ANNUITY & LIFE RE (HOLDINGS), LTD. - 10-K/A - 20040429 - PART_III
PART III
Item 10.
Directors and Executive Officers of the
Registrant.
Directors
The following provides the name, principal
occupation and other pertinent information concerning the
current directors of the Company.
Martin A. Berkowitz,
age 55, has served as a director of the Company since being
appointed by the Board in 2003. In March 2004,
Mr. Berkowitz was named President and Chief Executive
Officer of the National Veterans Business Development
Corporation, a provider of assistance to small businesses owned
by veterans, where he had served as Senior Vice President and
Chief Financial Officer since January 2001. From November 2000
through January 2001, Mr. Berkowitz was an independent
consultant. Prior thereto, Mr. Berkowitz held various
positions, including as a Senior Vice President and as Principal
Controller, at Prudential Insurance Company of America Inc., a
financial services company. He currently serves on the Board of
Directors of Plinex, Inc.
John F. Burke,
age 49, has served as a director of the Company since 2003,
and is President and Chief Executive Officer of the Company.
Mr. Burke was hired as the Company’s Chief Financial
Officer in September 2001 and assumed responsibility as the
Company’s President and Chief Executive Officer effective
February 2003. Mr. Burke ceased being Chief Financial
Officer of the Company on February 18, 2004 upon the
appointment of John W. Lockwood to that office. Mr. Burke
has worked in the insurance industry for over 25 years and
held multiple positions with The Hartford Insurance Group
beginning in 1982, and served as President of Hartford Financial
Services Fidelity and Surety operations from 1997 to 1998.
Mr. Burke also provided consulting services to Funds
Express and served as President of FX Insurance Agency, an
Internet start up company, in 1999. From 2000 to 2001,
Mr. Burke served as Director of Business Development,
Financial Services, at IONA Technologies, an e-business
infrastructure company.
Albert R. Dowden,
age 62, has served as a director of the Company since 2003.
Prior to his retirement in 1998, Mr. Dowden served as
President and Chief Executive Officer of Volvo Group North
America, Inc. and Senior Vice President of its Swedish parent
company, AB Volvo. Prior to joining Volvo in 1974 as General
Counsel to its North American operations, he practiced law with
the New York based international law firm of
Rogers & Wells (now Clifford Chance). Mr. Dowden
currently serves as a Director of the AIM/ Invesco Mutual Funds
and Magellan Insurance, a Bermuda based reinsurance company, and
is a founder and Managing Director of The Boss Group, a Houston
and London based private investment and management firm.
Mr. Dowden also serves as Chairman of The Cortland Trust, a
New York based money market fund. He also serves as a
director or chairman of various New York based, and as well
as internationally focused, charities. Mr. Dowden had
previously served as a director of the Company from 1998 to 2000.
Michael P.
Esposito, Jr.
, age 64, has
served as a director of the Company since its formation in 1997.
He has been non-executive Chairman of the Board of XL Capital
Ltd since 1995 and a director since 1986. He also serves as a
director of Forest City Enterprises, Inc. and Sedgewick CMS
Holdings, Inc. Mr. Esposito served as Co-Chairman of
Inter-Atlantic Capital Partners, Inc. from 1998 to 2000, having
previously served as Vice Chairman from 1994 to 1998.
Inter-Atlantic provides investment banking services for
insurance companies and other financial services firms.
Mr. Esposito served as Executive Vice President and Chief
Corporate Compliance, Control and Administration Officer of The
Chase Manhattan Corporation from 1992 to 1995, having previously
served as Executive Vice President and Chief Financial Officer
from 1987 to 1992.
Lee M.
Gammill, Jr.
, age 69, has
served as a director of the Company since 1998. Since 1997,
Mr. Gammill has served as Chairman of the Gammill Group, a
provider of financial and consulting services to the insurance
industry. From 1994 to 1997, Mr. Gammill served as Vice
Chairman of the Board of New York Life Insurance Company,
where he was employed for more than 40 years. He currently
serves as a trustee of the American College Foundation and as a
director of Sigaba Corporation.
Frederick S. Hammer
,
age 67, has served as Chairman of the Board and a director
of the Company since its formation in 1997. Mr. Hammer has
been Co-Chairman of Guggenheim Securities, LLC, formerly known
as Inter-Atlantic Securities Corp., LLC, and of
Inter-Atlantic Capital Partners, Inc., since 1998. Guggenheim
and Inter-Atlantic provide investment banking services for
insurance companies and other financial services firms. He
previously served as a Vice-Chairman of Inter-Atlantic from 1994
to 1998. He currently serves as a director of Tri-Arc Financial
Services, Inc. and as a trustee of the Madison Square Boys and
Girls Club and ING Clarion Real Estate Funds. Mr. Hammer
served as Chairman and Chief Executive Officer of Mutual of
America Capital Management Corporation from 1993 to 1994 and as
President of SEI Asset Management Group from 1989 to 1993. From
1985 to 1989, Mr. Hammer was Chairman and Chief Executive
Officer of Meritor Savings Bank, and prior thereto he was an
Executive Vice President of The Chase Manhattan Corporation,
where he was responsible for its global consumer activities.
Robert P. Johnson
,
age 58, has served as a director of the Company since 2003.
Since March 2002, Mr. Johnson has been an independent
consulting actuary. Mr. Johnson was President and Chief
Executive Officer of Hamilton Harbour Re from August 2000
through February 2002 and was President and Chief Executive
Officer of Marathon Re from January 2000 through July 2000; both
Hamilton Harbour Re and Marathon Re were start up insurance
companies for which capital raising plans were unsuccessful.
From 1993 through December 1999, Mr. Johnson was an
independent consulting actuary. Prior thereto, from 1971 through
1993, Mr. Johnson held various positions at North American
Reinsurance Corporation and its affiliate, North American
Reassurance Company, including Executive Vice President of
Atrium Corporation, a subsidiary of North American Reinsurance.
Mr. Johnson is a Fellow of the Society of Actuaries.
Henry C. V. Keeling
,
age 49, has served as a director of the Company since 2003.
Mr. Keeling has been Executive Vice President and Chief
Executive of Reinsurance Operations at XL Capital Ltd, a
diversified Bermuda-based insurer and reinsurer, and Chief
Executive Officer of XL Re Ltd since August 1998.
Mr. Keeling held various positions with Mid Ocean
Reinsurance (now XL Re Ltd) from 1993 to 1998, most recently
serving as its President and Chief Operating and Underwriting
Officer. He previously served as a director of Taylor Clayton
(Underwriting Agencies) Ltd and Deputy Underwriter of Syndicate
51 at Lloyd’s from 1984 through 1992. Mr. Keeling also
serves as a Director of various XL affiliated companies,
including XL Re Latin America Ltd, and is Chairman of XL Re
Insurance America, Inc. and XL Re Europe as well as several
other XL affiliated companies. Mr. Keeling was nominated to
become a director of the Company by XL Capital Ltd, which has
the right to nominate one director for so long as it owns at
least 500,000 Common Shares of the Company.
Robert M. Lichten
,
age 63, has served as Deputy Chairman of the Board and a
director of the Company since its formation in 1997.
