SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )
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|_| Preliminary Proxy Statement
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|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
RISK CAPITAL HOLDINGS, INC.
(Name of Registrant as Specified In Its Charter)
Not Applicable
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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<PAGE>
April 12, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Risk Capital Holdings, Inc. which will be held at our offices located at 20
Horseneck Lane, Greenwich, Connecticut, on Tuesday, May 11, 1999 at 4:00 p.m.
The accompanying formal notice and proxy statement 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. Whether or not you plan to attend the meeting,
we request that you please sign and return your proxy card in the enclosed
envelope to ensure that your shares will be represented and voted. If you do
attend the meeting, you may choose to withdraw your proxy and vote your shares
in person.
We look forward to meeting with you.
Sincerely,
MARK D. MOSCA
President and Chief Executive Officer
<PAGE>
RISK CAPITAL HOLDINGS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 11, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (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, on Tuesday, May 11, 1999 at 4:00 p.m. (EDT) for the
following purposes:
1. To re-elect two directors to serve for a term of three years and
until their respective successors are elected and qualified;
2. To consider and vote upon a proposal to approve the Company's 1999
Long Term Incentive and Share Award Plan;
3. To consider and vote upon a proposal to ratify the selection of
PricewaterhouseCoopers LLP as independent accountants for the fiscal
year ending December 31, 1999; and
4. To transact any and all other business which may properly come
before the Annual Meeting or any and all postponements or
adjournments thereof.
In accordance with the provisions of the Company's Bylaws, the Board of
Directors has fixed the close of business on April 1, 1999 as the record date
for the determination of the holders of Common Stock entitled to notice of, and
to vote at, the Annual Meeting and any and all postponements or adjournments
thereof.
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 is enclosed
for that purpose.
By Order of the Board of Directors,
PETER A. APPEL
Managing Director,
General Counsel
and Secretary
Greenwich, Connecticut
April 12, 1999
<PAGE>
PROXY STATEMENT
RISK CAPITAL HOLDINGS, INC.
20 Horseneck Lane
Greenwich, Connecticut 06830
ANNUAL MEETING OF STOCKHOLDERS
May 11, 1999
PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
(the "Board of Directors") of Risk Capital Holdings, Inc., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders (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 11, 1999, 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 $4,500. Officers and regular employees of
the Company may also solicit proxies from stockholders 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, 1998 to stockholders of record as of the
close of business on April 1, 1999 on or about April 15, 1999.
VOTING SECURITIES
Only holders of record of the Company's common stock, par value $0.01 per
share ("Common Stock"), at the close of business on April 1, 1999 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
17,086,266. 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. However, 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 stockholders 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 is currently comprised of eight members divided
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 Thomas V.
A. Kelsey and Philip L. Wroughton, whose present terms expire in 1999, to serve
as Class I Directors for a term of three years and until their successors are
duly elected and qualified.
Unless authority to vote for such nominees is withheld, the enclosed proxy
will be voted for such nominees 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 regarding the nominees for election:
Name Age Position
- ---- --- --------
Thomas V. A. Kelsey.......... 66 Class I Director
Philip L. Wroughton.......... 65 Class I Director
Thomas V. A. Kelsey has been a Director of the Company and Risk Capital
Reinsurance Company, a wholly owned subsidiary of the Company ("Risk Capital
Reinsurance"), since September 1996. Mr. Kelsey was the President and Chief
Executive Officer of School, College and University Underwriters, Ltd.
("SCUUL"), a Bermuda-domiciled reinsurance company, from 1993 to May 1998. Prior
to joining SCUUL, he 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.
Philip L. Wroughton has been a Director of the Company and Risk Capital
Reinsurance since the completion of the Company's initial public offering in
September 1995 (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.
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Continuing Directors and Executive Officers
Set forth below is information regarding 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..................................... 45 President, Chief Executive
Officer and Class III Director 2001
Robert Clements................................... 66 Chairman and Class III Director 2001
Peter A. Appel.................................... 37 Managing Director, General
Counsel and Secretary --
Paul J. Malvasio.................................. 52 Managing Director, Chief
Financial Officer and Treasurer --
Michael P. Esposito, Jr........................... 59 Class III Director 2001
Stephen Friedman.................................. 61 Class II Director 2000
Lewis L. Glucksman................................ 73 Class II Director 2000
Ian R. Heap....................................... 73 Class II Director 2000
</TABLE>
- ----------
* Indicates expiration of term as a Director of the Company.
Mark D. Mosca was elected President and Director of the Company in June
1995 and Chief Executive Officer of the Company in March 1998, and President,
Chief Executive Officer and Director of Risk Capital Reinsurance in August 1995,
and has served as Chief Underwriting Officer of Risk Capital Reinsurance since
March 1999. Prior to June 1995, 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. Mr. Clements is currently an advisor to Marsh & McLennan
Capital, Inc. ("MMCI"), 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 J&H Marsh & McLennan, Incorporated (formerly 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 serves as a director
of XL Capital Ltd. ("XL"), Annuity and Life Re (Holdings) Ltd., Stockton
Holdings Limited 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 November 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.
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.
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<PAGE>
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 XL since 1986, serving as Chairman of the Board since April 1995,
and has been Co-Chairman of Inter-Atlantic Capital Partners 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 Annuity and Life Re (Holdings), Ltd.
Stephen Friedman has been a Director of the Company and Risk Capital
Reinsurance since April 1998. Mr. Friedman has been a limited partner of The
Goldman Sachs Group, L.P. since 1994 and Senior Principal of MMCI since April
1998. He joined Goldman, Sachs & Co. in 1966 and has served the firm in various
capacities, including Senior Chairman from 1994 to 1998, Sole Chairman from 1992
to 1994, Co-Chairman from 1990 to 1992 and Vice Chairman and Co-Chief Operating
Officer from 1987 to 1990. He is Chairman of the Board of Columbia University, a
Trustee of the Brookings Institution and Chairman of its Executive Committee, a
director of Wal-Mart Stores, Inc. and Fannie Mae, and a Trustee of Memorial
Sloan-Kettering Cancer Center, the Concord Coalition and the National Bureau of
Economic Research. Mr. Friedman is also a member of the Trilateral Commission
and the Council on Foreign Relations.
Lewis L. Glucksman has been a Director of the Company and Risk Capital
Reinsurance since November 1995. Mr. Glucksman is currently an Advisory Director
of Salomon Smith Barney Holdings Inc. (formerly Smith Barney Inc.), with whom he
served as Vice Chairman from 1988 to 1998. 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 XL since 1987 and was Chairman of the Board of XL from 1988 to 1992. He was
President and Chief Executive Officer of XL and X.L. Insurance Company, Ltd.
from 1987 to 1988. From 1992 to 1993, he served as President and Chief Executive
Officer of Mid Ocean Reinsurance Company Ltd. Mr. Heap has served as President
and Chief Executive Officer of X.L. Insurance Company of America, Inc. since
1998.
- ----------
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 four times during 1998 and took action by
unanimous written consent three times. 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
75% or more of all meetings of the Board and any committees on which the
Director served during fiscal year 1998.
Executive Committee
The Executive Committee of the Board of Directors (the "Executive
Committee") is currently composed of Robert Clements (Chairman), Mark D. Mosca
and Michael P. Esposito, Jr. The Executive Committee may 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 Board of 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
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<PAGE>
capital stock of the Company or (v) authorize the disposition or acquisition of
businesses or subsidiaries. The Executive Committee reports periodically to the
Board of Directors as to actions it has taken. The Executive Committee did not
meet during 1998.
Audit Committee
The Audit Committee of the Board of Directors (the "Audit Committee") is
currently composed of Lewis L. Glucksman (Chairman), Thomas V. A. Kelsey and
Philip L. Wroughton. The Audit Committee reviews the annual financial statements
of the Company and other financial information provided to stockholders with the
independent accountants and the practices and procedures adopted by the Company
in the preparation of such financial statements and information. 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 also reviews the Company's claims and
claims expense reserves, methodology and process, and the systems of internal
controls, policies and procedures established by the management of the Company.
The Audit Committee met two times during 1998.
Compensation Committee
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is currently composed of Ian R. Heap (Chairman), Robert Clements and
Stephen Friedman. 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 stockholders), may not receive any award under any
compensation or other benefit plan that the Compensation Committee administers.
The Compensation Committee met three times during 1998.
Investment/Finance Committee
The Investment/Finance Committee of the Board of Directors (the
"Investment Committee") is currently composed of Michael P. Esposito, Jr.
(Chairman), Lewis L. Glucksman, Thomas V. A. Kelsey and Mark D. Mosca. 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 six times during 1998.
Compensation of Directors
Each Non-Employee Director receives from the Company an annual fee of
$25,000 and a meeting fee of $1,000 for each Board or committee meeting
attended. In addition, each Non-Employee Director serving as Chairman of the (i)
Executive Committee, Compensation Committee or Investment Committee receives an
annual fee of $3,000 and (ii) Audit Committee receives an annual fee of $5,000.
All Non-Employee Directors are entitled to reimbursement for their reasonable
out-of-pocket expenses in connection with their travel to and attendance at
meetings of the Board of Directors or committees thereof. Directors who are also
employees of the Company or its subsidiaries receive no cash compensation for
serving as Directors or as members of Board committees.
Pursuant to the Company's 1995 Long Term Incentive and Share Award Plan
(the "1995 Stock Plan"), upon joining the Board of Directors, 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 shares of Common Stock on January
1 of each year. Commencing January 1, 1998, the amount of shares covered by such
annual grant was increased from 250 to 500 shares of Common Stock. See "Approval
of the Risk Capital Holdings, Inc. 1999 Long Term Incentive and Share Award
Plan" for a description of a proposed
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<PAGE>
stock incentive plan, which, if approved by the stockholders, would provide the
Non-Employee Directors with an opportunity to receive the annual Board retainer
fee in shares of Common Stock and other stock-based awards.
In addition, Robert Clements, Chairman of the Board of Directors, received
a bonus of $150,000 and an option to purchase 49,725 shares of Common Stock for
performance during 1998. The stock option will vest in five equal annual
installments commencing on November 17, 1999, and will expire seven years from
the date of vesting.
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<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information available to the Company as of
April 1, 1999 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 shares of 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>
Rule 13d-3 Fully-
Name and Address Number of Shares Percentage Diluted
of Beneficial Owner Beneficially Owned(1) Ownership(1) Percentage(2)
- ------------------- --------------------- ------------ -------------
<S> <C> <C> <C>
XL Capital, Ltd.(3)....................... 4,755,000 27.8% 20.8%
Cumberland House
One Victoria Street
Hamilton, HM11, Bermuda
Marsh & McLennan Risk Capital
Holdings, Ltd.(4)..................... 2,301,022 12.8 17.8
1166 Avenue of the Americas
New York, New York 10036
Merrill Lynch & Co., Inc.(5).............. 2,032,200 11.9 8.9
World Financial Center, North Tower
250 Vesey Street
New York, New York 10381
The Trident Partnership, L.P.(6).......... 1,636,079 8.9 7.1
Craig Appin House
8 Wesley Street
Hamilton, HM11, Bermuda
Franklin Resources, Inc.(7)............... 1,503,800 8.8 6.6
777 Mariners Island Boulevard
San Mateo, California 94404
Crabbe Huson Group, Inc.(8) .............. 1,242,800 7.3 5.4
121 SW Morrison, Suite 1400
Portland, Oregon 97204
EQSF Advisers, Inc.(9) ................... 1,047,525 6.1 4.6
M.J. Whitman Advisers, Inc.
767 Third Avenue
New York, New York 10017
Beck, Mack & Oliver LLC(10)............... 992,700 5.8 4.3
330 Madison Avenue
New York, New York 10017
Mark D. Mosca(11)......................... 243,909 1.4 2.0
Robert Clements(12)....................... 209,023 1.2 2.0
Peter A. Appel(13)........................ 68,489 * *
Paul J. Malvasio(14)...................... 68,489 * *
Michael P. Esposito, Jr.(15)(16).......... 5,300 * *
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Rule 13d-3 Fully-
Name and Address Number of Shares Percentage Diluted
of Beneficial Owner Beneficially Owned(1) Ownership(1) Percentage(2)
- ------------------- --------------------- ------------ -------------
<S> <C> <C> <C>
Stephen Friedman(15)...................... 200 * *
Lewis L. Glucksman(15).................... 1,300 * *
Ian R. Heap(15)(16)....................... 4,800 * *
Thomas V. A. Kelsey(15)................... 4,050 * *
Philip L. Wroughton(15)................... 2,300 * *
All Directors and executive officers
(10 persons)........................... 607,860 3.5 5.6
</TABLE>
- ------------------
* Denotes beneficial ownership of less than 1.0%.
