<PAGE>
[LOGO]
April 14, 1997
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Risk Capital Holdings, Inc. which will be held at our offices located at 20
Horseneck Lane, Greenwich, Connecticut, on Tuesday, May 13, 1997 at 4:00 p.m.
The Notice and Proxy Statement on the following pages contain details
concerning the business to come before the meeting. Management will report on
current operations and there will be an opportunity for discussion concerning
the Company and its activities. We urge you to sign and return your proxy card
in the enclosed envelope to ensure that your shares will be represented and
voted. We ask that you sign and return the card even if you plan to attend the
meeting.
We look forward to meeting with you.
Sincerely,
/s/ Mark D. Mosca
MARK D. MOSCA
President
<PAGE>
RISK CAPITAL HOLDINGS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 1997
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the "Annual
Meeting") of Risk Capital Holdings, Inc., a Delaware corporation (the
"Company"), will be held at the Company's offices located at 20 Horseneck Lane,
Greenwich, Connecticut, 06830, on Tuesday, May 13, 1997 at 4:00 p.m. (EDT) for
the following purposes:
1. To re-elect three directors to serve for a term of three years and until
their respective successors are elected and qualified;
2. To approve an amendment to the Company's 1995 Long Term Incentive and
Share Award Plan primarily to permit discretionary grants of stock-based
awards to be made to non-employee members of the Board of Directors;
3. To act upon a proposal to ratify the selection of Price Waterhouse LLP
as independent accountants for the fiscal year ending December 31, 1997;
and
4. To consider and act upon any other matters which may properly come
before the Annual Meeting or any postponement or adjournment thereof.
In accordance with the provisions of the Company's Bylaws, the Board of
Directors has fixed the close of business on March 27, 1997 as the record date
for the determination of the holders of Common Stock entitled to notice of, and
to vote at, the Annual Meeting.
Your attention is directed to the accompanying Proxy Statement.
Whether or not you plan to attend the Annual Meeting, we urge you to sign,
date and return the enclosed proxy promptly in order to ensure representation of
your shares. An addressed envelope for which no postage is required if mailed in
the United States is enclosed for that purpose.
By Order of the Board of Directors,
/s/ Peter A. Appel
PETER A. APPEL
Managing Director,
General Counsel
and Secretary
Greenwich, Connecticut
April 14, 1997
<PAGE>
PROXY STATEMENT
RISK CAPITAL HOLDINGS, INC.
20 HORSENECK LANE
GREENWICH, CONNECTICUT 06830
ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 1997
PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Risk Capital Holdings, Inc., a Delaware corporation (the "Company"), for use
at the annual meeting of shareholders (the "Annual Meeting") of the Company to
be held at the Company's offices located at 20 Horseneck Lane, Greenwich,
Connecticut, 06830, on Tuesday, May 13, 1997, at 4:00 p.m. (EDT) and at any and
all postponements or adjournments thereof. Any proxy given may be revoked at any
time before it is voted by filing with the Secretary of the Company an
instrument revoking it or a duly executed proxy bearing a later date. All
expenses of the solicitation of proxies for the Annual Meeting, including the
cost of mailing, will be borne by the Company. Proxies will be solicited on
behalf of the Board of Directors by MacKenzie Partners, Inc. for a fee which
will not exceed $4,000. Officers and regular employees of the Company may also
solicit proxies from shareholders by telephone, telegram or personal interview
and will not receive additional compensation for such services. The Company also
intends to request persons holding stock in their name or custody, or in the
name of nominees, to send proxy materials to their principals and request
authority for the execution of the proxies. The Company will reimburse such
persons for their expense in so doing.
The Company anticipates mailing proxy materials and the Annual Report for
the fiscal year ended December 31, 1996 to shareholders of record, as of March
27, 1997, on or about April 18, 1997.
VOTING SECURITIES
Only holders of record of the Company's Common Stock, par value $.01 per
share ("Common Stock"), at the close of business on March 27, 1997, are entitled
to vote on the matters to be presented at the Annual Meeting. The number of
shares of Common Stock outstanding on such date and entitled to vote was
17,017,192. Each such share is entitled to one vote with respect to such
matters.
The presence in person or by proxy of holders of record of a majority in
voting interest of the outstanding shares of Common Stock is required for a
quorum to transact business at the Annual Meeting, but if a quorum should not be
present, the Annual Meeting may be adjourned from time to time until a quorum is
obtained. Directors are elected by a plurality of the votes cast. The vote of a
majority in voting interest of the shareholders present in person or by proxy at
the Annual Meeting and entitled to vote thereat and thereon is required for all
other proposals to come before the Annual Meeting.
Abstentions and broker non-votes (i.e., shares held by a broker or nominee
which are represented at the Annual Meeting, but with respect to which such
broker or nominee does not have discretionary authority to vote on a particular
proposal) will be counted as present at the Annual Meeting for the purpose of
determining whether or not a quorum exists. Abstentions and broker non-votes
will generally not be counted for any other purpose, except that abstentions
with respect to any proposal, other than the election of directors, will have
the same effect as negative votes.
Unless contrary instructions are indicated on the accompanying proxy, the
shares represented thereby will be voted in accordance with the recommendations
of the Board of Directors.
<PAGE>
1. ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" THE ELECTION OF ALL NOMINEES
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors currently consists of nine members divided equally
into three classes serving staggered three-year terms. The Board of Directors
intends to present for action at the Annual Meeting the re-election of Allan W.
Fulkerson, Lewis L. Glucksman and Ian R. Heap, whose present terms expire in
1997, to serve as Class II Directors for a term of three years and until their
successors are duly elected and qualified.
Unless authority to vote for such Directors is withheld, the enclosed proxy
will be voted for such persons except that the persons designated as proxies
reserve discretion to cast their votes for other persons in the unanticipated
event that any of such nominees is unable, or declines, to serve.
NOMINEES
Set forth below is information with respect to the nominees for election.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ----------- -------------------------------------------
<S> <C> <C>
Allan W. Fulkerson......................... 63 Class II Director
Lewis L. Glucksman......................... 71 Class II Director
Ian R. Heap................................ 71 Class II Director
</TABLE>
Allan W. Fulkerson has been a Director of the Company and Risk Capital
Reinsurance Company, a wholly owned subsidiary of the Company ("Risk Capital
Reinsurance"), since the completion of the Company's initial public offering in
September 1995 (the "Offering"). Mr. Fulkerson has been Chairman of Century
Shares Trust since 1976, President and director of Century Capital Management,
Inc. since 1992 and President and director of Massachusetts Fiduciary Advisors,
Inc. since 1976. Mr. Fulkerson has also been Chairman and director of Lumber
Mutual Insurance Companies since 1977, a director of Mutual Risk Management Ltd.
since 1988, a director of Terra Nova (Bermuda) Holdings Ltd. since 1994 and a
director of Wellington Underwriting plc. He is also a Trustee and Chairman of
the Finance Committee of Williams College.
Lewis L. Glucksman has been a Director of the Company and Risk Capital
Reinsurance since November 1995. He has been Vice Chairman of Smith Barney Inc.
since November 1988. Prior thereto, he was Chairman of Glucksman & Company, a
private investment banking firm, which he founded in 1984. From 1963 to 1984,
Mr. Glucksman was associated with Lehman Brothers Inc. and its successor company
Lehman Brothers Kuhn Loeb, Inc., serving in various positions, including as
Chairman and Chief Executive Officer from 1983 to 1984, President from 1981 to
1983, and Chief Operating Officer from 1976 to 1983. From 1976 to 1984, he was a
Commissioner of the Port Authority of New York and New Jersey. Mr. Glucksman is
a Trustee and member of the Finance and Executive Committees of New York
University.
Ian R. Heap has been a Director of the Company and Risk Capital Reinsurance
since the completion of the Offering. Mr. Heap has been a director of EXEL
Limited ("EXEL") since 1987 and was Chairman of the Board of EXEL from 1988 to
1992. He was President and Chief Executive Officer of EXEL 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.
2
<PAGE>
CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information with respect to the incumbent Directors who
are not standing for election this year and the executive officers of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION TERM EXPIRES*
- --------------------------------------------- --- --------------------------------------------- ---------------
<S> <C> <C> <C>
Mark D. Mosca................................ 43 President and Class III Director 1998
Robert Clements.............................. 64 Chairman and Class III Director 1998
Peter A. Appel............................... 35 Managing Director, General Counsel --
and Secretary
Bonnie L. Boccitto........................... 47 Managing Director and Chief --
Underwriting Officer**
Paul J. Malvasio............................. 50 Managing Director, Chief Financial --
Officer and Treasurer
Michael P. Esposito, Jr...................... 57 Class III Director 1998
Thomas V. A. Kelsey.......................... 64 Class I Director 1999
Mark N. Williamson........................... 34 Class I Director 1999
Philip L. Wroughton.......................... 63 Class I Director 1999
</TABLE>
- ------------------------
* Indicates expiration of term as a Director of the Company.
** Ms. Boccitto is Chief Underwriting Officer of Risk Capital Reinsurance.
Mark D. Mosca was elected President and Director of the Company in June 1995
and President, Chief Executive Officer and Director of Risk Capital Reinsurance
in August 1995. Prior to that time, he was Senior Vice President and Chief
Underwriting Officer of Zurich Reinsurance Centre Holdings, Inc. since the
completion of its initial public offering in May 1993. Prior thereto, Mr. Mosca
served as a Vice President of NAC Re Corporation ("NAC Re"), where he was
manager of the Treaty Division since February 1986. From 1975 to 1986, Mr. Mosca
was employed by General Reinsurance Corporation where he was a Vice President.
Mr. Mosca holds an A.B. degree from Harvard University.
Robert Clements was elected Chairman and Director of the Company at its
formation in March 1995 and Chairman and Director of Risk Capital Reinsurance in
September 1995. He is currently an advisor to Marsh & McLennan Risk Capital
Corp. ("Risk Capital Corp."), with whom he served as Chairman and Chief
Executive Officer from January 1994 to March 1996. Prior thereto, he served as
President of Marsh & McLennan Companies, Inc. since 1992, having been Vice
Chairman during 1991. He was Chairman of Marsh & McLennan, Incorporated, a
subsidiary of Marsh & McLennan Companies, Inc., from 1988 until March 1992. He
joined Marsh & McLennan, Ltd., a Canadian subsidiary of Marsh & McLennan
Companies, Inc., in 1959. Mr. Clements is a director of Marsh & McLennan
Companies, Inc., EXEL and Hiscox plc. He is Chairman of the Board of Trustees of
The College of Insurance and a member of Rand Corp. President's Council.
Peter A. Appel has been a Managing Director, General Counsel and Secretary
of both the Company and Risk Capital Reinsurance since November 1995. From
September 1987 to October 1995, Mr. Appel practiced law with the New York firm
of Willkie Farr & Gallagher, where he was a partner from January 1995. He holds
an A.B. degree from Colgate University and a law degree from Harvard University.
Bonnie L. Boccitto has been a Managing Director of the Company and a
Managing Director and Chief Underwriting Officer of Risk Capital Reinsurance
since October 1995. From September 1993 to September 1995, Ms. Boccitto was a
Senior Vice President of Everest Reinsurance Holdings, Inc. (formerly Prudential
Reinsurance Holdings, Inc.) and its reinsurance subsidiary, Everest Re (formerly
Prudential Reinsurance Company), where she was responsible for all United States
broker treaty and facultative operations. From 1989 to September 1993, she
served as a Vice President of Everest Re, where she was manager of the treaty
casualty department. She joined Everest Re in 1979 in the actuarial department
and
3
<PAGE>
became an underwriter in the treaty department in 1983. Ms. Boccitto holds a
B.S. degree in Mathematics from Dana College and a M.Ed. degree in Mathematics
Education from Rutgers University.