Mr. Lichten has been Co-Chairman of Guggenheim Securities,
LLC, formerly known as Inter-Atlantic Securities Corp., LLC, and
of Inter-Atlantic Capital Partners, Inc. since 1998. Guggenheim
and Inter-Atlantic provide investment banking services for
insurance companies and other financial services firms. He
previously served as a Vice-Chairman of Inter-Atlantic from 1994
to 1998. He currently serves as a director of Magellan
Insurance, XL Capital Assurance, which is a United States-based
subsidiary of XL Capital Ltd, and Industry Leaders Fund, as well
as a trustee of Manhattan College. Mr. Lichten served as a
Managing Director of Smith Barney Inc. from 1990 to 1994 and as
a Managing Director of Lehman Brothers Inc. from 1988 to 1990.
Prior thereto, he served as an Executive Vice President of The
Chase Manhattan Corporation, where he was responsible for asset
liability management and was President of The
Chase Investment Bank.
Jerry S. Rosenbloom
,
age 64, has served as a director of the Company since 1998.
Mr. Rosenbloom is the Frederick H. Ecker Emeritus Professor
of Insurance and Risk Management at the Wharton School of the
University of Pennsylvania where he has been since 1974. He
currently serves as a director of Harleysville Insurance Group,
and as a trustee of Century Shares Trust Mutual Fund and MBIA
Closed End Municipal Bond Fund.
Jeffrey D. Watkins
,
age 43, has served as a director since 2003.
Mr. Watkins is currently the President of Prescott Group
Capital Management, LLC, a registered investment advisor, and
serves as the co-manager of the Prescott Tradition Fund, L.P.
and Prescott Mid Cap, L.P. Prior to joining Prescott in July
2001, Mr. Watkins served for 18 years as a portfolio
manager for Capital Advisors, Inc., a registered investment
advisor, located in Tulsa, Oklahoma.
Jon W.
Yoskin, II
, age 64, has
served as a director of the Company since 1998. Mr. Yoskin
has been Chairman of the Board and Chief Executive Officer of
Tri-Arc Financial Services, Inc., an insurance broker, since
1988, and has served as Chairman of the Board and Chief
Executive Officer of Magellan Insurance Company, Ltd. since 1996.
The terms for Martin A. Berkowitz,
Michael P. Esposito, Jr., Robert P. Johnson, Jerry S.
Rosenbloom and Jeffrey D. Watkins will expire at the 2004 annual
meeting of shareholders. Mr. Rosenbloom has chosen not to
stand for re-election at that annual meeting. The terms for
Albert R. Dowden, Lee M. Gammill, Jr., Frederick S. Hammer
and Jon W. Yoskin, II will expire at the 2005 annual meeting of
shareholders. The terms for John F. Burke, Henry C. V. Keeling
and Robert M. Lichten will expire at the 2006 annual meeting of
shareholders.
Executive Officers
The following provides the name, principal
occupation and other pertinent information concerning the
executive officers of the Company who do not also serve as
directors; information concerning Mr. Burke is set forth
above under “— Directors.”
John W. Lockwood
,
age 46, became Chief Financial Officer of the Company and
Annuity and Life Reassurance, Ltd., a wholly owned subsidiary of
the Company, in February 2004. Mr. Lockwood joined Annuity
and Life Re America, Inc., the Company’s United
States-based subsidiary, in December 1999, as Controller and
Treasurer. From October 1998 until November 1999,
Mr. Lockwood was the Director of Statutory Reporting and
Reinsurance Accounting at Hartford Steam Boiler Inspection and
Insurance Company, a property and casualty insurance company.
Mr. Lockwood is currently Vice President of and oversees
the Company’s United States operations. Mr. Lockwood
has 20 years of experience in the life insurance industry
and held various positions over a 10 year period with
Security-Connecticut Life Insurance Company, including
Controller and Corporate Risk Officer. Mr. Lockwood is a
graduate of Central Connecticut State University (B.S.
Accounting, 1980) and University of Hartford (M.S. Taxation,
1996) and passed the uniform certified public accountant
examination in 1988. Mr. Lockwood is also a Fellow of the
Life Office Management Institute of the Life Office Management
Association.
Robert J. Reale
,
age 47, has been a Senior Vice President and the Chief
Underwriter of the Company since 1998. Mr. Reale, who has
over 23 years of experience in the insurance and
reinsurance industries, was a consultant at Tillinghast Towers
Perrin, a consulting and actuarial company, from 1997 to 1998.
He served as a Vice President of Swiss Re Life & Health
America, Inc. from 1989 to 1997 and as the President of Swiss-Am
Reassurance Company and Atlantic International Reinsurance
Company (Barbados), two companies affiliated with Swiss Re, from
1995 to 1996. Mr. Reale has been a Fellow of the Society of
Actuaries since 1986.
William H.
Mawdsley, III
, age 52,
became Vice President of the Company and Chief Actuary of
Annuity and Life Reassurance, Ltd., a wholly owned subsidiary of
the Company, in January 2002. Mr. Mawdsley has over
25 years of experience in the life insurance and annuity
industries, and held multiple positions with Allmerica Financial
from 1973 through October 2001. At Allmerica,
Mr. Mawdsley’s responsibilities included all actuarial
aspects of individual insurance, and he focused on new
individual product development and pricing. Mr. Mawdsley
has been a Fellow of the Society of Actuaries since 1976, a
Member of the American Academy of Actuaries since 1979, and a
Chartered Life Underwriter since 1982.
Section 16(a) of the Exchange Act requires
the Company’s directors, executive officers and persons
beneficially owning more than ten percent of a registered class
of the Company’s equity securities (collectively, the
“Covered Persons”) to file reports of ownership and
changes in ownership of the Company’s securities with the
Commission. Copies of such reports also must be provided to the
Company.
Based solely upon the Company’s review of
the reports provided to the Company or filed with the
Commission, and written representations of certain Covered
Persons that no other reports were required, to
the Company’s knowledge, all of the
Section 16(a) filings required to be made by Covered
Persons during 2003 were made on a timely basis.
The Company’s non-employee directors have in
the past been eligible to defer any compensation they were
entitled to receive pursuant to the Company’s
Director’s Voluntary Deferred Compensation Plan (the
“Director’s Deferred Plan”). All amounts deferred
pursuant to the Director’s Deferred Plan were placed in an
account, the value of which fluctuated based on the performance
of an amount of the Company’s common shares that could have
been purchased with the deferred amounts on the date of
deferral. Although all benefits under the Director’s
Deferred Plan are paid in cash at the time the participating
director’s service to the Company ends, the participating
directors are required to report information regarding the
common shares on which the value of their deferral accounts are
based pursuant to Section 16(a). This information was
reported by each participating director on a Form 4 when
the Company booked the accruals and determined the number of
common shares that could have been purchased based on the
closing price of the Company’s common shares on the date of
each deferral. The Director’s Deferred Plan was closed to
additional deferrals in 2003.
Corporate Governance
Independence
The Board of Directors has adopted categorical
standards for determining director independence. To satisfy
these categorical standards, a director must not have a
“material relationship” (
e.g.
