<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 Section 240.14a-11(c) or Section 240.14a-12
TERRA NOVA (BERMUDA) HOLDINGS LTD.
- --------------------------------------------------------------------------------
(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
[_] 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 4, 1998
March 30, 1998
Hamilton, Bermuda
TO THE SHAREHOLDERS OF TERRA NOVA (BERMUDA) HOLDINGS LTD.
The Annual General Meeting of Terra Nova (Bermuda) Holdings Ltd. (the
"Company") will be held on Monday, May 4, 1998, at 2:00 p.m. at the Bermuda
Underwater Exploration Institute, East Broadway, Pembroke, Bermuda, for the
following purposes:
1. To elect eleven Directors to hold office until the 1999 Annual General
Meeting of Shareholders or until their successors are elected and
qualified.
2. To appoint Coopers & Lybrand, Bermuda to act as the independent auditors
of the Company for the fiscal year ending December 31, 1998.
3. To ratify the Non-Employee Directors Share Unit Plan, adopted by the
Directors on May 5, 1997, in order to provide that non-employee
Directors may defer annual retainer compensation and have it deemed
invested in Class A Ordinary Shares.
4. To amend the 1995 Executive Share Option Plans, primarily to increase
the number of Ordinary Shares of the Company issuable and reserved for
issuance upon exercise of options by 7% of outstanding Ordinary Shares,
and to extend the time permitted for exercise of options on the
occurrence of certain events.
5. To transact such other business, if any, as may be lawfully brought
before the meeting.
Only Shareholders of record, as shown by the transfer books of the Company
at the close of business on March 10, 1998 are entitled to receive notice of
and to vote at the Annual General Meeting.
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE RETURN
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU LATER WANT TO
REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE
ATTACHED PROXY STATEMENT. FOR FURTHER INFORMATION CONCERNING THE INDIVIDUALS
NOMINATED AS DIRECTORS, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE
URGED TO READ THE PROXY STATEMENT ON THE FOLLOWING PAGES.
By order of the Board of Directors,
/s/ William O. Bailey
William O. Bailey
Chairman, President and Chief
Executive Officer
<PAGE>
TERRA NOVA (BERMUDA) HOLDINGS LTD.
RICHMOND HOUSE, 12 PAR-LA-VILLE ROAD
HAMILTON HM 08 BERMUDA
PROXY STATEMENT
FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 4, 1998
GENERAL INFORMATION FOR SHAREHOLDERS
The Board of Directors of Terra Nova (Bermuda) Holdings Ltd. (the "Company")
is soliciting the enclosed proxy to be voted at the Annual General Meeting of
the Company to be held at 2:00 p.m. on May 4, 1998 at the Bermuda Underwater
Exploration Institute, East Broadway, Pembroke, Bermuda, and any adjournments
thereof. When the proxy is properly executed and returned, the Class A
Ordinary Shares it represents will, subject to any direction to the contrary,
be voted at the meeting in favor of the matters specified in the attached
"Notice of Annual General Meeting of Shareholders".
Any shareholder giving a proxy may revoke it prior to its exercise by
providing the Secretary of the Company with written notice of revocation, by
voting in person at the Annual General Meeting or by executing a later-dated
proxy. However, such action must be taken in sufficient time to permit the
necessary examination and tabulation of the subsequent proxy or revocation
before the vote is taken.
Shareholders of record as of the close of business on March 10, 1998 will be
entitled to vote at the meeting, with each Class A Ordinary Share entitling
the holder of record on such date to one vote. As of March 10, 1998, there
were outstanding 24,132,961 Class A Ordinary Shares, par value US$5.80 per
share ("Class A Ordinary Shares"), of the Company entitled to vote at the
meeting. As of the same date there were 1,796,217 Class B Ordinary Shares
outstanding, par value US $5.80 per share, which have no voting rights.
The election of each nominee for director, and the approval of all other
matters to be voted upon at the Annual General Meeting, require the
affirmative vote of a majority of the votes cast at the Annual General
Meeting, provided there is a quorum consisting of not less than two persons
present in person or by proxy holding more than 50% of the issued and
outstanding Class A Ordinary Shares entitled to vote at the Annual General
Meeting. Class A Ordinary Shares owned by shareholders electing to abstain
from voting will be counted toward the presence of a quorum. However, such
Class A Ordinary Shares and Class A Ordinary Shares owned by shareholders
(including brokers) not voted in person or by proxy at the Annual General
Meeting will not count towards the majority needed to elect a director or
approve any other matter before the shareholders. Thus, abstentions and broker
non-votes will not be included in the vote totals and will not affect the
outcome of those votes.
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1997 accompanies this Proxy Statement. This Proxy
Statement, the attached Notice of Annual General Meeting and the accompanying
proxy card are being mailed to shareholders on or about March 31, 1998.
Other than the approval of the minutes of the 1997 Annual General Meeting,
the Company knows of no specific issue to be brought before the Annual General
Meeting other than the matters referred to in this Notice of Annual General
Meeting and Proxy Statement. If any such issue comes before the meeting,
including any shareholder proposal properly made, the proxy holders will vote
proxies in accordance with their judgement.
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The Company's By-laws provide that all of the Company's Directors shall be
elected for a term expiring at the next following Annual General Meeting of
Shareholders or until their successors are elected and qualified. The Board of
Directors has nominated Mark J. Byrne, John J. Dwyer, Robert S. Fleischer,
Allan W. Fulkerson, Steven J. Gilbert, David L. Jaffe, Hugh P. Lowenstein,
Philip F. Petronis, John Riddick Nigel H.J. Rogers and Jerry S. Rosenbloom,
for consideration by the Shareholders. Each of the nominees, except Mr.
Rosenbloom, is presently a member of the Board having been elected by
Shareholders at a prior meeting. At its February 6, 1998 meeting, the Board of
Directors nominated Mr. Rosenbloom as a candidate for election as a Director.
The Board of Directors of the Company announced on November 4, 1997 that
William O. Bailey would retire at the Annual General Meeting as the Chairman,
President and CEO of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THESE NOMINEES
AS DIRECTORS OF THE COMPANY.
It is the intention of the persons named as proxies, subject to any
direction to the contrary, to vote in favor of the candidates nominated by the
Board of Directors. All of the Director nominees have consented to serve, if
elected, but if any nominee is unable to serve, the persons named as proxies
will exercise their discretion to vote for such other person as the Board of
Directors may designate to replace the nominee.
Certain information with respect to the nominees for election as directors
proposed by the Company is set forth below. (Please refer to the list of full
company names at the end of this section.)
MARK J. BYRNE
Mark J. Byrne has been a Director of the Company since November 1996 and was
a director of Terra Nova (Bermuda) from December 1994 to November 1996. Mr.
Byrne is Chairman and President, West End Capital Management (Bermuda)
Limited. Mr. Byrne previously was the Managing Director, Global Fixed Income
Arbitrage, Credit Suisse First Boston. Age 36.
JOHN J. DWYER
John J. Dwyer has been Deputy Chairman of the Company since May 1995 and
President and a director of Terra Nova (Bermuda) since March 1995. He is a
director of UK Holdings and TN SAS and was a director of Octavian and TN
Capital from 1995 through December 1997 and January 1998, respectively. From
May 1960 to August 1994, Mr. Dwyer was employed in various positions with
Aetna Inc. Age 60.
ROBERT S. FLEISCHER
Robert S. Fleischer has been a Director of the Company since December, 1994.
Mr. Fleischer is currently a Managing Director of Donaldson, Lufkin & Jenrette
Securities Corporation Inc. ("DLJSC") and has been employed in various
positions by DLJSC since 1978. Age 55.
2
<PAGE>
ALLAN W. FULKERSON
Allan W. Fulkerson has been a Director of the Company since December 1994.
Mr. Fulkerson has been President and a director of Century Capital Management
Inc., an investment management firm, ("Century Capital") since April, 1992,
and President and a director of Massachusetts Fiduciary Advisors, Inc., an
investment management firm, ("Massachusetts Fiduciary") since January 1976.
Mr. Fulkerson has been Chairman of Century Shares Trust since 1976. He is also
a director of HCC Insurance Holdings, Inc., Mutual Risk Management Ltd., and
Wellington Underwriting plc. Age 64.
