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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______
Commission File No. 0-26456
RISK CAPITAL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 06-1424716
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Horseneck Lane
Greenwich, Connecticut 06830
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 862-4300
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of Each Class on which Registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of April 26, 2000 was approximately $161,238,784 based on
the closing price on the Nasdaq National Market on that date.
As of April 26, 2000, there were 12,378,280 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II incorporate by reference our definitive proxy statement
for a special meeting of our stockholders relating to the asset sale described
in this annual report.
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EXPLANATORY NOTE
The purpose of this amendment is to provide information required by Items
10, 11, 12 and 13 of Part III of Form 10-K. This information is being provided
by amendment because our Form 10-K for the year ended December 31, 1999
incorporated by reference this information from our proxy statement for the 2000
Annual Meeting of Stockholders, and such proxy statement will not be filed with
the Securities and Exchange Commission by April 30, 2000.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals are our directors and executive officers:
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION EXPIRES*
- ---- --- -------- --------
<S> <C> <C> <C>
Mark D. Mosca...................................... 46 President, Chief Executive 2001
Officer and Class III Director
Robert Clements.................................... 67 Chairman and Class III Director 2001
Peter A. Appel..................................... 38 Executive Vice President, Chief 2000
Operating Officer, General
Counsel, Secretary and Class II
Director
Paul J. Malvasio................................... 53 Managing Director, Chief _
Financial Officer and Treasurer
Michael P. Esposito, Jr............................ 60 Class III Director 2001
Lewis L. Glucksman................................. 74 Class II Director 2000
Ian R. Heap........................................ 74 Class II Director 2000
Thomas V. A. Kelsey................................ 67 Class I Director 2002
Robert F. Works.................................... 52 Class I Director 2002
Philip L. Wroughton................................ 66 Class I Director 2002
</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 RCRe in August 1995, and has served as
Chief Underwriting Officer of RCRe 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 the
time of our formation in March 1995 and Chairman and director of RCRe in
September 1995. He 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 is a director of XL Capital
Ltd, Annuity and Life Re (Holdings), Ltd. and Stockton Reinsurance Limited. He
is Chairman of the Board of Trustees of The College of Insurance and a member of
Rand Corp. President's Council.
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Peter A. Appel has been Executive Vice President, Chief Operating Officer
and a director of both the company and RCRe since November 1999, and General
Counsel and Secretary of the company and RCRe since November 1995. Mr. Appel
previously served as a Managing Director of the company and RCRe from November
1995 to November 1999. 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 RCRe since September 1995 and a director of
RCRe since November 1995. Prior to that time, he was Senior Vice President and
Chief Financial Officer of NAC Re since January 1986. From 1967 to 1986, Mr.
Malvasio was employed by the public accounting firm of Coopers & Lybrand, where
he was an audit partner from October 1979. Mr. Malvasio is a certified public
accountant and holds a B.B.A. degree in Accounting from St. Francis College.
Michael P. Esposito, Jr. has been a director of the company and RCRe since
September 1995. Mr. Esposito has been a director of XL Capital 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 1991. Mr. Esposito also
currently serves as a director of Forest City Enterprises and Annuity and Life
Re (Holdings), Ltd.
Lewis L. Glucksman has been a director of the company and RCRe 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 RCRe since September
1995. Mr. Heap has been a director of XL Capital since 1987 and was Chairman of
the Board of XL Capital from 1988 to 1992. He was President and Chief Executive
Officer of XL Capital and XL Insurance 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 served as President and Chief Executive
Officer of XL America, Inc. and XL Insurance Company of New York, Inc. from
1998 until June 1999.
Thomas V. A. Kelsey has been a director of the company and RCRe 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.
Robert F. Works has been a director of the company and RCRe since June
1999. Mr. Works is currently a Managing Director of Jones Lang LaSalle (formerly
LaSalle Partners). He joined Jones Lang LaSalle in 1981, where he has served in
various capacities, including manager of both the Property Management and
Investment Management teams of the Eastern Region of the United States. Mr.
Works is also manager for the Times Square Development Advisory and Chelsea
Piers Lease Advisory on behalf of New York State and the President of GCT
Ventures and the Revitalization of Grand Central Terminal for the Metropolitan
Transportation Authority.
Philip L. Wroughton has been a director of the company and RCRe since
September 1995. 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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See "Certain Relationships and Related Transactions--Designation of
Directors" for a description of certain arrangements regarding the election of
certain of our directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than 10% of our common stock,
to file with the Securities and Exchange Commission (the "SEC") initial reports
of beneficial ownership and reports of changes in beneficial ownership of our
common stock. Such persons are also required by SEC regulation to furnish us
with copies of all Section 16(a) reports they file. To our knowledge, based
solely on a review of the copies of such reports furnished to us and
representations that no other reports were required, we believe that all persons
subject to the reporting requirements of Section 16(a) filed the required
reports on a timely basis during the year ended December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation paid to
our executive officers by the company and RCRe for services rendered during
fiscal years 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- -----------------------------------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($) ($)(1) (#) ($) ($)(2)
-------- ---- --------- -------- --- ------ --- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark D. Mosca.......... 1999 454,300 250,000 -- -- -- -- 63,810
President, Chief 1998 437,000 306,000 -- -- 66,300 -- 53,430
Executive Officer and 1997 420,000 510,000 -- -- 72,100 -- 50,815
Director
Peter A. Appel......... 1999 375,000 250,000 -- -- -- -- 51,339
Executive Vice 1998 302,000 210,000 -- -- 62,800 -- 35,596
President, Chief 1997 261,000 245,500 -- -- 38,500 -- 30,675
Operating Officer,
General Counsel,
Secretary and Director
Paul J. Malvasio....... 1999 310,000 160,000 -- -- -- -- 43,912
Managing Director, 1998 301,000 185,000 -- -- 37,800 -- 37,437
Chief Financial 1997 286,000 245,000 -- -- 38,500 -- 35,777
Officer and Treasurer
</TABLE>
- -------------------
(1) As of December 31, 1999, an aggregate of 30,000 unvested shares of
restricted stock, with an aggregate value of $378,750 were held by the
named executive officers as follows: (i) Mark D. Mosca--20,000 shares
with a value of $252,500; and (ii) each of Peter A. Appel and Paul J.
Malvasio--5,000 shares with a value of $63,125. 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 120,000 shares of
restricted stock vested to the named executive officers from 1996
through 1999. During the vesting period, cash dividends (if any) would
be paid on outstanding shares of restricted
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stock. Stock dividends issued with respect to such shares (if any)
would be 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.