, a commercial,
banking, consulting, legal, accounting, charitable or familial
relationship) with the Company and must otherwise satisfy the
independence requirements of the listing standards of the
New York Stock Exchange (the “NYSE”). The Company
has defined a material relationship to be one that requires
disclosure as a related party transaction under Commission rules
and regulations. Based on these categorical standards, the Board
has determined that a majority of its directors are independent
(Messrs. Berkowitz, Dowden, Gammill, Hammer, Johnson,
Lichten, Rosenbloom, Watkins and Yoskin).
Committees of the Board
The Board has an Audit, Compensation, Corporate
Governance, Executive, Finance and Investment, Litigation and
Strategic Review Committee. Each committee reports to the Board.
In addition, following the resignation of the Company’s
former Chief Executive Officer in 2002, the Board appointed a
Transition Committee consisting of Messrs. Hammer and
Lichten to oversee the operations of the Company until a new
Chief Executive Officer was selected. The Transition Committee
was dissolved in February 2003 when Mr. Burke assumed
responsibility as the Chief Executive Officer of the Company.
Audit Committee
. The
Board has appointed an Audit Committee to assist the Board in
its oversight of (i) the integrity of the Company’s
financial statements; (ii) the independent auditor’s
qualifications, independence and performance; (iii) the
performance of the Company’s internal audit function; and
(iv) the Company’s compliance with legal and
regulatory requirements. The Audit Committee presently consists
of five directors (Messrs. Dowden (Chairman), Berkowitz,
Gammill, Johnson and Rosenbloom), each of whom is independent as
independence is defined under the NYSE’s listing standards
and the rules and regulations of the Commission. In addition,
Mr. Hammer, as the Chairman of the Board, is invited to
attend all Audit Committee meetings. The Board has determined
that Mr. Berkowitz qualifies as an “audit committee
financial expert,” as defined by Commission regulations.
During 2003, the Audit Committee met eleven times. The Audit
Committee has a written charter, which is posted on the
Company’s website at
www.alre.bm
.
Compensation
Committee
. The Board has appointed a
Compensation Committee to review the performance of corporate
officers and the Company’s compensation policies and
procedures and to make recommendations to the Board with respect
to such policies and procedures. The Compensation Committee also
administers the stock option and incentive compensation plans of
the Company and evaluates the compensation paid to directors.
The Compensation Committee presently consists of five directors
(Messrs. Gammill (Chairman), Berkowitz, Rosenbloom, Watkins
and Yoskin), each of whom is independent as independence is
determined under the NYSE’s listing standards. In addition,
Mr. Hammer, as the
Chairman of the Board, is invited to attend all
Compensation Committee meetings. During 2003, the Compensation
Committee met eleven times. The Compensation Committee has a
written charter, which is posted on the Company’s website
at
www.alre.bm
.
Corporate Governance
Committee
. The Board has appointed a
Corporate Governance Committee to (i) identify and
recommend to the Board qualified nominees for directors, members
and chairpersons of
the Board’s various committees and
candidates to fill Board and committee vacancies;
(ii) develop a Code of Business Conduct and Ethics
applicable to the directors, officers and employees for the
Board’s adoption, and monitor compliance with that Code;
(iii) develop Corporate Governance Guidelines for the
Board’s adoption, and monitor the Company’s approach
to corporate governance issues; and (iv) oversee the
evaluation of the effectiveness and contributions of management
and of the Board, its committees and individual directors. The
Corporate Governance Committee presently consists of four
directors (Messrs. Rosenbloom (Chairman), Dowden, Johnson
and Yoskin), each of whom is independent as independence is
determined under the NYSE’s listing standards. During 2003,
the Corporate Governance Committee met six times. The Corporate
Governance Committee has a written charter, which is posted on
the Company’s website at
www.alre.bm
. The
Company’s Code of Business Conduct and Ethics and Corporate
Governance Guidelines also are posted on the Company’s
website.
Executive Committee.
The Board has appointed an Executive Committee to exercise all
of the authority of the Board between meetings of the full
Board. The Executive Committee does not, however, have authority
to take any action on matters committed or reserved by Bermuda
law, the Company’s Bye-Laws or resolution of the Board to
the full Board or another of its committees. The Executive
Committee regularly reviews the Company’s business and
reports or makes recommendations to the Board thereon. The
Executive Committee presently consists of six directors
(Messrs. Hammer (Chairman), Dowden, Esposito, Gammill,
Lichten and Rosenbloom). During 2003, the Executive Committee
met three times.
Finance and Investment
Committee.
The Board has appointed a
Finance and Investment Committee to establish and monitor the
Company’s investment policies and the performance of the
Company’s investment manager. The Finance and Investment
Committee presently consists of seven directors
(Messrs. Lichten (Chairman), Berkowitz, Burke, Esposito,
Hammer, Keeling and Watkins). During 2003, the Finance and
Investment Committee met five times.
Litigation
Committee.
The Board established a
Litigation Committee in August 2003 to monitor a purported class
action lawsuit filed against the Company and to provide any
recommendations thereon to the full Board. The Litigation
Committee presently consists of five directors
(Messrs. Rosenbloom (Chairman), Dowden, Gammill, Lichten
and Yoskin). During 2003, the Litigation Committee met one time.
Strategic Review
Committee.
The Board has appointed a
Strategic Review Committee to review and advise the Company with
respect to the Company’s capital raising efforts, as well
as other strategic alternatives that may arise, including any
sale or merger of the Company. The Strategic Review Committee
presently consists of six directors (Messrs. Esposito
(Chairman), Burke, Hammer, Lichten, Rosenbloom and Watkins).
During 2003, the Strategic Review Committee met six times.
Information Concerning Meetings
The Board held fourteen meetings during 2003.
Each director attended at least 75% of the aggregate meetings of
the Board and the committees of which he was a member during
2003. In addition, the non-management directors routinely met in
executive session without members of management present.
Mr. Hammer, as non-management Chairman of the Board, served
as the presiding director for these executive sessions.
The Board encourages directors to attend each
annual meeting of the Company’s shareholders. Nine of the
directors attended last year’s annual meeting.
The Corporate Governance Committee recommends
director nominees to the full Board. The Corporate Governance
Committee seeks individuals who are qualified to be directors,
and if needed, will use a third party search firm to assist in
finding director candidates. The Corporate Governance Committee
has established certain minimum qualifications that each
individual director candidate must possess. These qualifications
include that each director candidate: (a) should be an
individual of the highest character and integrity;
(b) should have sufficient experience to enable the
director to make a meaningful contribution to the Company and
the Board; (c) should be chosen without regard to sex,
race, religion, national origin or age; and (d) should have
sufficient time available to devote to the affairs of the
Company to carry out the responsibilities of a director. After
determining that a director candidate meets these
qualifications, the Corporate Governance Committee will review
with the Board the requisite skills and characteristics of the
potential new director, as well as the composition of the Board
as a whole. This review will include an assessment of the
director’s qualification as an independent director, as
well as considerations of diversity, skills and experience in
the context of the overall needs of the Board.
