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GCR HOLDINGS LIMITED
SOFIA HOUSE
48 CHURCH STREET
HAMILTON HM12 BERMUDA
---------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF
THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about May 30, 1997 to
holders of record at the close of business on or about May 29, 1997, of ordinary
shares, par value $0.10 per share (the "Shares"), of GCR Holdings Limited, a
Cayman Islands company ("GCR" or the "Company"). You are receiving this
Information Statement in connection with the possible election or appointment of
persons designated by EXEL Limited, a Cayman Islands company (the "Parent"), to
at least a majority of the seats on the Board of Directors of the Company.
On May 8, 1997, the Company, the Parent and Exel Acquisition Ltd., a Cayman
Islands company (the "Purchaser"), entered into an Agreement and Plan of
Amalgamation (the "Amalgamation Agreement") in accordance with the terms and
subject to the conditions of which (i) the Parent caused the Purchaser to
commence a tender offer (the "Offer") for all outstanding Shares at a price of
$27.00 per Share, net to the seller in cash, without interest thereon, and (ii)
the Purchaser will be amalgamated with and into the Company under a scheme of
arrangement under the Companies Law (1995 Revision) of the Cayman Islands (the
"Amalgamation"). As a result of the Offer and the Amalgamation, the Company will
continue as the surviving company and become a wholly owned subsidiary of the
Parent. On May 14, 1997, the Parent's and Purchaser's Offer to Purchase (the
"Offer to Purchase") and the Company's Solicitation/ Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9") were mailed, along with certain related
documents, to holders of record of the Shares.
The Amalgamation Agreement requires the Company to exercise its best efforts
to cause the Parent's designees to be elected or appointed to the Board of
Directors of the Company (the "Board") under the circumstances described
therein. This Information Statement is required by Section 14(f) of the
Securities Exchange Act of 1934, as amended, and Rule 14f-1 promulgated
thereunder. See "RIGHT TO DESIGNATE DIRECTORS: THE PARENT'S DESIGNEES."
YOU ARE URGED TO READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE NOT,
HOWEVER, REQUIRED TO TAKE ANY ACTION IN CONNECTION WITH THE MATTERS HEREIN
DISCUSSED.
Pursuant to the Amalgamation Agreement, the Purchaser commenced the Offer on
May 14, 1997. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on June 11, 1997, unless the Offer is extended.
The information contained in this Information Statement concerning the
Parent, the Purchaser and the Parent's designees for the Board (the "Parent's
Designees") has been furnished to the Company by the Parent and the Purchaser,
and the Company assumes no responsibility for the accuracy or completeness of
such information.
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RIGHT TO DESIGNATE DIRECTORS; THE PARENT'S DESIGNEES
Pursuant to the Amalgamation Agreement, promptly upon the purchase of and
payment for Shares by the Purchaser or Parent pursuant to the terms and subject
to the conditions of the Offer, the Parent will be entitled to designate such
number of directors as will give the Parent representation on the Board at least
equal to a majority of the Board. The Amalgamation Agreement requires that the
Company will, upon request by the Parent, promptly increase the size of the
Board to the extent permitted by the Company's Memorandum and Articles of
Association and/or exercise its best efforts to secure the resignations of
current directors to enable the Parent's Designees to be elected or appointed to
the Board and to constitute a majority of the Board; PROVIDED, HOWEVER, that
until the consummation of the Amalgamation or termination of the Amalgamation
Agreement, there shall be two directors on the Board who are designated by the
Company, the Parent and the Purchaser (but not employees of the Company or
otherwise affiliated with the Parent or the Purchaser (the "Requirements")), and
whose successors, if any, are to be reasonably satisfactory to the Parent and
the Purchaser and designated by such directors then in office, or, absent such
designation, individuals chosen by the Parent who meet the Requirements. The
Board currently consists of ten members.
None of the Parent's Designees, except as set forth below, (a) is currently
a director of, or holds any position with, the Company, (b) has a familial
relationship with any of the directors or executive officers of the Company or
(c) to the best knowledge of the Parent, beneficially owns any securities (or
rights to acquire any securities) of the Company. The Company has been advised
by the Parent that, to the best of the Parent's knowledge, none of the Parent's
Designees has been involved in any transactions with the Company or any of its
directors, executive officers or affiliates which are required to be disclosed
pursuant to the rules and regulations of the Securities and Exchange Commission,
except as may be disclosed herein or in the Schedule 14D-9.
The Parent has informed the Company that it will choose the Parent's
Designees from the Parent's directors and executive officers listed below. The
Parent has informed the Company that each of the Parent's Designees has
consented to act as a director, if so designated. The names of the Parent's
Designees, their ages as of February 18, 1997, and certain other information
about them are set forth below. All of the Parent's Designees are executive
officers and/or directors of the Parent and the business address of each such
executive officer and director is EXEL Limited, Cumberland House, One Victoria
Street, Hamilton HM11, Bermuda. Unless otherwise indicated below, each
occupation set forth opposite an individual's name refers to employment with the
Parent.