Paul J. Malvasio has been a Managing Director, Chief Financial Officer and
Treasurer of both the Company and Risk Capital Reinsurance since September 1995
and a Director of Risk Capital Reinsurance since November 1995. Prior to that
time, he was Senior Vice President and Chief Financial Officer of NAC Re since
the completion of NAC Re's initial public offering in February 1986. From 1967
to 1986, Mr. Malvasio was employed by the public accounting firm of Coopers &
Lybrand, where he was an audit partner from October 1979. Mr. Malvasio is a
certified public accountant and holds a B.B.A. degree in Accounting from St.
Francis College.
Michael P. Esposito, Jr. has been a Director of the Company and Risk Capital
Reinsurance since the completion of the Offering. Mr. Esposito has been a
director of EXEL since 1986, serving as Chairman of the Board since April 1995,
and has been a Partner in Inter-Atlantic Securities Corporation since June 1995.
Mr. Esposito served as Chief Corporate Control, Compliance and Administrative
Officer of The Chase Manhattan Corporation from 1991 to June 1995, having
previously served as Executive Vice President and Chief Financial Officer from
1987 to 1992. Mr. Esposito also currently serves as a director of Forest City
Enterprises and Mid Ocean Limited.
Thomas V. A. Kelsey has been a Director of the Company and Risk Capital
Reinsurance since September 1996. Mr. Kelsey has been the President and Chief
Executive Officer of School, College and University Underwriters, Ltd.
("SCUUL"), a Bermuda-domiciled reinsurance company, since 1992. Prior to joining
SCUUL, Mr. Kelsey served Chubb & Son Inc. and The Chubb Corporation since 1954
in various capacities, including Executive Vice President and Chief Underwriting
Officer. Mr. Kelsey is Vice Chairman of the Board of Trustees of The College of
Insurance.
Mark N. Williamson has been a Director of the Company and Risk Capital
Reinsurance Company since the completion of the Offering. Since June 1996, Mr.
Williamson has been a Managing Director of Fremont Partners, a San
Francisco-based private equity firm. From September 1991 to May 1996, Mr.
Williamson served as a Managing Director at the Harvard Private Capital Group,
Inc., an affiliate of the Harvard Management Company responsible for the private
equity investments of the Harvard University endowment.
Philip L. Wroughton has been a Director of the Company and Risk Capital
Reinsurance since the completion of the Offering. Mr. Wroughton was Chairman of
C.T. Bowring & Co. Limited from 1988 to 1996, Chairman of The Bowring Group Ltd.
from 1995 to 1996 and was Vice Chairman of Marsh & McLennan Companies, Inc. from
1994 to 1996. Prior to 1994, he was Chairman of Marsh & McLennan, Inc.
------------------------
See "Election of Directors--Certain Relationships and Related
Transactions--Designation of Directors" for a description of certain
arrangements regarding the election of certain of the non-employee members of
the Board of Directors (the "Non-Employee Directors").
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board of Directors met five times during 1996. The Board of Directors
has established standing Executive, Audit, Compensation and Investment/Finance
Committees. The Board of Directors has no standing Nominating Committee. Each
Director attended more than 75% of all meetings of the Board and any committees
on which the Director served during fiscal year 1996.
EXECUTIVE COMMITTEE
The Executive Committee of the Board of Directors (the "Executive
Committee") is composed of Robert Clements (Chairman), Mark D. Mosca and Michael
P. Esposito, Jr. The Executive Committee may
4
<PAGE>
exercise all the powers and authority of the Board of Directors, when it is not
in session, in the management of the business and affairs of the Company. Except
as expressly authorized by the Directors and permitted by law, the Executive
Committee does not have authority to (i) amend the Bylaws of the Company, (ii)
declare a dividend, (iii) elect or remove officers of the Company, (iv)
authorize the issuance of shares of capital stock of the Company or (v)
authorize the disposition or acquisition of businesses or subsidiaries. The
Executive Committee will report periodically to the Board of Directors as to
actions it has taken. The Executive Committee met two times during 1996.
AUDIT COMMITTEE
The Audit Committee of the Board of Directors (the "Audit Committee") is
composed of Lewis L. Glucksman (Chairman), Thomas V. A. Kelsey, Mark N.
Williamson and Philip L. Wroughton. The Audit Committee reviews the annual
financial statements of the Company with the independent accountants and the
practices and procedures adopted by the Company in the preparation of such
financial statements. The Audit Committee submits recommendations to the Board
of Directors with respect to the selection of independent accountants and
reviews the independent accountants' annual scope of audit. The Audit Committee
is required to meet at least annually with such accountants. The Audit Committee
met two times during 1996.
COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is composed of Ian R. Heap (Chairman), Robert Clements and Lewis L.
Glucksman. The Compensation Committee has the authority to fix the compensation
of the President and approve the compensation of senior executives of the
Company. The Compensation Committee reviews the general compensation policies
and practices followed by the Company and its subsidiaries and administers the
Company's benefit plans as may exist from time to time. The Compensation
Committee is required to report to the Board of Directors at least annually and
whenever the Board may require. Members of the Compensation Committee while
holding such office and within the previous year (except as expressly approved
by shareholders), may not receive any award under any compensation or other
benefit plan that the Compensation Committee administers. The Compensation
Committee met four times during 1996.
INVESTMENT/FINANCE COMMITTEE
The Investment/Finance Committee of the Board of Directors (the "Investment
Committee") is composed of Michael P. Esposito, Jr. (Chairman), Mark D. Mosca
and Allan W. Fulkerson. The Investment Committee is responsible for reviewing
investment guidelines for the portfolios of the Company and Risk Capital
Reinsurance, assessing the performance of the Company's investment advisors with
respect to such portfolios and providing advice and assistance to management as
appropriate in the evaluation of specific investment and other business
opportunities. The Investment Committee met five times during 1996.
COMPENSATION OF DIRECTORS
Each Non-Employee Director receives from the Company an annual fee of
$25,000, a meeting fee of $1,000 for each Board or Committee meeting attended
and reimbursement of expenses incurred in attending meetings. In addition, each
Non-Employee Director serving as Chairman of the (i) Executive, Compensation or
Investment Committee receives an annual fee of $3,000 and (ii) Audit Committee
receives an annual fee of $5,000.
Pursuant to the Company's 1995 Long Term Incentive and Share Award Plan (the
"1995 Stock Plan"), upon joining the Board, each Non-Employee Director receives
an option to purchase 300 shares of Common Stock at an exercise price per share
equal to the then market price of a share of Common Stock. The 1995 Stock Plan
also provides for automatic annual grants to Non-Employee Directors of options
to purchase 250 shares of Common Stock. In addition, an amendment to the 1995
Stock Plan that would permit discretionary stock-based awards to Non-Employee
Directors is being submitted for shareholder approval at the Annual Meeting. See
"Approval of the Amendment to the Risk Capital Holdings, Inc. 1995 Long Term
Incentive and Share Award Plan."
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information available to the Company as of
March 27, 1997, with respect to the ownership of Common Stock by (i) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each Director of the Company, (iii) each
executive officer of the Company and (iv) all Directors and executive officers
as a group. Except as otherwise indicated, each person named below has sole
investment and voting power with respect to the securities shown.
<TABLE>
<CAPTION>
NUMBER OF SHARES RULE 13D-3 FULLY-
NAME AND ADDRESS BENEFICIALLY PERCENTAGE DILUTED
OF BENEFICIAL OWNER OWNED(1) OWNERSHIP(1) PERCENTAGE(2)
- -------------------------------------------------------------- -------------------- --------------- ---------------
<S> <C> <C> <C>
X.L. Insurance Company, Ltd.(3)............................... 3,755,000 22.1% 19.1%
Cumberland House
One Victoria Street
Hamilton, HM11, Bermuda
The Trident Partnership, L.P.(4).............................. 3,136,079 17.0 15.9
Craig Appin House
8 Wesley Street
Hamilton, HM11, Bermuda
Marsh & McLennan Risk Capital Holdings, Ltd.(5)............... 2,301,022 12.8 11.7
1166 Avenue of the Americas
New York, New York 10036
Merrill Lynch & Co., Inc.(6).................................. 1,682,500 9.9 8.6
World Financial Center, North Tower
250 Vesey Street
New York, New York 10285
American Express Company(7)................................... 1,612,750 9.5 8.2
American Express Tower
World Financial Center
New York, New York 10285
Franklin Resources, Inc.(8)................................... 1,109,400 6.5 5.7
777 Mariners Island Boulevard
San Mateo, California 94404
Crabbe Huson Small Cap Fund(9)................................ 962,700 5.7 4.9
121 S.W. Morrison, Suite 1400
Portland, Oregon 97204
Mark D. Mosca (10)............................................ 149,384 * *
Robert Clements (11)(12)...................................... 177,553 1.0 *
Peter A. Appel (13)........................................... 32,484 * *
Bonnie L. Boccitto (13)....................................... 31,702 * *
Paul J. Malvasio (13)......................................... 32,484 * *
Michael P. Esposito, Jr. (12)(14)............................. 2,450 * *
Allan W. Fulkerson (12)....................................... 1,950 * *
Lewis L. Glucksman (12)....................................... 450 * *
Ian R. Heap (12)(14).......................................... 3,950 * *
Thomas V. A. Kelsey (12)...................................... 3,100 * *
Mark N. Williamson (12)....................................... 146 * *
Philip L. Wroughton (12)...................................... 1,450 * *
All Directors and executive officers (12 persons)............. 437,103 2.5 2.2
</TABLE>
6
<PAGE>
- ------------------------
* Denotes beneficial ownership of less than 1.0%
(1) Under the terms of Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), shares of Common Stock that may be
acquired by a person within 60 days are deemed beneficially owned by, and
outstanding for purposes of computing the percentage ownership of, such
person. Therefore, percentage ownership of the Common Stock is computed
based on the sum of (i) 17,017,192 shares of Common Stock actually
outstanding as of March 27, 1997 and (ii) shares of Common Stock that may be
acquired within 60 days upon the exercise of outstanding options and
warrants by the person whose percentage ownership is being computed.
(2) Assumes exercise of all outstanding immediately exercisable warrants and
options.
(3) Based upon a Schedule 13G, dated January 22, 1996, filed with the
Securities and Exchange Commission (the "SEC") by X.L. Insurance Company,
Ltd.
(4) Includes 1,386,079 shares of Common Stock issuable upon the exercise of
Class A Warrants. Based upon a Schedule 13G, dated January 22, 1996, filed
with the SEC by The Trident Partnership, L.P. ("Trident").
(5) Includes 905,397 shares issuable upon the exercise of Class A Warrants.
Does not include 1,920,601 shares of Common Stock issuable upon the exercise
of Class B Warrants because such warrants are not exercisable until
September 1998 and vest only if the Common Stock has traded at or above $30
per share for 20 out of 30 consecutive trading days at any time. Based upon
a Schedule 13D, dated November 7, 1996, filed with the SEC by Marsh &
McLennan Companies, Inc. See "Election of Directors--Certain Relationships
and Related Transactions--Other Transactions."