The Corporate Governance Committee will consider
director candidates recommended by shareholders in the same
manner as set forth above, if the recommendation is accompanied
by sufficient information to assess the candidate’s
qualifications and contains the candidate’s consent to
serve as a director if elected. Shareholder recommendations may
be submitted in writing to the Corporate Governance Committee,
at Annuity and Life Re (Holdings), Ltd., Cumberland House,
Victoria Street, Hamilton, HM 11, Bermuda. Shareholder
recommendations must be made in accordance with the
Company’s Bye-laws and the notice provisions that will be
set forth in the Company’s definitive proxy statement
relating to its 2004 annual meeting of shareholders.
No third parties were engaged to evaluate or
assist in identifying potential director nominees in 2003.
Martin A. Berkowitz, who was appointed as a director in 2003 to
fill a vacancy on the Board, was initially identified by the
director whose departure from the Board created the vacancy.
Mr. Berkowitz was formally recommended by the Corporate
Governance Committee to the Board to fill that vacancy.
Shareholder Communications with the
Board
Shareholders may communicate directly with
members of the Company’s Board of Directors by writing, as
applicable, to the full Board, a particular committee or a
specific director c/o Annuity and Life Re (Holdings), Ltd.,
Cumberland House, 1 Victoria Street, Hamilton, HM 11,
Bermuda.
The following table sets forth certain
information for the Company’s last three fiscal years
concerning the annual and long-term compensation paid to
(i) those individuals who served as the Company’s
principal executive officers for portions of 2003, including
Frederick S. Hammer and Robert M. Lichten, former
Co-Chairpersons of the Transition Committee of the Board of
Directors, and John F. Burke, the Company’s current Chief
Executive Officer; (ii) the Company’s two remaining
executive officers as of December 31, 2003; and
(iii) Patricia McWeeney, the Company’s former Chief
Investment Officer, and Bryan Featherstone, the former President
and Chief Executive Officer of the Company’s United States
operations (collectively, the “Named Officers”).
Long-Term
Compensation
Annual Compensation
Restricted
Securities
Other Annual
Share
Underlying
All Other
Name
Principal Position
Year
Salary
Bonus(1)
Compensation(2)
Awards(3)
Options
Compensation(4)
John F. Burke
Chief Executive Officer,
2003
$
458,333
$
425,000
$
120,000
$
200,000
250,000
$
45,833
Chief Financial Officer
2002
$
229,167
$
425,000
$
101,000
$
384,070
40,000
$
22,917
and Secretary(5)
2001
$
58,333
$
75,000
$
20,833
$
0
35,000
$
5,833
Robert J. Reale
Senior Vice President and
2003
$
335,000
$
410,000
$
120,000
$
0
0
$
33,500
Chief Underwriter
2002
$
319,167
$
185,383
$
120,000
$
455,352
30,000
$
31,917
2001
$
295,833
$
150,000
$
120,000
$
0
0
$
29,583
William Mawdsley
Vice President and
2003
$
190,000
$
130,000
$
100,000
$
72,000
0
$
19,000
Chief Actuary(6)
2002
$
175,000
$
70,000
$
100,000
$
243,042
10,000
$
17,500
2001
$
0
$
0
$
0
$
0
0
$
0
Patricia McWeeney
Former Vice President
2003
$
193,333
$
40,000
$
100,000
$
0
0
$
18,333
and Chief Investment
2002
$
211,667
$
20,000
$
120,000
$
184,564
10,000
$
21,167
Officer(7)
2001
$
195,000
$
50,000
$
118,333
$
0
10,000
$
19,500
Bryan Featherstone
Former President and Chief
2003
$
180,833
$
50,000
$
0
$
0
0
$
188,583
Executive Officer of Annuity
2002
$
295,333
$
25,000
$
0
$
356,410
20,000
$
29,533
and Life Re America(8)
2001
$
272,500
$
100,000
$
0
$
0
20,000
$
27,250
Frederick S. Hammer
Former Co-Chairperson
2003
$
158,250
$
0
$
0
$
0
0
$
0
of the Transition
2002
$
241,875
$
0
$
0
$
0
0
$
0
Committee(9)
2001
$
0
$
0
$
0
$
0
0
$
0
Robert M. Lichten
Former Co-Chairperson
2003
$
154,750
$
0
$
0
$
0
0
$
0
of the Transition
2002
$
225,000
$
100,000
$
0
$
0
0
$
0
Committee(10)
2001
$
0
$
0
$
0
$
0
0
$
0
(1)
The amounts listed as bonuses for 2002 and 2003
are cash bonuses earned in each of those respective years. A
portion of the amounts listed as bonuses were paid during
subsequent fiscal years.
(2)
The amounts listed represent housing and travel
allowances paid pursuant to employment agreements.
(3)
Represents the dollar value of restricted share
awards made to the Company’s employees during 2002 and
2003, as issued under the Company’s Restricted Stock Plan,
based on the closing market price of the Common Shares on the
grant dates. Dividends, if declared, will be paid on the
restricted shares. During 2002, the Company made two awards of
an aggregate 401,000 restricted shares to its employees. The
shares granted under the first award in 2002 vest on
February 12, 2005, the third anniversary of the grant date.
The shares granted under the second award in 2002 vest in three
equal annual installments commencing on September 30, 2003,
the first anniversary of the grant date. However, if there is a
“Change in Control,” as defined in the Restricted
Stock Plan, the restricted shares will immediately vest. During
2003, the Company made additional awards of an aggregate 545,000
restricted shares to its employees. The shares granted under the
2003 awards vest in three equal annual installments commencing
on September 25, 2004, the first anniversary of the grant
date, but will vest immediately upon a Change of Control. The
number and value of the aggregate restricted share holdings at
December 31, 2003 for these awards to the Named Officers
are as follows: Mr. Burke: 238,500 shares valued at
$329,130; Mr. Reale: 46,600 shares valued at $64,308;
Mr. Mawdsley: 86,100 shares valued at $118,818;
Ms. McWeeney: 6,666 shares valued at $9,200; and
Messrs. Featherstone, Hammer and Lichten: 0 shares.
Aggregate market value is based on the closing market price of
the Company’s Common Shares on December 31, 2003,
which was $1.38.
(4)
The amounts listed include payments to the
Company’s defined contribution retirement program, and with
respect to Mr. Featherstone, severance payments in 2003.
Effective February 28, 2003, Mr. Burke
assumed responsibility as President and Chief Executive Officer
of the Company; he continued to serve as Chief Financial Officer
and Secretary of the Company for the duration of the year.
Mr. Burke ceased being Chief Financial Officer on
February 18, 2004 upon the appointment of John W. Lockwood
to that office. Mr. Burke became an employee of the Company
on September 17, 2001.
(6)
Mr. Mawdsley become an employee of the
Company on January 2, 2002.
(7)
Ms. McWeeney’s employment contract was
not renewed upon its expiration on October 31, 2003, at
which time she ceased being an employee of the Company. All of
her unexercised options and unvested restricted stock grants
were cancelled as of that date.
(8)
Mr. Featherstone left the Company on
July 31, 2003. All of his unexercised options and unvested
restricted stock grants were cancelled as of that date.