STEVEN J. GILBERT
Steven J. Gilbert has been a Director of the Company since December 1994.
Mr. Gilbert is the Chairman of Gilbert Global Equity Partners (Bermuda) Ltd,
and was the Managing General Partner of Soros Capital LP, the principal
venture capital and leveraged transaction entity of Quantum Group of Funds,
from 1992 to 1996. He is the Managing Director of Commonwealth Capital
Partners LP, a private equity investment fund, and a limited partner of
Chemical Venture Partners, which he founded. He is also a director of NFO
Worldwide, Inc., Uromed, Inc., Veritas-DGC, Inc., Sydney Harbour Casino
Holdings, Ltd., GTS-Duratek, Inc., and ESAT Telecom, Ltd. Age 50.
DAVID L. JAFFE
David L. Jaffe has been a Director of the Company since December 1994 and
was a director of Terra Nova (Bermuda) from December 1994 to November 1996.
Mr. Jaffe has been a Managing Director of DLJ Merchant Banking, Inc. ("DLJMB")
since January 1995 and has been employed in various positions by DLJMB or
DLJSC since 1984. He is also a director of EZ Buy: EZ Sell Recycler
Corporation, OSF Holdings Inc., (Toronto Stock Exchange), OHA Financial Inc.,
Brand Scaffold Services, Inc., Pharmaceutical Fine Chemicals SA and Duane
Reade Inc. Age 39.
HUGH P. LOWENSTEIN
Hugh P. Lowenstein has been a Director of the Company since December 1994
and was a director of Terra Nova (Bermuda) from December 1994 to November
1996. From March 1987 to June 1994, Mr. Lowenstein was a Managing Director of
DLJSC. Mr. Lowenstein is the founder and owner of Shore Capital Limited, a
Bermuda-based consulting and investment firm ("Shore Capital"). Shore Capital
currently provides consulting services to DLJSC. He is also a director of
Century Business Services Inc. Age 67.
PHILIP F. PETRONIS
Philip F. Petronis has been a Director of the Company since December 1994.
Effective April 15, 1998, Mr. Petronis will become an Executive Vice President
with Guy Carpenter & Company, Inc. Mr. Petronis currently is a Principal of
Marsh & McLennan Risk Capital Corporation and a former Managing Director of
Marsh & McLennan Inc., having served in those positions since 1992 and 1984,
respectively. He is also a director of First American Insurance Company,
Seneca Insurance Company, National Alliance Insurance Company and Venton
Underwriting Ltd. He is past Chairman of the National Association of Insurance
Brokers. Age 48.
3
<PAGE>
JOHN RIDDICK
John Riddick has been Deputy Chairman of the Company since December 1994.
Mr. Riddick has also been Chairman of the Board and Managing Director of UK
Holdings since 1994 and a director of Terra Nova since 1977, Managing Director
of Terra Nova since 1979, a director of Octavian from 1995 to 1998 and of
Corifrance and TN SAS since September, 1997. Mr. Riddick also serves as
Chairman of the Board of Terra Nova Pension Trustee Limited and Terra Nova
Asset Management Limited, each of which is a wholly owned subsidiary of UK
Holdings. Mr. Riddick was a director of TN Capital from 1995 through January
1998. Age 51.
NIGEL H.J. ROGERS
Nigel H.J. Rogers has been Deputy Chairman of the Company since January
1996. Mr. Rogers has served as Managing Director of Octavian since January
1996. He has been a member of Lloyd's since the 1982 year of account. Mr.
Rogers also serves as a director of UK Holdings, Terra Nova, TN Capital and
TNAM. Age 48.
JERRY S. ROSENBLOOM
Jerry S. Rosenbloom has been nominated to become a Director of the Company.
Dr. Rosenbloom is the Frederick H. Ecker Professor of Insurance and Risk
Management at the Wharton School of the University of Pennsylvania where he
has been a member of the faculty since 1974. He served as Chairman of the
Department of Insurance and Risk Management at the Wharton School from 1989 to
1994. Dr. Rosenbloom is also a director of Annuity and Life Re (Holdings)
Ltd., Harleysville Mutual Insurance Company and Mutual Risk Management. Age
58.
COMPANY NAMES
Terra Nova (Bermuda) Holdings Ltd. ("The Company")
Terra Nova Insurance (UK) Holdings plc. ("UK Holdings")
Terra Nova Insurance Company Limited ("Terra Nova")
Terra Nova (Bermuda) Insurance Company Ltd ("Terra Nova (Bermuda)")
Terra Nova Nova Capital Limited ("TN Capital")
Terra Nova Asset Management Limited ("TNAM")
Octavian Syndicate Management Limited ("Octavian")
Compagnie de Reassurance d'Ile de France, Corifrance ("Corifance")
Terra Nova S.A.S. ("TN SAS")
4
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table provides information regarding the Directors and
executive officers of the Company in addition to Messrs. Dwyer, Rogers,
Riddick, Byrne, Fleischer, Fulkerson, Gilbert, Jaffe, Lowenstein and Petronis.
Biographical information for each such Director and executive officer follows
the table.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
William O. Bailey................ 71 Chairman, President and Chief
Executive Officer
Jean M. Waggett.................. 56 Senior Vice-President, Secretary and
General Counsel
Director of Terra Nova (Bermuda)
Director of Corifrance
William J. Wedlake............... 41 Senior Vice-President and Chief
Financial Officer
Director of UK Holdings
Director of Terra Nova
Director of TN Capital
Director of Corifrance
Ian L. Bowden.................... 54 Director of Terra Nova
Director of TNAM
Richard J. Edmunds............... 54 Director of Terra Nova
Managing Director of TNAM
John O'Neill..................... 48 Group Chief Actuary
</TABLE>
William O. Bailey has been the Chairman, President and Chief Executive
Officer of the Company since 1993. Mr Bailey was a director of Terra Nova from
1988 through 1997 and was a director of UK Holdings and Chairman of each of
Terra Nova and Terra Nova (Bermuda) from 1994 through 1997. From 1987 to 1993,
Mr. Bailey served as Chairman of the Board of MBIA, Inc. and its operating
company, Municipal Bond Investors Assurance Corporation, and was Chief
Executive Officer of both companies from 1987 to 1992. Mr. Bailey was the
President and Chief Operating Officer of Aetna Life & Casualty Co. from 1976
to 1987 and Vice Chairman from 1987 to 1988. He is a trustee of Century Shares
Trust ("Century Shares").
Jean M. Waggett has been the Senior Vice President, Secretary and General
Counsel of the Company since March 1996. Ms. Waggett has been a director of
Terra Nova (Bermuda) since November 1996, and Corifrance since September 1997.
From 1980 until February 1996, Ms. Waggett was employed in various positions
with Aetna.
William J. Wedlake has been the Senior Vice President and Chief Financial
Officer of the Company and a director and Chief Financial Officer of UK
Holdings and Terra Nova since September 1996. Mr. Wedlake has been a director
of Corifrance since September 1997 and of TN Capital since December 1997. From
1993 to 1996, Mr. Wedlake was Finance Director (UK & Ireland) of GRE and from
1987 to 1993 Finance Director (UK) of Schroders.
Ian L. Bowden transferred to TNAM in 1996 having been Director of Fixed
Interest Investment of Terra Nova since 1986. Mr. Bowden serves as a director
of Terra Nova and TNAM.
Richard J. Edmunds transferred to TNAM in 1996 having been Director of
Investments of Terra Nova since January 1981 and a director since April 1986.
He has also been Managing Director of TNAM since 1994.
5
<PAGE>
John E. O'Neill is the Group Chief Actuary of the Company and previously was
the Chief Actuary of Terra Nova since 1994. From 1991 to 1994, Mr. O'Neill was
an associate of Bacon & Woodrow, an actuarial and management consulting firm.
From 1989 to 1991, Mr. O'Neill was the group actuary of Robert Fleming/Save &
Prosper Group.
