<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
NAC RE CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / $500 per each party to the controversy pursuant to the Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined.
-----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / 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:
-----------------------------------------------------------------------
2) Form, Schedule or Registration No.:
-----------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
NAC RE CORPORATION
ONE GREENWICH PLAZA
P.O. BOX 2568
[LOGO] GREENWICH, CT 06836-2568
March 24, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
NAC Re Corporation (the "Company") to be held on Friday, May 8, 1998, at 10:00
A.M. at One Greenwich Plaza, in the Third Floor Boardroom, Greenwich,
Connecticut 06836-2568.
At this important meeting, you will be asked to consider and vote upon the
election of four directors to serve for a term of three years.
Your vote is important. Whether or not you plan to attend the Annual Meeting
in person and regardless of the number of shares you own, we urge you to
complete, sign, date and return the enclosed proxy card promptly in the prepaid
envelope. You may attend the Annual Meeting and vote in person even if you have
previously returned your card. We look forward to meeting with you.
Sincerely,
[SIGNATURE]
RONALD L. BORNHUETTER
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
<PAGE>
NAC RE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of NAC Re Corporation (the "Company"), a
Delaware corporation, will be held at One Greenwich Plaza, Third Floor
Boardroom, Greenwich, Connecticut on Friday, May 8, 1998, at 10:00 A.M., for the
following purposes:
(1) To elect four directors to serve for a term of three years.
(2) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on March 12, 1998 are
entitled to vote at the meeting.
You are requested to fill in, date and sign the enclosed proxy, which is
solicited by the Board of Directors of the Company, and to mail it promptly in
the enclosed envelope.
By Order of the Board of Directors,
[SIGNATURE]
CELIA R. BROWN
SECRETARY
Greenwich, Connecticut
March 24, 1998
<PAGE>
NAC RE CORPORATION
PROXY STATEMENT WITH RESPECT TO ANNUAL MEETING
OF STOCKHOLDERS
MAY 8, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of NAC Re Corporation (the "Company" or "NAC
Re") to be used at the Annual Meeting of Stockholders of the Company which will
be held at One Greenwich Plaza, Third Floor Boardroom, Greenwich, Connecticut,
on Friday, May 8, 1998, at 10:00 A.M., and at any adjournment thereof.
Stockholders who execute proxies retain the right to revoke them at any
time. A stockholder who has given a proxy may revoke it at any time before it is
exercised at the meeting by filing with the Secretary of the Company a written
notice of revocation, by executing and delivering a subsequent proxy bearing a
later date, or by attending the meeting and voting in person. Unless so revoked,
the shares represented by proxies will be voted at the meeting. The shares
represented by the proxies solicited by the Board of Directors of the Company
will be voted in accordance with the directions given therein. For a description
of the voting procedures, see "Miscellaneous--Voting Procedures."
Stockholders of record at the close of business on March 12, 1998 will be
entitled to one vote for each share then held. There were outstanding on such
date 18,369,389 shares of NAC Re common stock, $.10 par value (the "Common
Stock").
The principal executive offices of the Company are at One Greenwich Plaza,
Greenwich, Connecticut, 06836-2568. The approximate date on which this Proxy
Statement and the enclosed form of proxy were first sent or given to
stockholders was March 24, 1998.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table identifies the number of shares of Common Stock
beneficially owned at March 12, 1998 by each director and nominee for director,
each named executive officer and all directors and executive officers as a
group. Except as otherwise indicated, each person has sole voting and investment
powers with respect to shares shown.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------------------- -------------------- -------------
<S> <C> <C>
Robert A. Belfer....................................... 1,071,838(1)(2) 5.8%
John P. Birkelund...................................... 52,555(1) *
Ronald L. Bornhuetter.................................. 525,603(3) 2.8%
Nicholas M. Brown, Jr. ................................ 26,729(4) *
C. W. Carson, Jr. ..................................... 31,756(1) *
Dan Ciampa............................................. 11,506(5) *
Todd G. Cole........................................... 31,756(1) *
Michael G. Fitt........................................ 17,006(6) *
Daniel J. McNamara..................................... 31,006(7) *
Stephen Robert......................................... 41,986(1) *
Herbert S. Winokur, Jr. ............................... 35,506(1) *
Martha G. Bannerman.................................... 75,791(8) *
Jerome T. Fadden....................................... 9,807(9) *
Stanley J. Kott........................................ 53,242(10) *
All directors and executive officers of NAC Re as a
group (16 persons)................................... 2,091,236(12) 10.8%
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 29,250 shares issuable pursuant to options exercisable under the
Directors' Stock Option Plan and 128 shares of restricted stock issued
pursuant to the 1997 Stock Retainer Plan for Nonemployee Directors.
(2) Includes 114,170 shares held in family trusts with respect to which Mr.
Belfer and/or his wife or son are trustees, and 154,992 shares owned by his
wife. Mr. Belfer disclaims beneficial ownership of such shares. Also
includes 18,500 shares held by a foundation of which Mr. Belfer is an
officer and 38,525 shares held in a family trust. Mr. Belfer has shared
voting and investment power with respect to such shares. Also includes
123,492 shares held by Mr. Belfer for his wife in trust and 2,000 shares
held by Mr. Belfer for his son. Mr. Belfer has sole voting and investment
power with respect to such shares. Mr. Belfer's address is 767 Fifth Avenue,
46th Floor, New York, NY 10153.
(3) Includes 14,765 shares allocated to Mr. Bornhuetter's Employee Savings Plan
account and 411,250 shares issuable pursuant to exercisable options.
Includes 1,775 shares owned by Mr. Bornhuetter's spouse, as to which he
disclaims beneficial ownership.
(4) Includes 4,000 shares of restricted stock.
(5) Includes 11,250 shares issuable pursuant to options exercisable under the
Director's Stock Option Plan and 128 shares of restricted stock issued
pursuant to the 1997 Stock Retainer Plan for Nonemployee Directors.
(6) Includes 15,750 shares issuable pursuant to options exercisable under the
Directors' Stock Option Plan and 128 shares of restricted stock issued
pursuant to the 1997 Stock Retainer Plan for Nonemployee Directors.
2
<PAGE>
(7) Includes 24,750 shares issuable pursuant to options exercisable under the
Directors' Stock Option Plan and 128 shares of restricted stock issued
pursuant to the 1997 Stock Retainer Plan for Nonemployee Directors.
(8) Includes 5,900 shares of restricted stock, 48,060 shares issuable pursuant
to exercisable options, and 450 shares held jointly with a family member as
to which Ms. Bannerman disclaims beneficial ownership.
(9) Consists of 800 shares allocated to Mr. Fadden's Employee Savings Plan
Account and 8,750 shares of restricted stock.
(10) Includes 5,254 shares allocated to Mr. Kott's Employee Savings Plan
Account, 5,900 shares of restricted stock, and 35,455 shares issuable
pursuant to exercisable options.
(11) Includes 35,409 shares allocated to Employee Savings Plan accounts, 31,050
shares of restricted stock, 767,045 shares issuable pursuant to exercisable
options, and 453,904 shares as to which such individuals disclaim beneficial
ownership.
The following table presents, to the knowledge of the Company, information
as to all beneficial owners of 5% or more of the outstanding shares of Common
Stock as of March 12, 1998, except for Robert A. Belfer, whose ownership is set
forth above.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
- ------------------------------------------------------- ---------------------- -------------
<S> <C> <C>
Wellington Management Company, LLP..................... 1,812,208(2) 9.9%
75 State Street
Boston, MA 02109
The Prudential Insurance Company of America............ 1,310,865(3) 7.1%
751 Broad Street
Newark, NJ 07102-3777
Lazard Freres & Co. LLC................................ 1,133,129(4) 6.2%
30 Rockefeller Plaza
New York, NY 10020
The Equitable Companies Incorporated................... 1,028,265(5) 5.6%
1290 Avenue of the Americas
New York, NY 10104
</TABLE>
- ------------------------
(1) Based on information contained in the most recent Schedule 13G or Schedule
13D filed by the beneficial owner under the Securities Exchange Act of 1934.
(2) The shares are held by Wellington Management Company, LLP ("Wellington") on
behalf of investment advisory clients. Wellington has shared voting power
with respect to 1,122,250 of such shares, and shared power to dispose all of
such shares.
