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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4) of the Securities Exchange Act of 1934
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GCR HOLDINGS LIMITED
(Name of Subject Company)
GCR HOLDINGS LIMITED
(Name of Person(s) Filing Statement)
ORDINARY SHARES, $0.10 PAR VALUE
(Title of Class of Securities)
G3774N 10 0
(CUSIP Number of Class of Securities)
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FREDERICK W. DEICHMANN
Secretary
GCR Holdings Limited
Sofia House
48 Church Street
Hamilton HM12 Bermuda
(441) 292-9415
(Name, address and telephone number of person authorized to receive notice
and communications on behalf of the person(s) filing)
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WITH A COPY TO:
JAMES C. SCOVILLE, ESQ.
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
(212) 909-6000
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule
14D-9") relates to an offer by Exel Acquisition Ltd., a Cayman Islands limited
liability company ("Purchaser") and a wholly owned subsidiary of EXEL Limited, a
Cayman Islands limited liability company ("EXEL"), to purchase all of the Shares
(as defined below) of GCR Holdings Limited ("GCR" or the "Company").
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name and principal executive offices of the subject company is GCR
Holdings Limited, Sofia House, 48 Church Street, Hamilton HM12, Bermuda. The
title of the class of equity securities to which this Schedule 14D-9 relates is
the ordinary shares, par value $0.10 (the "Shares") of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer by Purchaser, disclosed in a
Tender Offer Statement on Schedule 14D-1, filed with the Securities and Exchange
Commission (the "Commission") on May 14, 1997 (as the same may be amended from
time to time, the "Schedule 14D-1"), to purchase all of the issued and
outstanding Shares at a price of $27.00 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated May 14, 1997 (the "Offer to Purchase") and the related
Letter of Transmittal (which together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Amalgamation,
dated as of May 8, 1997 (the "Amalgamation Agreement"), among EXEL, Purchaser
and GCR. The Offer is subject to the conditions set forth in the Amalgamation
Agreement, including the condition that the number of Shares validly tendered
and not withdrawn prior to the expiration date of the Offer together with all
Shares owned by EXEL and its subsidiaries shall be not less than seventy-five
percent (75%) of the Shares then outstanding, calculated on a fully diluted
basis (the "Minimum Condition"). EXEL may waive any of the conditions of the
Offer in its sole discretion, except that it may not reduce the Minimum
Condition to below a majority of Shares without the prior written consent of
GCR.
Pursuant to the Amalgamation Agreement, following the consummation of the
Offer and subject to the satisfaction of certain conditions, Purchaser and GCR
will amalgamate under the laws of the Cayman Islands (the "Amalgamation"), with
GCR to continue as the surviving entity (the "surviving entity"). Upon the
Amalgamation, each Share (other than those owned by the Company, EXEL or
Purchaser or any of their direct or indirect subsidiaries) will be canceled and
each holder thereof shall be entitled to receive $27.00 per Share in cash (or
such higher price as may be offered in the Offer). Neither applicable law nor
the Amalgamation Agreement provides for appraisal rights or other similar
rights, and such rights will not be voluntarily provided by the Company or
Purchaser. The terms of the Amalgamation Agreement, a copy of which is filed as
Exhibit (c)(l) hereto and incorporated herein by reference, are summarized under
the captions "ACQUISITION AGREEMENT; PURPOSE OF THE OFFER AND THE ACQUISITION,
APPRAISAL RIGHTS AND OTHER MATTERS" and "CERTAIN CONDITIONS OF THE OFFER" of the
Offer to Purchase.
All information contained in this Schedule 14D-9 or incorporated herein by
reference concerning Purchaser, EXEL or their affiliates, or actions or events
with respect to any of them, was provided by Purchaser or EXEL, and the Company
takes no responsibility for the accuracy or completeness of such information or
for any failure by such entities to disclose events or circumstances that may
have occurred and may affect the significance, completeness or accuracy of any
such information.
Based on information in the Offer to Purchase, the address of the principal
executive offices of EXEL and Purchaser is Cumberland House, One Victoria
Street, Hamilton HM 11, Bermuda.
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ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this Schedule 14D-9, is set forth in Item 1 above, which information is
incorporated herein by reference.
(b)(1) GENERAL. The information contained under the captions "ACQUISITION
AGREEMENT; PURPOSE OF THE OFFER AND THE ACQUISITION, APPRAISAL RIGHTS AND OTHER
MATTERS" and "CERTAIN CONDITIONS OF THE OFFER" of the Offer to Purchase is
incorporated herein by reference. Reference is hereby made to the information
contained in pages 6-18 and under the caption "EXECUTIVE COMPENSATION" in the
Company's proxy statement dated November 26, 1996, relating to the Company's
Annual Meeting of Stockholders. The relevant pages thereof are filed as Exhibit
(c)(2) hereto. The Offer to Purchase is filed as Exhibit (a)(1) hereto.
(b)(2) CERTAIN EMPLOYEE-RELATED MATTERS IN CONNECTION WITH THE AMALGAMATION.
A summary of certain other contracts, agreements, arrangements and
understandings between GCR and its executive officers, directors and affiliates
and certain actual or potential conflicts of interest are set forth below.
EMPLOYMENT AGREEMENTS; ETC. The Company is a party to employment agreements
with its executive officers and an Amended and Restated Chairman's Incentive
Agreement with Mr. Stephen H. Newman, the Chairman of the Company. By operation
of law, these agreements will become obligations of the surviving entity
following the Amalgamation. The employment agreements provide for the payment of
certain severance and other benefits upon termination of employment following a
change in control and that upon a change in control of the Company (i) all
options issued under the Company's share option plans and all restricted Shares
will vest, (ii) if the employee is employed by the Company (or its successor)
sixty days following the date of such change in control, the employee will be
entitled to receive a bonus in an amount equal to his annual base salary as of
the date of such change in control and (iii) if the employee is employed by the
Company (or its successor) on the first anniversary of the change in control,
the employee shall not be obligated to repay any portion of any loan made by the
Company to such employee to enable such employee to invest in Shares. In
addition, the employment agreements provide that if the Company (or its
successor) terminates the employment of the employee without Serious Cause (as
defined in such employment agreements), or the employee terminates his
employment for Good Reason (as defined in such employment agreements), in each
case within the period commencing on the date of the change in control and
ending on the first anniversary thereof, the employee is entitled to, among
certain other benefits, a lump sum payment equal to two times the employee's
annual base salary as of the date of termination as well as the forgiveness of
the loans to such employee described in clause (iii) of the preceding sentence.
The Chairman's Incentive Agreement provides that upon a change in control of the
Company all options will vest and the outstanding balance of the loan made by
the Company to enable his initial acquisition of Shares will be forgiven. The
transactions contemplated by the Amalgamation Agreement will in each case
constitute a "change in control" under such agreements.
OPTIONS. In accordance with the terms of the Amalgamation Agreement, each
holder of a Company stock option (including options issued to employees under
the Company's option plans) that is outstanding immediately prior to the
consummation of the Offer, whether or not exercisable, will be entitled, upon
cancellation of such stock option, to receive an amount in cash equal to (x) the
product of the number of Shares subject to such option and the per Share
consideration payable in the Offer, less (y) the exercise price of such Company
stock option. See "ACQUISITION AGREEMENT; PURPOSE OF THE OFFER AND THE
ACQUISITION, APPRAISAL RIGHTS AND OTHER MATTERS--The Acquisition
Agreement--Effect on Company Options and Agreements" of the Offer to Purchase.
ADDITIONAL UNDERSTANDINGS. Based on discussions with EXEL, GCR expects that
EXEL will offer positions in the surviving entity to GCR's employees, and EXEL
and such employees will be entering into
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discussions with GCR's employees with respect thereto. Further, the Company
understands that Lawrence S. Doyle, GCR's current president and chief executive
officer, will become an executive vice president of EXEL as well as president
and chief operating officer of the surviving entity.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS. The Company's Board of
Directors has unanimously determined that the Offer and the Amalgamation are
fair to, and in the best interests of, the Company and its shareholders, has
unanimously approved the Offer, the Amalgamation Agreement and the transactions
contemplated thereby and unanimously recommends that all holders of Shares
tender such Shares pursuant to the Offer.
(b)(1) BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. Prior to April
1997, EXEL and the Company had no significant contacts. Beginning in early 1997,
the Company had discussed with Goldman Sachs various strategic alternatives
available to the Company.
On April 22, 1997, Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), EXEL's financial advisor in connection with a potential acquisition of
the Company, presented its preliminary analysis of a transaction to EXEL's Board
of Directors, and DLJ was authorized to communicate to Goldman Sachs EXEL's
preliminary ideas regarding a potential transaction.
On April 24, 1997, EXEL, through DLJ, submitted an oral initial indication
of interest in acquiring the Company. The Executive Committee of the Company's
Board decided to raise for consideration by the full Board EXEL's preliminary
ideas regarding a potential transaction.
On April 25, 1997, the Company's Board of Directors met to consider the
range of alternatives available to the Company, including the oral indication of
interest it received from EXEL. The Board, with the assistance of the Company's
legal advisors and Goldman Sachs, reviewed strategic alternatives for the
Company, including an analysis of different acquisition partners, the
possibility of a sale of the Company or a merger-of-equals, the Company's
prospects if the Company were to remain independent and other measures affecting
the Company's capital base. The Board appointed a Special Committee consisting
of three non-employee directors to consider these matters further, authorized
the Special Committee to continue discussions with EXEL, and authorized Goldman
Sachs to solicit in the market preliminary indications of interest from a
limited number of other parties identified by the Board in consultation with
Goldman Sachs regarding a potential transaction involving the Company.
Thereafter EXEL was invited to conduct a due diligence investigation of the
Company and to finalize an acquisition proposal to be submitted to the Company.
During the week of April 28, 1997, Goldman Sachs contacted a limited number
of third parties with respect to a potential transaction involving the Company,
as authorized by the Board.
On May 3, 1997, a confidentiality agreement was executed, and on May 3 and
4, 1997, various meetings, discussions and due diligence sessions occurred among
EXEL, the Company and their respective financial and legal advisors.