(1) Pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), amounts shown under "Number of
Shares Beneficially Owned" and "Rule 13d-3 Percentage Ownership" include
shares of Common Stock that may be acquired by a person within 60 days of
the date of this Proxy Statement. Therefore, "Rule 13d-3 Percentage
Ownership" has been computed based on (i) 17,086,266 shares of Common
Stock actually outstanding as of April 1, 1999 and (ii) shares of Common
Stock that may be acquired within 60 days of the date of this Proxy
Statement upon the exercise of options and warrants held by the person
whose Rule 13d-3 Percentage Ownership is being computed.
(2) Amounts shown under "Fully-Diluted Percentage" in the above table have
been computed based on 17,086,266 shares of Common Stock actually
outstanding as of April 1, 1999 and shares of Common Stock that may be
acquired upon the exercise of all outstanding options and warrants
(whether or not such options and warrants are exercisable within 60 days).
As of April 1, 1999, there were an aggregate of 5,806,055 shares of Common
Stock issuable under outstanding warrants and options as follows: (i)
Class A Warrants to purchase an aggregate of 2,531,079 shares of Common
Stock (the "Class A Warrants"), (ii) Class B Warrants to purchase an
aggregate of 1,920,601 shares of Common Stock (the "Class B Warrants") and
(iii) options to purchase an aggregate of 1,354,375 shares of Common
Stock. The Class A Warrants are immediately exercisable at $20 per share
and expire on September 19, 2002. The Class B Warrants are exercisable at
$20 per share during the seven year period commencing September 19, 1998,
provided that the Common Stock has traded at or above $30 per share for 20
out of 30 consecutive trading days.
(3) Based upon a Schedule 13D, dated September 17, 1997, filed with the
Securities and Exchange Commission (the "SEC") by XL.
(4) Amounts include (i) 1,395,625 shares of Common Stock owned directly by
Marsh & McLennan Risk Capital Holdings, Ltd. ("MMRCH") and (ii) 905,397
shares issuable upon the exercise of Class A Warrants held by MMRCH.
"Fully-Diluted Percentage" also reflects 1,770,601 shares of Common Stock
issuable upon the exercise of Class B Warrants held by MMRCH, which
warrants may not become exercisable within 60 days of the date of this
Proxy Statement. 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."
(5) Based upon a Schedule 13G, dated February 14, 1999, filed with the SEC by
Merrill Lynch & Co., Inc., a parent holding company, 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
2,032,200 shares of Common Stock.
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<PAGE>
(6) Amounts include (i) 250,000 shares of Common Stock owned directly by The
Trident Partnership, L.P. ("Trident") and (ii) 1,386,079 shares of Common
Stock issuable upon the exercise of Class A Warrants held by Trident.
Based upon a Schedule 13D, dated March 27, 1998, filed with the SEC by
Trident. See "Certain Relationships and Related Transactions--Registration
Rights."
(7) Based upon a Schedule 13G, dated February 1, 1999, 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 1,503,800 shares of Common
Stock beneficially owned by one or more managed accounts which are advised
by investment advisory subsidiaries of FRI.
(8) Based upon a Schedule 13G, dated February 12, 1999, filed with the SEC by
the Crabbe Huson Group, Inc. ("CHG"), an investment advisor. In the
Schedule 13G, CHG reported that it has shared voting power with respect to
1,157,200 shares of Common Stock and shared dispositive power with respect
to 1,242,800 shares of Common Stock beneficially owned by its clients.
(9) Based upon a Schedule 13G, dated February 12, 1999, jointly filed with the
SEC by EQSF Advisers, Inc. ("EQSF") and M.J. Whitman Advisers, Inc.
("Whitman"), each an investment advisor. In the Schedule 13G, EQSF and
Whitman reported sole voting power and sole dispositive power with respect
to 466,300 and 581,225 shares of Common Stock, respectively.
(10) Based upon a Schedule 13G, dated January 22, 1999, filed with the SEC by
Beck, Mack & Oliver LLC ("Beck"), an investment advisor. In the Schedule
13G, Beck reported that it has shared dispositive power with respect to
992,700 shares of Common Stock beneficially owned by its clients.
(11) Amounts include (i) 139,888 shares of Common Stock owned directly by Mr.
Mosca (40,000 of such shares are subject to vesting) and (ii) 104,021
shares of Common Stock subject to immediately exercisable options.
"Fully-Diluted Percentage" also includes 208,379 shares of Common Stock
subject to stock options that will not become exercisable within 60 days
of the date of this Proxy Statement.
(12) Amounts include (i) 22,300 shares of Common Stock owned directly by Mr.
Clements, (ii) Class A Warrants to purchase 80,000 shares of Common Stock,
(iii) 12,120 shares of Common Stock subject to immediately exercisable
options and (iv) 55,000 shares of Common Stock and Class A Warrants to
purchase 39,603 shares of Common Stock 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. "Fully-Diluted Percentage" also includes
(i) 93,505 shares of Common Stock subject to stock options and (ii)
150,000 shares of Common Stock issuable upon the exercise of Class B
Warrants, which options and Class B Warrants will not become exercisable
within 60 days of the date of this Proxy Statement. See "Election of
Directors--Certain Relationships and Related Transactions--Other
Transactions."
(13) Amounts include (i) 29,988 shares of Common Stock owned directly by Mr.
Appel (10,000 of such shares are subject to vesting) and (ii) 38,501
shares subject to immediately exercisable options. "Fully-Diluted
Percentage" also includes 127,299 shares of Common Stock subject to stock
options that will not become exercisable within 60 days of the date of
this Proxy Statement.
(14) Amounts include (i) 29,988 shares of Common Stock owned directly by Mr.
Malvasio (10,000 of such shares are subject to vesting) and (ii) 38,501
shares subject to immediately exercisable options. "Fully-Diluted
Percentage" also includes 102,299 shares of Common Stock subject to stock
options that will not become exercisable within 60 days of the date of
this Proxy Statement.
(15) Amounts include 1,300 shares (in the case of Messrs. Friedman and Kelsey,
200 and 1,050 shares, respectively) of Common Stock subject to immediately
exercisable options. "Fully-Diluted Percentage" also includes 500 shares
(in the case of Mr. Friedman, 600 shares) of Common Stock subject to stock
options that will not become exercisable within 60 days of the date of
this Proxy Statement.
(16) Messrs. Esposito, Jr. and Heap disclaim beneficial ownership of shares of
Common Stock owned by XL.
9
<PAGE>
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 the 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 fiscal year 1998, except that one Director filed one report
late.
10
<PAGE>
Executive Compensation
The following table sets forth information regarding compensation paid to
the Company's executive officers (collectively, the "named executive officers")
by the Company and its subsidiaries for services rendered during fiscal years
1998, 1997 and 1996.
Summary Compensation Table(1)
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
-------------------------------------- -------------------------- -------
Securities
Name and Other Annual Restricted Underlying LTIP All Other
Principal Compensation Stock Award(s) Options Payouts Compensation
Position Year Salary($) Bonus($) ($) ($)(2) (#) ($) ($)(3)
- -------- ---- --------- -------- ------------ -------------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark D. Mosca.......... 1998 437,000 306,000 -- -- 66,300 -- 53,430
President, Chief 1997 420,000 510,000 -- -- 72,100 -- 50,815
Executive Officer and 1996 400,000 480,000 -- -- 74,000 -- 39,924
Director
Peter A. Appel......... 1998 302,000 210,000 -- -- 62,800 -- 35,596
Managing Director, 1997 261,000 245,000 -- -- 38,500 -- 30,675
General Counsel and 1996 250,000 232,500 -- -- 39,500 -- 23,939
Secretary
Bonnie L. Boccitto..... 1998 283,000 135,000 -- -- 37,800 -- 34,197
Former Managing 1997 261,000 245,000 42,788(4) -- 38,500 -- 31,647
Director 1996 250,000 232,500 -- -- 39,500 -- 24,839
Paul J. Malvasio....... 1998 301,000 185,000 -- -- 37,800 -- 37,437
Managing Director, 1997 286,000 245,000 -- -- 38,500 -- 35,777
Chief Financial Officer 1996 275,000 232,500 -- -- 39,500 -- 28,298
and Treasurer
</TABLE>
- ----------
(1) In accordance with SEC rules, information has been provided regarding
compensation paid or accrued to the President and all other individuals
who have served as executive officers of the Company.
(2) As of December 31, 1998, an aggregate of 70,000 unvested shares of
restricted stock, with an aggregate value of $1,522,500, were held by the
named executive officers as follows: (i) Mark D. Mosca--40,000 shares with
a value of $870,000; and (ii) each of Peter A. Appel, Bonnie L. Boccitto
and Paul J. Malvasio--10,000 shares with a value of $217,500. The shares
of restricted stock were issued in 1995 and vest in five equal annual
installments commencing on the first anniversary of each named executive
officer's employment date. An aggregate of 105,000 shares of restricted
stock vested to the named executive officers during 1996, 1997 and 1998.
In March 1999, Ms. Boccitto's 10,000 shares of restricted stock vested to
her upon the termination of her employment. See "--Executive
Compensation--Employment Agreements and Termination of Employment
Arrangements." During the vesting period, any cash dividends will be paid
on 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.
(3) Includes: (i) matching contributions by the Company under its Employee
Savings Plan, a 401(k) Plan, in the amounts of $7,200, $7,125 and $6,750
during 1998, 1997 and 1996, respectively, for each of Mr. Mosca, Mr.
Appel, Ms. Boccitto and Mr. Malvasio; (ii) pension contributions by the
Company under its Money Purchase Pension Plan in the following amounts for
1998, 1997 and 1996, respectively: (A) $10,064, $10,184 and $9,492 for Mr.
Mosca, (B) $10,064, $10,184 and $9,159 for each of Mr. Appel and Ms.
Boccitto, and (C) $10,064, $10,184 and $9,409 for Mr. Malvasio; (iii)
contributions by
11
<PAGE>
the Company under its Executive Supplemental Non-Qualified Savings and
Retirement Plan in the following amounts for 1998, 1997 and 1996,
respectively: (A) $34,600, $32,588 and $22,917 for Mr. Mosca, (B) $17,738,
$12,772 and $7,625 for Mr. Appel, (C) $15,367, $12,772 and $7,625 for Ms.
Boccitto, and (D) $17,581, $15,876 and $9,979 for Mr. Malvasio; and (iv)
term life insurance premiums paid by the Company in the following amounts
for 1998, 1997 and 1996, respectively: (A) $1,566, $918 and $765 for Mr.
Mosca, (B) $594, $594 and $405 for Mr. Appel, (C) $1,566, $1,566 and
$1,305 for Ms. Boccitto, and (D) $2,592, $2,592 and $2,160 for Mr.
Malvasio.
(4) Amount represents reimbursement of $23,983 in relocation expenses and
$18,805 in income taxes payable in connection therewith.
12
<PAGE>
The following table sets forth information regarding grants of stock
options made during fiscal year 1998 to each of the named executive officers.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation
Individual Grants For Option Term (3)
---------------------------------------------------------- -----------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise or
Granted Fiscal Base Price Expiration
Name (#)(1)(2) Year(2) ($/Sh) Date 5% 10%
---- ---------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark D. Mosca........... 66,300 18.6% $22.44 (1) $940,953 $2,403,694
Peter A. Appel.......... 62,800 17.6 $22.44 (1) 891,259 2,276,677
Bonnie L. Boccitto...... 37,800 10.6 $22.44 (1) 420,098 1,014,950
Paul J. Malvasio........ 37,800 10.6 $22.44 (1) 536,304 1,369,416
</TABLE>
- ----------
(1) All options were granted pursuant to the 1995 Stock Plan. For each named
executive officer, the award is comprised of (i) an incentive stock option
("ISO") to purchase 4,456 shares of Common Stock and (ii) a non-qualified
stock option ("NQSO") to purchase the balance of the shares of Common
Stock shown next to the officer's name. Each such option will vest in five
equal annual installments commencing on November 17, 1999, except that Ms
Boccitto's stock options vested to her upon the termination of her
employment in March 1999. See "--Executive Compensation--Employment
Agreements and Termination of Employment Arrangements." Each NQSO will
expire seven years from the date of vesting, and each ISO will expire 10
years from the date of grant (i.e., November 17, 2008).