(9)
Compensation listed for 2003 and 2002 includes
$78,750 and $81,875, respectively, of fees paid to
Mr. Hammer for his service as a non-employee member of the
Board. The balance of the compensation listed represents fees
paid to Mr. Hammer for service as a member of the
Transition Committee of the Board. All of Mr. Hammer’s
fees for 2002 and a portion of 2003 were deferred pursuant to
the Company’s Directors’ Voluntary Deferred
Compensation Plan, except that, at Mr. Hammer’s
request, half of the fees for his service on the Transition
Committee were paid to his employer, Guggenheim Securities LLC,
and were settled in cash. Fees paid to Mr. Hammer for
service as a director during 2001 are not reflected in this
table.
(10)
Compensation listed for 2003 and 2002 includes
$74,250 and $65,000, respectively, of fees paid to
Mr. Lichten as a non-employee member of the Board. The
balance of the compensation listed represents fees paid to
Mr. Lichten for service as a member of the Transition
Committee of the Board. At Mr. Lichten’s request, half
of the fees for his service on the Transition Committee were
paid to his employer, Guggenheim Securities LLC, and were
settled in cash. The remainder of such fees have been deferred
pursuant to the Company’s Directors’ Voluntary
Deferred Compensation Plan. Fees paid to Mr. Lichten for
service as a director during 2001 are not reflected in this
table.
Option Grants in 2003
Potential Realizable
Value at Assumed
Annual Rate of
Number of
Common Share Price
Common Shares
Percent of
Appreciation for Option
Underlying
Total Options
Exercise
Term(2)
Options
Granted to
Price per
Name
Granted
Employees
Share(1)
Expiration Date
5%
10%
John F. Burke(3)
250,000
100.0%
$
1.00
February 28, 2013
$
124,646
$
346,561
Robert J. Reale
—
—
—
—
—
—
William H. Mawdsley
—
—
—
—
—
—
Bryan Featherstone
—
—
—
—
—
—
Patricia E. McWeeney
—
—
—
—
—
—
Frederick S. Hammer(4)
2,500
N/A
$
1.13
June 3, 2013
$
1,777
$
4,502
Robert M. Lichten(4)
2,500
N/A
$
1.13
June 3, 2013
$
1,777
$
4,502
(1)
Represents the exercise price per Common Share,
which is the greater of (i) the closing price of the Common
Shares on the date of grant or (ii) the par value of the
Common Shares.
(2)
The assumed annual rates of Common Share
appreciation are provided for illustrative purposes only, in
accordance with the rules and regulations of the Commission, and
should not be construed as expected appreciation rates for the
price of the Company’s Common Shares. The potential
realizable value of Mr. Burke’s options is based on
the closing price of the Common Shares on the grant date,
February 28, 2003, which was $0.92.
(3)
The options become exercisable in equal
increments on each of February 28, 2004, 2005, and 2006.
Vesting is accelerated upon the officer’s death or
disability and upon a change in control of the Company.
The amounts included in the table for
Messrs. Hammer and Lichten represent options granted in
connection with their service as non-employee members of the
Board. These options are currently exercisable. No options were
granted in connection with their service as members of the
Transition Committee of the Board.
Aggregated Option Exercises in 2003 and
2003 Year-End Option Values
Number of Securities
Value of Unexercised
Underlying Unexercised
In-the-Money Options
Shares
Options at Fiscal Year End
at Fiscal Year End(1)
Acquired on
Value
Exercise
Realized
Exercisable
Unexercisable
Exercisable
Unexercisable
John F. Burke
—
—
36,667
288,333
—
$
95,000
Robert J. Reale
—
—
213,500
20,000
—
—
William H. Mawdsley
—
—
3,333
6,667
—
—
Bryan Featherstone
—
—
—
—
—
—
Patricia E. McWeeney
—
—
—
—
—
—
Frederick S. Hammer(2)
—
—
12,000
—
$
625
—
Robert M. Lichten(2)
—
—
12,000
—
$
625
—
(1)
The value of unexercised options is based on the
difference between the exercise price and the closing price of
the Company’s Common Shares on December 31, 2003,
which was $1.38.
(2)
Includes options that were granted to
Messrs. Hammer and Lichten in connection with their service
as non-employee members of the Board. No options were granted in
connection with their service as members of the Transition
Committee of the Board.
Employment Arrangements
Messrs. Burke, Reale and Mawdsley are the
Named Officers who, as of December 31, 2003, had employment
agreements with the Company (the “Officers”).
Ms. McWeeney’s employment agreement was not renewed
upon its expiration on October 31, 2003, and
Mr. Featherstone left the Company on July 31, 2003. In
connection with Mr. Featherstone’s departure, he was
paid as severance one year’s base salary and his employment
agreement was terminated.
The Officers’ employment agreements were
approved by the Board of Directors. The employment agreements
for Messrs. Burke and Mawdsley are for initial terms of
three years, with consecutive one-year renewal terms thereafter,
subject to three months’ advance notice by either party of
a decision not to renew. Upon its expiration in February 2004,
Mr. Reale’s employment agreement automatically renewed
for a three month period; however, the Company has provided
Mr. Reale with notice that his employment agreement will
not be renewed upon expiration of the renewal period in May 2004.
Mr. Burke’s employment agreement
provides that if the Company, for cause, terminates him or he
resigns without good reason, he will be entitled to receive an
amount equal to his accrued but unpaid annual base salary and
any accrued vacation pay through the date of his termination,
plus reimbursable business expenses prior to termination. The
employment agreements of Messrs. Reale and Mawdsley provide
that if the Company, for serious cause, terminates them or they
resign without good reason, they will forfeit all bonus amounts
for the then current fiscal year, and the Company will be liable
to them only for accrued but unpaid salary, accrued but unpaid
bonuses from a prior fiscal year and reimbursable business
expenses incurred prior to the termination. If the employment of
Mr. Burke is terminated by the Company without serious
cause or by Mr. Burke with good reason, the Company will
pay Mr. Burke a lump sum equal to his accrued but unpaid
annual base salary and any accrued vacation pay through the date
of his termination, plus reimbursable business expenses prior to
termination. Mr. Burke would also be entitled to receive a
lump sum equal to one year’s base salary, plus an amount
equal to his annual bonus for the full fiscal year preceding the
year in which he was terminated, adjusted pro rata through the
date of his termination. In addition, Mr. Burke would be
entitled to receive $60,000 for a cost of living allowance and
reasonable relocation expenses from Bermuda to
the United States and any earned but unpaid bonus
from a prior fiscal year (on the date such bonus would otherwise
be paid). If the employment of Messrs. Reale or Mawdsley is
terminated by the Company without serious cause or by either of
them with good reason, the Company will continue to pay their
respective base salaries for a period of one year from such
termination, along with any accrued but unpaid salary, any
earned but unpaid bonus from a prior fiscal year and any
reimbursable business expenses. Additionally, Messrs. Reale
and Mawdsley will be entitled to travel and housing allowances
for six and three months, respectively, after the date of
termination and reasonable relocation expenses from Bermuda to
the United States.
