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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or 240.14a-12
EXECUTIVE RISK INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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[EXECUTIVE RISK Letterhead]
March 27, 1998
To the Stockholders of Executive Risk Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
Executive Risk Inc. ("Executive Risk" or the "Company") to be held at 10:00 a.m.
on Friday, May 8, 1998 at the offices of the Company at the Tower Business Park,
82 Hopmeadow Street (Routes 10 & 202), Simsbury, Connecticut. Stockholders will
be asked to consider and vote upon the election of directors and the appointment
of auditors for 1998. A report on the current affairs of Executive Risk also
will be presented at the meeting, and you will have an opportunity for questions
and comments.
We look forward to welcoming you to this year's stockholders' meeting.
WHETHER OR NOT YOU PLAN TO ATTEND, WE ASK THAT YOU PARTICIPATE IN THE MEETING BY
COMPLETING, SIGNING AND RETURNING THE ENCLOSED PROXY AS SOON AS POSSIBLE. This
will not limit your right to attend the meeting, and if you are able to join us,
your signed Proxy will not limit your right to vote in person at the meeting.
For your benefit, enclosed is a copy of Executive Risk's Annual Report for
1997, which includes the financial statements. We hope this material is of value
to you, and we thank you for your interest in Executive Risk.
Sincerely,
/s/ Stephen J. Sills /s/ Robert H. Kullas
Stephen J. Sills Robert H. Kullas
President and Chief Executive Officer Chairman
EXECUTIVE RISK INC.
82 HOPMEADOW STREET
POST OFFICE BOX 2002
SIMSBURY, CONNECTICUT 06070-7683
860-408-2000
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[EXECUTIVE RISK Letterhead]
EXECUTIVE RISK INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 8, 1998
March 27, 1998
To the Stockholders of Executive Risk Inc.:
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Executive Risk Inc., a Delaware corporation (the "Company"), will
be held at the principal offices of the Company at the Tower Business Park, 82
Hopmeadow Street (Routes 10 & 202), Simsbury, Connecticut, on Friday, May 8,
1998 at 10:00 a.m. for the following purposes:
Item 1. To elect four (4) directors to hold office until the 2001 Annual
Meeting of Stockholders and until their respective successors have
been duly elected and qualified;
Item 2. To ratify the appointment of Ernst & Young LLP, independent public
accountants, as the Company's auditors for the year 1998; and
to transact such other business as may properly be brought before the meeting or
any adjournment thereof. The Board of Directors has fixed the close of business
on March 18, 1998, as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Annual Meeting. Enclosed are a Proxy
Statement, a form of Proxy and an addressed return envelope. ALL STOCKHOLDERS,
WHETHER OR NOT THEY EXPECT TO BE PRESENT AT THE MEETING, ARE REQUESTED TO DATE
AND SIGN THE PROXY AND TO RETURN IT AS SOON AS POSSIBLE IN THE ADDRESSED
ENVELOPE PROVIDED. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES
AND VOTE IN PERSON.
By Order of the Board of Directors
/s/ JAMES A FITZPATRICK, JR.
James A. FitzPatrick, Jr.
Secretary
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EXECUTIVE RISK INC.
82 HOPMEADOW STREET
SIMSBURY, CONNECTICUT 06070
(860) 408-2000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors of
Executive Risk Inc., a Delaware corporation, for use at the 1998 Annual Meeting
of Stockholders (the "Annual Meeting") to be held at 10:00 a.m. on Friday, May
8, 1998, at the offices of the Company at the Tower Business Park, 82 Hopmeadow
Street (Routes 10 & 202), Simsbury, Connecticut. Executive Risk Inc. is the
parent corporation of Executive Re Inc., which it acquired on January 1, 1994;
unless otherwise indicated, references to the "Company" in this Proxy Statement
shall mean Executive Re Inc. with respect to any period prior to January 1, 1994
and Executive Risk Inc. with respect to any period on and after such date. The
Company's principal executive offices are located at 82 Hopmeadow Street,
Simsbury, Connecticut 06070. The approximate date on which the Proxy Statement
and the accompanying Proxy are first being sent to Stockholders is March 27,
1998.
Proxies are being solicited from holders of the Company's common stock, par
value $0.01 per share (the "Common Stock"). If the Proxy is properly executed
and returned, the shares represented thereby will be voted and, where
specification is made by the stockholder as provided therein, will be voted in
accordance with such specification. The Proxy may be revoked by delivering to
the Secretary of the Company an instrument of revocation at any time prior to
the voting thereof or by presentation at the Annual Meeting of a duly executed
proxy bearing a later date. In addition, stockholders of record who attend the
Annual Meeting may vote in person even though they have submitted a Proxy, in
which event the Proxy will be deemed to have been revoked.
The Board of Directors has fixed the record date for the determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting as March
18, 1998. As of the record date, the Company had 10,886,987, shares of Common
Stock outstanding and eligible to vote.
The Company will bear the entire cost of preparing, assembling, printing
and mailing this Proxy Statement, the accompanying Proxy and any additional
material which may be furnished to stockholders. Copies of solicitation
materials will be furnished to brokerage houses, fiduciaries and custodians to
forward to beneficial owners of stock held in their names. The solicitation of
Proxies will be made by the use of the mails and through direct communication
with certain stockholders or their representatives by officers, directors and
employees of the Company, who will receive no additional compensation therefor.
The Company has engaged Corporate Investor Communications, Inc. to distribute
materials to brokerage houses, fiduciaries, custodians and other nominee
holders. The Company will pay less than $4,500, plus out-of-pocket expenses, for
their services.
VOTING RIGHTS
Holders of Common Stock are entitled to one vote per share of stock held on
each matter that is voted on at the Annual Meeting. There is no cumulative
voting. The presence at the Annual Meeting, in person or by Proxy, of the
holders of a majority of the shares of Common Stock outstanding and entitled to
vote shall constitute a quorum. The votes required with respect to each of the
items to be considered by stockholders are set forth in the discussion of each
item herein.
Unless contrary instructions are indicated on the proxy card, all shares of
Common Stock represented by valid Proxies will be voted as follows: (a) FOR the
election of the nominees to the Board of Directors and (b) FOR the ratification
of the appointment of Ernst & Young LLP as the Company's independent auditors
for 1998, both as set forth on the Proxy and described below; and voted in the
discretion of the person or persons holding the Proxies in respect of such other
business, if any, as may properly be brought before the Annual Meeting. As of
the date hereof, the Board of Directors knows of no business that will be
presented for
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consideration at the Annual Meeting other than those matters referred to herein.
If you give specific instruction by marking the boxes on the Proxy, your shares
will be voted in accordance with such instructions.