Directors of the Company serve one-year terms or until the election of their
respective successors. Officers of the Company serve at the discretion of the
Board.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 1997, there were five meetings of the
Board of Directors of the Company (including four regularly scheduled meetings
and one special meeting). Each incumbent Director who served on the Board
during the full fiscal year 1997 attended at least 75% of the aggregate of
such meetings and of the meetings held by all Committees of the Board of which
such Director was a member, except for Mr. Gilbert who attended 50% of such
meetings.
The Board of Directors has established an Executive Committee, Audit
Committee, Compensation Committee, Financial Policy Committee and Underwriting
Review Committee. The activities of each Committee are discussed below.
EXECUTIVE COMMITTEE
The Executive Committee of the Board of Directors has authority to exercise
all the powers and authorities of the Board of Directors between meetings of
the full Board of Directors except as expressly limited by applicable law or
the Company's By-laws. The Executive Committee also has responsibility for
succession planning and transition oversight. The Executive Committee is
comprised of Messrs. Bailey, Byrne, Fulkerson, Jaffe, and Petronis. One
meeting of the Executive Committee was held in 1997.
AUDIT COMMITTEE
The Audit Committee, composed entirely of non-management directors, annually
recommends to the Board a firm of independent public accountants to serve as
auditors. The Committee meets with the appointed auditors to review the scope
and results of their audit, their audit report and their fees for services.
The Audit Committee is comprised of Messrs. Fleischer, Byrne, Gilbert and
Lowenstein. The Audit Committee held two meetings in 1997.
COMPENSATION COMMITTEE
The Compensation Committee has responsibility for establishing overall
compensation policy, determining the compensation of the Chairman and Chief
Executive Officer, reviewing and approving compensation recommendations made
by the Chief Executive Officer for the executive officers of the Company and
authorizing option grants to eligible employees under the Company's Executive
Stock Option Plans. No member of the Compensation Committee is a member of
management or is eligible for compensation from the Company other than as a
Director. Messrs. Jaffe, Fulkerson, Lowenstein and Petronis are members of the
Compensation Committee. The Compensation Committee held four meetings in 1997.
FINANCIAL POLICY COMMITTEE
The Financial Policy Committee of the Board of Directors establishes overall
investment guidelines and policies, and monitors the asset allocations and
investment portfolios on a regular basis. Messrs. Bailey, Byrne,
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<PAGE>
Gilbert, Jaffe and Lowenstein are members of the Financial Policy Committee.
The Financial Policy Committee held two meetings in 1997.
UNDERWRITING REVIEW COMMITTEE
The Underwriting Review Committee establishes guidelines for the Company's
underwriters and receives and reviews reports from the Company's underwriters
on a regular basis. Messrs. Riddick, Dwyer, Fleischer, Fulkerson, Petronis and
Rogers are members of the Underwriting Review Committee. The Underwriting
Review Committee held one meeting in 1997.
DIRECTORS' COMPENSATION
Directors of the Company who are officers of the Company or its subsidiaries
do not receive additional compensation for their service as Directors. The
current annual fee paid for the services of a Director who is not an officer
of the Company is $25,000 per year, and the fee paid for attendance at each
Board Meeting is $3,000 and for each Committee Meeting is $1,000. In addition,
the Directors are reimbursed for out-of-pocket expenses incurred in relation
to their service on the Board. Chairmen of the Audit and Compensation
Committees receive an additional $1,000 annual fee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee"), composed of four independent
non-employee Directors of the Board of Directors, is responsible for
establishing and monitoring the implementation of the compensation policies of
the Company. The Compensation Committee reviews the Company's annual
performance assessment, approves compensation for the executive officers,
authorizes salary, bonus and option programs, and awards option grants under
the Executive Share Option Plans to eligible employees.
The Company's compensation philosophy is to pay all employees, including
executive officers, for actual performance based on level of responsibility in
a manner which is designed to motivate employees to perform at the highest
possible level and seeks to assure that the Company obtains and retains highly
qualified employees in its competitive marketplace. The Company achieves these
objectives by using a combination of both fixed (i.e. salary) and variable
(i.e. annual bonus and share options) compensation. The Committee is aware of,
and committed to, creating programs that will fulfill the unique human
resource and compensation needs required to build strong executive talent in
each of its operating companies in Bermuda, the United Kingdom and France.
The Committee recommends to the Board the compensation, including salary,
bonus and share options, to be paid to the Chairman, President and Chief
Executive Officer (the "Chairman"). The Committee also evaluates the
performance of the executive officers reporting to the Chairman, and reviews
and approves the recommendations of the Chairman for the compensation,
including salary and bonus, and awards option grants to the executive
officers. Finally, the Committee establishes the basis for and aggregate
amount of annual salary increases, bonus awards and share option grants.
Total executive compensation generally includes three elements: base salary,
annual bonus awards, and long-term compensation awards in the form of share
option grants. Executive officer salaries are based on the job content of each
position, the market relative to comparable positions at peer companies in
each relevant jurisdiction in which the Company's operating companies and
branches are located, the individual's applicable experience and the
performance of each executive.
Individual bonuses reflect Company performance and the individual's personal
contribution to the achievement of the Company's goals. Bonus ranges are
established by the Committee for each job position as a
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<PAGE>
function of base salary. The size of the Company's aggregate bonus pool is
approved by the Committee based on its assessment of actual performance
results in relation to the Company's annual business plan.
The Company's Executive Share Options Plans were adopted in January, 1995.
The Committee believes that employee equity ownership provides significant
motivation to executive officers to maximize value for the Company's
shareholders and, therefore, periodically grants share options under the
Option Plans. Option grant ranges are established by the Committee for each
job position as a function of base salary. The Plans provide the right to
purchase shares of ordinary stock at the fair market value (closing price) of
the shares on the three days preceding the date of grant. The majority of
option grants in 1997 provided for vesting over five years with 20% of the
shares vesting at the first anniversary and 20% on each of the subsequent four
anniversaries of the date of grant conditioned upon continued employment with
the Company. Options granted to the Chairman vested on the date of grant, and
certain option grants to the other senior executive officers will vest on
December 31, 1998 if certain corporate business objectives are achieved.
The Company is not a US taxpayer and therefore Section 162 (m) of the
Internal Revenue Code, related to the tax deductibility of compensation, is
not relevant to the Company.
COMPENSATION COMMITTEE
David Jaffe, Chairman
Allan W. Fulkerson
Hugh P. Lowenstein
Philip F. Petronis
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The 1997 Compensation Committee was composed of David L. Jaffe (Chairman),
Allan W. Fulkerson, Philip F. Petronis and Hugh P. Lowenstein . Mr. Jaffe is a
member of DLJMB, an affiliate of DLJSC.
CERTAIN BUSINESS RELATIONSHIPS
REGISTRATION RIGHTS AGREEMENT
The Company and the existing shareholders of the Company as of April 1, 1996
(the "Shareholders") entered into a Registration Rights Agreement, which
grants the Shareholders certain incidental and demand registration rights with
respect to Ordinary Shares held by them. Under this agreement, Shareholders
other than the DLJ Entities (individually or as a group) owning or having the
rights to acquire 30% or more of the Ordinary Shares outstanding and issuable
prior to the initial public offering of shares on April 17, 1996 ("Offering")
or any subsequent offering have the right to require the Company on one
occasion, and one or more of the DLJ Entities have the right to require the
Company on two occasions, to register Shares under the Securities Act for sale
in the public market, provided that the total fair value of the Shares
requested to be registered in the exercise of any such right must be at least
$15 million. Any other Shareholder not making the request will have the right
to participate in such registration on a first-priority basis (pro rata
according to the respective Ordinary Shares requested for registration)
subject to a customary underwriter's reduction. In addition, if the Company
proposes to file a registration statement covering Ordinary Shares held by it
or any other shareholder of the Company at any time, each Shareholder will
have the right to include Ordinary Shares held by it in the registration, in
each case on a first-priority basis with other Shareholders and any other
holders of Shares requesting registration, pro-rata according to the
respective Shares requested for registration, and on a second-priority basis
with the
8
<PAGE>
Company, in each case subject to a customary underwriter's reduction. The
Company has agreed to indemnify each Shareholder in respect of certain
liabilities, including civil liabilities under the Securities Act, and to pay
certain expenses relating to such registration.