(2) Includes: (i) matching contributions by RCRe under its Employee Savings
Plan, a 401(k) Plan, in the amounts of $7,200, $7,200 and $7,125 during
1999, 1998 and 1997, respectively, for each of Messrs. Mosca, Appel and
Malvasio; (ii) pension contributions by RCRe under its Money Purchase
Pension Plan in the following amounts for 1999, 1998 and 1997,
respectively: $12,370, $10,064 and $10,184 for each of Messrs. Mosca,
Appel and Malvasio, (iii) contributions by RCRe under its Executive
Supplemental Non-Qualified Savings and Retirement Plan in the following
amounts for 1999, 1998 and 1997, respectively: (A) $42,674, $34,600 and
$32,588 for Mr. Mosca, (B) $31,175, $17,738 and $12,772 for Mr. Appel,
and (C) $21,750, $17,581 and $15,876 for Mr. Malvasio; and (iv) term
life insurance premiums paid by RCRe in the following amounts for 1999,
1998 and 1997, respectively: (A) $1,566, $1,566 and $918 for Mr. Mosca,
(B) $594, $594 and $594 for Mr. Appel, and (C) $2,592, $2,592 and
$2,592 for Mr. Malvasio.
There were no grants of stock options made to any of our executive officers
during 1999.
The following table provides information regarding the number and value of
options held by each of our executive officers as of December 31, 1999. No
options were exercised by any executive officer during 1999.
AGGREGATED 1999 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY
DECEMBER 31, 1999 OPTIONS AT DECEMBER 31, 1999(1)
----------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE
------------------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark D. Mosca............... 166,503 145,897 -- --
Peter A. Appel.............. 71,663 94,137 -- --
Paul J. Malvasio............ 66,663 74,137 -- --
</TABLE>
- ------------------
(1) For purposes of the above table, none of the options held by our
executive officers were "in-the-money" at December 31, 1999 because the
exercise price of these options exceeded the market price of our common
stock on such date (I.E., $12.63).
(2) All of the unexercisable options indicated above vest and become
exercisable upon stockholder and regulatory approval of the sale of our
reinsurance operations to Folksamerica Holding Company, Inc. and
Folksamerica Reinsurance Company (collectively, "Folksamerica").
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Upon completion of our initial public offering in September 1995, the
company and RCRe entered into an employment agreement with Mark Mosca pursuant
to which Mr. Mosca serves as President and Chief Executive Officer of both the
company and RCRe. 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 his employment
agreement, was $454,300 for 1999 and is subject to review annually for increase
at the discretion of the compensation committee of our board of directors. The
employment agreement provides for the payment to Mr. Mosca of an annual bonus of
at least $250,000 to be determined by the compensation committee. Mr. Mosca is
also entitled to participate in all employee benefit programs of the company and
RCRe in which senior executives are eligible to participate and to receive
reimbursement for customary business expenses. In addition, so long as Mr. Mosca
is employed by the company, the company agreed to guarantee a loan from a
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financial institution to Mr. Mosca with respect to any federal income taxes
payable by Mr. Mosca as a result of the vesting of restricted shares granted to
him under his employment agreement.
Mr. Mosca agreed to refrain from competing with us 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 we or any
of our affiliates has underwritten insurance during Mr. Mosca's employment, that
are competitive with businesses that (1) are then being conducted by us and (2)
during the period of Mr. Mosca's employment, were either being conducted or
actively developed by us, 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 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.
We have also entered into letter agreements of employment with each of the
other named executive officers, which agreements may be terminated by either
party upon notice at any time. For 1999, the agreements provided 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 at the discretion of the
compensation committee and to participate in our 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 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 (1) 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 (2) 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 RCRe and Chief Underwriting Officer of RCRe was terminated. Upon
such termination, Ms. Boccitto received as severance a payment of $250,000, plus
an amount equal to her annual base salary of $310,000 per annum through April 1,
2000. 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 our common
stock became exercisable in full by her.
CHANGE IN CONTROL ARRANGEMENTS
Our board of directors adopted change in control severance arrangements for
our executive officers and other employees in November 1996, and approved
certain amendments in February 1999, in order to encourage our employees to
focus more effectively on our interests in connection with a potential change in
control. These arrangements were intended to decrease the risk that our
employees will terminate their employment with us or otherwise be distracted in
the event of a change in control.
The sale of our reinsurance operations to Folksamerica will constitute a
change in control for purposes of our change in control and other benefit and
employment arrangements. Under these arrangements, all unvested stock options
and shares of restricted stock held by our employees and the members of our
board of directors immediately vest upon stockholder and regulatory approval
of the asset sale. Please refer to the tables entitled "Summary Compensation
Table" and the "Aggregated 1999 Fiscal Year-End Option Values" for
information regarding the options and restricted stock held by our executive
officers. In addition, the payments that will be made to our executive
officers upon closing of the asset sale are estimated to be: Mark D. Mosca,
$2,716,714; Peter A. Appel, $1,476,563; and Paul J. Malvasio, $1,220,625.
These amounts are equal to a specified multiple of the sum of such executive
officer's annual base salary and target annual bonus (or, in the case of Mr.
Mosca, a notional target amount equal to 100% of his annual base salary). The
specified multiple
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is 2.99 for Mr. Mosca and 2.25 for Messrs. Appel and Malvasio. Such payments may
not exceed an amount that would trigger the payment of excise taxes, and are not
subject to mitigation in the event that such officer receives any compensation
from other employment following his termination. In addition, a prorated
portion of such executive officer's target annual bonus (or, in the case of
Mr. Mosca, a prorated portion of a notional target amount equal to 100% of
his annual base salary) will be paid to the executive officers at the closing
of the asset sale. Each executive officer will also be entitled to
continuance of his health care, dental, disability and group-term and life
insurance benefits for prescribed periods.
Robert Clements, chairman of our board, will receive a special bonus of
$300,000 upon the consummation of the asset sale.