ITEM 1: ELECTION OF FOUR DIRECTORS IN CLASS II TO TERMS EXPIRING AT THE 2001
ANNUAL MEETING
The Company's Amended and Restated Certificate of Incorporation provides
for a Board of Directors consisting of no less than seven and no more than
eleven persons, as determined by the Board of Directors from time to time. On
the date of this Proxy Statement, the following eleven persons serve as
directors of the Company: Gary G. Benanav, Barbara G. Cohen, John G. Crosby,
Robert V. Deutsch, Patrick A. Gerschel, Peter Goldberg, Robert H. Kullas,
Michael D. Rice, Joseph D. Sargent, Stephen J. Sills and Irving B. Yoskowitz.
There are no vacancies. The Board of Directors is divided into three classes,
each of which serves a term of three years. The Class I directors consist of
Messrs. Crosby, Gerschel, Goldberg and Kullas, and the term of the Class I
directors expires at the 2000 Annual Meeting. The Class II directors consist of
Messrs. Benanav, Deutsch, Rice and Yoskowitz, each of whose term expires at the
Annual Meeting and each of whom has been nominated for reelection at the Annual
Meeting to a term expiring at the 2001 Annual Meeting. The Class III directors
consist of Ms. Cohen and Messrs. Sargent and Sills, and the term of office of
the Class III directors expires at the 1999 Annual Meeting. Vacancies within any
Class may be filled by a majority vote of the Board of Directors.
DIRECTOR BIOGRAPHIES
Biographical summaries of those persons who are members of the Board of
Directors, or who are nominees for election at the Annual Meeting, follow below.
Data with respect to shares of the Company's Common Stock beneficially owned by
each of them, directly or indirectly, as of March 5, 1998 appears later in this
Proxy Statement.
Robert H. Kullas (53). Since January 1994, Mr. Kullas has served as a
director of the Company and its principal indirect insurance subsidiaries,
Executive Risk Indemnity Inc. ("ERII") and Executive Risk Specialty Insurance
Company ("ERSIC"), and as Chairman of the Partnership Committee of the Company's
underwriting manager, Executive Risk Management Associates ("ERMA"). Since May
1997, he has been Chairman of the Company and Co-chairman of ERII and ERSIC.
From April 1996 until May 1997 he served as the Vice Chairman and Chief
Operating Officer of the Company, ERII and ERSIC. From January 1994 until August
1994, his title was Chairman of the Board of each of the Company, ERII and
ERSIC, and from August 1994 through April 1996 he was President and Chief
Operating Officer for each of the Company, ERII and ERSIC. Prior to 1994, Mr.
Kullas held various financial and planning positions in the Life, Financial and
Commercial Insurance Divisions at Aetna Life & Casualty Company ("AL&C"),
including his last position, from 1991 through 1993, as Vice President-Finance
and Treasurer.
Stephen J. Sills (49). Mr. Sills has served as a director of the Company
since December 1986. He has been the President and Chief Executive Officer of
the Company, ERII and ERSIC since May 1997, and from April 1996 until May 1997
served as President and Chief Underwriting Officer. He served as Executive Vice
President and Chief Underwriting Officer from November 1990 until April 1996.
Mr. Sills has been a director of ERII and ERSIC since February 1987 and December
1991, respectively. Mr. Sills also has served as President and Partnership
Committee member of ERMA since January 1988.
Robert V. Deutsch (38). Mr. Deutsch became a director of the Company and a
member of the Partnership Committee of ERMA in May 1997. He has served as
Executive Vice President, Chief Financial Officer, Chief Actuary and Treasurer
of the Company since April 1996, and as President of ERII and ERSIC and
Executive Vice President of ERMA since May 1997. Prior to those respective
dates, he had served as Senior Vice President, Chief Financial Officer, Chief
Actuary and Treasurer of the respective entities since November 1990.
Gary G. Benanav (52). Mr. Benanav has served as a director of the Company
and of ERII since April 1988 and a director of ERSIC since December 1991, and
has been a member of the Partnership Committee of ERMA since January 1994. In
December 1997, he became Chairman and Chief Executive Officer of New York Life
International, Inc. and Executive Vice President of New York Life Insurance
Company. Prior to
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joining New York Life Insurance, Mr. Benanav had served since October 1996 as
Chief Operating Officer of ProHealth Physicians MSO, Inc., a Farmington, CT
medical management services organization. Prior to October 1996 he was Executive
Vice President of AL&C and head of AL&C's property/casualty lines, positions
held since December 1993. From April 1992 through December 1993, he served as
Group Executive responsible for Aetna Life Insurance and Annuity Company
businesses and Aetna International. He also serves as a director of Barnes
Group, Inc., Bristol, CT.
Barbara G. Cohen (45). Ms. Cohen has served as a director of the Company,
ERII and ERSIC since May 1996. Since 1993 Ms. Cohen has been President of Kannon
Consulting, a Chicago-based marketing consulting firm. From 1991 to 1993 she was
a senior partner at Cambridge Group, Inc. and, prior to that, a partner in the
Marketing and Strategy practice of Booz, Allen & Hamilton, Inc.
John G. Crosby (54). Mr. Crosby has served as a director of the Company
since 1987 and as a director of ERII and ERSIC, and a member of the Partnership
Committee of ERMA, since January 1994. Mr. Crosby is currently President and
Managing Director of the investment banking firm, Madison Partners, Inc., a
position he has held since September 1995. He served as Managing Director of LSG
Advisors ("LSG"), an investment banking firm and a division of Societe General
Securities Corp., from May 1993 through August 1995. From 1990 through May 1993,
Mr. Crosby served as Managing Director of The Lodestar Group, predecessor to
LSG.
Patrick A. Gerschel (51). Mr. Gerschel has served as a director of the
Company and of ERII since July 1990, as a director of ERSIC since December 1991
and as a member of the Partnership Committee of ERMA since January 1994. Mr.
Gerschel has served as Chairman of Gerschel & Co., a merchant banking firm,
since 1980 and as Chairman of Residential Company of America since 1996.
Peter Goldberg (61). Mr. Goldberg has served as a director of the Company,
ERII and ERSIC, and a member of the Partnership Committee of ERMA, since May
1994. Mr. Goldberg has served as Chairman and a director of Calco Insurance
Brokers & Agents, Inc. since 1993. Since 1993, Mr. Goldberg also has served as
President and a director of California Casualty Management Company.
Michael D. Rice (55). Mr. Rice has served as a director of the Company
since 1986. He has also served as a director of ERII and ERSIC, and a member of
the Partnership Committee of ERMA, since January 1994. Mr. Rice has served as
President of Aon Specialty Group, an insurance brokerage firm, since 1989.
Joseph D. Sargent (68). Mr. Sargent has served as a director of the
Company, ERII and ERSIC since December 1986, February 1987 and December 1991,
respectively. He has also served as a member of the Partnership Committee of
ERMA since January 1994. Mr. Sargent currently serves as Chairman of Bradley,
Foster & Sargent, Inc., and is the Vice Chairman of Connecticut Surety
Corporation, where he was Chairman from December 1992 until February 1998. Mr.