On May 5, 1997, EXEL and its legal and financial advisors met with
representatives of the Company and its legal and financial advisors to negotiate
the terms of the proposed Amalgamation Agreement. Discussions continued through
May 7, 1997. Goldman Sachs suggested that EXEL consider improving the
consideration offered in EXEL's initial oral indication of interest. Thereafter,
EXEL increased its offer to $27.00 per Share in cash.
On May 8, 1997, the Board of Directors of EXEL authorized EXEL to enter into
the Amalgamation Agreement for the acquisition of all of the outstanding Shares
for $27.00 per Share in cash.
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On May 7 and 8, 1997, the Board held meetings to review, with the advice and
assistance of the Company's legal advisors and Goldman Sachs, the proposed
Amalgamation Agreement and the transactions contemplated thereby, including the
Offer and the Amalgamation. At such meetings, counsel to the Company reviewed
the terms of the Amalgamation Agreement and Goldman Sachs reviewed with the
Board the range of alternatives available to the Company previously discussed on
April 25, 1997, including the results of Goldman Sachs' inquiries to other
parties regarding a potential transaction involving the Company. On May 8, 1997,
Goldman Sachs rendered to the Board its written opinion that, as of the date of
such opinion and based upon and subject to the matters set forth therein, the
$27.00 per Share in cash to be received by the holders of Shares (excluding EXEL
and any direct or indirect subsidiary of EXEL) pursuant to the Amalgamation
Agreement is fair to such holders. Following a number of questions from, and
discussion among, the directors of the Company, the Board, at the meeting held
on May 8, unanimously (i) approved the Amalgamation Agreement and the
transactions contemplated thereby, (ii) determined that the Amalgamation
Agreement and the transactions contemplated thereby are fair to and in the best
interests of the Company and the Company's shareholders, and (iii) recommended
that the Company's shareholders tender their Shares in the Offer and approve and
adopt the Amalgamation.
Immediately following the conclusion of the board meetings held on May 8,
1997, the parties thereto executed the Amalgamation Agreement. The Company and
EXEL issued a joint press release on May 8, 1997. The Purchaser commenced the
Offer on May 14, 1997.
(b)(2) REASONS FOR RECOMMENDATIONS. In approving the Amalgamation Agreement
and the transactions contemplated thereby, and recommending that all holders of
Shares tender their Shares pursuant to the Offer, the Company's Board considered
a number of factors, including:
1) the determination by the Company's Board that the financial and other
terms of the Offer and the Amalgamation Agreement are attractive to the Company
and its shareholders and the absence of any competing proposal to acquire the
Company following discussions by the Company's representatives with a limited
number of companies;
2) that the $27.00 per Share tender offer price represents a premium of
approximately 21% over the closing price of the Shares on the Nasdaq National
Market ("NNM") on May 7, 1997, the last full trading day prior to the execution
of the Amalgamation Agreement, and compares favorably with purchase prices
offered in recent acquisition transactions in the reinsurance industry;
3) recent trading prices of the Shares on the NNM;
4) the written opinion of Goldman, Sachs & Co. ("Goldman Sachs") dated May
8, 1997 to the effect that, as of such date and based upon and subject to the
matters set forth therein, the $27.00 per Share in cash to be received by the
holders (excluding EXEL and any direct or indirect subsidiary of EXEL) of Shares
pursuant to the Amalgamation Agreement is fair to such holders. A copy of the
opinion of Goldman Sachs is attached hereto as Annex A and incorporated herein
by reference. Shareholders are urged to read the opinion of Goldman Sachs
carefully in its entirety;
5) strategic alternatives for the Company, including an analysis of
different acquisition partners, the possibility of a sale of the Company or a
merger-of-equals, the Company's prospects if the Company were to remain
independent and other measures affecting the Company's capital base;
6) the termination provisions of the Amalgamation Agreement, including the
provision allowing the Company to respond, subject to certain conditions, to
unsolicited proposals concerning an acquisition of the Company and permitting
the Company, subject to certain conditions, to terminate the Amalgamation
Agreement upon payment under certain circumstances to EXEL of a termination fee
of $7.5 million and reimbursement of EXEL's, Purchaser's and their affiliates'
expenses (not to exceed $2 million) (see "ACQUISITION AGREEMENT; PURPOSE OF THE
OFFER AND THE ACQUISITION, APPRAISAL RIGHTS AND OTHER MATTERS--The Acquisition
Agreement--Termination; Fees" of the Offer to Purchase);
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7) information provided by Company management regarding the financial
condition, results of operations, business and prospects of the Company;
8) the ability of Purchaser to consummate the Offer and the Amalgamation
without conditioning the Offer on obtaining any specific financing commitments;
and
9) the familiarity of the Board with the business, results of operations,
properties and financial condition of the Company and the nature of the industry
in which it operates.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Amalgamation
Agreement and the Offer, the Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Board may
have afforded different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Goldman Sachs has been retained by GCR with respect to the Offer, the
Amalgamation and matters arising in connection therewith. Pursuant to an
engagement letter with Goldman Sachs, the Company has agreed to pay Goldman
Sachs for its services a fee equal to 0.70% (subject to increase if the per
Share consideration increases above $27.49) of the aggregate consideration paid
if a sale of the Company is accomplished. The entire fee will become payable
upon the purchase of Shares pursuant to the Offer, provided that 50% or more of
the Shares outstanding are so purchased. The Company has also agreed to pay
Goldman Sachs for its reasonable out-of-pocket expenses, including certain taxes
and fees and disbursements of counsel, and to indemnify Goldman Sachs against
certain liabilities. Goldman Sachs was a founding sponsor of the Company and has
acted in previous capacities as financial advisor to GCR. Two of the Company's
directors are affiliated with Goldman Sachs. In the ordinary course Goldman
Sachs, or certain of its affiliates, may from time to time effect transactions
for their own accounts or the accounts of customers, and hold long or short
positions in securities or options of the Company.
Goldman Sachs has from time to time also provided certain investment banking
services for EXEL, including acting as lead manager for offerings by EXEL of
ordinary shares, and may provide investment banking services to EXEL in the
future.
Neither GCR nor any person acting on its behalf currently intends to employ,
retain or compensate any other person to make solicitations or recommendations
to shareholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) There have been no transactions in the Shares during the past 60 days by
the Company or, to the best knowledge of the Company, by any executive officer,
director, affiliate or subsidiary of the Company.
(b) To the best of GCR's knowledge, its executive officers and directors
currently intend to tender their Shares to Purchaser pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Other than as set forth or referenced in Item 3(b) or 4, no negotiation
is being undertaken or is underway by GCR in response to the Offer which relates
to or would result in:
(1) an extraordinary transaction such as a merger or reorganization,
involving GCR or any subsidiary of GCR;
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(2) a purchase, sale or transfer of a material amount of assets by GCR
or any subsidiary of GCR;
(3) a tender offer for or other acquisition of securities by or of GCR;
or
(4) any material change in the present capitalization or dividend policy
of GCR;
except that pursuant to the terms of the Amalgamation Agreement, the Company may
not, prior to the Amalgamation, declare, set aside for payment or pay any
dividends other than the dividend of $0.62 per Share declared on April 25, 1997
and payable on May 27, 1997 to shareholders of record on May 14, 1997.
(b) Except as described above or in Item 3(b), there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate or would result in one or more of the matters referred to
in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal which are attached as Exhibits (a)(1) and (a)(2), respectively, and
are incorporated herein by reference in their entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
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*+(a)(1) Offer to Purchase dated May 14, 1997.
*+(a)(2) Letter of Transmittal.
+(a)(3) Text of joint press release issued by EXEL and GCR, dated May 8, 1997.
*(a)(4) Letter to Shareholders of GCR dated May 14, 1997.
+(a)(5) Form of Summary Advertisement dated May 14, 1997.
*(a)(6) Opinion of Goldman, Sachs & Co.
(b) Not applicable
*(c)(1) Agreement and Plan of Amalgamation dated as of May 8, 1997.
(c)(2) Pages 6-18 and 27-34 of GCR's Proxy Statement dated November 26, 1996.
(c)(3) Employment Agreement, dated as of June 16, 1993, by and between GCR Holdings
Limited, Global Capital Reinsurance Limited, and Lawrence Doyle, as amended by the
Amendment to Employment Agreement thereto, dated as of December 12, 1995
(incorporated by reference to Exhibits 10.1 and 10.1A to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996 (the "Form
10-K")).
(c)(4) Employment Agreement, dated as of August 16, 1993, by and between GCR Holdings
Limited, Global Capital Reinsurance Limited, and Frederick W. Deichmann, as
amended by the Amendment to Employment Agreement thereto, dated as of December 12,
1995 (incorporated by reference to Exhibits 10.2 and 10.2A to the Form 10-K).
(c)(6) Employment Agreement, dated as of January 15, 1994, by and between GCR Holdings
Limited, Global Capital Reinsurance Limited, and William G. Fanning, as amended by
the Amendment to Employment Agreement thereto, dated as of December 12, 1995
(incorporated by reference to Exhibits 10.3 and 10.3A to the Form 10-K).
(c)(7) Employment Agreement, dated as of June 16, 1993, by and between GCR Holdings
Limited, Global Capital Reinsurance Limited, and Robert L. Nason, as amended by
the Amendment to Employment Agreement thereto, dated as of December 12, 1995
(incorporated by reference to Exhibits 10.4 and 10.4A to the Form 10-K).
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(c)(8) Employment Agreement, dated as of June 16, 1993, by and between GCR Holdings
Limited, Global Capital Reinsurance Limited, and Stephen S. Outerbridge, as
amended by the Amendment to Employment Agreement, dated as of December 12, 1995
(incorporated by reference to Exhibits 10.5 and 10.5A to the Form 10-K).
(c)(9) Amended and Restated Chairman's Incentive Agreement, dated as of November 16,
1995, between GCR and Steven H. Newman (incorporated by reference to Exhibit
10.16A to the Form 10-K).
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* Included in materials delivered to shareholders of GCR.
+ Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule 14D-1
dated May 14, 1997, and incorporated herein by reference.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Schedule 14D-9 is true, complete
and correct.
Dated: May 14, 1997
GCR HOLDINGS LIMITED
By: __/s/_FREDERICK W. DEICHMANN______
Name: Frederick W. Deichmann
Title: Secretary
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EXHIBIT INDEX
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EXHIBIT DESCRIPTION PAGE NO.
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**(a)(1) Offer to Purchase dated May 14, 1997 (incorporated by reference to Exhibit (a)(1) to the
Schedule 14D-1)............................................................................
**(a)(2) Letter of Transmittal (incorporated by reference to Exhibit (a)(2) to the Schedule
14D-1).....................................................................................
(a)(3) Text of joint press release issued by EXEL and GCR, dated May 8, 1997 (incorporated by
reference to Exhibit (a)(7) to the Schedule 14D-1).........................................
*(a)(4) Letter to Shareholders of GCR dated May 14, 1997...........................................
(a)(5) Form of Summary Advertisement dated May 14, 1997 (incorporated by reference to Exhibit
(a)(8) to the Schedule 14D-1)..............................................................
*(a)(6) Opinion of Goldman, Sachs & Co. ...........................................................
(b) Not applicable
(c)(1) Agreement and Plan of Amalgamation dated as of May 8, 1997 (incorporated by reference to
Exhibit (c) to the Schedule 14D-1).........................................................
(c)(2) Pages 6-18 and 27-34 of GCR's Proxy Statement dated November 26, 1996......................
(c)(3) Employment Agreement, dated as of June 16, 1993, by and between GCR Holdings Limited,
Global Capital Reinsurance Limited, and Lawrence Doyle, as amended by the Amendment to
Employment Agreement thereto, dated as of December 12, 1995 (incorporated by reference to
Exhibits 10.1 and 10.1A to the Form 10-K)..................................................
(c)(4) Employment Agreement, dated as of August 16, 1993, by and between GCR Holdings Limited,
Global Capital Reinsurance Limited, and Frederick W. Deichmann, as amended by the Amendment
to Employment Agreement thereto, dated as of December 12, 1995 (incorporated by reference
to Exhibits 10.2 and 10.2A to the Form 10-K)...............................................
(c)(6) Employment Agreement, dated as of January 15, 1994, by and between GCR Holdings Limited,
Global Capital Reinsurance Limited, and William G. Fanning, as amended by the Amendment to
Employment Agreement thereto, dated as of December 12, 1995 (incorporated by reference to
Exhibits 10.3 and 10.3A to the Form 10-K)..................................................
(c)(7) Employment Agreement, dated as of June 16, 1993, by and between GCR Holdings Limited,
Global Capital Reinsurance Limited, and Robert L. Nason, as amended by the Amendment to
Employment Agreement thereto, dated as of December 12, 1995 (incorporated by reference to
Exhibits 10.4 and 10.4A to the Form 10-K)..................................................
(c)(8) Employment Agreement, dated as of June 16, 1993, by and between GCR Holdings Limited,
Global Capital Reinsurance Limited, and Stephen S. Outerbridge, as amended by the Amendment
to Employment Agreement, dated as of December 12, 1995 (incorporated by reference to
Exhibits 10.5 and 10.5A to the Form 10-K)..................................................
(c)(9) Amended and Restated Chairman's Incentive Agreement, dated as of November 16, 1995, between
GCR and Steven H. Newman (incorporated by reference to Exhibit 10.16A to the Form 10-K)....
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* Included in the Schedule 14D-9 materials being mailed to GCR's shareholders.
** Included in the Offer to Purchase materials being mailed to GCR's
shareholders.
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EXHIBIT (a)(4)
[LOGO]
[LOGO]
May 14, 1997
Dear Shareholder:
We are pleased to inform you that on May 8, 1997, GCR Holdings Limited
entered into an Agreement and Plan of Amalgamation with EXEL Limited and Exel
Acquisition Ltd., a wholly-owned subsidiary of EXEL Limited, which provides for
the acquisition of all of the shares of GCR at a price of $27.00 per share,
payable in cash. Under the terms of the Amalgamation Agreement, on May 14, 1997,
Exel Acquisition Ltd. commenced a tender offer to purchase all of the
outstanding shares of GCR at a cash price of $27.00 per share. The Amalgamation
Agreement provides that, subject to the satisfaction or waiver of certain
conditions, the tender offer will be followed by an amalgamation of Exel
Acquisition Ltd. and GCR, in which case those shares that are not purchased in
the tender offer will be canceled, and the holder thereof will be entitled to
receive in cash the price paid per share pursuant to the tender offer.
GCR'S BOARD OF DIRECTORS UNANIMOUSLY (I) HAS DETERMINED THAT THE TENDER
OFFER AND THE AMALGAMATION ARE FAIR TO, AND IN THE BEST INTERESTS OF, GCR AND
ITS SHAREHOLDERS, (II) HAS APPROVED THE AMALGAMATION AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE TENDER OFFER AND THE
AMALGAMATION, AND (III) RECOMMENDS THAT YOU ACCEPT THE TENDER OFFER AND TENDER
ALL YOUR SHARES IN THE TENDER OFFER.
In arriving at its recommendation, GCR's Board of Directors gave careful
consideration to various factors described in GCR's Solicitation/Recommendation
Statement on Schedule 14D-9 which is enclosed herewith. The Schedule 14D-9
includes additional information with respect to the tender offer and the
amalgamation.
Also enclosed herewith is Exel Acquisition Ltd.'s Offer to Purchase and
related materials, including a Letter of Transmittal, which set forth the terms
and conditions of the tender offer and provide instructions on how to tender
your shares. I urge you to read the enclosed materials carefully in making your
decision with respect to tendering your shares.
I would also like to note that the dividend of $0.62 per share that was
declared on April 25, 1997, and payable on May 27, 1997, will in no way be
affected by the Offer, the Amalgamation Agreement or any of the transactions
contemplated thereby. The dividend is payable to shareholders of record on May
14, 1997.
The Board of Directors and management of GCR thank you for the support and
encouragement you have given GCR.
Steven H. Newman
Chairman of the Board
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EXHIBIT (a)(6)
[LETTERHEAD]
PERSONAL AND CONFIDENTIAL
May 8, 1997
Board of Directors
GCR Holdings Limited
Sofia House
48 Church Street
Hamilton HM 12, Bermuda
Gentlemen:
You have requested our opinion as to the fairness to the holders, excluding
EXEL Limited ("EXEL") and any direct or indirect subsidiary of EXEL, of the
outstanding Ordinary Shares, par value $0.10 per share (the "Shares"), of GCR
Holdings Limited ("GCR" or the "Company") of the $27.00 per Share in cash
proposed to be paid by EXEL in the Tender Offer and the Amalgamation (as defined
below) pursuant to the Agreement and Plan of Amalgamation dated as of May 8,
1997 among EXEL, EXEL Acquisition Ltd., a wholly-owned subsidiary of EXEL, and
the Company (the "Agreement").
The Agreement provides for a tender offer for all of the outstanding Shares
(the "Tender Offer") pursuant to which EXEL Acquisition Ltd., a wholly-owned
subsidiary of EXEL, will pay $27.00 per Share in cash for each Share accepted.
The Agreement further provides that following completion of the Tender Offer,
EXEL Acquisition Ltd. will be amalgamated with and into the Company (the
"Amalgamation") and each outstanding Share (other than Shares already owned by
EXEL or any direct or indirect subsidiary of EXEL) will be converted into the
right to receive $27.00 in cash.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Goldman,
Sachs & Co. was a founding sponsor of the Company. Goldman, Sachs & Co. acted as
financial advisor and placement agent for the Company in connection with the
Company's organization and initial share placement in 1993. Goldman, Sachs & Co.
has also provided certain investment banking services to GCR from time to time,
including having acted as lead manager of GCR's initial public offering of
Shares of the Company in December 1995 and having acted as lead manager of the
subsequent offering of Shares of the Company in July 1996. We are familiar with
the Company, having acted as its financial advisor in connection with, and
having
[LOGO]
<PAGE>
participated in certain of the negotiations leading to, the Agreement. J.
Markham Green, a limited partner of The Goldman Sachs Group L.P. (an affiliate
of Goldman, Sachs & Co.), is a director of the Company. John P. McNulty, a
managing director of The Goldman Sachs Group L.P. and co-head of Goldman Sachs
Asset Management, is a director of the Company. GSAMI, an affiliate of Goldman,
Sachs & Co., performs asset management services for GCR, and the Company and
Goldman, Sachs & Co. have certain other contractual relationships. As a result
of the investment in the Company and in the course of the Firm's trading
activities as a full service securities firm, Goldman, Sachs & Co. and certain
of their affiliates have accumulated a long position of 2,035,924 Shares (of
which Goldman, Sachs & Co. has investment and voting control over 870,583
Shares) as of May 6, 1997. We also have provided certain investment banking
services to EXEL from time to time, including having acted as lead manager of
EXEL's initial public offering of common stock in July 1991 and having acted as
lead manager of the subsequent offering of common stock in April 1992. Goldman,
Sachs & Co. may provide investment banking services to EXEL in the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statements of the Company filed in connection with
the December 1995 offering of Shares and the July 1996 offering of Shares;
Annual Reports to Shareholders and Annual Reports on Form 10-K of the Company;
Quarterly Reports on Form 10-Q of the Company; and certain internal financial
analyses and forecasts for the Company prepared by its management. We also have
held discussions with members of the senior management of the Company regarding
its past and current business operations, financial condition and future
prospects. In addition, we have reviewed the reported price and trading activity
for the Shares, compared certain financial and stock market information for the
Company with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the reinsurance industry specifically and in other
insurance industries generally, and performed such other studies and analyses as
we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and assumed such accuracy and completeness
for purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company and we have
not been furnished with any such evaluation or appraisal. We were requested to
solicit in the market a limited number of preliminary indications of interest,
from other parties, in a potential transaction involving the Company. We made
such limited solicitation and reported the indications of interest to the
Company. Our advisory services and the opinion expressed herein are provided for
the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and do not represent a recommendation on how to vote.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the $27.00
per Share in cash to be received by the holders, excluding EXEL and any direct
or indirect subsidiary of EXEL, of Shares pursuant to the Agreement is fair to
such holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
GOLDMAN, SACHS & CO.