With respect to employees other than the executive officers, the extent of
the benefits and when they are triggered vary depending upon the position of the
employee. Immediately upon the involuntary termination (other than for cause)
or, only in the case of officers, constructive termination, of an employee
within prescribed protection periods following a change in control, the employee
would be entitled to a payment equal to a specified multiple of the sum of such
employee's annual base salary and target annual bonus. The specified multiple is
2.0 for Senior Vice Presidents, 1.5 for Vice Presidents, 1.0 for other officers,
and 0.5 for non-officers. All such payments may not exceed an amount that would
trigger the payment of excise taxes, and employees below the level of Senior
Vice President will receive the payments in monthly installments and have a duty
to mitigate such payments by seeking new employment. In addition, upon
termination of any such employee's employment following a change in control, a
prorated portion of such employee's target annual bonus will be paid to the
employee, and he or she will also be entitled to continuance of health care,
dental, disability and group-term and life insurance benefits for prescribed
periods.
Under the asset purchase agreement we entered into with Folksamerica, we
are required to offer to retain our employees (other than senior executives) to
work at our offices for up to a 60-day period following the closing of the
transaction in order to help facilitate the transition of our reinsurance
business to Folksamerica. Folksamerica will reimburse RCHI for the costs of
retaining such employees during this 60-day period until such employees are
terminated by Folksamerica. In connection with this obligation, we amended our
change in control arrangements covering employees of the level of Vice President
and below to provide that each such employee will not be eligible to receive
severance benefits until the 60-day transition period has elapsed or until his
or her employment is terminated during the 60-day period.
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.
COMPENSATION OF DIRECTORS
For the 1998-1999 annual period, each non-employee member of our board of
directors received an annual cash retainer fee in the amount of $25,000.
Commencing with the 1999-2000 annual period, each non-employee director is
entitled, at his option, to receive this retainer fee in the form of shares of
our common stock instead of cash. If so elected, the number of shares
distributed to the non-employee director is equal to 120% of the amount of the
annual retainer fee otherwise payable divided by the fair market value of a
share of our common stock. Each non-employee director also receives from the
company a meeting fee of $1,000 for each board or committee meeting attended. In
addition, each non-employee director serving during 1999 as chairman of the (1)
executive committee, compensation committee or investment/finance committee
received an annual fee of $3,000 and (2) audit committee received 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 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 our long term incentive and share award plans, upon joining the
board, each non-employee director receives an option to purchase 300 shares of
our common stock at an exercise price per share equal to the then market price
of a share of common stock. Our plans also provide for automatic annual grants
to non-
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employee directors of options to purchase shares of our common stock on January
1 of each year. Commencing January 1, 2000, the amount of shares covered by this
annual grant was increased from 500 to 1,500 shares. In addition, Robert
Clements, chairman of our board of directors, received a bonus of $250,000 for
performance during 1999. Please also refer to "Change in Control Arrangements"
above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of our board of directors currently consists of
Michael P. Esposito, Jr., Ian R. Heap and Robert F. Works, with Mr. Esposito
serving as chairman. None of the members of the compensation committee are or
have been officers or employees of the company or RCRe. 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 our board serves as an executive officer. Messrs. Esposito and Heap
are directors of XL Capital, which was our largest stockholder prior to our
repurchase of XL Capital's interest in us on March 2, 2000. Please refer to
"Certain Relationships and Related Transactions" below for a description of the
stock repurchase and certain other transactions between us and XL Capital. Mr.
Clements, the chairman of our board of directors, is a member of the
compensation committee of XL Capital.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information available to us as of April 26,
2000 with respect to the ownership of our common stock by (1) each person known
to us to be the beneficial owner of more than 5% of our outstanding shares, (2)
each director of the company, (3) each executive officer of the company and (4)
all of our directors and executive officers as a group. Except as otherwise
indicated, each person named below has sole investment and voting power with
respect to the securities shown.
<TABLE>
<CAPTION>
NUMBER OF SHARES RULE 13d-3
NAME AND ADDRESS BENEFICIALLY PERCENTAGE FULLY-DILUTED
OF BENEFICIAL OWNER OWNED(1) OWNERSHIP(1) PERCENTAGE(2)
- --------------------------------------------------- ---------------- ----------------------- ----------------
<S> <C> <C> <C>
Marsh & McLennan Risk Capital
Holdings, Ltd. (3)............................ 2,301,022 17.3% 22.4%
1166 Avenue of the Americas
New York, New York 10036
Merrill Lynch & Co., Inc. (4)...................... 2,033,900 16.4 11.2
World Financial Center, North Tower
250 Vesey Street
New York, New York 10381
The Trident Partnership, L.P. (5).................. 1,636,079 11.9 9.0
Craig Appin House
8 Wesley Street
Hamilton, HM11, Bermuda
EQSF Advisers, Inc. and
M.J. Whitman Advisers, Inc. (6).................... 1,132,975 9.2 6.2
767 Third Avenue
New York, New York 10017
Franklin Resources, Inc. (7)....................... 1,064,100 8.6 5.9
777 Mariners Island Boulevard
San Mateo, California 94404
Beck, Mack & Oliver LLC (8)........................ 992,700 8.0 5.5
330 Madison Avenue
New York, New York 10017
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF SHARES RULE 13d-3
NAME AND ADDRESS BENEFICIALLY PERCENTAGE FULLY-DILUTED
OF BENEFICIAL OWNER OWNED(1) OWNERSHIP(1) PERCENTAGE(2)
- --------------------------------------------------- ---------------- ----------------------- ----------------
<S> <C> <C> <C>
Steinberg Asset Management Co.,
Inc. (9)...................................... 894,154 7.2 4.9
12 East 49th Street
New York, New York 10017
Crabbe Huson Group, Inc. (10)...................... 809,887 6.5 4.5
121 SW Morrison, Suite 1400
Portland, Oregon 97204
Mark D. Mosca (11)................................. 307,574 2.5 2.5
Robert Clements (12)............................... 232,292 1.9 2.5
Peter A. Appel (13)................................ 252,834 2.0 1.9
Paul J. Malvasio (14).............................. 96,651 * *
Michael P. Esposito, Jr. (15)...................... 7,804 * *
Lewis L. Glucksman (15)............................ 3,804 * *
Ian R. Heap (15)................................... 5,300 * *
Thomas V. A. Kelsey (15)........................... 6,554 * *
Robert F. Works (15)............................... 2,104 * *
Philip L. Wroughton (15)........................... 2,800 * *
All directors and executive officers
(10 persons).................................. 917,717 7.2% 8.1%
</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 hereof. Therefore, "Rule 13d-3 Percentage
Ownership" has been computed based on (1) 12,378,280 shares of common
stock actually outstanding as of April 26, 2000 and (2) shares of
common stock that may be acquired within 60 days of the date hereof
upon the exercise of options and warrants held by the person whose Rule
13d-3 Percentage Ownership is being computed, excluding those options
that vest upon stockholder and regulatory approval of the sale of our
reinsurance operations to Folksamerica.
