def14a.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to
Section 14(a) of
the Securities Exchange Act of 1934
(Amendment
No. )
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Filed by the
Registrant ý
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Filed by a Party other than the
Registrant ¨
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Check the appropriate
box:
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Preliminary Proxy
Statement
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Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive Proxy
Statement
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Definitive Additional
Materials
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Soliciting Material Pursuant to
240.14a-12
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Flagstone Reinsurance Holdings
Limited
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(Name of Registrant as Specified
In Its Charter)
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(Name of Person(s) Filing
Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the
appropriate box):
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No fee
required.
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Fee computed on table below per
Exchange Act
Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities
to which transaction applies:
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Aggregate number of securities to
which transaction applies:
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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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Proposed maximum aggregate value
of transaction:
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Total fee
paid:
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Fee paid previously with
preliminary materials.
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Check box if any part of the fee
is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the
Form or Schedule and the date of its
filing.
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Amount Previously
Paid:
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Form, Schedule or Registration
Statement No.:
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Filing
Party:
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PROXY
STATEMENT
Flagstone
Reinsurance Holdings Limited
Crawford
House
23 Church
Street
Hamilton HM 11,
Bermuda
ANNUAL GENERAL
MEETING – May 16, 2008
April 16,
2008
To
the Shareholders of Flagstone Reinsurance Holdings Limited:
You are cordially
invited to attend the Annual General Meeting of your company to be held at 8:30
a.m. local time on Friday, May 16, 2008 at The Pink Beach Club, South Shore
Road, Smith’s, Bermuda.
A
report of the current affairs of Flagstone Reinsurance Holdings Limited will be
presented at the Annual General Meeting and shareholders will have an
opportunity for questions and comments.
We
request that you complete, sign, and mail the enclosed form of proxy in the
enclosed business reply envelope, whether or not you plan to physically attend
the Annual General Meeting.
The
attached proxy statement (the "Proxy Statement"), the attached Notice of
Annual General Meeting and the accompanying proxy card are first being mailed to
shareholders on or about April 16, 2008.
Sincerely
yours,
/s/ David A.
Brown
David A.
Brown
Chief Executive
Officer
Flagstone
Reinsurance Holdings Limited
Crawford
House
23 Church
Street
Hamilton HM 11,
Bermuda
NOTICE OF ANNUAL
GENERAL MEETING
To be held on May
16, 2008
NOTICE IS HEREBY
GIVEN that the Annual General Meeting of shareholders of Flagstone Reinsurance
Holdings Limited (the "Company" or "we") will be held on Friday, May 16, 2008,
at 8:30 a.m. local time for the following purposes:
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1.
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To elect four
(4) Class B directors to hold office until the 2011 Annual General Meeting
of shareholders or until their respective successors have been duly
elected.
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2.
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To approve
the appointment of Deloitte & Touche to serve as the
Company's independent auditor for the fiscal year 2008 until our 2009
Annual General Meeting and to refer the determination of the auditor’s
remuneration to the Board of Directors.
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3.
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To approve
amendments to the Performance Share Unit Plan.
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4.
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To approve
the list of Designated Company Directors for certain subsidiaries of the
Company.
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In
addition, we will consider any other business as may properly come before the
2008 Annual General Meeting or any adjournment(s) thereof. The
Company’s
audited financial statements for the fiscal year ended December 31, 2007 will be
presented at the 2008 Annual General Meeting. At the Annual General
Meeting, shareholders may also be asked to consider and take action with respect
to such other matters as may properly come before the Annual General Meeting or
any adjournment(s) thereof.
The Board of
Directors has fixed the close of business April 1, 2008 as the record date for
the determination of shareholders entitled to notice of, and to vote at, the
Annual General Meeting. This Proxy Statement, the Notice of Annual General
Meeting, the accompanying proxy card, the Annual Report and Form 10-K for year
ended December 31, 2007 are first being mailed to shareholders on or about April
16, 2008. Although the Annual Report and Proxy Statement are being
mailed together, the Annual Report should not be deemed to be part of the Proxy
Statement.
Shareholders
are encouraged to complete, sign, date and return the enclosed proxy card in the
return envelope furnished for that purpose. Please sign the
accompanying proxy card exactly as your name appears on your share
certificate(s). Signing and returning a proxy card will not prohibit
you from attending the 2008 Annual General Meeting. If you later
decide to revoke your proxy for any reason, you may do so in the manner
described in the attached Proxy Statement.
By
order of the Board of Directors.
/s/ Jean-Paul
Dyer
Jean-Paul
Dyer
Corporate
Secretary
Hamilton,
Bermuda
Flagstone
Reinsurance Holdings Limited
2008
Proxy Statement
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Proxies in the form
enclosed are being solicited by the Board of Directors. The persons named in the
accompanying proxy card have been designated as proxies by the Board. Such
persons designated as proxies serve as officers of the Company.
The Board of
Directors has set April 1, 2008 as the record date for the Annual General
Meeting. If you were an owner of our common shares at the close of business on
that date, you are entitled to notice of, and may vote at, the Annual General
Meeting.
As
of April 1, 2008, 85,316,924 common shares were issued and outstanding. The
presence, in person or by proxy, of holders of more than 50% of the common
shares outstanding and entitled to vote on the matters to be considered at the
Annual General Meeting is required to constitute a quorum for the transaction of
business at the Annual General Meeting. Holders of common shares are entitled to
vote on each matter to be voted upon by the shareholders at the Annual General
Meeting in accordance with the voting rights afforded under bye-laws 4 and 30 of
the Company.
If
you are entitled to vote at the Annual General Meeting, you may do so in person
at the Annual General Meeting or by proxy without attending the meeting. To vote
by proxy, you must fill out the enclosed proxy card, date and sign it, and
return it in the enclosed postage-paid envelope. If you receive more than one
proxy card, sign and return each proxy card in order to ensure that all of your
shares are voted.
If
no instructions are provided in an executed proxy, it will be voted “FOR” each
of the proposals, and, as to any other business as may properly come before the
Annual General Meeting, in accordance with the proxyholder’s judgment as to such
business.
Broker non-votes
occur when nominees, such as banks and brokers holding shares on behalf of
beneficial owners, do not receive voting instructions from the beneficial
holders at least ten days before the Annual General Meeting. Member brokerage
firms of The New York Stock Exchange, Inc. that hold shares in street name for
beneficial owners may, to the extent that such beneficial owners do not furnish
voting instructions with respect to any or all proposals submitted for
shareholder action, vote in their discretion upon all of the proposals. Any
broker non-votes and abstentions will not be counted as shares present in
connection with proposals with respect to which they are not voted.
The Board of
Directors has not proposed for consideration at the Annual General Meeting any
transaction for which the laws of Bermuda entitle shareholders to appraisal
rights.
In
accordance with our bye-laws the
nominees for election as directors at the Annual General Meeting who receive the
highest number of "FOR" votes will be elected as directors. This is
called plurality voting. All common shares represented by properly
executed proxies that are returned and not revoked will be voted in accordance
with the instructions, if any, given thereon. Unless you indicate
otherwise on your proxy card, or if no instructions are given, the persons named
as your proxies will vote your shares "FOR" all the nominees for director named
in this Proxy Statement. All other proposals require the affirmative "FOR" vote
of a majority of those shares present at the meeting and entitled to vote on the
proposal. A hand vote will be taken unless a poll is requested pursuant to the
bye-laws. You may revoke your voted proxy at any time prior to the Annual
General Meeting or vote in person if you attend.
The Company will
bear the cost of this solicitation of proxies. Solicitation may be made by our
directors, officers and employees personally, by telephone, internet or
otherwise, but such persons will not be specifically compensated for such
services. We may also make, through bankers, brokers or other persons, a
solicitation of proxies of beneficial holders of the common shares. Upon
request, we will reimburse brokers, dealers, banks or similar entities acting as
nominees for reasonable expenses incurred in forwarding copies of the proxy
materials relating to the Annual General Meeting to the beneficial owners of
common shares which such persons hold of record.
The table below
sets forth the names, ages and positions of the current directors and executive
officers of the Company:
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Name
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Age
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Positions
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Mark J.
Byrne
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46
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Executive
Chairman of the Board of Directors
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David A.
Brown
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50
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Chief
Executive Officer, Deputy Chairman and Director
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James
O'Shaughnessy
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Chief
Financial Officer
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Gary
Prestia
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46
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Chief
Underwriting Officer—North America
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Guy
Swayne
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44
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Chief
Underwriting Officer—International
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Gary
Black
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62
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Director
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Stephen
Coley
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63
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Director
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Thomas
Dickson
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45
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Director
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Stewart
Gross
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48
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Director
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E. Daniel
James
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43
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Director
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Dr. Anthony
Knap
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58
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Director
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Marc
Roston
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39
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Director
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Jan
Spiering
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56
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Director
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Wray T.
Thorn
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42
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Director
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Peter F.
Watson
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65
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Director
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The Board of
Directors consists of twelve (12) directors and is divided into three equal
classes (A, B and C). At each Annual General Meeting, certain directors shall be
elected or appointed for a full three-year term to succeed those whose terms
expire at such meeting. Each director shall hold office for the term for which
he is elected or until his successor is elected or appointed or until his office
is otherwise vacated.
Gary Black has been
a director since June 2006. He was Chief Claims Executive and Senior Vice
President of OneBeacon Insurance Company, a subsidiary of White Mountains
Insurance Group, until his retirement in 2006. Prior to joining OneBeacon in
January of 2004, Mr. Black spent 35 years with Fireman's Fund Insurance
Companies where he was an Executive Vice President and President of the Claims
Division. At Fireman's Fund his responsibilities included claims, corporate
administration, general counsel, staff counsel and systems. He received his B.A.
degree from Southwest Baptist University and is a Chartered Property Casualty
Underwriter.
Thomas Dickson has
been a director since December 2005. Mr. Dickson is Chief Executive Officer
and Founder of Meetinghouse LLC, a private firm that provides investment
advisory and management services and advice and support to management for
underwriting, ratings, capital management and actuarial functions.
Mr. Dickson currently serves as President and Chief Executive Officer of
Haverford Capital Partners (Cayman) Limited ("HCP"), a private equity fund
specializing in investments in insurance, reinsurance and specialty finance
started in August 2005. Mr. Dickson served as President and Chief Executive
Officer of The Centre Group and as its Chief Underwriting Officer. At the time,
The Centre Group held assets in excess of $9 billion and capital in excess of
$1 billion. He joined The Centre Group at the time of its establishment in
1988 and, prior to assuming responsibilities as Chief Underwriting Officer,
served in a variety of business production and underwriting capacities in
Bermuda and New York. Mr. Dickson holds a bachelor's degree with honors
from Stanford University and a Masters Degree from the Johns Hopkins School of
Advanced International Studies.
Jan Spiering has
been a director since December 2005. From February 1979 to June 2002,
Mr. Spiering served as a member of Ernst & Young, becoming the
Chairman and Managing Partner of Ernst & Young Bermuda. During his
tenure at Ernst & Young, Mr. Spiering was a member of the firm's
Global Advisory Counsel, founding member of the International Investment
Committee, and was Chairman of the firm's Offshore Fund's Group. He retired from
Ernst & Young in 2002, and currently serves on the board of directors
for WP Stewart & Co Ltd. and various private companies.
Mr. Spiering is a Fellow of the Institute of Chartered Accountants in
England & Wales and the Institute of Chartered Accountants of Bermuda
and is a Member of the Canadian Institute of Chartered Accountants.
Wray T. Thorn
has been a director since October 2006. Mr. Thorn is the Managing Director
of Private Equity at Marathon Asset Management, LLC, a global alternative
investment and asset management company with over $7.5 billion in capital,
where he has worked since June 2005. In his current role, Mr. Thorn
provides private equity capital to companies to support management buyout
transactions, acquisition and expansion strategies, growth programs, shareholder
transitions and financial restructurings. Prior to joining Marathon,
Mr. Thorn spent a total of 12 years working on, sponsoring, and financing
private equity transactions, acquisitions and capital markets transactions at
Fox Paine & Company, Dubilier & Company, where he was a
principal and founding member, and the Acquisition Finance Group of Chemical
Bank. He is a graduate of Harvard University with an A.B. in Government, cum
laude.
Mark J. Byrne has
been our Executive Chairman since October 2005. Mr. Byrne also serves as
Chairman of Haverford (Bermuda) Ltd. ("Haverford"), an affiliate of the Company
due to common ownership (see "Certain Relationships and Related Transactions"
below), and Chairman of Island Heritage Holdings Ltd. ("Island Heritage"), an
indirect majority-owned subsidiary of the Company. Mr. Byrne founded
Flagstone Capital Management (Bermuda) Limited (formerly known as West End
Capital Management (Bermuda) Limited and referred to herein as "Flagstone
Capital Management"), a wholly-owned subsidiary of the Company, in 1998. Prior
to starting Flagstone Capital Management, Mr. Byrne served as Managing
Director at Credit Suisse First Boston, responsible for Global Fixed Income
Arbitrage in London and Tokyo. Mr. Byrne also held management positions at
PIMCO and Salomon Brothers and has 20 years experience in the fixed income and
derivative
business. Mr. Byrne has invested at early stages in several insurance
companies and has served on the boards of directors of several insurance
companies, including three public companies: White Mountains Insurance Group
Ltd., Terra Nova Bermuda Holding Ltd. and Markel Corp. He holds a Bachelors
degree from Dartmouth College and an MBA from the Tuck School of Business at
Dartmouth.
Stewart Gross has
been a director since January 2006. Mr. Gross is a Managing Director and
member of the Investment Committee of Lightyear Capital, a private equity firm
investing in companies in the financial services industry. Prior to joining
Lightyear in April 2005, Mr. Gross spent 17 years at Warburg Pincus where
he was a Managing Director and member of the Executive Management Group.
Mr. Gross has been a primary investor in many highly successful companies,
including RenaissanceRe Holdings Ltd. Mr. Gross is currently a director of
BEA Systems, Inc., SkillSoft Corporation, and several private companies.
Mr. Gross received an A.B., magna cum laude, from Harvard College and an
M.B.A. from Columbia Business School where he was elected to Beta Gamma
Sigma.
E.
Daniel James has been a director since December 2005. Mr. James is
a senior manager of the Merchant Banking Group and a managing director
of Lehman Brothers Inc. He joined the Lehman Brothers Merchant Banking Group in
1995. Prior to joining the Merchant Banking Group, he was a member of the Lehman
Brothers M&A Group, based in London and New York. In 1988, Mr. James
joined Lehman Brothers' Financial Institutions Group. He is currently a director
of Blount International, Inc. and Phoenix Brands LLC. He holds a B.A. in
chemistry, with honors, from the College of the Holy Cross.