TRANSACTIONS WITH FIVE PERCENT SHAREHOLDERS
From time to time, in the ordinary course of its insurance business, the
Company may insure risks of 5% Shareholders and, in addition, may cede risks
to insurance companies who are affiliates of 5% Shareholders. Such business
may be conducted through intermediaries which may from time to time include
affiliates of 5% Shareholders. As an investor, the Company may transact
business with counterparties and intermediaries which may be affiliated with
certain 5% Shareholders. All of the above transactions would be conducted on
an arm's length basis.
DLJSC acted as one of the underwriters in connection with the $100 million
10 3/4% Senior Notes Offering in June 1995 and received approximately $2.1
million as underwriting compensation for such activities, plus reimbursement
for certain expenses.
DLJSC acted as one of the underwriters in connection with the Initial Public
Offering in April 1996 and received approximately $3.2 million for such
activities, plus reimbursement for certain expenses.
DLJSC acted as the initial purchaser in a resale to institutional investors
under Rule 144A in connection with the $75 million 7.2% Senior Notes Offering
in August 1997 and received $487,500 as underwriting compensation for such
activities.
The Company has retained DLJSC as its investment banker and financial
advisor on an exclusive basis until the earlier to occur of December 21, 1999
or the date that the ownership of Ordinary Shares by the DLJ Entities shall
have fallen below 40% of their initial ownership of Ordinary Shares (including
Ordinary Shares issuable upon exchange or conversion of other securities). The
Company has agreed to indemnify DLJSC in connection therewith.
Messrs. Fleischer and Jaffe, both directors of the Company, are Managing
Directors of DLJSC and DLJMB, an affiliate of DLJSC, respectively. Mr.
Lowenstein, who is also a director of the Company, was a Managing Director of
DLJSC until June 1994 and now, through Shore Capital, provides consulting
services to DLJSC. Mr. Jaffe is Chairman of the Board's Compensation
Committee.
SECTION 16 REPORTING
Directors and certain executives of the Company are subject to the reporting
requirements of Section 16 of the Securities Exchange Act of 1934 as amended.
The Company is not aware of any Director or executive who failed to make a
required filing on a timely basis.
9
<PAGE>
BENEFICIAL OWNERSHIP OF ORDINARY SHARES
The following table sets forth information, as of March 10, 1998, with
respect to the beneficial ownership of Class A Ordinary Shares ("Shares") by
William O. Bailey, the Company's Chairman, President and Chief Executive
Officer, the Company's other four most highly compensated executive officers,
each of the Company's Directors, and all of the Directors and executive
officers of the Company as a group. Unless otherwise indicated, the named
individual has sole voting and investment power over the Ordinary Shares set
forth below.
<TABLE>
<CAPTION>
NUMBER
OF
SHAREHOLDER SHARES PERCENT
----------- ------- -------
<S> <C> <C>
William O. Bailey (1).................................... 147,341 *
John J. Dwyer............................................ 29,862 *
Nigel H. Rogers.......................................... 6,000 *
John Riddick............................................. 52,824 *
Mark. J. Byrne........................................... 1,000 *
Robert S. Fleischer (2).................................. 3,135 *
Allan W. Fulkerson(2) (3)................................ 2,635 *
Steven J. Gilbert (2) (4)................................ 12,904 *
David L. Jaffe (2)....................................... 4,135 *
Hugh P. Lowenstein (2)................................... 38,135 *
Philip F. Petronis (2) (5)............................... 1,935 *
William J. Wedlake....................................... 1,500 *
All directors and executive officers as a group (16 per-
sons)................................................... 381,265 1.58
</TABLE>
- --------
(1) Shares include 100 Shares beneficially owned by Mrs. Carole Bailey and
50,000 Shares beneficially owned by the Bailey Family Foundation of which
Mr. Bailey is the grantor and a director.
(2) 1,135 of the Shares owned by each of Messrs. Fleischer, Fulkerson, Jaffe,
Lowenstein and Petronis, and 925 of the Shares owned by Mr. Gilbert
represent Shares as to which the Director has voting but not dispositive
power.
(3) Massachusetts Fiduciary is the general partner of MFA-MASTERS, which is
the record owner of 823,706 Shares. Massachusetts Fiduciary exercises both
voting and investment power with respect to such Shares. Allan W.
Fulkerson is the sole shareholder, President and director of Massachusetts
Fiduciary. Additionally, Mr. Fulkerson is a director, shareholder and
President of Century Capital Management Inc., which exercises both voting
and investment power with respect to the 361,853 Shares owned of record by
ISF and 224,137 Shares owned by Century Capital Partners L.P. Although Mr.
Fulkerson may be deemed to beneficially own the 1,409,696 Shares owned of
record by MFA-MASTERS, ISF and Century Capital Partners L.P., he disclaims
beneficial ownership of such shares except to the extent of his
proportionate interest therein.
(4) Mr. Gilbert is the indirect beneficial owner of 1,530 Shares held by
various interests of which he is a trustee or director and has both voting
and investment power with respect to such Shares.
(5) Shares include 300 Shares owned by custodial accounts for Mr. Petronis'
daughters for which he disclaims beneficial ownership.
10
<PAGE>
OTHER BENEFICIAL OWNERS
The following table sets forth information with respect to beneficial
ownership of the Shares, as of March 10, 1998, by each person known to the
Company (including corporate groups) who beneficially owns more than five
percent of the Company's outstanding Ordinary Shares ("Shares"):
<TABLE>
<CAPTION>
NUMBER OF
SHAREHOLDER SHARES PERCENTAGE
----------- --------- ----------
<S> <C> <C>
DLJ Entities (1).................................... 4,924,799 18.99%
Fidelity Mgt. & Res. (2)............................ 2,562,000 10.62%
Bank of NT Butterfield & Son Ltd.(3)................ 1,214,414 5.03%
</TABLE>
(1) Consists of 3,128,582 Class A (voting) shares and 1,796,217 Class B (non-
voting) shares, which are convertible into Class A Shares, held directly
by the following related investors: DLJMB Funding, 929,990 shares (
567,905 Class A and 362,085 Class B); DLJSC, 134,352 Shares (82,048 Class
A and 52,304 Class B); DLJMB Overseas Partners C.V. ("DLJMB Overseas"),
2,183,345 Shares (1,121,517 Class A and 1,016,828 Class B), DLJ
International Partners C.V. ("DLJIP"), 1,039,181 Shares (967,499 Class A
and 71,682 Class B); DLJ Offshore Partners C.V.("DLJOP"), 60,253 Shares
(36,797 Class A and 23,456 Class B); and DLJ First ESC, L.L.C. ("DLJ
First"), 577,678 Shares (352,816 Class A and 224,862 Class B). As the
parent of each of DLJMB Funding and DLJSC, Donaldson, Lufkin & Jenrette,
Inc. ("DLJ") may be deemed to beneficially own all of the Shares held by
such entities. As DLJMB is the general partner of each of DLJMB Overseas,
DLJIP, DLJOP and DLJ First, DLJ may be deemed to beneficially own
indirectly all of the Shares held by such entities. DLJ is an indirect
subsidiary of The Equitable Companies Incorporated. The address of DLJ is
277 Park Avenue, New York, New York 10172.
(2) Consists of 2,562,200 Class A Ordinary Shares of the Company owned by a
number of mutual funds and other investment accounts managed by
affiliates of FMR Corp. The percentage of Shares is calculated without
giving effect to possible conversion of the Class B Shares owned by the
DLJ Entities.
(3) Such Shares are subject to a special depository receipt agreement under
which Marsh & McLennan Risk Capital Holdings, Ltd. and Bowring
(collectively, "Marsh & McLennan") have the right to request the sale or
transfer of the Shares under certain circumstances. Marsh & McLennan has no
voting power under such Shares. Marsh & McLennan may not own legally or
beneficially in excess of 5% of the Shares. Marsh & McLennan disclaims
beneficial ownership over such Shares. The percentage of Shares is
calculated without giving effect to possible conversion of the Class B
Shares owned by the DLJ Entities.