(6) Based upon a Schedule 13G, dated March 14, 1997, filed with the SEC by
Merrill Lynch & Co., Inc., Merrill Lynch Group, Inc. and Princeton Services,
Inc., each a parent holding company, and Merrill Lynch Asset Management,
L.P., an investment advisor, and Merrill Lynch Global Allocation Fund, Inc.,
a registered investment company (collectively, "Merrill"). In the Schedule
13G, Merrill reported that it has shared voting power and shared dispositive
power with respect to 1,682,500 shares of Common Stock.
(7) Based upon a Schedule 13G, dated December 31, 1996, filed with the SEC by
American Express Company ("AEC"), American Express Financial Corporation
("AEFC") and Growth Portfolio ("GP"). In the Schedule 13G, AEC, as a parent
holding company, and AEFC, as an investment adviser, reported that they
have, in the aggregate, (i) shared voting power with respect to 250,050
shares of Common Stock and (ii) shared dispositive power with respect to
1,612,750 shares of Common Stock. GP, one of AEFC's clients, holds 883,300
of these shares.
(8) Based on a Schedule 13G, dated February 12, 1997, filed with the SEC by
Franklin Resources, Inc. and certain of its affiliates (collectively,
"FRI"). In the Schedule 13G, FRI reported that it has sole voting power and
sole dispositive power with respect to 1,109,400 shares of Common Stock
beneficially owned by one or more managed accounts which are advised by
investment advisory subsidiaries of FRI.
(9) Based upon a Schedule 13G, dated February 7, 1997, filed with the SEC by
The Crabbe Huson Small Cap Fund, The Crabbe Huson Special Fund, Inc. and The
Crabbe Huson Group, Inc. (the "Crabbe Huson Group"). In the Schedule 13G,
the Crabbe Huson Group reported that its members have shared voting power
and shared dispositive power with respect to 962,700 shares of Common Stock.
(10) Includes (i) 80,000 shares of Common Stock subject to certain restrictions,
(ii) 20,000 shares of Common Stock subject to immediately exercisable
options and (iii) 2,484 shares of Common Stock
7
<PAGE>
purchased under the Company's 1995 Employee Stock Purchase Plan (the
"Purchase Plan"). Does not include options to purchase 154,000 shares of
Common Stock subject to vesting.
(11) The shares shown as beneficially owned by Robert Clements include (i)
immediately exercisable Class A Warrants to purchase an aggregate of 80,000
shares of Common Stock and (ii) 89,603 shares beneficially owned by Taracay
Investors, a general partnership ("Taracay"), the general partners of which
consist of Mr. Clements and members of his family. Mr. Clements is the
managing partner of Taracay. Amounts shown do not include (i) rights to
acquire certain Class B Warrants subject to vesting and (ii) an option to
purchase 74,000 shares of Common Stock subject to vesting and shareholder
approval of the proposed amendment to the 1995 Stock Plan. See "Election of
Directors--Certain Relationships and Related Transactions--Other
Transactions" and "Approval of the Amendment to the Risk Capital Holdings,
Inc. 1995 Long Term Incentive and Share Award Plan."
(12) Includes 450 shares of Common Stock (in the case of Messrs. Kelsey and
Williamson, 100 and 146 shares, respectively) subject to immediately
exercisable options. Does not include options to purchase 350 shares of
Common Stock (in the case of Messrs. Kelsey and Williamson, 450 and 250
shares, respectively) subject to vesting.
(13) Includes 20,000 shares of Common Stock subject to certain restrictions and
5,000 shares subject to immediately exercisable options. With respect to (i)
each of Messrs. Appel and Malvasio, and (ii) Ms. Boccitto, also includes
2,484 shares and 1,702 shares, respectively, of Common Stock purchased under
the Purchase Plan. Does not include options to purchase 59,500 shares of
Common Stock subject to vesting.
(14) Messrs. Esposito, Jr. and Heap disclaim beneficial ownership of shares of
Common Stock owned by X.L. Insurance Company, Ltd.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors and
executive officers, and persons who own more than 10% of Common Stock, to file
with the SEC initial reports of beneficial ownership and reports of changes in
beneficial ownership of the Common Stock. Such persons are also required by SEC
regulation to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and representations that no other reports were
required, all Section 16(a) requirements applicable to such persons were
complied with during 1996, except that certain Directors each filed one report
late.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation of the
Company's executive officers for fiscal year 1996 and the period commencing
September 19, 1995 (the closing date of the Offering) through December 31, 1995.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------ PAYOUTS
----------------------------------------- RESTRICTED SECURITIES -------------
OTHER ANNUAL STOCK UNDERLYING LTIP
NAME AND COMPENSATION AWARD(S) OPTIONS PAYOUTS
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) ($)(2) (#) ($)
- ------------------------- --------- ----------- ----------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark D. Mosca,........... 1996 400,000 480,000 -- -- 74,000 --
President and Director 1995 117,000(4) 500,000(4) -- 2,000,000 100,000 --
Peter A. Appel,.......... 1996 250,000 232,500 -- -- 39,500 --
Managing Director, 1995 34,000 200,000(5) -- 525,000 25,000 --
General Counsel and
Secretary
Bonnie L. Boccitto,...... 1996 250,000 232,500 -- -- 39,500 --
Managing Director and 1995 63,000 310,000(6) 27,000(7) 531,250 25,000 --
Chief Underwriting
Officer*
Paul J. Malvasio,........ 1996 275,000 232,500 -- -- 39,500 --
Managing Director, 1995 78,000 275,000(8) -- 531,250 25,000 --
Chief Financial Officer
and Treasurer
Richard D. Robinson,..... 1996 167,614 225,000(9) 43,652(7) 496,875 25,000(9) --
Former Managing 1995 -- -- -- -- --
Director and Former
Chief Actuary*(1)
<CAPTION>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)(3)
- ------------------------- ---------------
<S> <C>
Mark D. Mosca,........... 39,924
President and Director --
Peter A. Appel,.......... 23,939
Managing Director, --
General Counsel and
Secretary
Bonnie L. Boccitto,...... 24,839
Managing Director and --
Chief Underwriting
Officer*
Paul J. Malvasio,........ 28,298
Managing Director, --
Chief Financial Officer
and Treasurer
Richard D. Robinson,..... 13,729
Former Managing --
Director and Former
Chief Actuary*(1)
</TABLE>
- ------------------------
* Ms. Boccitto is Chief Underwriting Officer of Risk Capital Reinsurance. Mr.
Robinson was a Managing Director of both the Company and Risk Capital
Reinsurance and Chief Actuary of Risk Capital Reinsurance until his
employment was terminated in January 1997. See "Election of
Directors--Executive Compensation--Employment Contracts and Termination of
Employment Arrangements."
(1) In accordance with applicable SEC rules, information has been provided for
fiscal years 1996 and 1995 regarding cash and other compensation paid or
accrued to the President and all other individuals who served as executive
officers of the Company during 1996 and 1995. The Company was organized in
March 1995 and, accordingly, no information is presented concerning
compensation of any of the named executive officers during any year prior
thereto. Mr. Mosca commenced employment with the Company and Risk Capital
Reinsurance in September 1995; Mr. Appel commenced employment with the
Company and Risk Capital Reinsurance in November 1995; Ms. Boccitto
commenced employment with the Company and Risk Capital Reinsurance in
October 1995; and Mr. Malvasio commenced employment with the Company and
Risk Capital Reinsurance in September 1995. Mr. Robinson's employment, which
commenced in April 1996, was terminated in January 1997. See "Election of
Directors--Executive Compensation--Employment Contracts and Termination of
Employment Arrangements."
9
<PAGE>
(2) Amounts shown are based upon the closing price of the Common Stock on the
Nasdaq National Market as of the date of grant of the restricted stock
awards. As of December 31, 1996, an aggregate of 140,000 unvested shares of
restricted stock (an aggregate of 35,000 restricted shares vested to the
current named executives during 1996), with a value of $2,712,500, were held
by the current named executive officers as follows: (i) Mark D.
Mosca--80,000 shares with a value of $1,550,000, (ii) Peter A. Appel--20,000
shares with a value of $387,500, (iii) Bonnie L. Boccitto--20,000 shares
with a value of $387,500, and (iv) Paul J. Malvasio--20,000 shares with a
value of $387,500. The restricted shares will vest in five equal annual
installments commencing on the first anniversary of each named executive
officer's employment date. During the vesting period, any cash dividends
will be paid on all outstanding shares of restricted stock. Stock dividends
issued with respect to such shares, if any, will be treated as additional
grants of restricted stock subject to the same restrictions and other terms
and conditions that apply to the shares of restricted stock with respect to
which such dividends are issued. All of the shares of restricted stock were
issued pursuant to the 1995 Stock Plan. Mr. Robinson's 25,000 restricted
shares, which had a value of $484,375 as of December 31, 1996, subsequently
vested to Mr. Robinson upon the termination of his employment. See "Election
of Directors--Executive Compensation--Employment Contracts and Termination
of Employment Arrangements."
(3) Amounts shown represent: (i) with respect to Mr. Mosca, term life insurance
premiums ("Life Insurance Premiums") paid by the Company in the amount of
$765, matching contributions ("Matching Contributions") by the Company under
the Company's Employee Savings Plan in the amount of $6,750, pension
contributions ("Pension Contributions") by the Company under the Company's
Money Purchase Pension Plan in the amount of $9,492, and aggregate
contributions ("Supplemental Plan Contributions") by the Company under the
Company's Executive Supplemental Non-Qualified Savings and Retirement Plan
in the amount of $22,917; (ii) with respect to Mr. Appel, $405 in Life
Insurance Premiums, $6,750 in Matching Contributions, $9,159 in Pension
Contributions, and $7,625 in Supplemental Plan Contributions; (iii) with
respect to Ms. Boccitto, $1,305 in Life Insurance Premiums, $6,750 in
Matching Contributions, $9,159 in Pension Contributions, and $7,625 in
Supplemental Plan Contributions; (iv) with respect to Mr. Malvasio, $2,160
in Life Insurance Premiums, $6,750 in Matching Contributions, $9,409 in
Pension Contributions, and $9,979 in Supplemental Plan Contributions; and
(v) with respect to Mr. Robinson, $612 in Life Insurance Premiums, $5,625 in
Matching Contributions, and $7,492 in Pension Contributions.
(4) Salary amount for 1995 does not include consulting fees in the aggregate
amount of $100,000 paid to Mr. Mosca for services provided to the Company
prior to the completion of the Offering. Bonus amount for 1995 was paid
pursuant to Mr. Mosca's Employment Agreement.
(5) Includes an annual bonus of $100,000 and a signing bonus of $100,000.
(6) Includes an annual bonus of $60,000 and a signing bonus of $250,000.
(7) With respect to Ms. Boccitto, amount shown represents reimbursement of
$15,000 in relocation expenses and $12,000 in United States federal income
taxes payable in connection with such relocation expenses. With respect to
Mr. Robinson, amount shown represents reimbursement of relocation expenses.
(8) Includes an annual bonus of $75,000 and a signing bonus of $200,000.
(9) Bonus amount represents a signing bonus. Securities underlying options do
not include certain options that were cancelled upon termination of
employment. See "Election of Directors--Executive Compensation--Employment
Contracts and Termination of Employment Arrangements."