Marc Roston, Ph.D.,
has been a director since December 2005. Mr. Roston has been a Senior
Portfolio Manager, Chair of the Investment Committee and head of the New York
office at Silver Creek Capital Management since 2004. His responsibilities
include portfolio strategy, investment research and due diligence. From 2000 to
2004, Mr. Roston was an investment manager with McKinsey & Company
in New York and, prior to that, an equity portfolio manager at J.P. Morgan
Investment Management. Mr. Roston holds a Ph.D. in economics from the
University of Chicago and a B.S. from Carnegie Mellon University.
David Brown has
served as Chief Executive Officer of Flagstone since October 2005.
Mr. Brown is also a director of Island Heritage, an indirect majority-owned
subsidiary of the Company. From September 2003 until October 2005,
Mr. Brown served as the Chief Executive Officer of Haverford and as the
Chief Operating Officer of Flagstone Capital Management, a wholly-owned
subsidiary of the Company. Mr. Brown joined Centre Solutions (Bermuda)
Limited ("Centre Solutions") in 1993, and was its President and Chief Executive
Officer at the time of his retirement in 1998. Prior to joining Centre
Solutions, Mr. Brown was a Partner with Ernst & Young in Bermuda.
Mr. Brown is the non-executive Chairman of the Bermuda Stock Exchange and a
Director and Trustee for the Schroder Family Trusts. Mr. Brown led the team
which analyzed, structured and negotiated the acquisition of Merastar Insurance
Company in 2004. As Chairman of Merastar, Mr. Brown led the board's
oversight of the successful turn-around strategy. At Centre Solutions,
Mr. Brown was responsible for the global operations of a group with over
$7 billion in assets and offices in several countries. During his ten years
with Ernst & Young, Mr.
Brown specialized in insurance and was involved in the liquidation of
numerous insurance companies in Bermuda, the U.K. and the U.S. Mr. Brown is
a Fellow of the Institute of Chartered Accountants in England & Wales
and a Member of both the Institute of Chartered Accountants of Bermuda and the
Canadian Institute of Chartered Accountants.
Stephen Coley has
been a director since January 2006. Mr. Coley is a Director Emeritus of
McKinsey & Company. During his 28+ years of active client service with
McKinsey, Mr. Coley led a wide variety of successful business strategy and
organization efforts, principally serving technology and basic industrial
clients, and led the Firm's corporate growth practice. In addition,
Mr. Coley served for 10 years on McKinsey's Investment Committee, which
oversees employee profit sharing investments and partner alternative investment
vehicles, and served as the committee's chairman from 2000 to 2004.
Mr. Coley received an M.B.A., with distinction, from Harvard Business
School, where he was named a Loeb Fellow in finance. Mr. Coley has a
B.S. in electrical engineering from Duke University. Mr. Coley currently
serves on the boards of directors of Dycom Industries and Underwriters
Laboratories. He also serves on the Duke University Pratt School of Engineering
Board of Visitors and as a Board Advisor to Havell Capital Management, a money
management firm in New York, New York.
Dr.
Anthony Knap, Ph.D., has been a director since December 2005. Dr. Knap
serves as President, Director and Senior Research Scientist of the Bermuda
Institute of Ocean Sciences, which he joined in 1978. In 1994, Dr.
Knap founded the Risk Prediction Initiative, a partnership between the
science community and the reinsurance industry providing essential information
between natural disasters and changing climate. Dr. Knap's principal
research interests are climate change, environmental science, atmosphere/ocean
interactions, effects of chemicals on the marine environment as well as
relationships between ocean health and human health. Dr. Knap holds a
number of professorships, and serves on numerous expert panels and committees in
his field. Dr. Knap received his Ph.D. in oceanography in 1978 from the
University of Southampton, U.K.
Peter F. Watson was
appointed director in September 2007. Mr. Watson is currently a consultant
to Attorney's Liability Assurance Society (Bermuda) Ltd. ("ALAS"), a mutual
insurance company formed in Bermuda to provide professional liability insurance
for large U.S. law firms. Mr. Watson served as President and Chief
Executive Officer of ALAS from 2002 to December 31, 2007. Prior to
joining ALAS in 1998, Mr. Watson's career was with Price Waterhouse, initially
in London and Montreal and, since 1975, in Bermuda where he also served as
senior partner of the firm. In his latter years with Price
Waterhouse, Mr. Watson was responsible for managing the worldwide
professional indemnity program for the firm. Mr. Watson is a past
president of the Institute of Chartered Accountants of Bermuda and a Fellow of
the Institute of Chartered Accountants and the Quebec Order of Chartered
Accountants.
James O'Shaughnessy
joined the Company as Chief Financial Officer in May 2006. Prior to joining the
Company, he was the Chief Accounting Officer and Senior Vice President at
Scottish Reinsurance Group Limited where he was responsible for group internal
and external reporting as well as various finance functions and research into
accounting issues. Prior to joining Scottish Re in 2005, Mr. O'Shaughnessy
was Chief Financial Officer and Senior Vice President at XL Re Ltd., and before
that he served for four years at Centre Solutions as Controller and Vice
President. Before joining Centre Solutions, he spent four years at ACE
Tempest Reinsurance Ltd., where his last position was Vice President of Finance.
He began his career in Ireland at PricewaterhouseCoopers before moving to KPMG
Peat Marwick in Bermuda. Mr. O'Shaughnessy holds a Bachelor of Commerce
degree from University College, Cork, Ireland and is both a Fellow of the
Institute of Chartered Accountants of Ireland and an Associate Member of the
Chartered Insurance Institute of the U.K.
Gary Prestia has
served as our Chief Underwriting Officer—North America since December 2005.
Mr. Prestia has more than 21 years' experience in the
insurance and reinsurance industry in senior underwriting and executive
management positions successfully navigating across the underwriting cycles.
From 1998 through 2004, Mr. Prestia served as an executive officer of
Converium AG, becoming President of Converium North America, with responsibility
for all legal entities and staff in the U.S. and Canada. As Senior Vice
President and Chief Underwriting Officer, he was responsible for property
catastrophe, property non-catastrophe, motor, marine and third-party liability
(excluding professional liability and workers' compensation). In early 2005,
Mr. Prestia joined Alea North America as Chief Executive Officer of the
North American Reinsurance Division. Prior to 1998, Mr. Prestia held senior
underwriting positions at Transatlantic Re. Mr. Prestia received his CPCU
and ARe professional designations from the American Institute for Chartered
Property and Casualty Underwriters and Bachelor of Business Administration
undergraduate degree and graduate work at St. Johns University School of
Risk Management and Insurance in New York.
Guy Swayne has been
our Chief Underwriting Officer—International since December 2005 and on
September 1, 2007 was appointed as the Chief Executive Officer of Flagstone
Réassurance Suisse S.A., an indirect wholly-owned subsidiary of the
Company. Mr. Swayne has extensive experience in the industry
worldwide and brings a depth of expertise in underwriting, business development,
and leadership to the Company. Prior to joining the Company, Mr.
Swayne was Chief Underwriting Officer—International with ACE Tempest
Reinsurance Ltd. where he managed the International Catastrophe underwriting
unit. Mr. Swayne joined Ace in January 2000 and has held senior positions
including Executive Vice President, ACE Financial Solutions International
(AFSI)—Bermuda where he managed AFSI offices in London, Dublin, and Melbourne.
In London he became President of ACE Financial Solutions Europe (AFSE) where he
established and developed the European office reporting directly to the
President and Chief Executive Officer in Bermuda. Mr. Swayne was
instrumental in many key elements associated with a start-up operation,
including business plan and budget development, hiring underwriting teams,
business production and program completion.
We
describe below the transactions we entered into with parties that are
related to our Company during the year ended December 31, 2007. We believe that
each of the transactions described below was on terms no less favorable to us
than we could have obtained from unrelated parties.
The Company has
extensively used two aircraft owned and operated by entities previously
controlled by Mark Byrne, the Company's Executive Chairman. Given the Company’s
worldwide operations, in July 2007 the Company’s Board of Directors voted
unanimously that it was in the Company’s best interest to acquire from Mr. Byrne
each aircraft and the operating company that supported each
aircraft.
On
August 22, 2007, the Company, through its wholly-owned subsidiary, Flagstone
Leasing Services Limited ("Flagstone Leasing") entered into a Share Purchase
Agreement ("King Air Agreement") with Mr. Byrne, owner of 100% of the issued and
outstanding common voting shares of IAL King Air Limited ("IAL King Air").
Pursuant to the terms of the King Air Agreement, Flagstone Leasing, on August
28, 2007, acquired all of the issued and outstanding common voting shares of IAL
King Air for a cash purchase price of $1.6 million. The purchase price equaled
the value of the net assets acquired, inclusive of debt of $0.9 million, and Mr.
Byrne received 100% of the purchase price. IAL King Air owned, as its principal
asset, a King Air B-200 aircraft. The value attributed to the aircraft for the
purpose of this transaction was determined by the average of two independent
appraisals.
On
August 23, 2007, Flagstone Leasing entered into a Share Purchase Agreement ("IAL
Agreement") with Mr. Byrne, Haverford and Flagstone Capital Management to
acquire 100% of the issued and outstanding common voting shares of IAL Leasing
Limited ("IAL"). Mr. Byrne, Haverford and Flagstone Capital Management, a
wholly-owned subsidiary of the Company, owned 90%, 5% and 5%, respectively, of
the issued and outstanding common voting shares of IAL. Pursuant to the terms of
the IAL Agreement, Flagstone Leasing, on August 28, 2007, acquired all of the
issued and outstanding common voting shares of IAL for a cash purchase price of
$1.4 million. The purchase price equalled the value of the net assets acquired,
inclusive of debt of $17.1 million due to Banc of America Leasing and Capital,
LLC ("BoA"). IAL owned, as its principal asset, a Dassault Falcon 900B aircraft
("the Falcon"). In consideration of Mr. Byrne forgiving debt due to him from
IAL, and his undertaking with respect to the indemnities contained in the IAL
Agreement, Mr. Byrne received 100% of the purchase price. The value
attributed to the aircraft for the purpose of this transaction was determined by
the average of two independent appraisals. On September 25, 2007, IAL concluded
a sale lease-back transaction with BoA in relation to the Falcon. With this
transaction, IAL sold the Falcon and the related debt financing to BoA for a
cash consideration of $1.4 million and entered into an operating lease with BoA
to lease the Falcon for a term of 10 years.
Effective August
29, 2007, Longtail Aviation Limited ("Longtail"), an entity controlled by Mr.
Byrne, entered into an Amalgamation Agreement ("Agreement") with a wholly-owned
subsidiary of the Company, Longtail Aviation International Limited ("Longtail
International"). Longtail provides support, maintenance and pilot services for
the aircraft utilized by the Company in its worldwide operations. Pursuant
to the terms of the Agreement, Longtail was, subject to certain regulatory
approvals required by the Bermuda Registrar of Companies, amalgamated (merged)
into Longtail International in consideration of payment for agreed net assets in
Longtail as of July 31, 2007 and forgiveness of debt owed to Mr. Byrne by
Longtail. Mr. Byrne, as Longtail's principal shareholder, received $1.9 million
from Longtail International. The consideration paid to Mr. Byrne was equal to
the net assets received by Longtail International. Prior to the
acquisition of Longtail in August 2007, the Company participated in a charter
agreement with Longtail which permitted the Company to charter private aircraft.
The Company incurred an expense of $1.1 million, in relation to this agreement
during the year ended December 31, 2007.
During the year
ended December 31, 2007, the Company made lease payments of $0.3 million to
Eyepatch Holdings Limited, a company in which Haverford has a 40.0% stake and
from which the Company leases office space.
Haverford sponsored
the Company’s formation in October 2005 and invested $100.0 million in its
initial private placement. Mr. Byrne and Mr. Brown, the
Company's Chief Executive Officer, serve as directors of
Haverford. As at December 31, 2007, Haverford directly owned 10.0
million common shares, or 11.7%, of the Company's outstanding shares and is the
holder of a Warrant which will entitle it to purchase up to an additional
8,585,747 common shares of the Company in December 2010 (the
"Warrant"). The impact of the conversion of the Warrant would
increase Haverford’s ownership interest to 19.8% of the outstanding voting
common shares at December 31, 2007. The Company paid $1.0 million to
Haverford in relation to services performed in respect of the initial private
placement.
Haverford also owns
all of the share capital of Haverford Investment Holdings Ltd., which owns 6.0%
of the voting common shares of Haverford Capital Partners (Cayman) Limited
("HCP"). The Chief Executive Officer of HCP, Thomas Dickson, is also
a director of the Company. HCP directly owns 2.5 million common
shares, or 2.9%, of the outstanding common shares of the Company at December 31,
2007.
On
December 7, 2007, the Company entered into an interest rate swap agreement with
Lehman Brothers Special Financing Inc. Under the terms of the agreement, the
Company exchanged interest on a notional amount of $25.0 million, will receive
interest at three-month LIBOR and will pay 4.096% interest. The agreement will
terminate on September 15, 2012. On December 7, 2007, the Company entered into
an interest rate swap agreement with Lehman Brothers Special Financing Inc.
Under the terms of the agreement, the Company exchanged interest on a notional
amount of $120.0 million, will receive interest at three-month LIBOR and will
pay 3.962% interest. The agreement will terminate on September 15, 2011. The
fair value of the two swaps was $0.2 million as at December 31,
2007. Affiliates of Lehman Brothers Inc. are shareholders of the
Company and preferred shareholders of Mont Fort Re Ltd. (see "Corporate
Governance—The Board of
Directors and its Committees" below), and E. Daniel James, a director of the
Company, is a managing director at Lehman Brothers Inc. Lehman Brothers Inc.
acted as an underwriter of the Company’s initial public offering (the “IPO”) and
provided additional investment banking services to the Company in connection
with the IPO. The total fee received by Lehman Brothers Inc. in connection
with our IPO was $3.4 million.
The Company adopted
a written Code of Conduct and Ethics on June 16, 2006 which specifies the
Company's policy relating to conflicts of interest. The Code of Conduct and
Ethics defines a "conflict of interest" as any
situation in which the private interest of any director, board observer or
employee of the Company interferes in any way (or even appears to interfere)
with the interests of the Company as a whole. Under the Code of Conduct and
Ethics, an individual who becomes aware of a potential conflict of interest must
report this conflict to the Chairman of the Audit Committee for consideration by
the Audit Committee. The Audit Committee will determine whether a conflict of
interest exists on a case-by-case basis and will memorialize its determinations
and the reasons behind such determinations. The Audit Committee will ensure that
the directors voting on an issue are informed, disinterested and independent
with respect to that issue. If the Audit Committee determines that a conflict of
interest exists, then the director, board observer or employee shall not
participate, directly or indirectly, in the matter or activity that has given
rise to such conflict of interest unless expressly approved by the Audit
Committee. The Audit Committee Charter requires the Audit Committee to review
and discuss with management the reasonableness of the price, terms and
conditions for all related party transactions. Each of the
transactions described above has been reviewed by Audit Committee in accordance
with this mandate.
The current
executive officers, Messrs. Byrne, Brown, O'Shaughnessy, Prestia and
Swayne, are compensated according to the terms of their employment contracts,
which are described below. The Compensation Committee of the Board of Directors
has determined that these five officers are the "Named Executive
Officers."