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NAME OF THE PARENT'S DESIGNEE AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Michael P. Esposito, Jr. ................. 57 MICHAEL P. ESPOSITO, JR. has been Chairman of the Board of the
Parent since April 1995 and a Director of the Parent since
1986. Mr. Esposito has been a partner of Inter-Atlantic
Securities Corporation since June 1995. Mr. Esposito served as
Chief Corporate Compliance, Control and Administration Officer
of The Chase Manhattan Corporation from 1991 to 1995, having
previously served as Executive Vice President and Chief
Financial Officer from 1987 to 1991. Mr. Esposito serves as a
director of Mid Ocean Limited, Risk Capital Holdings, Inc. and
Forest City Enterprises. Mr. Esposito beneficially owns 16,500
Shares.
Brian M. O'Hara........................... 48 BRIAN M. O'HARA has served as President and Chief Executive
Officer of the Parent since 1994 and as Director of the Parent
since 1986, having previously served as Vice
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NAME OF THE PARENT'S DESIGNEE AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------------------------ --- ---------------------------------------------------------------
Chairman of Parent from 1987 to 1994. He also served as
Chairman and Chief Executive Officer of X.L. Insurance Company,
Ltd. since December 1995, having served as Chairman, President
and Chief Executive Officer from 1994, as President and Chief
Executive Officer from 1992, and as President and Chief
Operating Officer from 1986. Mr. O'Hara also serves as a
director of Mid Ocean Limited.
<S> <C> <C>
Ian R. Heap............................... 71 IAN R. HEAP has served as Director of the Parent since 1987 and
was Chairman of the Board of the Parent from 1988 to 1992. He
was President and Chief Executive Officer of Parent and X.L.
Insurance Company, Ltd. from 1987 to 1988. From 1992 to 1993 he
served as President and Chief Executive Officer of Mid Ocean
Reinsurance Company Ltd. Mr. Heap also serves as a director of
Risk Capital Holdings, Inc.
John Loudon............................... 60 JOHN LOUDON has served as Director of Parent since 1992. Mr.
Loudon has been Chairman of Caneminster Ltd., a British
investment company, since 1991 and previously served as
Chairman of Warrior International Limited from 1988 to 1991.
Mr. Loudon also serves as a director of Tambrands Inc.,
Heineken N.V., Derby Trust plc, BNB Resources plc, Ocean Group
plc, and Alex. Brown and Sons (Holdings) Ltd.
John Weiser............................... 65 JOHN WEISER has served as a Director of the Parent since 1986.
Mr. Weiser served as Senior Vice President and director of
Bechtel Enterprises, Inc. from 1980 to 1996 and continues as a
director thereof. Mr. Weiser also served as President of
Bechtel Enterprises, Inc. from 1988 to 1992 and as General
Counsel of Bechtel Group, Inc. from 1980 to 1988 and from 1992
to 1994.
</TABLE>
INFORMATION REGARDING THE COMPANY
The Shares are the only outstanding class of voting securities of the
Company. Each Share is entitled to one vote. As of May 13, 1997, there were
24,766,255 Shares issued and outstanding, 26,227 restricted Shares (all of which
shall vest upon consummation of the Offer), and 996,925 Shares reserved for
issuance upon the exercise of stock options then outstanding.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
THE BOARD IN GENERAL
The Board of Directors of the Company currently consists of ten members.
Each director serves for a term of one year and until his successor is duly
elected or appointed and qualified (in each case subject to prior death,
resignation, retirement or removal from office). The Company's Amended and
Restated Articles of Association (the "Articles") provide for a minimum of three
and a maximum of 20 directors and empower the Board to fix the exact number of
directors within these limits and to appoint persons to fill, or to eliminate,
any vacancies on the Board. Vacancies on the Board are filled by action of a
majority of the Board remaining in office, with each such appointed director
holding office until the next following annual general meeting of shareholders
and his or her successor is elected or appointed and qualified.
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Directors may take action by a majority of their number present at a duly
called and held meeting at which a quorum is present. The majority of directors
in office at any time will be a quorum for all purposes. A director who expects
to be unable to attend any meeting of the Board or any committee thereof for any
reason may appoint any person as an alternate director to attend and act in his
place. A director also may be represented at any meeting of the Board or any
committee by a proxy appointed by him.
The Company is a Cayman Islands company and its Articles and corporate
governance matters are governed by Cayman Islands law.
CURRENT DIRECTORS
The names of the current directors, their ages as of May 13, 1997, and
certain other information about them (based upon information provided by such
persons) are set forth below. As indicated above, some (or all) of the current
directors may resign effective immediately following the purchase of Shares by
the Purchaser pursuant to the terms, and subject to the conditions, of the
Offer.
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YEAR FIRST
ELECTED AS
A PRINCIPAL OCCUPATION DURING THE PAST FIVE
NAME OF DIRECTOR AGE DIRECTOR YEARS
- ---------------------------------------------- --- ----------- ----------------------------------------------
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Steven H. Newman (1)(2)(4).................... 54 1993 STEVEN H. NEWMAN has been Chairman of the
Board of Directors of the Company since 1993.
