine Loan
Clerical Service Co., Ltd. since July 1996. He was
Deputy General Manager of the Corporate
Administration Department of Tokio Marine from 1994
to June 1996, and of the Non-Marine Underwriting
Department of Tokio Marine from 1991 to 1994.
K. Thomas Kemp
Age 56............... Director of the Company since August 1994. Mr. Kemp
has served as Executive Vice President, Treasurer and
Secretary of Fund American since 1993 and Vice
President, Treasurer and Secretary since 1991. Mr.
Kemp has served as Chairman of White Mountains since
February 1997. He has served as President and Chief
Executive Officer of White Mountains and Chairman of
White Mountains Insurance Company since 1995. Mr.
Kemp was Vice President of Fireman's Fund from 1990
to January 1991. Prior to joining Fireman's Fund, Mr.
Kemp was President of Resolute Reinsurance Company.
Mr. Kemp is a director of Fund American, FAE,
Folksamerica Reinsurance Holdings, Inc., Centricut,
Inc., Main Street America Holdings, Inc., Commerce
Security BancCorp, Inc., Valley Insurance Group,
Inc., White Mountains and White Mountains Insurance
Company.
David O. Maxwell
Age 66............... Director of the Company since August 1994. Mr.
Maxwell was Chairman and Chief Executive Officer of
Federal National Mortgage Association from 1981 until
his retirement in 1991. Mr. Maxwell is a director of
Potomac Electric Power Company (PEPCO), Salomon Inc
and SunAmerica Inc.
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<PAGE>
James M. Osterhoff
Age 60............... Director of the Company since April 1992. Mr.
Osterhoff was a director of FSA from September 1993
until July 1994. He was Executive Vice President and
Chief Financial Officer of U S WEST from December
1991 until his retirement in September 1995. Prior to
joining U S WEST, Mr. Osterhoff was Vice
President--Finance and Chief Financial Officer of
Digital Equipment Corp., a computer manufacturer. Mr.
Osterhoff is a director of GenCorp.
James H. Ozanne
Age 53............... Director of the Company since January 1990 and
director of FSA from December 1989 until July 1994.
Mr. Ozanne is Chairman of Greenrange Partners. He has
been President of FAE since March 1, 1997 and Vice
Chairman and Director of Source One since August
1996. He was Chairman and Director of Nations
Financial Holdings Corporation from January 1994 to
January 1996. During December 1993, Mr. Ozanne was
President and Chief Operating Officer of Nations
Financial Capital Corporation. He was President and
Chief Executive Officer of USWCC from September 1989
until December 1993. Prior to joining USWCC, Mr.
Ozanne was Executive Vice President of General
Electric Capital Corporation.
Staats M. Pellett, Jr.
Age 66............... Director of the Company since February 1996. Mr.
Pellett was a director of CGC from February 1994
until December 1995. Until his retirement in 1996,
Mr. Pellett was Senior Vice President of Bessemer
Trust Company N.A. ("Bessemer"), a federally
chartered bank engaged in investment management,
fiduciary and other financial services. Prior to
joining Bessemer in 1976, Mr. Pellett oversaw
Fireman's Fund's municipal bond portfolio from 1965
to 1976. He also served as a Public Member of the
Municipal Securities Rulemaking Board.
Richard A. Post
Age 38............... Director of the Company since April 1994. Mr. Post
was a director of FSA from April 1994 until July
1994. Mr. Post is Vice President and Chief Financial
Officer of U S WEST Media Group and President of
USWCC and U S WEST Financial Services Inc. Mr. Post
had previously served U S WEST in a number of other
positions. In addition, Mr. Post has been a director
of a number of U S WEST-affiliated companies.
Roger K. Taylor
Age 45............... Director of the Company since February 1995. Mr.
Taylor has been Chief Operating Officer of the
Company since May 1993. Mr. Taylor has been a
Managing Director of FSA since January 1991 and was a
consultant to FSA from January 1990 to January 1991.
He was a director of the Company from August 1993
until August 1994 and has been a director of FSA
since January 1992. Prior to joining FSA, Mr. Taylor
was Executive Vice President of Financial Guaranty
Insurance Company, a financial guaranty insurer. Mr.
Taylor is a director of Source One.
4
<PAGE>
Allan L. Waters
Age 39............... Director of the Company since August 1994. Mr. Waters
has been Senior Vice President and Chief Financial
Officer of Fund American since December 1993. He was
Vice President and Controller of FAE from 1991 to
1993 and has been a member of the Fund American
organization (formerly the Fireman's Fund
organization) since 1985. Mr. Waters is also Chairman
of The Upper Valley Company and a director of FAE,
Folksamerica Holding Company, Source One, White
Mountains and White Mountains Insurance Company.
Howard M. Zelikow
Age 62............... Director of the Company since February 1996. Mr.
Zelikow was a director of CGC from February 1994
until December 1995. Mr. Zelikow has been a
management and financial consultant doing business as
ZKA Associates since 1987 and has been a member of
Kayne Anderson Investment Management, Inc., an
investment management company, since 1988. Mr.
Zelikow was Chief Financial Officer and Executive
Vice President of The Progressive Corporation from
1976 to 1987. Mr. Zelikow is a director of The Right
Start, Inc. and Queensway Financial Holdings Limited.
For information regarding Common Stock ownership by the Company's nominees
for director named above, see "Ownership of the Company" below. For information
regarding nominating privileges and voting arrangements among Fund American, U S
WEST and Tokio Marine, see "Compensation Committee Interlocks and Insider
Participation" and "Certain Relationships and Related Transactions" below.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 1996, the Board of Directors of the
Company (the "Board") met five times. At present, there are four Committees of
the Board, whose activities are discussed below. The Board of Directors does not
have a nominating committee.
The Audit Committee is comprised entirely of directors who are not
officers or employees of the Company, any subsidiary of the Company, Fund
American, Tokio Marine or U S WEST. The Audit Committee, which at year end
consisted of Messrs. Frank, Ozanne and Zelikow, met once during 1996. The Audit
Committee recommends independent auditors for approval by the Board of Directors
and shareholders, reviews the independence of such auditors, approves the scope
of the annual audit activities of the independent auditors and reviews audit
results.
The Finance Committee, which at year end consisted of Messrs. Djordjevich
(Chairperson), Downey, Kaneda, Maxwell, Osterhoff, Pellett, Post, Waters and
Zelikow, met twice during 1996. The Finance Committee approves the general
investment policies and objectives of the Company, monitors investment
activities and portfolio performance for the Company, periodically reviews
sources and uses of capital, and reviews the Company's periodic and annual
financial statements.
The Human Resources Committee is comprised entirely of directors who are
not officers or employees of the Company or any subsidiary of the Company. The
Human Resources Committee has authority to establish and approve compensation
payments and policies for executives and other employees, including awards under
the Company's incentive and benefit plans. The Human Resources Committee,
5
<PAGE>
which at year end consisted of Messrs. Kemp (Chairperson), Downey, Frank,
Maxwell, Osterhoff and Ozanne, met four times during 1996.
The Underwriting Committee, which at year end consisted of Messrs. Ozanne
(Chairperson), Djordjevich, Kaneda, Pellett, Post and Waters, met four times
during 1996. The Underwriting Committee monitors the underwriting process in
order to assure general compliance with underwriting guidelines and reviews
significant changes in general underwriting policies and guidelines proposed by
management. The Underwriting Committee also reviews proposals to develop new
product lines.
Each non-management director of the Company receives an annual fee of
$26,000 for service as a director, plus (i) an additional annual fee of $5,000
for each chairperson of a Committee of the Board of Directors and (ii) an
additional annual fee of $26,000 for the Chairman of the Board of Directors.
Directors also receive $2,000 for each Board meeting and Committee meeting
attended and reimbursement for expenses for any such meeting attended. All
directors attended at least 75% of the meetings of the Board and Committees on
which they served, for the period for which they served, during 1996.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company who are not nominees for election as
directors of the Company and their ages and positions with the Company as of the
date hereof are set forth in the following table.
Name Age Position
- --------------------------------------------------------------------------------
Russell B. Brewer II 40 Managing Director, Chief Underwriting
Officer and Director of FSA
John A. Harrison 53 Managing Director and Chief Financial
Officer of the Company and FSA;
Director of FSA
Sean W. McCarthy 38 Managing Director and Director of FSA
Bruce E. Stern 43 Managing Director, General Counsel and
Secretary of the Company and FSA;
Director of FSA
The present principal occupations and five-year employment history of each
of the above-named executive officers of the Company, as well as other
directorships of publicly held corporations currently held by each such person,
are set forth below:
Mr. Brewer has been a Managing Director of FSA since March 1989 and the
Chief Underwriting Officer of FSA since September 1990. He has been a director
of FSA since September 1993. From March 1989 to August 1991, Mr. Brewer was
Managing Director, Asset Finance Group, of FSA. Prior to joining FSA in 1986,
Mr. Brewer was an Associate Director of Moody's Investors Service, Inc.