Our executive
compensation programs are designed to encourage our executive officers to think
and act like, and over time to themselves become, shareholders of the Company.
We want our executive officers to take appropriate risks with our capital in
order to generate returns for our shareholders but at the same time to share the
downside risk if those risks cause poor performance or even loss. Through our
performance management and rewards processes and programs, we endeavor to create
an environment that fosters and rewards:
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finding and
assuming attractively priced risk;
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managing our
overall risk exposure to mitigate loss;
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ensuring we
have optimal capital to run our business;
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working hard
and cooperating with colleagues; and
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providing
excellent service to clients and
colleagues.
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We
foster an attitude of shared risk-taking between our executive officers and our
shareholders by providing a significant portion of our executive officers'
incentive compensation through equity-based awards. We emphasize "at risk" pay
tied to performance as the majority of total compensation potential. We evaluate
and reward our executive officers based on dynamic factors such as whether they
are willing and able to challenge existing processes, adapt to sudden or
frequent changes in priorities and capitalize on "windows of
opportunity."
Our Compensation
Committee reviews and approves all of our compensation policies.
Overview
The Company's
performance-driven compensation policy consists of the following three
components:
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base salary
(and, in some cases, housing allowance or mortgage
subsidy);
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annual cash
bonuses; and
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long-term
incentive awards (in the form of Performance Share Units or
"PSUs").
|
We
use short-term compensation (base salaries and annual cash bonuses) and
long-term compensation (PSUs) to achieve our goal of driving long-term growth in
diluted book value per share. The long-term compensation element, the PSUs, are
designed to emphasize the performance measures our executive officers need to
address in order to deliver shareholder value. Currently, the PSUs awarded to
our Named Executive Officers (other than our Executive Chairman, who does not
participate in the Performance Share Unit Plan (the "PSU Plan")) vest over
three years. Each PSU converts into a quantity of shares ranging from zero to
two based upon the Company's achievement of diluted return on equity goals over
the three-year period. In the future, the Company may award to Named Executive
Officers PSUs which have a different index with a portion of the award tied more
closely to the performance of a specific business unit for which a Named
Executive Officer is responsible. However, a portion would also remain tied to
the Company's achieving diluted return on equity goals. During 2007, the Company
issued
PSUs of the 2007-2009 and 2008-2010 series whose diluted return on equity goals
are different from those issued for 2006-2008. See "―Long-Term
Incentive Awards" below. The Company may also issue PSUs whose
diluted return on equity goals are different from those issued for each of
the 2006-2008, 2007-2009 and 2008-2010 series.
We
carefully determine the percentage mix of compensation structures we think is
appropriate for each of our executive officers. This is not a mechanical
process, and we use our judgment and experience and work with our Named
Executive Officers to determine the appropriate mix of compensation for each
individual. The number of PSUs each Named Executive Officer (other than our
Executive Chairman) receives is based on the expectations we have for the
individual and, over time, on their performance against those expectations. The
mix of short-term and long-term compensation may sometimes be adjusted to
reflect an individual's need for current cash compensation. While we expect all
Named Executive Officers to receive the majority of their compensation in PSUs,
family size or geographical location could mean an executive officer needs a
larger and more predictable amount of current cash compensation than a peer. In
such circumstances, instead of issuing PSUs the Company typically pays cash
compensation equal to approximately one-third to two-thirds of the product of
the number of PSUs foregone and the fair value per share of the Company's common
shares at the time of the grant. This practice is designed to reward the
executive officer for shared risk-taking.
During fiscal 2007,
none of the Named Executive Officers participated in the Restricted Share Unit
Plan (the "RSU Plan").
Base salary
typically will constitute a minority portion of the total compensation of our
Named Executive Officers. We set salary to provide adequate cash compensation to
support a reasonable standard of living, so that our Named Executive Officers
are prepared to have "at risk" the portion of their compensation received in
PSUs. We anticipate that if the Company meets its diluted return on equity goals
the Named Executive Officers will receive significantly more long-term
value (in some cases a multiple) from their PSUs than from their annual cash
bonuses.
Base
salary
Base salary is used
to recognize particularly the experience, skills, knowledge and responsibilities
required of the executive officers in their roles. When establishing the 2007
base salaries of the Named Executive Officers, the Compensation Committee and
management considered a number of factors, including the seniority of the
individual, the functional role of the individual’s position, the level of the
individual's responsibility, the ability to replace the individual, the base
salary of the individual at his prior employment and the limited number of
well-qualified candidates available in Bermuda and Switzerland. For purposes of
determining competitive compensation levels for our Named Executive Officers in
Bermuda, we subscribed to the PricewaterhouseCoopers Bermuda International
Compensation Survey in 2007, an independent local market annual
survey. In addition, we informally consider
competitive market practices with respect to the salaries of our Named Executive
Officers. We speak with recruitment agencies and review annual reports on
Form 10-K, proxy statements or similar information of other Bermuda
and Swiss reinsurance companies with market capitalizations greater than
$500.0 million and less than $3.0 billion, in particular Aspen
Insurance Holdings Ltd., Endurance Specialty Holdings Ltd., Allied
World Assurance Company Holdings, Ltd, Montpelier Re Holdings Ltd. and
Platinum Underwriters Holding Ltd. We do not use compensation consultants
at this time, however, in the future we may seek such advice.
The salaries of the
Named Executive Officers are reviewed on an annual basis, as well as at the time
of promotion or other changes in responsibilities. The leading factor in
determining increases in salary level is the employment market in Bermuda and,
solely in respect of Mr. Swayne, Switzerland for senior executives of
insurance and reinsurance companies. We expect the salaries of our Named
Executive Officers to stay relatively constant, increasing when the insurance
and reinsurance market moves or when an executive officer assumes a larger role
within the Company.
Annual
cash bonuses
Annual cash bonuses
are intended to reward individual performance during the year and can therefore
be highly variable from year to year. These bonuses are determined on a
discretionary basis. Our Executive Chairman and our Chief Executive Officer
agree with each of the other executive officers upon short-term and long-term
goals as part of an evaluation process, and then subsequently rate each
executive officer in writing against those goals before deciding the bonus. Such
goals include but are not limited to finding and assuming attractively-priced
risk; managing our overall risk exposure to mitigate loss; ensuring we have
optimal capital to run our business; working hard and cooperating with
colleagues; and providing excellent service to clients and
colleagues. In the case of the Chief Executive Officer, these goals
are established by the Compensation Committee in consultation with the Executive
Chairman, and in the case of the Executive Chairman, these goals are established
by the Compensation Committee. The Named Executive Officer's performance of
non-goal specific items is also taken into account in determining the Named
Executive Officer's bonus. Awards for the subject year are based on the
financial statements for that year, and are based on an assessment of each Named
Executive Officer's achievement of the established goals and non-goal specific
items. This range is based on the seniority of the position and our view of the
degree to which the Named Executive Officer's performance could affect the
Company's overall results. The employment agreements for Messrs. Byrne and
Brown do not limit the amount of their annual bonuses. The bonus allocation to
executive officers, other than Named Executive Officers, are set by the
Executive Chairman in consultation with the Chief Executive Officer. Messrs.
Byrne and Brown play no role in setting their own bonuses. Instead, the
bonuses for each of them are set independently by the Compensation Committee.
Bonuses for the Named Executive Officers are accrued quarterly in the
consolidated financial statements and are updated based on the amounts approved
by the Compensation Committee.
The 2007 bonuses
for our Named Executive Officers have been determined and were finalized upon
completion of the 2007 audit. The Compensation Committee approves the bonus of
all Named Executive Officers. With the exception of Mr. Swayne, 2007
bonuses for all Named Executive Officers will be paid in 2008. See
note 2 to the "Summary Compensation Table" below. Mr. Swayne received
$215,000 in August 2007 pursuant to his secondment as Chief Executive Officer of
Flagstone Réassurance Suisse S.A. See "―Employment
Agreements" below.
Long-Term
Incentive Awards
PSUs. The
Company has adopted a PSU Plan to provide PSUs as incentive compensation to
certain key employees (including the Named Executive Officers) of the Company.
Our Executive Chairman does not participate in the PSU Plan but is responsible
for recommending grants under the PSU Plan to the Compensation
Committee.
The PSUs are
designed to align management's performance objectives with the interests of our
shareholders. We believe that PSUs (which are based on diluted return on equity)
align the compensation of our Named Executive Officers more closely to
shareholder value than other alternatives such as options (which place 100%
weight on growth in market value). The Compensation Committee has exclusive
authority to select the persons to be awarded PSUs. At the time of each award,
the Compensation Committee determines the terms of the award, including the
performance period (or periods) and the performance objectives relating to the
award.
Following the final
performance period of a PSU, the Compensation Committee determines whether the
performance objectives were met in whole or in part, and the payment due on the
PSU as a result. The Compensation Committee has no discretion to change the
growth in diluted return on equity goals for PSUs which have already been
granted.
The PSU grants made
entitle the recipient to receive the number of common shares of the Company
equal to the product of the number of PSUs granted times a "multiplier".
The applicable multiplier for each series of PSUs is determined as
follows:
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2006-2008
(all series): The multiplier is determined based on the geometric average
return on equity of the Company during the fiscal years 2006-2008 measured
in accordance with accounting principles generally accepted in the U.S.
("U.S. GAAP") on a fully diluted basis. The multiplier is 100% if
return on equity is 17%, 200% if return on equity is 27% or greater, and
0% if return on equity is 7% or less. The multiplier scales ratably
between return on equity endpoints of 7% and 27%.
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2007-2009
(all series): The multiplier is determined based on the arithmetic average
return on equity of the Company during the fiscal years 2007-2009 measured
in accordance with U.S. GAAP on a fully diluted basis. The
multiplier is 100% if return on equity is 16%, 200% if return on equity is
26% or greater, and 0% if return on equity is 8% or less. The
multiplier scales ratably between a return on equity endpoint of 8%
and a midpoint of 16%, and between a return on equity midpoint of 16% and
an endpoint of 26%.
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2008-2010
(Series A): The multiplier is determined based on the arithmetic average
return on equity of the Company during the fiscal years 2008-2010 measured
in accordance with U.S. GAAP on a fully diluted basis. The
multiplier is 100% if return on equity is 16%, 200% if return on equity is
26% or greater, and 0% if return on equity is 8% or less. The
multiplier scales ratably between a return on equity endpoint of 8% and a
midpoint of 16%, and between a return on equity midpoint of 16% and an
endpoint of 26%.
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2008-2010
(Series B): The multiplier is determined based on the geometric average
return on equity of the Company during the fiscal years 2008-2010 measured
in accordance with U.S. GAAP on a fully diluted basis. The
multiplier is 100% if return on equity is 17%, 200% if return on equity is
24% or greater, and 0% if return on equity is 10% or less. The
multiplier scales ratably between return on equity endpoints of 10% and
24%.
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In
the future, the Company may award to Named Executive Officers PSUs which have a
different index with a portion of the award tied more closely to the performance
of a specific business unit for which a Named Executive Officer is responsible.
However, a portion would also remain tied to the Company achieving its diluted
return on equity goals.
The Company has no
policy to recover payments if the relevant performance measures upon which they
are based are restated or otherwise adjusted in a manner that would reduce the
size of a payment. The PSUs vest over a period of three years. To enhance
retention, PSUs generally will be cancelled without value by the Company if the
participant's continuous employment terminates prior to the end of the
performance period.
Settlement of a PSU
may be made in cash or by issuance of common shares or a combination of both, at
the discretion of the Compensation Committee. The Company expects generally to
settle the PSUs in common shares. As of April 16, 2008, the maximum number of
common shares that may be issued under the PSU Plan is 5,600,000 common shares,
subject to adjustment for share subdivisions, share dividends, stock splits and
similar events. Our long-term expectation is that PSU grants equal in number to
approximately 1% of outstanding common shares will be made each year. Thus, an
increase in the maximum number of common shares that may be issued under the PSU
Plan will need to be authorized in due course. See "Proposal 3—Performance Share Unit Plan
Amendments" below.
We
generally grant PSU awards annually, prior to the commencement of the
performance period they track. In the case of new hires, we generally award PSUs
that have a performance period commencing on the beginning of the year of hire,
or the following year.
Warrant. In
connection with the three closings of the private placement of our common shares
in December 2005, January 2006 and February 2006, we issued the Warrant to
Haverford to purchase 8,585,747 common shares of the Company (which equaled
12.0% of the issued share capital of the Company through the completion of the
private placement in February 2006) at an exercise price of $14.00 per share
(subject to adjustment for share subdivisions, share dividends, stock splits and
similar events). The Warrant will be exercisable during the month of
December 2010. Our Executive Chairman, Mr. Byrne, and our Chief Executive
Officer, Mr. Brown, control and may be deemed to have an interest in
Haverford. See "Security Ownership of Certain Beneficial Owners,
Management and Directors" below.
The Warrant was
granted in recognition of the efforts of Mr. Byrne and Mr. Brown in
creating the Company, assembling the resources and taking financial risk by
covering all of the start-up costs in advance of the Company being funded by
additional investors. In accordance with U.S. GAAP we have recognized the
Warrant as a compensation expense.
The fair value of
the Warrant when issued in December 2005 was $12.2 million, and this amount
was included as compensation expense for the period ended December 31,
2005. We amended the Warrant in connection with the additional
closings of the private placement in February 2006 to increase the number
of shares for which the Warrant is exercisable in proportion to the amount
of additional capital raised in the private placement. The increase in the fair
value of the Warrant as a result of this amendment was $3.4 million, and this
amount was included as a compensation expense for the year ended
December 31, 2006. The Company has no current plans to further amend the
Warrant.
The Company has no
current plans to grant any options or additional awards to purchase common
shares of the Company.
Competitive
Market Review
We
informally consider competitive market practices with respect to the salaries
and total compensation of our Named Executive Officers. For purposes of
determining competitive compensation levels for our Named Executive Officers in
Bermuda, we subscribed to the PricewaterhouseCoopers Bermuda International
Compensation Survey in 2007, an independent local market annual survey. We
review the market practices by speaking to recruitment agencies and reviewing
annual reports on Form 10-K, proxy statements or similar information of
other Bermuda and Swiss reinsurance companies with market capitalizations
greater than $500.0 million and less than $3.0 billion, in particular
Aspen Insurance Holdings Ltd., Endurance Specialty Holdings Ltd.,
Allied World Assurance Company Holdings, Ltd, Montpelier Re
Holdings Ltd. and Platinum Underwriters Holding Ltd.
Common
Share Ownership Requirements
The Company seeks
to weight its compensation scheme to ownership of our common shares. The Company
believes that broad-based stock ownership by its employees (including the Named
Executive Officers) enhances its ability to deliver superior shareholder returns
by increasing the alignment between the interests of our employees and our
shareholders. The goal of the PSU program is to engage all of our Named
Executive Officers as partners in the Company's success and help the Company
realize the maximum gain from its strategy. The Company does not have a formal
requirement for share ownership by any group of employees.