10
<PAGE>
The following table sets forth information regarding grants of stock options
made during fiscal year 1996 to each of the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(5)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED(#)(1)(2) FISCAL YEAR(2) ($/SH) DATE 5% 10%
- -------------------------------------- ----------------- --------------- ----------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark D. Mosca......................... 74,000 23.1% $ 17.625 (3) $ 807,997 $ 2,062,964
Peter A. Appel........................ 39,500 12.3 17.625 (3) 431,295 1,101,177
Bonnie L. Boccitto.................... 39,500 12.3 17.625 (3) 431,295 1,101,177
Paul J. Malvasio...................... 39,500 12.3 17.625 (3) 431,295 1,101,177
Richard D. Robinson................... 25,000 7.8 19.875 (4) 261,684 661,957
</TABLE>
- ------------------------
(1) All options were granted pursuant to the 1995 Stock Plan.
(2) Percentages listed are based on options to purchase a total of 320,800
shares of Common Stock granted by the Company to employees during fiscal
year 1996. Calculations do not include options granted to the Non-Employee
Directors in fiscal year 1996 pursuant to the 1995 Stock Plan and other
options that were cancelled subsequent to December 31, 1996.
(3) Options will vest in five equal annual installments commencing on November
19, 1997 and expire seven years from the date of vesting.
(4) The options to purchase 25,000 shares of Common Stock vested to Mr. Robinson
upon the termination of his employment and will expire on January 31, 2004.
See "Election of Directors--Executive Compensation--Employment Contracts and
Termination of Employment Arrangements."
(5) Potential realizable value is calculated based on an assumption that the
fair market value of the Common Stock appreciates at the annual rates shown
(5% and 10%), compounded annually, from the date of grant until the end of
the option term. The 5% and 10% assumed rates are mandated by the SEC for
purposes of calculating realizable value and do not represent the Company's
estimate or projection of future stock prices.
11
<PAGE>
The following table provides information regarding the number and value of
options held by each of the named executive officers at December 31, 1996. No
options were exercised by any named executive officer during fiscal year 1996.
AGGREGATED 1996 YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY
DECEMBER 31, 1996 OPTIONS AT DECEMBER 31, 1996
-------------------------- ------------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- --------------- -------------
Mark D. Mosca........................... 20,000 154,000 -- $ 129,500
Peter A. Appel.......................... 5,000 59,500 -- 69,125
Bonnie L. Boccitto...................... 5,000 59,500 -- 69,125
Paul J. Malvasio........................ 5,000 59,500 -- 69,125
Richard D. Robinson..................... -- 25,000 -- --
</TABLE>
- ------------------------
(1) The value of unexercised options has been calculated based upon the $19.375
closing price for the Common Stock as reported on the Nasdaq National Market
on December 31, 1996. In the case of Mr. Robinson, does not include certain
options which were cancelled subsequent to December 31, 1996. See "Election
of Directors--Executive Compensation--Employment Contracts and Termination
of Employment Arrangements."
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Upon completion of the Offering, the Company and Risk Capital Reinsurance
entered into an employment agreement (the "Employment Agreement") with Mark
Mosca pursuant to which Mr. Mosca serves as President of the Company and
President and Chief Executive Officer of Risk Capital Reinsurance. The term of
employment will initially expire in September 2000, subject to automatic
extensions thereafter for successive one-year periods. The Employment Agreement
provides for payment to Mr. Mosca of an annual base salary of $400,000 (subject
to upward adjustments by the Compensation Committee) and an annual bonus of at
least $250,000 to be determined annually by the Compensation Committee. Mr.
Mosca is also entitled to participate in all employee benefit programs of the
Company and Risk Capital Reinsurance in which senior executives are eligible to
participate and to receive reimbursement for customary business expenses.
In addition, upon completion of the Offering, Mr. Mosca was granted 100,000
restricted shares of Common Stock and an option to purchase 100,000 shares of
Common Stock at a purchase price per share equal to $20.00 (the initial public
offering price). One-fifth of each of the restricted shares and one-fifth of the
options will vest on each of the first five anniversaries of Mr. Mosca's
employment, provided that Mr. Mosca remains an employee of the Company on such
anniversary date. So long as Mr. Mosca is employed by the Company, the Company
agreed to guarantee a loan from a financial institution to Mr. Mosca with
respect to any federal income taxes payable by Mr. Mosca as a result of vesting
of the restricted shares.
The Employment Agreement also provides that if the Company first employs a
chief executive officer who was not approved by Robert Clements prior to the
time he ceases to be Chairman of the Company, then Mr. Mosca may resign his
employment with the Company (but only if such chief executive officer is not
reasonably satisfactory to Mr. Mosca), in which case, the restrictions on 50% of
the restricted shares as to which restrictions have not lapsed held by him at
such time will terminate and 50% of the unvested options held by him at such
time will immediately vest and he will be entitled to continue to receive a
periodic annual salary and a minimum bonus at a combined rate of $650,000 per
annum for the lesser of (i) the remaining original term of the Employment
Agreement and (ii) two years; provided that such compensation will be offset by
any compensation received by him in connection with any other employment which
he may obtain.
12
<PAGE>
Mr. Mosca agreed to refrain from competing with the Company during the term
of his employment and for a period of twelve months thereafter. During such
period, Mr. Mosca may not engage in any activities, in any jurisdictions in
which the Company or any of its affiliates has underwritten insurance during Mr.
Mosca's employment, that are competitive with businesses that (i) are then being
conducted by the Company and (ii) during the period of Mr. Mosca's employment,
were either being conducted or actively developed by the Company; provided that,
Mr. Mosca will be bound by the foregoing restrictions only to the extent that
the Company continues to pay to him a periodic annual salary and minimum bonus
of $650,000 per annum. In addition, during the term of his employment and for a
period of 24 months thereafter, Mr. Mosca further agreed not to encourage any
employees to leave the employ of the Company (except as may be in the best
interests of the Company during the course of carrying out his duties as an
officer of the Company) or seek to solicit business from any person or entity
which is, or at the time of termination of his employment was, a customer of or
in the habit of dealing with the Company.
The Company has also entered into letter agreements of employment with each
of the other current named executive officers, which may be terminated by either
party upon notice at any time. The agreements provided for the following annual
base salaries for 1996: (i) Peter Appel--$250,000; (ii) Bonnie
Boccitto--$250,000; and (iii) Paul Malvasio--$275,000. The salaries are subject
to review annually for increase at the discretion of the Compensation Committee.
Pursuant to the agreements, the executives are eligible to receive annual cash
bonuses and stock-based awards under the 1995 Stock Plan at the discretion of
the Compensation Committee and to participate in the Company's employee benefit
programs. The agreements specifically provide that the target rate for the
annual cash bonus for each executive will be 75% of the executive's base salary.
The agreements also provide that, if the executive's employment is
terminated by the Company without "cause" (as such term is defined in the
agreements), the Company will continue to pay an amount equal to such
executive's base salary and continue to pay all such executive's employee
benefits for a period of twelve months following termination, subject to
reduction for compensation received by such executive in any other employment.
In addition, in the event of termination without cause, the agreements provide
that (i) the restrictions on all restricted shares granted under such agreement
as to which restrictions have not lapsed and that are held by the executive will
terminate and (ii) all unvested options granted under such agreement that are
held by the executive will immediately vest.
In January 1997, Richard Robinson's employment as a Managing Director of
both the Company and Risk Capital Reinsurance and Chief Actuary of Risk Capital
Reinsurance was terminated. Mr. Robinson will continue to receive his annual
base salary of $261,000 per annum through January 31, 1998, provided, however,
that such payments will be reduced by any compensation received during such
period in connection with any other employment he may obtain. Medical and dental
coverage will also remain in effect for Mr. Robinson and his covered dependents
for such twelve month period or until he secures alternate employment, if
earlier. In addition, as of the termination date, 25,000 shares of restricted
stock vested to Mr. Robinson and options to purchase 25,000 shares of Common
Stock became exercisable in full by him. The stock options will be exercisable
for seven years from such date.
CHANGE IN CONTROL ARRANGEMENTS
In 1996, the Board of Directors adopted certain change in control and
severance arrangements (the "Change in Control Arrangements") for the employees
of the Company in order to enhance the Company's recruiting efforts and the
ability of the Company to retain its employees, particularly in the context of a
potential change in control. The Company believes that the existence of the
Change in Control Arrangements will enable its employees to more effectively
focus on the Company's interests in connection with a potential change in
control and will decrease the risk that its employees will terminate their
employment with the Company or otherwise be distracted if the Company becomes a
takeover candidate. The Company also believes that the Change in Control
Arrangements will encourage its employees to remain with the Company and develop
the Company-specific skills which will help the Company to achieve
13
<PAGE>
its business objectives. Although there are additional costs arising from the
Change in Control Arrangements which may have the effect of impeding an
acquisition of control of the Company, the Company believes that such costs
would not be material when compared to the consideration paid in a takeover
(especially in light of the relatively small number of employees at the
Company), and are outweighed by the resultant advantages to the Company and its
shareholders. The Compensation Committee and the Board of Directors retained the
services of an independent compensation consultant in connection with its review
and consideration of the Change in Control Arrangements.
Immediately upon a change in control (as defined below), all unvested stock
options and restricted shares held by the officers and other employees of the
Company and the Chairman of the Board would immediately vest. In addition,
immediately upon the involuntary (other than for cause) or constructive
termination (as defined below) of the employment of the President, a Managing
Director or a Senior Vice President (each, a "Senior Officer") within 24 months
following a change in control, the following would occur: (i) the President,
such Managing Director or Senior Vice President would receive, in one lump sum
payment, an amount equal to 2.99, 1.50 and 1.0, respectively, times his/her
annual base salary and bonus (with bonus being equal to the prior year's bonus,
in the case of the President, and the current year target, in the case of the
Managing Directors and Senior Vice Presidents). Such payments would not be
subject to mitigation in the event such Senior Officer receives any compensation
from other employment following his/her termination, provided that any such
payment would be in lieu of any severance benefit otherwise payable under any
other agreement between the Company and such Senior Officer; (ii) such Senior
Officer would receive a bonus for the year in which the change in control
occurred equal to the current year target amount, payable on a pro rata basis;
and (iii) such Senior Officer would continue to receive all health care, dental,
disability and group term and other life insurance benefits for a 36-month
period (in the case of the President), eighteen-month period (in the case of the
Managing Directors) and twelve-month period (in the case of Senior Vice
Presidents) or until comparable benefits (with no pre-existing condition
limitations) are received from a new employer, whichever is earlier. The
statutory required eighteen-month period of COBRA health benefits that
terminated employees may elect to continue would commence at the end of such
period. To the extent any such benefits are not available, such Senior Officer
would receive a cash payment in lieu of such benefits. In addition, immediately
upon the termination of the Chairman of the Board within 24 months following a
change in control, the Chairman would receive a lump sum payment in an amount
determined by the Compensation Committee.
With respect to employees other than the Senior Officers, immediately upon
the involuntary (other than for cause) or, only in the case of an employee who
is also an officer, constructive termination, of any such employee's employment
within six months following a change in control, the following would occur: (i)
such employee would receive one month's base pay for each year of service,
subject to a maximum of six month's pay, provided that such employee would have
a duty to mitigate such payments by seeking new employment and would be required
to enter into agreements relating to non-disclosure and non-solicitation of
customers and employees, and, provided further, that any such payment would be
in lieu of any severance benefit otherwise payable under any other agreement
between the Company and such employee; (ii) such employee would receive a bonus
for the year in which the change in control occurred equal to the current year
target amount, payable on a pro rata basis; and (iii) such employee would
continue to receive all health care, dental, disability and life insurance
benefits for a number of months equal to such employee's number of years of
service up to a maximum of six months or until comparable benefits (with no
pre-existing condition limitations) are received from a new employer, whichever
is earlier. To the extent any such benefits are not available, such employee
would receive a cash payment in lieu of such benefits.