Sargent served as Chairman, and later as Vice Chairman, of Conning & Company, an
investment banking firm, from 1991 to 1995 and as its Chairman and Chief
Executive Officer from 1988 to 1991. Mr. Sargent is a director of Command
Systems, Inc., Trenwick Group Inc., E.W. Blanch Holdings, Policy Management
Systems Corporation, Mutual Risk Management Ltd. and MMI Companies, Inc.
Irving B. Yoskowitz (52). Mr. Yoskowitz has served as a director of the
Company, ERII and ERSIC, in each case under interim election by the Board, and
as a member of the Partnership Committee of ERMA, since November 1997. He has,
since 1990, been Executive Vice President and General Counsel at United
Technologies Corp. Mr. Yoskowitz is also a director of BBA Group, London,
England.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors had seven meetings during fiscal 1997. In addition,
various Committees of the Company's, ERII's and ERSIC's Board met an aggregate
of twenty-one times during 1997. Each incumbent director of the Company attended
at least 75% of the aggregate meetings of the Board of Directors and of the
Committees thereof of which he or she was a member during 1997.
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COMMITTEES OF THE BOARD OF DIRECTORS
The standing committees of the Board of Directors are the Executive
Committee, the Audit Committee, the Committee on Directors and Compensation (the
"Compensation Committee") and the Finance Committee. In addition, the Boards of
Directors of the Company's principal insurance subsidiaries, ERII and ERSIC,
each have an Underwriting Committee.
The Executive Committee has responsibility for the management of the
business and affairs of the Company between meetings of the Board and does not
have a regular meeting schedule. The members of the Executive Committee are
Messrs. Kullas, Rice, Sargent and Sills (Chairman). The Executive Committee did
not meet in fiscal 1997.
The Audit Committee has responsibility for reporting to the Board
concerning such Committee's review of the Company's financial condition. The
members of the Audit Committee are Messrs. Gerschel, Goldberg, Sargent
(Chairman) and Yoskowitz. The Company's Audit Committee held four meetings in
fiscal 1997.
The Compensation Committee has responsibility for identifying and
recommending to the Company's stockholders nominees to its Board of Directors,
and for administering the Company's employee benefits plans and determining
compensation for its officers. The members of the Compensation Committee are
Messrs. Crosby (Chairman), Rice, Sargent and Yoskowitz. The Committee will
consider candidates for the Board recommended by stockholders. Recommendations
should be submitted in writing to the Secretary of the Company and should
identify the nominee by name and provide pertinent biographical information. A
stockholder recommendation must be received at least 90 days prior to the date
of the Annual Meeting of Stockholders. The Compensation Committee held nine
meetings in 1997.
The Finance Committee has responsibility for the investing and reinvesting
of funds of the Company, including purchasing, selling, transferring, voting
proxies for and converting stocks, bonds, notes and other securities. The
members of the Finance Committee are Messrs. Benanav (Chairman), Crosby,
Gerschel and Kullas. The Committee met four times in 1997.
The Underwriting Committee of the ERII and ERSIC Boards of Directors has
responsibility for reviewing and approving new insurance products, product
enhancements, certain insurance operating and regulatory matters and new
distribution arrangements. The members of the Underwriting Committee are Messrs.
Goldberg, Kullas and Sills (Chairman) and Ms. Cohen. The Committee met four
times in 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the exercise of expiring stock options, the Compensation
Committee approved in December 1995 Company loans in the principal amounts of
$1,100,000, $400,000 and $500,000, respectively, for then-Chairman LeRoy A.
Vander Putten and for Messrs. Sills and Deutsch. Each such Company loan,
evidenced by a Promissory Note of the named officer, called for the accrual of
interest at the rate of 7.25% per annum. Originally scheduled to mature on
September 3, 1996, the due date for each Note was extended to March 17, 1997
because the original maturity fell within the "lock-up" period agreed to in
connection with a June 1996 secondary offering of Common Stock. While
outstanding, each Promissory Note was secured by a Pledge Agreement, pursuant to
which all shares acquired through the exercise of the options were pledged as
collateral for the full repayment of the loans. The Promissory Notes were paid
in full in March, 1997, in conformity with their terms.
LEGAL COUNSEL
James A. FitzPatrick, Jr., Secretary of the Company, is a partner in the
law firm of Dewey Ballantine LLP, which provides legal services to the Company.
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RECOMMENDATION
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ELECTION OF GARY G. BENANAV, ROBERT V. DEUTSCH, MICHAEL D. RICE AND
IRVING B. YOSKOWITZ AS CLASS II DIRECTORS, TO HOLD OFFICE UNTIL THE 2001 ANNUAL
MEETING AND UNTIL THEIR RESPECTIVE SUCCESSORS ARE ELECTED AND QUALIFIED.
Assuming the presence of a quorum, the directors shall be elected by a plurality
of the votes cast by the holders of shares of Common Stock present and entitled
to vote on this item at the Annual Meeting. Instructions on the accompanying
proxy card to withhold authority to vote for one or more of the nominees will
result in the respective nominees receiving fewer votes. Under applicable
Delaware law, in tabulating the vote, broker nonvotes will have no effect on the
vote.
BENEFICIAL OWNERSHIP OF STOCK
The following table sets forth, as of March 5, 1998, certain information
regarding the beneficial ownership of the Common Stock by (i) each of the
Company's directors and executive officers and all directors and executive
officers of the Company as a group, and (ii) each person, other than a director,
known by the Company to own beneficially more than 5% of the outstanding shares
of Common Stock. "Beneficial ownership" for these purposes includes stock which
any person listed below has the right to acquire within 60 days, but does not
include any fee options to be granted under the Directors Stock Option Plan.
(See "Executive Compensation -- Director Compensation.") Unless otherwise
indicated, each person or entity named below has sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by
such person or entity, subject to community property laws where applicable and
the information set forth in the footnotes to the table below.
PERCENT OF
NUMBER OF SHARES COMMON
NAME OF COMMON STOCK STOCK(1)
---- ---------------- ----------
DIRECTORS AND OFFICERS
Gary G. Benanav(2).......................................... 13,621 *
Barbara G. Cohen(3)......................................... 696 *
John G. Crosby(4)........................................... 14,632 *
Robert V. Deutsch(5)........................................ 270,976 2.4
Patrick A. Gerschel(6)...................................... 734,051 6.7
Peter Goldberg(7)........................................... 5,679 *
Robert H. Kullas(8)......................................... 87,255 *
Michael D. Rice(9).......................................... 9,898 *
Joseph D. Sargent(10)....................................... 40,477 *
Stephen J. Sills(11)........................................ 307,925 2.8
Irving B. Yoskowitz(12)..................................... 1,031 *
LeRoy A. Vander Putten(13).................................. 337,314 3.0
All officers and directors as a group (12 persons)(14)...... 1,822,555 15.5
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* Less than one percent.