(3) The Prudential Insurance Company of America ("Prudential") presently holds
77,100 shares for the benefit of its general account. In addition,
Prudential may have direct or indirect voting power and/or investment
discretion over 1,233,765 shares which are held for the benefit of its
clients. Prudential has shared voting power with respect to 260,865 of such
shares, and shared power to dispose of 319,665 of such shares.
(4) Lazard Freres & Co. LLC ("Lazard Freres") has sole voting power with respect
to 1,060,829 of such shares, and sole power to dispose all of such shares.
(5) 538,700 shares are held by The Equitable Life Assurance Society of the
United States ("Equitable"); Equitable has sole voting power and power to
dispose of such shares. 241,800 shares are held by Alliance Capital
Management, L.P. ("Alliance") on behalf of investment advisory clients.
Alliance has sole voting power with respect to 159,700 of such shares,
shared voting power with respect to 63,300 of such shares and sole power to
dispose of all of such shares. 13,365 shares are held by Donaldson,
3
<PAGE>
Lufkin & Jenrette Securities Corporation ("DLJ") for investment purposes;
DLJ has no voting power and shared power to dispose of such shares. 234,400
shares are held by Wood, Struthers & Winthrop Management Corp. ("Wood,
Struthers") on behalf of investment advisory clients. Wood, Struthers has
sole power to vote 169,900 of such shares, shared voting power with respect
to 26,690 of such shares, and sole power to dispose all of such shares.
DIRECTORS AND EXECUTIVE OFFICERS
Four Directors will be elected at the meeting for a term of three years or
until their respective successors shall have been elected and shall qualify.
Each proxy received will be voted for the election of the nominees named below
unless otherwise specified in the proxy. At this time, the Board of Directors of
the Company knows of no reason why any nominee might be unable to serve. There
are no arrangements or understandings between any Director and any other person
pursuant to which such person was selected as a Director or nominee. Proxies
cannot be voted for a greater number of persons than the number of nominees
named below.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE DIRECTOR SINCE
- -------------------------------------------------------------------- --- ------------------
<S> <C> <C>
CLASS A (TERM EXPIRES 1998)
John P. Birkelund................................................. 67 August 1985
C. W. Carson, Jr. ................................................ 69 September 1987
Michael G. Fitt................................................... 66 December 1992
Stephen Robert.................................................... 57 August 1985
</TABLE>
The following individuals are the Company's other Directors whose terms of
office continue after the Annual Meeting and until the Annual Meeting in the
year in which the directorships of their class expire. The vacant Class B Board
position will remain vacant until a suitable candidate is selected by the
Corporate Governance Committee.
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE DIRECTOR SINCE
- -------------------------------------------------------------------- --- ------------------
<S> <C> <C>
CLASS B (TERM EXPIRES 1999)
Robert A. Belfer.................................................. 62 August 1985
Nicholas M. Brown, Jr. ........................................... 43 November 1996
Herbert S. Winokur, Jr. .......................................... 54 September 1987
CLASS C (TERM EXPIRES 2000)
Ronald L. Bornhuetter............................................. 65 August 1985
Dan Ciampa........................................................ 51 June 1997
Todd G. Cole...................................................... 77 September 1987
Daniel J. McNamara................................................ 70 September 1991
</TABLE>
Ronald L. Bornhuetter has been Chief Executive Officer of the Company since
December 1987 and Chairman of the Board of NAC Reinsurance Corporation ("NAC")
since 1990 and of the Company since 1993. He has been a Director of the Company
and NAC since August 1985. From August 1985 through October 1996, he served as
President of the Company and Chief Executive Officer of NAC and from March 1986
through October 1996 he also served as President of NAC. Prior to joining the
Company, Mr. Bornhuetter was Vice President--Finance of General Re Corporation
and Senior Vice President and Comptroller of its subsidiary, General Reinsurance
Corporation, having served as Chief Financial Officer of the Group. He is a
Fellow and former President of the Casualty Actuarial Society; a member and
former President of the American Academy of Actuaries and also served as
Chairman of the Actuarial Standards Board. He is also a member of the
International Actuarial Association, and a former Vice President and head of the
U.S. delegation to its Ruling Council. He is also a member of ASTIN and AFIR. He
served as
4
<PAGE>
Chairman of The Reinsurance Association of America from 1993 to 1994. He is a
Trustee of The College of Wooster, Wooster, Ohio.
Nicholas M. Brown, Jr. joined the Company in November 1996 as President and
Chief Operating Officer and a Director and President and Chief Executive Officer
and a Director of NAC. Prior to joining the Company, Mr. Brown served at The St.
Paul Companies as Executive Vice President and Chief Operating Officer of St.
Paul Fire and Marine Insurance Company from May 1994 until November 1996 and as
President of St. Paul Specialty from 1993 through May 1994. From 1976 until 1993
he served in various positions at Aetna Life and Casualty Companies, including
Vice President--Select Accounts from December 1990 until August 1993. Mr. Brown
is a Fellow of the Casualty Actuarial Society and a member of the American
Academy of Actuaries.
Robert A. Belfer is Chairman and Chief Executive Officer of Belco Oil & Gas
Corp., an independent gas and oil producing company. Prior to that, he was
President and Chairman of Belco Petroleum Corporation, a petroleum exploration
and production company from 1965 until April 1986. Mr. Belfer is a Director of
Enron Corp. and is a member of the Board of Overseers and Treasurer of the
Albert Einstein College of Medicine and a member of the Board of Overseers of
Cornell University Medical College.
John P. Birkelund has been Chairman of SBC Warburg Dillon Read Inc. since
October 1997. From 1981 until 1997, he served in executive positions at Dillon,
Read & Co. Inc., including Chief Executive Officer from 1988 through 1993 and
Chairman from 1988 to 1997. Mr. Birkelund is a Director of Darby Overseas
Investments Ltd. and chairs the Polish-American Enterprise Fund. He also serves
as a trustee or advisor to a number of not-for-profit organizations.
C. W. Carson, Jr. currently serves as an independent financial consultant.
He was a Partner with Price Waterhouse & Partners from 1985 until June 1988.
From 1983 to 1985, Mr. Carson was Managing Director of the investment banking
firm of Wm. Sword & Co., Inc. From 1956 to 1983, he was affiliated with Chemical
Bank, serving as Vice Chairman and Director of the Bank and Holding Company from
1978 to 1983. Mr. Carson is a Director of Mitsubishi Trust & Banking Corporation
(USA) and Trebol International Corporation and serves as a trustee, director or
advisor to several universities, endowment funds and other not-for-profit
organizations.
Dan Ciampa currently serves as an independent management consultant advising
senior executives in a select number of Fortune 1000 companies. Prior to
establishing his consulting practice in 1996, Mr. Ciampa was associated with
Rath & Strong, Inc., a manufacturing engineering consulting firm. He served at
Rath & Strong for over 25 years in various positions, including Chairman of the
Board and Chief Executive Officer from 1986 to 1996. Mr. Ciampa serves on
numerous private and not-for-profit boards, and is a guest lecturer at several
institutions including Duke University, Boston College, Boston University,
Harvard University and Vanderbilt University.
Todd G. Cole, retired Chairman and Chief Executive Officer of CIT Financial
Corporation, is a consultant and corporate director. In his consulting role he
served as Managing Director of SH&E, Inc., a consulting firm specializing in
aviation (1992-1995), President and Chief Executive Officer of Frontier
Airlines, Inc. D.I.P. (1986-1990) and Vice Chairman and Director of Eastern Air
Lines, Inc. D.I.P. (1989-1991). He is a Director of Kaiser Ventures, Inc.,
Hawaiian Airlines, Inc. and several private companies.
Michael G. Fitt was President of Employers Reinsurance Corporation from 1979
to 1991 and Chairman and Chief Executive Officer from 1981 until his retirement
in 1992. He is an Advisory Director of Nations Bank of Kansas City, a Director
of Kansas City Southern Industries, Inc., a Director of DST Systems Inc. and a
member of the Board of Directors of Midwest Research Institute.
Daniel J. McNamara currently is Of Counsel with the law firm of Hughes
Hubbard & Reed LLP. He served as Chairman of the Insurance Group Practice of
that law firm from March 1988 through 1994. From 1971 to 1988 he served as the
first President of Insurance Services Office, Inc. (ISO). Mr. McNamara is a
5
<PAGE>
member and past President of the Casualty Actuarial Society and the American
Academy of Actuaries. He is a Director of General Accident Insurance Company of
America and General Accident Corporation of America and several private
companies. He is Chairperson of the Board of Trustees of the College of Mount
St. Vincent and also serves as a trustee or advisor to several not-for-profit
organizations.