(2) Pursuant to applicable SEC rules, percentages listed are based on options
to purchase a total of 357,300 shares of Common Stock granted to employees
during fiscal year 1998. Calculations do not include options to purchase
an aggregate of 53,025 shares of Common Stock granted to the Non-Employee
Directors in fiscal year 1998 pursuant to the 1995 Stock Plan.
(3) 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 estimates or projections of future stock prices.
13
<PAGE>
The following table provides information regarding the number and value of
options held by each named executive officer as of December 31, 1998. No options
were exercised by any named executive officer during fiscal year 1998.
Aggregated 1998 Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money
December 31, 1998 Options at December 31, 1998(1)
--------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark D. Mosca............... 104,021 208,379 $227,100 $253,150
Peter A. Appel.............. 38,501 127,299 76,425 105,263
Bonnie L. Boccitto.......... 38,501 102,299 72,675 102,763
Paul J. Malvasio............ 38,501 102,299 91,425 115,263
</TABLE>
- ----------
(1) For purposes of the above table, options are "in-the-money" if the market
price of the Common Stock on December 31, 1998 (i.e., $21.75) exceeded the
exercise price of such options. The value of such options is calculated by
determining the difference between the aggregate market price of the
Common Stock subject to the options on December 31, 1998 and the aggregate
exercise price of such options. The stock options of Ms. Boccitto
identified above as "unexercisable" vested to her and became exercisable
upon termination of her employment in March 1999. See "--Executive
Compensation--Employment Agreements and Termination of Employment
Arrangements."
Employment Agreements 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 and Chief Executive
Officer of both the Company and Risk Capital Reinsurance. The term of employment
will initially expire in September 2000, subject to automatic extensions
thereafter for successive one-year periods. Mr. Mosca's annual base salary, as
established under the Employment Agreement, was $437,000 for 1998 and is subject
to review annually for increase at the discretion of the Compensation Committee.
The Employment Agreement also provides for the payment to Mr. Mosca of an annual
bonus of at least $250,000 to be determined annually by the Compensation
Committee. In addition, Mr. Mosca is 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.
Pursuant to the Employment Agreement, Mr. Mosca was also granted 100,000
restricted shares of Common Stock and an option to purchase 100,000 shares of
Common Stock at an exercise price per share of $20.00 (i.e., the initial public
offering price). One-fifth of the restricted shares and one-fifth of the options
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 the vesting of the restricted
shares.
Mr. Mosca agreed to refrain from competing with the Company during the
term of his employment and for a period of 12 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
at a combined rate of $650,000
14
<PAGE>
per annum. In addition, during the term of his employment and for a period of 24
months thereafter, Mr. Mosca has 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 Mr. Mosca's 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 agreements may be
terminated by either party upon notice at any time. The agreements currently
provide for annual base salaries to Peter Appel of $375,000 and Paul Malvasio of
$310,000. 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 also
provide that the target rate for the annual cash bonus for each executive will
be 75% of the executive's annual base salary.
In addition, the agreements 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 such executive an amount equal to
his or her base salary and continue to pay all such executive's employee
benefits for a period of 12 months following termination, subject to reduction
for compensation received by such executive in any other employment. In the
event of termination without cause, the agreements also 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 March 1999, Bonnie Boccitto's employment as a Managing Director of both
the Company and Risk Capital Reinsurance and Chief Underwriting Officer of Risk
Capital Reinsurance was terminated. Upon such termination, Ms. Boccitto received
a payment of $250,000, and she will also continue to receive her annual base
salary of $310,000 per annum through April 1, 2000. Medical and dental coverage
will also remain in effect for Ms. Boccitto and her covered dependents for such
period or until she secures alternate employment, if earlier. In addition, as of
the termination date, 10,000 shares of restricted stock vested to Ms. Boccitto
and options to purchase 102,299 shares of Common Stock became exercisable in
full by her.
Change in Control Arrangements
The Board of Directors adopted certain change in control and severance
arrangements for the employees of the Company in November 1996, and approved
certain amendments thereto in February 1999 (the "Change in Control
Arrangements"), 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 focus more
effectively 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 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, and are
outweighed by the resultant advantages to the Company and its stockholders. The
Compensation Committee and the Board of Directors retained the services of an
independent compensation consultant in connection with the review and
consideration of the Change in Control Arrangements.
Immediately upon a change in control (as defined below), all unvested
stock options and shares of restricted stock held by the officers and other
employees of the Company and the Chairman of the Board of Directors 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
15
<PAGE>
occur: (i) the President, such Managing Director or such Senior Vice President
would receive, in one lump sum payment, an amount equal to 2.99, 2.25 and 2.0,
respectively, times his/her annual base salary and bonus (with bonus being equal
to notional target amount of 100% of current annual base salary, in the case of
the President, and the current year target amount, in the case of Managing
Directors and Senior Vice Presidents), provided that any such payment would not
exceed an amount that would trigger the payment of excise taxes. 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 payable under any
other severance plan or agreement of the Company; (ii) such Senior Officer would
receive a bonus for the year in which the change in control occurred, payable on
a pro rata basis, equal to notional target amount of 100% of current annual base
salary, in the case of the President, and the current year target amount, in the
case of the other Senior Officers; and (iii) such Senior Officer would continue
to receive all health care, dental, disability and group term and other life
insurance benefits for (A) a 36-month period, in the case of the President, a
27-month period, in the case of a Managing Director, and a 24-month period, in
the case of a Senior Vice President, or (B) in any case, until comparable
benefits (with no pre-existing condition limitations) are received from a new
employer, whichever is earlier. The statutorily required 18-month period of
COBRA health benefits that terminated employees may elect to continue would
commence at the end of the applicable 36, 27 or 24-month period during which
benefits would be continued. 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 (x) 12 months following a change in control, in the case of officers, and
(y) six months following a change in control, in the case of non-officers, the
following would occur: (i) Vice Presidents, officers below the level of Vice
President and non-officers would receive, in monthly installments, an amount
equal to 1.5, 1.0 and 0.5, respectively, times his/her annual base salary and
bonus (with bonus being equal to the current year target amount), provided that
such employee would have a duty to mitigate such payments by seeking new
employment and that any such payment would be in lieu of any severance benefit
payable under any other severance plan or agreement of the Company; (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) an 18-month period, in the case
of Vice Presidents, a 12-month period, in the case of officers below the level
of Vice President, and a six-month period, in the case of non-officers, or (B)
in any case, 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.
Employees who agree to the Change in Control Arrangements are subject to
provisions regarding non-solicitation of employees and customers for a period of
one year following termination of employment (except for Mr. Mosca, who is
subject to the non-competition and non-solicitation provisions included in his
Employment Agreement as described above). In addition, all such employees are
subject to provisions regarding non-disclosure of confidential and proprietary
information. All such non-solicitation and non-disclosure provisions apply
whether or not a change in control has occurred.
A "change in control" would be triggered by any of the following: (i) a
third party, other than XL, 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 incumbent directors (or their
Board approved successors) cease to constitute a majority of the Board of
Directors; (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
16
<PAGE>
(v) the Board of Directors resolves that a change in control has occurred.
"Constructive termination" would mean the occurrence, with respect to any
officer, of any of the following: (i) the assignment of duties and
responsibilities inconsistent in any material and adverse respect with such
officer's position or a significant diminution in his/her duties or
responsibilities; provided, however, that "constructive termination" will not be
deemed to occur upon a change in duties or responsibilities that is solely and
directly a result of the Company no longer being a publicly traded entity, and
does not involve any other event set forth in this definition; (ii) a reduction
in such officer's base salary or bonus opportunity; (iii) the requirement that
such officer work at a location outside of Fairfield County, Connecticut or
Westchester County, New York; (iv) the failure to provide such officer with
benefits and incentive compensation opportunities at least as favorable, in the
aggregate, as the benefits and incentive compensation opportunities available to
such officer 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
above.
Employee Benefits Plans
1995 Long Term Incentive and Share Award Plan
In 1995, the Company adopted the 1995 Stock Plan, which is designed to
provide incentives to attract, retain and motivate employees and Directors in
order to achieve the Company's long-term growth and profitability objectives.
The 1995 Stock Plan provides for the grant to eligible employees and Directors
of stock options, stock appreciation rights, restricted stock, restricted stock
units payable in shares of Common Stock or cash, stock awards in lieu of cash
awards, dividend equivalents and other stock-based awards. An aggregate of
1,700,000 shares of Common Stock have been reserved for issuance under the 1995
Stock Plan, of which 1,659,195 shares have been awarded as restricted shares or
are subject to outstanding stock options. See "Approval of the Risk Capital
Holdings, Inc. 1999 Long Term Incentive and Share Award Plan" for a description
of a proposed new stock incentive plan that is being submitted for stockholder
approval at the Annual Meeting.
Employee Stock Purchase Plan
The Company has adopted its 1995 Employee Stock Purchase Plan (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 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. The Purchase Plan has a term of 10
years. An aggregate of 120,000 shares of Common Stock have 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
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 Common Stock at the beginning or end of an Offering Period,
whichever is less. The maximum number of shares of Common Stock 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 Plans
Effective 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. Effective
January 1, 1996, the Company also adopted a money purchase
17
<PAGE>
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
1998, set at $68,400) and (ii) 8% of eligible compensation in excess of the
Taxable Wage Base up to the applicable compensation limit (the "Compensation
Limit") imposed by Section 401(a)(17) of the Code (for 1998, set at $160,000).
In addition, effective January 1, 1996, the Company 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 the Compensation
Limit. Under the Executive Supplemental Plan, participants may also defer
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
Stephen Friedman. 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 serves as an executive officer. Mr. Clements is a member of
the Compensation Committee of XL.
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. The Compensation
Committee, in collaboration with executive management of the Company, has
developed a compensation approach responsive to the short-term and long-term
considerations described below. An independent compensation consultant has been
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 believe 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 stockholders and building a strong company identification through
employee stock 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.
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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 structure is consistent with its
compensation philosophy. Base salary increases are based on individual and
corporate performance and reflect market and cost of living increases.
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 that is 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 if 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. Determination of the bonus pool is based on an evaluation of the
Company's performance relative to the strategic and financial objectives
contained in the Company's annual management plan, which has been approved by
the Board of Directors, as well as the achievement of qualitative objectives
which also produce value to the stockholders. Performance criteria include
underwriting performance, premium level, public and private investment
performance, composite ratio, expense ratio, development of the management team
and strategic steps and other subjective measurements of progress. There is no
predetermined weight given to each criterion. Rather, the Compensation
Committee's evaluation involves a subjective balancing of the various measures
of success.
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. The Company's stock-based compensation is
designed to align the interests of executives and stockholders 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,
which comprise a significant portion of executive compensation, are dependent
upon the Company's overall results and how the Company is perceived by its
stockholders 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 are reviewed and
determined each year by the Compensation Committee. Grants of stock-based
compensation are determined on the basis of a number of factors, including (i)
competitive total compensation and long-term incentive grant levels as
determined in the market, (ii) the Company's stock ownership objectives and
(iii) both corporate and individual performance.
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Awards granted to the named executive officers during 1998 are summarized
under the captions "Option Grants in Last Fiscal Year" and "Summary Compensation
Table" above. As noted above, the Compensation Committee determined to grant a
portion of each such award in the form of an ISO. ISOs provide an employee more
favorable tax treatment than NQSOS if the employee retains the shares received
upon exercise of ISOs for certain prescribed holding periods. The Compensation
Committee believes that granting ISOs will encourage the officers to continue to
hold the shares received upon exercise of the options and will thereby create
additional incentives for such officers to further the growth, development and
success of the Company.
CEO Compensation
Effective January 1, 1998, the annual base salary of Mr. Mosca, the
Company's President and Chief Executive Officer, was increased by $17,000, or
approximately 4%, from its previous level of $420,000. As part of the Company's
annual bonus plan, Mr. Mosca received an annual cash bonus of $306,000. His
Employment Agreement provides for annual reviews for base salary increases and
annual bonuses of not less than $250,000. In 1998, Mr. Mosca also received
options to purchase 66,300 shares of Common Stock, subject to five-year vesting
under the 1995 Stock Plan. The Compensation Committee believes that stock-based
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 quantitative and qualitative
criteria described above are applied, and specific consideration is given to the
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. See "--Executive Compensation--Employment Agreements and
Termination of Employment Arrangements."