11
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth, in summary form, the compensation earned by
William O. Bailey, the Company's Chairman, President and Chief Executive
Officer and each of the Company's other four most highly compensated executive
officers for its 1995, 1996 and 1997 fiscal years (collectively, the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS-
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING
SALARY BONUS COMPENSATION(2) OPTIONS
NAME AND PRINCIPAL POSITION YEAR $ $ $ #
- --------------------------- ---- ------- ------- --------------- ------------
<S> <C> <C> <C> <C> <C>
William O. Bailey........... 1997 525,000 700,000 100,000 125,000
Chairman, President and 1996 375,000 700,000 100,000 17,241
Chief Executive Officer of 1995 375,000 475,000 100,000 131,521
the Company
John J. Dwyer............... 1997 320,000 240,000 129,000 255,700
Deputy Chairman of the 1996 262,500 160,000 127,440 8,500
Company 1995 187,750 140,000 90,000 45,127
Director and President of
Terra Nova
(Bermuda)
Director of UK Holdings
Nigel H.J. Rogers........... 1997 320,000 240,000 29,656 256,400
Deputy Chairman of the 1996 256,000 192,000 30,890 -- (3)
Company 1995 -- -- -- --
Director and Managing
Director of Octavian
Director of UK Holdings
Director of Terra Nova
John Riddick................ 1997 372,000 150,000 23,161 73,300
Deputy Chairman of the 1996 372,000 148,800 23,524 8,414
Company 1995 366,000 133,000 20,870 55,363
Chairman and Managing
Director of UK Holdings
Director and Managing
Director of Terra Nova
William J. Wedlake.......... 1997 280,000 150,000 24,244 67,100
Chief Financial Officer 1996 93,280 80,000 8,423 30,000
Director of UK Holdings
Director of Terra Nova
</TABLE>
- --------
(1) All salary and bonus amounts for the Named Executive Officers were
calculated and granted in US dollars and are shown in the table as granted.
Compensation paid to Messrs. Bailey and Dwyer was paid in U.S. dollars.
Salary and bonus amounts for Messrs. Rogers, Riddick and Wedlake were
translated into, and paid in, British pounds at the exchange rate of $1.60.
Because the British pound and US dollar relationship varies from day to day,
the US dollar equivalent of the compensation paid to Messrs. Rogers, Riddick
and Wedlake in British pounds will fluctuate. For each of 1997, 1996 and
1995, the payments to Messrs. Rogers, Riddick and Wedlake for "Other Annual
Compensation" only were made in British pounds and have been translated into
US dollars at the year-end exchange rate for each of 1997, 1996, and 1995 of
$1.6418, $1.7113, and $1.5526 respectively. The Company has changed the way
in which compensation paid in a currency other than US dollars is presented
in this schedule. In prior years, the conversion between currencies has been
calculated on a different basis, using year-end exchange rates to determine
the amounts to be shown in US dollars rather than the new method of using
the US dollar amounts originally granted. Salary and bonus amounts have been
restated from the amounts shown in the 1997 proxy statement for 1996 and
1995. The amounts previously shown for Messrs. Rogers and Riddick for each
of 1996 and 1995 were calculated and paid in British Pounds and were
translated into US Dollars at the year-end exchange rates $1.7113, and
$1.5526 respectively. The 1996 and 1995 salary and bonus amounts previously
shown in US dollars for Mr. Rogers were salary: $260,973 and 0 and bonus:
$205,356 and 0, respectively. The 1996 and 1995 salary and bonus amounts
previously shown in US dollars for Mr. Riddick were salary: $389,321 and
$341,570 and bonus: $159,151 and $133,524, respectively.
(2) This column includes the cost to the Company of personal health insurance
and the value attributable for personal taxation purposes of car, fuel and
private telephone expenses paid by the Company for the Named Executive
Officer where appropriate. In the case of Messrs. Bailey and Dwyer, the
amounts include housing allowances as residents in Bermuda.
(3) Mr. Rogers also participates in the Octavian Stock Option Plan which
provides for a grant of options in the years 1999 to 2003 based on profit
commissions received by Octavian following the closure of each of the
underwriting years of account 1996 to 2000.
12
<PAGE>
OPTION GRANTS IN 1997
The following table sets forth information on grants of stock options,
exercisable for Class A Ordinary Shares awarded to the Company's Chairman,
President and Chief Executive Officer and to the Named Executive Officers. No
options were granted in 1997 to Directors who were not executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM(1)
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------
GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE 5% 10%
------------------ ------------ ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
NAME
Mr. Bailey.............. 25,000(2) 2.4 19.29 9/2/07 303,284 768,582
100,000(3) 9.4 25.52 12/21/07 1,604,939 4,067,231
Mr. Dwyer............... 10,700(4) 1.0 19.29 9/2/07 129,806 328,953
225,000(5) 21.2 25.52 12/21/07 3,611,113 9,151,269
20,000(6) 1.9 25.52 12/21/07 320,988 813,446
Mr. Rogers.............. 8,868(4) 0.8 19.29 9/2/04 69,640 162,291
2,532(4) 0.2 19.29 9/2/07 30,717 77,842
225,000(5) 21.2 25.52 12/21/04 2,337,571 5,447,534
20,000(6) 1.9 25.52 12/21/04 207,784 484,225
Mr. Riddick............. 13,300(4) 1.3 19.29 9/2/04 104,444 243,400
50,000(5) 4.7 25.52 12/21/04 519,460 1,210,563
10,000(6) 0.9 25.52 12/21/04 103,892 242,113
Mr. Wedlake............. 4,568(4) 0.4 19.29 9/2/04 35,872 83,598
2,532(4) 0.2 19.29 9/2/07 30,717 77,842
50,000(5) 4.7 25.52 12/21/04 519,460 1,210,563
10,000(6) 0.9 25.52 12/21/04 103,892 242,113
</TABLE>
- --------
(1) Assumes market value of stock on date of grant equal to exercise price.
(2) Each option became exercisable on the first anniversary of the date of
grant.
(3) Each option became exercisable on the date of grant.
(4) Each option will become exercisable with respect to 20% of the underlying
shares on each of the first through fifth anniversaries of the date of
grant.
(5) Each option will become exercisable with respect to 20% of the underlying
shares on December 31, 1998 and, thereafter, in equal 20% installments on
December 31 in each of the years 1999-2002. The exercise price of each
option that has not yet become exercisable will increase to $27.05 on
January 1, 1999, to $28.67 on January 1, 2000, to $30.39 on January 1,
2001 and to $32.21 on January 1, 2002.
(6) Each option will become exercisable on December 31, 1998, subject to a
decision by the Compensation Committee, in its sole discretion, that
agreed performance objectives have been achieved by the Company. Each
option that does not become exercisable on December 31, 1998 will lapse.
No further grants of options have been made to Messrs. Bailey, Dwyer,
Rogers, Riddick or Wedlake since December 31, 1997.
13
<PAGE>
OPTION EXERCISES IN 1997 AND
YEAR-END 1997 OPTION VALUES(1)
The following table sets forth information about the exercise of options to
purchase Class A Ordinary Shares during 1997 and the value realized upon
exercise by each Named Executive Officer. The table also provides the number
of exercisable and unexercisable options and the value of the in-the-money
options as of December 31, 1997 for each Named Executive Officer. The Company
has never granted SARs.
The value of unexercised options has been calculated by subtracting the
exercise price from the market price of the Ordinary Shares on December 31,
1997 ($26.25 per Share).