Stephen Robert has served as Chairman of the Board and Chief Executive
Officer of Oppenheimer & Co., Inc. from 1983 to 1997, and was President of that
company from 1979 to 1983. In November 1997, Oppenheimer & Co., Inc. was
acquired by CIBC Wood Gundy Securities Corp., the global corporate and
investment banking arm of Canadian Imperial Bank of Commerce. The new entity is
CIBC Oppenheimer Corp. and Mr. Robert serves as Vice Chairman. Mr. Robert is
Vice Chancellor and Chancellor Designate of Brown University and he serves on
the Boards of Electra Investments Trust, P.L.C., Thirteen/WNET, The Manhattan
Institute, the Polish-American Enterprise Fund and the New York City Economic
Development Corporation.
Herbert S. Winokur, Jr. has been President of Winokur Holdings, Inc.
(investment company) and Managing General Partner of Capricorn Investors, L.P.
and Capricorn Investors II, L.P., private investment partnerships concentrating
on investments in restructure situations, since 1987. Prior to his current
appointment, Mr. Winokur was Senior Executive Vice President and Director of
Penn Central Corporation. Mr. Winokur is also a Director of The WMF Group, Ltd.,
Mrs. Fields Holdings, Inc., Enron Corp., and DynCorp.
The following individuals are the Company's executive officers:
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Ronald L. Bornhuetter...................... 65 Chairman of the Board and Chief Executive
Officer, NAC Re; Chairman of the Board, NAC
Nicholas M. Brown, Jr...................... 43 President and Chief Operating Officer, NAC
Re; President and Chief Executive Officer,
NAC
Martha G. Bannerman........................ 55 Vice President and General Counsel, NAC Re;
Executive Vice President, General Counsel
and Secretary, NAC
Jerome T. Fadden........................... 41 Vice President, Chief Financial Officer and
Treasurer, NAC Re; Executive Vice
President, Chief Financial Officer and
Treasurer, NAC
Celia R. Brown............................. 43 Secretary, NAC Re; Vice President, NAC
Stanley J. Kott............................ 49 Executive Vice President, NAC
C. Fred Madsen............................. 44 Executive Vice President, NAC
</TABLE>
Martha G. Bannerman has been Executive Vice President of NAC since 1994 and
Vice President, General Counsel of the Company and a Director and General
Counsel of NAC since 1986. From 1986 to 1994 she was Vice President of NAC and
Secretary of the Company. From 1970 to 1977, Ms. Bannerman practiced law with
Milbank, Tweed, Hadley & McCloy in New York. In 1977, Ms. Bannerman joined the
Los Angeles law firm of Adams, Duque & Hazeltine (becoming a partner in 1978),
where she specialized in business litigation, including a variety of insurance
and securities matters. Ms. Bannerman served as Chair of the Law Committee of
The Reinsurance Association of America from 1992-1994 and is active in the Tort
and Insurance Practice Section of the American Bar Association.
6
<PAGE>
Jerome T. Fadden was appointed Vice President, Chief Financial Officer and
Treasurer of the Company and Executive Vice President, Chief Financial Officer
and Treasurer and a Director of NAC in June 1996. From 1990 to 1996, he held
various positions at Traveler's Group (formerly Primerica Corporation),
including Treasurer from January 1994 to June 1996, Chief Financial Officer of
The Gulf Insurance Group from 1992 to 1994, and Vice President--Finance Group
from 1990 to 1992. Mr. Fadden was a Vice President at Shearson Lehman Brothers,
Inc. from 1986 to 1990 and was an associate at E. F. Hutton & Company, Inc. from
1985 to 1986.
Celia R. Brown has been Vice President of NAC and Secretary of the Company
since 1994 and a Director of NAC since 1993. She served as Second Vice President
and Associate General Counsel from 1991 to 1994 and as Assistant Vice President
and Assistant General Counsel from 1988 to 1991. Prior to joining NAC, Ms. Brown
served as Vice President at JWT Group, Inc. and as an associate in the law firm
of Burns Summit Rovins and Feldesman in New York.
Stanley J. Kott has been Executive Vice President of NAC since 1994 and a
Director of NAC since 1990. From 1990 to 1994 he served as Vice President and
Manager, Property Facultative. Before joining the Company, he was employed by E.
W. Blanch Company for over three years and served as Senior Vice President,
Limited Partner and Director of the Facultative Division for over three years
and also as Branch Manager, New York Treaty. Mr. Kott was previously a Vice
President at Guy Carpenter serving as Branch Manager of its Hartford Office and
a property facultative underwriter at General Reinsurance Corporation.
C. Fred Madsen has been Executive Vice President of NAC since 1994 and a
Director of NAC since 1991. He served as Vice President and Manager, Casualty
Facultative from 1991 to 1994. Prior to that time he held various positions in
the Casualty Treaty Department. Before joining the Company in 1986, he served in
various underwriting positions at General Reinsurance Corporation and Aetna Life
& Casualty Company.
BOARD AND COMMITTEE MEETINGS
The standing committees of the Board of Directors of the Company include,
among others, the Audit, Compensation and Finance and Investment Committees. The
Nominating Committee was replaced in December 1997 by the Corporate Governance
Committee.
The Audit Committee held three meetings in 1997. The members of the
Committee were Messrs. Carson, Ciampa, Cole, Fitt and McNamara, none of whom is
an officer or an employee of the Company or NAC. The Audit Committee oversees
management's discharge of its financial reporting responsibilities. It meets
periodically with management and representatives of the Company's independent
certified public accountants to discuss auditing and financial reporting
matters. In addition, the independent certified public accountants and Audit
Director meet with the Audit Committee to discuss the results of their
examination and are given an opportunity to present their opinions, without
management's presence, concerning the quality of the Company's financial
reporting and adequacy of the system of internal controls. The independent
auditors have, at all times, free access to and meet regularly with the Audit
Committee. Representatives of Tillinghast--Towers Perrin, an independent
actuarial consulting firm retained by the Audit Committee, meet with the Audit
Committee to discuss the results of their examination and have, at all times,
free access to the Audit Committee without management's presence.
The Nominating Committee held two meetings in 1997. The members of the
Committee were Messrs. Belfer, Birkelund, Bornhuetter and Robert. The duties of
this Committee, which are now the responsibility of the Corporate Governance
Committee, included reviewing the qualifications of candidates suggested by
Board members, management, stockholders and other sources, considering the
performance of incumbent Directors and approving a slate of nominees for
election as Directors.
7
<PAGE>
Stockholders wishing to suggest candidates for election as Directors may
submit names and biographical data to the Secretary of the Company, who will
forward such information to the Corporate Governance Committee for
consideration.
The Compensation Committee held four meetings in 1997. The members of the
Committee were Messrs. Birkelund, Carson, Ciampa, McNamara, Robert and Winokur,
none of whom is an officer or an employee of the Company or NAC. The Committee
is responsible for establishing, administering, reviewing and recommending
changes in the Company's compensation plans for its executives and submitting
such plans to the Board of Directors for approval.
The Finance and Investment Committee held four meetings in 1997. The members
of the Committee were Messrs. Belfer, Bornhuetter, Brown, Carson, Cole, Fitt,
McNamara and Winokur. The Committee is responsible for the oversight of the
Company's investments, including the selection of investment advisors and the
adoption of investment policies and guidelines.
During 1997, there were four meetings of the Board of Directors. All
Directors attended 80% or more of the aggregate of the total number of meetings
of the Board of Directors and all Committees on which they served. The Company
considers attendance at scheduled meetings to be only one measure of a
Director's contribution to the Company. Directors also fulfill their
responsibilities by rendering advice in informal consultations with executive
officers of the Company.