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Code generally limits the deductible amount of
annual compensation paid to the corporation's chief executive officer and four
other most highly compensated executive officers to no more than $1,000,000
each. However, qualified performance-based compensation and compensation
pursuant to plans in existence prior to the Offering will be excluded from the
$1,000,000 limitation on deductibility. All compensation paid by the Company
during 1998 was fully deductible for federal income tax purposes. 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 1999. 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
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
Stephen Friedman
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Performance Graph
The following graph compares the Company's cumulative total stockholder
return on its Common Stock to 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, 1998.
The stock price performance presented below is not necessarily indicative of
future results.
The Peer Group consists of the following domestic broker-market
reinsurance companies, each of which has more than $250,000,000 of total capital
and surplus measured on the basis of statutory accounting principles: Chartwell
Re Corporation, Everest Reinsurance Holdings, Inc., NAC Re Corporation,
Transatlantic Holdings, Inc. and Trenwick Group Inc.
Risk Capital Holdings, Inc.
Cumulative Total Stockholder Return(1)(2)
[GRAPHIC OMITTED]
9/13/95 12/31/95 12/31/96 12/31/97 12/31/98
Risk Capital Holdings, Inc. $100.00 $116.90 $96.88 $111.25 $108.75
S&P 300 Index $100.00 $107.05 $131.63 $175.55 $225.72
Peer Group $100.00 $105.07 $115.32 $158.64 $155.40
- ----------
(1) Stock price appreciation plus dividends.
(2) The initial public offering price for the Common Stock was $20.00 as
determined on September 13, 1995. The above graph assumes that the value
of the investment was $100 on such date. The closing price for the Common
Stock on December 31, 1998 was $21.75.
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Certain Relationships and Related Transactions
Equity Advisory Agreement
Upon completion of the Offering, the Company entered into an equity
investment advisory agreement (the "Equity Advisory Agreement") with MMCI.
Subject to investment guidelines determined by the Investment Committee from
time to time (the "Investment Guidelines"), MMCI has the authority, among other
things, to manage the Company's equity investment portfolio. The Equity Advisory
Agreement provides that, subject to 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 MMCI.
The Company may, however, make strategic investments without the approval of
MMCI. Strategic investments are generally acquisitions (not being made for
resale) of securities of companies engaged in the reinsurance business or other
businesses, provided that the Company obtains control of such companies.
Fees
Under the Equity Advisory Agreement, MMCI 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, the Company pays an annual
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, the Company pays an aggregate fee,
payable quarterly in arrears, equal to (i) 1.5% per annum on the first
$250,000,000 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 $250,000,000,
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, MMCI receives
annual compensation equal to the excess, if any, of (x) 7.5% of cumulative net
realized gains (as defined in the Equity Advisory Agreement) on equity
securities in the Private Portfolio over (y) cumulative incentive compensation
previously paid in prior years to MMCI in accordance with this sentence ("annual
Private Portfolio compensation"). If requested by MMCI, at the option of the
Investment Committee, compensation may be payable, from time to time, in equity
securities of the Company. In fiscal year 1998, fees incurred under the Equity
Advisory Agreement were approximately $2,700,000.
The Company has agreed to reimburse MMCI for certain of its expenses in
connection with services to be provided under the Equity Advisory Agreement and
indemnify MMCI 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 MMCI 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
MMCI and approved by the Investment 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 the preceding
clauses (i) and (ii)).
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Term, Termination and Amendments
The Equity Advisory 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 Equity Advisory 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 MMCI and a successor to Mr. Clements (approved by
the Company) has not been appointed by MMCI. Subject to certain exceptions, upon
termination, MMCI's incentive compensation with respect to securities in the
Private Portfolio purchased while it was investment advisor will continue (and
MMCI 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 Advisory 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 MMCI'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 then be subject to a valuation
procedure. The Equity Advisory Agreement may not be amended, or any terms
thereof waived, without the consent of the Investment Committee.
Limitations of Trident Partnership Agreement
MMCI also serves as investment manager to Trident, an insurance industry
private equity fund and, accordingly, certain restrictions exist with respect to
MMCI'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
MMCI 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 $10,000,000.
In addition, under Trident's investment advisory agreement with MMCI,
Trident cannot make an investment unless such investment has been recommended to
Trident by MMCI 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 $50,000,000 the right to participate in such additional
investment on a pro rata basis. Pursuant to the terms of the Equity Advisory
Agreement, MMCI 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 Advisory Agreement, MMCI has agreed
that (except for investment opportunities required to be first made available to
Trident and/or a successor fund or funds to Trident), unless the Company is
first offered a reasonable opportunity to make an investment therein, MMCI will
not (i) organize any new risk assumption entity involving the solicitation by
MMCI of capital (except such entities which are to be operated in connection
with the business of affiliates of MMCI), (ii) invest for the account of MMCI 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 MMCI. 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 MMCI,
(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
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<PAGE>
compensation attributable to investments made by the Company is for the account
of the Company, (iv) made by MMCI 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 MMCI or its immediate parent or pursuant to offers made
to either such entity as a securityholder 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 Advisory
Agreement, the restrictions described in the first sentence of this paragraph
and in the following paragraph will terminate.
Pursuant to the terms of the Equity Advisory Agreement, MMCI has agreed
not to close a successor fund or funds to Trident until MMCI 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 $150,000,000 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 MMCI is the Company's equity investment advisor, it has agreed not to close a
successor fund to Trident unless the Company is given the opportunity to invest
in such successor fund.
Fixed Income Advisory Agreement
Upon completion of the Offering, the Company entered into a fixed income
investment advisory agreement (the "Fixed Income Advisory Agreement") with The
Putnam Advisory Company, Inc. ("Putnam"), an affiliate of MMCI. Subject to the
Investment Guidelines, Putnam has the authority, among other things, to manage
the Company's fixed income and short-term cash portfolios. The Fixed Income
Investment Agreement is subject to termination by either party upon 30 days'
written notice.
Pursuant to the Fixed Income Advisory Agreement, maximum fees charged by
Putnam (other than for custodial services) in the aggregate, based on the market
value of assets included in the Company's fixed income portfolio, are at the
following rates: 0.35% per annum on the first $50,000,000, 0.30% per annum on
the next $50,000,000, 0.20% per annum on the next $100,000,000 and 0.15% per
annum on the market value of assets that exceeds $200,000,000. For the
short-term cash portfolio, the Company pays a fee equal to 0.15% per annum of
the total monthly average market value of such portfolio. In fiscal year 1998,
fees incurred under the Fixed Income Advisory Agreement were approximately
$461,000.
Other Transactions
Commencing in 1996, the Company subleased office space to MMCI for a term
expiring in October 2002. Future minimum rental income under the remaining term
of the sublease, exclusive of escalation clauses and maintenance costs, will be
approximately $1,648,000. Rental income for 1998 was $430,000. In 1998, MMCI
also reimbursed the Company approximately $11,000 (net of $89,000 of certain
sublease income allocated to MMCI) for MMCI's pro rata share of costs for
improvements and maintenance under the sublease.
Pursuant to agreements among Robert Clements, MMCI and MMRCH, and in
recognition of services provided by Mr. Clements to MMCI, the Company's equity
investment advisor, MMRCH transferred to Mr. Clements Class A Warrants to
purchase 200,000 shares of Common Stock in September 1996 and Class B Warrants
to purchase 150,000 shares of Common Stock in June 1998. The rights to certain
of these warrants were subsequently transferred by Mr. Clements to members of
his family. These arrangements also provide that Mr. Clements will receive a
performance payment in an amount of up to $1,500,000 from MMCI if revenues
received by MMCI in the year 2000 from fees generated by the Equity Advisory
Agreement reach certain levels. See "Election of Directors--Directors and
Executive Officers" and "--Certain Relationships and Related
Transactions--Equity Advisory Agreement."
Lewis L. Glucksman is an Advisory Director and former Vice Chairman of
Salomon Smith Barney Holdings Inc., which served as lead underwriter for the
Offering and performs investment banking services for the Company from time to
time.
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The Company has engaged and may continue to engage, in the ordinary course
of its business, in insurance, investment or other transactions with XL and its
subsidiaries and/or subsidiaries of Marsh & McLennan Companies, Inc.
(collectively, "Marsh") or companies in which Marsh has equity or other
interests, including MMCI and Trident. MMCI 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. The Company believes that the terms of
such transactions, including those described below, are no less favorable to the
Company than could have been obtained from third parties that were not
affiliated with the Company.
In April 1998, the Company acquired for approximately $20 million a
minority ownership interest in Annuity and Life Re (Holdings), Ltd., a new
Bermuda-based reinsurance company formed to provide annuity and life
reinsurance. The Company's investment was made concurrently with an investment
by XL and the consummation of the issuer's initial public offering.
In November 1997, XL and the Company formed Latin American Reinsurance
Company, Ltd., a new reinsurer specializing in the Latin American reinsurance
market. The reinsurer, headquartered in Bermuda, was capitalized with
approximately $100 million, of which XL and the Company contributed
approximately $75 million and $25 million, respectively.
In July 1997, XL, the Company and another investor formed Sovereign Risk
Insurance Ltd., a managing general agency in Bermuda to provide underwriting
services to the three investors for political risk insurance coverage.
In two separate and unrelated transactions in December 1997, the Company
and XL each acquired minority ownership interests in American Strategic
Insurance Corp. and Sunshine State Insurance Company, two newly-formed
Florida-based insurers. Each of the Company and XL invested an aggregate of
approximately $3,800,000 in these two issuers. In connection with these
investments, the Company and XL will provide the issuers with reinsurance during
specified periods.
In 1998, the Company assumed net premiums written and net premiums earned
of approximately $3.3 million and $3.4 million, respectively, from an affiliate
of XL. In addition, the Company assumed net premiums written and net premiums
earned of approximately $18,500,000 and $20,700,000, respectively, from
insurance companies that are majority-owned by Trident. At December 31, 1998,
the Company owned common stock of XL with an estimated fair value and carrying
value of $29,250,000.
Affiliates of Marsh 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 1998 were approximately $23.1 million. In
addition, affiliates of Marsh are authorized insurance brokers of the Company
for its corporate insurance needs.
In March 1998, the Company acquired for approximately $2.8 million a
minority ownership interest in Arbor Acquisition Corp., a Boston-based national
surplus lines and wholesale brokerage firm. The Company's investment was made
concurrently with a minority investment by Marsh. In September 1998, the Company
invested an additional $845,000 in the issuer.
In July 1997, the Company acquired a minority ownership interest in The
ARC Group, LLC, a wholesaler of specialty insurance for approximately $9.5
million. The Company's investment was made concurrently with a minority
investment by Marsh.
In March 1998, the Company purchased for $10 million a minority ownership
interest in Altus Holdings, Ltd., a new Cayman Islands company formed to provide
rent-a-captive and other underwriting management services. The balance of the
$35 million of capital was contributed by Trident, XL, MMRCH and members of the
issuer's management. The stockholders provided their capital through a
combination of cash
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and unfunded commitments supported by letters of credit. The Company provided,
for a fee and on behalf of Trident, the letter of credit supporting Trident's
unfunded obligation.
In February 1997, the Company acquired for approximately $6.5 million a
minority ownership interest in First American Financial Corporation, a
Missouri-based company which underwrites specialty vehicle property and casualty
coverages. In June 1998, the Company invested an additional $3.8 million in the
company, which investment was made in connection with the purchase by Trident of
an approximately 62% interest in the issuer.
In December 1997, the Company acquired a minority ownership interest in
GuideStar Health Systems, Inc., an Alabama-based managed care organization for
approximately $1,000,000. The Company's investment was made concurrently with an
investment by Trident.
In April 1996, the Company acquired an ownership interest in Venton
Holdings, Ltd., a Bermuda-based holding company which owns a managing agency and
a corporate capital vehicle at Lloyd's, London. In December 1997, the Company
increased its total cash investment in such holding company from $1,100,000 to
$4,400,000, and increased its capital contribution commitment from $8.7 million
to $13.3 million. The Company had co-invested in such holding company with
Trident and a subsidiary of XL. In October 1998, the Company sold its interest
in the holding company to an independent third party.
Designation of Directors
In connection with the Offering, and subject to certain conditions, the
Company has agreed to allow (i) 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, (ii) XL to designate (and the Company has agreed to use its best
efforts to cause to be elected) two Directors to the Board of Directors, and
(iii) 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. Messrs. Clements
and Wroughton are MMRCH's designees, Messrs. Heap and Esposito, Jr. are XL's
designees and Mr. Friedman is Trident's designee.
Registration Rights
In connection with the Offering and subject to certain limitations, the
Company granted each of Trident, MMRCH, Taracay and XL (the "Investors") the
right to require the Company to register under the Securities Act its warrants,
shares of Common Stock and shares of Common Stock underlying the warrants
(collectively, "Registrable Securities"). In addition, whenever the Company
proposes to register under the Securities Act any of its securities for its own
account or for the account of another securityholder, 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 of Common Stock 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.