Change
in Control and Severance
Upon termination of
employment, the Named Executive Officers may receive payments under the
Company's PSU Plan and severance payments under their employment
agreements.
PSUs. The
PSU Plan has a "double trigger": PSUs held by any participant may settle in full
if: (i) the Company undergoes a transaction that is deemed to be a change
of control and (ii) the participant is terminated, constructively
terminated or the PSU Plan is changed adversely. If the change of control is
"hostile," meaning that it is opposed by our Executive Chairman and our Chief
Executive Officer, all PSUs held by a participant will become fully payable in
shares or cash, or a mixture of both, at the discretion of the Compensation
Committee immediately upon any termination of the employment of the participant
by the Company. If the double trigger occurs, the Named Executive Officer may
receive all or a portion of the maximum award under the PSU Plan.
We
believe this double trigger requirement maximizes shareholder value because it
prevents an unintended windfall to management in the event of a friendly
(non-hostile) change in control. Under this structure, unvested PSUs would
continue to incentivize the Named Executive Officers to remain with the Company
after the friendly change in control.
If, by contrast,
the PSU plan had only a "single trigger," and a friendly change of control
occurred, management's PSUs would all vest immediately creating a windfall, and
the new owner would then likely find it necessary to replace the compensation
with fresh unvested compensation in order to retain management. This is why we
believe a "double-trigger" is more shareholder-friendly, and thus more
appropriate, than a single trigger.
Severance. The
Named Executive Officers' employment agreements entitle each officer to
compensation if such officer's employment is terminated without cause. Severance
payments include a cash payment equal to one year's annual salary and a bonus
calculated by averaging the sum of the most recent three bonuses paid to the
Named Executive Officer. In the event a Named Executive Officer has been
employed with the Company for fewer than three years and is terminated without
cause, the bonus will be calculated by averaging the sum of such lesser number
of bonuses paid to the Named Executive Officer.
David Brown's
employment agreement provides that, in the event he is terminated without cause,
Mr. Brown generally shall be entitled to a lump sum cash payment of the
greater of: (i) one year's annual salary and a bonus calculated by
averaging the sum of the three most recent bonuses paid to him (or such
lesser number of bonuses if fewer than three bonuses have been paid since the
commencement of his employment agreement), or (ii) the cash value
mark-to-market per the Company's books and records for the most recently ended
quarter of the PSUs he lost due to termination, pro-rated for the portion of the
performance period served under the PSUs. However, if he is terminated without
cause following a change of control of the Company, Mr. Brown will be
entitled to a cash payment equal to one year's annual salary and a bonus
calculated by averaging the sum of the three most recent bonuses (or
such lesser number of bonuses if fewer than three bonuses have been paid since
the commencement of his employment agreement) paid to him.
Severance payments
for each Named Executive Officer under his employment agreement are in addition
to the Company's obligation to pay such officer's salary during the requisite
notice period. The severance payments are in addition to each Named Executive
Officer's rights to payment under the PSU Plan discussed above.
Each employment
agreement includes a covenant by the Named Executive Officer not to solicit
employees of the Company during a period following notice of termination, and,
except for a termination of Mr. Brown without cause following a change of
control of the Company, provides for these severance payments in a lump sum only
after the officer shall have complied with such non-solicitation
requirement (in the reasonable judgment of the Company). In the case of
Messrs. Byrne and Brown, that period is 730 days. In the case of
Messrs. Prestia, Swayne and O'Shaughnessy, that period is
545 days.
The level of
severance payments was determined as follows: Prior to the commencement of our
IPO process, all executive officer contracts were terminable by either party
upon 90 days' notice, did not restrict the executive officer following the
termination of his employment with the Company from soliciting employees of the
Company, and provided for no severance payments other than payment of salary
during the notice period. It was determined by the Compensation Committee, in
conjunction with our advisors in the IPO process, that these provisions
were generally less protective of the Company's interest than the provisions
adopted by comparable public firms. It was thus decided, in conjunction with the
relevant executive officers, to amend the employment agreements in two ways
beneficial to the Company (longer notice and the addition of non-solicitation
provisions) and two ways beneficial to the employee (severance arrangements and
use of the Company's aircraft at marginal cost). It was considered by the
Compensation Committee that, given the lengthy notice period to which the
executive officers are now committed, a decision to resign would effectively
freeze such an executive officer's career for at least a year. Thus the payment
of one year's pay, in the event the Company decided to terminate the executive
officer without cause, was considered roughly proportionate.
Mr. Brown's
severance provisions are slightly more generous than those of the other Named
Executive Officers and reflect the high opportunity costs he would bear if the
Company decided to change its Chief Executive Officer.
Role
of Executive Officers in Executive Compensation
The Compensation
Committee approves the final determination of compensation for
Messrs. O'Shaughnessy, Prestia and Swayne acting on the recommendation of
our Executive Chairman, Mr. Byrne, with advice from our Chief Executive Officer,
Mr. Brown. The Compensation Committee determines the compensation (excluding the
annual bonus) of Mr. Brown acting with advice from Mr. Byrne. The
Compensation Committee determines the compensation (excluding the annual bonus)
of Mr. Byrne acting with advice from Mr. Brown. Messrs. Brown and
Byrne do not play a role in determining their own bonuses. Instead, the bonuses
for each of them are set independently by the Compensation Committee. Our
Executive Chairman does not receive PSUs but is responsible for recommending
grants under the PSU Plan to the Compensation Committee.
Conclusion
The Company's
compensation policies are designed to retain and motivate our senior executive
officers, align their performance objectives with the interests of our
shareholders and ultimately reward them for outstanding
performance.
The following
Summary Compensation Table summarizes the total compensation awarded to our
Named Executive Officers as of December 31, 2007 for services rendered by them
to the Company and to its subsidiaries.
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Name
and
Principal
Position
|
|
Year
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|
Salary
($)
|
|
Bonus
($)(1)
|
|
Stock
awards(2)
($)
|
|
All
other
compensation(3)($)
|
|
Total
($)
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Mark J.
Byrne
Executive
Chairman
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2007
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600,000
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550,000
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72,469
|
|
1,222,469
|
|
David A.
Brown
Chief
Executive Officer
|
|
2007
|
|
600,000
|
|
550,000
|
|
1,797,277
|
|
46,958
|
|
2,994,235
|
|
James
O'Shaughnessy
Chief
Financial Officer
|
|
2007
|
|
315,000
|
|
157,461
|
|
342,235
|
|
78,750
|
|
893,446
|
|
Gary
Prestia
Chief
Underwriting Officer
North
America
|
|
2007
|
|
460,000
|
|
361,250
|
|
602,068
|
|
60,494
|
|
1,483,812
|
|
Guy
Swayne
Chief
Underwriting
Officer
International (4)
|
|
2007
|
|
402,825
|
|
514,688(5)
|
|
1,027,688
|
|
46,849
|
|
1,991,896
|
____________________
(1) The amounts shown in
this column are bonuses paid in fiscal 2007 and reflect performance in fiscal
2006 with the exception of Guy Swayne. In addition to the bonus he received for
performance in fiscal 2006, Mr. Swayne was also paid a bonus of $215,000 in
fiscal 2007 and reflects performance in fiscal 2007 prior to his secondment to
Flagstone Réassurance Suisse S.A. in September 2007.
(2) The amounts shown in this
column are based on the dollar amount recognized for financial statement
reporting purposes for the 2007 fiscal year in accordance with SFAS
No. 123(R), "Share-Based Payments" ("SFAS 123(R)"). All
share awards are expensed ratably over the vesting period and thus the amounts
shown reflect those stock awards granted in the 2006 and 2007 fiscal years. The
bonuses and stock awards paid and granted in the 2008 fiscal year are as
follows: Mark J. Byrne — $750,000 and nil PSUs;
David Brown —
$750,000 and 189,000 PSUs series 2008B; James O'Shaughnessy
— $157,500 and 32,000 PSUs series 2008B; Gary Prestia —
$325,000 and 70,000 PSUs series 2008B; and Guy Swayne CHF
50,000 and nil PSUs.
(3) The amounts shown in
this column represent housing allowances and mortgage subsidies provided to the
Named Executive Officers. During 2007, on flights of Company aircraft, the
Company allowed employees and their family members to occupy seats that
otherwise would have been vacant. This benefit had no incremental cost to the
Company as each Named Executive Officer reimbursed the marginal cost to the
Company for any such personal use.
(4) Mr. Swayne received his
salary and a portion of his housing allowance in Swiss francs beginning
September 1, 2007. These amounts were converted in U.S. dollars at an
average foreign exchange rate for 2007 of $0.87.
(5) Prior to his
relocation to Switzerland in September 2007, Mr. Swayne was paid a bonus of
$215,000 relating to his performance up to that date for fiscal
2007.
The Compensation
Committee awarded PSUs for the 2006-2008, 2007-2009 and 2008-2010 performance
periods to all of our Named Executive Officers, except our Executive Chairman.
The PSUs for the 2008-2010 performance period have only been granted to Mr.
Swayne to date. Our Executive Chairman does not participate in the PSU Plan
because he contributed the significant majority of capital to Haverford and we
therefore consider him to have sufficient indirect interest in the value of the
Company's equity, and because this allows him to participate meaningfully in the
allocation of PSU grants to others without conflict of interest.
Under the
non-discretionary formula set forth in the PSUs, upon vesting, the executive
officers holding PSUs shall be entitled to receive a number of common shares of
the Company (or the cash equivalent, or a combination of both, in each case at
the election of the Compensation Committee) equal to the product of the number
of PSUs granted multiplied by a factor. The factor will range between zero and
two, depending on the diluted return on equity achieved during the vesting
period. The PSUs vest over a period of approximately three years. If certain
diluted return on equity goals are not met, no compensation cost is
recognized.
To
enhance retention, if the participant's continuous employment terminates prior
to the end of the performance period, PSU grants generally will be cancelled
without value by the Company at the end of the next performance
period.
In
the event of a hostile takeover termination, the Compensation Committee would
have the option to pay the maximum award due to the participant in either cash
or by the issuance of common shares in the cash value of the common shares based
on market value rather than net asset value as of the date of the hostile
takeover termination. Under the PSU Plan, a hostile takeover termination would
occur if an employee is terminated or there is an adverse change in the
PSU Plan, following a change in control of the Company that was opposed by
the Executive Chairman and the Chief Executive Officer.
Grants
of Plan-Based Awards Table
The following
Grants of Plan-Based Awards Table summarizes the grants made to the Named
Executive Officers under any plan in 2007.
| |
|
|
|
|
|
|
Estimated
future
payouts
under equity
incentive plan awards
(1)
|
|
|
|
| |
Name
|
|
Grant
dates
|
|
Date
of
Compensation
Committee Action
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
Grant
Date Fair Value of Stock
and
Option
Awards (2)
($)
|
|
| |
Mark
Byrne
|
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
|
| |
David
Brown
|
|
January 1,
2007
|
|
December 26,
2006
|
|
—
|
|
200,000
|
|
400,000
|
|
2,700,000
|
|
| |
|
|
May 1,
2007
|
|
April
27, 2007
|
|
—
|
|
25,000
|
|
50,000
|
|
332,500
|
|
| |
Gary
Prestia
|
|
January 1,
2007
|
|
December 26,
2006
|
|
—
|
|
70,000
|
|
140,000
|
|
945,500
|
|
| |
|
|
May 1,
2007
|
|
April
27, 2007
|
|
—
|
|
15,000
|
|
30,000
|
|
199,500
|
|
| |
James
O’Shaughnessy
|
|
January 1,
2007
|
|
December 26,
2006
|
|
—
|
|
35,000
|
|
70,000
|
|
472,500
|
|
| |
|
|
May 1,
2007
|
|
April
27, 2007
|
|
—
|
|
10,000
|
|
20,000
|
|
133,000
|
|
| |
Guy
Swayne
|
|
January 1,
2007
|
|
December 26,
2006
|
|
—
|
|
105,000
|
|
210,000
|
|
1,417,500
|
|
| |
|
|
May 1,
2007
|
|
April
27, 2007
|
|
—
|
|
25,000
|
|
50,000
|
|
332,500
|
|
| |
|
|
October
25, 2007
|
|
October 25,
2007
|
|
—
|
|
146,700
|
|
293,400
|
|
2,049,399
|
|
____________________
(1) There is no minimum, or
"threshold," number of common shares of the Company payable under a PSU Plan
award. "Target" means the number of common shares issuable if the performance
objectives of the award were met in full (factor of one), and "maximum" means
maximum number of shares issuable under the award (factor of two).
(2) The amounts shown in
this column are based on the fair value at time of grant of the PSUs. The
ultimate value of the PSUs is highly dependent on the Company's diluted return
on equity.
The following
paragraphs summarize the employment-related agreements for our Named Executive
Officers. The employment agreements for Messrs. O'Shaughnessy, Prestia and
Swayne provide that either party may terminate the agreement upon 180 days'
advanced written notice to the other party and do not otherwise specify a
termination date. The employment agreements for Messrs. Byrne and Brown
provide that either party may terminate the agreement upon 365 days'
advanced written notice to the other party and do not otherwise specify a
termination date. The employment agreement for each Named Executive Officer
provide for a discretionary annual bonus to be paid to each Named Executive
Officer. The employment agreements for each of Messrs. O'Shaughnessy,
Prestia and Swayne specify that the annual bonus shall not exceed 75% of such
Named Executive Officer's annual salary. The employments agreements for
Messrs. Byrne and Brown do not limit the amount of their annual
bonuses.
The employment
agreements for each of the Named Executive Officers specify that each Named
Executive Officer shall have the right to personal use of the Company aircraft,
provided that each Named Executive Officer shall reimburse the marginal cost to
the Company for this personal use. This amount does not include fixed costs
which do not change based on usage, such as pilot salaries, the lease costs of
the Company aircraft, and the cost of maintenance not related to trips on the
aircraft.
Mark Byrne. We
have entered into an employment agreement with Mr. Byrne, dated
October 18, 2006, under which he has agreed to serve as our Executive
Chairman. Pursuant to this agreement, Mr. Byrne was paid an annual salary
of $600,000 for the year ended December 31, 2007. The agreement
further provides that Mr. Byrne shall receive a housing allowance through a
mortgage subsidy, which will lower the effective cost of financing on his
Bermuda residence to 3% per annum. The maximum financing to which this applies
is an amount equal to five times Mr. Byrne's annual salary as amended from
time to time. Mr. Byrne has agreed terms with the Company such that his annual
salary for the year ending December 31, 2008 will be approximately
$650,000.
David Brown. We
have entered into an employment agreement with Mr. Brown, dated
October 15, 2006, under which he has agreed to serve as our Chief
Executive Officer. Pursuant to this agreement, Mr. Brown was paid an annual
salary of $600,000 for the year ended December 31, 2007. The agreement
further provides that Mr. Brown shall receive a housing allowance through a
mortgage subsidy, which will lower the effective cost of financing on his
Bermuda residence to 3% per annum. The maximum financing to which this applies
is an amount equal to five times Mr. Brown's annual salary as amended from
time to time. Mr. Brown has agreed terms with the Company such that
his annual salary for the year ending December 31, 2008 will be approximately
$650,000.