He has been CEO and Chairman of the Board of
Directors of Underwriters Re since February
1987 and was President from 1987 until 1994.
Mr. Newman is a Fellow and past President of
the Casualty Actuarial Society, a member of
the International Actuarial Association and is
a member and past Chairman of the Board of
Directors of the Reinsurance Association of
America. Mr. Newman is also a director of
Capital Re Corporation, of which another
director of the Company, Michael Satz, is the
Chairman, President and Chief Executive
Officer, and is a director of the Chicago
Title and Trust Company and World Minerals
Corporation.
Loay Al-Naqib (2)............................. 45 July 1996 LOAY AL-NAQIB has been a director of the
Company since July 1996. He is Deputy Chairman
and Chief Executive Officer of Imperial Fire &
Marine Re-Insurance Company Ltd. in London.
Mr. Al-Naqib had been Deputy Chairman and
Chief Executive Officer of Arig Insurance
Company, also in London, from 1991 to 1996. He
is a director of the International Insurance
Foundation in New York.
Lawrence S. Doyle (1)......................... 53 1993 LAWRENCE S. DOYLE has been President, Chief
Executive Officer and a director of the
Company since 1993. He was
</TABLE>
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YEAR FIRST
ELECTED AS
A PRINCIPAL OCCUPATION DURING THE PAST FIVE
NAME OF DIRECTOR AGE DIRECTOR YEARS
- ---------------------------------------------- --- ----------- ----------------------------------------------
President and CEO of the New England
Reinsurance Corporation, First State Insurance
Company and the New England Insurance Company
from 1986 to 1993. Mr. Doyle was also Senior
Vice President of ITT Hartford Insurance Group
and President of ITT Hartford's International
Division from 1983 to 1993.
<S> <C> <C> <C>
J. Markham Green (2)(3)(4).................... 53 1993 J. MARKHAM GREEN has been a director of the
Company since 1993. He was a general partner
of Goldman, Sachs & Co. from 1984 to 1992 and
has been a limited partner of that firm since
1992. During his tenure as a general partner,
Mr. Green was co-head of the Financial
Services Industry Group in the Investment
Banking Division.
John P. McNulty (1)........................... 44 1993 JOHN P. MCNULTY has been a director of the
Company since 1993. He has been a general
partner of Goldman, Sachs & Co. from 1989 to
1994, a limited partner of that firm during
most of 1995 and, since November 25, 1995, a
general partner of that firm, a member of its
Operating Committee and co-head of Goldman
Sachs Asset Management since November 25,
1995.
David A. Olsen (3)............................ 59 1993 DAVID A. OLSEN has been a director of the
Company since 1993. He has been Chairman and
Chief Executive Officer of Johnson & Higgins
since 1991 and 1990, respectively, and has
held various positions with Johnson & Higgins
since 1966. Mr. Olsen is a Trustee of The
College of Insurance and of the American
Institute for Chartered Property Casualty
Underwriters and the Insurance Institute of
America.
Jerry S. Rosenbloom (2)(3).................... 57 1993 JERRY S. ROSENBLOOM has been a director of the
Company since 1993. He has been Frederick H.
Ecker Professor of Insurance and Risk
Management and Academic Director, Certified
Employee Benefit Specialist Program at the
Wharton School of the University of
Pennsylvania since 1990 and 1974,
respectively. Mr.
</TABLE>
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<CAPTION>
YEAR FIRST
ELECTED AS
A PRINCIPAL OCCUPATION DURING THE PAST FIVE
NAME OF DIRECTOR AGE DIRECTOR YEARS
- ---------------------------------------------- --- ----------- ----------------------------------------------
Rosenbloom is currently a member of the Boards
of Directors of Mutual Risk Management, Ltd.
and the Harleyville Insurance Companies.
<S> <C> <C> <C>
Joseph D. Roxe (1)(2)(4)...................... 61 1995* JOSEPH D. ROXE has been a director of the
Company since November 1995 and an alternate
director since October 1993. He has been
Senior Vice President and Chief Financial
Officer of Johnson & Higgins since 1987 and a
director of Johnson & Higgins since 1988.
Michael E. Satz (3)........................... 48 1993 MICHAEL E. SATZ has been a director of the
Company since 1993. He has been Chairman,
President and Chief Executive Officer of
Capital Re Corporation since its founding in
1988. Mr. Satz founded and was the first
president of the Association of Financial
Guaranty Insurers.
Donald J. Zuk (2)(3).......................... 60 1993 DONALD J. ZUK has been a director of the
Company since 1993. He has been President and
Chief Executive Officer of the Southern
California Physicians Insurance Exchange since
1989.
</TABLE>
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* Alternate Director from 1993-1995
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Special Committee
INFORMATION CONCERNING THE BOARD
During fiscal year 1996, the Board held six meetings. Each member of the
current Board attended at least 75% of all meetings of the Board, and of the
committees thereof on which he served, held during the fiscal year 1996 (or the
portion thereof in which he served). The Board established Audit and
Compensation Committees in October 1993 and an Executive Committee in November
1995. The Board also established a Special Committee in April 1997. Each such
committee reports to the Board. The Board has not established a nominating
committee.