Pursuant to a registration request by Trident under the foregoing rights,
the Company registered for sale by Trident 1,750,000 shares of Common Stock
owned by Trident under a shelf registration statement which was declared
effective by the SEC in September 1997. As of the date of this Proxy Statement,
Trident had sold 1,500,000 of shares of Common Stock pursuant to such
registration statement, and continues to own 250,000 shares of Common Stock and
Class A Warrants to purchase 1,386,079 shares of Common Stock.
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2. APPROVAL OF THE RISK CAPITAL HOLDINGS, INC.
1999 LONG TERM INCENTIVE AND SHARE AWARD PLAN
The Board of Directors Recommends a Vote
"FOR" the Approval of the Risk Capital Holdings, Inc.
1999 Long Term Incentive and Share Award Plan
In 1995, the Company's stockholders approved the 1995 Stock Plan under
which the Compensation Committee and the Board of Directors have awarded
stock-based awards to the employees and Directors of the Company. Of the
1,700,000 shares of Common Stock reserved for issuance pursuant to the 1995
Stock Plan, an aggregate of 1,659,195 shares have been awarded as restricted
shares or are subject to outstanding stock options. Since the stock
authorization under the 1995 Stock Plan is nearly depleted, which is due
primarily to greater than anticipated hiring, the Compensation Committee and the
Board of Directors have adopted the Risk Capital Holdings, Inc. 1999 Long Term
Incentive and Share Award Plan (the "1999 Plan"), subject to stockholder
approval. The Compensation Committee and the Board of Directors retained an
independent compensation consultant in its review and consideration of the 1999
Plan.
The stockholders are now requested to approve the adoption of the 1999
Plan. The following summary of the 1999 Plan is qualified in its entirety by
express reference to the 1999 Plan, which is attached as Appendix A to this
Proxy Statement.
General
The 1999 Plan, like its predecessor, is intended to provide incentives to
attract, retain and motivate employees and Directors in order to achieve the
Company's long-term growth and profitability objectives. The 1999 Plan will
provide for the grant to eligible employees and Directors of stock options,
stock appreciation rights, 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 1999 Plan will also
provide the Non-Employee Directors with the opportunity to receive the annual
Board retainer fee in shares of Common Stock. An aggregate of 900,000 shares of
Common Stock has been reserved for issuance under the 1999 Plan (of which no
more than 300,000 of such shares may be issued pursuant to grants of restricted
shares, restricted share units, performance shares and performance units),
subject to anti-dilution adjustments in the event of certain changes in the
Company's capital structure. See "--Capital Structure Changes." Shares issued
pursuant to the 1999 Plan will be either authorized but unissued shares or
treasury shares.
Eligibility and Administration
Officers, other employees and directors 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 will be eligible to
be granted Awards under the 1999 Plan. The 1999 Plan will be administered by the
Compensation Committee or such other committee of the Board of Directors (or the
entire Board) as may be designated by the Board (the "Committee"). The Committee
will determine which eligible employees and directors receive Awards, the types
of Awards to be received and the terms and conditions thereof. The Committee
will have authority to waive conditions relating to an Award or accelerate
vesting of Awards. The 1999 Plan, like its predecessor, will also provide for
certain non-discretionary grants to Non-Employee Directors. In addition, the
1999 Plan will provide for the payment of all or a portion of the annual
retainer fee for Non-Employee Directors in stock or cash. Approximately 40
employees and seven Non-Employee Directors are currently eligible to participate
in the 1999 Plan.
The Committee will be permitted to delegate to officers of the Company the
authority to perform administrative functions for the 1999 Plan and, with
respect to Awards granted to persons not subject to Section 16 of the Exchange
Act, to perform such other functions as the Committee may determine to the
extent permitted under Rule 16b-3 of the Exchange Act and applicable law.
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Awards
Incentive stock options intended to qualify for special tax treatment in
accordance with the Code and non-qualified stock options not intended to qualify
for special tax treatment under the Code may be granted for such number of
shares of Common Stock as the Committee determines. The Committee will be
authorized to set the terms relating to an option, including exercise price and
the time and method of exercise. The terms of incentive stock options will
comply with the provisions of Section 422 of the Code. Awards may be granted
alone, in tandem with or in exchange for any other Award. The 1999 Plan
specifically provides that outstanding options cannot be repriced.
A share appreciation right ("SAR") will entitle the holder thereof to
receive with respect to each share subject thereto, an amount equal to the
excess of the fair market value of one share of Common Stock on the date of
exercise (or, if the Committee so determines, at any time during a specified
period before or after the date of exercise) over the exercise price of the SAR
set by the Committee as of the date of grant. Payment with respect to SARs may
be made in cash or shares of Common Stock as determined by the Committee.
During a calendar year, the maximum number of shares of Common Stock with
respect to which options and SARs may be granted to an eligible participant
under the 1999 Plan will be 500,000 shares.
Awards of restricted shares will be subject to such restrictions on
transferability and other restrictions, if any, as the Committee may impose.
Such restrictions will lapse under circumstances as the Committee may determine,
including upon the achievement of performance criteria referred to below. Except
as otherwise determined by the Committee, eligible employees granted restricted
shares will have all of the rights of a stockholder, including the right to vote
restricted shares and receive dividends thereon, and unvested restricted shares
will be forfeited upon termination of employment during any applicable
restriction period.
A restricted share unit will entitle the holder thereof to receive shares
of Common Stock or cash at the end of a specified deferral period. Restricted
share units will also be subject to such restrictions as the Committee may
impose. Such restrictions will lapse under circumstances as the Committee may
determine, including upon the achievement of performance criteria referred to
below. Except as otherwise determined by the Committee, restricted share units
subject to deferral or restriction will be forfeited upon termination of
employment during any applicable deferral or restriction period.
Performance shares and performance units will provide for future issuance
of shares or payment of cash, respectively, to the recipient upon the attainment
of corporate performance goals established by the Committee over specified
performance periods. Except as otherwise determined by the Committee,
performance shares and performance units will be forfeited upon termination of
employment during any applicable performance period.
Performance objectives may vary from employee to employee and will be
based upon such one or more performance criteria as the Committee may deem
appropriate, including: growth in book, economic book and/or intrinsic book
value; appreciation in value of the Common Stock; total stockholder return;
earnings per share; comprehensive income; operating income; net income; pro
forma net income; return on equity; return on designated assets; return on
capital; economic value added; earnings; revenues; expenses; operating profit
margin; operating cash flow; and net profit margin. The Committee may revise
performance objectives if significant events occur during the performance period
which the Committee expects to have a substantial effect on such objectives.
During a calendar year, the maximum number of shares of Common Stock with
respect to which restricted shares, restricted share units, performance shares
and performance units intended to qualify as performance-based compensation
within the meaning of Section 162(m)(4)(C) of the Code to an eligible
participant under the 1999 Plan will be the equivalent of 175,000 shares.
Dividend equivalents granted under the 1999 Plan will entitle the holder
thereof to receive cash, shares of Common Stock or other property equal in value
to dividends paid with respect to a specified number of shares of Common Stock.
Dividend equivalents may be awarded on a free-standing basis or in connection
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<PAGE>
with another Award, and may be paid currently or on a deferred basis. The
Committee is also authorized, subject to limitations under applicable law, to
grant such other Awards that may be denominated in, valued in, or otherwise
based on, shares of Common Stock, as deemed by the Committee to be consistent
with the purposes of the 1999 Plan.
Automatic Grant of Options to Non-Employee Directors
In addition to permitting discretionary grants to Directors, the 1999 Plan
will also provide for certain automatic grants of stock options to Non-Employee
Directors. On the date any individual first becomes a Non-Employee Director,
such individual will automatically be granted an option to purchase 300 shares
of Common Stock with an exercise price per share equal to the market price per
share on the date of grant. Each such option will become exercisable in three
equal installments, commencing on the date of grant and annually thereafter, and
will expire on the tenth anniversary of the date of grant. In addition, as of
January 1 of each year, each Non-Employee Director then in office will
automatically be granted an option to purchase 1,500 shares of Common Stock with
an exercise price per share equal to the market price per share on the date of
grant. Each such option will become fully exercisable on the first anniversary
of the date of grant and will expire on the tenth anniversary of the date of
grant. The exercise price of a Non-Employee Director's option may be paid to the
Company at the time of exercise either in cash, or in shares already owned by
the Director and having a total market value equal to the exercise price, or in
a combination of cash and such shares.
If an individual ceases to be a Non-Employee Director (i) due to
retirement after attainment of age 65 or (ii) due to death or disability, all of
his or her outstanding options, to the extent not already exercisable in full,
will become immediately and fully exercisable at the time of termination of
service, and all of such Director's options may be exercised at any time prior
to the expiration dates of such options. If such Director's service terminates
for any other reason, all options which are not then exercisable will be
canceled on the date service terminates, and options which are then exercisable
may be exercised at any time within six months after the date of such
termination, but not later than the expiration date of the options.
Payment of Board Retainer Fees in Stock or Cash
The 1999 Plan will permit each Non-Employee Director, at his or her
option, to receive the annual retainer fee in the form of shares of Common Stock
instead of cash. Any shares so elected will be payable at the time cash retainer
fees are otherwise payable to Non-Employee Directors, and the number of shares
distributed will be equal to 120% of the amount of the annual retainer fee
otherwise payable on such payment date divided by the fair market value of a
share of Common Stock on such date. Currently, each Non-Employee Director
receives an annual cash retainer fee in the amount of $25,000. See "Election of
Directors--Directors and Executive Officers--Compensation of Directors."
Nontransferability
Awards (except for vested shares) will generally not be transferable by
the participant other than by will or the laws of descent and distribution and
will be exercisable during the lifetime of the participant only by such
participant or his or her guardian or legal representative, provided that, if
the Committee expressly so provides, an Award (other than incentive stock
options) 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.
Capital Structure Changes
With respect to Non-Employee Director options, in the event that any
dividend in shares, recapitalization, share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other such change (a "Capital Structure Change"), affects the
Common Stock such that outstanding shares are increased or decreased or changed
into or exchanged for a different number or kind of shares, other securities of
the Company or another corporation or other consideration, then in order to
maintain the proportionate interest of the Non-Employee Directors and preserve
the value of such Directors' options, (i) there will automatically be
substituted for each share subject to an unexercised Non-Employee Director's
option and each share to be issued to such Directors under the 1999 Plan
subsequent to such event,
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the number and kind of shares, other securities or other consideration into
which each outstanding share will be changed or for which each such share will
be exchanged, and (ii) the exercise price will be increased or decreased
proportionately so that the aggregate purchase price for the shares subject to
any unexercised Non-Employee Director's option will remain the same as
immediately prior to such event.
If the Committee determines that any Capital Structure Change or other
similar corporate transaction or event affects the Common Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of eligible employees under the 1999 Plan, then the Committee is
authorized to make such equitable changes or adjustments as it deems
appropriate, including adjustments to (i) the number and kind of shares which
may thereafter be issued under the 1999 Plan, (ii) the number and kind of
shares, other securities or other consideration issued or issuable in respect of
outstanding Awards and (iii) the exercise price, grant price or purchase price
relating to any Award.
Amendment and Termination
The 1999 Plan may be amended, altered, suspended, discontinued or
terminated by the Board of Directors at any time, in whole or in part. However,
any amendment for which stockholder approval is required by Section 422 of the
Code will not be effective until such approval has been attained. In addition,
no amendment, alteration, suspension, discontinuation or termination of the 1999
Plan may impair the rights or, in any other manner, adversely affect the rights
of a participant under any Award theretofore granted to him or her without the
consent of the affected participant. Unless earlier terminated, the 1999 Plan
will expire in May 2009, and no further awards may be granted thereunder after
such date.
Market Value
The per share closing price of the Common Stock on April 1, 1999 was
$14.88.
Federal Income Tax Consequences
The following is a summary of the federal income tax consequences of the
1999 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 a non-qualified stock option or an incentive
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 1999 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 1999 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
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more than one year after the date of exercise and more than two years from the
date of grant of the option, 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 (a "Disqualifying Disposition"), 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.
Where shares of Common Stock are sold or exchanged in a Disqualifying
Disposition (other than certain related party transactions) for an amount less
than their fair market value at the date of exercise, any ordinary income
recognized in connection with the Disqualifying Disposition will be limited to
the amount of gain, if any, recognized in the sale or exchange, and any loss
will be a long-term or short-term capital loss, depending on how long the shares
of Common Stock have been held.