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1997 AT DECEMBER 31, 1997
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William O. Bailey....... -- -- 248,762 25,000 $2,853,487 $174,000
John J. Dwyer........... -- -- 40,997 268,330 786,385 475,906
Nigel H.J. Rogers....... -- -- -- 256,400 0 258,194
John Riddick............ -- -- 58,728 78,349 1,131,932 204,278
William Wedlake......... -- -- -- 97,100 0 375,816
</TABLE>
14
<PAGE>
PENSION PLANS
The following table sets forth the estimated maximum annual retirement
benefits payable to employees of Terra Nova and TNAM under the Terra Nova
Pension and Life Assurance Plan (1986) (the "Pension Plan") at the specified
average compensation and years of service classifications.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
AVERAGE COMPENSATION 15 20 25 30 35
-------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000...................... $ 36,058 $ 48,077 $ 60,096 $ 72,115 $ 83,333
150,000...................... 43,269 57,692 72,115 86,538 100,000
175,000...................... 50,481 67,308 84,135 100,962 116,667
200,000...................... 57,692 76,923 96,154 115,385 133,333
225,000...................... 64,904 86,538 108,173 129,808 150,000
250,000...................... 72,115 96,154 120,192 144,231 166,667
300,000...................... 86,538 115,385 144,231 173,077 200,000
400,000...................... 115,385 153,846 192,308 230,769 266,667
450,000...................... 129,808 173,077 216,346 259,615 300,000
500,000...................... 144,231 192,308 240,385 288,462 333,333
</TABLE>
The Pension Plan qualifies Terra Nova and TNAM for an exemption from
compulsory participation in the State Earnings Related Pension Scheme
("SERPS"), a state-run pension plan to which non-exempted U.K. companies are
required to make annual contributions. Only permanent employees between the
ages of 20 and 61 are eligible to participate in the Pension Plan. Retirement
benefits are computed by multiplying the number of years of covered service by
1/52nd multiplied by pensionable salary received in the calendar year prior to
normal retirement date (age 62) or the date of leaving service if earlier.
The Pension Plan has a supplementary section, which provides that certain
employees of Terra Nova and TNAM shall receive retirement benefits based upon
the same formula as that for the ordinary plan member except that the multiple
is a maximum of 1/30th for each year of service. The maximum fraction for the
purposes of computing retirement benefits is 2/3rds and, for employees joining
the scheme after May 1989, the pensionable salary is limited. The limit as of
December 31, 1997 was $134,400 using a British pound to US dollar exchange
rate of $1.60. Pensionable salary excludes bonuses, commissions, overtime or
any other discretionary or fluctuating payments except where a member is
specifically advised to the contrary. A member is fully vested in the Pension
Plan after two years of participation.
The Pension Plan provides for the payment of reduced benefits upon early
retirement between the ages of 50 and 62. Upon the death of a member before
retirement, the Pension Plan provides for a cash lump sum payment of four
times basic salary and a survivor annuity benefit to the member's spouse of
50% of the member's prospective benefit. This benefit is payable from the date
of the death of the member. The same benefits are payable to minor children up
to the age of 18, or for such longer period as their education continues on a
full-time basis if there is no surviving spouse. Pension Plan participants may
make additional voluntary contributions up to 15% of annual salary to
supplement their Pension Plan benefits. Such voluntary contributions are not
matched by Terra Nova and TNAM.
Terra Nova provides Mr. Wedlake and one other employee with a "Non-Approved"
Pension Plan which provides a money purchase fund and additional term life
assurance coverage targeted to raise total retirement and death benefits to a
level broadly equivalent to that enjoyed by employees who joined the Company
prior to June 1, 1989, the date upon which the state imposed limits on
pensionable earnings.
15
<PAGE>
The credit years of pensionable services for Messrs. Riddick and Wedlake at
December 31, 1997 were 20.6 and 2.4 respectively.
Mr. Bailey, Mr. Dwyer and the employees of the Company who are based in
Bermuda, Canada and Belgium participate in money purchase pension plans which
are in line with local market terms and conditions of employment and generally
cost the Company 10% of the basic salary of each participating employee.
Mr. Rogers participates in The Octavian Group Pension Scheme (the "OMP
Plan"), a defined contribution plan. Participation in the OMP Plan is at the
discretion of the Compensation Committee. For employees of Octavian, the
current annual contribution rate is 15% of annual pensionable salary, and for
underwriters and directors of Octavian, the current annual contribution rate
is 25% of annual pensionable salary. Normal retirement age is 60.
Octavian provides certain of its employees with one of two defined benefit
pension schemes, run in conjunction with the Lloyd's Superannuation Scheme
(the "Abbey Plan" and the "Lloyds Plan" respectively). The Abbey Plan provides
benefits which are similar to those in the Pension Plan, the principal
difference being that the multiple is 1/60th and retirement age is 60. The
Lloyd's Plan provides benefits which are in addition to those under SERPS at a
retirement age of 60. The formula for computing pensions is similar to that in
the Pension Plan, the principal difference being that the multiple is 1/100th.
SERVICE AGREEMENTS
Terra Nova has entered into a service agreement with John Riddick, as
Managing Director, which provides for a base salary subject to annual review,
an annual bonus, and the right to participate in Terra Nova's pension and
health insurance plans, to be reimbursed for out-of-pocket expenses incurred
in the ordinary course of business and to receive the use of a company
automobile.
The service agreement is terminable (i) by either party giving written
notice to the other not less than 12 months prior to March 31 of any year and
(ii) automatically on the first day of the month following Mr. Riddick's 62nd
birthday. Terra Nova can also terminate Mr. Riddick's employment at any time
with legal cause. If Terra Nova terminates employment with legal cause, Mr.
Riddick is not entitled to receive any severance compensation but is entitled
to accrued but unpaid salary and bonus to the date of termination. He has
agreed, for a period of six months following termination, not to solicit
certain business underwritten by Terra Nova or to solicit or entice any
employee away from Terra Nova.
The Company has entered into a service agreement with Nigel H.J. Rogers. Mr.
Rogers' service agreement provides for a base salary subject to annual review
and an annual bonus. Additionally, Mr. Rogers is entitled (i) to participate
in the Octavian Stock Option Plan, the OMP Plan and the Company's medical
insurance and life assurance plans, (ii) to be reimbursed for travel-related
expenses incurred by him in or about the performance of his duties under the
service agreement, and (iii) to receive the use of a company automobile.
The service agreement provides for a period of employment of two years,
which term is automatically extended for subsequent one-year periods. The
service agreement is terminable (i) on December 31 of any year after January
1998 by either party giving written notice to the other prior to March 31 in
such year, (ii) automatically on Mr. Rogers' 60th birthday, and (iii) by the
Company at any time for cause, in which case Mr. Rogers is entitled to accrued
but unpaid salary to the date of termination. The Company may also terminate
Mr. Rogers' employment without cause and without notice, in which case Mr.
Rogers is entitled to his base salary and all other benefits that he would
have earned through the notice period set forth in clause (i) above (except
that his bonus shall only be payable up to and including the date of
termination). Mr. Rogers has agreed, for a period of six months following
termination, not to (i) solicit any customers or clients of the Company in
16
<PAGE>
connection with the carrying on of any business in competition with the
business of the Company or (ii) solicit or entice any employee of the Company
or its affiliates away from the Company or such affiliates.
The Company has entered into an employment arrangement with William J.
Wedlake, which provides for a base salary subject to annual review, an annual
bonus, a cash allowance in lieu of the use of a company automobile, the right
to participate in the Company's health insurance plan and the right to
participate in Terra Nova's approved and funded non-approved pension plans and
to receive an additional year of pensionable past service credit for each
complete year of actual service with the Company up to an agreed maximum less
years of service vested in previous employer's pension plans.
The employment arrangement provides that Mr. Wedlake's employment is
terminable by either party's giving 12 months notice to the other. The Company
also can terminate Mr. Wedlake's employment at any time for cause.
APPROVED EXECUTIVE SHARE OPTION PLANS
On January 9, 1995, the Board of Directors of the Company adopted The Terra
Nova Executive Share Option Schemes (the "Stock Option Plans") as amended on
March 13 and August 4, 1996. The Stock Option Plans provide for the grant of
options to eligible employees to purchase Shares (the "Option Shares"). The
maximum number of Option Shares for which an option may be granted is limited
so that when aggregated with the number of Option Shares issued or remaining
issuable with respect to options granted within the previous ten years under
the Stock Option Plans, will not exceed 8% of the aggregate number of Ordinary
Shares of the Company outstanding on the date preceding the date on which the
option is granted. Unexercised options will expire either seven or ten years
after the date granted as provided in the respective Stock Option Plans,
subject to certain limited exceptions. The Stock Option Plans are administered
by the Compensation Committee which determines which employees will be granted
any future options.