A "change in control" would be triggered by any of the following: (i) a
third party, other than EXEL, Marsh & McLennan Risk Capital Holdings, Ltd.
("MMRCH") or Trident (collectively, the "Initial Investors"), obtains beneficial
ownership of 35% or more of the Company's voting securities; (ii) an Initial
Investor's beneficial ownership increases to 50% or more of the Company's voting
securities; (iii) the
14
<PAGE>
incumbent directors (or their Board approved successors) cease to constitute a
majority of the Board; (iv) a merger, consolidation, recapitalization,
liquidation, sale or disposition by the Company of substantially all of its
assets, or a reorganization of the Company, unless at least 60% of the voting
securities of the surviving entity are held by the former stockholders of the
Company in substantially similar proportion to their share ownership in the
Company immediately prior to the transaction; or (v) the Board resolves that a
change in control has occurred. "Constructive termination" would mean the
occurrence, with respect to any employee, of any of the following: (i) the
assignment of duties inconsistent with such employee's position or a significant
diminution in his/her responsibilities; (ii) a reduction in such employee's base
salary or bonus opportunity; (iii) the requirement that such employee work at a
location outside of Fairfield County, Connecticut or Westchester County, New
York; (iv) the failure to provide such employee with benefits and incentive
compensation opportunities at least as favorable, in the aggregate, as the
benefits and incentive compensation opportunities available to such employee
immediately prior to a change in control; or (v) the failure to secure the
agreement of any successor corporation or other entity to the Company to fully
assume the Company's obligations under the arrangements described herein.
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted the Purchase Plan, which is intended to meet the
applicable requirements of Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). All full-time and certain part-time employees of the
Company are eligible to purchase shares of the Common Stock by means of payroll
deductions, subject to certain minimum service requirements. Eligible employees
may elect to participate in annual offering periods ("Offering Periods") under
the Purchase Plan by authorizing after-tax payroll deductions of up to 20% of
their salary for the purchase of shares of Common Stock under the Purchase Plan.
The Purchase Plan has a term of ten years. An aggregate of 120,000 shares of the
Common Stock has been reserved for issuance under the Purchase Plan.
Unless the Compensation Committee determines at the inception of an Offering
Period that a higher price will apply, the price at which shares of the Common
Stock will be purchased under the Purchase Plan at the end of each Offering
Period will be 85% of the Fair Market Value (as defined in the Purchase Plan) of
the shares at the beginning or end of an Offering Period, whichever is less. The
maximum number of shares that a participant may purchase during an Offering
Period is 3,000 shares, subject to reduction if (i) the total fair market value
of the shares to be purchased by the participant determined on the first day of
the Offering Period would exceed $25,000 for each calendar year or (ii) after
the purchase, the participant would own stock of the Company (including stock he
or she could purchase under any outstanding options) amounting to 5% or more of
the total voting power or value of all classes of stock of the Company.
OTHER EMPLOYEE BENEFIT PLANS
Effective as of January 1, 1996, the Company adopted an employee savings
plan (the "Employee Savings Plan") qualified under the Code. Pursuant to Section
401(k) of the Code, eligible employees of the Company are able to defer receipt
of up to 15% of eligible compensation. Subject to limitations under applicable
law, the Company matches 100% of the first 3% of eligible compensation deferred
by employees and 50% of the next 3% of compensation so deferred. In addition,
effective as of January 1, 1996, the Company adopted a money purchase pension
plan (the "Pension Plan") under which the Company contributes for each eligible
employee an amount equal to the sum of (i) 4% of eligible compensation up to the
Taxable Wage Base (as such term is defined in the Pension Plan; for 1996, set at
$62,700) and (ii) 8% of eligible compensation (up to the applicable earnings cap
which, for 1996, is $160,000) in excess of the Taxable Wage Base. Effective as
of January 1, 1996, the Company also adopted a supplemental, non-qualified
executive savings and retirement plan (the "Executive Supplemental Plan") under
which the Company contributes on behalf of select members of executive
management 8% of annual base salary in excess of $160,000. Under the Executive
Supplemental Plan, participants may also defer
15
<PAGE>
certain amounts of eligible base compensation and bonus. The Company matches
100% of the first 3% of such eligible base compensation deferred by participants
under the Executive Supplemental Plan and 50% of the next 3% of such eligible
base compensation so deferred.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Ian R. Heap, Robert Clements and
Lewis L. Glucksman. Mr. Heap serves as Chairman of the Committee. None of the
members of the Compensation Committee are or have been officers or employees of
the Company or Risk Capital Reinsurance (except that Mr. Clements serves as
Chairman of the Board of Directors for each company). In addition, no executive
officer of the Company served on any board of directors or compensation
committee of any entity (other than the Company) with which any member of the
Board of Directors is affiliated. Messrs. Heap and Clements are members of the
Compensation Committee of EXEL.
See "Election of Directors--Certain Relationships and Related Transactions".
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee is responsible for developing and making
recommendations to the Board of Directors with respect to all matters related to
the compensation of the executive officers of the Company. During 1996, the
Compensation Committee, in collaboration with executive management of the
Company, initiated the development of a compensation approach responsive to the
short-term and long-term considerations described below. An independent
compensation consultant was retained to assist the Compensation Committee in its
review and implementation of the Company's compensation program.
COMPENSATION PHILOSOPHY
The Compensation Committee and the Board of Directors believes that the
Company's success requires a relatively small, highly motivated professional
staff. Many of the employees are expected to perform responsibilities that are
broader than the responsibilities performed by similarly positioned employees
generally found at the Company's competitors. In addition, in view of the
long-term nature of the reinsurance business and the Company's focus on private
equity investments, the Company's compensation strategy takes into account a
long-term perspective on performance in addition to year-to-year measures. The
Company's compensation structure is designed to incorporate this philosophy by
(i) attracting and retaining a highly-talented group of professionals who
possess a broad set of capabilities, (ii) reinforcing, motivating, and rewarding
employees for their performance through an incentive structure that balances
short and long-term business objectives and takes into account their broader set
of capabilities and responsibilities and (iii) aligning the interests of
employees and shareholders and building a strong company identification through
employee share ownership.
The principal components of the Company's compensation program are base
salary, annual performance bonus and stock-related incentives. In determining
the amount and form of executive compensation, the Compensation Committee
considers the competitive market for senior executives, the executive's role in
the Company's achieving its business objectives and the Company's overall
performance. As the executive's level of responsibility increases, a greater
portion of potential total compensation opportunity is based on corporate
performance.
BASE SALARY
The Compensation Committee intends that the base salary afforded the
Company's executive officers be sufficient to attract and retain executives of
the caliber required to manage the Company in its implementation of its overall
business strategy. The Compensation Committee will periodically evaluate each
individual's job responsibilities and related compensation, and compare cash
compensation practices to peer groups and other relevant compensation data to
ensure that the Company's compensation
16
<PAGE>
structure is consistent with its compensation philosophy. The Compensation
Committee is developing specific standards which it will apply in considering
future salary changes.
ANNUAL PERFORMANCE BONUS
Annual bonuses are based on corporate performance for the prior year and an
evaluation of each employee's respective contribution to the performance of the
Company. As an employee's responsibilities increase, the portion of his or her
bonus dependent on corporate performance increases.
Target performance bonus opportunities are established for all employees
(other than the President) upon the commencement of his or her employment and
are periodically reviewed by the Compensation Committee based on recommendations
from executive management. An individual's target performance bonus opportunity
is expressed as a percentage of base salary. Currently, these targets range from
5% (for non-officers) to 75% (for Managing Directors). For each employee, the
target is an approximation of the bonus payment that may be paid, assuming that
aggressive performance goals and other expectations are attained by both the
employee and the Company as a whole. Pursuant to his Employment Agreement, Mr.
Mosca will receive an annual bonus of not less than $250,000 in each of the
remaining years of his employment term as determined by the Compensation
Committee.
Under the annual bonus plan, a target performance bonus pool is established
based on the sum of all individual target performance bonus opportunities. The
target performance bonus pool is adjusted upward or downward to reflect actual
corporate performance as determined by the Compensation Committee. For 1996, the
determination of the bonus pool was based on an evaluation of performance
indicators, which focused on the Company's efforts in building its
infrastructure, including staffing, office development and management
information initiatives, as well as other operating performance criteria,
including marketing efforts, measurements of underwriting productivity and
product innovation. For 1997, performance will be evaluated against peer group
performance and the achievement of the strategic objectives and financial
objectives contained in the Company's annual management plan, which has been
approved by the Board of Directors. The Compensation Committee recognizes that
during the early years of the Company's operations, financial performance
measures would fail to completely reflect the economic value created for the
Company's shareholders. The Compensation Committee believes that, as the Company
and its business matures, it will focus increasingly on quantitative financial
criteria in determining the Company's annual incentive benefits, as well as the
achievement of qualitative objectives which also produce value to the
shareholders.
LONG TERM INCENTIVE COMPENSATION
The Company believes that managers who are afforded the opportunity to share
the long-term value derived by their own performance will remain motivated to
achieve superior performance. This belief has been embodied in the 1995 Stock
Plan, which is administered by the Compensation Committee. See "Approval of the
Amendment to the Risk Capital Holdings, Inc. 1995 Long Term Incentive and Share
Award Plan."
This 1995 Stock Plan is designed to align the interests of executives and
shareholders by providing value to the executive as the stock price increases.
Due to the variability of the stock price, stock options, restricted stock and
other stock-based awards comprise a significant portion of executive
compensation dependent upon the Company's overall results and how the Company is
perceived by its shareholders and the marketplace. Options granted to executives
will be granted at 100% of the market value of the stock on the date of grant.
Generally, stock-based awards will become exercisable or vest over a relatively
long period, motivating executives to remain with the Company and sustain high
corporate performance in order to increase the value of such awards.
Stock-based compensation grant levels and awards will be reviewed and
determined each year by the Compensation Committee. Grants of stock-based
compensation will be determined on the basis of a
17
<PAGE>
number of factors, including (i) competitive total compensation and long-term
incentive grant levels as determined in the market, (ii) the Company's share
ownership objectives and (iii) both corporate and individual performance.
CEO COMPENSATION
For fiscal year 1996, Mr. Mosca received an annual base salary of $400,000
under his Employment Agreement and an annual bonus of $480,000. The Employment
Agreement provides for annual reviews for base salary increases and annual
bonuses of not less than $250,000. In 1996, Mr. Mosca also received options to
purchase 74,000 shares of Common Stock, subject to five-year vesting under the
1995 Stock Plan. See "Election of Directors--Executive Compensation--Employment
Agreements and Termination of Employment Arrangements." The Compensation
Committee believes that share-related awards are a particularly important part
of compensation that correlates long-term individual motivation and reward to
the Company's performance. In determining Mr. Mosca's total compensation, the
Compensation Committee considered a number of factors, including compensation
paid to chief executive officers of the Company's competitors, the Company's
overall performance and the Company's steps towards achieving its strategic
goals.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Code generally limits the deductible amount of annual
compensation paid to each of the corporation's chief executive officer and four
other most highly compensated executive officers to no more than $1 million.