(2) Amounts shown under "Fully-Diluted Percentage" in the above table have
been computed based on 12,378,280 shares of common stock actually
outstanding as of April 26, 2000 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 26, 2000, there were an aggregate of 5,805,800
shares of common stock issuable under outstanding warrants and options
as follows: (1) Class A Warrants to purchase an aggregate of 2,531,079
shares of common stock (the "Class A Warrants"), (2) Class B Warrants
to purchase an aggregate of 1,920,601 shares of common stock (the
"Class B Warrants"), and (3) options to purchase an aggregate of
1,354,120 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 at any time after our
8
<PAGE>
common stock has traded at or above $30 per share for 20 out of 30
consecutive trading days and expire on September 19, 2005.
(3) Amounts include (1) 1,395,625 shares of common stock owned directly by
Marsh & McLennan Risk Capital Holdings, Ltd. ("MMRCH") and (2) 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 become exercisable within 60 days of the date
hereof. Based upon a Schedule 13D, dated November 7, 1996, filed with
the SEC by Marsh & McLennan Companies, Inc.
(4) Based upon a Schedule 13G dated January 26, 2000, filed with the SEC
jointly by Merrill Lynch & Co., Inc., a parent holding company, and
Merrill Lynch Global Allocation Fund, Inc. ("MLGAF"), a registered
investment company. In the Schedule 13G, Merrill Lynch & Co. reported
that it has shared voting power and shared dispositive power with
respect to 2,033,900 shares of common stock and MLGAF reported that it
has shared voting power and shared dispositive power with respect to
1,947,500 shares of common stock.
(5) Amounts include (1) 250,000 shares of common stock owned directly by
The Trident Partnership, L.P. and (2) 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.
(6) Based upon a Schedule 13G dated February 14, 2000, filed with the SEC
jointly by EQSF Advisers, Inc. and M.J. Whitman Advisers, Inc.
("MJWA"), each an investment advisor, and Martin J. Whitman. In the
Schedule 13G, EQSF reported that it has sole voting power and sole
dispositive power with respect to 473,400 shares of common stock and
MJWA reported that it has sole voting power and sole dispositive power
with respect to 659,575 shares of common stock.
(7) Based upon a Schedule 13G dated January 31, 2000, 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 1,064,100 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 January 22, 1999, filed with the SEC by
Beck, Mack & Oliver LLC, 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.
(9) Based on Schedule 13G dated February 10, 2000, filed with the SEC
jointly by Steinberg Asset Management Co., Inc., an investment adviser
("SAMC"), and Michael A. Steinberg & Co., Inc., a broker-dealer. In the
Schedule 13G, SAMC reported that it has sole voting power with respect
to 554,200 shares of common stock and sole dispositive power with
respect to 891,654 shares of common stock, and Steinberg & Co. reported
that it has sole dispositive power with respect to 2,500 shares of
common stock.
(10) Based upon a Schedule 13G dated February 3, 2000, filed with the SEC by
the Crabbe Huson Group, Inc., an investment advisor. In the Schedule
13G, Crabbe Huson reported that it has shared voting power with respect
to 774,287 shares of common stock and shared dispositive power with
respect to 809,887 shares of common stock beneficially owned by its
clients.
(11) Amounts include (1) 141,071 shares of common stock owned directly by
Mr. Mosca (20,000 of such shares are subject to vesting) and (2)
166,503 shares of common stock subject to immediately exercisable
options. "Fully-Diluted Percentage" also includes 145,897 shares of
common stock subject to stock options that may become exercisable
within 60 days of the date hereof. Such stock options
9
<PAGE>
vest and become exercisable, and 20,000 restricted shares vest, upon
stockholder and regulatory approval of the sale of our reinsurance
operations to Folksamerica.
(12) Amounts include (1) 24,304 shares of common stock owned directly by Mr.
Clements, (2) Class A Warrants to purchase 80,000 shares of common
stock, (3) 33,385 shares of common stock subject to immediately
exercisable options and (4) 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, 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 (1) 73,740 shares of common stock subject to stock options and
(2) 150,000 shares of common stock issuable upon the exercise of Class
B Warrants, which Class B Warrants may become exercisable within 60
days of the date hereof.
(13) Amounts include (1) 81,171 shares of common stock owned directly by Mr.
Appel (55,000 of such shares are subject to vesting) and (2) 171,663
shares subject to immediately exercisable options. "Fully-Diluted
Percentage" also includes 94,137 shares of common stock subject to
stock options that may become exercisable within 60 days hereof. Such
stock options vest and become exercisable, and 5,000 restricted shares
vest, upon stockholder and regulatory approval of the sale of our
reinsurance operations to Folksamerica.
(14) Amounts include (1) 29,988 shares of common stock owned directly by Mr.
Malvasio (5,000 of such shares are subject to vesting) and (2) 66,663
shares subject to immediately exercisable options. "Fully-Diluted
Percentage" also includes 74,137 shares of common stock subject to
stock options that may become exercisable within 60 days of the date.
Such stock options vest and become exercisable, and 5,000 restricted
shares vest, upon stockholder and regulatory approval of the sale of
our reinsurance operations to Folksamerica.
(15) Amounts include 1,800 shares (in the case of Messrs. Kelsey and Works,
1,550 and 100 shares, respectively) of common stock subject to
immediately exercisable options. "Fully-Diluted Percentage" also
includes 1,500 shares (in the case of Mr. Works, 1,700 shares) of
common stock subject to stock options that may become exercisable
within 60 days of the date. Such stock options vest and become
exercisable upon stockholder and regulatory approval of the sale of our
reinsurance operations to Folksamerica.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
EQUITY ADVISORY AGREEMENT
We have an investment advisory agreement with Marsh & McLennan Capital,
Inc. ("MMCI") for management of our portfolios of equity securities (including
convertible securities) that are publicly traded ("Public Portfolio") and
privately held ("Private Portfolio"). The Private Portfolio includes equity
securities which do not have a readily ascertainable market or are subject to
certain trading restrictions. MMCI's direct parent, Marsh & McLennnan Risk
Capital Holdings, Ltd. ("MMRCH"), owns 1,395,625 shares, or approximately
11.3% of our outstanding common stock, and Class A warrants and Class B
warrants to purchase 905,397 and 1,770,601 shares of common stock,
respectively. Robert Clements and Philip Wroughton serve on our board of
directors as designees of MMRCH. See "Security Ownership of Certain
Beneficial Owners and Management" and "--Designation of Directors."