Pursuant to each of the employment agreements,
upon a change in control of the Company, the Officers’
respective options to purchase Common Shares of the Company will
become exercisable immediately and all restricted Common Shares
will vest immediately. If Mr. Burke’s employment with
the Company is terminated without cause or if he terminates it
for certain specified reasons within one year following a change
in control, he will be entitled to receive a lump sum payment
equal to two times his annual base salary, plus an amount equal
to his annual bonus for the full fiscal year preceding the year
in which he was terminated, adjusted pro rata through the date
of his termination. If Messrs. Reale’s or
Mawdsley’s employment with the Company is terminated
without serious cause or if either terminates their employment
for certain specified reasons within one year following a change
in control, each will be entitled to receive a lump sum payment
equal to two times his respective annual base salary. In
addition, the Officers will be entitled to receive any accrued
but unpaid salary, any earned but unpaid bonus from a prior
fiscal year, reimbursable business expenses, travel and housing
allowances for twelve months from the date of termination and
reasonable relocation expenses from Bermuda to the United
States, plus an amount equal to any income taxes payable by them
by reason of such payments occurring in connection with a change
in control.
During 2002, the Board approved retention
agreements for each of the Officers. Pursuant to the retention
agreements, each Officer was provided a retention bonus, a
portion of which was paid in September 2002, with the balance to
be paid on May 31, 2003 (the “Bonus Date”). The
retention agreements provided that if an Officer’s
employment was terminated for serious cause or if an Officer
terminated employment for other than good reason before the
Bonus Date, then such Officer would have to repay to the Company
the portion of the retention bonus already paid and would not
receive the balance of the retention bonus. In addition, the
retention agreements granted the Officers restricted Common
Shares pursuant to the Company’s Restricted Stock Plan and
increased the Officers’ base salary.
Compensation Committee Interlocks and Insider
Participation
No member of the Compensation Committee is or was
during 2003 an employee, or is or ever has been an officer, of
the Company or its subsidiaries. No executive officer of the
Company served as a director or a member of the compensation
committee of another company, one of whose executive officers
serves as a member of the Company’s Board or Compensation
Committee.
Compensation of Directors
Directors who are employees of the Company or its
subsidiaries are not paid any fees or additional compensation
for service as members of the Company’s Board or any
committee thereof. Non-employee directors receive cash fees and
are granted options to acquire Common Shares under the
Company’s Initial Stock Option Plan for their service as
directors and committee members.
During 2003 and through the date immediately
preceding the annual meeting of the Company’s shareholders
to be held during 2004 (the “Annual Meeting”),
non-employee directors received cash in the amount of
$25,000 per annum and $1,500 per Board and committee
meeting attended, and Committee Chairmen received an additional
$500 for each meeting chaired. Beginning on the date of the
Annual Meeting, non-employee directors will receive cash in the
amount of $15,000 per annum and $1,500 per Board and
committee meeting attended, up to a maximum of $6,000 for all
such Board and committee meetings attended between annual
meetings of the Company’s shareholders, and the Chairman of
the Board and each Committee Chairman will receive an additional
$500 for each meeting chaired, up to a maximum of an
additional $2,000 during such period. All
directors are reimbursed for travel and other expenses incurred
in attending meetings of the Board or committees thereof.
All new non-employee directors receive options to
acquire 15,000 Common Shares upon their initial election to
the Company’s Board. Such options become exercisable in
three equal annual installments commencing on the first
anniversary of the date of grant. In addition, on June 3,
2003, the date of last year’s annual meeting of the
Company’s shareholders, each non-employee director whose
term as a director had not ended as of such date received
options that were immediately exercisable to acquire
2,500 Common Shares. Commencing with the date of the Annual
Meeting, a non-employee director whose term as a director has
not ended as of the date of each annual meeting of the
Company’s shareholders will receive immediately exercisable
options to acquire 5,000 Common Shares. All options granted
to non-employee directors under the Initial Stock Option Plan
have an exercise price equal to the greater of the fair market
value of the Common Shares on the date of grant or $1.00.
Security Ownership of Certain Beneficial
Owners and Management
Principal Shareholders
The table below sets forth certain information
regarding the beneficial ownership of Common Shares by
(a) each shareholder known to the Company to be the
beneficial owner, as defined in Rule 13d-3 under the
Exchange Act, of more than 5% of the outstanding Common Shares,
(b) each director of the Company, (c) each of the
Named Officers, and (d) all current executive officers and
directors of the Company as a group. Each of the shareholders
named below has sole voting power and sole investment power with
respect to the shares indicated as beneficially owned, unless
otherwise indicated. Information regarding beneficial ownership
of shareholders that are not directors and/or officers of the
Company is based on filings with the Commission available to the
Company. Unless otherwise indicated below, the information in
the table represents beneficial ownership as of March 1,
2004 and the address for each beneficial owner is
c/o Annuity and Life Re (Holdings), Ltd., Cumberland
House, 1 Victoria Street, Hamilton, HM 11, Bermuda.
Amount of
Percent
Name of Beneficial Owner
Common Shares
of Class
Prescott Group Capital Management, L.L.C. and
affiliates(1)
3,885,400
14.7
%
Summit Capital Management, LLC and affiliates(2)
3,796,100
14.3
%
XL Capital Ltd(3)
3,340,380
12.5
%
Overseas Partners, Ltd.(4)
1,773,050
6.7
%
Michael P. Esposito, Jr.(3)(5)
683,625
2.5
%
Frederick S. Hammer(6)
469,641
1.7
%
John F. Burke(7)
387,833
1.5
%
Robert J. Reale(8)
291,376
1.1
%
Robert M. Lichten(9)
275,334
1.0
%
Robert P. Johnson(10)
159,225
*
William H. Mawdsley, III(11)
92,767
*
Jon W. Yoskin, II(12)
38,900
*
Jerry S. Rosenbloom(13)
37,000
*
Lee M. Gammill, Jr.(13)
32,500
*
Patricia E. McWeeney(14)
6,666
*
Jeffrey D. Watkins(1)(10)
—
*
Albert R. Dowden(10)
—
*
Henry C.V. Keeling(3)(10)
—
*
Martin A. Berkowitz(10)
—
*
Bryan Featherstone(15)
—
*
All current directors and executive officers as a
group
(fifteen persons)(16)
2,556,535
9.1
%
*
Less than 1%.
(1)
Based on information provided pursuant to a
Schedule 13G/ A dated as of December 31, 2003 filed
jointly by Prescott Group Capital Management, L.L.C., Prescott
Group Aggressive Small Cap Master Fund, G.P., Prescott Group
Aggressive Small Cap, L.P., Prescott Group Aggressive Small
Cap II, L.P., Prescott Group Mid Cap, L.P. and Phil
Frohlich with the Commission on February 13, 2004. The
address for each of the foregoing is 1924 South Utica,
Suite 1120, Tulsa, Oklahoma 74104. Jeffrey D. Watkins, a
director of the Company, is currently the President of Prescott
Group Capital Management L.L.C. and may be considered to have
voting and investment control over the Common Shares owned by
it; Mr. Watkins disclaims beneficial ownership with respect
to such shares. The Schedule 13G/ A indicates that
(i) Prescott Group Capital Management, L.L.C. has
beneficial ownership of, and sole voting and dispositive power
over 3,662,000 Common Shares; (ii) Prescott Group
Aggressive Small Cap
Master Fund, G.P. has beneficial ownership of,
and sole voting and dispositive power over, 3,278,000 Common
Shares; (iii) Prescott Group Aggressive Small Cap, L.P. and
Prescott Group Aggressive Small Cap II, L.P. each has
beneficial ownership of, and shares voting and dispositive power
over, 3,278,000 Common Shares; (iv) Prescott Group Mid Cap,
L.P. has beneficial ownership of, and sole voting and
dispositive power over, 384,000 Common Shares; and (v) Phil
Frohlich has beneficial ownership of, and sole voting and
dispositive power over, 223,400 Common Shares and, as the
manager of Prescott Group Capital Management, L.L.C., has
beneficial ownership of, and shares voting and dispositive power
over, an additional 3,662,000 Common Shares.