OCTAVIAN STOCK OPTION PLAN
In connection with the Octavian Acquisition, the Company, on January 5,
1996, established the Octavian Stock Option Plan providing for the grant of
options to certain individual members of the management of Octavian, including
Mr. Rogers, based on profit commissions received by Octavian for the 1996 to
2000 years of account. Under the Octavian Stock Option Plan, such members of
management will receive annual option grants to purchase a number of Shares
equal in the aggregate to (i) 90% of the profit commission received by
Octavian from the Octavian Syndicates (less underwriters' and management
bonuses relating thereto and corporate taxes) for each year of account,
divided by (ii) the fully-diluted net asset value (as defined in the Octavian
Stock Option Plan) per Ordinary Share of the Company as at the end of such
year. The aggregate Profit Commission Component for the 1996 to 2000
underwriting years of account is subject to a maximum of (Pounds)10.0 million
and no further options shall be issued once such maximum has been reached. The
options will be granted upon receipt of the profit commissions by Octavian on
closure of each year of account under applicable Lloyd's regulations, which
currently are the years 1999 to 2003 with regard to each of the years 1996 to
2000, respectively. The options have a nominal exercise price and become
exercisable on or after the January 1 next succeeding the date of grant,
commencing January 1, 2000, provided that all options granted after January 1,
2002 become immediately exercisable. Options expire seven years after the date
of grant. The Octavian Stock Option Plan will be administered, with respect to
persons subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, by the Compensation Committee.
17
<PAGE>
TOTAL RETURN
PERFORMANCE GRAPH
Set forth below is a line graph comparing the dollar change in the
cumulative total shareholder return on the Company's Ordinary Shares from
April 17, 1996 (the date on which the Company's Ordinary Shares were first
traded on the New York Stock Exchange) through December 31, 1997 as compared
to the cumulative total return of the Standard & Poor's 500 Stock Index and
the cumulative total return of the Standard & Poor's Property--Casualty
Insurance Index for the same period.
The chart depicts the value at the end of each calendar quarter of a $100
investment made on April 17, 1996, with all dividends reinvested.
LINE GRAPH
<TABLE>
<CAPTION>
Terra Nova Bermuda Holdings, Ltd. S&P 500 Index S&P Property Casualty Index
<S> <C> <C> <C>
4/17/96 100 100 100
6/28/96 94.1 104.5 107.1
9/30/96 120.6 107.1 109.1
12/31/96 126.5 115.5 124.4
3/31/97 114.7 118 130.6
6/30/97 123.5 138 159.2
9/30/97 159.6 147.6 168.8
12/31/97 154.4 151.2 179.5
</TABLE>
(Assumes U.S. $100 invested at April 17, 1996)
18
<PAGE>
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(ITEM 2 ON PROXY CARD)
Coopers & Lybrand, Bermuda currently serve as the Company's independent
auditors. They have served in that capacity since the Company's reorganization
in 1994, and, prior to that, Coopers & Lybrand, London served from 1981 as the
independent auditors of the Terra Nova Insurance Company, the predecessor
company to the Company and now a principal operating company in the Group.
Upon recommendation of the Audit Committee, the Board proposes that the
shareholders appoint Coopers & Lybrand, Bermuda to serve as the independent
auditors of the Company for the 1998 fiscal year.
It is anticipated that one or more representatives of Coopers & Lybrand,
Bermuda will be present at the Annual General Meeting with an opportunity to
make a statement, if desired, and will be available to answer appropriate
questions from shareholders present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF COOPERS &
LYBRAND, BERMUDA AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE 1998
FISCAL YEAR.
19
<PAGE>
PROPOSAL TO APPROVE THE
TERRA NOVA (BERMUDA) HOLDINGS LTD.
1997 NON-EMPLOYEE DIRECTORS SHARE UNIT PLAN
(ITEM 3 ON PROXY CARD)
INTRODUCTION
The Board of Directors adopted the Terra Nova (Bermuda) Holdings Ltd. 1997
Non-Employee Directors Share Unit Plan (the "Plan"), subject to shareholder
approval, to enable non-employee directors to defer all or a portion of the
annual retainer fees payable to them and to have it deemed invested in Class A
Ordinary Shares, par value $5.80 per Share, of the Company (the "Shares"), in
a tax effective manner by crediting a book entry account established for the
benefit of a director with a number of share units, which represent the
economic equivalent of one Share (a "Share Unit"). In the event that the
shareholders of the Company fail to approve the Plan at the Annual Meeting,
(i) all awards previously granted under the Plan shall terminate and be
rendered void and without effect and (ii) the Plan shall terminate effective
as of the date of the Annual Meeting.
The principal features of the Plan are summarized below.
MATERIAL PROVISIONS OF THE PLAN
Shares Authorized. A maximum of 100,000 Shares may be issued under the Plan,
subject to adjustments in the event of certain corporate transactions,
including stock dividends and splits.
Deferral Election. An eligible director may elect, generally no later than
December 31 of each calendar year, to defer up to 100% of the director's
annual retainer fees payable for services to be rendered in one or more
succeeding calendar years. Any such election shall continue in effect unless
and until the director revokes or modifies such election by timely written
notice to the Company. Awards credited to a director prior to the effective
date of any such revocation or modification shall not be affected thereby. A
director who has revoked such an election may file a new election to defer the
annual retainer fees payable for services to be rendered in any calendar year
following the year in which such new election is filed.
Unit Awards. The Company will establish a separate account for each director
who has made a deferral election to record the number of Share Units awarded
to such director from time to time under the Plan. On each date on which any
portion of the director's annual retainer fees would otherwise have been paid,
a participating director will be awarded Shares Units equal to the greatest
whole number of Shares obtained by dividing (i) the amount of such payment
which is deferred by (ii) the closing price of a Share on the business day
immediately preceding such date. A fractional Share Unit, if any, will be
credited to the director's account under the plan as cash until sufficient
cash has accumulated to credit one or more additional whole Share Units.
Dividends. The Company will credit the account of each participating
director with an amount equal to any dividends paid by the Company during the
period of deferral with respect to the number of Shares corresponding to such
director's Share Units ("Dividend Equivalents"). Any Dividend Equivalents
payable with respect to cash dividends shall be deemed to have been invested
in additional Shares Units (in the manner described above) on the record date
established for the related dividend.
Vesting of Share Units. Share Units, together with any Dividend Equivalents
credited with respect thereto and any cash credited to a director's account,
shall be fully vested at all times.
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Payment on Units. Distribution of a director's account shall be made in a
lump sum as soon as administratively practicable following the termination of
the director's service as a director or upon earlier termination of the Plan.
Such distribution will be in cash, in Shares or in a combination thereof as
elected by the director in accordance with procedures established by the
Board. If no form of payment is specified, such distribution shall be made in
Shares. Notwithstanding the foregoing, upon the occurrence of a Change in
Control (as defined in the Plan), the Company shall pay each participating
director, not later than 60 days after the Change in Control occurs, cash in
an aggregate amount equal to the product of (i) the number of Share Units
credited to such director's account at the time of the Change in Control
multiplied by (ii) the closing price of a Share on the date of the Change in
Control, plus the amount of cash otherwise credited to the director's account
under the Plan.
Administration and Amendment. The Plan will be administered by the Board of
Directors or the Compensation Committee of the Board of Directors. The Board
may amend the Plan, but the Board may not effect any amendment that would
require the approval of the shareholders of the Company under Rule 16b-3 or
any other requirement of applicable law or regulation unless such approval is
obtained.
FEDERAL INCOME TAX CONSEQUENCES
A director will not recognize ordinary income upon the grant of Units.
Rather, at the time any shares of Common Stock are delivered (or cash paid) in
respect of Units, an amount equal to the fair market value of the shares (or
the cash amount) will be includible in the Director's ordinary income. The
Corporation will be entitled to a tax deduction in the amount, if any, of
ordinary income recognized by the director.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares represented at the meeting
and entitled to vote is required to approve the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PLAN.
Unless directed to the contrary, the shares represented by the enclosed Proxy
will be voted FOR the approval of the Plan.