Effective July 1, 1999, we amended our investment advisory agreement
with MMCI. Pursuant to the amended agreement, which has a term of four years
(subject to renewal or early termination under certain circumstances), MMCI
provides us with investment management and advisory services with respect to
investments in the Private Portfolio whose value exceeds (1) $10 million during
the first year of the term, (2) $15 million during the second year of the term,
and (3) $20 million during the third and fourth years of the term. Under the
agreement, we pay MMCI an annual fee equal to (x) 20% (previously 7.5%) of
cumulative net
10
<PAGE>
realized gains including dividends, interest and other distributions, received
on the Private Portfolio over (y) cumulative compensation previously paid in
prior years on cumulative net realized gains (as defined in the agreement) on
the Private Portfolio managed by MMCI, but we will not pay MMCI a management fee
(previously 1.5% per annum of the quarterly carrying value of the Private
Portfolio). With respect to the management of our Public Portfolio, we pay MMCI
a fee equal to 0.50% of the first $50 million under MMCI's management and 0.35%
of all amounts in excess of $50 million, subject to a minimum fee of $250,000
per annum (previously 0.35% for the entire Public Portfolio).
In connection with the amendments to our agreement with MMCI, we will
receive from MMCI $1.25 million per annum during the initial four-year term,
subject to certain conditions. The initial agreement provided for a minimum
aggregate cash fee to MMCI of $500,000 per annum through December 31, 1997. Fees
incurred under the agreements during fiscal year 1999 were approximately $1.5
million. In addition, in 1999, unrealized appreciation in the Private Portfolio
is net of accrued fees of approximately $256,000.
We have 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 their
services.
MMCI also serves as investment manager to The Trident Partnership, L.P.
("Trident"), an insurance industry private equity fund and, accordingly, certain
restrictions exist with respect to MMCI's ability to make investment
recommendations to us with respect to investments which would be suitable for
both Trident and us. 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 us. This limitation, however, does not apply to investments in any
such new entity where the total invested capital of such entity does not exceed
$10 million.
In addition, under Trident's investment advisory agreement with 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, we may
not be offered the opportunity to participate in such investment unless Trident
first offers at least all Trident partners with capital commitments of at least
$50 million the right to participate in such additional investment on a pro rata
basis. Pursuant to the terms of our 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 us an opportunity to
make such investment.
TRIDENT II, L.P.
On June 4, 1999, we committed to invest $25 million as a limited partner of
Trident II, L.P., a partnership managed by MMCI. Trident II makes private
equity-related investments in the global insurance, reinsurance and related
industries. The fund targets investments in existing companies that are in need
of growth capital or are underperforming as well as in newly formed companies.
The chairman of our board of directors is one of four senior principals of MMCI
who manage Trident II.
The term of Trident II expires in 2009. However, the term may be extended
for up to a maximum of three one-year periods at the discretion of MMCI to
permit orderly dissolution.
During the first six years of the fund, we will pay an annual management
fee, payable semi-annually in advance, equal to 1.5% of our aggregate $25.0
million commitment as well as a percentage of cumulative net gains on invested
funds. After such six year period, the annual management fee will be 1.5% of the
aggregate funded commitments. For the period ended December 31, 1999, we funded
our 1.96% share, or $6.1 million, of investments made by Trident II in various
entities. Fees and expenses of $250,000 were paid in 1999 to MMCI relating to
its management of Trident II.
11
<PAGE>
FIXED INCOME ADVISORY AGREEMENT
We had an investment advisory agreement with The Putnam Advisory Company,
Inc., an affiliate of MMCI, for the management of our fixed income securities
and short-term cash portfolios through April 1999. In May 1999, we transferred
the management of the fixed income and short-term cash portfolios from Putnam to
Alliance Capital Management L.P. For the fixed income securities portfolio, we
paid to Putnam a fee equal to the sum of 0.35% per annum of the first $50
million of the market value of the portfolio, 0.30% per annum on the next $50.0
million, 0.20% per annum on the next $100 million, and 0.15% per annum of the
market value of assets that exceeded $200 million. For the short-term cash
portfolio, we paid a fee equal to 0.15% per annum of the total monthly average
market value. Fees incurred under the Putnam agreement for the period in 1999
were approximately $173,000.
XL STOCK REPURCHASE
On March 2, 2000, we repurchased from XL Capital Ltd, then our single
largest stockholder, all of the 4,755,000 shares of our common stock held by it.
Under the terms of a stock repurchase agreement with XL Capital, we paid $12.45
per share of our common stock, or a total of $59.2 million. The per share
repurchase price was determined as the lesser of (1) 85% of the average closing
market price of our common stock during the 20 trading days beginning on the
third business day following public announcement of the stock repurchase and
asset sale (January 21, 2000), which was $14.65, and (2) $15. We paid XL Capital
the consideration for the repurchase with: our interest in privately held LARC
Holdings, Ltd. (parent of Latin American Reinsurance Company Ltd.), valued at
$25 million (which was carried by us at $24 million at December 31, 1999); and
all of our interest in Annuity and Life Re (Holdings), Ltd., valued at $25.38
per share and $18.50 per warrant, or $37.8 million in the aggregate (which was
carried by us at $38.2 million at December 31, 1999). XL Capital paid us in cash
the difference (equal to $3.6 million) between our repurchase price and the
value of our interests in LARC Holdings and Annuity and Life Re. The value per
share of Annuity and Life Re was determined by taking the average of the closing
price of Annuity and Life Re shares for the same period used in determining the
repurchase price of our shares. The value of the warrants was determined using a
Black Scholes methodology. We have filed the stock repurchase agreement and
related voting and disposition agreement as exhibits to this annual report. The
above summary of the transaction is qualified by these agreements, which are
incorporated by reference.
OTHER TRANSACTIONS
Commencing in 1996, we 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 $1,218,000. Rental income for 1999 was $430,000. In 1999, MMCI
also reimbursed us approximately $60,000 for MMCI's pro rata share of costs for
improvements and maintenance under the sublease. In addition, commencing in
1997, we subleased approximately 6,000 square feet of the office space to
another tenant for a term expiring in October 2002. Rental income for this space
during 1999 was approximately $225,000, of which $84,000 was allocated to MMCI
as its pro rata share of such income. Effective March 31, 2000, the sublease
with this tenant was terminated, and MMCI has assumed the 6,000 square feet of
space and will be responsible for the costs associated with the space.