CORPORATE GOVERNANCE PRINCIPLES
In 1998 the Board of Directors adopted enhanced corporate governance
principles which included board of director responsibilities, criteria for board
membership, board organizational issues, the establishment of a corporate
governance committee and the adoption or refinement of charters for each
standing board committee. Where guidelines included changes in current
practices, transitional provisions were adopted to ensure appropriate
continuity. The enhanced governance principles include:
- Establishment of a Corporate Governance Committee
- Independence requirement for all directors except for up to two
management directors
- Director stock ownership guidelines
- Retirement for Directors at age 70
- Committee rotation provisions
- Authorization of the Executive Committee Chairman to lead the Board in
the absence or disability of the Chairman and President
While the Board of Directors has always been required to govern itself and
the Company in the best interest of the shareholders, these and the other
governance principles are designed to improve the effectiveness of the Board as
well as its value to the shareholders of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related transactions
with respect to Stephen Robert, see "Compensation Committee Interlocks and
Insider Participation." In March 1995, the Company entered into a consulting
agreement with Michael G. Fitt pursuant to which Mr. Fitt provided insurance and
reinsurance advisory services to the Company and, in particular, to its UK
subsidiaries. The agreement was renewed in 1997 for one additional year. For
each year of his consulting arrangement, Mr. Fitt received a consulting fee of
$75,000 and a phantom stock option, which became fully vested in six months, in
connection with 5,000 shares of the Company's Common Stock, with a base price
equal to the market value of the Company's Common Stock on the date of grant,
and a ten year term.
8
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid or accrued for the last
three fiscal years, or as otherwise indicated, with respect to the named
executive officers of NAC Re, for services rendered by such persons to NAC Re
and NAC.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- --------
----------------------------------------- RESTRICTED SECURITIES
OTHER STOCK UNDERLYING
NAME AND ANNUAL AWARDS OPTIONS LTIP
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION ($)(1) (#) PAYOUTS($)
- ----------------------------------- ---- ---------- -------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald L. Bornhuetter.............. 1997 $608,083 $424,200 -- -- 34,000 $488,000
Chairman and Chief Executive 1996 $581,333 $392,400 -- -- 125,000 $415,300
Officer, NAC Re; 1995 $553,544 $423,500 -- -- 37,500 $379,100
Chairman, NAC
Nicholas M. Brown, Jr.............. 1997 $495,833 $345,900 $300,825(3) -- 27,500 $371,100
President & Chief Operating 1996 $ 68,510 $245,000(4) $672,500 150,000 --
Officer, NAC Re; President and
Chief Executive Officer, NAC
Martha G. Bannerman................ 1997 $311,250 $193,000 -- $196,875 16,500 $191,400
Vice President and General 1996 $290,836 $174,500 -- -- 12,000 $140,900
Counsel, NAC Re; Executive 1995 $241,347 $164,100 -- -- 15,000 $118,300
Vice President, General
Counsel and Secretary, NAC
Jerome T. Fadden................... 1997 $311,250 $193,000 -- $196,875 16,500 $191,400
Vice President, Chief Financial 1996 $162,500 $348,750(7) -- $125,625 67,000 --
Officer and Treasurer, NAC Re;
Executive Vice President,
Chief Financial Officer
and Treasurer, NAC (7)
Stanley J. Kott.................... 1997 $311,250 $193,000 -- $196,875 16,500 $191,400
Executive Vice President, NAC 1996 $287,500 $172,500 -- -- 12,000 $132,100
1995 $221,000 $150,300 -- -- 15,000 $105,400
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION($)
- ----------------------------------- ---------------
<S> <C>
Ronald L. Bornhuetter.............. $90,043(2)
Chairman and Chief Executive $90,531(2)
Officer, NAC Re; $83,035(2)
Chairman, NAC
Nicholas M. Brown, Jr.............. $66,675(5)
President & Chief Operating $ 6,166(5)
Officer, NAC Re; President and
Chief Executive Officer, NAC
Martha G. Bannerman................ $43,718(6)
Vice President and General $41,040(6)
Counsel, NAC Re; Executive $29,820(6)
Vice President, General
Counsel and Secretary, NAC
Jerome T. Fadden................... $44,213(8)
Vice President, Chief Financial $11,322(8)
Officer and Treasurer, NAC Re;
Executive Vice President,
Chief Financial Officer
and Treasurer, NAC (7)
Stanley J. Kott.................... $43,538(9)
Executive Vice President, NAC $39,498(9)
$27,170(9)
</TABLE>
- ------------------------
(1) Restricted stock awards are valued at the closing market price on the date
of each award. The restricted stock granted to Mr. Brown on October 30, 1996
vests as follows: 5,000 shares vest in 20% annual increments commencing
October 30, 1997; 15,000 shares vest 6 years from grant or earlier upon the
attainment by the stock of performance thresholds ranging from 15% to 45%
stock appreciation (all of which thresholds were met in 1997). The 5,000
shares granted to Ms. Bannerman and Messrs. Fadden and Kott on March 11,
1997 vest in 20% annual increments commencing March 11, 1999. The 3,750
shares granted to Mr. Fadden on June 30, 1996 vest in 20% annual increments
commencing on June 30, 1998. Unvested restricted stock held by the named
executives at year-end, valued at a December 31, 1997 closing price of
$48.8125, was as follows: Mr. Brown: 4,000 shares valued at $195,250; Ms.
Bannerman: 5,900 shares valued at $287,994; Mr. Fadden: 8,750 shares valued
at $427,109; Mr. Kott: 5,900 shares valued at $287,994. Dividends are paid
on shares of restricted stock as, when and if dividends are paid on the
Company's Common Stock.
(2) Amounts shown reflect Company contributions to the Employee Savings Plan and
allocations to the Excess Benefit Savings Plan of $14,400 and $75,643,
respectively, for 1997, $13,596 and $76,935, respectively, for 1996 and
$13,724 and $57,622, respectively, for 1995. Also includes $8,398, $11,689
and $12,505 for life insurance premiums paid by the Company for 1997, 1996
and 1995, respectively.
(3) Amount shown for Mr. Brown includes $99,811 in connection with relocation
costs and related tax reimbursement and $170,750 reflecting the difference
between the market value and the purchase price for 5,000 shares of the
Company's Common Stock purchased by Mr. Brown in connection with his
employment agreement.
(4) Mr. Brown joined the Company in November 1996. Consists of an annual bonus
of $20,000 and a replacement bonus of $225,000 in connection with Mr.
Brown's employment agreement.
(5) Consists of Company contributions to the Employee Savings Plan and
allocations to the Excess Benefit Savings Plan of $14,400 and $52,275,
respectively, for 1997 and $4,111 and $2,055, respectively, for 1996.
9
<PAGE>
(6) Consists of Company contributions to the Employee Savings Plan and
allocations to the Excess Benefit Savings Plan of $14,400 and $29,318,
respectively, for 1997, $13,596 and $27,444, respectively, for 1996 and
$13,724 and $16,096, respectively, for 1995.
(7) Mr. Fadden joined the Company in June 1996. Consists of an annual bonus of
$97,500 and a replacement bonus of $251,250 paid in connection with Mr.
Fadden's employment offer.
(8) Consists of Company contributions to the Employee Savings Plan and
allocations to the Excess Benefit Savings Plan of $14,400 and $29,813,
respectively, for 1997 and $10,197 and $1,125, respectively, for 1996.
(9) Consists of Company contributions to the Employee Savings Plan and
allocations to the Excess Benefit Savings Plan of $14,400 and $29,138,
respectively, for 1997, $13,596 and $25,902, respectively, for 1996 and
$13,724 and $13,446, respectively, for 1995.
OPTION GRANTS IN LAST FISCAL YEAR
The Company maintains employee stock option plans pursuant to which eligible
individuals may receive options to purchase the Company's Common Stock. The
table below sets forth information concerning grants of stock options to the
named executive officers of NAC Re during the last fiscal year. The amounts
shown for each of the officers as potential realizable values are based on
arbitrarily assumed annualized rates of stock price appreciation of five percent
and ten percent over a ten-year period from the date of grant of the respective
options. No gain to the optionees is possible without an increase in the stock
price, which will benefit all shareholders proportionately. These potential
realizable values are based solely on arbitrarily assumed rates of appreciation
and are required to be disclosed by regulations adopted by the Securities and
Exchange Commission. Actual gains, if any, on option exercises and common stock
holdings are dependent on the future performance of the Company's Common Stock.