Mr. Harrison has been a Managing Director and the Chief Financial Officer
of FSA since August 1991 and the Chief Financial Officer of the Company since
February 1993. He has been a director of FSA since September 1993. From April
1987 through August 1991, Mr. Harrison was Chief Financial Officer of Citibank,
N.A.--U.S. Consumer Banking Group, and prior thereto was Managing Director, Real
Estate Finance Group, of Merrill Lynch & Co. Inc.
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<PAGE>
Mr. McCarthy has been a Managing Director of FSA since March 1989 and head
of its Financial Guaranty Department since April 1993. He has been a director of
FSA since September 1993. Prior to joining FSA in 1988, Mr. McCarthy was a Vice
President of PaineWebber Incorporated.
Mr. Stern has been a Managing Director, the Secretary and the General
Counsel of the Company since April 1993. Since April 1993, he has been the
Secretary of FSA, and since March 1989, he has been a Managing Director of FSA.
He has been a director of FSA since August 1990. Prior to joining FSA as General
Counsel in 1987, Mr. Stern was an attorney with Cravath, Swaine & Moore.
OWNERSHIP OF THE COMPANY
5% Shareholders
The following table sets forth certain information regarding actual,
beneficial and voting ownership of the Company's equity at March 14, 1997 as to
each person known by the Company to beneficially own, within the meaning of the
Exchange Act, 5% or more of the outstanding shares of the Common Stock or
Preferred Stock. In connection with the Company's initial public offering in May
1994 (the "IPO"), the Company, Fund American and U S WEST entered into certain
arrangements affecting such ownership, which are summarized in Notes (3) and (4)
to the following table.
<TABLE>
<CAPTION>
Number of Shares Owned(1)
------------------------- Voting
5% Shareholders Actual Beneficial(2) Power
- --------------------------------------------------------------------------------------------------------------------
Number Percent Number Percent Percent(3)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U S WEST Capital Corporation........................ 12,106,910 39.1% 12,106,910 39.1% 31.0%
c/o U S WEST, Inc.
7800 East Orchard Road
Englewood, CO 80111(4)(5)
Fund American Enterprises Holdings, Inc. ........... 3,460,200 11.2 8,020,807 24.3 22.3
80 South Main Street
Hanover, NH 03755(4)
The Tokio Marine and Fire Insurance Co., Ltd........ 1,929,000 6.2 1,929,000 6.2 5.9
2-1, Marunouchi 1-Chome
Chiyoda-ku, Tokyo 100 Japan
FMR Corp............................................ 1,926,400 6.2 1,926,400 6.2 5.8
82 Devonshire Street
Boston, MA 02109(6)
The Prudential Insurance Company of America......... 1,672,246 5.4 1,672,246 5.4 5.1
751 Broad Street
Newark, NJ 07102(7)
</TABLE>
(1) Number of shares owned is based on Schedules 13D or 13G filed by such
entities with the SEC, except as noted in the next sentence. The table
reflects 3,750,000 fewer shares actually and beneficially owned by USWCC
than reported on the latest amended Schedule 13G received by the Company
from USWCC, due to certain transactions entered into by USWCC in May
1996, as described below under "Certain Relationships and Related
Transactions--Fund American, U S WEST and Company Relationships".
Ownership percentages are calculated based on 30,964,349 shares of Common
Stock outstanding at March 14, 1997, which (a) includes 984,629 shares
purchased by a "rabbi trust" for purposes of funding in advance the
Company's obligations with respect to outstanding performance shares, (b)
excludes 1,311,952 shares actually held in treasury and (c) excludes
2,000,000 shares of Preferred Stock outstanding at March 14, 1997, except
that such Preferred Stock is included for determining the beneficial
ownership percentage of Fund American (which holds such Preferred Stock).
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(2) A person is deemed to have "beneficial ownership" of any shares as of a
given date which such person has the right to acquire within 60 days
after such date or over which such person has voting or investment power.
In computing the percentage of outstanding shares beneficially held by
each shareholder listed above, any share of Common Stock which such
shareholder beneficially owns is deemed to be outstanding for such
shareholder, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other shareholder unless such
share is actually outstanding. Please see Notes (3) and (4) below for
additional information regarding shares beneficially owned by Fund
American.
(3) Under a Voting Trust Agreement among Fund American, USWCC and The First
National Bank of Chicago, as voting trustee thereunder (the "Voting
Trustee"), 1,893,940 shares of Common Stock deliverable upon the exercise
in full of an option granted by USWCC to Fund American were deposited
into a voting trust administered by the Voting Trustee, and Fund American
has the right to direct the voting of such shares prior to the exercise
of the option. In addition, at any time that Fund American owns at least
35% of the issued and then outstanding shares of Common Stock (including,
for this purpose, the 1,893,940 shares subject to such option), in order
that the Company be considered a majority owned subsidiary of Fund
American, USWCC will deposit into the voting trust an additional number
of shares, to the extent USWCC beneficially owns such shares, so that
Fund American will be able to vote 50.1% of the then issued and
outstanding shares of Common Stock. Percentages are calculated based on
32,964,349 shares of Common Stock outstanding at March 14, 1997, which
(a) includes 984,629 shares purchased by a "rabbi trust" for purposes of
funding in advance the Company's obligations with respect to outstanding
performance shares, (b) excludes 1,311,952 shares actually held in
treasury, and (c) includes 2,000,000 shares of Preferred Stock
outstanding at March 14 1997.
(4) Of the 3,460,200 shares actually owned by Fund American, 1,000,000 shares
are owned directly and the remainder through subsidiaries. On March 14,
1997 Fund American also owned (subject, in each case, to anti-dilutive
adjustment): (a) 2,000,000 shares of Preferred Stock, constituting all
the outstanding Preferred Stock, which are convertible into an equal
number of shares of Common Stock at the conversion price of $29.65 per
share; (b) an option, which expires on May 13, 1999 and entitles Fund
American to purchase up to 666,667 shares of Common Stock from USWCC at
an exercise price of $23.50 per share; (c) an option, which expires on
November 2, 2004 and entitles Fund American to purchase up to 1,893,940
shares of Common Stock from USWCC at an exercise price of $26.40 per
share; and (d) certain voting rights with respect to certain shares of
Common Stock as described in Note (3) above.
(5) In May 1996, U S WEST sold to Salomon Inc ("Salomon") exchangeable notes
(known as debt exchangeable for common stock or "DECS", and herein
referred to as the "USW DECS") which, at maturity, are exchangeable, at
the option of U S WEST, for up to 9,796,303 shares of Common Stock owned
by USWCC. Salomon, in turn, sold to third parties an issue of DECS (the
"Salomon DECS") which mirror the terms of the USW DECS held by Salomon.
See "Certain Relationships and Related Transactions--Fund American, U S
WEST and Company Relationships".
(6) All shares included in FMR Corp.'s Schedule 13G are attributable to
ownership of Salomon DECS. The Schedule 13G dated February 14, 1997 filed
by FMR Corp. with the SEC indicates that beneficial ownership of
substantially all of these shares arises through the investment advisory
activities of Fidelity Management & Research Company and the investment
management activities of Fidelity Management Trust Company, each a wholly
owned subsidiary of FMR Corp.
(7) According to the Schedule 13G dated February 3, 1997 filed by The
Prudential Insurance Company of America ("Prudential") with the SEC,
Prudential holds 125,512 of the shares for the benefit of its general
account, and may have direct or indirect voting and/or investment
discretion over 1,546,734 shares which are held for the benefit of its
clients by its separate accounts, externally managed accounts, registered
investment companies, subsidiaries and/or other affiliates. The Schedule
13G states that Prudential acquired these shares in the ordinary course
of business, and not with the purpose or effect of changing or
influencing control of the Company.
Directors and Executive Officers
The following table sets forth certain information regarding ownership of
the Company's equity at March 14, 1997 as to (a) each director and nominee for
director of the Company, (b) each executive officer named under "Executive
Compensation--Summary Compensation Table" and (c) all such executive officers
and directors of the Company as a group. The table provides information
regarding actual, beneficial and economic ownership. Voting power is less than
1% of voting shares outstanding for each executive officer and director listed,
individually and as a group.