EXECUTIVE COMMITTEE. The Board appoints an Executive Committee to exercise
all of the authority of the Board between meetings of the full Board. The
Executive Committee does not, however, have authority to (i) declare dividends,
(ii) issue Shares of the Company, (iii) recommend to the shareholders any action
which requires shareholder approval, (iv) alter, amend or repeal any resolution
of the Board relating to the Executive Committee or (v) take any other action
which legally may be taken only by the full Board. In addition, the Executive
Committee may review any aspects of GCR's business (including Global Capital
Reinsurance Limited's ("Global Capital Re") underwriting guidelines) and report
or make recommendations to the Board thereon. The Executive Committee currently
consists of four directors
6
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(Messrs. Newman (Chairman), Doyle, McNulty and Roxe). The Executive Committee
met once in fiscal year 1996.
AUDIT COMMITTEE. The Board appoints an Audit Committee to nominate the
independent accountants to be the auditors of the Company and, in consultation
with the auditors, review the scope of their audit and the accounting policies
and procedures of the Company. The Audit Committee currently consists of six
directors (Messrs. Zuk (Chairman), Al-Naqib, Green, Newman, Rosenbloom and
Roxe), none of whom is an officer or employee of the Company or Global Capital
Re. The Audit Committee met four times in fiscal year 1996.
COMPENSATION COMMITTEE. The Board appoints a Compensation Committee to
review the performance of corporate officers and the Company's compensation
policies and procedures and to make recommendations to the Board with respect to
such policies and procedures. The Compensation Committee also administers the
share option, restricted share and incentive compensation plans of the Company.
The Compensation Committee currently consists of five directors (Messrs.
Rosenbloom (Chairman), Green, Olsen, Satz and Zuk), none of whom is an officer
or employee of the Company or Global Capital Re. The Compensation Committee met
three times in fiscal year 1996.
SPECIAL COMMITTEE. The Board established a Special Committee in April 1997
to review and evaluate strategic alternatives for the Company, including but not
limited to the Amalgamation and possible alternative transactions. This Special
Committee currently consists of three non-employee directors (Messrs. Newman,
Green and Roxe).
OTHER SUPERVISORY ARRANGEMENTS
The Board of Directors of Global Capital Re appoints an Investment Committee
to review the guidelines governing the investment of Global Capital Re's funds
and to make recommendations to the Global Capital Re Board with respect to such
guidelines. The Investment Committee also reviews the performance of Global
Capital Re's investment manager, Goldman Sachs Asset Management International.
The Investment Committee presently consists of Messrs. Satz (Chairman),
Al-Naqib, Doyle, Lerner, Newman and Roxe. The Investment Committee met four
times in fiscal year 1996.
COMPENSATION OF DIRECTORS
Directors, other than directors who are employees or officers of the Company
or Global Capital Re, are entitled to remuneration for their services as
determined by the Board from time to time. Such remuneration is currently fixed
at $25,000 per annum plus a $1,000 fee for each Board meeting attended
(including meetings of committees of the Board). In addition, directors are
reimbursed for travel and out-of-pocket expenses incurred to attend meetings of
the Board and its committees.
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"), also participates in the Director Option
Plan. Under the Director Option Plan, each Non-Employee Director will receive a
grant of options on 1,500 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 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 Shares. The terms and conditions
applicable to each award under the Director Option Plan are set forth in
individual option agreements between the Company and each recipient. Generally,
the exercise price per Share for each option is equal to the fair market value
of a 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.
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The number of 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 Shares. In addition, in the
event of any cash dividend in respect of the Shares, the grantee of an option
will be granted restricted 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 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 Shares to be granted will be determined by dividing the Applicable
Dividend Amount by the fair market value of a 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.
As of November 21, 1996, options on 27,000 Shares had 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.
Since November 21, 1996, options on an additional 12,000 Shares have been
granted to such Non-Employee Directors, at an exercise price of $22.56 per
Share.
To date, 390 restricted Shares have been conditionally granted to eight
Non-Employee Directors, in respect of the quarterly dividends declared by the
Board in February, May, August and November 1996 and February and May 1997.
Pursuant to the Amalgamation Agreement, all outstanding stock options and
restricted Shares granted under the Director Option Plan (whether or not
exercisable) will be canceled immediately prior to the effectiveness of the
Amalgamation in exchange for an amount of cash ("Cash Amount") equal to (x) the
product of the number of Shares covered by the Director Option Plan multiplied
by the price per Share minus (y) the aggregate option exercise prices payable
upon the exercise of such options.