There can be no assurance that the potential realizable values shown in this
table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS
------------------------------------------------------ POTENTIAL
% OF REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ----------------------
NAME (#)(1) YEAR ($/SH) DATE(2) 5%(1)(5) 10%(1)(5)
- ----------------------------------------- ------------- ------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ronald L. Bornhuetter.................... 34,000 11.1% $ 42.625 6/10/2007 $ 913,028 $2,304,308
Nicholas M. Brown, Jr.................... 27,500(3) 8.9% $ 42.625 6/10/2007 $ 738,478 $1,863,778
Martha G. Bannerman...................... 16,500 5.4% $ 42.625 6/10/2007 $ 443,087 $1,118,267
Jerome T. Fadden......................... 16,500(4) 5.4% $ 42.625 6/10/2007 $ 443,087 $1,118,267
Stanley J. Kott.......................... 16,500 5.4% $ 42.625 6/10/2007 $ 443,087 $1,118,267
</TABLE>
- ------------------------
(1) Becomes exercisable in installments of 25% per year commencing June 10, 1999
so long as employment with the Company or its subsidiaries continues. At 5%
appreciation, share price would be $69.48 on June 10, 2007. At 10%
appreciation, share price would be $110.40 on June 10, 2007.
(2) Options expire unless exercised within five years following termination of
employment due to retirement, disability or death, or three months following
termination of employment due to discharge or resignation, but in no event
may option term exceed 10 years.
(3) Granted as a stock appreciation right which converts into a non-qualified
stock option in October 1998.
(4) Granted as a stock appreciation right which converts into a non-qualified
stock option in June 1998.
(5) As of March 3, 1998 there were 18,369,389 shares of the Company's Common
Stock outstanding. Based on those outstanding shares and a share price of
$50.5625 on that date, at 5% appreciation, the share price would be $82.4169
on March 3, 2008 and potential realizable value for all shareholders would
be $585,145,406. At 10% appreciation, the share price would be $130.9569 on
March 3, 2008 and potential realizable value for all shareholders would be
$1,476,795,548
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the exercise of stock
options during the last fiscal year by the named executive officers of NAC Re
and the value of unexercised stock options held by such officers at December 31,
1997.
10
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FY-END (#) AT FY-END ($)(1)
AQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------ ------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald L. Bornhuetter..................... -- -- 342,850 156,900 $8,986,657 $ 1,854,340
Nicholas M. Brown, Jr. ................... -- -- 0 177,500 $ 0 $ 2,397,587
Martha G. Bannerman....................... 13,875 $ 492,702 48,935 51,790 $1,130,520 $ 564,262
Jerome T. Fadden.......................... -- -- 0 83,500 $ 0 $ 1,208,769
Stanley J. Kott........................... -- -- 35,455 49,720 $ 807,442 $ 532,511
</TABLE>
- ------------------------
(1) Based on year-end market value of Common Stock of $48.8125
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
The Company's Long-term Incentive Plan, which is administered by the
Compensation Committee of the Board of Directors, has been designed to provide
awards based on corporate performance over three-year and five-year periods,
paid following the end of each measurement period. One-half of the award is
based on total shareholder return over a five-year period, compared to the
return for the companies in the S&P Composite Stock Price Index, the S&P
Property-Casualty Industry Index and the S&P Multiline Index. The other half of
the award is based on operating return on beginning equity over a three-year
period compared to a peer group composed of the 15 largest reinsurance
companies. The following table sets forth information concerning Long-term
Incentive Plan awards for the named executive officers of NAC Re. The awards are
indicated in dollars, based on 1997 salaries, instead of percentages, in order
to give shareholders an estimate of the amounts that may be paid out.
Distributions under the Long-term Incentive Plan are made in March of each year
with respect to the measurement period ending at the end of the preceding
calendar year, and are included in the Summary Compensation Table.
LONG TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
OR OTHER NON-STOCK PRICE-BASED PLAN(1)
PERIOD UNTIL -------------------------------------
MATURATION OR THRESHOLD
NAME PAYOUT (2) ($) (3) TARGET($) MAXIMUM($)(4)
- ----------------------------------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C>
Ronald L. Bornhuetter.............. 1996-1998 $0 $364,850 $729,700
1997-1999 $0 $364,850 $729,700
Nicholas M. Brown, Jr. ............ 1996-1998 $0 $272,708 $545,417
1997-1999 $0 $272,708 $545,417
Martha G. Bannerman................ 1996-1998 $0 $140,063 $280,125
1997-1999 $0 $140,063 $280,125
Jerome T. Fadden................... 1996-1998 $0 $140,063 $280,125
1997-1999 $0 $140,063 $280,125
Stanley J. Kott.................... 1996-1998 $0 $140,063 $280,125
1997-1999 $0 $140,063 $280,125
</TABLE>
- ------------------------
(1) Actual awards and target and maximum amounts are characterized under the
Long-term Incentive Plan as percentages. When an actual award is determined
at the end of each measurement period, the percentage is applied to the
individual's average annual base salary for such period. Because this
average compensation level is not presently determinable, all amounts
disclosed reflect the application of the applicable percentages to the
individual's 1997 salary, which may be more or less than average
compensation at the end of the relevant measurement periods.
(2) Actual awards for the 1995-1997 measurement period are reflected in the
Summary Compensation Table.
(3) If neither formula threshold is reached, no award will be paid under the
Plan.
(4) While there are no maximum payouts under the Plan as amended, the
Compensation Committee may exercise its discretion if and to the extent
formulas produce awards in excess of 200% of the target payout.
11
<PAGE>
RETIREMENT PLAN
The NAC Re Corp. Retirement Plan is a qualified non-contributory defined
benefit plan for all employees. Benefits are computed on the basis of a
specified percentage of the individual's average total compensation, which
includes salary and bonus awards (exclusive of Long-term Incentive Plan awards),
for the thirty-six months of highest total compensation during the employee's
last ten years of service. Benefits are computed on the basis of a "life and
ten-year certain" annuity.
The Company maintains a Benefits Equalization Plan authorizing payment to
employees out of general funds of the Company of any benefits calculated under
provisions of the Retirement Plan that are otherwise above the limitations of
the Internal Revenue Code.
The following table shows the estimated annual benefits payable upon normal
retirement for specified average total compensation and years of credited
service under the Retirement Plan and the Benefits Equalization Plan. Amounts
disclosed are not subject to deduction for Social Security or other offset
amounts.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE TOTAL ----------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$200,000..... $ 45,899 $ 61,198 $ 73,498 $ 85,798 $ 85,798
400,000..... 93,899 125,198 150,498 175,798 175,798
600,000..... 141,899 189,198 227,498 265,798 265,798
800,000..... 189,899 253,198 304,498 355,798 355,798
1,000,000... 237,899 317,198 381,498 445,798 445,798
1,200,000... 285,899 381,198 458,498 535,798 535,798
1,400,000... 333,899 445,198 535,498 625,798 625,798
</TABLE>
The following table sets forth the number of full years of credited service
as of December 31, 1997 under the Retirement Plan and the Benefits Equalization
Plan, the 1997 compensation covered by the plans and number of years of credited
service at normal retirement age for the named executive officers of NAC Re.
<TABLE>
<CAPTION>
NUMBER OF FULL CURRENT NUMBER OF YEARS
YEARS OF COMPENSATION OF CREDITED SERVICE AT
NAME OF INDIVIDUAL CREDITED SERVICE COVERED NORMAL RETIREMENT AGE
- -------------------------------------- ------------------- ------------- ---------------------------
<S> <C> <C> <C>
Ronald L. Bornhuetter................. 12 $ 1,004,483 11
Nicholas M. Brown, Jr. ............... 1 740,833 23
Martha G. Bannerman................... 11 485,750 21
Jerome T. Fadden...................... 1 491,250 25
Stanley J. Kott....................... 7 483,750 23
</TABLE>
Current Compensation Covered is the equivalent of the salary reported in the
Summary Compensation Table for 1997 and Annual Incentive Plan bonus for 1996
(and actually paid in 1997). See "Employment Agreements with Mr. Bornhuetter"
and "Employment Agreement with Mr. Brown" for a description of the supplemental
pension payable to Messrs. Bornhuetter and Brown upon their retirement.
EMPLOYMENT AGREEMENTS WITH MR. BORNHUETTER
Mr. Bornhuetter, the Company's Chairman and Chief Executive Officer, was
employed pursuant to an agreement with NAC Re and NAC which became effective in
March 1992 and extended until July 1, 1997 (the "Former Agreement"). Mr.
Bornhuetter entered into an agreement with NAC Re and NAC to provide for his
employment from July 1, 1997 through June 30, 2000 (the "Current Agreement").