(2)
Based on information provided pursuant to a
Schedule 13G/ A dated as of December 31, 2003 filed
jointly by Summit Capital Management, LLC, Summit Capital
Partners, LP and John C. Rudolph with the Commission on
February 13, 2004. The address for each of the foregoing is
601 Union Street, Suite 3900, Seattle, WA 98101. The
Schedule 13G/ A indicates that (i) Summit Capital
Management, LLC has beneficial ownership of, and shares voting
and dispositive power over, 3,796,100 Common Shares;
(ii) Summit Capital Partners, LP has beneficial ownership
of 1,922,100 Common Share; and (iii) John C. Rudolph has
beneficial ownership of, and sole voting and dispositive power
over, 720,150 Common Shares and has beneficial ownership of, and
shares voting and dispositive power over, an additional
3,075,950 Common Shares.
(3)
Includes 206,231 Common Shares issuable upon
exercise of Class B Warrants that are currently
exercisable. Michael P. Esposito, Jr., a director of the
Company, is currently the non-executive Chairman of the Board of
XL Capital Ltd (“XL”), and Henry C.V. Keeling, also a
director of the Company, is currently an Executive Vice
President of XL. Each of them may be considered to have voting
and investment control over the Common Shares and warrants owned
by XL, as to which each disclaims beneficial ownership of such
shares. The address for XL is XL House, 1 Bermudiana Road, P.O.
Box 2245, Hamilton, HM JX, Bermuda.
(4)
Includes 128,895 Common Shares issuable upon
exercise of Class B Warrants that are currently
exercisable. The address for Overseas Partners, Ltd. is
Mintflower Place, 8 Par-la-Ville Road, P.O. Box HM 1581,
Hamilton, HM 08, Bermuda.
(5)
Includes 12,000 Common Shares issuable upon
exercise of options that are currently exercisable. Includes
100,000 Common Shares held by M.A. & M. Esposito
Company, 22,500 Common Shares held by Red Towers Securities and
20,500 Common Shares held by Esposito Company, each of which are
companies in which Mr. Esposito has voting control.
Includes 522,410 Common Shares issuable upon exercise of
Class A Warrants that are currently exercisable. Does not
include 154,674 Common Shares issuable upon exercise of
Class A Warrants owned by adult children of
Mr. Esposito, as to which he disclaims beneficial ownership.
(6)
Includes 12,000 Common Shares issuable upon
exercise of options that are currently exercisable. Includes
451,277 Common Shares issuable upon exercise of Class A
Warrants that are currently exercisable. Does not include 89,547
Common Shares issuable upon exercise of Class A Warrants
owned by certain trusts for the benefit of
Mr. Hammer’s children and grandchildren, as to which
he disclaims beneficial ownership.
(7)
Includes 133,333 Common Shares issuable upon
exercise of options that are currently exercisable. Does not
include 191,667 Common Shares issuable upon exercise of options
that are not currently exercisable.
(8)
Includes 223,500 Common Shares issuable upon
exercise of options that are currently exercisable. Does not
include 10,000 Common Shares issuable upon exercise of options
that are not currently exercisable.
(9)
Includes 12,000 Common Shares issuable upon
exercise of options that are currently exercisable. Includes
261,227 Common Shares issuable upon exercise of Class A
Warrants that are currently exercisable. Does not include
209,625 Common Shares issuable upon exercise of Class A
Warrants owned by certain trusts for the benefit of
Mr. Lichten’s children and grandchildren, as to which
he disclaims beneficial ownership.
(10)
Does not include 15,000 Common Shares issuable
upon exercise of options that are not currently exercisable.
Includes 6,667 Common Shares issuable upon
exercise of options that are currently exercisable. Does not
include 3,333 Common Shares issuable upon exercise of options
that are not currently exercisable.
(12)
Includes 27,000 Common Shares issuable upon
exercise of options that are currently exercisable. Includes
4,800 Common Shares held by Mr. Yoskin’s spouse, over
which Mr. Yoskin shares voting and dispositive control.
(13)
Includes 27,000 Common Shares issuable upon
exercise of options that are currently exercisable.
(14)
Based on information available to the Company as
of October 31, 2003, the date Ms. McWeeney ceased
being an employee of the Company. All unexercised options and
invested restricted stock grants were cancelled as of that date.
(15)
Based on information available to the Company as
of July 31, 2003, the date Mr. Featherstone left the
Company. All unexercised options and invested restricted stock
grants were cancelled as of that date.
(16)
Includes 1,234,914 Common Shares issuable upon
exercise of warrants that are currently exercisable and 498,833
Common Shares issuable upon exercise of options that are
currently exercisable.
Equity Compensation Plan Information
The following table summarizes the Company’s
equity compensation plans as of December 31, 2003:
Number of Securities
Remaining Available for
Number of Securities
Future Issuance Under
to Be Issued Upon
Weighted-Average
Equity Compensation
Exercise of
Exercise Price of
Plans (Excluding
Outstanding Options,
Outstanding Options,
Securities Reflected in
Plan Category
Warrants and Rights
Warrants and Rights
Column (a))
(a)
(b)
(c)
Equity compensation plans approved by security
holders
956,201
(1)
$
12.90
1,648,261
(2)
Equity compensation plans not approved by
security holders
—
—
451,133
(3)
Total
956,201
$
12.90
2,099,394
(1)
Includes options to acquire 529,869 Common Shares
that were exercisable as of December 31, 2003 under the
Annuity and Life Re (Holdings), Ltd. Initial Stock Option Plan,
as amended and restated (the “Option Plan”).
(2)
Reflects the number of options that may be
granted under the Option Plan as of January 1, 2004. The
total number of options that may be granted under the Option
Plan is subject to an annual adjustment, whereby additional
options may be granted each calendar year to purchase Common
Shares up to an amount equal to two percent (2.0%) of the
adjusted average of the outstanding Common Shares for the
preceding fiscal year, as such amount is determined in
calculating fully diluted earnings per share by the Company.
(3)
The Company adopted the Annuity and Life Re
(Holdings), Ltd. Restricted Stock Plan in 2002 (the
“Restricted Stock Plan”) and as of December 31,
2003, had 748,867 shares of restricted stock outstanding.
Those restricted shares are not included in the table, but are
reflected in the number of shares outstanding reported in the
Company’s consolidated financial statements. Under the
Restricted Stock Plan, no single employee may be granted more
than 250,000 shares of restricted stock.
The amounts set forth above are subject to
adjustment to reflect any stock dividend, stock split, share
combination, or similar change in our capitalization. See
Note 8 to the Company’s consolidated financial
statements for the year ended December 31, 2003 included in
the Company’s original Annual Report on Form 10-K
filed on March 15, 2004 for information regarding the
material features of the above plans.