PERSON(S) OWNING MORE THAN 5% OF THE OUTSTANDING
COMMON STOCK (OTHER THAN DIRECTORS OR OFFICERS)
Denver Investment Advisors LLC(15).......................... 549,830 5.1
Fiduciary Trust Company International(16)................... 584,900 5.4
Mellon Bank Corporation(17)................................. 698,096 6.4
Oppenheimer Funds, Inc.(18)................................. 555,000 5.1
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(1) Percentages based upon 10,886,987 shares of Common Stock outstanding
(12,001,408 issued, less 1,114,421 shares owned by the Company in treasury)
and adjusted in each case by the number of shares each owner has the right
to acquire within the 60 day period ending April 30, 1998.
(2) Includes 11,616 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998, including 942 options owned by adult children. Mr.
Benanav disclaims beneficial ownership of such options.
(3) Includes 696 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998.
(4) Includes 11,527 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998.
(5) Includes 248,821 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998. Includes 2,200 shares held in gift trusts for Mr.
Deutsch's minor children as to which he disclaims beneficial ownership.
(6) The address for Mr. Gerschel, who is a 5% stockholder as well as a
director, is: c/o Gerschel & Company, 720 Fifth Avenue, New York, NY 10019.
Share total includes 17,000 shares of Common Stock owned by an affiliated
entities. Also includes 13,181 shares of Common Stock issuable upon
exercise of options currently exercisable or becoming exercisable within
the 60 day period ending April 30, 1998.
(7) Includes 5,679 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998. Excludes 25,000 shares of Common Stock beneficially
owned by California Casualty Indemnity Exchange, with which Mr. Goldberg is
affiliated.
(8) Includes 77,050 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998.
(9) Includes 9,893 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998.
(10) Includes 9,472 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998. Includes 3,500 shares owned by Mr. Sargent's wife
and 5,400 shares owned by an affiliated trust, as to which Mr. Sargent
disclaims beneficial ownership.
(11) Includes 253,845 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998. Includes 3,600 shares held in gift trusts for Mr.
Sills' minor children as to which he disclaims beneficial ownership.
(12) Includes 31 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998.
(13) Includes 220,250 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998.
(14) Includes 868,751 shares of Common Stock issuable upon exercise of options
currently exercisable or becoming exercisable within the 60 day period
ending April 30, 1998.
(15) Based upon filing on SEC Schedule 13G, dated February 11, 1998. Nature of
ownership is as follows: sole voting power -- 373,130 shares; shared voting
power -- 0 shares; sole dispositive power -- 544,000 shares; and shared
dispositive power -- 5,830 shares. The address of this stockholder is as
follows:
Denver Investment Advisors
1225 17th Street, 26th Floor
Denver, CO 80202
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(16) Based upon filing on SEC Schedule 13G, dated January 16, 1998. Nature of
ownership is as follows: sole voting power -- 534,300 shares; shared voting
power -- 50,600 shares; sole dispositive power -- 584,900 shares; and
shared dispositive power -- 0 shares. The address of this stockholder is as
follows:
Fiduciary Trust Company International
Two World Trade Center
New York, NY 10048
(17) Based upon filing on SEC Schedule 13G, dated January 23, 1998. Nature of
ownership is as follows: sole voting power -- 581,500 shares; shared voting
power -- 5,300 shares; sole dispositive power -- 692,796 shares; and shared
dispositive power -- 5,300 shares. The address of this stockholder is as
follows:
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258
(18) Based upon filing on SEC Schedule 13G, dated February 10, 1998. Nature of
ownership is as follows: shared dispositive power -- 555,000 shares. The
address of this stockholder is as follows:
Oppenheimer Funds, Inc.
Two World Trade Center, Suite 3400
New York, NY 10048-0203
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own 10% or more of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the SEC
and the New York Stock Exchange. Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file. Based
solely upon a review of Forms 3 and 4 furnished to the Company pursuant to Rule
16a-3 of the SEC prior to the date of this Proxy Statement, and Forms 5
furnished with respect to the 1997 fiscal year, no reporting person is known to
have made a late filing under Section 16(a).
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation for services rendered in
all capacities to the Company and its subsidiaries during the past three
completed fiscal years by the Company's Chief Executive Officer and all other
executive officers of the Company (the "executive officers").
LONG TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
---------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1)(2) OPTIONS(#) COMPENSATION($)(3)
--------------------------- ---- --------- -------------- ------------ ------------------
Robert V. Deutsch................ 1997 301,527 270,000 65,000 100,418
Executive Vice President, 1996 292,321 267,800 30,785 83,439
Treasurer, Chief Financial 1995 270,417 116,100 14,286 81,023
Officer and Chief Actuary
Robert H. Kullas(4).............. 1997 338,527 304,600 40,000 81,136
Chairman 1996 329,321 221,600 16,500 66,744
1995 307,417 131,100 0 66,192
Stephen J. Sills(4).............. 1997 343,944 345,200 100,000 120,540
President and Chief 1996 329,321 301,900 35,547 109,158
Executive Officer 1995 307,417 131,100 19,048 98,951
LeRoy A. Vander Putten(4)........ 1997 153,650 218,500 0 76,583
Chairman and Chief Executive 1996 342,321 365,500 40,309 105,710
Officer (Retired) 1995 320,417 166,800 23,810 400,633
- ---------------
(1) The 1997 bonuses include payments received in February 1998, related to
incentives which were originally awarded in 1994, subject to the Company's
loss ratio performance for the 1994 loss year determined as of December 31,
1997. Such payments were $76,200, $87,000, $87,000 and $111,000 for,
respectively, Messrs. Deutsch, Kullas, Sills and Vander Putten. In addition
to the bonus amounts disclosed above, each executive officer may be entitled
to bonus payments related to loss ratio performance with respect to report
years 1995, 1996 and 1997, to be determined as of December 31, 1998, 1999
and 2000, respectively, and paid in February of the following year. Each
such payment amount, if any, will be disclosed in the Company's annual proxy
statement for the year in which it becomes finally determinable.
(2) Amounts in the bonus column do not include grants made under the Performance
Share Plan. See "Long-Term Incentive Plans -- Awards During Fiscal 1997."
(3) All amounts under this column for 1997 represent retirement and matching
contributions made by the Company under its tax-qualified and supplemental
defined contribution pension plans, except that for Mr. Vander Putten, the
1996 and 1997 amount includes $18,401 paid by the Company as the annual
premium for a split-dollar life insurance policy issued and maintained on
his behalf.
(4) In accordance with SEC rules, information is included for Mr. Vander Putten,
who retired as the Company's Chairman and Chief Executive Officer in May
1997. Upon his retirement, Mr. Kullas, who had served as Vice-Chairman,
became Chairman and Mr. Sills, who had served as President and Chief
Underwriting Officer, became President and Chief Executive Officer.