Although the exercise of an incentive stock option as described above
would not produce ordinary taxable income to the participant, it would result in
an increase in the participant's alternative minimum taxable income and may
result in an alternative minimum tax liability.
Restricted Stock
A participant who receives shares of restricted stock will generally
recognize ordinary income at the time the restrictions on transferability lapse.
The amount of ordinary income so recognized will be the fair market value of the
Common Stock at the time the income is recognized, determined without regard to
any restrictions other than restrictions which by their terms will never lapse.
This amount is generally deductible for federal income tax purposes by the
Company. Dividends paid with respect to Common Stock that is nontransferable
will be ordinary compensation income to the participant (and generally
deductible by the Company).
In lieu of the treatment described above, a participant may elect
immediate recognition of income under Section 83(b) of the Code. In such event,
the participant will recognize as income the fair market value of the restricted
stock at the time of grant (determined without regard to any restrictions other
than restrictions which by their terms will never lapse), and the Company will
generally be entitled to a corresponding deduction. Dividends paid with respect
to shares as to which a proper Section 83(b) election has been made will not be
deductible to the Company. If a Section 83(b) election is made and the
restricted stock is subsequently forfeited, the participant will not be entitled
to any offsetting tax deduction.
SARs and Other Awards
With respect to SARs and other Awards under the 1999 Plan not described
above, generally, when a participant receives payment with respect to any such
Award granted to him or her under the 1999 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.
Payment of Withholding Taxes
The Company may withhold, or require a participant to remit to the
Company, an amount sufficient to satisfy any federal, state or local withholding
tax requirements associated with Awards under the 1999 Plan.
Special Rules
Special rules may apply to a participant who is subject to Section 16(b)
of the Exchange Act as in effect from time to time (generally directors,
officers and 10% stockholders). Certain additional special rules apply if the
exercise price for an option is paid in shares previously owned by the optionee
rather than in cash.
Limitation on Deductibility
Section 162(m) of the Code generally limits the deductible amount of
annual compensation paid (including, unless an exception applies, compensation
otherwise deductible in connection with Awards granted under the 1999 Stock
Plan) by a public company to a "covered employee" (i.e., the chief executive
officer and
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four other most highly compensated executive officers of the Company) to no more
than $1 million. The Company currently intends to structure stock options
granted and other Awards made under the 1999 Plan to comply with an exception to
nondeductibility under Section 162(m) of the Code. See "Election of
Directors--Executive Compensation--Report of the Compensation Committee of the
Board of Directors."
New Plan Benefits
No benefits have been received or allocated to any employee or
Non-Employee Director under the 1999 Plan (except under the provisions
authorizing automatic annual grants to Non-Employee Directors of stock options
to purchase 1,500 shares of Common Stock at an exercise price per share equal to
the market price per share on the date of grant; see "--Automatic Grant of
Options to Non-Employee Directors" above), and therefore a "New Plan Benefits"
table has not been included.
3. RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors Recommends a Vote
"FOR" the Ratification of the Selection of
PricewaterhouseCoopers LLP as the Company's
Independent Accountants for Fiscal Year 1999
The Board of Directors proposes and recommends that the stockholders
ratify the selection of the firm of PricewaterhouseCoopers LLP to serve as
independent accountants of the Company for the year ending December 31, 1999.
PricewaterhouseCoopers LLP served as the Company's independent accountants from
the Company's inception in June 1995 to the present. Unless otherwise directed
by the stockholders, proxies will be voted for approval of the selection of
PricewaterhouseCoopers LLP to audit the Company's consolidated financial
statements for fiscal year 1999. A representative of PricewaterhouseCoopers LLP
will attend the Annual Meeting and will have an opportunity to make a statement
and respond to appropriate questions.
MISCELLANEOUS
Other Business of the Annual Meeting
The Board of Directors is not aware of, and does not intend to present,
any matters to come before the Annual Meeting other than those set forth in this
Proxy Statement. However, if other matters properly come before the Annual
Meeting or any postponement or adjournment thereof, the enclosed form of proxy
confers discretionary authority with respect to acting thereon, and the persons
named therein intend to vote any proxies in accordance with their judgment.
Stockholder Proposals for 2000 Annual Meeting
In accordance with the rules established by the SEC, stockholder proposals
to be included in the Company's proxy statement with respect to the 2000 annual
meeting of stockholders must be received by the Company at its executive offices
no later than December 7, 1999.
In June 1998, the SEC adopted a new notice requirement relating to a
Company's use of discretionary voting authority with respect to stockholder
proposals that are not intended to be included in the Company's proxy statement.
In connection with the Company's 2000 annual meeting of stockholders, the new
rule requires that, if the proponent fails to notify the Company of such a
proposal on or before February 25, 2000, then management proxies would be
allowed to use their discretionary voting authority when such proposal is raised
at the 2000 annual meeting. In addition, the Company's Bylaws provide that any
stockholder 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,
stockholder proposals and nominations must be delivered no later than the close
of business of the seventh day following the day notice was mailed). Notices of
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stockholder nominations must set forth certain information with respect to each
nominee who is not an incumbent director.
Copies of Annual Report on Form 10-K
Stockholders are entitled to receive, upon written request and without
charge, a copy of the Company's annual report on Form 10-K for the year ended
December 31, 1998. Please direct such requests to the office of the Secretary,
Risk Capital Holdings, Inc., 20 Horseneck Lane, Greenwich, Connecticut 06830.
By Order of the Board of Directors
PETER A. APPEL
Managing Director,
General Counsel and Secretary
Greenwich, Connecticut
April 12, 1999
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Appendix A
RISK CAPITAL HOLDINGS, INC.
- --------------------------------------------------------------------------------
1999 LONG TERM INCENTIVE AND SHARE AWARD PLAN
- --------------------------------------------------------------------------------
<PAGE>
RISK CAPITAL HOLDINGS, INC.
1999 LONG TERM INCENTIVE AND SHARE AWARD PLAN
Table of Contents
Section Page
- ------- ----
1. Purposes........................................................... 1
2. Definitions........................................................ 1
3. Administration..................................................... 3
4. Shares Subject to the Plan......................................... 4
5. Specific Terms of Awards........................................... 5
6. Certain Provisions Applicable to Awards............................ 9
7. Director's Options................................................. 11
8. Director's Shares.................................................. 12
9. General Provisions................................................. 12
<PAGE>
RISK CAPITAL HOLDINGS, INC.
1999 LONG TERM INCENTIVE AND SHARE AWARD PLAN
1. Purposes. The purposes of the 1999 Long Term Incentive and Share
Award Plan are to advance the interests of Risk Capital Holdings, Inc. and its
stockholders by providing a means to attract, retain, and motivate employees and
directors of the Company upon whose judgment, initiative and efforts the
continued success, growth and development of the Company is dependent.
2. Definitions. For purposes of the Plan, the following terms shall
be defined as set forth below:
"Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a
participating employer under the Plan, provided that the Company directly
or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity or at least 20% of the ownership interests
in such entity.
"Award" means any Option, SAR, Restricted Share, Restricted Share
Unit, Performance Share, Performance Unit, Dividend Equivalent, Other
Share-Based Award, Director's Option or Director's Share granted to an
Eligible Employee under the Plan.
"Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
"Beneficiary" means the person, persons, trust or trusts which have
been designated by such Eligible Employee in his or her most recent
written beneficiary designation filed with the Company to receive the
benefits specified under this Plan upon the death of the Eligible
Employee, or, if there is no designated Beneficiary or surviving
designated Beneficiary, then the person, persons, trust or trusts entitled
by will or the laws of descent and distribution to receive such benefits.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to
include successor provisions thereto and regulations thereunder.
"Committee" means the Compensation Committee of the Board, or such
other Board committee or subcommittee (or the entire Board) as may be
designated by the Board to administer the Plan.
"Company" means Risk Capital Holdings, Inc., a corporation organized
under the laws of Delaware, or any successor corporation.
"Director" means a non-employee member of the Board.
"Director's Option" means a NQSO granted to a Director under Section
7.
"Director's Shares" means Shares granted to a Director as payment of
the Director's annual retainer fee pursuant to the Director's election
under Section 8 of the Plan.
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"Dividend Equivalent" means a right, granted under Section 5(g), to
receive cash, Shares, or other property equal in value to dividends paid
with respect to a specified number of Shares. Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award, and
may be paid currently or on a deferred basis.
"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.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall
be deemed to include successor provisions thereto and regulations
thereunder.
"Fair Market Value" means, with respect to Shares or other property,
the fair market value of such Shares or other property determined by such
methods or procedures as shall be established from time to time by the
Committee. Unless otherwise determined by the Committee in good faith, the
Fair Market Value of Shares as of any given date prior to the existence of
a public market for the Company's Shares shall mean the Company's book
value. Thereafter, unless otherwise determined by the Committee in good
faith, the Fair Market Value of Shares shall mean the mean between the
high and low selling prices per Share on the immediately preceding date
(or, if the Shares were not traded on that day, the next preceding day
that the Shares were traded) on the principal exchange on which the Shares
are traded, as such prices are officially quoted on such exchange.
"ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
"NQSO" means any Option that is not an ISO.
"Option" means a right, granted under Section 5(b) or Section 7, to
purchase Shares.
"Other Share-Based Award" means a right, granted under Section 5(h),
that relates to or is valued by reference to Shares.
"Participant" means an Eligible Employee or Director who has been
granted an Award or Director's Option under the Plan.
"Performance Share" means a performance share granted under Section
5(f).
"Performance Unit" means a performance unit granted under Section
5(f).
"Plan" means this 1999 Long Term Incentive and Share Award Plan.
"Restricted Shares" means an Award of Shares under Section 5(d) that
may be subject to certain restrictions and to a risk of forfeiture.
"Restricted Share Unit" means a right, granted under Section 5(e),
to receive Shares or cash at the end of a specified deferral period.
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"Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
"SAR" or "Share Appreciation Right" means the right, granted under
Section 5(c), to be paid an amount measured by the difference between the
exercise price of the right and the Fair Market Value of Shares on the
date of exercise of the right, with payment to be made in cash, Shares, or
property as specified in the Award or determined by the Committee.
"Shares" means common stock, $.01 par value per share, of the
Company.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
shares possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by
the Committee, and the Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select Eligible Employees to whom Awards may be
granted;
(ii) to designate Affiliates;
(iii) to determine the type or types of Awards to be granted
to each Eligible Employee;
(iv) to determine the type and number of Awards to be granted,
the number of Shares to which an Award may relate, the terms and
conditions of any Award granted under the Plan (including, but not limited
to, any exercise price, grant price, or purchase price, and any bases for
adjusting such exercise, grant or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating
to transferability or forfeiture, exercisability, or settlement of an
Award, and waiver or accelerations thereof, and waivers of performance
conditions relating to an Award, based in each case on such considerations
as the Committee shall determine), and all other matters to be determined
in connection with an Award;
(v) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award
may be paid, in cash, Shares, other Awards, or other property, or an Award
may be cancelled, forfeited, exchanged, or surrendered;
(vi) to determine whether, to what extent, and under what
circumstances cash, Shares, other Awards, or other property payable with
respect to an Award will be deferred either automatically, at the election
of the Committee, or at the election of the Eligible Employee;
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(vii) to prescribe the form of each Award Agreement, which
need not be identical for each Eligible Employee;
(viii) to adopt, amend, suspend, waive, and rescind such rules
and regulations and appoint such agents as the Committee may deem
necessary or advisable to administer the Plan;
(ix) to correct any defect or supply any omission or reconcile
any inconsistency in the Plan and to construe and interpret the Plan and
any Award, rules and regulations, Award Agreement, or other instrument
hereunder;
(x) to accelerate the exercisability or vesting of all or any
portion of any Award or to extend the period during which an Award is
exercisable; and
(xi) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem
necessary or advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. The Committee shall
have sole discretion in exercising its authority under the Plan. Any action of
the Committee with respect to the Plan shall be final, conclusive, and binding
on all persons, including the Company, Subsidiaries, Affiliates, Eligible
Employees, any person claiming any rights under the Plan from or through any
Eligible Employee, and stockholders. The express grant of any specific power to
the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The Committee may
delegate to officers or managers of the Company or any Subsidiary or Affiliate
the authority, subject to such terms as the Committee shall determine, to
perform administrative functions and, with respect to Awards granted to persons
not subject to Section 16 of the Exchange Act, to perform such other functions
as the Committee may determine, to the extent permitted under Rule 16b-3 (if
applicable) and applicable law. 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.