OTHER. Mr. Newman and the Company are party to the Amended and Restated
Chairman's Incentive Agreement, which will by operation of law become an
obligation of the surviving entity after the Amalgamation. Under this agreement,
in 1993 Mr. Newman received options to purchase 70,480 Shares at an exercise
price of $11.00 per Share. Pursuant to this agreement, in 1993 Mr. Newman also
invested $950,000 in Shares at a purchase price of $20.00 per Share. This
investment was financed by a non-recourse loan from the Company, which is
secured by the Shares purchased, matures on October 8, 2000 (or, if earlier, 60
days after Mr. Newman ceases to be a director) and bears interest (payable at
maturity) at the rate of 7% per annum. As of September 30, 1996, the amount
outstanding on the loan was $619,400. Pursuant to the Amalgamation Agreement,
immediately prior to the effectiveness of the Amalgamation, the options
purchased by Mr. Newman under this agreement will be canceled for a cash payment
equal to the appropriate Cash Amount. In addition, the outstanding balance on
the loan to Mr. Newman will be forgiven. Directors may also be eligible for
discretionary grants of options, rights and restricted awards made pursuant to
the 1996 Share Incentive Plan.
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There are no family relationships among any of the directors or executive
officers of the Company.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company presently consist of Lawrence S. Doyle
as President and Chief Executive Officer; Robert L. Nason as Senior Vice
President--North American Underwriting; Stephen S. Outerbridge as Senior Vice
President--International Underwriting; John K. Witherspoon, Jr. as Director of
Marine Underwriting; Frederick W. Deichmann as Chief Financial Officer and
Secretary; and William G. Fanning, Chief Actuary.
The following table sets forth certain information with respect to the
executive officers of the Company who are not also directors:
ROBERT L. NASON (age: 45) has been Senior Vice President--North American
Underwriting of the Company since 1993. He was Senior Vice President and
Director from 1988 to 1993 and Vice President from 1983 to 1988 of Trenwick
America Reinsurance Company.
STEPHEN S. OUTERBRIDGE (age: 45) has been Senior Vice President
- --International Underwriting of the Company since 1993. He was Chief
Underwriting Officer--International from 1992 to 1993, Director-- International
Reinsurance Underwriting and Head Underwriter from 1988 to 1992 and Manager--
International Property and Casualty from 1984 to 1988 of Hartford Fire
International Reinsurance.
JOHN K. WITHERSPOON, JR. (age: 59) has been Director of Marine Underwriting
of the Company since 1994. He was Vice President of BEP International from 1992
to 1994 and President of Bell Nicholson Henderson (USA) Inc. from 1986 to 1991.
He is a past President of the American Marine Insurance Forum and is a Chartered
Property Casualty Underwriter.
FREDERICK W. DEICHMANN (age: 55) has been Chief Financial Officer and
Secretary of the Company since 1993. He was Vice President from 1988 to 1993 of
General Re Corporation and Vice President of Aetna Life & Casualty from 1985 to
1988. He is a member of the American Institute of Certified Public Accountants
and has served on its Insurance Companies Committee.
WILLIAM G. FANNING (age: 39) has been Chief Actuary of the Company since
1994. He was Commercial Pricing Director and Actuary from 1992 to 1993 and
Actuary-Reinsurance Pricing from 1987 to 1991 at Allstate Insurance Company. Mr.
Fanning is a Fellow of The Casualty Actuarial Society and a member of the
American Academy of Actuaries.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who beneficially own more than ten percent of the
Company's Shares, to file reports of ownership as well as changes in ownership
with the U.S. Securities and Exchange Commission (the "Commission") and the
National Association of Securities Dealers, Inc. ("NASD"). Such persons are
required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely upon its review of the copies of such forms received by it, the
Company believes that during fiscal year 1996 all filing requirements applicable
to its executive officers, directors and greater than ten percent beneficial
owners were complied with, subject to the exceptions set forth below.
The Company's directors and executive officers and The Goldman Sachs Group,
L.P. made late filings of initial ownership reports on Form 3 following the
Company's initial public offering in December 1995, although all information
required to be filed on such forms was disclosed in the Company's registration
statement on Form S-1 filed with the Commission in connection with the offering
prior to the time required for filing the Form 3 reports. All such Form 3
reports have been filed (and in most cases were filed within three days of the
required date). Joseph D. Roxe, a director, also made late filings of three
transaction reports on Form 4.
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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
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LONG-TERM COMPENSATION
ANNUAL COMPENSATION
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INITIAL
OTHER ANNUAL OPTIONS OTHER ALL OTHER
FISCAL SALARY BONUS COMPENSATION ON SHARES OPTIONS ON COMPENSATION
YEAR $ $(1) $(2) #(3) SHARES(3) $(4)
----------- --------- --------- ------------- ----------- ----------- -------------
Lawrence S. Doyle...................... 1996 421,867 457,000 116,167 0 121,000 45,102
President and Chief Executive Officer 1995 401,775 292,000 167,548 0 12,335 43,089
1994 370,500 93,000 217,808 58,730 0 38,371
Robert L. Nason........................ 1996 257,292 206,000 138,410 0 69,000 27,199
Senior Vice President--North American 1995 228,750 175,000 139,165 0 7,050 24,344
Underwriting 1994 205,833 64,000 132,541 23,495 0 21,291
Stephen S. Outerbridge................. 1996 215,833 172,000 139,881 0 69,000 23,053
Senior Vice President International 1995 199,375 145,000 140,766 0 7,050 21,403
Underwriting 1994 184,375 43,500 128,153 23,495 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 0 4,405 20,868
1994 162,500 43,500 137,338 15,740 0 16,648
William G. Fanning..................... 1996 185,625 150,000 114,419 0 43,000 20,018
Chief Actuary 1995 160,625 122,000 102,312 0 41,405 17,499
1994 123,295 30,000 120,228 15,740 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 return on equity ("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 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.