(Table appears on the following page.)
8
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Owned(1)
------------------------------------------------
Directors and Executive Officers Actual Beneficial(2) Economic(3)
-------------------------------- ------- ------------- -----------
<S> <C> <C> <C>
John J. Byrne(4)...................... 35,000 35,000 35,000
Robert P. Cochran..................... 60,682 60,682 459,090
Michael Djordjevich................... 4,000 128,927 159,927
Robert N. Downey...................... 50,000 50,000 66,529
Anthony M. Frank...................... 2,671 2,671 18,455
Toshiki Kaneda........................ -- -- --
K. Thomas Kemp(4)..................... 1,600 1,600 18,173
David O. Maxwell...................... 6,000 6,000 21,000
James M. Osterhoff.................... 1,000 1,000 17,141
James H. Ozanne....................... 5,300 5,300 23,692
Staats M. Pellett, Jr................. 3,350 3,350 20,028
Richard A. Post....................... 200 200 16,416
Roger K. Taylor....................... 26,786 26,786 273,646
Allan L. Waters (4)................... 2,000 2,000 18,678
Howard M. Zelikow..................... 5,037 5,037 20,037
Russell B. Brewer II.................. 7,557 7,557 77,802
Sean W. McCarthy...................... 6,984 6,984 184,801
Bruce E. Stern........................ 6,114 6,114 74,075
All executive officers and
directors as a group (19 persons)... 205,324 330,251 1,581,773
</TABLE>
(1) At March 14, 1997, (a) shares actually owned represented less than 1% of
total shares of Common Stock outstanding for each executive officer and
director listed, individually and as a group, (b) shares beneficially
owned represented less than 1% of total shares of Common Stock
outstanding for each executive officer and director listed, individually,
and 1.1% for all executive officers and directors as a group, and (c)
shares economically owned represented less than 1% of total shares of
Common Stock outstanding for each executive officer and director listed
(other than Mr. Cochran), individually, 1.5% for Mr. Cochran and 4.9% for
all executive officers and directors as a group. The foregoing
percentages are calculated based on 30,964,349 shares of Common Stock
outstanding at March 14, 1997, which (a) includes 984,629 shares
purchased by a "rabbi trust" for purposes of funding in advance the
Company's obligations with respect to outstanding performance shares, (b)
excludes 1,311,952 shares actually held in treasury, (c) excludes
2,000,000 shares of Preferred Stock outstanding at March 14, 1997 and (d)
is adjusted for each individual as described in Note (2) below. The table
excludes fractional shares attributable to participation in various
benefit plans.
(2) A person is deemed to have "beneficial ownership" of any shares as of a
given date which such person has the right to acquire within 60 days
after such date or over which such person has voting or investment power.
In computing the percentage of outstanding shares beneficially and
economically held by each person named above, any share of Common Stock
which such person beneficially or economically owns is deemed to be
outstanding for such person, but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person unless
such share is actually outstanding. No director or executive officer
beneficially owned shares not actually owned and outstanding, except for
Mr. Djordjevich, who at the date shown had options to purchase 124,927
shares of Common Stock, awarded in accordance with the CGC Merger
Agreement (as defined under "Certain Relationships and Related
Transactions--CGC Merger Agreement").
(3) Shares economically owned by directors and executive officers include (a)
vested and unvested performance shares with each performance share
treated as one share of Common Stock, (b) equity bonus shares, (c) vested
stock options, (d) deemed investments in Common Stock under various of
the Company's plans and (e) deemed investments in Forward Shares (defined
below under "Certain Relationships and Related Transactions--Fund
American, U S WEST and Company Relationships") under the Company's
Deferred Compensation Plan (the "Deferred Plan") or Supplemental
Executive Retirement Plan (the "SERP"). The table includes such shares
economically owned by the Chief Executive Officer and the other four most
highly compensated executive officers of the Company and its subsidiaries
in the following amounts: Robert P. Cochran--67,307 vested and 104,000
unvested performance shares, 33,775 equity bonus shares, 48,074 shares
deemed invested under the Deferred Plan and the 1993 Equity Participation
Plan, and 145,252 Forward Shares under the SERP and the Deferred Plan;
Roger K. Taylor--42,128 vested and 70,000 unvested performance shares,
22,750 equity bonus shares, 27,982 shares deemed invested under the
Deferred Plan and the 1993 Equity Participation Plan, and 84,000 Forward
Shares under the SERP and the Deferred Plan; Sean W. McCarthy--27,574
vested and 68,500 unvested performance shares, 14,543 equity bonus
shares, and 67,200 Forward Shares under the SERP
9
<PAGE>
and the Deferred Plan; Russell B. Brewer II--21,002 vested and 30,000
unvested performance shares, 7,734 equity bonus shares, 6,509 shares
deemed invested under the 1993 Equity Participation Plan, and 5,000
Forward Shares under the SERP; Bruce E. Stern--21,002 vested and 30,000
unvested performance shares, 8,951 equity bonus shares, and 8,008 shares
deemed invested under the 1993 Equity Participation Plan; all executive
officers and directors as a group--200,015 vested and 358,500 unvested
performance shares, 93,243 equity bonus shares, 110,367 shares deemed
invested under the Company's Deferred Plan and 1993 Equity Participation
Plan, and 466,452 Forward Shares. To the extent that shares economically
owned by any non-officer director exceed those beneficially owned, such
economic ownership is attributable to (i) 15,000 Forward Shares per
director (5,000 in the case of Mr. Djordjevich) and (ii) shares deemed
invested under the Deferred Plan.
(4) Mr. Byrne is the Chairman, President and Chief Executive Officer, and a
major shareholder, of Fund American; Mr. Kemp is Executive Vice
President, Treasurer and Secretary of Fund American; and Mr. Waters is
Senior Vice President and Chief Financial Officer of Fund American.
Messrs. Byrne, Kemp and Waters disclaim beneficial ownership of Common
Stock and Preferred Stock held by Fund American or its subsidiaries.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth a summary of all compensation paid to the
chief executive officer of the Company and the other four most highly
compensated executive officers of the Company and its subsidiaries, in each case
for services rendered in all capacities to the Company and its subsidiaries for
the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- -------------------------------------
Awards Payouts
-------------------------- --------
Other Restricted Options/
Name and Principal Annual Stock SARs LTIP All Other
Position(1) Year Salary Bonus Compensation(2) Awards(3) (# of shares)(4) Payouts(5) Compensation(6)
---------- ---- ------ ----- --------------- ---------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert P. Cochran...........1996 $400,000 $593,080 $537,566 -- -- $1,706,627 $90,000
President and Chief 1995 400,000 606,250 257,359 -- -- -- 90,000
Executive Officer 1994 392,000 520,000 152,945 $244,800 160,000 -- 97,000
Roger K. Taylor.............1996 250,000 568,750 183,828 -- -- 993,290 69,750
Managing Director and 1995 250,000 262,500 308,831 -- -- -- 58,500
Chief Operating Officer 1994 239,000 320,000 94,120 181,800 100,000 -- 71,809
Sean W. McCarthy............1996 210,000 587,500 191,181 -- -- 693,315 67,500
Managing Director 1995 210,000 404,250 159,709 -- -- -- 69,005
(FSA) 1994 198,000 388,066 43,452 97,900 65,900 -- 72,484
Russell B. Brewer II........1996 185,000 268,000 78,826 -- -- 459,974 41,400
Managing Director and 1995 185,000 192,500 97,061 -- -- -- 39,150
Chief Underwriting 1994 175,000 225,000 29,413 97,900 50,000 -- 39,150
Officer (FSA)
Bruce E. Stern..............1996 185,000 240,000 70,590 -- -- 472,221 41,400
Managing Director, 1995 185,000 192,500 97,061 -- -- -- 38,250
General Counsel and 1994 180,000 192,000 56,472 97,900 50,000 -- 39,600
Secretary
</TABLE>
(1) In accordance with the CGC Merger Agreement, the Company entered into
an employment agreement with Mr. Djordjevich, which expired on December
31, 1996. For the year ended December 31, 1996, Mr. Djordjevich
received the following amounts: Salary--$425,000; Bonus--$276,250;
Other Annual Compensation--$69,118 (consisting of an "equity bonus"
award; see Note (2) below); and All Other Compensation--$38,250
(consisting of contributions by the Company to a defined contribution
plan and a supplemental retirement plan of $13,500 and $24,750,
respectively).