The Current Agreement provides that Mr. Bornhuetter will be nominated to the
respective Boards of Directors of NAC Re and NAC and that he will be a member of
the Executive Committee and an EX OFFICIO member
12
<PAGE>
of all other committees of NAC Re and NAC with management responsibilities,
except the Audit Committee and Compensation Committee.
Mr. Bornhuetter's salary was established under the Former Agreement, with
the opportunity for subsequent annual increases. He receives bonuses paid
pursuant to the Annual Incentive Plan and Long-term Incentive Plan which are
dependent on corporate performance. The Annual Incentive Plan bonus is based on
a target percentage of 45% of average salary for the bonus year. The Long-term
Incentive Plan bonus is based on a target percentage of 60% of average salary
for the three-year measurement period.
NAC Re and NAC are required to maintain life insurance of $600,000 on Mr.
Bornhuetter's life and for his benefit (Mr. Bornhuetter receives additional life
insurance pursuant to the Company's benefits program for all employees).
Following the employment term, such insurance must be maintained in the amount
of $100,000. If Mr. Bornhuetter's employment terminates because of disability
before the end of his employment term, his compensation and certain benefits
will continue except that annual salary payments will be 53% of his average
annual compensation including base salary and annual bonus at target (defined
pursuant to the Current Agreement) reduced by the amount of any disability
payments and retirement benefits he receives under the various benefit plans
maintained by the Company and NAC. This benefit is payable for Mr. Bornhuetter's
lifetime and, following his death, 50% of such amount is payable to his
surviving spouse, unless a lump sum payment option is elected.
Mr. Bornhuetter will receive a supplemental pension upon his retirement in
an annual amount equal to 53% of his average annual compensation including base
salary and annual bonus at target (defined pursuant to the Current Agreement)
reduced by benefits payable to Mr. Bornhuetter under pension plans of the
Company or NAC or under pension plans of Mr. Bornhuetter's prior employer. This
benefit is payable to Mr. Bornhuetter for his lifetime and, following his death,
50% of such amount is payable to his surviving spouse, unless a lump sum payment
option is elected.
If Mr. Bornhuetter's employment is terminated (i) by the Company other than
for cause or (ii) by Mr. Bornhuetter for "good reason," as defined in the
Current Agreement, in addition to accrued benefits under such agreement, Mr.
Bornhuetter will receive a lump sum payment equal to his then current base
salary plus target payments from the Annual Incentive Plan and Long-term
Incentive Plan (the "Severance Amount") for the unexpired portion of his
employment term, except that, if such termination occurs after a change in
control, Mr. Bornhuetter's severance payment will in no event be less than 2.99
times the Severance Amount. Provisions regarding continuing life and health
insurance, excise tax payments and the definition of change in control are
comparable to those contained in the Senior Officer Agreements described below.
EMPLOYMENT AGREEMENT WITH MR. BROWN
Mr. Brown, the Company's President and Chief Operating Officer, is employed
pursuant to an agreement with NAC Re and NAC which agreement became effective in
November 1996, and extends until December 31, 2001. His salary was established
under the agreement with the opportunity for annual increases commencing March
1998. He is eligible to receive bonuses paid pursuant to the Annual Incentive
Plan and Long-term Incentive Plan which are dependent on corporate performance,
based on target percentages of 45% and 55%, respectively. Pursuant to his
agreement, Mr. Brown received an initial stock appreciation right grant (which
automatically converts to a stock option grant after two years) with respect to
150,000 shares of NAC Re Common Stock, a grant of 20,000 shares of restricted
stock, and a sign-on bonus which included a cash payment and the right to
purchase 5,000 shares of Common Stock at par value. Mr. Brown was reimbursed for
the costs and tax consequences related to his relocation to Connecticut.
Pursuant to his employment agreement, if Mr. Brown retires on or after
attaining age fifty-five, he will receive a supplemental pension equal to 50% of
his average compensation including base salary and annual bonus at target
(defined pursuant to the employment agreement) reduced by benefits payable to
13
<PAGE>
Mr. Brown under pension plans of the Company or NAC or under pension plans of
Mr. Brown's prior employers. Any retirement benefit that is payable prior to age
60 shall be reduced by 5% per year to reflect its expected period of payment.
This benefit is payable to Mr. Brown for his lifetime and, following his death,
50% of such amount is payable to his surviving spouse, if any, for her lifetime.
If Mr. Brown's employment is terminated (i) by the Company other than for
cause or (ii) by Mr. Brown for "good reason," as defined in his employment
agreement, in addition to accrued benefits under such agreement, Mr. Brown will
receive a lump sum payment equal to three times the sum of (i) his then current
base salary plus (ii) the amounts that would be paid to him under the Annual
Incentive Plan and the Long-term Incentive Plan at his target for the year or
performance period, as the case may be, during which such termination occurs,
except that, if such termination occurs after a change in control, Mr. Brown's
severance payment will in no event be less than 2.99 times the sum of Mr.
Brown's then annual base salary plus payments under the Annual Incentive Plan
and Long-term Incentive Plan at target. Provisions regarding continuing life and
health insurance, excise tax payments and the definition of change in control
are comparable to those contained in the Senior Officer Agreements described
below.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE VICE PRESIDENTS
The Company entered into employment agreements with Ms. Bannerman and
Messrs. Fadden, Kott, and Madsen effective October 30, 1996 for three-year
terms. Pursuant to such agreements, in the event of involuntary termination of
employment, the employee will receive a severance payment equal to his or her
then current base salary plus annual and long-term bonuses paid out at the
target percentages with respect to the greater of the balance of the term of the
agreement or a two-year period. In the event of the voluntary termination of the
employee, he or she is subject to provisions regarding non-competition and
non-solicitation of clients. Severance provisions in the event of a change in
control are described under "Change In Control Severance Agreements."
CHANGE IN CONTROL SEVERANCE AGREEMENTS
In addition to the agreements described above, the Company has entered into
severance agreements with the executive vice presidents, senior vice presidents
and certain vice presidents of NAC (the "Senior Officer Agreements") and
severance agreements with the other officers of NAC and its subsidiaries in
order to reinforce and encourage the continued dedication and attention of such
persons to their assigned duties without distractions arising from a potential
change in control. These severance agreements as well as a severance program for
other employees are also intended to help retain staff members in the event of a
potential change in control and thereby protect the assets of the Company.
As part of the Senior Officer Agreements, each party has agreed that in the
event of a "potential change in control" of the Company, the senior officer will
remain in the employ of the Company or its subsidiaries for a six-month period.
If a senior officer's employment is terminated within two years of a "change in
control" (i) by the Company other than for cause, or (ii) by the senior officer
for "good reason," the senior officer will be entitled to a severance payment
equal to his average annual compensation from the Company during the five years
immediately preceding the change in control plus target payments from the Annual
Incentive Plan and the Long-term Incentive Plan, multiplied by 2.99. The
severance payment will be made over 2.99 years or in a discounted lump sum. The
senior officer will also receive amounts earned but not yet paid under the
Long-term Incentive Plan, acceleration of vesting of stock options and
restricted stock, and continuing life and health insurance coverage for a
three-year period after termination, as well as legal fees incurred in enforcing
the severance agreement. If a senior officer becomes subject to an excise tax
under the Internal Revenue Code as a result of any payments or benefits received
on a change in control, the Company will make an additional payment to the
senior officer to make him or her whole after payment of the excise tax.
14
<PAGE>
A "potential change in control" would be deemed to occur if (i) the Company
enters into an agreement, the consummation of which would result in a change in
control of the Company, (ii) any person (including the Company) publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a change in control, (iii) any person becomes the
beneficial owner of securities representing 10% or more of the combined voting
power of the Company's then outstanding securities; or (iv) the Board of
Directors adopts a resolution to the effect that a potential change in control
has occurred. A "change in control" of the Company would be deemed to occur if
(i) any person is or becomes the beneficial owner of securities representing 30%
or more of the combined voting power of the Company's then outstanding
securities, (ii) during any two-year period individuals who constituted the
Board of Directors of the Company cease, for any reason, to constitute a
majority thereof, or (iii) the stockholders of the Company approve a merger,
consolidation or complete liquidation of the Company or a sale of substantially
all of the Company's assets. "Good reason" is defined to include any change in
duties or responsibilities, reduction in compensation or benefits, relocation or
the failure of the Company or its successor to provide the senior officer with a
three-year employment contract for the equivalent duties and at comparable
levels of compensation and benefits as exist at the time of the change in
control.