<PAGE>
EXHIBIT (C)(2)
III. APPROVAL OF EXISTING OPTION PLANS
Prior to its initial public offering in December 1995, the Company
adopted the Amended and Restated Non-Employee Directors Share Option Plan, which
was revised during fiscal year 1996 (in its current form, the "Director Option
Plan"), and the Amended and Restated 1995 Share Option Plan (in its current
form, the "1995 Employee Option Plan"). The Directors Option Plan and the 1995
Employee Option Plan are referred to herein as the "Existing Option Plans."
During fiscal year 1996 and to date, the Board of Directors granted a
total of 8,719 restricted Ordinary Shares to 14 directors, officers and
employees of the Company (with no such grantee receiving more than 2,799 shares)
pursuant to the Existing Option Plans on condition that such plans be approved
by the shareholders at the Fiscal 1996 Annual General Meeting. These grants (the
"Restricted Share Grants") were conditioned on shareholder approval of such
plans so that, if such
6
<PAGE>
approval were obtained, the grants would be exempt transactions for purposes of
Section 16(b) of the U.S. Securities Exchange Act of 1934 (the "Exchange Act")
and the Commission's rules thereunder.* Consequently, shareholder approval of
the Existing Option Plans will cause the Restricted Share Grants to become
effective and to be exempt transactions for these purposes.** None of the option
grants that have been made under the Company's compensation plans to date were
conditioned on shareholder approval, and such grants (including option grants
under the Existing Option Plans) will remain in effect regardless of the results
of the shareholder vote.
Set forth below is a summary of the terms of the Director Option Plan
and the 1995 Employee Option Plan, as well as the Restricted Share Grants made
under each plan.
The Director Option Plan
General. The purpose of the Director Option Plan is to align the
interests of non- employee members of the Company's Board with those of its
shareholders. The Board or, if so appointed, a committee thereof is authorized
to administer the Director Option Plan (the Board currently administers the
plan). The plan administrator has full power and authority to interpret the
plan, to establish, amend and rescind rules relating to the plan and to amend
the plan, except that shareholder approval is required for any amendment that
increases the number of shares that may be issued under the plan (other than
pursuant to adjustments provided for in the plan).
Awards and Eligibility. Under the Director Option Plan, each director,
other than the Chairman and any director who is an employee or officer of the
Company or Global Capital Re (each a "Non-Employee Director"), will receive a
grant of options on 1,500 Ordinary Shares on the first business day after each
annual shareholders' meeting. Each Non-Employee Director also received an
initial grant of options on 3,000 Ordinary Shares when the plan was initially
adopted. The Director Option Plan provides for options (and restricted shares as
described below) to be granted in an aggregate amount up to 100,000 Ordinary
Shares.
Terms of Awards. The terms and conditions applicable to each award under
the Director Option Plan are to be set forth in an option agreement between the
Company and each recipient. Generally, the exercise price per share for each
option is equal to the fair market value of an Ordinary Share (book value per
share for grants prior to the Company's initial public offering in December 1995
and market value per share for grants thereafter) on the date of grant as
determined by the plan administrator in accordance with the plan. Such options
are fully vested on grant, are generally not transferable, are exercisable for a
period of 10 years from grant and continue to be exercisable
- --------
* Due to recent changes in the Commission's rules under Section 16,
shareholder approval will no longer be required in order for grants of
options, restricted shares or other securities made by the Company under its
compensation plans to be exempt for purposes of Section 16(b).
** Prior to the Fiscal 1996 Annual General Meeting, the Company expects to make
additional grants of restricted shares under these plans in respect of the
November 1996 dividend. See "--Summary of Benefits to be Received".
References herein to "Restricted Share Grants" include such additional
grants.
7
<PAGE>
following the termination of service of the grantee as a director, provided,
however, that no such options may be exercised more than 12 months after the
death of the grantee.
The number of Ordinary Shares issuable on exercise of an option under
the plan and the exercise price per share thereof are subject to adjustment in
certain events having a dilutive or antidilutive effect on the Ordinary Shares.
In addition, in the event of any cash dividend in respect of the Ordinary
Shares, the grantee of an option will be granted restricted Ordinary Shares with
respect to an amount (the "Applicable Dividend Amount") equal to 30% of the
total dividend that would have been paid in respect of all Ordinary Shares
subject to the option (plus all unvested restricted shares previously granted in
respect of such option) held by the grantee, were such shares then outstanding
(or vested, as the case may be). The number of restricted Ordinary Shares to be
granted will be determined by dividing the Applicable Dividend Amount by the
fair market value of an Ordinary Share as determined by the plan administrator.
Restricted shares vest at the rate of 25% on each of the first four
anniversaries of their grant date until fully vested for as long as the director
remains in service on the Board and also vest immediately upon a Change of
Control (as defined below). Once vested, restricted shares may be held or
transferred by the grantee without restriction (other than certain restrictions
relating to the registration requirements of the U.S. Securities Act of 1933
(the "Securities Act")).
A "Change of Control" is deemed to occur, in general, if (i) any person
or group of persons (subject to certain limited exceptions) is or becomes the
direct or indirect beneficial owner of 50% or more of the Company's then
outstanding voting securities, (ii) during any two year period the directors at
the beginning of the period (including replacements approved by two-thirds of
such directors) cease to constitute a majority of the Board, (iii) the
shareholders of the Company approve a merger, consolidation or reorganization or
a court of competent jurisdiction approves a scheme of arrangement of the
Company, other than such a transaction or arrangement pursuant to which the
shareholders of the Company retain at least 50% of the combined voting power of
the voting securities of the Company or the surviving entity, or (iv) the
shareholders of the Company approve a plan of complete liquidation of the
Company or the sale or disposition of all or substantially all of the Company's
assets.
Grants to Date. To date, options on 27,000 shares have been granted to
nine Non-Employee Directors under the Director Option Plan, and 9,000 of such
options have been exercised. The exercise price of these options is $15.24 per
share.
To date, 390 restricted shares have been conditionally granted to six
Non-Employee Directors, in respect of the quarterly dividends declared by the
Board in February, May and August 1996. These Restricted Share Grants are
conditioned on shareholder approval of the Director Option Plan at the Fiscal
1996 Annual General Meeting, and none of these grants will be effective unless
and until such approval is obtained. The date of such approval will be the grant
date for vesting purposes. (For all purposes of this Proxy Statement, therefore,
none of the shares subject to the Restricted Share Grants are considered to be
outstanding.)*
- --------
* Prior to the Fiscal 1996 Annual General Meeting, the Company expects to
grant additional restricted shares under the Director Option Plan, in
respect of the November 1996 dividend.
(continued...)
8
<PAGE>
The 1995 Employee Option Plan
General. The purpose of the 1995 Employee Option Plan is to enable the
Company to provide eligible employees with an additional incentive to contribute
to the success of the Company by giving such individuals an opportunity to
acquire a proprietary interest in the Company. The Compensation Committee of the
Board is authorized to administer the 1995 Employee Option Plan. As plan
administrator, the Compensation Committee has full power and authority to
interpret the plan, to establish, amend and rescind rules relating to the plan
and to determine which employees are eligible to receive options in any year,
whether options are to be incentive stock options or nonqualified stock options
for U.S. federal income tax purposes, the time or times at which options are to
be granted, the number of options granted to each eligible participant, the
duration of each option and the time within which any option may be exercised.
The Board has the authority to amend the plan, except that shareholder approval
is required for any amendment that increases the number of shares that may be
issued under the plan (other than pursuant to adjustments provided for in the
plan).
Awards and Eligibility. Key employees of the Company and its
subsidiaries are eligible to receive awards under the 1995 Employee Option Plan.
The plan provides for options (and restricted shares as described below) to be
granted in an aggregate amount up to 1,500,000 Ordinary Shares. Options may be
either incentive stock options within the meaning of Section 422 of the U.S.
Internal Revenue Code ("ISOs") or options that do not qualify as ISOs, known as
non-qualified stock options ("NSOs"). The maximum number of Ordinary Shares
which may be subject to options granted under the plan in any one year is based
on a formula that takes into account the short-term and long-term returns on
consolidated shareholders' equity ("ROE") of the Company. Under this formula,
the number of Ordinary Shares that can be subject to options granted in any
fiscal year cannot exceed a percentage (the "Maximum Yearly Percentage") of the
total number of shares subject to the plan. The Maximum Yearly Percentage equals
the lesser of 30% and the sum of two percentages, one that ranges from 0 to 10%
based on ROE for the relevant fiscal year and one that ranges from 0 to 20%
based on ROE over a three year period ending with the relevant fiscal year. Each
of these two percentages is determined by reference to specified target levels
of short-term or long-term ROE, as applicable (with the maximum percentage being
reached in each case when the relevant ROE reaches a 25% target level). In no
event may options on more than 450,000 Ordinary Shares be granted in any one
year. Subject to the aggregate annual limit represented by the Maximum Yearly
Percentage, the number of options granted to a particular employee in any given
year is determined by the Compensation Committee in its discretion. The Company
intends that, if the New Share Incentive Plan is approved by shareholders at the
Fiscal 1996 Annual General Meeting, future grants of options to employees would
be made under the new plan and no further grants of options would be made under
the 1995 Employee Option Plan.
Terms of Awards. The terms and conditions of each option granted under
the 1995 Employee Option Plan are to be set forth in an option agreement between
the Company and the grantee. Generally, the exercise price per share for each
option is equal to the fair market value of an
- ----------
* (...continued)
These grants will also be conditioned on shareholder approval of the
plan. See "-- Summary of Benefits to be Received."