James O'Shaughnessy. We
have entered into an employment agreement with Mr. O'Shaughnessy, dated
October 18, 2006, under which he has agreed to serve as our Chief Financial
Officer. Pursuant to this agreement, Mr. O'Shaughnessy was paid an
annual salary of $315,000 for the year ended December 31, 2007. The
agreement further provides that Mr. O'Shaughnessy shall receive a housing
allowance through a mortgage subsidy, which will lower the effective cost of
financing on his Bermuda residence to 3% per annum. The maximum financing to
which this applies is an amount equal to five times Mr. O'Shaughnessy's
annual salary as amended from time to time. Mr. O’Shaughnessy has agreed
terms with the Company such that his annual salary for the year ending December
31, 2008 will be approximately $330,000.
Gary Prestia. We
have entered into an employment agreement with Mr. Prestia, dated
October 18, 2006, under which he has agreed to serve as our Chief
Underwriting Officer—North America. Pursuant to this agreement, Mr. Prestia
was paid an annual salary of $460,000 for the year ended December 31, 2007.
The agreement further provides that Mr. Prestia shall receive a housing
allowance of up to $10,000 per month. Mr. Prestia has agreed terms
with the Company such that his annual salary for the year ending December 31,
2008 will be approximately $520,000.
Guy Swayne. We
have entered into an employment agreement with Mr. Swayne, dated
October 18, 2006, under which he has agreed to serve as our Chief
Underwriting
Officer—International. Pursuant to this agreement, Mr. Swayne was paid an
annual salary of $430,000 for the year ended December 31, 2007. The
agreement further provides that Mr. Swayne shall receive a housing
allowance through a mortgage subsidy, which will lower the effective cost of
financing on his Bermuda residence to 3% per annum. The maximum financing to
which this applies is $1.5 million. Pursuant to a secondment letter,
dated July 17, 2007, the salary and bonus provisions of this agreement were
suspended as of August 1, 2007 during Mr. Swayne's term in Switzerland. Mr.
Swayne entered into an employment agreement effective September 1, 2007 to
assume the position of Chief Executive Officer of Flagstone
Réassurance Suisse S.A. Pursuant to the terms of the secondment letter and
September 1, 2007 employment agreement, he will receive an annual base salary of
CHF400,000, a housing allowance of CHF7,000 per month, and CHF
20,000 to be paid annually by the Company towards the school fees for his
child. The mortgage subsidy that Mr. Swayne receives in Bermuda continues
to be in effect. Mr. Swayne was paid a bonus in August 2007 of
$215,000 in relation to his fiscal 2007 performance up to the date of his
secondment. Mr. Swayne has agreed terms with the Company such that
his annual salary for the year ending December 31, 2008 will be approximately
CHF400,000.
We
use short-term compensation (base salaries and annual cash bonuses) and
long-term compensation (PSUs) to achieve our goal of driving long-term growth in
book value per share. The long-term compensation element, the PSUs, are designed
to emphasize the performance measures executive officers need to address in
order to deliver shareholder value.
The cumulative
number of PSUs granted to each of the Named Executive Officers as at
December 31, 2007 was as follows: (i) Mr. Byrne (none);
(ii) Mr. Brown (465,000); (iii) Mr. O'Shaughnessy (85,000);
(iv) Mr. Swayne (381,700) and (v) Mr. Prestia
(155,000).
The amount of
annual base salary for each of the Named Executive Officers in fiscal 2007 was
as follows: (i) Mr. Byrne ($600,000); (ii) Mr. Brown
($600,000); (iii) Mr. O'Shaughnessy ($315,000);
(iv) Mr. Swayne ($402,825) and (v) Mr. Prestia
($460,000).
Base salary
typically will constitute a minority portion of the total compensation of our
Named Executive Officers. We set salary to provide adequate cash compensation to
support a reasonable standard of living, so that our Named Executive Officers
are prepared to have "at risk" the portion of their compensation received in
PSUs. We anticipate that if the Company meets its diluted return on equity goals
the Named Executive Officers will receive significantly more long-term value (in
some cases a multiple) from their PSUs than from their annual cash bonuses, the
other form of incentive compensation.
We
maintain a defined contribution pension plan in accordance with the National
Pension Scheme (Occupational Pensions Act) 1998, as amended, for the benefit of
employees that are Bermudians or spouses of Bermudians.
We
maintain a defined contribution pension plan in accordance with the Occupational
Pensions Act in Switzerland for the benefit of employees that are resident in
Switzerland.
For the Named
Executive Officers, no PSUs vested during 2007. The Company does not maintain
any defined contribution or other plan that provides for the deferral of
compensation on a basis that is not tax-qualified, except for those
contributions to the Swiss social pension plan, or l’Assurance-Vieillesse et
Survivant.
The Compensation
Committee is comprised of four outside directors, Messrs. Gross, James,
Knap and Thorn, and Mr. James serves as Chairman. No member has ever been
an officer or employee of the Company or of any of its subsidiaries. As
discussed above under "Certain Relationships and Related Transactions,"
Mr. James is a senior manager of the Merchant Banking Group
and a managing director of Lehman Brothers Inc., which acted as an
underwriter for our IPO. In addition, Lehman Brothers Inc. provided
additional investment banking services to the Company in connection with our
initial private placement, for which it received fees of $2.0 million, and
in connection with our IPO. The total fee received by Lehman Brothers Inc. in
connection with our IPO was $3.4 million.
The following table
summarizes the number of securities underlying the Warrant and the Company's PSU
Plan awards for each Named Executive Officer in 2007.
| |
Name
|
|
Outstanding
Equity Awards at Fiscal Year-End
|
|
| |
|
|
Option
Awards
|
|
Stock
Awards
|
|
| |
|
|
Number
of
securities
underlying
unexercised
options
exercisable
(#)
|
|
Number
of
securities
underlying
unexercised
options
unexercisable
(1)
(#)
|
|
Equity
incentive plan awards: number of securities underlying unexercised
unearned options (#)
|
|
Option
exercise
price
($)
|
|
Option
expiration
date
|
|
Equity
incentive plan awards: number of unearned shares, units or other rights
that have not vested
(#) (2)
|
|
Equity incentive plan awards:
market or payout value of unearned shares, units or other rights that have
not vested
(3)
($)
|
|
| |
Mark
Byrne
|
|
n/a
|
|
8,362,518
|
|
—
|
|
$
|
14.00
|
|
December 31,
2010
|
|
—
|
|
—
|
|
| |
David
Brown
|
|
n/a
|
|
223,229
|
|
—
|
|
$
|
14.00
|
|
December 31,
2010
|
|
465,000
|
|
6,463,500
|
|
| |
James
O'Shaughnessy
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
n/a
|
|
n/a
|
|
85,000
|
|
1,181,500
|
|
| |
Gary
Prestia
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
n/a
|
|
n/a
|
|
155,000
|
|
2,154,500
|
|
| |
Guy
Swayne
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
n/a
|
|
n/a
|
|
381,700
|
|
5,305,630
|
|
____________________
|
(1)
|
The amounts
shown in this column represent the respective interests of Mr. Byrne and
Mr. Brown in the Warrant, based upon their respective contributions to the
capital of Haverford.
|
|
(2)
|
The number of
common shares shown in this column assumes the performance objectives of
the PSU grant were met in full (factor of one). The number of common
shares issuable in respect of the PSUs could increase by a factor of
two depending on diluted return on equity. See "―Long
Term Incentive Awards."
|
|
(3)
|
Valuation of
the stock awards assumed a market price of $13.90 as at December 31,
2007. See "Option Exercises and Shares Vested Table"
below.
|
The following table
sets forth the options exercised and corresponding vesting of stock earned by
our Named Executive Officers in 2007.
|
Name
|
|
Share
Awards
|
| |
|
Number
of Shares Acquired on Vesting
(#)
|
|
Value
Realized on Vesting
($)
|
|
PSU
2006
Series(1)
|
PSU 2007
Series(2)
|
PSU
2008A
Series
(3)
|
|
Mark
Byrne
|
|
—
|
—
|
—
|
|
—
|
|
David
Brown
|
|
240,000
|
225,000
|
—
|
|
6,463,500
|
|
James
O'Shaughnessy
|
|
40,000
|
45,000
|
—
|
|
1,181,500
|
|
Gary
Prestia
|
|
70,000
|
85,000
|
—
|
|
2,154,500
|
|
Guy
Swayne
|
|
105,000
|
130,000
|
146,700
|
|
5,305,630
|
____________________
|
(1)
|
Vest as of
December 31, 2008.
|
| |
|
|
(2)
|
Vest as of
December 31, 2009.
|
| |
|
|
(3)
|
Vest as of
December 31, 2010. The amount
shown in this column is the 2008A series of PSUs granted to Mr. Swayne and
reflects his performance in 2007 up to the date of his secondment to
Flagstone Réassurance
Suisse S.A. in September 2007. See also notes 2 and 5 to the "Summary
Compensation Table"
above.
|
The following
summarizes potential payments payable to our Named Executive Officers upon
termination of their employment or a change in control of the Company under
their current employment agreements and our PSU Plan.
Employment
Agreements
The employment
agreement of each Named Executive Officer entitles him to a severance payment if
the Company terminates his employment without cause.
As
used in these employment agreements, "cause" means:
|
●
|
a material
breach by the Named Executive Officer of any contract between such
executive officer and the Company;
|
|
●
|
the willful
and continued failure or refusal by such executive officer to perform any
duties reasonably required by the Company, after notification by the
Company of such failure or refusal, and failing to correct such behavior
within 20 days of such notification;
|
|
●
|
commission by
the executive officer of a criminal offence or other offence of moral
turpitude;
|
|
●
|
perpetration
by the executive officer of a dishonest act or common law fraud against
the Company or a client thereof; or
|
|
●
|
the Named
Executive Officer’s willful engagement in misconduct which is materially
injurious to the Company, including without limitation the disclosure of
any trade secrets, financial models, or computer software to persons
outside the Company without the consent of the
Company.
|
The employment
agreements of Messrs. Byrne, Prestia, Swayne and O'Shaughnessy provide for
cash payment equal to one year's annual salary and a bonus calculated by
averaging the sum of the most recent three bonuses paid to the Named Executive
Officer. In the event a Named Executive Officer has been employed with the
Company for fewer than three years and is terminated without cause, the
bonus will be calculated by averaging the sum of such lesser number of bonuses
paid to the Named Executive Officer. The amounts the Company would pay under
this provision for a termination as of December 31, 2007 would be
$1,150,000 for Mr. Byrne, $821,250 for Mr. Prestia, $707,513 for
Mr. Swayne and $472,461 for Mr. O'Shaughnessy.
David Brown's
employment agreement provides that, in the event Mr. Brown is terminated
without cause, Mr. Brown generally shall be entitled to a lump sum cash
payment of the greater of: (i) one year's annual salary and a bonus
calculated by averaging the sum of the three most recent bonuses (or such
lesser number of bonuses if fewer than three bonuses have been paid since the
commencement of his employment agreement) paid to him, or (ii) the
cash value determined on a mark-to-market basis per the Company's books and
records for the most recently ended quarter, of the PSUs he lost due to
termination, pro-rated for the portion of the performance period served under
the PSUs. Under this provision, for a termination as of December 31, 2007,
the Company would be obligated to pay $3,266,500 to Mr. Brown, based
upon two-thirds performance of the 240,000 2006-2008 PSUs and
one-third performance of the 225,000 2007-2009 PSUs held by him at the
price per common share of $13.90 at December 31, 2007.
If
the Company terminates Mr. Brown's employment without cause following a
change of control of the Company, the Company will be obligated immediately to
pay Mr. Brown a lump sum cash payment equal to one year's annual salary and
a bonus calculated by averaging the sum of three most recent bonuses (or
such lesser number of bonuses if fewer than three bonuses have been paid since
the commencement of his employment agreement) paid to him. Under this provision,
for a termination as of December 31, 2007, the Company would be obligated
to pay $1,150,000 to Mr. Brown.
The level of
severance payments was determined as follows: Prior to the commencement of
our IPO process, all executive officer contracts were terminable by either
party upon 90 days' notice, did not restrict the executive officer
following the termination of his employment with the Company from soliciting
employees of the Company, and provided for no severance payments other than
payment of salary during the notice period. It was determined by the
Compensation Committee, in conjunction with our advisors in the public offering
process, that these provisions were generally less protective of the Company's
interest than those provisions at comparable public firms. It was thus decided,
in conjunction with the relevant executive officers, to amend the employment
agreements in two ways beneficial to the Company (longer notice and the addition
of non-solicitation provisions) and two ways beneficial to the employee
(severance arrangements and use of the Company's aircraft at marginal cost). It
was considered by the Compensation Committee that, given the lengthy notice
period to which the executive officers are now committed, a decision to resign
would effectively freeze such an executive officer's career for at least a
year. Thus the payment of one year's pay, in the event the Company decided to
terminate the executive officer without cause, was considered roughly
proportionate.
Mr. Brown's
severance provisions are slightly more generous than those of the other Named
Executive Officers and reflect the high opportunity costs he would bear if the
Company decided to change its Chief Executive Officer.
Severance payments
for each Named Executive Officer under his employment agreement are in addition
to the Company's obligation to pay such Named Executive Officer's salary during
the requisite notice period, and are in addition to the Company's obligations
under the PSU Plan.
Each employment
agreement includes a covenant by the officer not to solicit employees of the
Company during a period following notice of termination, and, except for a
termination of Mr. Brown without cause following a change of control of the
Company, provides for these severance payments in a lump sum only after the
officer shall have complied with such non-solicitation requirement (in the
reasonable judgment of the Company). In the case of Messrs. Byrne
and Brown, that period is 730 days. In the case of
Messrs. Prestia, Swayne and O'Shaughnessy, that period is
545 days.