(2) Figures represent the value of phantom stock granted as "equity bonus"
awards under the Company's 1993 Equity Participation Plan and deferred
for a minimum of five years. Payment following the deferral period will
be in cash or Common Stock, at the Company's option.
(3) Figures represent the value of shares of restricted stock (based on the
IPO price of $20.00 per share) granted to the named executives under
the Company's Supplemental Restricted Stock Plan in exchange for
performance units issued under the
10
<PAGE>
FSA Profit Participation Plan for the 1994 and 1993 performance years.
Such 1994 and 1993 awards of performance units, and all other
performance units under such Plan held by such executives, were
exchanged for restricted stock under the Supplemental Restricted Stock
Plan at the time of the IPO. No further awards will be made under
either such Plan. Such shares of restricted stock vested in three equal
installments on July 1, 1994, 1995 and 1996. The aggregate number of
shares of restricted stock awarded to the named executives and their
value (at the IPO price of $20.00 per share), including the shares set
forth in the table are as follows: Robert P. Cochran--70,294 shares
($1,405,880); Roger K. Taylor--41,862 shares ($837,240); Sean W.
McCarthy--18,657 shares ($373,140); Russell B. Brewer II--13,991 shares
($279,820); Bruce E. Stern--13,072 shares ($261,440).
(4) Options were exchanged for an equal number of performance shares
effective May 1995.
(5) Payouts were made to or deferred by each named executive in January
1997 with respect to performance shares for the two-year performance
cycle ending December 31, 1996. Payouts were made in shares of Common
Stock or cash. For purposes of this table, shares of Common Stock are
valued at $35.50 per share, the closing price per share on the NYSE on
the business day preceding approval of the payout by the Human
Resources Committee of the Board of Directors and the per share value
employed for those receiving cash payments.
(6) All Other Compensation includes contributions by the Company to a
defined contribution plan, supplemental retirement plan and
split-dollar life insurance. The dollar value of the respective
contributions to such plans and insurance for each named executive was
as follows: Robert P. Cochran--$13,500, $76,500 and $0 for 1996;
$13,500, $76,500 and $0 for 1995; and $13,500, $76,500 and $7,000 for
1994; Roger K. Taylor--$13,500, $56,250 and $0 for 1996; $13,500,
$45,000 and $0 for 1995; and $13,500, $46,260 and $12,049 for 1994;
Sean W. McCarthy--$13,500, $54,000 and $0 for 1996; $13,500, $43,650
and $0 for 1995; and $13,500, $44,820 and $0 for 1994; Russell B.
Brewer II--$13,500, $29,700 and $0 for 1996; $13,500, $25,650 and $0
for 1995; and $13,500, $25,650 and $0 for 1994; Bruce E.
Stern--$13,500, $27,900 and $0 for 1996; $13,500, $24,750 and $0 for
1995; and $13,500, $26,100 and $0 for 1994. In addition, the figure
included in this column for Sean W. McCarthy includes $10,347 for 1996,
$11,855 for 1995 and $14,164 for 1994, representing the benefit
conveyed to him under a loan provided to him by the Company at a below
market interest rate in connection with his relocation to New York. See
"Executive Compensation--Other Relationships."
Employment Agreements and Arrangements; Change in Control Provisions
The Company is not currently party to employment agreements with any of
its executive officers. In the event of termination of employment by the Company
of the named executive officers without cause, Messrs. Cochran and Taylor would
be entitled to 18 months of compensation and Messrs. McCarthy, Brewer and Stern
would be entitled to 12 months of compensation, in each case based upon current
compensation (or, in certain events, prior compensation if higher) in accordance
with the Company's severance policy.
The Company's 1993 Equity Participation Plan includes provisions providing
for accelerated vesting and payment of stock options, equity bonus shares and
performance shares awarded thereunder upon the occurrence of certain change in
control transactions involving the Company. These provisions are generally
applicable to all participants in such plans. Each of the named executive
officers hold equity bonus shares and performance shares awarded under such
plans.
Other Relationships
In February 1992, the Company provided a loan in the principal amount of
$630,000 to Mr. McCarthy in connection with his relocation to New York City. In
December 1993, the loan agreement was amended to (i) reduce the principal
balance by $141,173 (an amount equal to the loss on the sale of his home in
connection with such relocation) and (ii) allow for the repayment of the
remaining principal balance of $362,827.06 at December 31, 1993 over a ten-year
period in equal installments at an interest rate of 5.20% per annum. Installment
payments were made in January 1997 and 1996.
11
<PAGE>
Performance Shares
Performance shares are awarded under the Company's 1993 Equity
Participation Plan, as amended (the "Plan"). The Plan authorizes the
discretionary grant of performance shares by the committee administering the
Plan (the Human Resources Committee) to key employees of the Company and its
subsidiaries. Performance shares potentially represent the economic value of a
whole share of Common Stock, and not just appreciation, as is the case with a
stock option. The number of shares of Common Stock actually earned for each
performance share depends upon the attainment by the Company and its
subsidiaries (on a consolidated basis) of "performance objectives" during the
time period specified by the Committee at the time an award of performance
shares is made.
The following table sets forth (a) a summary of performance shares awarded
to the chief executive officer of the Company and the other four most highly
compensated executive officers of the Company and its subsidiaries, in each case
for the year ended December 31, 1996 (which awards were made in January 1997),
(b) the applicable performance period until payout and (c) the related estimated
future payouts at the stated assumed annual rates of adjusted book value per
share and stock price appreciation.
LONG-TERM INCENTIVE PLANS - AWARDS IN 1996(1)
<TABLE>
<CAPTION>
Dollar Value at Assumed Annual Rates of
Performance of Adjusted Book Value and Stock
Period Price Appreciation(3)
Performance Until -----------------------------------------
Name Shares Granted(2) Payout 7% 10% 13%
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert P. Cochran......... 0 -- $0 $0 $0
Roger K. Taylor........... 0 -- 0 0 0
Sean W. McCarthy.......... 7,500 (2) 0 174,851 349,703
Russell B. Brewer II...... 0 -- 0 0 0
Bruce E. Stern............ 0 -- 0 0 0
</TABLE>
(1) These performance shares were awarded under the Company's 1993 Equity
Participation Plan in January 1997 for the year ended December 31,
1996. The table excludes performance shares awarded in January 1996 for
the year ended December 31, 1995, which are set forth in a table in the
prior year's proxy statement.
(2) One-third of the award relates to the three-year performance cycle
ending December 31, 1999; and two-thirds of the award relates to the
three-year performance cycle ending December 31, 2000. Awards are
payable shortly following completion of the applicable performance
cycle, subject to earlier payment in certain circumstances. Such
performance shares vest at the completion of the applicable performance
cycle, subject to rules established at the time of grant pertaining to
the recipient's death, disability or termination of employment (whether
voluntary or for cause).
(3) The actual dollar value received by a holder of performance shares, in
general, varies in accordance with the annual rate of growth in
adjusted book value per share ("ROE") of Common Stock and the stock
price appreciation during an applicable "performance cycle." At the
election of the holder at the time of the award, ROE may be determined
including or excluding realized and unrealized capital gains and losses
on the Company's investment portfolio. With respect to the performance
shares described in the table above, the dollar values presented assume
that the Company's ROE and Common Stock price both appreciate at the
rate of 7%, 10% and 13% per annum during each performance cycle. Such
factors may not move in tandem and, in any event, actual dollar values
will depend on actual rates of appreciation. If ROE is 7% or less per
annum for any performance cycle, no shares of Common Stock will be
earned for the performance cycle and the dollar value of awards for
that performance cycle will be $0, regardless of stock appreciation. If
ROE is 19% per annum or higher for any performance cycle, a number of
shares of Common Stock equal to 200% of the number of performance
shares will be earned for that performance cycle. If ROE is between 7%
and 19%, the payment percentage on performance shares will be
interpolated.
12
<PAGE>
- --------------------------------------------------------------------------------
Report of
The Human Resources Committee of The Board Of Directors
of Financial Security Assurance Holdings Ltd.
February 11, 1997
The Human Resources Committee of the Board of Directors (the "Committee")
determines the compensation of the Chief Executive and Chief Operating Officers
of the Company, and reviews and approves the compensation recommendations for
members of the Company's Management Committee and other employees of the
Company. The Committee is comprised entirely of independent directors.
The Committee adheres to a compensation philosophy aimed at aligning the
interests of management with those of the owners. This philosophy is reflected
in a shift from cash-based to equity-based compensation, and an increase in the
volatility of compensation based upon Company and individual performance.