9
<PAGE>
Ordinary Share (book value per share for grants prior to the Company's initial
public offering in December 1995 and market value per share for grants
thereafter) on the date of grant of such options as determined by the
Compensation Committee in accordance with the plan. Unless determined otherwise
by the Compensation Committee, 25% of each option grant vests on each of the
first four anniversaries of the grant date until fully vested for as long as the
grantee remains employed by the Company. However, all options (and restricted
Ordinary Shares granted in respect of such options) vest immediately on a
"Change of Control" (as defined with respect to the Director Option Plan). No
option will become exercisable after the termination of the grantee's
employment. No option that is otherwise exercisable may be exercised more than
ninety days after the termination of the grantee's employment for any reason
other than death or disability or more than six months after termination for
death or disability, and in no event may any option be exercisable after the
tenth anniversary of the date of grant.
The number of Ordinary Shares issuable on exercise of an option granted
under the plan and the exercise price per share thereof are subject to
adjustment in certain events having a dilutive or antidilutive effect on the
Ordinary Shares. In addition, in the event of any cash dividend in respect of
the Ordinary Shares, the grantee of an option will be granted restricted
Ordinary Shares with respect to an amount (the "Applicable Dividend Amount")
equal to 30% of the total dividend that would have been paid in respect of all
Ordinary Shares subject to the option (plus all unvested restricted shares
previously granted in respect of such option), were they then outstanding (or
vested, as the case may be). The number of restricted Ordinary Shares to be
granted will be determined by dividing the Applicable Dividend Amount by the
fair market value of an Ordinary Share as determined by the Compensation
Committee. Restricted shares vest at the rate of 25% on each of the first four
anniversaries of their grant date until fully vested for as long as the grantee
remains employed by the Company and also vest immediately upon a Change of
Control. Once vested, restricted shares may be held or transferred by the
grantee without restriction (other than certain restrictions relating to the
registration requirements of the Securities Act).
Grants to Date. In November 1995, options on 360,000 Ordinary Shares
were granted to eight employees of the Company under the 1995 Employee Option
Plan. These options have an exercise price of $15.24 per share and none has been
exercised. In October 1996, options on 360,000 Ordinary Shares were granted to
fourteen employees under this plan. These options have an exercise price of
$23.25 per share and none has been exercised.
To date, 8,329 restricted Ordinary Shares have been conditionally
granted to eight employees under the 1995 Employee Option Plan, in respect of
the quarterly dividends declared by the Board in February, May and August 1996.
These Restricted Share Grants are conditioned on shareholder approval of the
1995 Employee Option Plan at the Fiscal 1996 Annual General Meeting, and none of
these grants will be effective unless and until such approval is obtained. The
date of such approval will be the grant date for vesting purposes. (For all
purposes of this Proxy Statement none of the shares subject to Restricted Share
Grants are considered to be outstanding.)*
- --------
* Prior to the Fiscal 1996 Annual General Meeting, the Company expects to
grant additional restricted shares under the 1995 Employee Option Plan, in
respect of the November 1996 dividend. The grants will also be conditioned
on shareholder approval of the plan. See "--
(...continued)
10
<PAGE>
Certain U.S. Federal Income Tax Effects
For a discussion of certain U.S. federal income tax effects of NSOs and
ISOs which may be granted under the Existing Plans, see "IV. Approval of the
1996 Share Incentive Plan -- Certain Federal Income Tax Effects."
Summary of Benefits to be Received
The following table sets forth in summary form the benefits or amounts
to be received by each of the following persons as a result of the Restricted
Share Grants, if the Existing Option Plans are approved by shareholders:
BENEFITS FROM RESTRICTED SHARE GRANTS
<TABLE>
<CAPTION>
1995 Employee Stock Option Plan Director Stock Plan
------------------------------- -------------------
Number of Number of
Estimated Restricted Estimated Restricted
Dollar Ordinary Dollar Ordinary
Name & Position Value ($)(1) Shares Value ($)(1) Shares
- -------------------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Lawrence S. Doyle
- - President & Chief
Executive Officer.......................... 63,503 2,799 0 0
Robert L. Nason
- - Senior Vice President North
American Underwriting...................... 36,212 1,596 0 0
Stephen S. Outerbridge
- - Senior Vice President
International
Underwriting............................... 36,212 1,596 0 0
Frederick W. Deichmann
- - Chief Financial Officer.................... 22,567 995 0 0
William G. Fanning
- - Vice President & Chief
Actuary.................................... 22,567 995 0 0
Executive Group................................. 181,069 7,981 0 0
Non-Executive Director
Group........................................... 0 0 8,848 390
</TABLE>
- ----------
* (...continued)
Summary of Benefits to be Received."
11
<PAGE>
<TABLE>
<CAPTION>
1995 Employee Stock Option Plan Director Stock Plan
------------------------------- -------------------
Number of Number of
Estimated Restricted Estimated Restricted
Dollar Ordinary Dollar Ordinary
Name & Position Value ($)(1) Shares Value ($)(1) Shares
- -------------------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Non-Executive Officer
Employee Group.................................. 7,895 348 0 0
</TABLE>
- ----------
(1) Calculated based upon a price of $22.6875 per Ordinary Share, the last
reported sale price in the Nasdaq National Market on November 21, 1996.
If the Existing Option Plans are approved by shareholders, the
restricted shares will vest over a four-year period beginning on the
first anniversary of the date such approval is obtained.
Prior to the Fiscal 1996 Annual General Meeting, the Company expects to
grant additional restricted shares to 22 directors, officers and employees under
the Existing Option Plans, in respect of the November 1996 dividend. The total
number of such shares will depend on the market price of the Ordinary Shares
when the dividend is paid; based on an assumed price of $22.6875 per share, the
number would not exceed 6,098. Following the meeting, options on 1,500 Ordinary
Shares will be granted to each Non-Employee Director under the Director Option
Plan, with each option having an exercise price per share equal to the
then-current fair market value of one Ordinary Share. For information about
option grants made under the 1995 Employee Option Plan to date, see "III.
Executive Compensation" in Part Two of this Proxy Statement. Except for the
Restricted Share Grants reflected above, none of the grants made under the
Existing Option Plans is subject to shareholder approval, and all such grants
will remain in effect regardless of the results of the shareholder vote.
Approval of Existing Option Plans
The Third Resolution, which is set forth in Annex A to this Proxy
Statement, provides for shareholder approval of the Existing Option Plans, in
the forms presented to the Fiscal 1996 Annual General Meeting. The forms to be
presented to the meeting will be substantially the forms in which these plans
were in effect (after all amendments and restatements thereof) on the record
date for the meeting.
The Company believes that the Existing Option Plans, which in their
current or prior form have been in place for more than a year, as well as the
Restricted Share Grants, have been important elements of its ability to attract,
retain and motivate quality management, by linking the remuneration of its
officers, directors and employees to the performance of the Company.
Consequently, the Company believes that these plans and grants are in the best
interests of the Company and its shareholders.
The directors who are not employees of the Company (other than the
Chairman) have a direct pecuniary interest in the approval of the Director
Option Plan, as they are eligible to participate
12
<PAGE>
in, and have received Restricted Share Grants under, such plan. The directors
who are also employees of the Company have a direct pecuniary interest in the
approval of the 1995 Employee Option Plan, as they are eligible to participate
in, and have received Restricted Share Grants under, such plan.
Your Board of Directors recommends that shareholders vote FOR the Third
Resolution.
IV. APPROVAL OF THE NEW SHARE INCENTIVE PLAN
In October 1996, the Board of Directors adopted the 1996 Share Incentive
Plan (the "New Share Plan") and, in light of the requirements of the Nasdaq
National Market in which the Ordinary Shares are traded, adoption of the New
Share Plan was conditioned on shareholder approval of the plan at the Fiscal
1996 Annual General Meeting. Set forth below is a summary of the terms of the
plan.
Summary of the New Share Plan
General. The purposes of the New Share Plan are to assist the Company in
attracting and retaining officers, other employees, consultants and advisors
with experience and ability by providing incentives to such participating
persons that are linked directly to increases in shareholder value and to
facilitate the ownership of the Company's shares by such individuals, thereby
increasing the identity of their interests with those of the Company's
shareholders. The Company intends that, if the New Share Plan is approved by
shareholders at the Fiscal 1996 Annual General Meeting, future grants of options
to employees would be made under the new plan and no further grants of options
would be made under the 1995 Employee Option Plan.
The New Share Plan provides for grants of ISOs, NSOs or a combination
thereof (as used in this section IV, "options"); provided, however, that ISOs
may be granted only to employees of the Company and its subsidiaries. Options
granted under the New Share Plan may be accompanied by share appreciation rights
("SARs") or limited share appreciation rights ("LSARs") or both (as used in this
section IV, "rights"). Rights may also be granted independently of options. The
New Share Incentive Plan also provides for grants of restricted shares, deferred
shares and performance shares (as used in this section IV, collectively,
"restricted awards").
Plan Administration. The New Share Plan may be administered by the Board
of Directors or the Compensation Committee. Subject to the terms of the plan,
the plan administrator has the right to determine the eligible participants in
the plan, to grant awards to eligible participants and to determine the terms
and conditions of the award agreements evidencing the grant of such awards,
including the conditions under which restrictions on restricted shares and
deferred shares will lapse. Such award agreements will typically set forth the
vesting schedule, exercise price and any other terms and conditions of such
awards, and the effect of a Change of Control (which term will be defined by the
plan administrator in the relevant award agreement) on such awards.
Shares Subject to the Plan. The New Share Plan provides for the issuance
of up to 500,000 Ordinary Shares. (This limit will also apply to any rights
issued under the plan which are payable in Ordinary Shares). In the event of any
change in the number or nature of the Ordinary Shares by
13
<PAGE>
reason of a merger, reorganization, consolidation, scheme of arrangement,
recapitalization, share dividend or other change in corporate structure
affecting the nature or amount of outstanding Ordinary Shares, the plan
administrator may make a substitution or appropriate adjustments in the
aggregate number of shares available for issuance under the plan and in the
number of shares and any exercise, purchase or similar provision relating to any
option, right or restricted award then outstanding. The plan administrator will
have the discretion to make other appropriate adjustments.
Eligibility. Discretionary grants of options, rights and restricted
awards may be made to any officer (including any officer who is also a
director), employee, consultant or advisor of the Company or any of its direct
and indirect subsidiaries who is determined by the plan administrator to be in a
position to contribute to the management, growth or profitability of the
Company.