However, qualifying performance-based compensation and compensation pursuant to
plans in existence prior to the Offering will be excluded from the $1 million
limitation on deductibility. Considering the current structure of executive
officer compensation and the availability of deferral opportunities, the
Compensation Committee believes that the Company will not be denied any
significant tax deductions for 1997. The Compensation Committee will continue to
review tax consequences as well as other relevant considerations in connection
with compensation decisions.
------------------------
This report of the Compensation Committee and the Performance Graph
immediately following shall not be deemed incorporated by reference by any
general statements incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933, as amended (the "Securities Act"), or
under the Exchange Act except to the extent it shall be specifically
incorporated and shall not otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE
IAN R. HEAP (CHAIRMAN)
ROBERT CLEMENTS
LEWIS L. GLUCKSMAN
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PERFORMANCE GRAPH
The graph set forth below compares the Company's cumulative total
shareholder return on its Common Stock with the cumulative total return,
assuming reinvestment of dividends, for (i) Standard & Poor's 500 Composite
Stock Index ("S&P 500 Index") and (ii) a Company-constructed peer group (the
"Peer Group") over the period commencing September 13, 1995 (the date on which
the initial public offering price of the Common Stock was determined) through
December 31, 1996 (the "Performance Period"). The Peer Group consists of the
following domestic broker-market reinsurance companies, each of which has more
than $250.0 million of total capital and surplus measured on the basis of
statutory accounting principles: NAC Re, Everest Reinsurance Holdings, Inc.,
Transatlantic Holdings, Inc., Trenwick Group Inc. and Zurich Reinsurance Centre
Holdings, Inc. The stock price performance presented below is not necessarily
indicative of future results.
RISK CAPITAL HOLDINGS, INC.
CUMULATIVE TOTAL STOCKHOLDER RETURN (1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
RISK CAPITAL HOLDINGS,
INC. S&P 500 PEER GROUP
<S> <C> <C> <C>
9/13/95(2) 100.00 100.00 100.00
12/31/95 116.90 107.05 111.10
12/31/96 96.88 131.63 120.33
</TABLE>
<TABLE>
<CAPTION>
9/13/95 12/31/95 12/31/96
--------- --------- ---------
<S> <C> <C> <C>
Risk Capital Holdings, Inc. ................................. $ 100.00 $ 116.90 $ 96.88
S&P 500...................................................... $ 100.00 $ 107.05 $ 131.63
Peer Group................................................... $ 100.00 $ 111.10 $ 120.33
</TABLE>
- ------------------------
(1) Stock price appreciation plus dividends.
(2) The initial public offering price for the Common Stock was determined on
September 13, 1995. The above graph assumes that the value of the investment
was $100 on such date.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EQUITY INVESTMENT AGREEMENT
Upon completion of the Offering, the Company entered into an equity
investment advisory agreement ("Equity Investment Agreement") with Risk Capital
Corp. Subject to investment guidelines determined by the Investment Committee
from time to time ("Investment Guidelines"), Risk Capital Corp. has the
authority, among other things, to manage the Company's equity investment
portfolio. The Equity Investment Agreement provides that, subject to certain
exceptions and the Investment Guidelines, the Company may not invest in,
purchase or dispose of equity securities unless such investment, purchase or
disposition (including the terms thereof) has been approved by Risk Capital
Corp. The Company may make Strategic Investments without the approval of Risk
Capital Corp. Strategic Investments are generally acquisitions (not being made
for resale) of securities of companies engaged in the reinsurance business or
other businesses (except an insurance business), provided that the Company
obtains operational control of such company.
FEES
Under the Equity Investment Agreement, Risk Capital Corp. receives
compensation on both public equity securities owned by the Company (the "Public
Portfolio") and private equity securities owned by the Company (the "Private
Portfolio"). With respect to equity securities in the Public Portfolio, Risk
Capital Corp. is entitled to a per annum fee, payable quarterly in arrears,
equal to 0.35% of the daily average of the market prices of such securities
during such quarterly period. With respect to equity securities in the Private
Portfolio, Risk Capital Corp. receives an aggregate fee, payable quarterly in
arrears, equal to (i) 1.5% per annum on the first $250 million in carrying value
(I.E., the amount at which securities in the Private Portfolio are, as of such
date, carried on the consolidated balance sheet of the Company, including, to
the extent reflected therein in accordance with generally accepted accounting
principles, unrealized gains and losses) of securities in the Private Portfolio;
and (ii) 1.0% per annum on the carrying value of such securities in the Private
Portfolio that exceeds $250 million, determined as of the last day of each such
quarter. Certain adjustments in the calculation of carrying value are made with
respect to securities in the Private Portfolio that are purchased or disposed of
during a quarter, such adjustment to exclude the period during which such
securities were not owned by the Company. In addition, with respect to
securities in the Private Portfolio, Risk Capital Corp. receives annual
compensation equal to the excess, if any, of (x) 7.5% of cumulative net realized
gains (as defined in the Equity Investment Agreement) on equity securities in
the Private Portfolio over (y) cumulative incentive compensation previously paid
in prior years to Risk Capital Corp. in accordance with this sentence (annual
Private Portfolio compensation). If requested by Risk Capital Corp., at the
option of the Investment Committee, compensation may be payable, from time to
time, in equity securities of the Company. The Equity Investment Agreement
provides for a minimum aggregate cash fee to Risk Capital Corp. of $500,000 per
annum through December 31, 1997. In fiscal year 1996, fees incurred to Risk
Capital Corp. under the Equity Investment Agreement were approximately $686,000.
The Company agreed to reimburse Risk Capital Corp. for certain of its
expenses in connection with services to be provided under the Equity Investment
Agreement and indemnify Risk Capital Corp. and its affiliates with respect to
certain matters related to such services. The Board of Directors may in the
future grant additional equity securities, or options or warrants with respect
thereto, to Risk Capital Corp. or its successors in order to continue to provide
them with incentive compensation.
Securities in the Public Portfolio generally mean equity securities (i)
which are traded or listed on a national securities exchange or on the Nasdaq
National Market or on the London Stock Exchange, Tokyo Stock Exchange or similar
non-United States exchange, (ii) for which regular and continuous quotes are
available through an electronic inter-dealer quotation system operated by The
Nasdaq Stock Market, Inc. or similar system or (iii) which at the request of
Risk Capital Corp. and approved by the Investment
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<PAGE>
Committee are otherwise determined to be appropriately included in the Public
Portfolio. Securities in the Private Portfolio mean all other equity securities.
Securities will not be deemed to be securities in the Public Portfolio (but will
be deemed securities in the Private Portfolio) if the actual securities held by
the Company or its subsidiaries are subject to certain legal, contractual or
other trading restrictions (whether or not the class of securities meets the
criteria set forth in clauses (i) and (ii) above).
TERM, TERMINATION AND AMENDMENTS
The Equity Investment Agreement has an initial term expiring December 31,
2001, and will be automatically renewed for one-year periods thereafter, unless
either party has given one-year prior notice of non-renewal. In addition, the
Company has the right to terminate the agreement in certain limited
circumstances including if, prior to the third anniversary of such agreement,
Robert Clements is no longer actively and substantially involved in the
investment activities of Risk Capital Corp. and a successor to Mr. Clements
(approved by the Company) has not been appointed by Risk Capital Corp. Subject
to certain exceptions, upon termination, Risk Capital Corp.'s incentive
compensation with respect to securities in the Private Portfolio purchased while
it was investment advisor will continue (and Risk Capital Corp. will continue to
have discretion with respect to the disposition of such securities) up until the
third anniversary of such termination except that, upon notice of termination of
the Equity Investment Agreement, annual Private Portfolio compensation will not
be determined annually but will be determined as of the end of such third
anniversary. Notwithstanding the foregoing, at any time on and after such
termination, at Risk Capital Corp.'s option with written notice thereof (and, in
any event, upon such third anniversary of such termination), all of the
securities in the Private Portfolio will be subject to a then valuation
procedure. The Equity Investment Agreement may not be amended, or any terms
thereof waived, without the consent of the Investment Committee.
LIMITATIONS OF TRIDENT PARTNERSHIP AGREEMENT
Risk Capital Corp. is also investment manager to Trident, a $667 million
insurance industry private equity fund, and, accordingly, certain restrictions
exist with respect to Risk Capital Corp.'s ability to make investment
recommendations to the Company with respect to investments which would be
suitable for both Trident and the Company. Under the Trident partnership
agreement, until the earlier of May 6, 2000 or the date on which at least 75% of
the aggregate capital of Trident has been drawn, neither Risk Capital Corp. nor
any of its affiliates may organize, or invest in, any new or existing risk
assumption entity unless Trident is first offered a reasonable opportunity to
invest in such entity. Such restrictions may also apply to the Company. Such
limitation, however, does not apply to investments in any such new entity where
the total invested capital of such entity does not exceed $10 million.
In addition, under Trident's investment advisory agreement with Risk Capital
Corp., Trident cannot make an investment unless such investment has been
recommended to Trident by Risk Capital Corp. and Robert Clements. Under the
terms of the Trident partnership agreement, two-thirds in interest of the
limited partners may elect to dissolve Trident if Mr. Clements has become unable
to provide advisory services to Trident and a replacement, acceptable to such
partners, has not been timely designated.
Pursuant to the Trident partnership agreement, where Trident has elected to
make part, but not all, of the full investment otherwise available to it, the
Company may not be offered the opportunity to participate in such investment
unless Trident first offers at least all Trident partners with capital
commitments of at least $50 million the right to participate in such additional
investment on a pro rata basis. Pursuant to the terms of the Equity Investment
Agreement, Risk Capital Corp. has agreed that it will not invest in such
opportunities, and will not offer any such opportunities to its affiliates,
without first offering the Company an opportunity to make such investment.
Under and for the term of the Equity Investment Agreement, Risk Capital
Corp. has agreed that (except for investment opportunities required to be first
made available to Trident and/or a successor fund
21
<PAGE>
or funds to Trident), unless the Company is first offered a reasonable
opportunity to make an investment therein, Risk Capital Corp. will not (i)
organize any new risk assumption entity involving the solicitation by Risk
Capital Corp. of capital (except such entities which are to be operated in
connection with the business of affiliates of Risk Capital Corp.), (ii) invest
for the account of Risk Capital Corp. or its immediate parent, MMRCH, in
insurance or reinsurance companies or companies providing services to the
insurance industry or (iii) (other than for MMRCH or Trident or any successor or
successors to either of them) manage any such investment for compensation. The
foregoing restrictions do not apply to activities of affiliates of Risk Capital
Corp. Further, the foregoing restrictions do not apply to certain specified
investments, including those (i) relating to a business to be operated in
connection with the business of an affiliate of Risk Capital Corp.; (ii) that
constitute compensation for providing services not related to investments; (iii)
that constitute compensation for providing services related to investments,
provided that any part of such compensation attributable to investments made by
the Company is for the account of the Company; (iv) made by Risk Capital Corp.
in a securities underwriting capacity, as principal in a securities
market-making capacity or in connection with block positions, proprietary
trading accounts, risk arbitrage or other broker/dealer activities (including
riskless principal activities); (v) made in insurance or reinsurance companies
or companies providing services to the insurance industry as a result of the
purchase of a portfolio of securities which includes the securities of the risk
assumption entity; or (vi) resulting from the exercise of existing options held
by Risk Capital Corp. or its immediate parent or pursuant to offers made to
either such entity as a security holder in an existing investment. In the event
that, at any time after January 1, 1997, less than 40% of the Company's total
assets are made available for investment under the Equity Investment Agreement,
the restrictions set forth in the first sentence of this paragraph and in the
following paragraph will terminate.