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STOCK OPTION GRANTS IN FISCAL 1997
The following table sets forth information relating to the grant of stock
options by the Company during 1997 to its executive officers, Messrs. Deutsch,
Kullas and Sills. Due to his retirement in May, Mr. Vander Putten did not
receive a grant of stock options during 1997.
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS MARKET PRICE
SECURITIES GRANTED TO PER SHARE
UNDERLYING EMPLOYEES EXERCISE ON DATE OF GRANT DATE
OPTIONS IN FISCAL PRICE GRANT EXPIRATION PRESENT VALUE
NAME GRANTED YEAR ($/SHARE) ($/SHARE) DATE ($)(1)
---- ---------- ---------- --------- ------------ ---------- -------------
Robert V. Deutsch.......... 65,000(2) 11.89 57.8125 57.8125 8/29/07 1,966,071
Robert H. Kullas........... 40,000(2) 7.30 57.8125 57.8125 8/29/07 1,209,890
Stephen J. Sills........... 85,000(2) 15.56 57.8125 57.8125 8/29/07 2,571,016
15,000(3) 2.74 57.8125 57.8125 8/29/07 242,176
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(1) Based on the Black-Scholes option pricing model adapted for use in valuing
employee stock options. The actual value, if any, an executive officer
realizes will depend on the excess of the stock price over the exercise
price on the date the options are exercised, so there is no assurance the
value realized by an executive will be at or near the value estimated by the
Black-Scholes model. The estimated present values disclosed in this column
based on the Black-Scholes model assume a stock price volatility of .260, a
risk-free rate of return of 6.34%, an estimated future dividend yield of
0.14%, and a weighted average expected life of 9.8 years. These assumptions
were developed only for purposes of this disclosure, and do not constitute
projections or representations by the Company as to the actual performance
of the Common Stock.
(2) These options (the "Performance Options") vest and become exercisable not
later than the ninth anniversary of the grant date (August 29, 1997). The
vesting schedule accelerates if the Company attains target levels of return
on equity and growth in operating earnings per share in the year of the
grant and in subsequent years. Assuming for these purposes that attainment
of targeted results could be obtained on December 31st of each year, then
the most accelerated vesting schedule for these options would be one-ninth
becoming vested on December 31, 1998, and then two-ninths (December 31,
1999), one-third (December 31, 2000), two-ninths (December 31, 2001) and
one-ninth (December 31, 2002). The vesting schedule for a portion of the
Performance Options may also be accelerated in the event of a change in
control of the Company.
(3) These options vest and become exercisable in equal annual installments of
3,750 shares on August 29th of the years 1998, 1999, 2000 and 2001.
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AGGREGATED STOCK OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION
VALUES
The following table shows, for Mr. Vander Putten and for each current
executive officer of the Company, the aggregate number and realized value of
stock option exercises during 1997, as well as the number and values of options
held by the named executive officers as of December 31, 1997. The values of
unexercised in-the-money stock options are included pursuant to SEC rules; there
is no assurance that such values will in fact be realized.
VALUE OF UNEXERCISED
SHARES VALUE NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED REALIZED OPTIONS AT 12/31/97 AT 12/31/97(1)
UPON UPON --------------------------- ---------------------------
NAME EXERCISE EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
(#) ($) (#) (#) ($) ($)
Robert V. Deutsch........... 51,575 2,035,024 244,696 77,375 13,819,349 1,322,180
Robert H. Kullas............ 7,200 432,000 108,925 52,375 6,239,477 1,022,180
Stephen J. Sills............ 67,000 2,538,307 249,720 112,375 14,166,076 1,742,180
LeRoy A. Vander Putten...... 107,619 5,633,171 216,125 8,250 12,022,589 361,453
- ---------------
(1) Stock options are classified as in-the-money if the fair market value of the
underlying common stock exceeds the exercise price of the option. The value
of such in-the-money options shown above is the difference between the
exercise or base price and the fair market value of the underlying common
stock as of December 31, 1997. The fair market value of the Common Stock on
December 31, 1997, based on the December 31, 1997 closing price on the New
York Stock Exchange, was $69.8125 per share.
LONG-TERM INCENTIVE PLANS -- AWARDS DURING FISCAL 1997
The Company's Performance Share Plan for key employees was initially
approved by stockholders at the 1996 Annual Meeting; an amended and restated
Performance Share Plan was approved by stockholders at the 1997 Annual Meeting.
The benefits available under the Performance Share Plan are "Performance Share
Units," which are expressed by reference to the Company's Common Stock (each
Performance Share Unit being equal to one share of Common Stock). Performance
Share Units entitle the recipient to a distribution of shares of Common Stock
and/or a distribution of cash, as determined by the Compensation Committee based
upon the achievement of pre-established Company financial objectives
("Performance Measures") for the performance period (the "Performance Period")
established by the Committee. The following table summarizes grants made to the
executive officers during the 1997 fiscal year under the Performance Share Plan.
Due to his retirement in May, 1997, Mr. Vander Putten did not receive a grant
under the Performance Share Plan during 1997.
PERFORMANCE ESTIMATED FUTURE PAYMENTS UNDER
NUMBER OF PERIOD UNTIL NON-STOCK PRICE PLAN(1)
SHARES, UNITS OR MATURATION ---------------------------------
OTHER OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS(1) PAYOUT(2) # SHARES # SHARES # SHARES
---- ---------------- ------------ --------- -------- --------
Robert V. Deutsch................ 6,000 1997-1999 3,000 6,000 9,000
Robert H. Kullas................. 6,000 1997-1999 3,000 6,000 9,000
Stephen J. Sills................. 6,000 1997-1999 3,000 6,000 9,000
- ---------------
(1) The Performance Measures established by the Compensation Committee with
respect to the awards listed in the table above are: return on equity
("ROE"), total shareholder return ("TSR") compared to a risk free return,
TSR compared to that of a peer group determined by the Compensation
Committee and growth in earnings per share compared against that of such
peer group. The Compensation Committee has determined performance levels,
and the relative weightings, applicable to each such Performance Measure in
order to determine the number of Performance Share Units earned at the
threshold, target and maximum performance levels. The number of Performance
Share Units to be earned if the threshold, target and maximum performance
levels are met for each Performance Measure are indicated in the table above
(i.e., 50% earned at the threshold level, 100% at the target level and 150%
at the maximum level, with interpolation used for actual performance between
these levels). Failure to achieve a threshold level
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with respect to any Performance Measure will result in no award for that
Performance Measure. Also, no Performance Share Units will be earned if, at
the end of the relevant Performance Period, the Company has not achieved an
ROE threshold established by the Compensation Committee at the beginning of
the Performance Period. The ROE threshold in effect for the Performance
Period referred to in the table above is 10%. After the conclusion of each
Performance Period, the Compensation Committee will determine the number of
Performance Share Units earned, if any, and whether the award will be paid
in cash or stock or a combination of both. Any part of an award paid in cash
will be based upon the fair market value of the Common Stock on the day
prior to the distribution.