(c) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him or her by any officer or other employee of the Company or any
Subsidiary or Affiliate, the Company's independent certified public accountants,
or other professional retained by the Company to assist in the administration of
the Plan. No member of the Committee, nor any officer or employee of the Company
acting on behalf of the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Committee and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination, or interpretation.
4. Shares Subject to the Plan.
(a) Subject to adjustment as provided in Section 4(c) hereof, the
total number of Shares reserved for issuance under the Plan shall be 900,000,
and no more than 300,000 of such Shares shall be issued pursuant to grants of
Restricted Shares, Restricted Share Units, Performance Shares and Performance
Units. No Award may be granted if the number of Shares to which such Award
relates, when added to the number of Shares
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previously issued under the Plan, exceeds the number of Shares reserved under
the preceding sentence. If any Awards are forfeited, cancelled, terminated,
exchanged or surrendered or such Award is settled in cash or otherwise
terminates without a distribution of Shares to the Participant, any Shares
counted against the number of Shares reserved and available under the Plan with
respect to such Award shall, to the extent of any such forfeiture, settlement,
termination, cancellation, exchange or surrender, again be available for Awards
under the Plan. Upon the exercise of any Award granted in tandem with any other
Awards, such related Awards shall be cancelled to the extent of the number of
Shares as to which the Award is exercised. Subject to adjustment as provided in
Section 4(c) hereof, the maximum number of Shares (i) with respect to which
Options and SARs may be granted during a calendar year to any Eligible Employee
under this Plan shall be 500,000 Shares and (ii) with respect to Performance
Shares, Performance Units, Restricted Shares and Restricted Share Units intended
to qualify as performance-based compensation within the meaning of Section
162(m)(4)(C) of the Code shall be the equivalent of 175,000 Shares during a
calendar year to any Eligible Employee under this Plan.
(b) Any Shares distributed pursuant to an Award may consist, in
whole or in part, of authorized and unissued Shares or treasury Shares including
Shares acquired by purchase in the open market or in private transactions.
(c) In the event that the Committee shall determine that any
dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or event, affects the
Shares such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Eligible Employees under the Plan, then the
Committee shall make such equitable changes or adjustments as it deems
appropriate and, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares which may thereafter be issued under the Plan,
(ii) the number and kind of shares, other securities or other consideration
issued or issuable in respect of outstanding Awards, and (iii) the exercise
price, grant price, or purchase price relating to any Award; provided, however,
in each case that, with respect to ISOs, such adjustment shall be made in
accordance with Section 424(h) of the Code, unless the Committee determines
otherwise. In addition, the Committee is authorized to make adjustments in the
terms and conditions of, and the criteria and performance objectives included
in, Awards in recognition of unusual or non-recurring events (including, without
limitation, events described in the preceding sentence) affecting the Company or
any Subsidiary or Affiliate or the financial statements of the Company or any
Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations, or accounting principles; provided, however, that, if an Award
Agreement specifically so provides, the Committee shall not have discretion to
increase the amount of compensation payable under the Award to the extent such
an increase would cause the Award to lose its qualification as performance-based
compensation for purposes of Section 162(m)(4)(C) of the Code and the
regulations thereunder.
5. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 5. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
9(d)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
regarding forfeiture of Awards or continued exercisability of Awards in the
event of termination of employment by the Eligible Employee.
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(b) Options. The Committee is authorized to grant Options, which may
be NQSOs or ISOs, to Eligible Employees on the following terms and conditions:
(i) Exercise Price. The exercise price per Share purchasable
under an Option shall be determined by the Committee, and the Committee
may, without limitation, set an exercise price that is based upon
achievement of performance criteria if deemed appropriate by the
Committee.
(ii) Time and Method of Exercise. The Committee shall
determine at the date of grant or thereafter the time or times at which an
Option may be exercised in whole or in part (including, without
limitation, upon achievement of performance criteria if deemed appropriate
by the Committee), the methods by which such exercise price may be paid or
deemed to be paid (including, without limitation, broker-assisted exercise
arrangements), the form of such payment (including, without limitation,
cash, Shares, notes or other property), and the methods by which Shares
will be delivered or deemed to be delivered to Eligible Employees.
(iii) ISOs. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of the Code,
including but not limited to the requirement that no ISO shall be granted
more than five years after the earlier of the date of adoption or
stockholder approval of the Plan.
(c) SARs. The Committee is authorized to grant SARs (Share
Appreciation Rights) to Eligible Employees on the following terms and
conditions:
(i) Right to Payment. A SAR shall confer on the Eligible
Employee to whom it is granted a right to receive with respect to each
Share subject thereto, upon exercise thereof, the excess of (1) the Fair
Market Value of one Share on the date of exercise (or, if the Committee
shall so determine in the case of any such right, the Fair Market Value of
one Share at any time during a specified period before or after the date
of exercise) over (2) the exercise price of the SAR as determined by the
Committee as of the date of grant of the SAR (which, in the case of a SAR
granted in tandem with an option, shall be equal to the exercise price of
the underlying Option).
(ii) Other Terms. The Committee shall determine, at the time
of grant or thereafter, the time or times at which a SAR may be exercised
in whole or in part, the method of exercise, method of settlement, form of
consideration payable in settlement, method by which Shares will be
delivered or deemed to be delivered to Eligible Employees, whether or not
a SAR shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Unless the Committee determines otherwise, a SAR
(1) granted in tandem with a NQSO may be granted at the time of grant of
the related NQSO or at any time thereafter or (2) granted in tandem with
an ISO may only be granted at the time of grant of the related ISO.
(d) Restricted Shares. The Committee is authorized to grant
Restricted Shares to Eligible Employees on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Shares shall be
subject to such restrictions on transferability and other restrictions, if
any, as the Committee may impose at
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the date of grant or thereafter, which restrictions, if any, may lapse
separately or in combination at such times, under such circumstances
(including, without limitation, upon achievement of performance criteria
if deemed appropriate by the Committee), in such installments or
otherwise, as the Committee may determine. Except to the extent restricted
under the Award Agreement relating to the Restricted Shares, an Eligible
Employee granted Restricted Shares shall have all of the rights of a
stockholder including, without limitation, the right to vote Restricted
Shares and the right to receive dividends thereon. If the lapse of
restrictions is conditioned on the achievement of performance criteria,
the Committee shall select the criterion or criteria from the list of
criteria set forth in Section 5(f)(i). The Committee must certify in
writing prior to the lapse of restrictions conditioned on the achievement
of performance criteria that such performance criteria were in fact
satisfied.
(ii) Forfeiture. Except as otherwise determined by the
Committee, at the date of grant or thereafter, upon termination of
employment during any applicable restriction period, Restricted Shares and
any accrued but unpaid dividends or Dividend Equivalents that are at that
time subject to restrictions shall be forfeited; provided, however, that
the Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that restrictions or
forfeiture conditions relating to Restricted Shares will be waived in
whole or in part in the event of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or in part the
forfeiture of Restricted Shares.
(iii) Certificates for Shares. Restricted Shares granted under
the Plan may be evidenced in such manner as the Committee shall determine.
If certificates representing Restricted Shares are registered in the name
of the Eligible Employee, such certificates shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to
such Restricted Shares, and the Company shall retain physical possession
of the certificate.
(iv) Dividends. Dividends paid on Restricted Shares shall be
either paid at the dividend payment date, or deferred for payment to such
date as determined by the Committee, in cash or in unrestricted Shares
having a Fair Market Value equal to the amount of such dividends. Shares
distributed in connection with a Share split or dividend in Shares, and
other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Shares with
respect to which such Shares or other property has been distributed.
(e) Restricted Share Units. The Committee is authorized to grant
Restricted Share Units to Eligible Employees, subject to the following terms and
conditions:
(i) Award and Restrictions. Delivery of Shares or cash, as the
case may be, will occur upon expiration of the deferral period specified
for Restricted Share Units by the Committee (or, if permitted by the
Committee, as elected by the Eligible Employee). In addition, Restricted
Share Units shall be subject to such restrictions as the Committee may
impose, if any (including, without limitation, the achievement of
performance criteria if deemed appropriate by the Committee), at the date
of grant or thereafter, which restrictions may lapse at the expiration of
the deferral period or at earlier or later specified times, separately or
in combination, in installments or otherwise, as the Committee may
determine. If the lapse of restrictions is conditioned on the achievement
of performance criteria, the Committee shall select the criterion or
criteria from the list of criteria set forth in
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Section 5(f)(i). The Committee must certify in writing prior to the lapse
of restrictions conditioned on the achievement of performance criteria
that such criteria were in fact satisfied.
(ii) Forfeiture. Except as otherwise determined by the
Committee at date of grant or thereafter, upon termination of employment
(as determined under criteria established by the Committee) during the
applicable deferral period or portion thereof to which forfeiture
conditions apply (as provided in the Award Agreement evidencing the
Restricted Share Units), or upon failure to satisfy any other conditions
precedent to the delivery of Shares or cash to which such Restricted Share
Units relate, all Restricted Share Units that are at that time subject to
deferral or restriction shall be forfeited; provided, however, that the
Committee may provide, by rule or regulation or in any Award Agreement, or
may determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Share Units will be waived in whole or
in part in the event of termination resulting from specified causes, and
the Committee may in other cases waive in whole or in part the forfeiture
of Restricted Share Units.
(f) Performance Shares and Performance Units. The Committee is
authorized to grant Performance Shares or Performance Units or both to Eligible
Employees on the following terms and conditions:
(i) Performance Period. The Committee shall determine a
performance period (the "Performance Period") of one or more years and
shall determine the performance objectives for grants of Performance
Shares and Performance Units. Performance objectives may vary from
Eligible Employee to Eligible Employee and shall be based upon such one or
more of the following performance criteria as the Committee may deem
appropriate: growth in book, economic book and/or intrinsic book value;
appreciation in value of the Shares; total stockholder return; earnings
per share; comprehensive income; operating income; net income; pro forma
net income; return on equity; return on designated assets; return on
capital; economic value added; earnings; revenues; expenses; operating
profit margin; operating cash flow; net profit margin. The performance
objectives may be determined by reference to the performance of the
Company, or of a Subsidiary or Affiliate, or of a division or unit of any
of the foregoing. Performance Periods may overlap and Eligible Employees
may participate simultaneously with respect to Performance Shares and
Performance Units for which different Performance Periods are prescribed.
(ii) Award Value. At the beginning of a Performance Period,
the Committee shall determine for each Eligible Employee or group of
Eligible Employees with respect to that Performance Period the range of
number of Shares, if any, in the case of Performance Shares, and the range
of dollar values, if any, in the case of Performance Units, which may be
fixed or may vary in accordance with such performance or other criteria
specified by the Committee, which shall be paid to an Eligible Employee as
an Award if the relevant measure of Company performance for the
Performance Period is met. The Committee must certify in writing that the
applicable performance criteria were satisfied prior to payment under any
Performance Shares or Performance Units.
(iii) Significant Events. If during the course of a
Performance Period there shall occur significant events as determined by
the Committee which the Committee expects
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to have a substantial effect on a performance objective during such
period, the Committee may revise such objective; provided, however, that,
if an Award Agreement so provides, the Committee shall not have any
discretion to increase the amount of compensation payable under the Award
to the extent such an increase would cause the Award to lose its
qualification as performance-based compensation for purposes of Section
162(m)(4)(C) of the Code and the regulations thereunder.
(iv) Forfeiture. Except as otherwise determined by the
Committee, at the date of grant or thereafter, upon termination of
employment during the applicable Performance Period, Performance Shares
and Performance Units for which the Performance Period was prescribed
shall be forfeited; provided, however, that the Committee may provide, by
rule or regulation or in any Award Agreement, or may determine in an
individual case, that restrictions or forfeiture conditions relating to
Performance Shares and Performance Units will be waived in whole or in
part in the event of terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the forfeiture of
Performance Shares and Performance Units.
(v) Payment. Each Performance Share or Performance Unit may be
paid in whole Shares, or cash, or a combination of Shares and cash either
as a lump sum payment or in installments, all as the Committee shall
determine, at the time of grant of the Performance Share or Performance
Unit or otherwise, commencing as soon as practicable after the end of the
relevant Performance Period.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to Eligible Employees. The Committee may provide, at the
date of grant or thereafter, that Dividend Equivalents shall be paid or
distributed when accrued or shall be deemed to have been reinvested in
additional Shares, or other investment vehicles as the Committee may specify,
provided that Dividend Equivalents (other than freestanding Dividend
Equivalents) shall be subject to all conditions and restrictions of the
underlying Awards to which they relate.