PROPOSAL TO AMEND THE
EXECUTIVE SHARE OPTION PLAN
(ITEM 4 ON PROXY CARD)
The Board of Directors of the Company previously adopted, and a majority of
the shareholders of the Company previously approved, the Executive Share
Option Plan (the "Option Plan"), which includes both the Approved and the
Unapproved Executive Share Option Plans (officially, in the UK, the "Approved
and Unapproved Executive Share Option Schemes"). The Approved Plan is designed
to qualify options granted thereunder for preferential income tax treatment
under U.K. law. Accordingly, the terms and conditions of share options granted
under the Approved Plan are designed to meet applicable statutory
requirements. The Unapproved Plan allows for grants of share options not
intended to qualify for (or not eligible for) such preferential tax treatment,
which are not subject to certain of the limitations otherwise applicable to
options granted under the Approved Plan.
The Board has amended the Option Plan, subject to shareholder approval, (i)
to increase the number of Class A Ordinary Shares, par value $5.80 (the
"Shares"), available for issuance thereunder by 7% of the number of
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Shares and Class B Ordinary Shares outstanding, (ii) to extend the periods
following termination of employment that the option holder may exercise his
exercisable options, (iii) to allow options granted under the Unapproved Plan
to be transferred to or for the benefit of immediate family members with the
approval of the Compensation Committee of the Board of Directors, which is
responsible for administering the Option Plan (the "Committee") and (iv) to
allow the Committee complete discretion to determine the time at which options
become exercisable.
SHARES SUBJECT TO SHARE PLAN
As amended, the maximum number of Shares for which options may be granted
under the Option Plan shall not exceed that number which, when aggregated with
the number of option Shares issued or remaining issuable in respect of rights
granted within the previous ten years under the Option Plan, equals 15% of the
aggregate number of Shares and Class B Ordinary Shares of the Company
outstanding on the date preceding the date on which the option is granted. In
the event of any recapitalization, rights issue, subdivision or consolidation
of the Shares, or reduction or other variation of the Shares and Class B
Ordinary Shares, such maximum number may be adjusted by the Committee in such
manner as the Company's auditors have confirmed in writing to be, in their
opinion, fair and reasonable.
SHARE OPTIONS
Under the Option Plan, the Committee may grant options to purchase Shares
from time to time to officers and other employees of the Company and any
participating subsidiary of the Company. The number of grantees may vary from
year to year. The option price of any option granted under the Option Plan
shall be equal to the average of the closing prices of a Share on the three
trading days immediately prior to the date of grant. The term of each option
will be fixed by the Committee but may not exceed ten years from the date of
grant. As amended, the Option Plan permits the Committee complete discretion
to determine the time or times at which an option will become exercisable.
Under the Approved Plan, the number of Option Shares with respect to which
the Committee may grant an option shall be limited so that the aggregate
market value of the Option Shares and the market value of any other shares
which may be acquired under the Option Plan or any other share option plan
established by the Company or any other Group Company does not exceed
(Pounds)30,000. There is no limit as to the number of Option Shares that may
be granted under the Unapproved Plan.
TERMINATION OF EMPLOYMENT
Options that are otherwise exercisable (or all Options in the case of an
optionee who dies while employed) shall be exercisable for a period of (i) 36
months after an optionee's death (regardless of whether exercisable prior to
the optionee's death), (ii) 36 months in event of the optionee's termination
of employment due to disability (as determined under the Option Plan), (iii)
60 months in the event of the optionee's retirement (as determined under the
Option Plan), (iv) 24 months with respect to certain transfers of employment,
or any other involuntary termination of employment by the optionee's employer
without cause and (v) for such period, not to exceed 12 months following a
voluntary resignation as shall be determined by the Committee, subject to such
conditions as the Committee shall impose.
CHANGE OF CONTROL PROVISIONS
The Option Plan provides that, except as described below, in the event of a
Change in Control or an Approved Sale (as determined under the Option Plan) of
the Company, all outstanding options (i) shall become immediately exercisable,
and (ii) can, under certain circumstances, be substituted for options to
acquire shares of
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the acquiring company or certain of its affiliates. To the extent not
exercised within six months of a Change of Control and not substituted shall,
under certain circumstances, continue to be exercisable for Option Shares,
unless otherwise determined by the Committee.
OTHER INFORMATION
The Board may terminate or suspend the Option Plan at any time but such
termination of suspension will not affect any share options then outstanding
under the Option Plan. Unless sooner terminated by action of the Board, the
Option Plan will continue in effect until January 8, 2005 but awards granted
prior to such date will continue in effect until they expire in accordance
with their terms. The Board may also amend the Option Plan as it deems
advisable. Under the Unapproved Plan, the Committee may amend the terms of any
award or option previously granted, retroactively or prospectively, but no
such amendment shall adversely affect any such award or option without the
holder's consent.
It is impossible to predict with any accuracy what awards the Committee will
authorize for particular individuals in the future. The following table sets
forth the awards that were made under the Option Plan during calendar year
1997 to the participants specified below:
NEW PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
# OF SHARES AVERAGE
SUBJECT TO EXERCISE
NAME OPTIONS PRICE(1)
---- ----------- --------
<S> <C> <C>
William O. Bailey................................... 125,000 $24.27
John J. Dwyer....................................... 255,700 25.26
Nigel H.J. Rogers................................... 256,400 25.24
John Riddick........................................ 73,300 24.39
William Wedlake..................................... 67,100 24.86
All current executive officers as a group (9
individuals)....................................... 860,100 24.87
All employees, (including current officers who are
not executive officers) as a group (approximately
140 individuals)................................... 1,059,150 24.02
</TABLE>
- --------
(1) All options were granted with an exercise price equal to the average of
the fair market value on the three business days preceding the date of
grant.
FEDERAL INCOME TAX ASPECTS
To the extent that the recipient of stock options under the Option Plan is
subject to U.S. federal income tax laws, the following is a summary of the
Federal income tax consequences of stock options granted under the Option
Plan, based upon the Federal income tax laws in effect on the date hereof.
This summary is not intended to be exhaustive and does not describe state,
local or non-U.S. tax consequences. The stock options granted under the Option
Plan are not intended to be qualified as "incentive stock options" under the
Code. No income is realized by an optionee at the time a stock option is
granted. Generally upon the exercise of a stock option, the optionee will
realize ordinary income in an amount equal to the difference between the price
paid for the shares and the fair market value of the shares on the date of
exercise. To the extent the Company is subject to U.S. income tax laws, the
Company will be entitled to a deduction in the same amount. Any appreciation
(or depreciation) after the date of exercise will be either short-term or
long-term capital gain or loss, depending upon the length of time that the
participant has held the shares.
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VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares represented at the meeting
and entitled to vote is required to approve the amendments to the Option
Plans.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENTS
TO THE OPTION PLANS. Unless directed to the contrary, the shares represented
by the enclosed proxy will be voted for the approval of these amendments.
OTHER MATTERS
The Board knows of no other business to be brought before the meeting other
than as set forth above. If any other business should properly come before the
Annual General Meeting, it is the intention of the persons named in the
enclosed proxy card to vote such proxies in accordance with their best
judgement of such matters.
SHAREHOLDER PROPOSALS
Shareholder proposals for the 1999 Annual Meeting of Shareholders must be
received at the principal offices of the Company, Richmond House, 12 Par-La-
Ville Road, Hamilton HM 08 Bermuda, no later than November 21, 1998, in order
to be considered for inclusion in the Company's Proxy Statement for such
Meeting.
MISCELLANEOUS
The cost of preparing and mailing this notice and statement and the enclosed
form of proxy will be borne by the Company. In addition to solicitation by
mail, proxies may be solicited in person or by telephone or telegraph by
directors, officers and regular employees of the Company, without extra
compensation and at the Company's expense. Proxy cards and materials also will
be distributed to beneficial owners of Ordinary Shares through brokers,
custodians, nominees and other parties, and the Company will reimburse them
for their reasonable charges.
The Company will furnish without charge to any Shareholder, and has included
in the Annual Report being mailed to Shareholders on March 31, 1998, a copy of
the Company's Annual Report on Form 10-K that it files annually with the
Securities and Exchange Commission. A copy of this report for the fiscal year
ended December 31, 1997 may be obtained by writing to the Company's Secretary
at Terra Nova (Bermuda) Holdings Ltd., Richmond House, 12 Par-La-Ville Road,
Hamilton HM 08 Bermuda.
By order of the Board of Directors,
/s/ William O. Bailey
William O. Bailey
Chairman and Chief Executive Officer
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