Pursuant to agreements among Robert Clements, MMCI and MMRCH, and in
recognition of services provided by Mr. Clements to MMCI, our equity investment
advisor, MMRCH transferred to Mr. Clements Class A Warrants to purchase 200,000
shares of our 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 our equity advisory agreement with MMCI
reach certain levels. See "Directors and Executive Officers of the Registrant"
and "--Equity Advisory Agreement."
12
<PAGE>
Lewis L. Glucksman, a member of our board, is an Advisory Director and
former Vice Chairman of Salomon Smith Barney Holdings Inc., an affiliate of
which served as lead underwriter for our initial public offering and performs
investment banking services for us from time to time.
In April 1996, we acquired a 33% economic interest (9.75% voting interest)
in Island Heritage Insurance Company, Ltd., a Cayman Islands insurer, for an
aggregate purchase price of $4.5 million. Certain of our directors and other
investors invested in the securities of Island Heritage at the same per share
price as that paid by us. In February 1999, we made an additional investment in
Island Heritage in the amount of approximately $1.0 million.
Prior to the sale of our reinsurance operations to Folksamerica, we have
engaged, in the ordinary course of our business, in insurance, investment or
other transactions with XL Capital 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.
We have invested, and in the future may continue to invest, in entities in which
Trident has invested or is investing. Prior to the asset sale, we have provided
reinsurance to certain of these entities. We believe that the terms of such
transactions, including those described below, are no less favorable to us than
could have been obtained from third parties that were not affiliated with us.
In 1999, the company assumed net premiums written and net premiums earned
of approximately $5.2 million and $5.3 million, respectively, from an affiliate
of XL Capital. In addition, we assumed net premiums written and net premiums
earned of approximately $17.4 million and $17.3 million, respectively, from
insurance companies that are majority-owned by Trident.
Affiliates of Marsh act as reinsurance intermediaries to us from time to
time. Commissions allocable to these intermediaries for premiums earned by the
company in fiscal year 1999 were approximately $28.2 million. In addition,
affiliates of Marsh are authorized insurance brokers of the Company for its
corporate insurance needs.
At December 31, 1999, the company owned common stock of XL Capital with an
estimated fair value and carrying value of $13,488,000.
In April 1998, the company acquired for approximately $20 million a
minority ownership interest in Annuity and Life Re (Holdings), Ltd., which
investment was made concurrently with an investment by XL Capital. In November
1997, XL Capital and the company formed Latin American Reinsurance Company,
Ltd., which was capitalized with approximately $100 million, of which XL Capital
and the company contributed approximately $75 million and $25 million,
respectively. Each of these two investments was transferred to XL Capital in
connection with the XL stock repurchase described above.
In July 1997, XL Capital, 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 June 1999, the company sold its investment in Sovereign Risk to XL
Capital and the other investor, and recorded a related after-tax net realized
gain of $103,000. We retained an option to provide certain reinsurance on
business produced by Sovereign Risk for a five-year period.
In two separate and unrelated transactions in December 1997, we and XL
Capital each acquired minority ownership interests in American Strategic
Insurance Corp. and Sunshine State Insurance Company, two newly-formed
Florida-based insurers. We and XL Capital each invested an aggregate of
approximately $3.8 million in these two issuers. In connection with these
investments, the company and XL provide the issuers with reinsurance during
specified periods.
In March 1998, we 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 Capital, MMRCH and members
of the issuer's management. The stockholders provided their capital through a
combination of cash and unfunded commitments supported by letters of credit. We
provided, for a fee and on behalf of Trident, the letter of credit supporting
Trident's unfunded obligation. In July 1999, the company and Trident funded
their commitments to Altus of $3.3 million and $5.8 million, respectively, and
XL Capital redeemed its shares in Altus at original cost. In July 1999, Altus
acquired First American (referred to below), another company in which we had
made an investment.
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<PAGE>
In February 1997, we 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, we 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 1999, we assumed net premiums
written from business developed by First American in the amount of $0.9 million.
As described above, Altus acquired First American in July 1999.
In March 1998, we acquired for approximately $2.8 million a minority
ownership interest in Arbor Acquisition Corp., a Boston-based national surplus
lines and wholesale brokerage firm. Our investment was made concurrently with a
minority investment by Marsh. In September 1998, we invested an additional
$845,000 in Arbor. Arbor's business was sold in two transactions during 1999,
and it is anticipated that Arbor's remaining operations will be substantially
wound up by July 2000.
In July 1997, we acquired a minority ownership interest in The ARC Group,
LLC, a wholesaler of specialty insurance, for approximately $9.5 million. Our
investment was made concurrently with a minority investment by Marsh.
In December 1997, we acquired a minority ownership interest in GuideStar
Health Systems, Inc., an Alabama-based managed care organization, for
approximately $1,000,000. Our investment was made concurrently with an
investment by Trident.
DESIGNATION OF DIRECTORS
In connection with our initial public offering in September 1995, and
subject to certain conditions, we agreed to allow (1) MMRCH to designate (and we
have agreed to use our best efforts to cause to be elected) two directors to our
board of directors and (2) Trident to designate (and we have agreed to use our
best efforts to cause to be elected) one director to our board of directors.
Robert Clements and Philip Wroughton are MMRCH's designees, and Trident does not
currently have a designee serving on our board. Prior to the stock repurchase
described above (see "--XL Stock Repurchase"), XL Capital had the right to
designate two directors, and had selected Michael Esposito, Jr. and Ian Heap as
its designees. Following the stock repurchase, Messrs. Esposito, Jr. and Heap
continue to serve as members of our board but no longer as XL's designees.
REGISTRATION RIGHTS
In connection with our initial public offering, and subject to certain
limitations, we granted each of Trident, MMRCH and Taracay (the "Investors") the
right to require us to register under the Securities Act of 1933 its warrants,
shares of our common stock and shares of common stock underlying the warrants
(collectively, "Registrable Securities"). In addition, whenever we propose to
register under the Securities Act any of our securities for our 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"). We also granted Piggyback
Registration Rights to Mr. Mosca with respect to certain shares of common stock
that he purchased at the time of our initial public offering. In connection with
all such registrations, we are 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, we 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 hereof, Trident had
sold 1,500,000 of shares pursuant to the registration statement, and
continues to own 250,000 shares of our common stock and Class A Warrants to
purchase 1,386,079 shares of common stock.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RISK CAPITAL HOLDINGS, INC.