Pursuant to the terms of the Equity Investment Agreement, Risk Capital Corp.
agreed not to close a successor fund or funds to Trident until Risk Capital
Corp. has made available for investment by the Company the Targeted Amount of
Private Portfolio investments, unless the Board of Directors of the Company has
otherwise approved such closing. The Targeted Amount is $150 million if such
closing is on or after the third anniversary of the completion of the Offering
(or pro-rata portion thereof to the extent such closing is prior to such third
anniversary). As long as Risk Capital Corp. is the Company's equity investment
advisor, it agreed not to close a successor fund to Trident unless the Company
is given the opportunity to invest in such successor fund.
FIXED INCOME INVESTMENT AGREEMENT
Upon completion of the Offering, the Company entered into a fixed income
investment advisory agreement ("Fixed Income Investment Agreement") with The
Putnam Advisory Company, Inc. ("Putnam"), an affiliate of Risk Capital Corp.
Subject to the Investment Guidelines, Putnam has the authority, among other
things, to manage the Company's fixed-income portfolio.
Pursuant to the Fixed Income Investment Agreement, maximum fees charged by
Putnam (other than for custodial services) in the aggregate, based on a fixed
income portfolio, are at the following rates: 0.35% per annum on the first $50
million, 0.30% per annum on the next $50 million, 0.20% per annum on the next
$100 million and 0.15% per annum on the market value of assets that exceeds $200
million. The Fixed Income Investment Agreement with Putnam is subject to
termination by either party upon 30 days' written notice. In fiscal year 1996,
fees incurred to Putnam under the Fixed Income Investment Agreement were
approximately $547,000.
OTHER TRANSACTIONS
In March 1996, the Company committed to purchase $12.0 million in limited
partner interests in a newly-formed limited partnership for which an affiliate
of Risk Capital Corp. acts as general partner. The limited partnership was
formed to make investments in property and casualty insurance companies and to
provide the limited partners the opportunity through a syndicated reinsurance
program to provide
22
<PAGE>
reinsurance for such companies. The general partner will receive fees on capital
contributions made by limited partners and the gross investment income earned on
the partnership investments in client companies. These fees were negotiated on
an arm's-length basis. The general partner will be the exclusive reinsurance
intermediary for all reinsurance placed with the syndicate and all retrocessions
specific to such reinsurance.
In April 1996, the Company invested $4.5 million in the ordinary shares of a
Cayman Islands insurance company, which was organized and sponsored by Risk
Capital Corp. Certain directors of the Company and other investors also invested
in such ordinary shares at the same per share price as that paid by the Company.
Messrs. Clements and Mosca are directors of the company.
Commencing in 1996, the Company subleased office space to Risk Capital Corp.
for a term expiring in October 2002. Under such arrangement, Risk Capital
Corp.'s future minimum annual rental charges, exclusive of escalation clauses
and maintenance costs, will be approximately $2.8 million. Risk Capital Corp.'s
rental expense for 1996 was $264,000.
The Company has engaged and may continue to engage, in the ordinary course
of its business, in insurance, investment or other transactions with EXEL and
its subsidiaries and/or subsidiaries of Marsh & McLennan Companies, Inc.
(collectively, "Marsh") or companies in which Marsh has equity or other
interests, including Risk Capital Corp. and Trident. Risk Capital Corp. is the
investment advisor to Trident and affiliates of Marsh have invested in Trident.
The Company has invested, and in the future may continue to invest, in entities
in which Trident has invested, or is investing. The Company may provide
reinsurance to such entities or other entities in which Trident has invested.
Affiliates of Risk Capital Corp. act as reinsurance intermediaries to the
Company from time to time. Commissions allocable to these intermediaries for
premiums earned by the Company in fiscal year 1996 were approximately $6.7
million. The Company believes that the terms of such transactions are no less
favorable to the Company than could have been obtained from third parties that
were not affiliated with the Company.
Pursuant to an agreement among Robert Clements, Risk Capital Corp. and
MMRCH, and in recognition of services provided by Mr. Clements to Risk Capital
Corp., the Company's equity investment advisor, MMRCH transferred to Mr.
Clements in September 1996 a warrant to purchase 200,000 shares of Common Stock
and placed in escrow an additional warrant to purchase 150,000 shares of Common
Stock to be transferred to Mr. Clements if the market price of the Common Stock
should reach a specified threshold. The rights to certain of these warrants were
subsequently transferred by Mr. Clements to members of his family. The agreement
also provides that Mr. Clements will receive performance payments from Risk
Capital Corp. if revenues received by Risk Capital Corp. in the years 1998 and
2000 from fees generated by the Equity Investment Agreement reach certain
levels. The maximum amounts payable by Risk Capital Corp. to Mr. Clements under
these agreements are $750,000 with respect to 1998 and $1,500,000 with respect
to 2000. See "Election of Directors--Directors and Executive Officers" and "--
Certain Relationships and Related Transactions--Equity Investment Agreement."
Lewis L. Glucksman is Vice Chairman of Smith Barney Inc., which served as
lead underwriter for the Offering and may perform investment banking services
for the Company from time to time.
DESIGNATION OF DIRECTORS
In connection with the Offering, and subject to certain conditions, the
Company has agreed to allow (i) Trident to designate (and the Company has agreed
to use its best efforts to cause to be elected) one Director to the Board of
Directors of the Company, (ii) MMRCH to designate (and the Company has agreed to
use its best efforts to cause to be elected) two Directors to the Board of
Directors of the Company, and (iii) EXEL to designate (and the Company has
agreed to use its best efforts to cause to be elected) two Directors to the
Board of Directors of the Company. Mr. Fulkerson is Trident's designee, Messrs.
Clements and Wroughton are MMRCH's designees and Messrs. Heap and Esposito, Jr.
are EXEL's designees.
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<PAGE>
CERTAIN REGISTRATION RIGHTS
In connection with the Offering and subject to certain limitations, the
Company granted each of Trident, MMRCH, Taracay and EXEL (the "Investors") the
right to require the Company to register its warrants, shares of Common Stock
and shares of Common Stock underlying the warrants (the "Registrable
Securities") under the Securities Act. In addition, whenever the Company
proposes to register any of its securities for its own account or for the
account of another securityholder under the Securities Act, the Investors are
entitled, subject to certain restrictions, to include their Registrable
Securities in such registration ("Piggyback Registration Rights"). The Company
also granted Piggyback Registration Rights to Mr. Mosca with respect to certain
shares that he purchased at the time of the Offering. In connection with all
such registrations, the Company is required to bear all registration and selling
expenses (other than underwriting fees and commissions and the fees of any
counsel for the holders participating in such registrations). Registration
rights may be transferred to an assignee or transferee of Registrable
Securities.
2. APPROVAL OF THE AMENDMENT TO
THE RISK CAPITAL HOLDINGS, INC.
1995 LONG TERM INCENTIVE AND SHARE AWARD PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE APPROVAL OF THE AMENDMENT TO THE RISK CAPITAL HOLDINGS, INC.
1995 LONG TERM INCENTIVE AND SHARE AWARD PLAN
In August 1996, the SEC adopted new rules under Section 16 of the Exchange
Act, which, among other things, eliminated the non-transferability requirement
for stock awards, and permit directors to make discretionary exempt grants to
other directors. In response to these rule changes, the Board of Directors
approved an amendment to the 1995 Stock Plan. Subject to shareholder approval,
the amendment modifies the eligibility provisions of the 1995 Stock Plan to
provide that discretionary stock-based awards may be made to the Non-Employee
Directors. The amendment also provides that the 1995 Stock Plan can be
administered by either the Compensation Committee or the entire Board, and it
grants the plan administrator authority to issue awards that are transferable in
certain circumstances. In addition, the amendment clarifies that outstanding
stock options cannot be repriced. The non-discretionary, automatic stock option
grants to Non-Employee Directors under the 1995 Stock Plan have not been
eliminated.
The 1995 Stock Plan is designed to provide incentives to attract, retain and
motivate employees and Non-Employee Directors in order to achieve the Company's
long-term growth and profitability objectives. The following summary of the 1995
Stock Plan is qualified in its entirety by express reference to the text of the
1995 Stock Plan, as amended, which has previously been filed with the SEC.
The 1995 Stock Plan provides for the grant to eligible employees and
directors of stock options, stock appreciation rights ("SARs"), restricted
shares, restricted share units payable in shares of Common Stock or cash, stock
awards in lieu of cash awards, dividend equivalents and other stock-based awards
(the "Awards"). The 1995 Stock Plan also provides for (i) an initial
non-discretionary grant of options to purchase 300 shares of Common Stock to
each Non-Employee Director upon joining the Board and (ii) an annual
non-discretionary grant of options to purchase 250 shares of Common Stock to
each Non-Employee Director. The exercise price of such options is equal to the
market price of the Common Stock on the date of the grant.
To date, the 1995 Stock Plan has been administered by the Compensation
Committee, and the Compensation Committee determines which eligible participants
receive Awards, the types of Awards to be received and the terms and conditions
thereof. Officers and other employees of the Company and its subsidiaries and
affiliates who are responsible for or contribute to the management and
profitability of the business of the Company are eligible to be granted Awards
under the 1995 Stock Plan. Approximately 26 employees and eight Non-Employee
Directors are currently eligible to participate in the 1995 Stock Plan.
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The per share closing price for the Common Stock as reported on the Nasdaq
National Market on March 27, 1997 was $16.75.
An aggregate of 1,700,000 shares of Common Stock have been reserved for
issuance under the 1995 Stock Plan (subject to anti-dilution adjustments in the
event of certain changes in the Company's capital structure). Of such 1,700,000
shares of Common Stock, 860,550 shares of Common Stock have been awarded or
reserved for issuance as of March 27, 1997.
Robert Clements has been granted an option to purchase 74,000 shares of
Common Stock, subject to the Company obtaining shareholder approval of the
proposed amendment to the 1995 Stock Plan that permits discretionary grants to
Non-Employee Directors. The per share exercise price for the option is $17.625,
which was the closing price for the Common Stock as reported on the Nasdaq
National Market on the date of grant. Subject to obtaining the requisite
shareholder approval, the stock option will vest and become exercisable in five
equal annual installments commencing in November 1997, and will be exercisable
for seven years from the date of vesting.
The Compensation Committee and the Board of Directors believe that Awards
are a particularly important part of the compensation that correlates long-term
individual motivation and reward to the Company's performance. The proposed
amendments to the 1995 Stock Plan will continue to provide the Company with the
flexibility to continue to motivate its employees and directors in this manner.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the federal income tax consequences of the
issuance of options and SARs under the 1995 Stock Plan, based upon current
provisions of the Code, the Treasury regulations promulgated thereunder and
administrative and judicial interpretation thereof, and does not address the
consequences under any other applicable tax laws. The provisions of the Code,
regulations thereunder and related interpretations are complicated and their
impact in any one case may depend upon the particular circumstances relating
thereto.
STOCK OPTIONS
In general, the grant of an option will not be a taxable event to the
recipient and it will not result in a deduction to the Company. The tax
consequences associated with the exercise of an option and the subsequent
disposition of shares of Common Stock acquired on the exercise of such option
depend on whether the option is an incentive stock option or a non-qualified
stock option.