10
<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
1996 Share Incentive Plan, the 1995 Employee Option Plan and the Company's
Amended and Restated Share Option Plan (the "Initial Employee Option Plan"). 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 a Share and plan participants do not receive restricted Shares in
respect of such dividends. Options on 35,245 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.
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 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 dividends paid in November 1996,
February and May 1997.
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)
--------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
- ----------------------------------- ----------- ----------------- ----------- ----------- ----------- ------------ ----------
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
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 Securities and Exchange Commission (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 Shares. Unless
the market price of the Shares appreciates over the option term, no value
will be realized from the option grants made to the Named Executives.
11
<PAGE>
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 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 SHARES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT OPTIONS AT SEPTEMBER 30,
SEPTEMBER 30, 1996 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. 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 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 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 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 Named Executive who voluntarily
terminates his employment without Good Reason may not compete with the Company
for 18 months (two years for Mr. Doyle).
12
<PAGE>
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 Named
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 Named Executive remains employed for at least 60 days, the Named
Executive is entitled to receive (i) one year's salary (at the rate in effect
immediately prior to the Change of Control), (ii) immediate 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 Named Executive's employment is terminated by him for
Good Reason or by the Company other than for Serious Cause within one year
thereafter, the Named 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 "COMPENSATION OF DIRECTORS--DIRECTOR OPTION PLAN".
The commencement of the Offer and/or the Amalgamation will constitute a
change in control under certain of the Company's stock option plans and stock
option agreements. Upon a change of control, as defined in such stock option
plans and agreements, stock options under such plans and agreements will become
fully vested, subject to the other terms of the applicable stock option plans
and agreements. See Item 3(b)(2) of the Schedule 14D-9.
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 table shows a comparison of cumulative total shareholder
returns, including reinvestment of dividends, on the Company's 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 Shares) and ending on
September 30, 1996, assuming $100 was invested on December 19, 1995. Each
measurement point 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 table 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 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.
<TABLE>
<CAPTION>
12/19/95 12/31/95 03/31/96 06/30/96 09/30/96
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
GCR HOLDINGS LIMITED............................................ 100.00 109.09 124.19 134.82 126.12
S&P 500 Composite Stock Price Index............................. 100.00 100.00 105.37 110.10 113.50
S&P Property-Casualty Industry Group Stock Price Index.......... 100.00 100.00 98.51 104.32 105.78
</TABLE>
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 incorporated by reference into any prior or subsequent filing by
the Company under the Securities Act or the Exchange Act.
13
<PAGE>
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 1996 Share Incentive 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.
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 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 under
the 1996 Share Incentive 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 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
14
<PAGE>
BENEFICIAL OWNERSHIP OF SHARES
The table below sets forth certain information as of May 27, 1997 (unless
otherwise specified) with respect to the beneficial ownership of the Company's
Shares by each person who is known to the Company to beneficially own more than
5% of the outstanding Shares, each person currently serving as a director, each
Named Executive and all directors and executive officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
----------------------
<S> <C> <C>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- -------------------------------------------------------------------------------------- --------- -----------
5% BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS:
The Goldman Sachs Group, L.P. ........................................................ 872,214(2) 3.5
85 Broad Street
New York, NY 10004
Johnson & Higgins..................................................................... 913,429(3) 3.7
125 Broad Street
New York, NY 10004
Steven H. Newman...................................................................... 89,788(4) *
Lawrence S. Doyle..................................................................... 111,656(5) *
Robert L. Nason....................................................................... 44,872(6) *
Stephen S. Outerbridge................................................................ 54,872(6) *
William G. Fanning.................................................................... 29,714(7) *
Frederick W. Deichmann................................................................ 42,597(8) *
Loay Al-Naqib......................................................................... 1,500(9) *
J. Markham Green...................................................................... 4,901(9) *
John P. McNulty....................................................................... 4,631 10) *
David A. Olsen........................................................................ 6,500 11) *
Jerry S. Rosenbloom................................................................... 4,500 11) *
Joseph D. Roxe........................................................................ 9,168 11) *
Michael E. Satz....................................................................... 4,500 11) *
John K. Witherspoon................................................................... 7,750 12) *
Donald J. Zuk......................................................................... 5,500 13) *
All Directors and Executive Officers as a group (15 persons).......................... 422,449 1.69
</TABLE>
- ------------------------
* Less than 1% of the outstanding Shares.
(1) In accordance with the rules of the Commission, each beneficial owner's
holdings have been calculated assuming full exercise of outstanding options
exercisable by such owner within 60 days after May 27, 1997, but no exercise
of outstanding options held by any other person. For further information
about the calculation of beneficial ownership, see the footnotes below. Note
that, pursuant to the Articles, there are certain implications if the
Controlled Shares (other than "Excluded Controlled Shares") of any U.S.