Exercise of Options. Options will vest and become exercisable according
to a schedule established by the plan administrator at the time of grant.
Options may not be exercised more than ten years after the date of grant.
The purchase price of the shares purchased pursuant to the exercise of
an option will be as determined by the plan administrator at the time of grant
(but in the case of ISOs, will not be less than 100% of the Fair Market Value of
the Ordinary Shares at the time of grant, and in any event, will not be less
than the par value of the Ordinary Shares) and may be adjusted in accordance
with the antidilution provisions described above.
Upon the exercise of any option, the purchase price must be fully paid
in cash, or, at the discretion of the plan administrator, by delivery of
Ordinary Shares or restricted awards or by means of any other cashless exercise
procedure approved by the plan administrator, subject to certain limitations in
the case of an exercise of an ISO. If restricted awards are used to pay the
exercise price, certain of the shares acquired upon exercise will also be
subject to restrictions.
Share Appreciation Rights and Limited Share Appreciation Rights. A SAR
is the right to receive an amount, payable in cash, Ordinary Shares or as the
plan administrator otherwise determines, equal to or based on (i) the difference
between (A) the fair market value of the Ordinary Shares covered by such right
and (B) the aggregate exercise price of such right, (ii) the amount of dividends
paid with respect to Ordinary Shares over a specified time or (iii) any other
factor reasonably selected by the plan administrator. A LSAR is a SAR that may
only be exercised within the 30-day period following a Change of Control (as
defined by the plan administrator in the agreement evidencing such LSAR). Upon
the exercise of a SAR or LSAR, a holder is entitled to receive cash,
unrestricted Ordinary Shares or any combination thereof in an amount equal to
the appreciation in value of the number or Ordinary Shares covered by the right
above a specified price per share, all as determined by the plan administrator.
SARs and LSARs may be granted either alone ("Free Standing Rights") or in
conjunction with all or part of an option ("Related Rights").
With respect to SARs and LSARs that are Related Rights, each such SAR or
LSAR will terminate upon the termination or exercise of the pertinent portion of
the related option, and the pertinent portion of the related option will
terminate upon the exercise of such right. SARs that are Related Rights may be
exercised at any time that the underlying option is exercisable or, at the
discretion of the plan administrator, in other circumstances. With respect to
NSOs, Related Rights
14
<PAGE>
may be granted at or after the grant of such an option. In the case of ISOs,
Related Rights may be granted only at the time of grant of the ISOs.
SARs that are Free Standing Rights may be exercised at such time or
times and may be subject to such terms and conditions as may be determined by
the plan administrator at or after grant. LSARs that are Free Standing Rights
can only be exercised with the 30-day period following a Change of Control. The
term of each Free Standing Right will be fixed by the plan administrator but may
not exceed ten years from the date of grant.
Restricted Awards. A restricted share award is an award of Ordinary
Shares that may not be sold, assigned, transferred or pledged for a specified
period ("restricted period"). The plan administrator may determine the
restricted period and may also impose such other restrictions and conditions on
an award as it deems appropriate. The plan administrator may provide that these
restrictions will lapse upon certain events and may modify, accelerate or waive
such restrictions, in whole or in part. A deferred share award is the right to
receive Ordinary Shares at the end of a deferral period, and performance shares
are Ordinary Shares subject to restrictions based upon the attainment of
performance objectives, all as determined by the plan administrator.
Unless otherwise determined by the plan administrator, upon the award of
any restricted shares or performance shares, such shares will be deemed to be
outstanding for all purposes and the participant will have the rights of a
shareholder with respect to the shares, including voting and dividend rights,
subject to certain transfer and other restrictions set forth in the plan or the
relevant award agreement. In general, upon award of deferred shares, the
participant will not have any rights of a shareholder, other than the right to
receive dividends, during the specified deferral period.
Recipients of restricted shares, deferred shares or performance shares
will enter into an award agreement with the Company, in such form as the plan
administrator determines, which will set forth the terms and conditions,
including the restrictions and performance or other vesting criteria, applicable
to the shares.
Effect of Termination of Employment. If a grantee's employment with or
service as a consultant or advisor of the Company terminates for any reason, (i)
options may thereafter be exercised to the extent provided in the agreement
evidencing such options, or as otherwise determined by the plan administrator;
(ii) Free Standing Rights will be exercisable at such time or times and subject
to such terms and conditions as will be determined by the plan administrator at
or after grant; and (iii) the rights of participants with respect to restricted
awards will be set forth in the agreements evidencing such awards.
Amendment and Termination. The Board of Directors may terminate or amend
the New Share Plan, and the Board or the plan administrator may amend the terms
of or terminate any award granted thereunder, at any time, provided that any
such action may not impair the rights of any participant in the plan without his
consent.
Contingent Grants to Date. In October 1996, performance share awards
covering 91,000 Ordinary Shares were granted to five officers of the Company
under the New Share Plan. All such grants were conditioned upon shareholder
approval of the plan at the Fiscal 1996 Annual General Meeting. For each
grantee, the performance shares will vest (i) on October 31, 1999 (or any
earlier
15
<PAGE>
date chosen by the plan administrator) if and to the extent the Company achieves
certain performance criteria, as determined by the plan administrator, and (ii)
all performance shares that have not previously vested will vest on October 31,
2006; provided, however, that unvested performance shares will be forfeited by a
grantee whose employment terminates for any reason other than a termination in
connection with or following a Change of Control (as defined in the award
agreement) or resulting from death, disability or retirement. Vesting on or
prior to October 31, 1999 will depend on a comparison of Shareholder Return
(based on changes in share prices) and ROE (based on return on shareholders'
equity) for the Company and a peer group of companies selected by the plan
administrator, in each case during the vesting period. The portion of the
performance shares that will vest will range from 33% if Shareholder Return or
ROE for the Company exceeds that for at least 25% of the peer group companies,
to 100% if Shareholder Return or ROE for the Company exceeds that for 75% or
more of the peer group companies. Prior to vesting, the performance shares may
not be transferred, pledged or otherwise encumbered by the grantee but the
grantee will be entitled to vote and to receive dividends on the shares. Once
vested, the performance shares may be held or transferred by the grantee without
restriction (other than certain restrictions relating to the registration
requirements of the Securities Act). All performance shares will vest
immediately if the grantee's employment is terminated in connection with or
following a Change of Control (as defined in the award agreement). The vesting
period, performance criteria and other terms and conditions of the performance
share awards are set forth in award agreements between the Company and the
recipients.
Certain U.S. Federal Income Tax Effects
The following is a summary discussion of certain U.S. federal income tax
effects of options, rights and restricted awards under the New Share Plan.
Non-qualified Stock Options. A plan participant will not be subject to
U.S. federal income tax upon the grant of an NSO. Rather, at the time of
exercise of the NSO, the participant will recognize ordinary income for U.S.
federal income tax purposes in an amount equal to the excess of the fair market
value of the shares purchased over the exercise price.
If shares acquired upon exercise of an NSO are later sold or exchanged,
then the difference between the sale price and the fair market value of such
shares on the date that ordinary income was recognized with respect thereto will
generally be subject to tax as long-term capital gain or loss, if the
participant's holding period for the shares at the time of disposition is more
than one year; otherwise, it will be subject to tax as short-term capital gain
or loss. If the Company were subject to U.S. federal income tax, it would not be
entitled to a deduction at the time of grant of an NSO but would be entitled to
a deduction when a grantee exercises such an option in an amount equal to the
ordinary income realized by the grantee.
Incentive Stock Options. A plan participant will not be subject to U.S.
federal income tax upon the grant of an ISO or upon its timely exercise.
Exercise of an ISO will be timely if made during its term and if the participant
remains an employee of the Company or a subsidiary at all times during the
period beginning on the date of grant of the ISO and ending on the date three
months before the date of exercise (or one year before the date of exercise in
the case of a disabled employee). Exercise of an ISO will also be timely if made
by the legal representative of a participant who dies (i) while in the employ of
the Company or a subsidiary or (ii) within three months after termination of
employment (or one year after termination in the case of a disabled employee).
The tax consequences
16
<PAGE>
of an untimely exercise of an ISO will be determined in accordance with the
rules applicable to NSOs (see"--Non-qualified Stock Options"). If the Company
were subject to U.S. federal income tax, it would not be entitled to a deduction
at the time of grant or exercise of an ISO, but would be entitled to a deduction
in the year of disposition of the shares if the grantee did not hold the shares
for the one-year and two-year periods described below, in an amount equal to the
ordinary income realized by the grantee.
If shares acquired pursuant to a timely exercised ISO are later disposed
of, the participant will, except as noted below with respect to a "disqualifying
disposition," recognize long-term capital gain or loss equal to the difference
between the amount realized upon such sale and the option exercise price. If,
however, a participant disposes of shares acquired pursuant to the exercise of
an ISO prior to the expiration of two years from the date of grant of the ISO or
within one year from the date such shares are transferred to him upon exercise
(a "disqualifying disposition"), generally (i) the participant will realize
ordinary income at the time of the disposition in an amount equal to the excess,
if any, of the fair market value of the shares at the time of exercise (or, if
less, the amount realized on such disqualifying disposition) over the option
exercise price, and (ii) any additional gain realized by the participant will be
subject to tax as short-term or long-term capital gain.
The amount by which the fair market value of the stock on the exercise
date of an ISO exceeds the option exercise price will be an item of adjustment
for purposes of the "alternative minimum tax."