Compensation of executive officers of the Company is comprised primarily
of salary, cash bonus, equity bonus and performance share awards, as well as
other employee benefits, such as retirement and health benefits.
Salaries. Generally, salaries of executive officers are reviewed by the
Committee every other year. Salaries of executive officers were last reviewed
for 1994 and, accordingly, were reviewed again in 1996. The Company, like other
participants in the financial services sector, allocates most of executive
officer cash compensation to year-end bonuses rather than salaries, with annual
cash bonuses exceeding annual salaries for each of the five most highly
compensated executive officers of the Company. The chief executive officer of
the Company received a salary increase of 10% in 1996, primarily representing an
inflation adjustment over the two-year period since the prior salary adjustment
and commensurate with average Company employee salary adjustments over the
two-year period.
Cash Bonuses. At its February 1996 meeting, the Committee determined the
bonus pool and bonus volatility guidelines to be applied in determining 1996
bonuses. The Committee determined a target return on equity based upon growth in
adjusted book value per share (including dividends but excluding realized and
unrealized gains and losses) ("ROE") for 1996 of 11.6%. The 11.6% target was
derived by modeling the impact of producing 1996 present value ("PV") premium of
approximately $180 million, an increase of $41 million or 30% over the Company's
record year in 1995. The Committee also established a target bonus pool based
upon prior bonus pools used by the Company, with the target bonus pool
fluctuating upwards or downwards depending on whether actual ROE performance for
1996 was over or under target. The 1996 target bonus pool was set at $12.65
million, compared to an actual 1995 bonus pool accrual of $11.95 million, of
which $11.78 million was awarded. The 1996 target bonus pool was derived from
the 1995 target bonus pool of $11.95 million, adjusted to reflect partial year
employees, new hires and the increase in headcount resulting from the addition
of the former employees of Capital Guaranty Insurance Company in December 1995.
The 1996 target bonus pool was sized to allow approximately $400,000 to $500,000
less to continuing staff in 1996 as compared to 1995. The 1996 target bonus pool
ranged from $9.0 million at a 9% ROE to $16.0 million at a 16% ROE, with
adjustments interpolated based on the actual ROE achieved.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
The effect of the 1996 target bonus pool was to require a substantial
increase in ROE from prior year performance to maintain the bonus pool at the
level paid in the prior year. In establishing these guidelines, the Committee
recognized that compensation matters in connection with new ventures would be
handled outside the bonus pool, and that adjustments to the target bonus pool
may be recommended by management, subject to approval of the Committee, to
reflect changes in circumstances.
Bonus participants were broken into four groups, each with a different
volatility of bonus (upwards or downwards) depending on Company and/or group
performance as set forth below:
Guidelines for Bonus Volatility--Variable Percentage of Bonus Award
-------------------------------------------------------------------
Group Variability
----- -----------
CEO and COO Up to 50%
Financial Guaranty Manager Up to 35%
Other Management Committee members
and senior front line officers Up to 20%
All others Up to 10%
Management and the Committee retained discretion as to allocation of bonus
amounts to individuals based upon performance, with the understanding that the
guidelines were directional and indicative of bonus pool distribution assuming
good to above average employee performance. In the case of permanent members of
the Management Committee, the base bonus amounts were equal to the average of
the prior two years' bonuses.
Actual ROE for 1996 (including dividends but excluding realized and
unrealized capital gains), as calculated for purposes of bonus pool
determination, was 13.7%, resulting in a 1996 bonus pool of approximately $15.25
million under the guidelines described above. The actual bonus pool for 1996 was
approximately $14.9 million. The 1996 bonus (including equity bonus) for the
Chief Executive Officer increased approximately 20.5% from 1995, reflective of
the increased variability factor (50%) assigned to the CEO under the guidelines.
The Committee found this bonus amount to be particularly warranted in view of
the record level of premium production and the initiation and consummation of
share repurchases and forward purchase arrangements, each of which contributed
substantially to shareholder value in 1996.
Equity Bonuses. 1996 was the third year that bonuses were paid part in
cash and part as equity bonus awards. Equity bonus awards are made under the
Company's 1993 Equity Participation Plan (the "Equity Plan") and represent
"phantom shares" of the Company's common stock. Each bonus is determined as
discussed above under the caption "Cash Bonuses", and a specified percentage of
such bonus is paid in the form of an equity bonus in lieu of cash. Equity bonus
awards are deemed invested in the Company's common stock at 85% of fair market
value, and payment of such awards is deferred for a minimum of five years. For
1996, as in the prior year, each employee had the option, exercisable
approximately six months prior to year-end, to increase his or her equity bonus
percentage to up to 50% of his or her total bonus, subject to Committee
approval. The Committee determined that bonuses to senior executives would be
paid in the form of an equity bonus to the extent that such bonus, if paid in
cash, would result in the loss of any material federal income tax deduction
under Section 162(m) of the Internal Revenue Code of 1986.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
The minimum equity bonus percentages employed in 1996 (unchanged from
1995) are set forth below:
Equity Bonus Award as a Percentage of Total Bonus
-------------------------------------------------
Total Bonus (in thousands) Marginal Rate
------------------------- -------------
$0 to $50 10% (optional for bonuses below $50,000)
$51 to $150 15%
$151 to $300 20%
Over $300 25%
The amount of the Chief Executive Officer's bonus paid in the form of an
equity bonus for 1996 was $456,920, representing approximately 43.5% of his
total bonus.
Performance Shares. The Equity Plan provides for the award of performance
shares. Each performance share represents a right to receive up to two shares of
the Company's common stock, with the actual number of common shares receivable
determined on the basis of the increase in adjusted book value per share over a
specified performance cycle. The performance shares were designed to provide
less compensation to participants than stock options if the Company performs
poorly and more compensation to participants if the Company performs well. In
particular, the performance shares were designed to have no value if the Company
fails to generate a return on equity in excess of the risk-free yield of
treasury securities. The Committee's approach has been to refrain from awarding
performance shares to the same individuals in successive years. In keeping with
this approach, no performance shares were awarded in January 1997 to the Chief
Executive Officer, who received an award of performance shares in January 1996.
The Company has implemented a program of share purchases through a "rabbi trust"
for the purpose of funding in advance its obligations in respect of outstanding
performance shares.
Stock Ownership Guidelines. The Committee has implemented stock ownership
guidelines for senior executives, including the five most highly compensated
executive officers, of the Company. The guidelines establish share ownership
objectives for senior executives, with the expectation that senior executives
would retain at least 50% of the net after-tax shares from Company compensation
plans until the objective has been met (absent any hardship situation). The
Committee considers adherence to the ownership guidelines a significant factor
in sizing future long-term incentive awards for senior executives. The share
ownership objective calls for ownership of Company shares having a market value,
(i) in the case of the Chief Executive Officer and Chief Operating Officer,
equal to the sum of three times annual compensation up to $500,000 and four
times additional compensation and (ii) in the case of other senior executives,
equal to the sum of two times annual compensation up to $300,000 and three times
additional compensation. For purposes of the guidelines, share ownership (i)
includes common stock owned, vested equity bonus shares, and common stock
deferred and phantom common stock investments under the Company's benefit plans
and (ii) excludes outstanding performance shares or stock options.
In arriving at its compensation decisions, the Committee received advice
from Johnson Associates, Inc., professional compensation consultants, and
considered practices and compensation levels of competitors in the financial
guaranty industry.
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
The Committee reviewed compliance with Section 162(m) of the Internal
Revenue Code of 1986, relating to the deductibility of compensation paid to the
Chief Executive Officer and the other most highly compensated officers of the
Company. Equity bonus and performance share awards under the Equity Plan were
designed, on advice of counsel, to comply with the requirements of Section
162(m). Given the Committee's intention to continue employment of equity bonus
awards in lieu of a portion of cash bonuses in determining 1997 compensation for
the Company's senior management, the Committee has determined that it is
unlikely that the Company will pay compensation in 1997 that would result in the
loss of any material federal income tax deduction under Section 162(m) and has
not recommended that any other action be taken as a consequence of such
provision.