Person (as such terms are defined in the Articles) constitute 10% or more of
the total combined voting rights attaching to Shares. The figures reflected
in the table do not give effect to the acceleration in connection with the
Offer and the Amalgamation of Restricted Performance Awards, Restricted
Dividend Shares and stock options held by executive officers and directors.
(2) Includes 270,662 Shares beneficially owned by certain investment limited
partnerships, including GS Capital Partners, L.P., the general or managing
general partners of which are affiliates of The Goldman Sachs Group, L.P.
("GS Group"). GS Group disclaims beneficial ownership of Shares held by such
investment partnerships to the extent partnership interests in such
partnerships are held by persons other than GS Group and its affiliates.
Also includes 596,921 Shares beneficially owned by Goldman, Sachs & Co., an
affiliate of GS Group. In addition, includes 131 Shares and 4,500 Shares
15
<PAGE>
issuable upon the exercise of options which are held by Mr. McNulty, a
managing director of Goldman, Sachs & Co. who holds such Shares and options
for the benefit of GS Group. Does not include certain Shares held in
customer accounts managed by affiliates of GS Group. These excluded Shares,
together with the Shares of GS Group set forth in the table above, represent
approximately 7.3% of the Shares outstanding as of May 27, 1997. GS Group
disclaims beneficial ownership of Shares held in such customer accounts. GS
Group shares voting and investment power over the Shares reported herein
with certain of its affiliates.
(3) Consists of Shares beneficially owned by Johnson & Higgins (Bermuda)
Limited, a subsidiary of Johnson & Higgins. Includes 9,000 Shares issuable
upon the exercise of options (but no other Shares) beneficially owned by
Messrs. Olsen and Roxe, officers of Johnson & Higgins and directors of the
Company.
(4) Includes 42,288 Shares issuable upon the exercise of options; does not
include 165,324 Shares held by Underwriters Reinsurance Company, a
subsidiary of Allegheny Corporation.
(5) Includes 71,656 Shares issuable upon the exercise of options.
(6) Includes 34,872 Shares issuable upon the exercise of options.
(7) Includes 19,249 Shares issuable upon the exercise of options.
(8) Includes 22,397 Shares issuable upon the exercise of options. Also includes
200 Shares held by Mr. Deichmann for the benefit of his children and as to
which he disclaims beneficial ownership.
(9) Includes 1,500 Shares issuable upon the exercise of options. Based upon
information reported by the director on Form 4 as of February 1997.
(10) Includes 131 Shares and 4,500 Shares issuable upon the exercise of options,
which are held by Mr. McNulty for the benefit of GS Group. Does not include
Shares which otherwise may be deemed to be beneficially owned by GS Group.
See note (2) above. Mr. McNulty, who is a managing director of Goldman,
Sachs & Co., disclaims beneficial ownership of the Shares owned by GS Group
and certain of its affiliates. Based upon information reported by the
director on Form 4 as of February 1997.
(11) Includes 4,500 Shares issuable upon the exercise of options.
(12) Includes 4,250 Shares issuable upon the exercise of options.
(13) Includes 4,500 Shares issuable upon the exercise of options. Does not
include 113,000 Shares held by Southern California Physicians Insurance
Exchange.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Upon assuming their current positions with the Company, each of the Named
Executives and Mr. Newman has given a non-recourse note to the Company, in
amounts ranging from $150,000 to $950,000, to finance purchases of Shares.
Pursuant to the Chairman's Incentive Agreement, Mr. Newman's loan will be
forgiven upon a change in control, and pursuant to the employment agreements
with the Named Executives, if such Named Executive is employed by the Company or
its successor one year after such change in control, such Named Executive's loan
will also be forgiven. The transactions contemplated by the Amalgamation
Agreement will in each case constitute a change in control.
CERTAIN BUSINESS RELATIONSHIPS
Goldman, Sachs & Co., an affiliate of The Goldman Sachs Group, L.P. ("GS
Group"), was a founding sponsor of the Company. Together with certain affiliated
investment partnerships and other affiliates, GS
16
<PAGE>
Group owned 872,214 Shares as of May 27, 1997 (on the basis described above in
"Beneficial Ownership of Shares"). One of the Company's directors is a limited
partner of GS Group and another is a general partner of GS Group.
Goldman, Sachs & Co. acted as financial adviser and placement agent for the
Company in connection with the Company's organization and initial Share
placement in 1993, for which they received fees totaling approximately $6.9
million and reimbursement of certain expenses. In addition, as partial
consideration for those services, the Company granted to Goldman, Sachs & Co.
and certain affiliated investment partnerships warrants to purchase 2,317,640
Shares, all of which had an exercise price of $11.00 per Share, or $25.5 million
in the aggregate. These entities exercised their warrants in full immediately
prior to the closing for the Company's initial public offering in December 1995
and sold a total of 1,450,151 Shares in that offering. These entities sold an
additional 883,646 Shares in a public offering in July 1996. Goldman, Sachs &
Co. acted as lead manager of the underwriters in both public offerings, in which
the underwriters received aggregate underwriting discounts of approximately $9.1
million and $5.8 million, respectively, from the selling shareholders in such
offerings. The Company has agreed to indemnify Goldman, Sachs & Co. and their
affiliates against certain liabilities in connection with the organization of
the Company and the public offerings.