Summary of Plan Benefits
The following table sets forth in summary form the benefits or amounts
to be received by each of the following persons by reason of the performance
share awards made under the New Share Plan in October 1996, if the plan is
approved by shareholders:
BENEFITS FROM PERFORMANCE SHARE AWARDS
New Share Plan
Number
of Performance
Shares
Name & Position --------------
Lawrence S. Doyle
- - President & Chief Executive Officer............... 27,400
Robert L. Nason
- - Senior Vice President North American Underwriting. 17,000
Stephen S. Outerbridge
- - Senior Vice President International Underwriting.. 17,000
Frederick W. Deichmann
- - Chief Financial Officer........................... 14,800
William G. Fanning
- - Vice President & Chief Actuary.................... 14,800
17
<PAGE>
Executive Group....................................... 91,000
Non-Executive Director Group.......................... 0
Non-Executive Officer Employee Group.................. 0
Approval of the New Share Plan
The Company believes that the New Share Plan, and the contingent
performance share awards made thereunder in October 1996, are important elements
of its ability to attract, retain and motivate quality management, by linking
the remuneration of its officers and employees to the performance of the
Company. Consequently, the Company believes that this plan and the contingent
awards are in the best interests of the Company and its shareholders and is
seeking shareholder approval of the plan in order to satisfy the requirements of
the Nasdaq National Market.
The directors who are also employees of the Company have a direct
pecuniary interest in the approval of the New Share Plan, as they are eligible
to participate in, and have received contingent grants under, such plan.
The Fourth Resolution, which is set forth in Annex A to this Proxy
Statement, provides for shareholder approval of the New Share Plan, in the form
presented to the Fiscal 1996 Annual General Meeting. The form to be presented to
the meeting will be substantially the form approved by the Board in October
1996.
Your Board of Directors recommends that shareholders vote FOR the Fourth
Resolution.
18
<PAGE>
III. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth in summary form all compensation for all
services rendered in all capacities to the Company and its subsidiary for the
years ended September 30, 1994, 1995 and 1996 to the Chief Executive Officer of
the Company and the other four most highly compensated executive officers of the
Company each of whose total annual salary and bonus exceeded $100,000
(collectively with the Chief Executive Officer, the "Named Executives"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------------------------- -------------------------
Initial
Other Annual Options Other All Other
Fiscal Salary Bonus Compensation on Shares Options on Compensation
Year $ $(1) $(2) #(3) Shares(3) $(4)
------ ------- ------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence S. Doyle, President 1996 421,867 457,000 116,167 0 121,000 45,102
and Chief Executive Officer 1995 401,775 292,000 167,548 58,730 12,335 43,089
1994 370,500 93,000 217,808 0 0 38,371
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------------------------- -------------------------
Initial
Other Annual Options Other All Other
Fiscal Salary Bonus Compensation on Shares Options on Compensation
Year $ $(1) $(2) #(3) Shares(3) $(4)
------ ------- ------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Nason, Senior Vice 1996 257,292 206,000 138,410 0 69,000 27,199
President - North American 1995 228,750 175,000 139,165 23,495 7,050 24,344
Underwriting 1994 205,833 64,000 132,541 0 0 21,291
Stephen S. Outerbridge, 1996 215,833 172,000 139,881 0 69,000 23,053
Senior Vice President - 1995 199,375 145,000 140,766 23,495 7,050 21,403
International Underwriting 1994 184,375 43,500 128,153 0 0 19,323
Frederick W. Deichmann, 1996 205,833 165,000 110,459 0 43,000 23,466
Chief Financial Officer 1995 182,500 135,000 109,083 15,740 4,405 20,868
1994 162,500 43,500 137,338 0 0 16,648
William G. Fanning, Chief 1996 185,625 150,000 114,419 0 43,000 20,018
Actuary 1995 160,625 122,000 102,312 15,740 41,405 17,499
1994 123,295 30,000 120,228 0 0 12,654
</TABLE>
- ----------
(1) Amounts are awarded pursuant to the Company's Amended and Restated Employee
Incentive Compensation Plan (the "Employee Incentive Plan"), based on
individual and Company performance, with the latter being based one-half on
the annual ROE of the Company and one-half on the annual ROE compared to the
ROE of a peer group of companies. An annual award may not exceed 75% (175%
beginning in fiscal year 1997) of the recipient's base salary.
(2) Includes amounts in respect of reimbursement for certain travel expenses,
automobile expenses, club dues and relocation expenses and also includes
housing expenses of $132,000, $144,000 and $102,874; $110,000, $120,000 and
$125,000; $120,000, $120,000 and $120,000; $96,000, $96,000 and $96,000; and
$72,000, $96,000 and $104,000 for Messrs. Doyle, Nason, Outerbridge,
Deichmann and Fanning, respectively, for fiscal years 1994, 1995 and 1996,
respectively.
(3) For a description of Initial Options and Other Options, see "Management
Options" below. Does not include options on 360,000 Ordinary Shares granted
in October 1996 to fourteen employees at an exercise price of $23.25,
including options on 108,000, 60,000, 60,000, 52,000 and 52,000 shares to
Messrs. Doyle, Nason, Outerbridge, Deichmann and Fanning, respectively.
(4) Includes payments made in connection with life insurance premiums and
retirement plan contributions. Includes life insurance premiums of $1,321,
$2,911 and $2,911; $708, $1,469 and $1,469; $885, $1,465 and $1,470; $398,
$2,618 and $2,883; and $324, $1,436 and $1,456 and retirement plan
contributions of $37,050, $40,178 and $42,191; $20,583, $22,875 and $25,729;
$18,438, $19,938 and $21,583; $16,250, $18,250 and $20,583; and $12,330,
$16,063 and $18,562 for Messrs. Doyle, Nason, Outerbridge, Deichmann and
Fanning, respectively, for fiscal years 1994, 1995 and 1996, respectively.
28
<PAGE>
Management Options
To date, two types of options have been granted to employees of the
Company since its inception in 1993: Initial Options, which were granted to the
Named Executives in connection with the commencement of their employment in 1993
(1994 for Mr. Fanning), and Other Options, which were granted to key employees
of the Company and Global Capital Re, including the Named Executives, pursuant
to the 1995 Employee Option Plan and the Company's Amended and Restated Share
Option Plan (the "Initial Employee Option Plan"). The 1995 Employee Option Plan
is summarized under "III. Approval of Existing Option Plans" in Part One of this
Proxy Statement. The terms of the Initial Employee Option Plan are similar to
those of the 1995 Employee Option Plan, except that under the initial plan
annual grants were not limited by performance criteria, the exercise price per
share for an outstanding option is reduced automatically by the amount of any
cash dividend paid in respect of an Ordinary Share and plan participants do not
receive restricted shares in respect of such dividends. Options on 35,245
Ordinary Shares have been granted under the Initial Employee Option Plan, of
which none has been exercised to date, and no further options are available for
grant under that plan. The information in this section III does not reflect the
Restricted Shares Grants made under the 1995 Employee Option Plan or the
performance share awards made under the New Share Plan, all of which are
conditioned on shareholder approval as described in sections III and IV of Part
One of this Proxy Statement.
For each option granted under the Company's compensation plans to date,
the number of shares issuable thereunder and the exercise price per share, as
set forth herein, have been adjusted as necessary to reflect a five-for-one
split of the Ordinary Shares in the form of a share dividend in December 1995, a
distribution by the Company of approximately $201 million in cash to its
shareholders in August 1995 and the quarterly cash dividends paid by the Company
in February, May and August 1996, in each case to the extent such adjustments
apply. No adjustment is reflected in respect of the quarterly cash dividend
payable in November 1996.
Option Grants in Fiscal Year 1996. The following table contains information
concerning the share options granted to each of the Named Executives during
fiscal year 1996. The Company has not authorized the grant of any share
appreciation rights.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Share
Price Appreciation for
Individual Grants Option Term(3)
---------------------------------------------------------------------- ----------------------
Number of Percent of Total Exercise
Securities Options or Base Market
Underlying Granted to Price Price on
Options Employees in Per Date of Expiration
Name Granted(1) Fiscal Year Share(2) Grant(2) Date 5% 10%
- ----------------------- ----------- ---------------- -------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence S. Doyle 121,000 33.60 15.24 15.24 11/16/05 1,161,745 2,932,024
Robert L. Nason 69,000 19.20 15.24 15.24 11/16/05 662,483 1,671,980
Stephen S. Outerbridge 69,000 19.20 15.24 15.24 11/16/05 662,483 1,671,980
Frederick W. Deichmann 43,000 11.90 15.24 15.24 11/16/05 412,852 1,041,959
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Share
Price Appreciation for
Individual Grants Option Term(3)
---------------------------------------------------------------------- ----------------------
Number of Percent of Total Exercise
Securities Options or Base Market
Underlying Granted to Price Price on
Options Employees in Per Date of Expiration
Name Granted(1) Fiscal Year Share(2) Grant(2) Date 5% 10%
- ----------------------- ----------- ---------------- -------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
William G. Fanning 43,000 11.90 15.24 15.24 11/16/05 412,852 1,041,959
</TABLE>
- ----------
(1) Does not reflect options on 15,000 shares granted to employees (other than
Named Executives) in fiscal year 1996.
(2) All options were granted at fair market value, as determined by the
Compensation Committee of the Board, on the date of grant. All options vest
and become exercisable at a rate of 25% on each of the first through fourth
anniversaries of the grant date for as long as the Named Executive remains
employed by the Company.
(3) The 5% and 10% assumed annual rates of compounded share price appreciation
are mandated by rules of the Commission and have been calculated based upon
the market price on the date of grant as described in note (2) above. There
can be no assurance that the actual share price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other
defined level and such assumed rates are not intended to forecast the future
appreciation of Ordinary Shares. Unless the market price of the Ordinary
Shares appreciates over the option term, no value will be realized from the
option grants made to the Named Executives.
Aggregated Option Exercises in Fiscal Year 1996 and 1996 Fiscal Year-End
Option Values. The following table contains information for each Named Executive
with regard to the number of Ordinary Shares underlying unexercised options and
the value of such options, in each case at September 30, 1996. No options have
been exercised by Named Executives.
<TABLE>
<CAPTION>
Number of Ordinary Shares
Underlying Unexercised Options at Value of Unexercised
September 30, 1996(#) Options at September 30, 1996($)(1)
Exercisable/Unexercisable Exercisable/Unexercisable
================================= ===================================
<S> <C> <C>
Lawrence S. Doyle 26,576/165,489 $386,195/$1,824,362
Robert L. Nason 11,161/88,384 161,827/952,823
Stephen S. Outerbridge 11,161/88,384 161,827/952,823
Frederick W. Deichmann 7,398/55,748 107,311/603,541
William G. Fanning 7,397/55,748 107,311/603,541
</TABLE>
- ----------
(1) No effect is given to any exercise price adjustment in respect of the
November 1996 cash dividend or any subsequent cash dividend that may be
paid. All options were granted at fair market value, as determined by the
Compensation Committee of the Board, on the date of grant.