PSU
Plan
Within
24 months following a change of control, and prior to the end of the
performance period, the PSU Plan provides for payment in the event of a
termination without cause, constructive termination or adverse change in the
plan. As used in the PSU Plan:
|
●
|
A "change of
control" means any person or group, other than the initial subscribers of
the Company, becomes the beneficial owner of 50% or more of the Company's
then outstanding shares, or the business of the Company for which the
participant's services are principally performed is disposed of by the
Company pursuant to a sale or other disposition of all or substantially
all of the business or business related assets of the Company (including
shares of a subsidiary of the Company).
|
|
●
|
"Cause" has
the meaning set forth above under "—Employment Agreements."
|
|
●
|
A participant
who terminates employment at his own initiative may, by prior written
notice to the Company, declare the termination to be a "constructive
termination" if it follows (a) a material decrease in his salary or
(b) a material diminution in the authority, duties or
responsibilities of his position with the result that the participant
makes a determination in good faith that he cannot continue to carry out
his job in substantially the same manner as it was intended to be carried
out immediately before such diminution. The Company has 30 days to
cure the circumstances that would constitute a constructive
termination.
|
|
●
|
An "adverse
change in the plan" principally includes a termination of the plan, an
amendment that materially diminishes the value of PSU grants, or a
material diminution of the rights of the holder of the
PSU.
|
In
these circumstances, if the Compensation Committee shall have determined, prior
to the change in control and based on the most recent performance status
reports, that the performance objectives for the particular grant were being met
at the date of the determination, the participant shall receive the maximum
award for those PSUs, which is a number of common shares equal to two times the
number of his PSUs. If the Compensation Committee shall have determined that the
performance objectives were not being met, the participant shall receive a
portion of the maximum award to be determined by the Compensation Committee at
its discretion, but not less than the pro-rated portion of the maximum award
based on the number of full months which have elapsed since the date of the PSU
grant plus half of the difference between that amount and the maximum award. For
all PSU awards to date, the sole performance objective has been stated as a
target diluted return on equity of the Company.
If
the change of control is "hostile," meaning that it was opposed by our Executive
Chairman and our Chief Executive Officer, immediately upon any termination of
the employment of the participant by the Company, each participant shall be
entitled to receive common shares equal to two times the number of his unvested
PSUs or, in the discretion of the Company, the cash value of those shares based
on the market price per share at the date of termination.
The number of
common shares issuable under these provisions for a termination event as of
December 31, 2007 would be 930,000 shares to Mr. Brown, 310,000 shares
to Mr. Prestia, 763,400 shares to Mr. Swayne and 170,000 shares to
Mr. O'Shaughnessy. Based on the price per common share of $13.90 at
December 31, 2007, the value of those shares would be $12,927,000, $4,309,000,
$10,611,260 and $2,363,000 respectively.
Each of these
provisions of the PSU Plan provides for payment only upon a change of control
and another triggering event, such as a termination without cause. We believe
this "double trigger" requirement maximizes shareholder value because this
structure would prevent an unintended windfall to management in the event of a
friendly (non-hostile) change in control, which could be a transaction
maximizing shareholder value. Under this structure, shareholders would have the
ability to sell their common shares since the unvested PSUs would continue to
incentivize the Named Executive Officers to remain with the Company after the
friendly change in control.
If, by contrast,
the PSU plan had only a "single trigger," and a friendly change of control
occurred, management's PSUs would all vest immediately creating a windfall, and
the new owner would then likely find it necessary to replace the compensation
with fresh unvested compensation, in order to retain management. This is why we
believe a double trigger is more shareholder-friendly, and thus more
appropriate, than a single trigger.
The PSU Plan also
provides for payment in specified circumstances if the participant shall retire
under an approved retirement program of the Company. The Company currently has
no retirement program.
The following table
summarizes the fees or other compensation that our directors earned for services
as members of the Board of Directors or any committee of the Board of Directors
during 2007.
|
Name
|
|
Fees
earned
or
paid in
cash
($)
|
|
Stock
awards
(1)
($)
|
|
Total
($)
|
|
Gary
Black
|
|
19,000
|
|
81,000
|
|
100,000
|
|
Nicholas
Brumm (2)
|
|
12,000
|
|
84,000
|
|
100,000
|
|
Stephen
Coley
|
|
23,000
|
|
83,000
|
|
106,000
|
|
Thomas
Dickson
|
|
64,000
|
|
40,500
|
|
104,500
|
|
Stewart
Gross(3)
|
|
15,000
|
|
15,000
|
|
113,000
|
|
E. Daniel
James(4)
|
|
23,500
|
|
83,000
|
|
106,500
|
|
Dr. Anthony
Knap
|
|
31,500
|
|
84,000
|
|
115,500
|
|
Marc
Roston(5)
|
|
21,500
|
|
83,000
|
|
104,500
|
|
Jan
Spiering
|
|
34,500
|
|
184,000
|
|
218,500
|
|
Wray T.
Thorn(6)
|
|
38,000
|
|
84,000
|
|
122,000
|
|
Peter F.
Watson
|
|
12,200
|
|
9,300
|
|
21,500
|
____________________
(1) The amounts shown in
this column are based on the dollar amount recognized for financial statement
reporting purposes for the 2007 fiscal year in accordance with SFAS No. 123(R). The amounts
shown in this column also represent the fair value at time of grant of the
Restricted Share Units ("RSUs") granted to each director during 2007. The
aggregate number of RSUs issued to each director during 2007 (all of which
remained outstanding as at December 31, 2007) was as follows:
Mr. Black—6,090 RSUs; Mr. Coley—6,240 RSUs; Mr. Dickson—3,045
RSUs; Mr. Gross—1,127
RSUs; Mr. James—6,240 RSUs; Dr. Knap—6,315 RSUs; Mr. Roston—6,240
RSUs; Mr. Spiering—13,834 RSUs; Mr. Thorn—6,315 RSUs; and
Mr. Watson—688 RSUs.
(2) Mr.
Brumm resigned from the Board of Directors on July 20, 2007.
(3) As noted in “Our Directors” above,
Stewart Gross is a Managing Director of Lightyear Capital. The Company
authorized the issuance of such RSUs in consideration of Mr. Stewart’s service
as a director. The RSUs were granted in favor of Lightyear Capital, LLC. Mr.
Gross does not beneficially own these RSUs.
(4) As noted in “Our Directors” above, E.
Daniel James is a Managing Director of Lehman Brothers Inc. and a senior
manager of Lehman Brothers Merchant Banking Group. As part of his compensation
for serving as a director of the Company, Mr. James has received, and it is
expected that he will in the future from time to time receive, common shares,
RSUs or options to purchase our common shares. Under the terms of Mr. James’
employment with Lehman Brothers Inc., he is required to surrender to Lehman
Brothers Inc. any compensation (including common shares, RSUs and options)
received in his capacity as a director of the Company. Mr. James disclaims
beneficial ownership of all RSUs granted to him and all common shares
beneficially owned by the Lehman entities. See “Security Ownership of
Certain Beneficial Owners, Management and Directors” below.
(5) These RSUs were acquired by certain
funds (the “Silver Creek Funds”) managed by Silver Creek Capital Management LLC
(“Silver Creek”). An employee of Silver Creek (see “Our Directors” above), Marc
Roston, serves as a director of the Company. Mr. Roston has instructed the
Company to pay any compensation he would have received as a director directly to
the Silver Creek Funds. The common shares were acquired through the RSU plan
which is part of the Company’s director compensation package. By reason of the
provisions of Rule 16a-1 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), Silver Creek may be deemed to be the beneficial owner of
the common shares beneficially owned by the Silver Creek
Funds. Silver Creek hereby disclaims beneficial ownership of all such
shares, except to the extent of any indirect pecuniary interest
therein.
(6) As noted in “Our Directors” above,
Wray Thorn is the Managing Director of Private Equity at Marathon Asset
Management, LLC (“Marathon”). Mr. Thorn does not individually or
otherwise beneficially own any common shares of the Company. Mr.
Thorn is an employee of Marathon, which serves as the investment manager (the
“Manager”) of Marathon Special Opportunity Master Fund, Ltd. (the “Marathon
Fund”). The Marathon Fund owns certain common shares of the Company,
all of which are subject to the sole voting and investment authority of the
Manager. Thus, for purposes of Regulation 13d-3 of the Exchange
Act, the Manager is deemed to beneficially own the securities of the Company
held by the Marathon Fund, and Mr. Thorn disclaims beneficial ownership of the
common shares of the Company held by the Marathon Fund. The Manager,
in its capacity as the holder of sole voting and investment authority of more
than 5% of the common shares of the Company pursuant to Regulation 13d-3 of the
Exchange Act, separately files statements pursuant to Section 13 of the Exchange
Act. Mr. Thorn’s interest in the securities noted herein is limited
to the extent of his pecuniary interest in the Marathon Fund, if
any.
Directors who are
also employees are not paid any fees or other compensation for services as
members of the Board of Directors or of any committee of the Board of Directors.
Directors who are not employees of the Company are paid an annual fee of
$75,000. The Company pays a minimum of $15,000 of the annual fee in RSUs under
the RSU Plan. Each RSU will be valued at the market price of the common shares
as at January 1 of each fiscal year. Directors receive the remaining portion of
the annual fee in cash, or may, at their election, receive RSUs instead of cash
for any amount of their annual fee. Some of our directors represent institutions
that require them to assign over to the institution any compensation that they
receive for serving as directors. The table above includes these
amounts.
Each director
receives cash in the amount of $2,000 for each Board of Director or committee
meeting attended in person, and $1,000 for each meeting attended by telephone.
Each director receives cash in the amount of $3,000 per year for each committee
the director serves upon. In addition, committee chairs (other than the Audit
Committee Chair) receive an annual fee of $2,000 for each committee chaired. The
Audit Committee Chair receives an annual fee of $100,000. This fee is greater
than that received by the
other committee chairs due to the substantially greater time and responsibility
demands made upon the Audit Committee Chair.
The following table
sets forth information as at April 1, 2008 regarding beneficial ownership of
common shares and the applicable voting rights attached to such share ownership
in accordance with our bye-laws by:
|
●
|
each person
known by us to beneficially own 5% or more of our outstanding common
shares;
|
|
●
|
each of our
directors;
|
|
●
|
each of our
executive officers; and
|
|
●
|
all of our
executive officers and directors as a
group.
|
|
Name
of beneficial owner
|
|
Number
of
Common
Shares
|
|
|
Percentage
of
voting
rights
(1)
|
|
|
Lehman
entities(2)
|
|
|
15,830,000 |
|
|
|
18.6
|
% |
|
Haverford
(Bermuda) Ltd.
|
|
|
10,000,000 |
|
|
|
11.7 |
|
|
Silver Creek
entities(3)
|
|
|
11,208,946 |
|
|
|
13.1 |
|
|
Lightyear
entities(4)
|
|
|
6,000,000 |
|
|
|
7.0 |
|
|
Marathon
Special Opportunity Master Fund, Ltd.(5)
|
|
|
5,500,000 |
|
|
|
6.4 |
|
|
QVT entities(6)
|
|
|
5,505,016 |
|
|
|
6.5 |
|
|
Mark J.
Byrne(7)
|
|
|
10,050,000 |
|
|
|
11.7 |
|
|
David A.
Brown(8)
|
|
|
10,090,000 |
|
|
|
11.8 |
|
|
James
O'Shaughnessy
|
|
|
8,000 |
|
|
|
* |
|
|
Gary
Prestia(9)
|
|
|
500 |
|
|
|
* |
|
|
Guy
Swayne(10)
|
|
|
10,000 |
|
|
|
* |
|
|
Gary
Black
|
|
|
—
|
|
|
|
— |
|
|
Stephen
Coley
|
|
|
— |
|
|
|
— |
|
|
Thomas
Dickson(11)
|
|
|
2,507,817 |
|
|
|
2.9
|
% |
|
Stewart
Gross(12)
|
|
|
— |
|
|
|
— |
|
|
E. Daniel
James(13)
|
|
|
15,830,000 |
|
|
|
18.6 |
|
|
Dr. Anthony
Knap (14)
|
|
|
1,300 |
|
|
|
* |
|
|
Marc
Roston(15)
|
|
|
— |
|
|
|
— |
|
|
Jan
Spiering
|
|
|
10,000 |
|
|
|
* |
|
|
Wray T.
Thorn(16)
|
|
|
5,500,000 |
|
|
|
6.4 |
|
|
Peter F.
Watson
|
|
|
— |
|
|
|
— |
|
|
All directors
and executive officers as a group (15 persons) (see notes (7) through
(16))
|
|
|
34,007,617 |
|
|
|
39.9
|
% |
____________________
* Represents less than 0.1%
of the outstanding common shares.
(1) Our bye-laws reduce the
total voting power of any shareholder who is a U.S. person controlling more than
9.9% of our common shares to less than 9.9% of the voting power of our common
shares. Under this provision, the voting power of the Lehman entities
and the Silver Creek entities, each of which is a U.S. person which controls
more than 9.9% of our common shares, has been reduced to less than 9.9% of the
voting power of our common shares. The voting power of the Lehman entities and
the Silver Creek entities will, to the extent necessary, be adjusted so that
such entities possess less than 9.9% of the voting power of our common shares.
(2) Of the common shares
beneficially owned by the Lehman entities, 5,117,509 are held by Lehman Brothers
Merchant Banking Partners III L.P.; 1,127,932 are held by Lehman Brothers
Merchant Banking Fund III L.P.; 1,359,223 are held by Lehman Brothers Merchant
Banking Fund (B) III L.P.; 2,147,999 are held by LB I Group Inc; 172,182 are
held by Lehman Brothers Co-Investment Capital Partners L.P.; 122,082 are held by
Lehman Brothers Co-Investment Group L.P.; 4,705,737 are held by Lehman Brothers
Co-Investment Partners L.P.; 430,000 are held by Lehman Brothers Fund of Funds
XVIII—Co-Investment Holding, LP; 248,136 are held by Lehman Brothers Merchant
Banking Capital Partners V L.P.; and 400,000 are held by Lehman Crossroads
Series XVII Master Holding Fund 66, LP. The address of the Lehman entities is
399 Park Avenue, 9th Floor New York, NY 10022.
(3) Of the common shares
beneficially owned by the Silver Creek entities, 3,503,225 are held by Silver
Creek Low Vol Strategies Holdings, LLC; 5,417,827 are held by Silver Creek Low
Vol Fund A, LLC; and 2,287,894 are held by Silver Creek Special Opportunities
Holdings I, LLC. Silver Creek Capital Management LLC serves as the managing
member of the Silver Creek entities and as such exercises all management and
control of the business affairs of the Silver Creek entities. The managing
members of Silver Creek Capital Management LLC are Eric Dillon and Timothy
Flaherty. The address of the Silver Creek entities is 1301 Fifth Avenue, 40th
Floor, Seattle, WA 98101.
(4) Of the common shares
beneficially owned by the Lightyear entities, 5,982,000 are held by Lightyear
Fund II (Cayman), L.P., and 18,000 are held by Lightyear Co-Invest Partnership
II (Cayman), L.P. As the sole general partner of each of Lightyear Fund II
(Cayman), L.P. and Lightyear Co-Invest Partnership II (Cayman), L.P.
Lightyear Fund II (Cayman) GP, L.P. may be deemed to have voting and/or
investment power over such securities. As the sole general partner of Lightyear
Fund II (Cayman) GP, L.P., Lightyear Fund II (Cayman) GP, Ltd. may also be
deemed to have voting and/or investment power over such securities. As the sole
director and shareholder of Lightyear Fund II (Cayman) GP, Ltd., Donald B.