(Registrant)
By: /s/ Mark D. Mosca
--------------------------------------
Mark D. Mosca
President and Chief Executive Officer
April 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MARK D. MOSCA President and Chief Executive Officer April 28, 2000
------------------------------- (Principal Executive Officer) and
Mark D. Mosca Director
/s/ ROBERT CLEMENTS* Chairman and Director April 28, 2000
-------------------------------
Robert Clements
/s/ PETER A. APPEL Executive Vice President, Chief April 28, 2000
------------------------------- Operating Officer, General Counsel,
Peter A. Appel Secretary and Director
/s/ PAUL J. MALVASIO Managing Director, Chief Financial April 28, 2000
------------------------------- Officer and Treasurer (Principal
Paul J. Malvasio Financial Officer and Principal
Accounting Officer)
/s/ MICHAEL P. ESPOSITO, JR.* Director April 28, 2000
-------------------------------
Michael P. Esposito, Jr.
/s/ LEWIS L. GLUCKSMAN* Director April 28, 2000
-------------------------------
Lewis L. Glucksman
/s/ IAN R. HEAP* Director April 28, 2000
-------------------------------
Ian R. Heap
/s/ THOMAS V. A. KELSEY* Director April 28, 2000
-------------------------------
Thomas V. A. Kelsey
/s/ ROBERT F. WORKS* Director April 28, 2000
-------------------------------
Robert F. Works
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
/s/ PHILIP L. WROUGHTON* Director April 28, 2000
-------------------------------
Philip L. Wroughton
</TABLE>
- ---------------------
* By Peter A. Appel, as attorney-in-fact and agent, pursuant to a power of
attorney, a copy of which has been filed with the Securities and Exchange
Commission as Exhibit 24 to this report.
/s/ Peter A. Appel
----------------------------------
Name: Peter A. Appel
Attorney-in-Fact
16
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation of Risk
Capital Holdings, Inc. ("RCHI")(a)
3.2 Amended and Restated Bylaws of RCHI(b)
4.1 Specimen Common Stock Certificate(a)
4.2.1 Class A Common Stock Purchase Warrants issued to Marsh &
McLennan Risk Capital Holdings, Ltd. ("MMRCH") on September 19,
1995(b) and September 28, 1995(c)
4.2.2 Class A Common Stock Purchase Warrants issued to The Trident
Partnership, L.P. ("Trident") on September 19, 1995(b) and
September 28, 1995(c)
4.2.3 Class A Common Stock Purchase Warrants issued to Taracay
Investors ("Taracay") on September 19, 1995(b) and September
28, 1995(c)
4.3 Class B Common Stock Purchase Warrants issued to MMRCH on
September 19, 1995(b) and September 28, 1995(c)
10.1.1 Employment Agreement, between RCHI and Mark D. Mosca(b)+
10.1.2 Employment Agreement, between RCHI and Peter A. Appel(b)+
10.1.3 Employment Agreement, between RCHI and Bonnie L. Boccitto(b)+
10.1.4 Employment Agreement, between RCHI and Paul J. Malvasio(b)+
10.2 Amended and Restated Subscription Agreement, between RCHI and
Trident(b)
10.3 Amended and Restated Subscription Agreement, between RCHI and
MMRCH(b)
10.4 Amended and Restated Subscription Agreement, between RCHI and
Taracay(b)
10.5 Purchase Agreement, between RCHI and X.L. Insurance Company,
Ltd.(b)
- ----------------
(a) Filed as an exhibit to Amendment No. 3 to our Registration Statement on
Form S-1 (No. 33-94184), as filed with the Securities and Exchange
Commission (the "SEC") on August 11, 1995, and incorporated by reference.
(b) Filed as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 1995, as filed with the SEC on March 30, 1996, and
incorporated by reference.
(c) Filed as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 1996, as filed with the SEC on March 31, 1997, and
incorporated by reference.
(d) Filed as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 1997, as filed with the SEC on March 27, 1998, and
incorporated by reference.
(e) Filed as an exhibit to our Report on Form 10-Q for the period ended June
30, 1998, as filed with the SEC on August 14, 1998, and incorporated by
reference.
(f) Filed as an exhibit to our Definitive Proxy Statement,as filed with the
SEC on April 14, 1999, and incorporated by reference.
(g) Filed as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 1998, as filed with the SEC on March 30, 1999, and
incorporated by reference.
E-1
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.6.1 Investment Advisory Agreement, between RCHI and Marsh &
McLennan Capital, Inc. ("MMCI")(b)
10.6.2 Investment Advisory Agreement, between Risk Capital Reinsurance
Company ("RCRe") and MMCI(b)
10.6.3 Investment Advisory Agreement among, RCHI, RCRe and Alliance
Capital Management L.P.(i)
10.7 Management Agreement, among RCHI, RCRe and The Putnam Advisory
Company, Inc.(b)
10.8.1 Sublease Agreement, dated as of March 18, 1996, between RCRe
and Coca-Cola Bottling Company of New York, Inc.
("Coca-Cola")(b)
10.8.2 Sublease Amendment Agreement and Consent, dated as of November
11, 1997, between RCRe and Coca-Cola(d)
10.8.3 Sub-Sublease Agreement, dated as of March 18, 1996, between
RCRe and MMCI(e)
10.8.4 Sub-Sublease Agreement, dated as of April 30, 1997, between
RCRe and Bank of Ireland Asset Management (US) Limited ("BOI"),
as amended(e)
10.8.5 Sub-Sublease Termination Agreement, effective March 31, 2000,
between RCRe and BOI(l)
10.9.1 Tax Sharing Agreement, between RCHI and RCRe (amended)(d)
10.9.2 Addition of Cross River Insurance Company to Tax Sharing
Agreement(g)
10.10.1 RCHI 1999 Long Term Incentive and Share Award Plan(f)+
10.10.2 RCHI 1995 Long Term Incentive and Share Award Plan (the "1995
Stock Plan")(b)+
10.10.3 First Amendment to the 1995 Stock Plan(c)+
10.10.4 Restricted Stock Agreements--Executive Officers(h)+
10.10.5 Stock Option Agreements--Executive Officers--1995 and 1996
grants(h) and 1997 and 1998 grants(g)+
10.10.6 Stock Option Agreements--Chairman--1996 grant,(h) 1997 grant(d)
and 1998 grant(g)
- ---------------
(h) Filed as an exhibit to our Report on Form 10-Q for the period ended June
30, 1997, as filed with the SEC on August 14, 1997, and incorporated by
reference.