Human Resources Committee
K. Thomas Kemp (Chairperson)
Robert N. Downey
Anthony M. Frank
David O. Maxwell
James M. Osterhoff
James H. Ozanne
- --------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each director and executive officer of the Company, and each beneficial
owner of more than 10% of the Common Stock and Preferred Stock, is required
under Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") to
report to the Securities and Exchange Commission (the "SEC"), the New York Stock
Exchange (the "NYSE") and the Company, by a specified date, all transactions in
the Company's equity securities. Based solely upon a review of the reports
furnished to it pursuant to Section 16, the Company believes that all of its
directors, executive officers and greater than 10% equity security holders
complied with the filing requirements applicable to them with respect to
transactions occurring during 1996, except that one Form 4, relating to one
transaction, was filed late by Mr. Djordjevich.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Human Resources Committee consisted of Messrs. Kemp,
Downey, Frank (who was appointed to the Committee in February 1996), Maxwell,
Osterhoff (who was appointed to the Committee in May 1996) and Ozanne and Ms.
Barbara M. Japha (who retired as a director of the Company in May 1996). None of
such persons is currently or has ever been an officer or employee of the Company
or any subsidiary of the Company. Mr. Kemp is Executive Vice President,
Treasurer and Secretary of Fund American and President and Chief Executive
Officer of White Mountains. Mr. Cochran, President and Chief Executive Officer
of the Company, is a director of Fund American and White Mountains.
16
<PAGE>
STOCK PRICE PERFORMANCE
The following graph compares the cumulative total percent return for the
Company's Common Stock with the comparable cumulative percent returns of two
indices for equal investment amounts made on May 6, 1994 (the effective date of
registration of the Company's Common Stock). The graph assumes that all
dividends were reinvested.
Cumulative Total Return on Common Stock compared to
Standard & Poor's 500 Composite Index and New York Stock Exchange
Financials Index
(May 6, 1994 to December 31, 1996)
[The following table was represented as a line graph in the printed material]
FSA S&P NYSE
May 6 100 100 100
Jun 30 106.79 99.34 99.99
Sep 30 105.33 104.6 98.59
Dec 31 104.49 104.59 93.73
Mar 31 107.4 114.76 103.08
Jun 30 125.33 125.72 112.91
Sep 30 127.59 135.71 126.81
Dec 31 126.09 145.35 132.74
Mar 31 128.39 151.6 139.97
Jun 30 138.9 158.41 141.62
Sep 30 149.54 163.4 150.68
Dec 31 167.86 180.72 171.24
o Financial Security Assurance Holdings Ltd.
x Standard & Poor's 500 Composite Index
* New York Stock Exchange Financials Index
PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P. currently serve as the Company's independent
auditors. They have served in that capacity since January 1990. During 1996,
Coopers & Lybrand L.L.P. examined the accounts of the Company and its
subsidiaries and also provided other audit services to the Company in connection
with SEC filings. In February 1997, the Company's Board of Directors appointed
Coopers & Lybrand L.L.P. as the independent auditors of the Company for 1997.
The shareholders are asked to approve this action of the Board. It is
anticipated that one or more representatives of Coopers & Lybrand L.L.P. will be
present at the Annual Meeting with an opportunity to make a statement, if
desired, and will be available to answer questions from shareholders present.
The Board recommends a vote FOR ratification of the selection of Coopers &
Lybrand L.L.P. as independent auditors of the Company for 1997.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Fund American, U S WEST and Company Relationships
In May 1994, Fund American purchased 2,000,000 shares of Common Stock
directly from USWCC, and USWCC simultaneously consummated an initial public
offering of an additional 5,500,000 shares of Common Stock (plus 582,385 shares
of Common Stock pursuant to the underwriters' over-allotment option), at a price
of $20.00 per share. In September 1994, Fund American completed the second stage
(the "Second Closing") of its investment in the Company, and acquired: (i)
50,000 shares of Preferred Stock, par value $1.00 per share, designated as
Series B Cumulative Redeemable Preferred Stock of U S WEST (the "U S WEST
Preferred Stock"); (ii)(A) options to acquire 666,667 shares of Common Stock
from USWCC at an exercise price of $23.50 per share until May 13, 1999 (the
"Five-Year Option") and (B) options to acquire 1,893,940 shares of Common Stock
from USWCC at an exercise price of $26.40 per share until September 2, 2004 (the
"Ten-Year Option" and, together with the Five-Year Option, the "USWCC Options";
the number of shares and price per share contained in the USWCC Options are, in
each case, subject to anti-dilutive adjustment); and (iii) 2,000,000 shares of
the Series A Convertible Redeemable Preferred Stock of the Company (the
"Preferred Stock") from the Company which are convertible into an equal number
of shares of Common Stock at a price of $29.65 per share until the redemption
date thereof, May 13, 2004. The U S WEST Preferred Stock, the USWCC Options and
the Preferred Stock remain outstanding and their terms have not since been
amended.
The aggregate purchase price paid by Fund American at the Second Closing
was $50,700,000 in cash, consisting of $50,000,000 paid for the U S WEST
Preferred Stock and the USWCC Options and $700,000 paid for the Preferred Stock.
According to the Schedule 13-D filed by Fund American, the source of such funds
was current assets of Fund American, and no part of such funds is or was
represented by funds or other consideration borrowed or otherwise obtained for
the purpose of acquiring, holding, trading or voting such securities. In
connection with the Second Closing, the Company entered into a Registration
Rights Agreement with USWCC and Fund American. Under this Agreement, at any time
prior to May 13, 2004, each of Fund American and USWCC is entitled to four
demand registrations, and the right to register certain shares on a "piggyback"
basis on an unlimited number of occasions if the Company proposes to have a
public offering of Common Stock. The Company has agreed to indemnify Fund
American and USWCC for certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments Fund American or USWCC may
be required to make in respect thereof, in connection with sales by such person
of Common Stock in a registration statement prepared by the Company under the
Registration Rights Agreement.
In May 1996, the Company (i) purchased 1.0 million shares of Common Stock
from USWCC for a purchase price of $26.50 per share and (ii) entered into
forward purchase agreements (the "Forward Agreements") with two financial
institutions (the "Counterparties") in respect of an additional 1.75 million
shares of Common Stock (the "Forward Shares"). In anticipation of entering into
the Forward Agreements, the Counterparties, in turn, purchased 1.75 million of
shares of Common Stock from USWCC for a purchase price of $26.50 per share. Of
the 1.75 million Forward Shares, 750,000 were initially for the account of the
Company's management and directors, who had parallel investments in phantom
Forward Shares under the Company's Deferred Compensation Plan or Supplemental
Executive Retirement Plan. Under the Forward Agreements, the Company has the
obligation to either (a) purchase the Forward Shares from the Counterparties for
a price equal to $26.50 per share plus carrying costs (less dividends paid on
the Common Stock) or (b) direct the Counterparties to sell the Forward Shares,
receiving any excess or making up any shortfall in cash or additional shares, at
its option. In May 1996, USWCC also sold 1.0 million shares of Common Stock to
Fund American for a purchase price of $26.50 per share. Furthermore, in May
1996, U S WEST sold to Salomon Inc ("Salomon") an issue of Exchangeable Notes
(known as "Debt
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Exchangeable for Common Stock" or "DECS", and herein referred to as the "USW
DECS") exchangeable for up to 9,796,303 of the shares of Common Stock held by
USWCC. Salomon, in turn, sold to third parties an issue of DECS which mirror the
terms of the USW DECS held by Salomon. Accordingly, all shares of Common Stock
owned by USWCC are either subject to stock options held by Fund American or
potentially deliverable by U S WEST in discharge of its obligation under the USW
DECS. However, the number of shares of Common Stock deliverable by U S WEST in
discharge of its obligations under the USW DECS is a function of the market
price per share of Common Stock. If, at maturity of the USW DECS, the price per
share of Common Stock equals or exceeds $32.48, then 0.8197 shares of Common
Stock are deliverable in exchange for each of the 9,796,303 USW DECS
(representing approximately 8,000,000 shares of Common Stock in the aggregate).
Fund American Shareholders Agreement
In connection with the Second Closing, Fund American entered into (i) a
Voting Trust Agreement with USWCC and The First National Bank of Chicago, as
voting trustee thereunder, and (ii) the Shareholders Agreement (the "Fund
American Shareholders Agreement") with USWCC and the Company. Pursuant to the
Voting Trust Agreement, Fund American has the right to direct the voting of the
1,893,940 shares of Common Stock deliverable upon the exercise in full of the
Ten-Year Option prior to the exercise of the Ten-Year Option. In addition, under
certain circumstances, Fund American may require USWCC to deposit additional
shares into the voting trust, to the extent USWCC beneficially owns such shares,
so that Fund American will be able to vote 50.1% of the then issued and
outstanding shares of Common Stock.