(2) The Performance Period runs from January 1, 1997 through December 31, 1999.
EMPLOYMENT AGREEMENTS
During the first four months of 1997, each of Messrs. Vander Putten,
Kullas, Sills and Deutsch had an employment agreement with the Company. Each of
those agreements expired on April 30, 1997. As of the date hereof, no executive
officer of the Company has an employment agreement.
Upon his retirement as Chief Executive Officer, Mr. Vander Putten entered
into two agreements with the Company, a Retirement Agreement (the "Retirement
Agreement") and a Consulting and Non-Competition Agreement (the "Consulting
Agreement"), each dated as of June 1, 1997. The Retirement Agreement provided
that, for purposes of determining the Performance Share Units to which Mr.
Vander Putten is entitled under the Performance Share Plan with respect to the
1995-1997 and 1996-1998 Performance Periods, he shall be deemed to have retired
on August 31, 1999. The Retirement Agreement also established a vesting schedule
with respect to unvested options to purchase 12,375 shares of the Company's
Common Stock (part of a 16,500 stock option grant made on March 13, 1996),
specifying that options for 8,250 shares will vest in two equal increments on
March 13th of 1998 and 1999. Options for an initial increment of 4,125 shares
had vested on March 13, 1997, and options for the remaining 4,125 shares were
forfeited. Lastly, the Retirement Agreement provides for Mr. Vander Putten's use
of an office and shared secretarial service until May 31, 1998, as well as
participation in the Company's medical plan for Mr. Vander Putten and his spouse
until their respective 65th birthdays. Under the Consulting Agreement, Mr.
Vander Putten has been engaged until August 31, 1999 to advise Company
management and/or the Board of Directors upon request. In addition, Mr. Vander
Putten has agreed that during the term of this Consulting Agreement he will not
engage in certain activities in competition with the Company. The Consulting
Agreement provides for a monthly fee of $25,000.
DIRECTOR COMPENSATION
The Company maintains a compensation program for members of the Board of
Directors who are not officers or employees of the Company ("Nonemployee
Directors"). Under the program, each Nonemployee Director is entitled to an
annual retainer of $20,000, as well as fees of $2,000 for each meeting of the
Board of Directors attended and $1,000 for each committee meeting attended. Any
Nonemployee Director who serves as chairman of one of the standing committees of
the Board of Directors is also entitled to a $3,000 annual fee. Under the
Company's Nonemployee Directors Stock Option Plan, which became effective March
22, 1994, each Nonemployee Director receives a portion of the meeting fees in
the form of stock options ("Fee Options"). The portion of each Nonemployee
Director's compensation that is receivable in the form of Fee Options varies
from 25% of such compensation (for Nonemployee Directors who are 60 and older)
up to 75% (for those younger than 50). Such options are exercisable at a 70%
discount to the grant date market value of the Company's Common Stock, with the
total discount on all options granted equaling the portion of compensation
allocated to Fee Options. During 1997, options for a total of 1,729 shares of
Common Stock were granted as Fee Options under this Plan, with an average option
price versus market price differential of approximately $33.41 per option.
In addition to Fee Options, all Nonemployee Directors are eligible for
options to purchase Common Stock ("Performance Options"), depending on the
financial performance of the Company. Performance Options may be granted once
each year, on the date of the Annual Meeting of stockholders, and are
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exercisable at the fair market value on the grant date. On May 9, 1997, the 1997
Annual Meeting date, 4,990 Performance Options were granted in the aggregate
under the Plan, with an exercise price of $50.25, the grant date market value.
Officers or employees of the Company who serve on the Board of Directors
receive no additional compensation for their services in that capacity.
PERFORMANCE GRAPH
The following graph compares the change in the Company's cumulative total
stockholder return on its Common Stock to the return for the S&P 500 Composite
Stock Price Index and the S&P Property/Casualty Industry Group Stock Price Index
since the Company's initial public offering on March 15, 1994.
CUMULATIVE TOTAL RETURN
MEASUREMENT PERIOD S&P PROP-
(FISCAL YEAR COVERED) EXECUTIVE RISK INC. S&P 500 CASUALTY
3/15/94 100 100 100
6/30/94 108 95 100
12/31/94 119 100 109
6/30/95 159 120 121
12/31/95 243 138 147
6/30/96 322 152 154
12/31/96 311 169 179
6/30/97 438 204 222
12/31/97 588 226 261
COMPENSATION COMMITTEE REPORT
The compensation earned by the Company's executive officers during 1997 was
determined by the Compensation Committee, which is responsible for reviewing and
making recommendations to the Board of Directors with respect to executive
compensation and overall compensation policy, as well as for oversight and
administration of the Company's stock option, incentive compensation, retirement
and other benefit plans. This report discusses the executive compensation
determinations made by the Compensation Committee with respect to the 1997
compensation of the Company's former Chief Executive Officer, LeRoy A. Vander
Putten, who retired on May 30, 1997, and his successor, Stephen J. Sills, and
its other executive officers during 1997, Robert H. Kullas and Robert V.
Deutsch.
I. Executive Compensation Philosophy. In general, the Company's executive
compensation philosophy during 1997 remained unchanged from prior years. That
philosophy is that the interests of the Company's stockholders and the Company's
executive officers should be aligned through the use of compensation programs
that motivate and reward superior individual performance, within the context of
overall corporate achievement. The goals of the Company's executive compensation
program are to attract and ensure retention of executives whose abilities are
critical to the success of the Company, to sustain a high level of corporate
performance by establishing a relationship between executive compensation and
the attainment of strategic
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objectives, and to align the interests of the executive officers with those of
the Company's stockholders by basing an important part of total compensation on
the long-term performance of the Company's Common Stock.
II. Components of Executive Compensation. The components of the 1997
compensation program for executive officers of the Company, including Mr. Sills,
consisted of salary, "variable merit pool" compensation, annual incentive
bonuses, awards of stock-based compensation (including performance share units,
Performance Options and other stock options), and retirement plan benefits. Due
to his retirement on May 30, 1997, Mr. Vander Putten did not receive any award
of stock-based compensation in 1997. The Performance Share Plan for the
Company's senior management, including executive officers, was initially
approved by stockholders in 1996. At the 1997 Annual Meeting, the Company's
stockholders approved the Performance Share Plan, the Incentive Compensation
Plan (Pool A) and the Nonqualified Stock Option Plan, each as amended and
restated so as to qualify all compensation paid under such plans for deduction
by the Company under Section 162(m) of the Internal Revenue Code.