30
<PAGE>
Value calculated on the basis of the market value of the underlying shares
as of September 30, 1996 ($24.125).
Employment Contracts, Termination of Employment and Change-of-Control
Arrangements. The Company has entered into employment agreements with each of
the Named Executives, which are substantially identical. Unless otherwise
indicated, the following discussion pertains to Mr. Doyle's agreement and
addresses material differences applicable to the other agreements.
Each employment agreement provides for a term of five years, commencing
on October 8, 1993 (January 15, 1994 for Mr. Fanning). During the period of each
agreement, the relevant Named Executive is entitled to receive a base salary as
set forth in the agreement, subject to review and increase annually by the
Board, to participate in all employee benefit plans of the Company and to
receive reimbursement for certain relocation and travel expenses, a monthly
housing allowance, the use of an automobile and the costs of a club membership.
Upon signing his employment agreement, the Named Executive also received Initial
Options to purchase Ordinary Shares having a five-year vesting schedule, with
20% of such options being immediately exercisable and an additional 20% becoming
exercisable on each of the second through fifth anniversaries of the grant date
for as long as the Named Executive remains employed. No Initial Option will
become exercisable after the termination of the Named Executive's employment. No
Initial Option that is otherwise exercisable may be exercised more than ninety
days after the termination of employment for any reason other than death or
disability or more than six months after termination for death or disability,
and in no event more than 10 years after the grant date. To date, no Initial
Options have been exercised.
Pursuant to his employment agreement, each Named Executive invested
$400,000 ($800,000 for Mr. Doyle and $190,000 for Mr. Fanning) in Ordinary
Shares at a price of $20.00 per share. One half of each of these investments
($150,000 for Mr. Fanning) was financed by a non-recourse loan (each an
"Employee Loan") from the Company, which is secured by a proportionate number of
the Ordinary Shares, matures on October 8, 2000 (January 15, 2001 for Mr.
Fanning) or, if earlier, three months after his employment ends and bears
interest (payable at maturity) at the rate of 7% per annum. At the Named
Executive's option, up to one-half of his bonus award under the Employee
Incentive Plan can be applied to forgiveness of his loan, in which event 200% of
the amount elected will be so applied, provided that no more than 20% of the
original amount of the loan plus accrued interest may be forgiven in any one
year.
The employment of any Named Executive may be terminated by the Company
for "Serious Cause" (as defined in the agreements), after which the executive
cannot compete with the Company for 18 months (two years for Mr. Doyle), or by
the executive for "Good Reason" (as defined), after which only Mr. Doyle may not
compete with the Company (for one year). Any executive who voluntarily
terminates his employment without Good Reason may not compete for 18 months (two
years for Mr. Doyle).
Upon termination of employment by the Named Executive for Good Reason or
by the Company for other than Serious Cause, or if the Company liquidates or the
Board elects to discontinue permanently operating the Company, the executive is
entitled to receive his salary for a period of one year after termination and
benefits as provided in his agreement. If a Change of Control occurs and the
executive remains employed for at least 60 days, the executive is entitled to
receive (i) one year's salary (at the rate in effect immediately prior to the
Change of Control), (ii) immediate
31
<PAGE>
vesting of options, restricted shares and other awards and (iii) after one year
of employment following such transaction, the forgiveness of his Employee Loan.
If a Change of Control occurs and the executive's employment is terminated by
him for Good Reason or by the Company other than for Serious Cause within one
year thereafter, the executive is entitled to receive (in lieu of the benefits
described in the first sentence but in addition to those described in the second
sentence of this paragraph) (i) his salary for two years (at the rate referred
to above), (ii) automobile and housing allowances for one year, (iii)
forgiveness of his Employee Loan and (iv) immediate vesting of options,
restricted shares and other awards. For a description of the term "Change of
Control," see "III. Approval of Existing Option Plans -- Director Option Plan"
in Part One of this Proxy Statement.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee during fiscal year 1996 consisted of Messrs.
Rosenbloom (Chairman), Green, Olsen, Satz and Zuk, none of whom is or was an
officer or employee of the Company or Global Capital Re. Mr. Green is a limited
partner of The Goldman Sachs Group, L.P. and Mr. Olsen is an officer of Johnson
& Higgins. See "Certain Relationships and Related Party Transactions."
Shareholder Return Performance Presentation
The following graph and table show a comparison of cumulative total
shareholder returns, including reinvestment of dividends, on the Company's
Ordinary Shares to such return for Standard & Poor's ("S&P") 500 Composite Stock
Price Index and S&P's Property-Casualty Industry Group Stock Price Index for the
period beginning on December 19, 1995 (the first day of public trading for the
Ordinary Shares) and ending on September 30, 1996, assuming $100 was invested on
December 19, 1995. Each measurement point on the graph and in the table
represents the cumulative shareholder return as measured by the last reported
sale price at the end of each quarter during the relevant period. This graph and
table are not deemed to be "soliciting material" or to be "filed" with the
Commission or subject to the Commission's proxy rules or the liabilities of
Section 18 of the Exchange Act, and shall not be deemed to be incorporated by
reference into any prior or subsequent filing by the Company under the
Securities Act or the Exchange Act.
- --------------------------------------------------------------------------------
12/19/95 12/31/95 03/31/96 06/30/96 09/30/96
- --------------------------------------------------------------------------------
GCR HOLDINGS LIMITED 100.00 109.09 124.19 134.82 126.12
- --------------------------------------------------------------------------------
S&P 500 Composite Stock Price 100.00 100.00 105.37 110.10 113.50
Index
- --------------------------------------------------------------------------------
S&P Property-Casualty Industry 100.00 100.00 98.51 104.32 105.78
Group Stock Price Index
- --------------------------------------------------------------------------------
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors has furnished the
following report on its policies with respect to the compensation of executive
officers. The report is not deemed to be "soliciting material" or to be "filed"
with the Commission or subject to the Commission's proxy rules or the
liabilities of Section 18 of the Exchange Act, and the report shall not be
deemed to be
32
<PAGE>
incorporated by reference into any prior or subsequent filing by the Company
under the Securities Act or the Exchange Act.
Decisions on compensation of the Company's executive officers generally
are made by the Compensation Committee and reviewed by the full Board. The Board
and the Committee believe that the Company's success requires a small but highly
motivated professional staff. The compensation policies, therefore, are
primarily designed to attract and retain at the Company's Bermuda location, and
to motivate, such a staff.
The Company's executive compensation program combines base salary,
annual bonus, share option and share ownership programs to attract, retain and
motivate key employees. Base salary increases and annual bonuses are based on
individual and corporate performance. Among the factors on which compensation
has been based is a review of compensation paid by other large, Bermuda-based
insurance companies. Other primary factors influencing compensation terms have
been: the need for highly qualified professionals to serve in Bermuda,
specialized areas of expertise, retention of executives critical to the
Company's success, high barrier to recruitment for potential competitors and
experience and performance. The Compensation Committee also considered the
Company's structure and methods of operation, which require a small and highly
qualified and efficient executive team headquartered in one location and
reinsuring risks on a worldwide basis.
Under the Employee Incentive Plan, bonuses are based on individual and
corporate performance during the prior fiscal year. Annual compensation is
leveraged to provide a strong link to corporate and individual performance.
Factors taken into account for corporate performance include the Company's
returns on shareholders' equity compared to certain targets and to returns for
certain peer companies. Factors taken into account for individual performance
include underwriting performance, business production, development of the
management team and/or strategic steps.
The 1995 Employee Option Plan and the New Share Plan provide for grants
of share options, restricted and performance share awards and, potentially,
other share-related rights intended to motivate executives to build shareholder
value. The number of options and restricted shares granted to date under these
plans (and awards under the Employee Incentive Plan) is based on achievement of
return on equity goals and performance relative to peers. For a summary of the
performance criteria for grants and awards under the 1995 Employee Option Plan
and the New Share Plan, see "III. Approval of Existing Option Plans -- The 1995
Employee Option Plan" and "IV. Approval of the New Share Incentive Plan,"
respectively in Part One of this Proxy Statement. For a description of the
performance criteria for awards under the Employee Incentive Plan, see "III.
Executive Compensation" above.
In fiscal year 1996, Mr. Doyle, the President and Chief Executive
Officer of the Company, received a base salary of $421,867 and a cash bonus of
$457,000. In determining Mr. Doyle's total compensation for the year, including
the cash bonus, the Compensation Committee considered several factors including
the compensation paid to chief executive officers of comparable companies, the
effort, dedication and commitment applied by Mr. Doyle to successfully
positioning the Company as a specialized worldwide catastrophe reinsurer and the
Company's financial and operating performance. For fiscal year 1996, Mr. Doyle
was awarded options to purchase 108,000 Ordinary Shares, 25% of which will vest
on each of October 31, 1997, October 31, 1998, October 31, 1999 and
October 31, 2000. For fiscal year 1996, Mr. Doyle was also awarded 27,400
performance shares
33
<PAGE>
under the New Share Plan, although this award is conditioned on shareholder
approval of such plan. The options granted to Mr. Doyle in November 1995, for
fiscal year 1995, and reported in the Summary Compensation Table under "III.
Executive Compensation" above were granted, under the 1995 Employee Option Plan,
on the basis of the foregoing criteria. The Compensation Committee believes that
these options and shares are an important part of Mr. Doyle's long-term
compensation in that they provide an incentive to improve shareholder value.
The Company believes that it is not subject to U.S. taxation and
therefore that the provisions of section 162(m) of the Code with respect to its
compensation of the Named Executives is not relevant to the Company.
Submitted by the members of the Compensation Committee:
Jerry S. Rosenbloom, Chairman
J. Markham Green
David A. Olsen
Michael E. Satz
Donald J. Zuk
34