The Fund American Shareholders Agreement provides that the parties will
use their best efforts to cause the Board of Directors of the Company to consist
of 11 directors and the persons nominated to serve on the Board of Directors to
include (i) two independent directors (within the meaning of the rules of the
NYSE), (ii) the President or Chief Executive Officer of the Company, (iii) one
person who is a senior employee of Tokio Marine, for the period that such person
is required to be designated as a director of the Company in accordance with the
Tokio Marine Stockholders Agreement (as defined below), and (iv) seven persons
designated by Fund American, of whom U S WEST must approve a number based on the
"voting power" held by Fund American and U S WEST as of the date of the
nominations as set forth in the following table:
Fund American Voting Power as a
Percentage of Fund American and Designees to be Approved by
U S WEST Combined Voting Power U S WEST
------------------------------ --------
0% through 14.29%.................................. 6
Above 14.29% through 28.58%........................ 5
Above 28.58% through 50.00%........................ 4
Above 50.00% through 57.16%........................ 3
Above 57.16% through 71.45%........................ 2
Above 71.45% through 90.00%........................ 1
Above 90.00%....................................... 0
The Company, U S WEST and Fund American are free to alter the foregoing
arrangements from time to time. The Board as presently constituted and as
proposed for re-election at the 1997 Annual Meeting of Shareholders includes (a)
three independent directors, (b) three designees of Fund American, (c) two
designees approved by U S WEST, (d) one designee of Tokio Marine, (e) each of
the Chief Executive
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Officer and the Chief Operating Officer of the Company and (f) four former
directors of CGC as required by the CGC Merger Agreement, for a total of fifteen
directors.
Under the Fund American Shareholders Agreement, "voting power" means the
number of shares held outright by a party or its affiliates, except that shares
of Common Stock deliverable to Fund American upon exercise of the Ten-Year
Option, and any additional shares deposited by U S WEST in the voting trust
described above, will be deemed to be owned by Fund American and not by U S
WEST, provided that the votes attributed to the Preferred Stock will be excluded
from Fund American's "voting power." The Fund American Shareholders Agreement
requires Fund American and U S WEST to vote all shares of Common Stock over
which they exercise voting control in favor of the election of all persons
nominated as provided in such agreement.
The Fund American Shareholders Agreement terminates upon the earliest to
occur of (i) the cessation of the existence of the Company, (ii) September 2,
1997, (iii) the consent of US WEST and Fund American, (iv) the sale, disposition
or other transfer of any shares of Common Stock by U S WEST that causes U S WEST
to own outright (excluding shares of Common Stock deliverable to Fund American
and its majority owned subsidiaries upon exercise of the Ten-Year Option) less
than 15% of the outstanding shares of Common Stock, or (v) such time as U S
WEST, Fund American and their permitted transferees own less than 50% of the
outstanding shares of Common Stock.
Other Fund American and Company Relationships
FSA Portfolio Management Inc. ("FSA Portfolio Management"), a wholly owned
subsidiary of the Company, provides investment management services to several
affiliates of Fund American in exchange for payment of an investment management
fee equal to 15 basis points per annum on the principal amount of funds under
management. In addition, Robert P. Cochran, President and Chief Executive
Officer of the Company, is a director of Fund American and White Mountain
Insurance Holdings Inc., and Roger K. Taylor, Chief Operating Officer of the
Company, is a director of Source One.
U S WEST, Company and FSA Relationships
In December 1993, the Company completed a restructuring (the
"Restructuring") which significantly reduced its risk of loss from its insured
portfolio of obligations backed by commercial mortgages (the "Commercial
Mortgage Portfolio"). As part of the Restructuring, FSA obtained reinsurance
from Commercial Reinsurance Company ("Commercial Re") in respect of the
Commercial Mortgage Portfolio. Commercial Re is an insurance company organized
for the purpose of the Restructuring that is owned approximately 91.6% by USWCC
and 8.4% by Tokio Marine. Various agreements were entered into among the Company
and its subsidiaries, Commercial Re and U S WEST in connection with the
Restructuring, all of which remain in force and have not since been amended.
These agreements include (i) a quota share reinsurance agreement, (ii) an
investment management agreement providing for the management by FSA Portfolio
Management of Commercial Re's investment portfolio and other matters in exchange
for a fee initially ranging from 15 to 30 basis points per annum on the market
value of Commercial Re's investment portfolio and (iii) a management agreement
pursuant to which the Company provides management services to Commercial Re,
including regulatory compliance and accounting services, for a fixed fee of
$100,000 per annum.
The Company was also subject to the Modification of Final Judgment (the
"Judgment") entered in 1984 in connection with the settlement of the legal
action entitled United States v. Western Electric Company, Inc. Pursuant to the
Judgment, American Telephone and Telegraph Company divested itself of its
interest in the seven regional operating companies, including U S WEST. The
Judgment prohibited the
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Company from entering into certain activities or obtaining an ownership interest
in or exercising control over any entity that engages in such activities. The
Judgment was terminated in February 1996.
Since its acquisition of the Company through May 1996, U S WEST provided
insurance coverage for the Company under insurance policies issued to U S WEST,
including worker's compensation, property and general liability, business
interruption, directors and officer's liability and fiduciary liability
coverage. The Company paid an allocated share of the premiums for such coverages
which is lower than those the Company would have paid were it separately covered
for such matters. The Company's allocated share of such premiums for 1996 was
approximately $0.1 million. In May 1996, these insurance arrangements were
terminated subject to continued coverage under the U S WEST policies for certain
exposures relating to the period prior to such termination.
Tokio Marine, Company and FSA Relationships
Tokio Marine, the Company and FSA entered into a Cooperation Agreement
dated as of December 27, 1990 (the "Cooperation Agreement") in connection with
Tokio Marine's investment in the Company. The Cooperation Agreement contains
reinsurance provisions (discussed below) and reciprocal marketing provisions.
The Cooperation Agreement also entitles Tokio Marine to select one director of
the Company and of FSA and to place up to three of its employees in FSA's New
York offices. The term of the Cooperation Agreement is automatically renewed
each year unless notice is given, subject to earlier termination by one party
upon default by the other, or upon 90 days' prior written notice by one party to
the other. Pursuant to the Cooperation Agreement, FSA has entered into a Master
Reinsurance Placement Memorandum (the "Memorandum") dated December 27, 1990 by
which FSA has agreed to cede and Tokio Marine has agreed to accept reinsurance
equal to a specified percentage of the principal amount of new business written
by FSA in each calendar year, with the cessions to be composed of treaty
participations and facultative cessions, including an automatic facility by
which FSA at its option may make quota share cessions, subject to certain
conditions. Pursuant to the Memorandum, Tokio Marine participates in FSA's
non-municipal and municipal treaties and has provided facultative reinsurance to
FSA. The Company ceded premiums of $19.9 million, $13.1 million and $6.6 million
to Tokio Marine for the years ended December 31, 1996, 1995 and 1994,
respectively. In the opinion of the management of the Company and FSA, the terms
of the Cooperation Agreement and reinsurance with Tokio Marine are no less
favorable to FSA than the terms that could be obtained from unaffiliated
parties.
Tokio Marine Stockholders Agreement
Pursuant to a Stockholders Agreement dated December 27, 1990, as amended
(the "Tokio Marine Stockholders Agreement"), among Tokio Marine, the Company and
USWCC, USWCC has agreed to vote all stock in the Company owned by it to nominate
and to elect a senior employee of Tokio Marine designated by Tokio Marine to the
Board of Directors of the Company so long as Tokio Marine owns at least 5% (9.9%
in the event the Cooperation Agreement is terminated as a result of a breach by
Tokio Marine) of the outstanding Common Stock or the Cooperation Agreement is in
effect. As long as such conditions are met, to the extent permitted by law, the
Company has agreed to cause a senior employee of Tokio Marine to be nominated as
a director of the Company. So long as Tokio Marine owns any Common Stock, USWCC
has agreed to use commercially reasonable efforts to cause the maximum cash
dividends to be paid each year with respect to the Common Stock to the extent
payable without violating applicable law, causing the rating agencies to lower
or consider lowering the triple-A claims-paying ability ratings of FSA or
reducing the cash of the Company and its subsidiaries below the amount needed to
satisfy their reasonably anticipated business needs.
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The Tokio Marine Stockholders Agreement contains certain restrictions on
the ability of Tokio Marine, USWCC and the Company to sell or otherwise transfer
any stock of the Company or any subsidiary of the Company (and, under certain
circumstances, the stock of USWCC), or all or substantially all the assets of
the Company or FSA. Certain of the rights granted to Tokio Marine under the
Tokio Marine Stockholders Agreement may make it more difficult for USWCC to sell
additional shares of Common Stock or for the Company to dispose of certain
assets or raise funds from the sale of Common Stock and therefore might be
deemed to restrict a change of control of the Company.