A. Annual Salary. Salaries for the executive officers are initially set at
levels which the Company believes will enhance its ability to attract and retain
highly qualified key executives in a competitive environment. In setting annual
salary levels, the Company considers an individual's level of responsibility as
well as his individual talent and skills. It also takes into consideration
recommendations of outside benefits consultants, as well as general and
insurance industry-specific salary surveys, to determine appropriate base salary
levels within the context of the Company's internal salary range structure. The
Company does not have any specific target or formula for setting compensation
levels on any competitive basis with other companies. The salaries of the
Company's executive officers for 1997 are set forth under the caption "Summary
Compensation Table" above.
Beginning in 1993, the Compensation Committee implemented a "variable merit
pool" increase salary program for senior management, including the executive
officers, in which all or a portion of annual salary increases are in the form
of a one-time payment, which is made in August. These payments are funded from a
variable merit pool which is determined by ranking the Company's annual
financial performance relative to that of a peer group of companies. The funded
variable merit pool is split into two components: (1) an adjustment of base
salary (fixed increase) and (2) a one-time award that must be re-earned each
year (variable increase). The size of the pool is determined by the Compensation
Committee based on the Company's percentile ranking in the peer group. The mix
of fixed and variable increase awards for each individual is based on analysis
of individual performance and independent salary survey information for the
individual's equivalent position in peer companies. Executive officer salaries
in the aggregate increased during 1997 by 6.1% over the existing base salary;
all of the increase was fixed. Mr. Sills received a fixed adjustment during 1997
equal to 8.6% of his existing base salary, which had been established prior to
his appointment as Chief Executive Officer.
B. Annual Incentive Compensation. Annual bonuses paid to executive
officers under an Incentive Compensation Plan (Pool A) are a significant element
of the Company's executive compensation program. This Incentive Compensation
Plan is designed to reward senior management for the achievement of corporate
goals, as well as to compensate senior management on the basis of the Company's
financial results. Annual bonuses under this Incentive Compensation Plan are
initially based on actual performance measured against four "key performance
variables." For 1997, these variables were (i) the Company's "loss ratio," which
is the loss and loss adjustment expenses of the Company as a percentage of
earned premiums for the applicable report year, (ii) the Company's "return on
equity," which is the Company's net income excluding realized capital gains
(losses), net of tax, divided by average consolidated stockholders' equity,
prior to adjustment under Statement of Financial Accounting Standards No. 115,
(iii) gross premiums written by the Company's insurance company subsidiaries and
additional gross premiums written by the Company's subsidiaries and affiliates
for one or more other insurance companies, and (iv) growth in consolidated
operating earnings per common share on a diluted basis. The latter two variables
are "discretionary performance variables," under the Incentive Compensation
Plan. The Compensation Committee has the discretion to select the discretionary
performance variables from year to year as it deems appropriate.
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The Compensation Committee assigns a relative weight to each of the key
performance variables to determine the portion of the annual bonuses to be
represented by each variable. In addition, "threshold," "target" and "maximum"
objectives are set for each of the variables, and bonus payments, as a
percentage of base salary, are established for each objective level.
Bonuses under this Incentive Compensation Plan are approved solely by the
Compensation Committee, which is comprised entirely of independent directors.
When approved, the portion of the award allocable to all key performance
variables other than report year loss ratio is to be paid in February following
the end of the Plan Year in which it is earned, or as soon as practicable
thereafter. The portion of the award relating to report year loss ratio is to be
paid in February or March of the fourth year following the end of the Plan Year
in order to reflect the actual report year loss ratio using a look-back
adjustment. Awards made in 1998 for the 1997 Plan Year were based on corporate
performance at the "maximum" level for the key performance variables relating to
gross premiums written and growth in operating earnings per share, at
substantially above the "target" level for the return on equity variable and at
the "target" level for the loss ratio variable. For 1997, Mr. Sills received a
bonus under the Incentive Compensation Plan of $345,200, of which $87,000
represented receipt of the 1994 deferred bonus and $258,200 represented 1997
earned bonus. In addition, he was awarded a deferred bonus payable in 2001 (to
be adjusted upward or downward based on future loss ratio performance for the
1997 report year) in a target amount of $98,600, exclusive of interest payable
under the Plan (at the average three-year Treasury bill rate as published in The
Wall Street Journal during the week preceding the Committee meeting at which the
award recommendation is approved) through the date of payment. The aggregate of
the 1997 bonus payments ($356,800) would represent approximately 101% of Mr.
Sills' annual salary at year-end 1997, assuming the loss ratio portion of the
bonus is paid at the target level in 2001. For 1997, Mr. Vander Putten received
a bonus under the Incentive Compensation Plan of $218,500, of which $111,000
represented receipt of the 1994 deferred bonus and $107,500 represented 1997
earned bonus. In addition, he was awarded a deferred bonus payable in 2001 (to
be adjusted upward or downward based on future loss ratio performance for the
1997 report year) in a target amount of $41,000, exclusive of interest payable
under the Plan
C. Stock Options and Performance Shares. Stock options and awards of
Performance Share Units for the Company's executive officers have been an
important element of the Company's executive compensation program, intended to
reinforce management's long-term perspective on corporate performance.
Compensation derived from stock options and performance share units is
intrinsically related to long-term corporate performance and stockholder value,
because the value of such compensation is determined by changes in the price of
the Company's Common Stock and, with respect to Performance Share Units, by
Company financial performance as against certain pre-established performance
measures. Stock option and performance share unit awards to executives, as well
as awards of restricted shares of Common Stock to most of the Company's
non-executive personnel, are made at the discretion of the Compensation
Committee based on a variety of factors, including the level of responsibility
with the Company and ability to affect stockholder value, as well as
demonstrated past and expected future performances. The Compensation Committee
also takes into consideration prior awards to the executive officer and the
individual's overall equity position in the Company.
The Committee specifically endorses the principle that stock options and
stock ownership by the Company's executive officers, as well as other members of
the Company's senior management, other key employees and Nonemployee Directors,
are an essential element in aligning the interests of these individuals with
those of the stockholders and thereby enhancing stockholder value. In this
regard, the Company has continued its Nonqualified Stock Option Plan and
Nonemployee Directors Stock Option Plan. Further, in connection with the
adoption of the Performance Share Plan in 1996, long-term guidelines for
executive ownership of Company stock were established, ranging from the
equivalent of one to three times annual salary in Company stock ownership.
In 1997, certain members of management, including the executive officers,
were granted awards under the Company's Performance Share Plan. Their awards
were made at the discretion of the Committee, taking into account, among other
things, the expected contributions of each such individual to the Company's
success. (See "Long-Term Incentive Plans -- Awards During Fiscal 1997.")
Additionally, on August 29, 1997, Messrs. Sills, Kullas and Deutsch received,
respectively, options to purchase 100,000 shares, 40,000
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shares and 65,000 shares of the Company's Common Stock at $57.8125 per share, or
100% of the grant date fair market value. (See "Stock Option Grants in Fiscal
1997.") With the exception of options to purchase 15,000 shares issued to Mr.