COMPENSATION OF DIRECTORS
Prior to June 1997 the Board retainer was $27,500, paid in cash. In June
1997 the Board of Directors increased the retainer to $30,000, and changed the
form of payment to 25% in cash and 75% in the form of Company Common Stock. The
Common Stock is nontransferable for six months from issuance. The Directors also
receive fees of $2,500 for each Board of Directors' meeting attended and $1,000
for each Committee meeting attended. The non-executive Chairman of each
Committee receives an additional cash retainer of $2,500 annually. The Company
pays for or reimburses the travel and related expenses incurred to attend Board
and Committee meetings.
Directors may elect to defer, until a date specified, receipt of all or a
portion of their cash retainers and fees. Interest is allocated to amounts
deferred at a rate comparable to the rate earned by the Stable Value Fund of the
NAC Re Corp. Employee Savings Plan. During 1997, three Directors elected to
defer compensation pursuant to this arrangement.
The Company maintains the Directors' Stock Option Plan pursuant to which
Directors who are not full-time employees of the Company or its subsidiaries and
who are otherwise eligible automatically receive non-qualified stock options to
purchase NAC Re Common Stock at the market value for such stock on the grant
date. The initial grant under the plan is an option to purchase 11,250 shares of
Common Stock, with subsequent annual grants of options to purchase 2,250 shares
of Common Stock. Such options become exercisable six months following their
grant date. See "Certain Relationships and Related Transactions" for a
description of consulting fees paid to Mr. Fitt.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1997 were: John P.
Birkelund, C. W. Carson, Jr., Daniel J. McNamara, Stephen Robert, and Herbert S.
Winokur, Jr. Stephen Robert is Vice Chairman of CBIC Oppenheimer Corp.
(previously Chairman and Chief Executive Officer of Oppenheimer & Co., Inc., its
predecessor Corporation) ("Oppenheimer"). Oppenheimer provides investment
advisory services with respect to the Company's pension funds.
15
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Company's compensation philosophy is driven by its primary corporate
objectives--to provide the best return to the shareholders over the long term
and to maintain a highly motivated staff, providing them with the opportunity to
share in the success of the Company. Specifically, NAC Re's executive
compensation program serves:
- To align the interests of executives and shareholders by causing a
significant portion of executive compensation to be variable, or "at
risk," dependent upon the achievement of long-term corporate performance
objectives, while emphasizing significant ownership of NAC Re Common
Stock.
- To sustain superior corporate performance over time by designing elements
of the compensation program that are based on longer-term rewards, such as
extended vesting and long-term plans.
- To attract and retain quality staff by emphasizing the necessity to be
highly competitive.
Total compensation is intended to fall at approximately the 75th percentile
of the reinsurance industry for above-average corporate performance. Industry
statistics are generally derived from an independent survey of 33 public and
private property and casualty reinsurance companies, including three of the
eight companies in the S&P Property-Casualty Insurance Group Index, or their
reinsurance affiliate. This information is further refined to construct a
comparison to the top 15 reinsurers.
At present, the executive compensation program is composed of salary, annual
cash incentive opportunities, long-term cash incentive opportunities and
stock-based awards. As the executive officer's level of responsibility
increases, a greater portion of potential total compensation opportunity is
based on corporate performance and appreciation in stock value and a lesser
portion on individual performance and competitive industry levels, causing
greater potential variability in the individual's absolute compensation from
year to year.
SALARIES
Salary is viewed as fixed base compensation determined initially by industry
and position comparisons. In addition, salaries are considered in the context of
the Company's internal salary range structure to insure that the compensation
level for each position is determined with regard to other relevant positions
within the Company. For the Chief Executive Officer, annual adjustments are
considered based on the goals and performance of the Company and prevailing
competitive conditions. For other executive officers, individual performance is
also considered.
ANNUAL INCENTIVE PLAN
The Company's Annual Incentive Plan provides a yearly cash bonus opportunity
that serves to motivate executive officers to achieve the Company's operational
and strategic goals.
Cash payouts under the Annual Incentive Plan are recommended by management
and determined by the Compensation Committee after the completion of each
calendar year. These payouts are based primarily on corporate performance for
the prior year and an evaluation of each participant's respective contribution
to the performance of the Company. As a participant's responsibilities increase,
the portion of his or her bonus dependent on corporate performance increases.
For the named executive officers, the entire bonus for 1997 was based on
corporate performance.
Awards are determined by an evaluation of the Company's performance relative
to its business plan, which plan has been approved by the Board of Directors, in
the context of market conditions. Performance criteria include return on
shareholders' equity, earnings and earnings growth, composite ratio, expense
ratio, premium volume, performance relative to other comparable reinsurers and
subjective measurements
16
<PAGE>
of success. There is no predetermined weight given to each criterion. Rather,
the Committee's evaluation involves a subjective balancing of the various
measures of success. If the Company's overall performance meets the performance
expectations, bonuses are paid at or above the target level. It is not necessary
for each individual aspect of the performance expectations to be met for bonuses
to be paid at or above the target level.
LONG-TERM INCENTIVE PLAN
The Company's Long-term Incentive Plan is a cash award plan designed to
provide incentives for superior long-term corporate performance. This program in
particular has been structured to recognize the critical importance and
retention of key management employees and to focus their attention on long-term
goals. Long-term Incentive Plan awards are based solely on corporate
performance.
The Plan payout is based on objective formulas that measure the Company's
internal and external financial performance. The measurement of internal
performance is based on the Company's operating return on beginning equity over
a three-year period compared to a peer group composed of the 15 largest
reinsurance companies. The measurement of external performance is based on the
Company's total shareholder return over a five-year period, compared to the
returns measured by stock market indices and peer company returns. Minimum
performance levels are required for a payout under each formula; however,
discretion may be applied by the Committee.
STOCK-BASED PLANS
Stock-based plans are designed to align the interests of executives and
shareholders by providing value to the executive as the stock price increases.
Due to the variability of the stock price, stock options and restricted stock
make a significant portion of executive compensation dependent upon the
Company's overall results and how the Company is perceived by its shareholders
and the marketplace. Options granted to executives are typically granted at 100%
of the market value of the stock on the date of grant. Generally, option awards
become exercisable over a relatively long period, motivating executives to
sustain high corporate performance in order to increase the value of such
options.
For the 1997 option grant an option pool for all officers was established by
the Compensation Committee utilizing guidelines based on general and reinsurance
industry competitive practice and an option valuation. In addition, the total
number of options outstanding relative to shares outstanding was considered.
Individual awards for executives were determined by the Compensation Committee
by the application of individual guideline amounts (which are based on level and
competitive practice) to the corporate pool.
CEO COMPENSATION
As described, the executive compensation program is designed to link
compensation with the accomplishment of business and corporate objectives and
with return for the shareholders. This is clearly exemplified in the
compensation of the Company's Chief Executive Officer, Mr. Bornhuetter.
The Company has an employment agreement with Mr. Bornhuetter. In accordance
with such agreement, annual base salary increases are determined based on a
review of his salary in relationship to the performance of NAC Re and prevailing
competitive conditions. Mr. Bornhuetter's annual salary increase for 1997 was
determined in March 1997 to be 4.5%, consistent with the Company's salary
budget.
Mr. Bornhuetter's Annual Incentive Plan payment for 1997 was determined by
multiplying the payout percentage determined by the Committee by his target,
resulting in a bonus of $424,200. The specific corporate performance criteria
for determining the bonus level are described under "Annual Incentive Plan,"
above. For 1997, the Committee determined that the Company's overall financial
and strategic performance was excellent, particularly in the context of weak
market conditions. Further,
17
<PAGE>
Mr. Bornhuetter's Long-term Incentive Plan award for the 1995-1997 measurement
period was determined by multiplying the payout percentage determined on the
basis of corporate performance by his target, resulting in a bonus of $488,000.