CGC Merger Agreement
In December 1995, Capital Guaranty Corporation ("CGC") merged with a
subsidiary of the Company (the "Merger"). As a result of the Merger, Capital
Guaranty Insurance Company ("CGIC"), CGC's principal operating subsidiary,
became a wholly owned subsidiary of FSA. CGIC was a financial guaranty
insurer of municipal bonds in the domestic market. As contemplated by the
Agreement and Plan of Merger (the "CGC Merger Agreement") pursuant to which the
Merger was consummated, in February 1996, (i) Michael Djordjevich, Anthony
Frank, Staats Pellett, Jr., and Howard Zelikow, four former directors of CGC,
were elected directors of the Company and (ii) Mr. Djordjevich, formerly
Chairman and Chief Executive Officer of CGC, was elected Vice Chairman of the
Company. The CGC Merger Agreement further provides that Messrs. Djordjevich,
Frank, Pellett and Zelikow will be included in the Company's slate of
director-nominees through and including at least the Company's 1997 Annual
Meeting of Shareholders.
Reinsurance Agreements with Enhance Reinsurance Company
Enhance Reinsurance Company ("Enhance"), a subsidiary of Enhance Financial
Services Group, Inc. ("EFS") which was 30% owned by a subsidiary of U S WEST at
December 31, 1996, provides reinsurance to FSA by participating in the
asset-backed and municipal reinsurance treaties and through facultative
cessions. On December 11, 1995, U S WEST issued Exchangeable Notes due December
15, 1998 (the "Enhance DECS"). At maturity of the Enhance DECS, U S WEST may, at
its option, deliver to holders of the Enhance DECS the shares of common stock of
Enhance owned by U S WEST's subsidiary.
For 1996, Enhance participated in two of FSA's reinsurance treaties, one
of which covered U.S. municipal business and one of which covered asset-backed
and non-U.S. municipal business. In addition, pursuant to automatic facultative
facilities, FSA at its option could have ceded a quota share portion, subject to
specified limits, of policies issued in 1996 and may do so for policies issued
in 1997. Asset Guaranty Reinsurance Company ("Asset Guaranty"), which is also a
subsidiary of EFS, previously participated in the asset-backed treaty and
assumed reinsurance through facultative cessions. Pursuant to reinsurance
agreements in effect in prior years with Enhance and Asset Guaranty, the Company
ceded to Enhance and Asset Guaranty premiums of $15.0 million, $6.9 million and
$7.6 million for the years ended December 31, 1996, 1995 and 1994, respectively.
In the opinion of the management of the Company, the terms of the existing
reinsurance agreements with Enhance are no less favorable to FSA and its
subsidiaries than the terms that could be obtained from unaffiliated parties.
OTHER MATTERS
The Board knows of no other business to be brought before the Annual
Meeting other than as set forth above. If any other business should properly
come before the Annual Meeting, it is the intention of the persons named in the
enclosed proxy card to vote such proxies in accordance with their best judgment.
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SHAREHOLDER PROPOSALS
Shareholder proposals for the 1998 Annual Meeting of Shareholders must be
received at the principal executive offices of the Company, 350 Park Avenue, New
York, New York 10022, Attention: General Counsel, no later than November 25,
1997, in order to be considered for inclusion in the Company's Proxy Statement
for such meeting.
ADDITIONAL INFORMATION
Solicitation of Proxies
This proxy solicitation is made by the Company. Proxies may be solicited
on behalf of the Board by mail, telephone, telecopy or in person and
solicitation costs will be paid by the Company. Directors, officers and regular
employees of the Company may solicit proxies by such methods without additional
compensation. Banks, brokerage houses and other institutions, nominees and
fiduciaries will be requested to forward the soliciting material to their
principals and to obtain authorizations for the execution of proxy cards. Upon
request, the Company will reimburse them for their reasonable expenses.
Voting Procedures
The shares represented by all valid proxies received will be voted as
specified in the proxies. Where specific choices are not indicated, the shares
represented by all valid proxies received will be voted as recommended by the
Board of Directors as follows: (1) FOR the election of all nominees for director
and (2) FOR ratification of the selection of independent auditors for 1997.
Vote Required
Proposal 1: Election of Directors. A plurality of the votes cast at the
Annual Meeting in person or by proxy is required to elect each director. Shares
present in person at the meeting that are not voted for a particular nominee,
and shares represented by proxy as to which authority to vote for such nominee
is properly "withheld," will not be counted either "for" or "against" in
determining a plurality for such nominee.
Proposal 2: Ratification of the Selection of Independent Auditors. The
ratification of the selection of Coopers & Lybrand L.L.P. as independent
auditors of the Company is being submitted to the shareholders because the Board
believes that such action follows sound corporate practice and is in the best
interest of the Company and its shareholders. If the shareholders do not ratify
the selection by the affirmative vote of a majority of the votes cast at the
Annual Meeting in person or by proxy, the selection of independent auditors will
be reconsidered by the Board. If the shareholders ratify the selection, the
Board, in its discretion, may still direct the appointment of new independent
auditors at any time during the year if the Board believes that such a change
would be in the best interest of the Company and its shareholders.
Both Fund American and USWCC have advised the Company that they intend to
vote all shares over which they have voting control on the record date for each
nominee for director proposed hereby, and in favor of Proposal 2. As of the
record date, these shareholders together had voting control over more than a
majority of the outstanding shares entitled to vote at the Annual Meeting.
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Cost
The cost of preparing and mailing this notice and statement and the
enclosed proxy card will be borne by the Company.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, filed by the Company with the SEC, is available on request by
writing to Peter E. Hoey, Managing Director, Investor Relations, Financial
Security Assurance Holdings Ltd., 350 Park Avenue, New York, New York 10022.
By Order of the Board of Directors,
BRUCE E. STERN
Bruce E. Stern,
Secretary
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1. Election of Directors
FOR all nominees
listed below |_|
WITHHOLD AUTHORITY to vote for all nominees listed below. |_|
*EXCEPTIONS |_|
Nominees: John J. Byrne, Robert P. Cochran, Michael Djordjevich, Robert N.
Downey, Anthony M. Frank, Toshiki Kaneda, K. Thomas Kemp, David O.
Maxwell, James M. Osterhoff, James H. Ozanne, Staats M. Pellett, Jr.,
Richard A. Post, Roger K. Taylor, Allan L. Waters and Howard M.
Zelikow.
*Exceptions_____________________________________________________________________
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, mark the "Exceptions" box and write the name(s) of the
excluded nominee(s) in the space provided.
2. To ratify and approve the selection by the Board of Directors of Coopers
& Lybrand L.L.P. as independent auditors for the Company for the fiscal year
ending December 31, 1997.
FOR |_| AGAINST |_| ABSTAIN |_|
In their discretion, the Proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournment or postponement
thereof.
Change of address or comments: Mark here and indicate
changes to the name and address as printed to the left. |_|
The signature on this Proxy should correspond exactly with the shareholder's
name as printed to the left. In the case of joint tenancies, co-executors or
co-trustees, both should sign. Persons signing as attorney, executor,
administrator, trustee or guardian should give their full title.
Dated:______________________________,1997
__________________________________________
Signature
__________________________________________
Signature
Votes must be indicated
(x) in Black or Blue ink. |_|
(Please sign, date and return this proxy in the enclosed postage prepaid
envelope.)
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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
ANNUAL MEETING OF SHAREHOLDERS
MAY 8, 1997
PROXY/VOTING INSTRUCTION CARD
This proxy is solicited on behalf of the Board of Directors of Financial
Security Assurance Holdings Ltd. for the Annual Meeting
of Shareholders on May 8, 1997
The undersigned appoints Robert P. Cochran, Roger K. Taylor and Bruce E.
Stern, and each of them, with full power of substitution in each, the proxies of
the undersigned, to represent the undersigned and vote all shares of Financial
Security Assurance Holdings Ltd. Common Stock which the undersigned may be
entitled to vote at the AnnualMeeting of Shareholders to be held on May 8, 1997,
and at any adjournment or postponement thereof, as indicated on the reverse
side, hereby revoking all proxies heretofore given with respect to such shares.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is given, this proxy will
be voted FOR proposals 1 and 2.
(Continued, and to be signed and dated, on the reverse side.)
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
P.O. BOX 11008
NEW YORK, N.Y. 10203-0008
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