Marron may also be deemed to have voting and/or investment power over such
securities. However, each of Lightyear Fund II (Cayman) GP, L.P., Lightyear
Fund II (Cayman) GP, Ltd. and Mr. Marron disclaims beneficial
ownership of the common shares held by Lightyear Fund II (Cayman), L.P. and
Lightyear Co-Invest Partnership II (Cayman), L.P., except to the extent of
its or his pecuniary interest in such common shares. The address of the
Lightyear entities and of Mr. Marron is 375 Park Avenue, 11th Floor, New
York, NY 10152.
(5) Marathon Asset
Management, LLC ("Marathon") serves as the investment manager of Marathon
Special Opportunity Master Fund, Ltd. (the "Fund") pursuant to an
Investment Management Agreement between Marathon and the Fund. Marathon, in its
capacity as the investment manager of the Fund, has sole power to vote and
direct the disposition of all common shares held by the Fund. Bruce Richards and
Louis Hanover are the managing members of Marathon. As managing members of
Marathon, Messrs. Richards and Hanover may also be deemed to have voting
and/or investment power over the common shares held by the Fund. However, each
of Mr. Richards and Mr. Hanover disclaims beneficial ownership of the
common shares held by the Fund, except to the extent of his pecuniary interest
in such common shares. The address of Marathon Special Opportunity Master Fund,
Ltd. is 461 Fifth Avenue, 10th Floor, New York, NY 10017.
(6) Of the common shares beneficially owned by the QVT
entities, 4,705,559 are held by QVT Fund LP; 755,912 are held by Quintessence
Fund L.P.; 43,545 are held by Deutsche Bank which manages a separate
discretionary account the investment manager of which is QVT Financial LP
Management of QVT Fund LP is vested in its general partner, QVT
Associates GP LLC. QVT Associates GP LLC is also the general partner of
Quintessence Fund L.P. QVT Financial LP is the investment manager for QVT Fund
LP and shares voting and investment control over the Company securities held by
QVT Fund LP. QVT Financial GP LLC is the general partner of QVT Financial LP and
as such has complete discretion in the management and control of the business
affairs of QVT Financial LP. The managing members of QVT Financial GP LLC are
Daniel Gold, Lars Bader, Tracy Fu and Nicholas Brumm. Each of QVT Financial LP,
QVT Financial GP LLC, Daniel Gold, Lars Bader, Tracy Fu and Nicholas Brumm
disclaims beneficial ownership of the Company's securities held by QVT Fund LP.
The address of QVT Fund L.P. is c/o QVT Financial LP, 1177 Avenue of the
Americas, 9th Floor, New York, NY 10036.
(7) Mr. Byrne has
provided capital to Haverford, and he may be deemed to
have investment or voting control and may be deemed to
beneficially own 10,000,000 common shares of the Company
held of record by Haverford. Currently 9,740,000 of these shares
represent the indirect proportionate interest of Mr. Byrne in the
10,000,000 Common Shares of the Company
held of record by Haverford, based
upon the proportionate contribution of the
reporting person to the capital of
Haverford. These shares
are held through a trust for the benefit of others and Mr. Byrne therefore
disclaims beneficial ownership of these shares. Rebecca Byrne, Mr. Byrne's wife,
is the record holder of 50,000 common shares of the Company which were purchased
through the Directed Share Program in connection with the IPO of common shares
of the Company. Mr. Byrne disclaims beneficial ownership of the
shares held by his wife.
(8)
Mr. Brown has provided
capital to Haverford, and he may be deemed to
have investment or voting control and may be deemed to
beneficially own 10,000,000 common shares of the Company
held of record by Haverford. Currently 260,000 of these shares
represent the indirect proportionate interest of Mr. Brown in the
10,000,000 common shares of the
Company held of record by Haverford,
based upon the
proportionate contribution of the reporting
person to the capital of Haverford. These
shares are held through a trust for the benefit of others and Mr. Brown
therefore disclaims beneficial ownership of these shares. In addition, Mr. Brown
serves as the settlor of a trust that is the owner of Leyton Limited, and Leyton
Limited is the record holder of 80,000 common shares of
the Company
which were purchased through the
Directed Share Program in connection with the IPO of common shares of the
Company. Mr. Brown disclaims beneficial ownership of the shares held by Leyton
Limited. Mr. Brown is also
the record holder of 10,000 common shares of the Company which were purchased
through the Directed Share Program in connection with the IPO of the common
shares of the Company.
(9)
Represents
shares purchased through the Directed Share Program in connection with the IPO
of common shares of the Company by Donna Prestia, Mr. Prestia's wife. Mr.
Prestia disclaims beneficial ownership of shares held by his
wife.
(10) Represents
shares purchased through the Directed Share Program in connection with the IPO
of common shares of the Company by Louisa Swayne, Mr. Swayne's wife. Mr. Swayne
disclaims beneficial ownership of shares held by his wife.
(11)
Includes 2,500,000
shares held of record by HCP. Mr. Dickson disclaims beneficial ownership of
the shares held by HCP.
(12) Mr. Gross does not
beneficially own the shares owned by certain Lightyear entities
as described in note 4 above.
(13) Represents
shares held by certain Lehman enttities as described in note 2 above. Mr. James
disclaims beneficial ownership of all common shares owned by Lehman
entities.
(14)
Represents shares purchased through the Directed Share Program in
connection with the IPO of common shares of the Company by Philippa Knap, Dr.
Knap's wife. Dr. Knap disclaims beneficial ownership of shares held by his
wife.
(15) Mr. Roston does not
beneficially own the shares held by certain funds managed by Silver Creek
Capital Management LLC as described in note 3 above.
(16) Represents shares held
by Marathon Special Opportunity Master Fund, Ltd. as described in note 5
above. Mr. Thorn does not individually or otherwise beneficially own any
shares of the Company.
Our bye-laws
provide for a Board of Directors of no less than ten and no more than twelve
directors. The Board of Directors met a total of six (6) times in fiscal 2007
and all incumbent directors attended at least 83% of such meetings and of
meetings held by the committees of the Board of Directors of which they were
members. The Company expects directors to attend the Annual General
Meeting and eleven of twelve of the Company’s then-directors attended the
2007 Annual General Meeting.
Our Board of
Directors is divided into three classes: four Class B directors whose
initial term will expire at the 2008 Annual General Meeting of our
shareholders, four Class A directors whose initial term will expire at
the 2009 Annual General Meeting of our shareholders, and four Class C
directors whose initial term will expire at the 2010 Annual General Meeting of
our shareholders. Thereafter, directors will hold office until the next Annual
General Meeting at which the term of that class of directors expires or until
their successors are duly elected or appointed or their office is otherwise
vacated.
Our Board of
Directors has established corporate governance measures in compliance with the
requirements of the New York Stock Exchange. These include a set of Corporate
Governance Guidelines, Independence Guidelines, charters for each of the Audit
Committee, Compensation Committee and Governance Committee and a Code of Conduct
and Ethics for directors, officers and employees. Our Board of Directors has
also adopted a Code of Business Practices for the Company's principal executive,
financial and accounting officers. These documents have been published on the
Company's website, www.flagstonere.bm, and will be
provided upon written request to the Company's Corporate Secretary at its
registered office address, Crawford House, 23 Church Street,
Hamilton HM 11, Bermuda.
Our Board of
Directors has reviewed the materiality of any relationship that each of the
twelve directors of the Company has with the Company either directly or
indirectly through another organization. The criteria applied included the
director independence requirements set forth in the Company's Independence
Guidelines, the independence requirements of the New York Stock Exchange with
respect to the Company's Audit Committee, and the audit committee
independence rules of the Securities and Exchange Commission
(the "SEC"). In conducting this review of the directors' independence, the Board
of Directors considered any managerial, familial, professional, commercial or
affiliated relationship between a director and the Company or another director.
In particular, the Board of Directors considered the following arrangements of
certain directors before determining that each is independent under the New
York Stock Exchange independence requirements and the Company's Independence
Guidelines:
|
|
●
|
Mr. Thomas
Dickson, a director of the Company since December 2005, controls the
investment manager of HCP. Haverford has an investment in HCP.
HCP pays a performance-based fee to its investment
manager.
|
|
|
●
|
Mr. E. Daniel
James, a director of the Company since December 2005, is a senior
manager of the Merchant Banking Group and managing director of Lehman
Brothers Inc. On December 7, 2007, the Company entered into an
interest rate swap agreement with Lehman Brothers Special Financing Inc.
Under the terms of the agreement, the Company exchanged interest on a
notional amount of $25.0 million, will receive interest at three month
LIBOR and will pay 4.096% interest. The agreement will terminate on
September 15, 2012. Also on December 7, 2007, the Company entered into an
interest rate swap agreement with Lehman Brothers Special Financing Inc.
Under the terms of the agreement, the Company exchanged interest on a
notional amount of $120.0 million, will receive interest at three month
LIBOR and will pay 3.962% interest. The agreement will terminate on
September 15, 2011. The fair value of the two swaps was $0.2 million as at
December 31, 2007. Affiliates of Lehman Brothers Inc. are
shareholders of the Company, and Mr. James is a managing director at
Lehman Brothers Inc. Lehman Brothers Inc. acted as an underwriter and
provided additional investment banking services to the Company in
connection with its IPO, for which it received fees of $3.4
million.
|
LB
I, an affiliate of Lehman Brothers Inc., has invested $50.0 million in Mont Fort
Re Ltd. ("Mont Fort") in respect of its segregated account "ILW" ("Mont Fort
ILW") and owns 50.0 million, or 90.9%, of the Mont Fort ILW preferred shares. LB
I has invested $55.0 million in Mont Fort Re Ltd. in respect of its segregated
account "ILW 2" ("Mont Fort ILW2") and owns 55.0 million, or 100.0%, of the Mont
Fort ILW 2 preferred shares. We own all of the common shares of Mont Fort and
have 100% control of its board of directors. E. Daniel James, who is a director
of the Company, is also a senior manager of the Merchant Banking Group and a
managing director of Lehman Brothers Inc. As discussed above, Lehman Brothers
Inc. acted as an underwriter of the Company’s IPO. In
addition, Lehman Brothers Inc. provided additional investment banking services
to the Company. The total fee received by Lehman Brothers Inc. in
connection with our IPO was $3.4 million.
Based on this
review, the Board of Directors has determined that Messrs. Coley, Brumm
(resigned from the Board of Directors in July 20, 2007), Dickson, Gross, James,
Knap, Roston, Spiering, Thorn and Watson are independent directors. Therefore,
the Board of Directors has concluded that the Audit Committee, Compensation
Committee and Governance Committee consist only of independent directors,
and the Board of Directors consists of a majority of independent
directors.
As
of April 16, 2008, the standing committees of the Board of Directors and their
members are:
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Audit
Committee
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Compensation
Committee
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Governance
Committee
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Underwriting
Committee
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Finance
Committee
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|
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Jan
Spiering*
Stephen
Coley
Thomas
Dickson
Stewart
Gross
Dr. Anthony
Knap
Wray T.
Thorn
Peter F.
Watson
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E. Daniel
James*
Stewart
Gross
Dr. Anthony
Knap
Wray T.
Thorn
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Stephen
Coley*
E. Daniel
James
Jan
Spiering
Wray
T. Thorn
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Thomas
Dickson*
Gary
Black
David
Brown
Stewart
Gross
Dr. Anthony
Knap
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Mark
Byrne*
David
Brown
Marc
Roston
Jan
Spiering
Wray
T. Thorn
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*Chairman
Audit
Committee
The Audit Committee
has general responsibility for the oversight and surveillance of our accounting,
reporting and financial control practices. Among its functions, the Audit
Committee:
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reviews and
discusses the audited financial statements with management, reviews the
audit plans and findings of the independent auditor, reviews the audit
plans and findings of our internal audit and risk review staff, reviews
the results of regulatory examinations and tracks management's corrective
actions plans where necessary;
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reviews our
accounting policies and controls, compliance programs, and significant tax
and legal matters;
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is directly
responsible for the appointment, compensation, retention and oversight of
the work of the independent auditor;
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receive and
consider reports from internal auditors on risk assessment, work completed
against annual audit plan and other areas proposed by the
committee;
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reviews our
risk assessment and management processes; and
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●
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performs
other tasks in accordance with the terms of its
charter.
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Mr. Spiering,
who is an independent director, is the Chairman of the Audit Committee, and the
Board of Directors has designated him as an “audit committee financial expert”
as that term is defined in Item 401(k) of Regulation S-K under the Securities
Act of 1933, as amended.
Compensation
Committee
The Compensation
Committee oversees our compensation and benefit plans, including administration
of annual bonus awards and long-term incentive plans and reports their findings
and opinions to the Board of Directors. The Compensation Committee
met four (4) times during fiscal 2007.
Governance
Committee
The Governance
Committee has responsibility for identifying individuals qualified to become
members of the Board of Directors consistent with the criteria approved by the
Board of Directors, recommending director nominees to the Board of Directors,
recommending Corporate Governance Guidelines to the Board of Directors and
overseeing an evaluation of the Board of Directors and management. The
Governance Committee met five (5) times during fiscal 2007.
The Board of
Directors has accorded to the Governance Committee the responsibility to
consider the effectiveness and composition of the Board of Directors, to
nominate candidates for election by our shareholders, and to fill vacancies on
the Board of Directors that emerge from time to time. The Governance Committee
will consider potential nominees to the Board of Directors recommended for
election by shareholders. Any such recommendation must be sent to the Corporate
Secretary of the Company not less than 120 days prior to the scheduled date of
the annual meeting and must set forth for each nominee: (i) the name, age,
business address and residence address of the nominee; (ii) the principal
occupation or employment of the nominee; (iii) the class or series and number of
shares of capital stock of the Company which are owned beneficially or of record
by the nominee; and (iv) any other information relating to the nominee that
would be required to be disclosed in a proxy statement or other filing required
to be made in connection with solicitations of proxies for election of directors
pursuant to Regulation 14A under the Exchange Act and the rules and
regulations promulgated thereunder. The written notice must also include the
following information with regard to the shareholders giving the notice: (1) the
name and record address of such shareholders; (2) the number of common shares of
the Company which are owned beneficially or of record by such shareholders; (3)
a description of all arrangements or understandings between such shareholders
and each proposed nominee and any other person (including his or her name and
address) pursuant to which the nomination(s) are to be made by such
shareholders; (4) a representation that such shareholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice;
and (5) any other information relating to such shareholder that would be
required to be disclosed in a proxy statement or other required filing. Such
notice must be accompanied by a written consent of each proposed nominee to be
named as a nominee and to serve as a director if elected. The Governance
Committee may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
Assuming that the
shareholder suggesting a nomination follows the procedure outlined above, the
Governance Committee will evaluate those candidates by following substantially
the same process, and applying substantially the same criteria, as for
candidates submitted by members of the Board of Directors or by other persons.