XL Capital Ltd and Overseas Partners, Ltd. each
have the right to nominate one person for election as a director
of the Company for so long as they own at least 500,000 Common
Shares. Henry C.V. Keeling is an Executive Vice President of XL
Capital and Chief Executive Officer of XL Re, and he is the
formal nominee of XL Capital. Overseas Partners, Ltd. has not
designated a nominee.
Indemnification Advances
In accordance with the Company’s Amended and
Restated Bye-laws, the Company indemnifies its officers and
directors to the fullest extent permissible under Bermuda law.
Pursuant to the Bye-laws, the Company will make advances for
payment of the expenses incurred in connection with defending
any action for which indemnification has properly been sought.
In connection with a purported shareholder class action lawsuit
filed against the Company and certain of its current and former
officers and directors, the Company has made advances of
approximately $102,892 and $49,011 to Messrs. Burke and
Hammer, respectively, for payment of their expenses related to
defending this lawsuit.
Transactions with Shareholders
XL Capital
Michael P. Esposito, Jr., a director of the
Company, currently serves as the non-executive Chairman of the
Board of XL Capital. Henry C.V. Keeling is a director of the
Company and currently serves as an officer of XL Capital and is
the Chief Executive Officer of XL Re. Robert M. Lichten, a
director of the Company, serves as a director of a United
States-based subsidiary of XL Capital. XL Capital is a major
shareholder of the Company.
On December 31, 2002, the Company entered
into a transaction with XL Life Ltd, a subsidiary of XL Capital,
pursuant to which the Company transferred certain blocks of life
reinsurance business to XL Life. Under the agreement with XL
Life, the Company novated five blocks of life reinsurance
business to XL Life, which in turn entered into a 50% quota
share reinsurance agreement with the Company with respect to
four of those blocks of business. As a result of the
transaction, the Company incurred a loss of approximately
$26.5 million, primarily as a result of a write down of
deferred acquisition costs of $38.7 million (which was
partially offset by a net ceding commission to the Company of
$18.0 million), a write down of prepaid expenses of
$2.4 million and transaction costs of approximately
$3.2 million. The agreement also provided that XL Life
would receive an additional payment of $5.0 million if,
during the 18 months following the agreement, the Company
received new capital funding of at least $35.0 million and
the Company’s stock traded at a price at or above
$5.00 per share for a period of 20 out of 30 consecutive
trading days.
On August 5, 2003, XL Life served the
Company with notice of its intention to recapture the 50% quota
share reinsurance agreement with the Company. As a result, the
Company determined it would not be able to recover the deferred
acquisition costs carried for this agreement from future
expected income, and wrote down approximately $21.0 million
of such deferred acquisition costs in the three months ended
June 30, 2003.
During 2003, the Company and XL Life had been in
discussions with respect to each party’s rights and
obligations under the novation and retrocession agreements
entered into at December 31, 2002, as well as a
$10.0 million excess of loss reinsurance policy and a
catastrophe excess of loss cover that were each purchased by the
Company from XL Life in the first quarter of 2002 and two
annuity reinsurance agreements ceded to the Company by an
affiliate of XL Life. The $10.0 million excess of loss
reinsurance policy was purchased to protect against lifetime
minimum interest guarantee payments under the Company’s
annuity reinsurance agreement with Transamerica, and full
recovery under the policy had been anticipated in establishing
the Company’s deferred acquisition cost asset. The
catastrophe excess of loss cover expired by its terms on
December 31, 2002, but the Company had continued to discuss
with XL Life the remaining obligations asserted under the
agreement. The two annuity reinsurance agreements had been in
effect since December 17, 1999, and represented
approximately $95.9 million (including a cumulative loss
from embedded derivatives of
approximately $2.8 million) of the
Company’s Funds withheld at interest and approximately
$95.6 million of the Company’s Interest sensitive
contract and other liabilities on July 1, 2003.
As a result of the Company’s discussions
with XL Life, the Company and XL Life and its affiliate agreed
to mutually discharge their respective rights and obligations
under all of the agreements described in the preceding paragraph
in a comprehensive settlement effective as of July 1, 2003.
Under the terms of the comprehensive settlement, the Company
paid $6.0 million to XL Life and was released from any and
all obligations to XL Life and its affiliate under all of the
agreements among the parties. In addition, as part of the
comprehensive settlement, the Company is obligated to pay
$2.0 million to XL Life if prior to June 30, 2004 the
Company’s stock trades above $2.00 per share for a
period of 20 out of any 30 consecutive trading days and the
Company raises an aggregate $35.0 million of equity or debt.
Prudential
The Prudential Investment Corporation serves as
the Company’s investment manager. The Company has agreed to
pay a fee for investment management services to The Prudential
Investment Corporation based upon the amount of funds managed.
The fee is based upon a sliding scale and has been determined on
an arms-length basis. The Company also had entered into several
life reinsurance agreements with the Prudential Insurance
Company of America, all of which were recaptured during 2003.
These contracts had been negotiated under normal commercial
terms. One of the Company’s former directors was an
executive officer of Prudential Financial, Inc., an affiliate of
both The Prudential Investment Corporation and Prudential
Insurance Company of America.
Transactions with Management
During 1998, Mr. Reale purchased 113,476
Common Shares from the Company, and the Company loaned him
$150,000 to partially finance such purchase. The loan bore
interest at 7% per annum. The loan and accrued interest
became due and payable in April 2003. During 2003, the largest
aggregate amount outstanding under the loan was $210,383.
Mr. Reale repaid the loan and accrued interest in full on
May 31, 2003.
During 2002, the Company loaned Mr. Burke
$250,000 to finance the purchase of 16,000 Common Shares. The
loan bore interest at 5% per annum. During 2003, the
largest aggregate amount outstanding under the loan was
$258,836. Mr. Burke repaid the loan and accrued interest in
full on February 28, 2003.
The following summarizes the fees billed to the
Company by KPMG during 2003 and 2002:
Audit Fees:
2003: $726,000
2002: $1,204,000
(Includes amounts billed to the Company in connection with the
restatement of the Company’s financial statements for the
year ended December 31, 2001.)
Audit-Related Fees:
2003: None
2002: None
Tax Fees:
2003: None
2002: None
All Other Fees:
2003: None
2002: None
The Audit Committee established a pre-approval
policy pursuant to which it granted its approval for KPMG to
perform certain audit, audit-related, tax and other services up
to specified aggregate fee levels for each service. The Audit
Committee will revise this policy as needed with respect to the
services to be provided by Marcum & Kliegman LLP, the
Company’s independent auditor for the fiscal year ending
December 31, 2004. Thereafter, the Audit Committee will
periodically review, and revise if necessary, the list of
pre-approved services that Marcum & Kliegman LLP may
provide. The Audit Committee’s policy also provides that
any proposed services that are not specifically pre-approved
pursuant to the policy, as well as any proposed services that
exceed pre-approved cost levels established in the policy, will
require the Audit Committee’s separate pre-approval. In
addition, the Audit Committee may delegate pre-approval
authority to one or more of its members, who must report, for
information purposes only, any pre-approval decisions to the
Audit Committee at its next scheduled meeting.
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