Sills, which become exercisable in four annual installments of 3,750 shares, all
of the 1997 stock options are Performance Options having a variable vesting
schedule which is determined in part by the Company's performance against
pre-established measures. (See "Stock Option Grants in Fiscal 1997" footnote 2.)
D. Pension Plans. The Committee believes that the Company's retirement
benefits program provides employees and senior management with retirement
compensation that promotes the long-term employment of these individuals by
means of a defined contribution plan through which a retirement fund is created
for the employee. Under the Company's funded tax-qualified Retirement Plan,
participants are entitled to defer a portion of their compensation on a pre-tax
and an after-tax basis, and are entitled to a matching contribution from the
Company, the amount of which will vary depending upon the Company's three-year
average return on equity. Such matching contribution is made with respect to
participant contributions up to 8 percent of the participant's compensation. In
addition, participants are entitled to Company retirement contributions as a
percentage of their annual base salary. Company contributions that would
otherwise be made under the benefit formula for the Retirement Plan, but are in
excess of certain limitations on tax-qualified retirement plans under the
Internal Revenue Code, are provided to certain highly-compensated plan
participants, including the executive officers, on an unfunded basis under the
Company's nonqualified Benefit Equalization Plan.
Company contributions and allocations for 1997 under the Retirement Plan
and the Benefit Equalization Plan on behalf of the executive officers, including
the Chief Executive Officer, are shown under the caption "Summary Compensation
Table" above.
III. Compensation Deduction Limitation. Federal tax law generally disallows the
corporate tax deduction for certain compensation paid in excess of $1,000,000
annually to each of the chief executive officer and the four other most highly
paid executive officers of publicly held companies. One of the exceptions to the
deduction limit is for "performance-based" compensation. The Company's
stockholders approved, at the 1997 Annual Meeting, the Company's Nonqualified
Stock Option Plan, Performance Share Plan and Incentive Compensation Plan (Pool
A), in each case as amended and restated. Each such Plan, the Committee
believes, satisfies the requirements for "performance-based compensation,"
thereby exempting awards thereunder from the $1,000,000 compensation deduction
limit. For these reasons, and because the Company's annual cash compensation to
its executive officers is currently below the $1,000,000 limit, the Company does
not at this time anticipate any loss of deductibility under the Federal tax law
for compensation paid to its executive officers. The Company was not denied a
deduction under this law for any compensation paid to its executive officers
during 1997.
COMMITTEE ON DIRECTORS AND
COMPENSATION OF EXECUTIVE RISK INC.
-----------------------------------
John G. Crosby (Chairman)
Michael D. Rice
Joseph D. Sargent
Irving B. Yoskowitz
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In addition to Messrs. Crosby, Rice, Sargent and Yoskowitz, who currently
comprise the Compensation Committee, Mr. Gerschel served on the Compensation
Committee during a portion of 1997. None of such individuals has ever been
employed by the Company or any subsidiary or affiliate of the Company, or has
any relationship with the Company other than serving as a director.
ITEM 2: RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has
voted to appoint Ernst & Young LLP as the independent auditors of the Company
for 1998. Ernst & Young LLP has served as the independent auditors of the
Company and its subsidiaries since 1987. Arrangements have been made for a
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representative of Ernst & Young LLP to attend the Annual Meeting. The
representative will have the opportunity to make a statement if he so wishes and
will be available to respond to appropriate stockholder questions.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR 1998. Assuming the presence of a quorum, the affirmative vote of a majority
of the votes cast by the holders of shares of Common Stock present and entitled
to vote on this item at the Annual Meeting is required to ratify the appointment
of the Company's auditors. Under applicable Delaware law, in tabulating the
vote, broker nonvotes will have no effect on the vote. Abstentions will be
counted as negative votes.
STOCKHOLDER'S PROPOSALS
Under the rules of the Securities and Exchange Commission, any proposal
which a stockholder intends to present at the 1999 Annual Meeting of the Company
and have included in the Proxy Statement and Proxy for that Meeting must be
received by December 1, 1998, at the Company's principal executive offices, 82
Hopmeadow Street, Simsbury, Connecticut 06070. Any such proposal must be
accompanied by the notice required by the rules of the Securities and Exchange
Commission, must otherwise comply with those rules and should be addressed to
the attention of the Secretary of the Company.
COPIES OF ANNUAL REPORT AND FORM 10-K
Copies of the Company's 1997 Annual Report to Stockholders are being mailed
to stockholders simultaneously with this Proxy Statement. THE COMPANY WILL
PROVIDE TO ANY STOCKHOLDER UPON REQUEST A COPY OF ITS ANNUAL REPORT TO THE
SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1997 (WITHOUT EXHIBITS, UNLESS OTHERWISE REQUESTED). SUCH COPY WILL BE FURNISHED
WITHOUT CHARGE, OTHER THAN REASONABLE CHARGES FOR ANY EXHIBIT REQUESTED.
REQUESTS MUST BE IN WRITING AND MAILED TO:
EXECUTIVE RISK INC.
82 HOPMEADOW STREET
SIMSBURY, CT 06070-7683
ATTENTION: ROBERT V. DEUTSCH, EXECUTIVE VICE PRESIDENT
By Order of the Board of Directors,
/s/ JAMES A. FITZPATRICK, JR.
James A. FitzPatrick, Jr.
Secretary
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EXECUTIVE RISK INC.
BOX 2002
SIMSBURY, CONNECTICUT 06070
PROXY
ANNUAL MEETING - MAY 8, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder hereby appoints Robert V. Deutsch, Robert
H. Kullas and Stephen J. Sills and each of them, the proxies and attorneys of
the undersigned to vote all shares of Common Stock which the undersigned is
entitled to vote at the 1998 Annual Meeting of Stockholders of Executive Risk
Inc., or any adjournment thereof, upon the matters described at the bottom, and
in their discretion on such other business as may properly come before the
meeting or any adjournment, all in accordance with the accompanying Notice and
Proxy Statement, receipt of which is acknowledged.
PURSUANT TO THE RECOMMENDATION OF THE BOARD OF DIRECTORS, THIS PROXY
WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION
AS DIRECTOR EACH PERSON NAMED IN PROPOSAL 1 AND FOR PROPOSAL 2.
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1. ELECTION OF DIRECTORS - FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ]
listed below for all nominees listed below
Nominees: 1 -- GARY G. BENANAV, 2 -- ROBERT V. DEUTSCH, 3 -- MICHAEL D. RICE,
4 -- IRVING B. YOSKOWITZ
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space below.)
*EXCEPTIONS
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2. Ratification of the appointment by the Board of Directors FOR [ ] AGAINST [ ] ABSTAIN [ ]
of Ernst & Young LLP as the Independent Auditors of the
Corporation.
Please sign exactly as name appears to the
left. Please sign in full corporate name by
President or other authorized officer.
Dated: , 1998
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(Signature)