The performance measures utilized for determining this award level are described
under "Long-term Incentive Plan," above. In June 1997, Mr. Bornhuetter received
a stock option grant to purchase 34,000 shares of Common Stock at the market
value on the date of grant as part of the Company's annual option grants to
recognize his contribution to the Company and to further align his interests
with those of the Company's other shareholders.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1 million
paid to certain executive officers. Qualifying performance-based compensation
will not be subject to the deduction limit if certain requirements are met. A
portion of the compensation paid by the Company during 1997 to Mr. Brown was not
fully deductible for federal income tax purposes. Whether all compensation paid
in future years is fully deductible will depend upon the constraints of
contractual agreements with the Executive Officers as well as any determination
by the Committee that the need to retain flexibility with respect to executive
compensation is in the best interests of the Company.
JOHN P. BIRKELUND C. W. CARSON, JR. DAN CIAMPA
DANIEL J. MCNAMARA STEPHEN ROBERT HERBERT S. WINOKUR, JR. (CHAIRMAN)
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the New York Stock Exchange. Based solely upon a review of the
copies of such forms furnished to the Company and written representations from
the Company's executive officers, directors and greater than 10% beneficial
shareholders, the Company believes that during the year ended December 31, 1997,
all persons subject to the reporting requirements of Section 16(a) filed the
required reports on a timely basis.
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PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's cumulative
total shareholder return on its Common Stock to such return for the S&P 500
Composite Stock Price Index (the "S&P 500 Index") and a peer group that combines
the S&P Property-Casualty Industry Index (the "P&C Index") and the S&P Multiline
Insurance Stock Price Index (the "Multiline Index"). The peer group consists of
the following companies: Allstate Corporation, Chubb Corporation, General Re
Corporation, Loews Corporation, SAFECO Corporation, The St. Paul Companies,
United States Fidelity & Guaranty Corporation, American International Group,
CIGNA Corporation, Hartford Financial Services Group Inc., Lincoln National, The
Travelers Group, Inc., Cincinnati Financial Corp. and Progressive Corp.-Ohio
(the "P&C/ Multiline"). The graph compares such returns since the Company's
initial public offering in October 1985, with December 31, 1992 as the base
year. The cumulative total shareholder return on the Company's Common Stock
(including dividends) was 399.6% from the initial public offering to the end of
1997 and 23.8% from December 31, 1992 to December 31, 1997. The cumulative total
return for the S&P 500 Composite Stock Price Index was 664.4% from October 1985
to December 31, 1997 and 151.7% from December 31, 1992 to December 31, 1997. The
cumulative total return for the P&C/Multiline was 599.2% from October 1985 to
December 31, 1997 and 194.4% from December 31, 1992 to December 31, 1997.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN (1) YEAR ENDED DECEMBER
31.
<S> <C> <C> <C>
Dollars
NAC Re Corp S&P 500 Composite Index P&C/Multiline
IPO(2) $ 24.77 $ 32.92 $42.10
1985 39.84 38.41 52.22
1986 28.28 45.54 54.23
1987 19.12 47.86 50.07
1988 34.20 55.81 54.04
1989 58.01 73.50 75.97
1990 53.87 71.22 66.51
1991 77.47 92.92 86.74
1992(3) 100.00 100.00 100.00
1993 73.85 110.08 106.66
1994 83.56 111.53 111.87
1995 90.27 153.45 159.11
1996 85.52 188.70 198.03
1997 123.76 251.65 294.38
</TABLE>
- ------------------------
(1) Stock price appreciation plus dividends.
(2) The Company's initial public offering was in October 1985.
(3) Assumes shareholder invests $100 on December 31, 1992. For periods prior to
that date, the graph shows how investments in the Company, the S&P 500 and
the Peer Group would have reached $100 on that date from an investment in
October 1985.
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MISCELLANEOUS
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Ernst & Young LLP has been selected as the Company's
auditors for 1998. Representatives of Ernst & Young LLP will be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions of
stockholders.
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
The Board of Directors of the Company does not intend to present, and does
not have any reason to believe that others intend to present, any matter of
business at the meeting other than that set forth in the accompanying Notice of
Annual Meeting of Stockholders. However, if other matters properly come before
the meeting, it is the intention of the persons named in the enclosed form of
proxy to vote any proxies in accordance with their judgment.
VOTING PROCEDURES
Directors of the Company must be elected by a plurality of the vote of the
shares present in person or represented by proxy at the meeting. Consequently,
only shares that are voted in favor of a particular nominee will be counted
toward such nominee's achievement of a plurality. Shares present at the meeting
that are not voted for a particular nominee or shares present by proxy where the
stockholder properly withheld authority to vote for such nominee (including
broker non-votes) will not be counted toward such nominee's achievement of a
plurality.
With respect to other matters submitted to the stockholders for a vote, if
any, the affirmative vote of the holders of at least a majority of the shares
present in person or represented by proxy at the meeting for a particular matter
is required to become effective. With respect to abstentions, the shares are
considered present at the meeting for the particular matter, but since they are
not affirmative votes for the matter, they will have the same effect as votes
against the matter. With respect to broker non-votes, the shares are not
considered present at the meeting for the particular matter as to which the
broker withheld its vote. Consequently, broker non-votes are not counted in
respect of the matter, but they do have the practical effect of reducing the
number of affirmative votes required to achieve a majority for such matter by
reducing the total number of shares from which the majority is calculated.
PROXY SOLICITATION
The Company will bear the cost of preparing, assembling and mailing the
enclosed form of proxy, this proxy statement and other material which may be
sent to stockholders in connection with this solicitation. Solicitation may be
made by mail, telephone, telegraph and personal interview. The Company may
reimburse persons holding shares in their names or in the names of nominees for
expenses incurred in sending proxies and proxy material to their respective
principals.
PROPOSALS FOR NEXT YEAR'S MEETING
Any proposal of a stockholder intended to be presented at the next Annual
Meeting of Stockholders must be received by the Company for inclusion in its
proxy statement and form of proxy relating to that Annual Meeting no later than
November 28, 1998.
COPIES OF ANNUAL REPORT AND FORM 10-K
Copies of the 1997 Annual Report to Stockholders are being mailed to the
stockholders simultaneously with this Proxy Statement. The financial statements
and financial information appearing in such Annual Report are incorporated by
reference.
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<PAGE>
THE COMPANY WILL PROVIDE A COPY OF ITS ANNUAL REPORT TO THE SECURITIES AND
EXCHANGE COMMISSION ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 TO ANY
STOCKHOLDER WITHOUT CHARGE (OTHER THAN A REASONABLE CHARGE FOR ANY EXHIBIT
REQUESTED) UPON WRITTEN REQUEST TO:
NAC RE CORPORATION
P. O. BOX 2568
ONE GREENWICH PLAZA
GREENWICH, CONNECTICUT 06836-2568
ATTENTION: VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND TREASURER
By Order of the Board of Directors,
/s/ Celia R. Brown
CELIA R. BROWN
SECRETARY
Greenwich, Connecticut
March 24, 1998
21
<PAGE>
NAC Re CORPORATION
One Greenwich Plaza, P.O. Box 2568, Greenwich, CT 06836-2568
This Proxy is Solicited by the Board of Directors
MARTHA G. BANNERMAN, CELIA R. BROWN and JEROME T. FADDEN, or any of them
with power of substitution, are hereby authorized to represent the
undersigned and vote all shares of the Common Stock of NAC Re Corporation
held by the undersigned at the Annual Meeting of Stockholders to be held at
One Greenwich Plaza, Third Floor, Greenwich, CT at 10:00 a.m. on May 8, 1998,
and at any adjournments thereof, on all matters coming before said meeting.
(Continued and to be signed on reverse side.)
------------
SEE REVERSE
SIDE
------------
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
NAC Re Corporation
May 8, 1998
Please Detach and Mail in the Envelope Provided
A /X/ Please mark your
votes as in this
example
FOR all nominees
listed at right (except WITHHOLD AUTHORITY
as marked to the to vote for all nominees
contrary below) listed at right
Proposal 1. / / / /
The Election of
Directors:
The Board of Directors recommends a vote FOR proposal 1.
Nominees: John P. Birkelund
C. W. Carson, Jr.
Michael G. Fitt
Stephen Robert
FOR all nominees listed at right, except vote withheld
from the following nominees (if any).
_____________________________________________________
Signature: _________________________________ Date:__________________________
Signature: _________________________________ Date:__________________________
NOTE: Please sign exactly as your name appears hereon. Joint owners should
each sign. Executors, Administrators, Trustees, etc. should so indicate when
signing giving full title as such. If signer is a corporation, execute in
full Corporate name by authorized officer.