Upon the exercise of a non-qualified stock option, the participant will
recognize ordinary taxable income equal to the excess of the fair market value
of the shares of Common Stock received upon exercise over the exercise price.
The Company will generally be able to claim a deduction in an equivalent amount.
Any gain or loss upon a subsequent sale or exchange of the shares of Common
Stock will be capital gain or loss, long-term or short-term, depending on the
holding period for the shares of Common Stock.
Generally, a participant will not recognize ordinary taxable income at the
time of exercise of an incentive stock option and no deduction will be available
to the Company, provided the option is exercised while the participant is an
employee or within three months following termination of employment (longer, in
the case of termination of employment by reason of disability or death). If an
incentive stock option granted under the 1995 Stock Plan is exercised after
these periods, the exercise will be treated for federal income tax purposes as
the exercise of a non-qualified stock option. Also, an incentive stock option
granted under the 1995 Stock Plan will be treated as a non-qualified stock
option to the extent it first becomes exercisable in any calendar year for
shares of Common Stock having a fair market value, determined as of the date of
grant, in excess of $100,000.
If shares of Common Stock acquired upon exercise of an incentive stock
option are sold or exchanged more than one year after the date of exercise and
more than two years from the date of grant of the option,
25
<PAGE>
any gain or loss will be long-term capital gain or loss. If shares of Common
Stock acquired upon exercise of an incentive stock option are disposed of prior
to the expiration of these one-year or two-year holding periods, the participant
will recognize ordinary income at the time of disposition, and the Company will
generally be able to claim a deduction, in an amount equal to the excess of the
fair market value of the shares of Common Stock at the date of exercise over the
exercise price. Any additional gain will be treated as capital gain, long-term
or short-term, depending on how long the shares of Common Stock have been held.
SARS
Generally, when a participant receives payment with respect to a SAR granted
to him or her under the 1995 Stock Plan, the amount of cash and the fair market
value of any other property received will be ordinary income to such participant
and will be allowed as a deduction for federal income tax purposes to the
Company.
3. RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE RATIFICATION OF THE SELECTION OF
PRICE WATERHOUSE LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR FISCAL YEAR 1997
The Board of Directors proposes and recommends that the shareholders ratify
the selection of the firm of Price Waterhouse LLP to serve as independent
accountants of the Company for the year ending December 31, 1997. Price
Waterhouse LLP served as the Company's independent accountants from the
Company's inception in June 1995 to the present. Unless otherwise directed by
the shareholders, proxies will be voted for approval of the selection of Price
Waterhouse LLP to audit the Company's consolidated financial statements for the
1997 fiscal year. A representative of Price Waterhouse LLP will attend the
Annual Meeting, and will have an opportunity to make a statement and to respond
to appropriate questions.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
In accordance with the rules established by the SEC, shareholder proposals
to be included in the Company's proxy statement with respect to the 1998 annual
meeting of shareholders must be received by the Company at its executive offices
no later than December 15, 1997.
In addition, the Company's Bylaws provide that any shareholder desiring to
nominate a director at an annual meeting must provide written notice of such
nomination to the Secretary of the Company at least 50 days prior to the date of
the meeting at which such nomination is proposed to be voted upon (or, if less
than 50 days' notice of an annual meeting is given, shareholder proposals and
nominations must be delivered no later than the close of business of the seventh
day following the day notice was mailed). The notice of shareholder nominations
must set forth certain information with respect to each nominee who is not an
incumbent director.
26
<PAGE>
OTHER BUSINESS OF THE MEETING
Management is not aware of any matters to come before the Annual Meeting
other than those stated in this Proxy Statement. However, inasmuch as matters of
which management is not now aware may come before the meeting or any
adjournment, the proxies confer discretionary authority with respect to acting
thereon, and the persons named in such proxies intend to vote, act and consent
in accordance with their best judgment with respect thereto. Upon receipt of
such proxies (in the form enclosed and properly signed) in time for voting, the
shares represented thereby will be voted as indicated thereon and in this Proxy
Statement.
By Order of the Board of Directors
/s/ Peter A. Appel
PETER A. APPEL
Managing Director,
General Counsel and Secretary
Greenwich, Connecticut
April 14, 1997
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1996 MAY BE OBTAINED WITHOUT CHARGE BY ANY SHAREHOLDER TO WHOM THIS PROXY
STATEMENT IS SENT, UPON WRITTEN REQUEST TO RISK CAPITAL HOLDINGS, INC., 20
HORSENECK LANE, GREENWICH, CONNECTICUT 06830, ATTENTION: SECRETARY.
27
<PAGE>
RISK CAPITAL HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
RISK CAPITAL HOLDINGS, INC.
FOR THE ANNUAL MEETING
OF SHAREHOLDERS ON MAY 13, 1997
The undersigned shareholder of Risk Capital Holdings, Inc. (the
"Company") hereby appoints Mark D. Mosca and Paul J. Malvasio, or either of
them, the true and lawful attorneys, agents and proxies of the undersigned,
with full power of substitution to vote all the Company's Common Stock, $.01
par value per share, which the undersigned may be entitled to vote at the
Annual Meeting of Shareholders of the Company to be held at the Company's
offices located at 20 Horseneck Lane, Greenwich, Connecticut, on Tuesday, May
13, 1997 at 4:00 p.m. (EDT), and at any adjournment or postponement of such
meeting, with all powers which the undersigned would possess if personally
present, for the items set forth on the reverse side.
The undersigned hereby acknowledges receipt of a copy of the Proxy
Statement relating to such Annual Meeting.
(CONTINUED AND TO BE COMPLETED ON REVERSE SIDE)
<PAGE>
<TABLE>
<CAPTION>
A / X / Please mark your
votes as in this
example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES AND PROPOSALS LISTED BELOW.
<S> <C> <C>
FOR each nominee (except WITHHOLD
as indicated to the contrary) AUTHORITY
1. ELECTION OF
NOMINEES- / / / / Nominees: Allan W. Fulkerson
To re-elect Lewis L. Glucksman
each of the Ian R. Heap
listed nominees as a Class II Director of the Company
to serve until the Company's 2000 Annual Meeting and until
his successor is duly elected and qualified.
INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in the space
provided below.
- ----------------------------------------------------------
</TABLE>
FOR AGAINST ABSTAIN
2. APPROVAL OF AN AMENDMENT TO
THE RISK CAPITAL HOLDINGS, INC. / / / / / /
1995 LONG TERM INCENTIVE AND
SHARE AWARD PLAN (the "Plan") -
To approve an Amendment to the Plan primarily to permit
discretionary grants of stock-based awards to be made to
non-employee members of the Board of Directors.
3. RATIFICATION OF THE SELECTION
OF INDEPENDENT ACCOUNTANTS - To / / / / / /
ratify the selection of the firm
of Price Waterhouse LLP to serve as independent
accountants of the Company for the fiscal year ending
December 31,1997.
4. OTHER-In their discretion upon such other matters which may properly
come before the Annual Meeting or any postponement or adjournment
thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES AND THE APPROVAL OF THE
PROPOSALS DESCRIBED ABOVE.
Signature Date Signature Date
------------------- ------- ------------------- ------
Note: (Please sign your name or names exactly as it appears on your share
certificate(s). When signing as attorney, executor, administrator,
trustee, guardian or corporate executor, please give your full title
as such. For joint accounts, all co-owners should sign.)
<PAGE>
FIRST AMENDMENT TO
RISK CAPITAL HOLDINGS, INC.
1995 LONG TERM INCENTIVE AND SHARE AWARD PLAN
The Risk Capital Holdings, Inc. 1995 Long Term Incentive and Share Award
Plan is amended as follows, effective September 16, 1996; PROVIDED, HOWEVER,
that paragraph 2 of this amendment shall be contingent upon approval by the
affirmative vote of the holders of a majority of voting securities of Risk
Capital Holdings, Inc. at a meeting duly held during calendar year 1997.
1. Section 2(g) is amended to read as follows:
"(g) 'Committee' means the Compensation Committee of the Board, or such
other Board committee (or the entire Board) as may be designated by the
Board to administer the Plan."
2. Section 2(l) is amended to read as follows:
"(l) 'Eligible Employee' means (i) an employee of the Company or its
Subsidiaries and Affiliates, including any director who is an employee, who
is responsible for or contributes to the management, growth and/or
profitability of the business of the Company, its Subsidiaries or
Affiliates, and (ii) any Director."
3. Section 3(b) is amended by adding the following at the end thereof:
"Notwithstanding any provision of this Plan to the contrary, the Committee
may grant Awards which are subject to the approval of the Board; provided
that an Award shall be subject to Board approval only if the Committee
expressly so states."
4. Section 6(a) is amended by adding the following at the end thereof:
"Notwithstanding the foregoing, the exercise price of any Option, grant
price of any SAR or purchase price of any other Award conferring a right to
purchase Shares which is granted in exchange or substitution for an option,
SAR or other award granted by the Company (other than in connection with a
transaction described in Section 4(c) hereof) shall not be less than the
exercise price, grant price or purchase price of the exchanged or
substituted option, SAR or other award, and outstanding Awards shall not be
amended (other than in connection with a transaction described in Section
4(c) hereof) to reduce the exercise price, grant price or purchase price of
any such Award."
5. Section 6(d) is amended by deleting the first sentence thereof and
replacing it with the following:
"Except as set forth below and except for vested Shares, Awards shall not be
transferable by an Eligible Employee except by will or the laws of descent
and distribution (except pursuant to a Beneficiary designation) and shall be
exercisable during the lifetime of an Eligible Employee only by such
Eligible Employee or his guardian or legal representative. Notwithstanding
the foregoing, if the Committee expressly so provides in the applicable
Award agreement (at the time of grant or at any time thereafter), an Award
(other than an ISO) granted hereunder may be transferred by a Participant to
members of his or her 'immediate family' or to a trust established for the
exclusive benefit of solely one or more members of the Participant's
'immediate family,' and any such transfer by a Participant other than a
Director must be for no consideration. Any Award held by the transferee will
continue to be subject to the same terms and conditions that were applicable
to the Award immediately prior to the transfer, except that the Award will
be transferable by the transferee only by will or the laws of descent and
distribution. For purposes hereof, 'immediate family' means the
Participant's children, stepchildren, grandchildren, parents, stepparents,
grandparents, spouse, siblings (including half brothers and sisters),
in-laws, and relationships arising because of legal adoption."
6. Section 7(f) is amended by adding the following at the end thereof:
"Notwithstanding the foregoing, if the Committee expressly so provides in
the applicable Award agreement (at the time of grant or at any time
thereafter), a Director's Option granted hereunder may
<PAGE>
be transferred by an optionee to members of his or her 'immediate family' or
to a trust established for the exclusive benefit of solely one or more
members of his or her 'immediate family.' Any Director's Option held by the
transferee will continue to be subject to the same terms and conditions that
were applicable to the Director's Option immediately prior to the transfer,
except that the Director's Option will be transferable by the transferee
only by will or the laws of descent and distribution. For purposes hereof,
'immediate family' means the Director's children, stepchildren,
grandchildren, parents, stepparents, grandparents, spouse, siblings
(including half brothers and sisters), in-laws, and relationships arising
because of legal adoption."
7. Section 8(d) is amended by deleting the last sentence thereof.
* * * *
2