(h) Other Share-Based Awards. The Committee is authorized, subject
to limitations under applicable law, to grant to Eligible Employees such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Shares, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, unrestricted shares awarded purely as a "bonus" and not subject to
any restrictions or conditions, other rights convertible or exchangeable into
Shares, purchase rights for Shares, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the performance of specified
Subsidiaries or Affiliates. The Committee shall determine the terms and
conditions of such Awards at date of grant or thereafter. Shares delivered
pursuant to an Award in the nature of a purchase right granted under this
Section 5(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Shares,
notes or other property, as the Committee shall determine. Cash awards, as an
element of or supplement to any other Award under the Plan, shall also be
authorized pursuant to this Section 5(h).
6. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted to
Eligible Employees either alone or in
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addition to, in tandem with, or in exchange or substitution for, any other Award
granted under the Plan or any award granted under any other plan or agreement of
the Company, any Subsidiary or Affiliate, or any business entity to be acquired
by the Company or a Subsidiary or Affiliate, or any other right of an Eligible
Employee to receive payment from the Company or any Subsidiary or Affiliate.
Awards may be granted in addition to or in tandem with such other Awards or
awards, and may be granted either as of the same time as or a different time
from the grant of such other Awards or awards. The per Share 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 connection with the
substitution of awards granted under any other plan or agreement of the Company
or any Subsidiary or Affiliate or any business entity to be acquired by the
Company or any Subsidiary or Affiliate, shall be determined by the Committee, in
its discretion. 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.
(b) Terms of Awards. The term of each Award granted to an Eligible
Employee shall be for such period as may be determined by the Committee;
provided, however, that in no event shall the term of any ISO or a SAR granted
in tandem therewith exceed a period of ten years from the date of its grant (or
such shorter period as may be applicable under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan
and any applicable Award Agreement, payments to be made by the Company or a
Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award may
be made in such forms as the Committee shall determine at the date of grant or
thereafter, including, without limitation, cash, Shares, or other property, and
may be made in a single payment or transfer, in installments, or on a deferred
basis. The Committee may make rules relating to installment or deferred payments
with respect to Awards, including the rate of interest to be credited with
respect to such payments.
(d) Nontransferability. 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." 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. An Eligible Employee's rights under the Plan
may not be pledged, mortgaged, hypothecated, or otherwise encumbered, and shall
not be subject to claims of the Eligible Employee's creditors.
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7. Director's Options.
(a) Annual Grant. On January 1 of each year, beginning with January
1, 2000, each Director in office on such date shall automatically be granted a
NQSO to purchase 1500 Shares with an exercise price per Share equal to 100
percent of the Market Value of one Share on the date of grant; provided,
however, that such price shall be at least equal to the par value of a Share.
Each Option granted to a Director under this paragraph (a) shall become fully
exercisable on the first anniversary of the date the Option is granted, and
shall expire (unless terminated earlier under paragraph (d) below) on the tenth
anniversary of the date of grant.
(b) Initial Grants. Each Director will automatically be granted a
NQSO on the date he or she is first elected to the Board to purchase 300 Shares
with an exercise price per Share equal to 100% of the Market Value of one Share
on the date of grant; provided, however, that such price shall be at least equal
to the par value of a Share. Each Option granted to a Director under this
paragraph (b) shall become exercisable in three equal installments, commencing
on the date of grant and annually thereafter. Each Option granted under this
paragraph (b) shall expire (unless terminated earlier under paragraph (d) below)
on the tenth anniversary of the date of grant.
(c) Market Value. For purposes of this Section 7, Market Value shall
mean the mean between the high and low selling prices per Share on the
immediately preceding date (or, if the Shares were not traded on that day, the
next preceding day that the Shares were traded) on the principal exchange on
which the Shares are traded, as such prices are officially quoted on such
exchange.
(d) Termination of Service. If a person ceases to be a Director, (i)
due to retirement after attainment of age 65, or (ii) due to death or
disability, all of his or her outstanding Options, to the extent not already
exercisable in full, shall become immediately and fully exercisable at the time
of termination of service, and all of such Director's Options may be exercised
at any time prior to the expiration dates of such Options. If the Director's
service terminates for any other reason, all Options which are not then
exercisable shall be cancelled on the date service terminates, and Options which
are then exercisable may be exercised at any time within six months after the
date of such termination, but not later than the expiration date of the Options.
(e) Time and Method of Exercise. The exercise price of a Director's
Option shall be paid to the Company (including, without limitation, through
broker-assisted exercise arrangements) at the time of exercise either in cash,
or in Shares already owned by the optionee and having a total Market Value equal
to the exercise price, or in a combination of cash and such Shares.
(f) Nontransferability. No Director's Option granted under the Plan
shall be transferable other than by will or by the laws of descent and
distribution. During the lifetime of the optionee, a Director's Option shall be
exercisable only by him or her or by his or her 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), a Director's Option granted hereunder may 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,
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parents, stepparents, grandparents, spouse, siblings (including half brothers
and sisters), in-laws, and relationships arising because of legal adoption.
(g) Adjustments. In the event that subsequent to the Effective Date
any dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other such change, affects the Shares such that they are
increased or decreased or changed into or exchanged for a different number or
kind of shares, other securities of the Company or of another corporation or
other consideration, then in order to maintain the proportionate interest of the
Director and preserve the value of the Director's Option, (i) there shall
automatically be substituted for each Share subject to an unexercised Director's
Option and each Share to be issued under Section 7(a) or 7(b) subsequent to such
event the number and kind of shares, other securities or other consideration
into which each outstanding Share shall be changed or for which each such Share
shall be exchanged, and (ii) the exercise price shall be increased or decreased
proportionately so that the aggregate purchase price for the Shares subject to
any unexercised Director's Option shall remain the same as immediately prior to
such event.
8. Director's Shares. Each Director may make an election in writing
on or prior to each August 1 to receive the Director's annual retainer fees
payable thereafter in the form of Shares instead of cash. Any Shares elected
shall be payable at the time cash retainer fees are otherwise payable, and the
number of Shares distributed shall be equal to 120 percent of the amount of the
annual retainer fee otherwise payable on such payment date divided by the Fair
Market Value of a Share on such date. Notwithstanding the foregoing, a Director
who is first elected or appointed to the Board may make an election under this
Section 8 within 30 days of such election or appointment in respect of annual
retainer fees payable after the date of the election. Any election made under
this Section 8 shall remain in effect unless and until a new election is made in
accordance with the provisions of this Section 8.
9. General Provisions.
(a) Compliance with Legal and Trading Requirements. The Plan, the
granting and exercising of Awards thereunder, and the other obligations of the
Company under the Plan and any Award Agreement, shall be subject to all
applicable federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required. The Company, in its
discretion, may postpone the issuance or delivery of Shares under any Award
until completion of such stock exchange or market system listing or registration
or qualification of such Shares or other required action under any state or
federal law, rule or regulation as the Company may consider appropriate, and may
require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Shares in compliance with applicable laws, rules and regulations. No
provisions of the Plan shall be interpreted or construed to obligate the Company
to register any Shares under federal or state law.
(b) No Right to Continued Employment or Service. Neither the Plan
nor any action taken thereunder shall be construed as giving any employee or
director the right to be retained in the employ or service of the Company or any
of its Subsidiaries or Affiliates, nor shall it interfere in any way with the
right of the Company or any of its Subsidiaries or Affiliates to terminate any
employee's or director's employment or service at any time.
(c) Taxes. The Company or any Subsidiary or Affiliate is authorized
to withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Shares, or any payroll or other payment
to an Eligible Employee, amounts of withholding and other
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taxes due in connection with any transaction involving an Award, and to take
such other action as the Committee may deem advisable to enable the Company and
Eligible Employees to satisfy obligations for the payment of withholding taxes
and other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Shares or other property and to make cash
payments in respect thereof in satisfaction of an Eligible Employee's tax
obligations.
(d) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of stockholders of the Company
or Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's stockholders to the extent such stockholder approval is required under
Section 422 of the Code; provided, however, that, without the consent of an
affected Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may impair the rights or, in any other manner, adversely
affect the rights of such Participant under any Award theretofore granted to him
or her.
(e) No Rights to Awards; No Stockholder Rights. No Eligible Employee
or employee shall have any claim to be granted any Award under the Plan, and
there is no obligation for uniformity of treatment of Eligible Employees and
employees. No Award shall confer on any Eligible Employee any of the rights of a
stockholder of the Company unless and until Shares are duly issued or
transferred to the Eligible Employee in accordance with the terms of the Award.
(f) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments not yet
made to a Participant pursuant to an Award, nothing contained in the Plan or any
Award shall give any such Participant any rights that are greater than those of
a general creditor of the Company; provided, however, that the Committee may
authorize the creation of trusts or make other arrangements to meet the
Company's obligations under the Plan to deliver cash, Shares, other Awards, or
other property pursuant to any Award, which trusts or other arrangements shall
be consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
(g) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of options and other awards otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
(h) Not Compensation for Benefit Plans. No Award payable under this
Plan shall be deemed salary or compensation for the purpose of computing
benefits under any benefit plan or other arrangement of the Company for the
benefit of its employees or directors unless the Company shall determine
otherwise.
(i) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award. In the case of Awards to Eligible
Employees, the Committee shall determine whether cash, other Awards, or other
property shall be issued or paid in lieu of such fractional Shares or whether
such fractional Shares or any rights thereto shall be forfeited or otherwise
eliminated. In the case of Director's Options, cash shall be paid in lieu of
such fractional shares.
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(j) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan, and any Award Agreement
shall be determined in accordance with the laws of New York without giving
effect to principles of conflict of laws.
(k) Effective Date; Plan Termination. The Plan shall become
effective as of May 11, 1999 (the "Effective Date") upon approval by the
stockholders of the Company. The Plan shall terminate as to future awards on the
date which is 10 years after the Effective Date.
(l) Titles and Headings. The titles and headings of the sections in
the Plan are for convenience of reference only. In the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
A-14
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RISK CAPITAL HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 11, 1999
The undersigned stockholder of Risk Capital Holdings, Inc. (the
"Company"), revoking all prior proxies, hereby appoints Peter A. Appel and Paul
J. Malvasio, and each of them, the true and lawful attorneys, agents and proxies
of the undersigned, with full power of substitution to represent and vote all
shares of the Company's Common Stock, $0.01 par value per share, which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held at the
Company's offices located at 20 Horseneck Lane, Greenwich, Connecticut, on
Tuesday, May 11, 1999 at 4:00 p.m. (EDT), and at any adjournment or postponement
thereof, upon such matters as may come before the Annual Meeting.
The undersigned hereby acknowledges receipt of a copy of the Proxy
Statement relating to such Annual Meeting.
This Proxy, when properly executed, will be voted as directed. If no
direction is given, this Proxy will be voted FOR the election of the nominees
and the approval of the proposals described on the reverse side of this card.
{Continued and to be completed on reverse side)
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<PAGE>
Please date, sign, and mail your proxy card back as soon as possible!
Annual Meeting of Stockholders
RISK CAPITAL HOLDINGS, INC.
May 11, 1999
Please Detach and Mail in the Envelope Provided
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A |X| Please Mark your
Votes as in this
Example.
The Board of Directors recommends a vote FOR the nominees
and proposals listed below.
FOR each nominee (except WITHHOLD
as indicated to the contrary) AUTHORITY
1. ELECTION OF NOMINEES |_| |_|
To re-elect each of the listed nominees as a Class I Director of the Company
to serve until the Company's 2002 Annual Meeting and until his successor is
duly elected and qualified.
Nominees:
Thomas V. A. Kelsey
Philip L. Wroughton
INSTRUCTION To withhold authority to vote for any individual nominee, write that
nominee's name in the space provide below.
________________________________________________________________________________
FOR AGAINST ABSTAIN
2. APPROVAL of the Company's 1999 Long Term |_| |_| |_|
Incentive and Share Award Plan
3. RATIFICATION OF THE SELECTION OF INDEPENDENT |_| |_| |_|
ACCOUNTANTS To ratify the selection of the firm
of PricewaterhouseCoopers LLP to serve as
independent accountants of the Company for the
fiscal year ending December 31, 1999
4. OTHER - In their descretion upon such other matters which may properly come
before the Annual Meeting or any postponement or adjournment thereof
SIGNATURE ________________ DATE__________ SIGNATURE______________ DATE__________
NOte: (Please sign exactly as your name(s) appear(s) 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.)