GSAMI, an affiliate of Goldman, Sachs & Co., performs asset management
services for Global Capital Re pursuant to an investment advisory agreement.
This agreement provides for an annual fee based on the value of Global Capital
Re's investment portfolio and may be terminated by either party upon 30 days'
notice. In addition, this agreement provides that GSAMI may effect portfolio
transactions for Global Capital Re with or through GSAMI or any of its
affiliates, acting as agent or as principal, and in each such case GSAMI or such
affiliate may earn commissions in addition to the advisory fees under the
agreement. GSAMI may also invest a portion of the portfolio in funds managed by
affiliates of Goldman, Sachs & Co. Pursuant to this agreement, the Company paid
advisory fees and brokerage commissions to GSAMI and its affiliates totaling
$497,000, $559,000 and $674,000 during fiscal years 1994, 1995 and 1996,
respectively.
Goldman, Sachs & Co. and its affiliates have provided, and currently
provide, other investment banking services to GCR from time to time for which
they have received or will receive customary fees.
Goldman, Sachs & Co. has entered into an undertaking and indemnification
agreement with the Company pursuant to which it has agreed, in general, that if
any Goldman Sachs Person becomes a United States 25% Shareholder (in compliance
with certain provisions of the Articles), no Goldman Sachs Person would be a
United States 25% Shareholder for a period of 29 consecutive days or more at any
time or for a period of 29 days or more during any single calendar quarter and
no Goldman Sachs Person would exceed a 29% ownership threshold at any time.
(Capitalized terms used in this paragraph are defined in the Articles.)
Goldman, Sachs & Co. has been retained by the Company as a financial adviser
with respect to the Offer, the Amalgamation and matters arising in connection
therewith. Pursuant to an engagement letter with Goldman, Sachs & Co., the
Company has agreed to pay Goldman, Sachs & Co. 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 to Purchase and related Letter of Transmittal, provided
that 50% or more of the Shares outstanding are so purchased. The Company has
also agreed to pay Goldman, Sachs & Co. for its reasonable out-of-pocket
expenses, including certain taxes and fees and disbursements of counsel, and to
indemnify Goldman, Sachs & Co. against certain liabilities.
Johnson & Higgins was a founding sponsor of the Company. Through an
affiliate, Johnson & Higgins beneficially owns 913,429 Shares (on the basis
described above in "Beneficial Ownership of Shares"). Two of the Company's
directors are officers of Johnson & Higgins.
17
<PAGE>
Johnson & Higgins provided reinsurance advice in connection with the
organization of the Company in 1993 and, in consideration therefore, the Company
granted to Johnson & Higgins affiliates warrants to purchase 986,015 Shares at
an exercise price of $11.00 per Share, or $10.8 million in the aggregate. These
affiliates exercised these warrants in full immediately prior to the closing of
the Company's initial public offering in December 1995 and sold a total of
327,659 Shares in that offering. A Johnson & Higgins affiliate also sold 739,989
Shares in the July 1996 public offering. The Company reimbursed Johnson &
Higgins for certain expenses relating to the organization of the Company.
On November 19, 1996, the Company announced the formation of a joint venture
between Global Capital Re and Capital Re Corporation ("Capital Re"). The joint
venture company, Capital Global Underwriters Limited, is a Bermuda-domiciled
reinsurance company specializing in financial reinsurance, including financial
guaranty, mortgage guaranty and finite risk reinsurance. The joint venture has
$50 million of committed capital and began operations at year end 1996. The
Company has committed to provide $10 million in cash and a $15 million letter of
credit to the venture. The Company will hold most of the voting shares of the
joint venture company. Global Capital Underwriters Limited is managed by an
affiliate of Capital Re which will receive reimbursement of expenses and an
annual commission based on the profit of the venture. Michael E. Satz, the
Chairman, President and Chief Executive Officer of Capital Re, is a director of
the Company. Pursuant to the Amalgamation Agreement, prior to the earlier of the
consummation of the Amalgamation and the termination of the Amalgamation
Agreement, the Company must discuss with the Parent any writing of insurance by
the joint venture.
Underwriters Reinsurance Company holds 165,324 Shares, which it purchased in
the Company's initial Share placement in 1993 at the offering price of $20.00
per Share. Steven H. Newman, the Chairman of Underwriters Reinsurance Company, a
subsidiary of Alleghany Corporation, is the non-executive Chairman of the Board
of Directors of the Company and holds 47,500 Shares and options to purchase
70,480 additional Shares. Underwriters Reinsurance Company is engaged in the
reinsurance business, including the writing of property catastrophe reinsurance.
Donald J. Zuk, a member of the Board, is also President and Chief Executive
Officer of the Southern California Physicians Insurance Exchange, which holds
113,000 Shares. Mr. Zuk holds 1,000 Shares and options to purchase 4,500
additional Shares.
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