In considering whether to recommend any candidate for inclusion in the Board of
Director’s slate of recommended director nominees, including candidates
recommended by shareholders, the Governance Committee would expect to apply the
same criteria which it applies to its own nominations. These criteria typically
include the candidate’s integrity, business acumen, leadership qualities,
experience in the reinsurance, insurance and risk-bearing industries and other
industries in which the Company may participate, independence, judgment,
mindset, vision, record of accomplishment, ability to work with others and
potential conflicts of interest. The Governance Committee does not assign
specific weight to particular criteria and no particular criterion is
necessarily applicable to all prospective nominees. Our Board of Directors
believes that the backgrounds and qualifications of the directors, considered as
a group, should provide a significant composite mix of experience, knowledge and
abilities that will allow the Board of Directors to fulfill its
responsibilities.
Underwriting
Committee
The Underwriting
Committee oversees the Company's underwriting policies and approves any
exceptions thereto. Among its
functions, the Underwriting Committee:
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reviews
aggregate underwritten exposures;
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●
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reviews
performance targets, including loss ratio targets, combined ratio targets,
return on equity targets or other measurement devices employed by the
Company to monitor its underwriting
performance;
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●
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reviews
projected potential aggregate losses in excess of amounts the Committee
shall determine and revise from time to time;
and
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advises the
Audit Committee and Board of Directors regarding loss
reserves.
|
Finance
Committee
In
July 2007, the Board of Directors elected a Finance Committee, to replace and
assume all functions of the Investment Committee, as well as matters
relating to liabilities, hedging practices, and other aspects of the
Company’s
financial affairs beyond asset management. The Finance Committee
formulates the Company's investment policy and oversees all of the Company’s significant
investing activities.
The Audit Committee
met a total of eight (8) times during fiscal 2007 and discussed amongst other
things the Company’s quarterly results. The Audit Committee also
discussed with Deloitte & Touche the overall scope and plans for their audit
and the results of such audits. At the end of each meeting the
auditor was given the opportunity to meet with the Audit Committee members
without the presence of management. The Audit Committee conducted an
annual self-assessment in October 2007 in accordance with the terms of its
charter.
The Audit Committee
has reviewed and discussed the Company’s system of internal controls over
financial reporting. Based on the Audit Committee’s review of the
audited financial statements, its discussion with management regarding the
audited financial statements, its receipt of written disclosures and the letter
from Deloitte & Touche required by Independence Standards Board Standard No.
1, its discussions with Deloitte & Touche regarding its independence, the
audited financial statements, the matters required to be discussed by the
Statement on Auditing Standards No. 114, Deloitte & Touche's communications
with respect to their audit and other matters the Audit Committee deemed
relevant and appropriate, the Audit Committee recommended to the Board of
Directors that the Company’s audited financial statements for the fiscal year
ended December 31, 2007 be included in the Company’s Annual Report on Form 10-K
for such fiscal year.
|
Audit
Committee
|
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Jan Spiering,
Chairman
|
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Stephen
Coley
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Thomas
Dickson
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Stewart
Gross
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Dr. Anthony
Knap
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Wray T.
Thorn
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Peter F.
Watson
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The Compensation
Committee has reviewed and discussed with management of the Company the
Compensation Discussion and Analysis ("CD&A"). Based on such
review and discussions referred to below, the Compensation Committee recommended
to the Board that the CD&A be included in this Proxy
Statement.
In
October 2007, the Compensation Committee conducted an annual self-assessment in
accordance with the terms of its charter.
|
Compensation
Committee
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E. Daniel
James, Chairman
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Stewart
Gross
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Dr. Anthony
Knap
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Wray T.
Thorn
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Executive
Session
At
every physical meeting of the Board of Directors there is an executive session
during which Mr. Byrne, our Executive Chairman, and Mr.
Brown, our Chief Executive Officer, are excused. In 2007 there
were six (6) such sessions. The non-management members of the Board
of Directors are at liberty to raise such issues as they deem
necessary. The executive session is chaired by Mr. Stephen
Coley.
Advance
Materials
Information and
related materials necessary to provide the directors with an understanding of
the topics to be discussed at the Board of Director and committee meetings are,
where practicable, circulated in advance of each meeting. The
directors are given sufficient time to allow careful review the Board of
Director materials.
Under the Exchange
Act, our directors and executive officers, and any persons holding more than 10%
of the outstanding common shares, are required to report their initial ownership
of common shares and any subsequent changes in that ownership to the SEC.
Specific filing dates for these reports have been established by the SEC, and we
are required to disclose in this Proxy Statement any failure by such persons to
file these reports in a timely manner during the 2007 fiscal year. Based upon
our review of copies of such reports furnished to us, we believe that during the
2007 fiscal year our executive officers and directors and the holders of more
than 10% of the outstanding common shares complied with all reporting
requirements of Section 16(a) of the Exchange Act.
Our bye-laws
provide for a classified Board of Directors, divided into three (3) classes of
equal size. Each director will serve a three-year term. At
the Annual General Meeting, our shareholders will elect the Class B directors,
who will serve until 2011 Annual General Meeting. Our incumbent Class
A and Class C directors will serve until the 2009 and 2010 Annual General
Meetings, respectively.
The Board of
Directors will nominate Messrs. Black, Dickson, Spiering and Thorn for
re-election at the Annual General Meeting. Each of these directors
has indicated that he will offer himself for re-election to the Board of
Directors.
If
any nominee shall, prior to the Annual General Meeting, become unavailable for
election as a director, the persons named in the accompanying proxy card will
vote for such other nominee, if any, in their discretion as may be recommended
to the Board of Directors.
NOMINEES
Gary
Black
Thomas
Dickson
Jan
Spiering
Wray T.
Thorn
The respective
ages, business experience, directorships and committee memberships for the
nominees are set out in "Our Directors" above. All of the nominees
currently serve as directors.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION
OF
THE FOUR DIRECTORS NAMED ABOVE
Upon recommendation
of the Audit Committee, the Board of Directors propose that the shareholders
approve the appointment of Messrs. Deloitte & Touche to serve as our
independent auditor for the 2008 fiscal year until the 2009 Annual General
Meeting. Deloitte & Touche have served as our independent auditor
since October 2005. A representative from Deloitte & Touche will
attend the Annual General Meeting and will be available to respond to any
questions and make a statement if he or she so desires. Shareholders
at the Annual General Meeting will also be asked to vote to defer the
determination of the auditor's remuneration to the Board of
Directors.
The following sets
forth the fees billed to us by Deloitte & Touche during the 2007 fiscal
year:
Audit
Fees
Aggregate audit
fees billed to us by Deloitte & Touche for the fiscal years ended December
31, 2007 and 2006 were $1,606,121 and $728,228, respectively. Audit
fees were for (a) the audit of our annual financial statements, (b) review of
our quarterly financial statements, (c) statutory audits and (d) assistance with
and review of documents filed with the SEC (including comfort letters and
consents).
Audit-Related
Fees
Audit-related fees
billed to us by Deloitte & Touche for the fiscal years ended December 31,
2007 and 2006 were $73,491 and $52,219, respectively, for assurance and related
services that are related to the audit and review of the financial statements
which are not reported as audit fees above.
Tax
Fees
Fees billed to us
by Deloitte & Touche for all tax-related services for the fiscal years ended
December 31, 2007 and 2006 were $44,520 and $117,593,
respectively. These fees were for professional services rendered for
tax compliance.
All
Other Fees
The aggregate fees
billed by Deloitte & Touche for products and services rendered to the
Company, other than the services described above under "Audit Fees",
"Audit-Related Fees" and "Tax Fees", for the fiscal years ended December 31,
2007 and 2006 were $nil and $1,219,960, respectively, which relate to technical
consultations and services provided in relation to securities
offerings. The Audit Committee has considered whether any information
technology and non-audit consulting services provided by
Deloitte & Touche could impair the independence of Deloitte & Touche. No
such services were provided by Deloitte & Touche during 2007 and thus the
Audit Committee concluded that such services did not impair the auditor’s
independence.
The Audit Committee
must pre-approve all audit services and permitted non-audit services performed
for the Company by our auditor, subject to the de minimis exceptions for
non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which
are approved by the Audit Committee prior to the completion of the audit. All
engagements of Deloitte & Touche to provide audit, audit-related and tax
services to the Company during 2006 and 2007 were pre-approved by the Audit
Committee.
As
noted above, the Audit Committee is responsible for managing our relationship
with our independent auditor. The Audit Committee has the sole authority to hire
and employ our auditor. The Audit Committee regularly reviews the auditor's work
plan, bills and work product. Accordingly, it is our policy that all proposed
engagements by our current audit firm must be approved in advance by the Audit
Committee.
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE “FOR” THE REAPPOINTMENT OF DELOITTE &
TOUCHE AS OUR INDEPENDENT
AUDITOR FOR THE 2008
FISCAL YEAR UNTIL THE 2009 ANNUAL
GENERAL MEETING.
The Performance
Share Unit Plan (the "PSU Plan") currently provides that the Maximum Number of
PSUs (as that term is defined under the PSU Plan) that may be granted under the
PSU Plan shall be 2,800,000 PSUs. Currently, the aggregate Maximum
Awards issuable under the PSU Plan shall not exceed 5,600,000 common shares of
the Company. The Company now desires to increase the Maximum Number
of PSUs up to 5,600,000 and Maximum Awards (being the common shares) that may be
granted pursuant to the PSU Plan. For more information on the PSU
Plan, please see "Compensation Discussion and Analysis"
above. Assuming that the Compensation Committee approves the full
amount of these proposed increases in the Maximum Number of PSUs and the Maximum
Awards at its meeting on May 15, 2008, in order to accomplish this objective,
Section 4.2 of the PSU Plan must be amended, subject to shareholder approval, as
follows:
4 AWARDS
4.2 Maximum Number PSUs and Maximum
Number of Common Shares that may be Issued Pursuant to PSUs Under the
Plan. The maximum number of PSUs that may be granted under the
Plan shall be not exceed 5,600,000 2,800,000
PSUs. The maximum number of PSUs that may be granted under the Plan
to any one Employee shall be half the maximum number of PSUs that may be granted
under the Plan to all Employees. The aggregated Maximum Awards that
shall be issuable under the Plan shall be not exceed 11,200,000 5,600,000 Common
Shares. If a PSU is forfeited or otherwise cancelled, or if an
Employee does not achieve the Maximum Award pursuant to a PSU, the Common Shares
underlying such PSU shall become available for future grant under PSUs pursuant
to the Plan
(unless the Plan has terminated).
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
AMENDMENTS
TO THE PERFORMANCE SHARE UNIT PLAN OF THE COMPANY.
Our bye-laws
provide voting and ownership limitations designed to reduce the risk that the
Company will be considered a controlled foreign corporation. Our
bye-laws also provide a mechanism to apply these voting limitations to indirect
holdings in certain subsidiaries of the Company ("Designated Companies") that
are not U.S. corporations and that are not treated as pass-through or
disregarded entities for U.S. federal income tax purposes.
At
the Annual General Meeting, our shareholders will approve the board of directors
of each such Designated Company (each, a “Designated Company
Director”). The nominees for Designated Company Directors are as
follows:
|
Flagstone Reinsurance
Limited
Recommended
Designated Company Directors:
|
Flagstone
Management Services (Halifax) Limited
Recommended
Designated Company Directors:
|
|
Mark
Byrne
David
Brown
James
O’Shaughnessy
|
Mark
Byrne
David
Brown
James
O’Shaughnessy
Venkat
Mandava
Karl
Grieves
|
|
Flagstone Réassurance
Suisse S.A.
Recommended
Designated Company Directors:
|
Flagstone Underwriters
Latin America Ltd. A.I.
Recommended
Designated Company Directors:
|
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Mark
Byrne
David
Brown
James
O’Shaughnessy
Guy
Swayne
Ernest
Horvath
Peter
Zumstein
Karl
Grieves
|
Mark
Byrne
David
Brown
James
O’Shaughnessy
Ralph
Rexach
Karl Grieves
|
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Flagstone
Underwriters Middle East Ltd.
Recommended
Designated Company Directors:
|
Flagstone
Finance S.A.
Recommended
Designated Company Directors:
|
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Mark
Byrne
David
Brown
James
O’Shaughnessy
Howard
Cheetham
John
Hyland
Guy
Swayne
Irshied
Tayeb
Karl
Grieves
|
Mark
Byrne
David
Brown
James
O’Shaughnessy
Guy
Swayne
Peter
Zumstein
John B.
Mills
Hermanus R.
W. Troskie
Karl
Grieves
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THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE LIST
OF
DESIGNATED
COMPANY DIRECTORS OF CERTAIN SUBSIDIARIES OF THE COMPANY.
A
copy of our financial statements for the year ended December 31, 2007 and the
independent auditor’s report thereon has been sent to all
shareholders. The financial statements will be formally presented at
the Annual General Meeting, but no shareholder action is required to be
taken.
As
of the date of this Proxy Statement we have no knowledge of any business, other
than described herein and customary procedural matters, which will be presented
for consideration at the Annual General Meeting. In the event that
any other business is properly presented at the Annual General Meeting, it is
intended that the persons named in the accompanying proxy will have authority to
vote in accordance with their judgment on such business.
Shareholder
proposals must be received in writing by the Corporate Secretary of the Company
no later than November 14, 2008, and must comply with the
requirements of the SEC and our bye-laws in order to be considered for inclusion
in our Proxy Statement and proxy card relating to the 2009 Annual General
Meeting. Such proposals should be directed to the attention of the Corporate
Secretary, Flagstone Reinsurance Holdings Limited, Crawford House, 23 Church
Street, Hamilton HM 11, Bermuda.
If
a shareholder proposal is not submitted to the Corporate Secretary in a timely
manner or is otherwise introduced at the 2009 Annual General Meeting of
shareholders without any discussion of the proposal in our Proxy Statement, and
the shareholder does not notify us on or before November 14, 2008 as
required by SEC Rule 14a-4(c)(1) of the intent to raise such proposal at the
Annual General Meeting of shareholders, then proxies received by us for the 2009
Annual General Meeting will be voted by the persons named as such proxies in
their discretion with respect to such proposal. Notice of such proposal is to be
sent to the address specified in the paragraph above.
Shareholders or any
interested party desiring to contact the Board of Directors, any committee of the Board
of Directors or the non-management directors as a group, should address
such communication to Corporate Secretary, Flagstone Reinsurance Holdings
Limited, Crawford House, 23 Church Street, Hamilton HM 11, Bermuda, with a
request to forward the communication to the intended recipient.
The
Company will furnish, without charge, to any shareholder a copy of all documents
that it
files with the
SEC as well as the charter of any of the Company's committee of the Board of
Directors. All such documents
are available at www.flagstonere.bm
or may be obtained upon written request to the Corporate
Secretary, Flagstone Reinsurance Holdings Limited, Crawford House, 23 Church
Street, Hamilton
HM 11, Bermuda.
BNY Mellon
Shareowner Services, 480 Washington Boulevard, 29th
Floor, Jersey City, NY 07310, has been appointed as
lnspector of Election for the 2008 Annual General Meeting. Representatives of
BNY Mellon Shareowner
Services will attend the 2008 Annual General Meeting to receive votes and
ballots, supervise the
counting and tabulating of all votes and determine the results of the
vote.