(i) Filed as an exhibit to our Report on Form 10-Q for the period ended June
30, 1999, as filed with the SEC on August 12, 1999, and incorporated by
reference.
(j) Filed as an exhibit to our Registration Statement on Form S-8 (No.
33-99974), as filed with the SEC on December 4, 1995, and incorporated by
reference.
(k) Filed as an exhibit to our Report on Form 8-K, as filed with the SEC on
January 18, 2000, and incorporated by reference.
(l) Filed as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 1999, as filed with the SEC on March 30, 2000, and
incorporated by reference.
+ A management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
E-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.10.7 Stock Option Agreements--Non-Employee Directors--initial
grants(g) (l)
10.10.8 Stock Option Agreements--Non-Employee Directors--1996 and 1997
annual grants,(c) 1998 annual grants,(d) 1999 annual grants (g)
and 2000 annual grants(l)
10.11.1 Change in Control Agreement (as amended)--President(i)+
10.11.2 Change in Control Agreements (as amended)--Managing
Directors(i)+
10.11.3 Form of Change in Control Agreements (as amended)--Senior Vice
Presidents(i)+
10.11.4 Change in Control Severance Plan (as amended)(i)+
10.12 RCHI 1995 Employee Stock Purchase Plan(j)+
10.13.1 RCRe Money Purchase Pension Plan (the "Pension Plan")(b)+
10.13.2 Amendment and Restatement of the Adoption Agreement relating to
the Pension Plan(c)+
10.13.3 Amendment to the Adoption Agreement relating to the Pension
Plan(g)+
10.14.1 RCRe Employee Savings Plan (the "Savings Plan")(b)+
10.14.2 Amendment and Restatement of the Adoption Agreement relating to
the Savings Plan(c)+
10.14.3 Amendment to the Adoption Agreement relating to the Savings
Plan(g)+
10.15.1 RCRe Executive Supplemental Non-Qualified Savings and
Retirement Plan (the "Supplemental Plan") and related Trust
Agreement(b)+
10.15.2 Amendment No. 1 to the Adoption Agreement relating to the
Supplemental Plan(c)+
10.15.3 Amendment No. 2 to the Adoption Agreement relating to the
Supplemental Plan(g)+
10.16 Asset Purchase Agreement, dated as of January 10, 2000, amount
RCHI, Folksamerica Holding Company, Inc. ("FHC") and
Folksamerica Reinsurance Company ("FRC")(k)
10.17 Voting Agreement, dated as of January 10, 2000, among MMRCH,
RCHI and FHC(k)
10.18 Voting Agreement, dated as of January 10, 2000, among Trident,
RCHI and FHC(k)
10.19 Voting Agreement, dated as of January 10, 2000, among XL
Capital Ltd ("XL"), Garrison Investments Inc. ("GI"), RCHI and
FHC(k)
10.20 Form of Transfer and Assumption Agreement between RCRe and
FRC(k)
10.21 Form of Balance Sheet of Assumed Business(k)
10.22 Form of Escrow Agreement among RCRe, FHC, FRC and the Escrow
Agent(k)
10.23 Form of Supplemental Escrow Agreement among, RCRe, FHC, FRC and
the Escrow Agent(k)
10.24 Stock Repurchase Agreement, dated January 17, 2000, among RCHI,
RCRe, XL and GI(k)
10.25 Form of Voting and Disposition Agreement, among RCHI, RCRe, XL
and GI(k)
21 Subsidiaries of Registrant(g)
23 Consent of PricewaterhouseCoopers LLP (filed herewith)
24 Power of Attorney (filed herewith)
27 Financial Data Schedule(l)
E-3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
99.1 Definitive proxy statement for a special meeting of
stockholders, filed with the SEC on March 16, 2000 (excluding
our audited financial statements and annexes thereto)(l)
E-4
<PAGE>
EXHIBIT 23
[Letterhead of PricewaterhouseCoopers LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (Registration No. 33-34499) and Registration Statements on
Form S-8 (Registration No. 33-99974 and 333-86145) of Risk Capital Holdings,
Inc. of our report dated February 1, 2000, except as to Note 14, which is as of
March 2, 2000, appearing on page F-2 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1999. We also consent to the incorporation by
reference of our report on the Financial Statement Schedules, also dated
February 1, 2000, except as to Note 14, which is as of March 2, 2000, which
appears on page S-1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1999. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 29, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark D. Mosca, Paul J. Malvasio and Peter A.
Appel, and each of them, with full power to act without the other, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report of Risk Capital Holdings, Inc. on Form
10-K for the fiscal year ended December 31, 1999, including one or more
amendments to such Form 10-K, which amendments may make such changes as such
person deems appropriate, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power-of-Attorney on
the date set opposite his respective name.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ MARK D. MOSCA President and Chief Executive March 21, 2000
--------------------------------- Officer and Director (Principal
Mark D. Mosca Executive Officer)
/s/ ROBERT CLEMENTS Chairman and Director March 22, 2000
---------------------------------
Robert Clements
/s/ PETER A. APPEL Executive Vice President, Chief March 21, 2000
--------------------------------- Operating Officer, General Counsel,
Peter A. Appel Secretary and Director
/s/ PAUL J. MALVASIO Managing Director, Chief Financial March 21, 2000
--------------------------------- Officer and Treasurer (Principal
Paul J. Malvasio Financial Officer and Principal
Accounting Officer)
/s/ MICHAEL P. ESPOSITO, JR. Director March 27, 2000
---------------------------------
Michael P. Esposito, Jr.
/s/ LEWIS L. GLUCKSMAN Director March 27, 2000
---------------------------------
Lewis L. Glucksman
/s/ IAN R. HEAP Director March 22, 2000
---------------------------------
Ian R. Heap
/s/ THOMAS V. A. KELSEY Director March 27, 2000
---------------------------------
Thomas V. A. Kelsey
/s/ ROBERT F. WORKS Director March 23, 2000
---------------------------------
Robert F. Works
/s/ PHILIP L. WROUGHTON Director March 27, 2000
---------------------------------
Philip L. Wroughton
</TABLE>
