<PAGE>
ESG RE LIMITED
16 CHURCH STREET
HAMILTON, HM 11
BERMUDA
---------------------
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 4, 1998
---------------------
To the Shareholders:
The Annual General Meeting of Shareholders of ESG Re Limited (the "Company")
will be held at 11:00 a.m., Monday, May 4, 1998, at the Waterloo House, 100
Pitts Bay Road, Pembroke, HM08 Bermuda, for the following purposes:
i. To elect four directors; one director to serve until the 1999 Annual
General Meeting of Shareholders, one director to serve until the 2000
Annual General Meeting of Shareholders, and two directors to serve
until the 2001 Annual General Meeting of Shareholders and, in each
case, to hold office until their successors are duly elected and
qualified;
ii. To ratify the appointment of Deloitte & Touche, independent auditors,
as the Company's auditors for the ensuing year ending with the 1999
Annual General Meeting of Shareholders and to refer the determination
of auditors' remuneration to the Board of Directors; and
iii. To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
Shareholders of record at the close of business on Friday, March 20, 1998,
will be entitled to receive notice of, and to vote, at the meeting.
All shareholders are cordially invited to attend the Annual General Meeting.
By order of the Board of Directors
Anthony Parfitt
Secretary
Hamilton, Bermuda
April 10, 1998
WE NEED YOUR PROXY VOTE IMMEDIATELY. A SHAREHOLDER MAY THINK HIS VOTE IS NOT
IMPORTANT, BUT IT IS VITAL. BY LAW, THE ANNUAL GENERAL MEETING OF
SHAREHOLDERS WILL HAVE TO BE ADJOURNED WITHOUT CONDUCTING ANY BUSINESS IF
LESS THAN A QUORUM IS REPRESENTED. IN THAT EVENT, THE COMPANY WOULD CONTINUE
TO SOLICIT VOTES IN AN ATTEMPT TO ACHIEVE A QUORUM. CLEARLY, YOUR VOTE COULD
BE CRITICAL TO ENABLE THE COMPANY TO HOLD THE MEETING AS SCHEDULED, SO
PLEASE RETURN YOUR PROXY CARD IMMEDIATELY. YOU AND ALL OTHER SHAREHOLDERS
WILL BENEFIT FROM YOUR COOPERATION.
<PAGE>
PROXY STATEMENT
ESG RE LIMITED
ANNUAL GENERAL MEETING OF SHAREHOLDERS
MAY 4, 1998
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of ESG Re Limited (the
"Company") from holders of the Company's common shares, par value $1.00 per
share (the "Common Shares"). The proxies will be voted at the Annual General
Meeting of Shareholders to be held at 11:00 a.m., Monday, May 4, 1998, at the
Waterloo House, 100 Pitts Bay Road, Pembroke, HM08 Bermuda, and at any
adjournment or adjournments thereof (the "Annual Meeting"), for the purposes
set forth in the accompanying Notice of Annual General Meeting of
Shareholders. The cost of solicitation of proxies is to be borne by the
Company.
The Board has fixed the close of business on Friday, March 20, 1998, as the
record date (the "Record Date") for determining the shareholders of the
Company entitled to receive notice of, and to vote at, the Annual Meeting. At
the close of business on the Record Date, an aggregate of 13,923,799 Common
Shares were issued and outstanding, each share entitling the holder thereof to
one vote on each matter to be voted upon at the Annual Meeting, except that if
a person (other than John C Head III and certain affiliates) constructively or
beneficially, directly or indirectly, owns more than 9.9% of the voting power
of the issued Common Shares, the voting rights with respect to such shares
will be limited, in the aggregate, to voting power of 9.9%, pursuant to a
formula specified in the Company's Bye-Laws. The presence, in person or by
proxy, of the holders of a majority of the Common Shares outstanding (without
regard to the limitation on voting referred to above) is necessary to
constitute a quorum for the transaction of business at the Annual Meeting.
It is estimated that proxy materials will be mailed to shareholders of
record on or about April 10, 1998. The mailing address for the return of
proxies in the enclosed postage paid envelope is c/o Boston EquiServe, P.O.
Box 9391, Boston, MA 02205-9969.
At the Annual Meeting, shareholders of the Company will be asked to (i)
elect four directors to serve on the Board until the completion of one, two or
three-year terms, as the case may be, (ii) ratify the appointment of Deloitte
& Touche, independent auditors, as the Company's auditors for the ensuing
period ending with the 1999 Annual General Meeting of Shareholders and to
refer the determination of the auditors' remuneration to the Board of
Directors, and (iii) transact such other business as may properly come before
the meeting, or any adjournment or adjournments thereof.
All matters referenced in this Proxy Statement upon which shareholders are
called to vote will be decided by a plurality of votes cast.
A copy of the Company's Annual Report for the fiscal year ended December 31,
1997, which is not a part of the proxy soliciting material, is being mailed to
shareholders together with this Proxy Statement.
SOLICITATION AND REVOCATION
PROXIES IN THE FORM ENCLOSED ARE SOLICITED BY, OR ON BEHALF OF, THE BOARD OF
DIRECTORS OF THE COMPANY. THE PERSONS NAMED IN THE FORM OF PROXY HAVE BEEN
DESIGNATED AS PROXIES BY THE BOARD OF DIRECTORS. Such persons designated as
proxies are (i) the Chairman of the Board and (ii) the Managing Director and
Chief Executive Officer of Company. A shareholder desiring to appoint some
other person to represent him at the Annual Meeting may do so either by
inserting such person's name in the enclosed proxy card, or by completing
another form of proxy and, in either
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case, delivering the completed proxy to the address indicated above before the
time of the Annual Meeting. It is the responsibility of the shareholder
appointing some other person to represent him to inform such person of this
appointment.
Common Shares represented at the Annual Meeting by a properly executed and
unrevoked proxy will be voted in accordance with instructions made thereon, or
if no instructions are noted, the proxy will be voted in favor of the
proposals set forth in the Notice of Annual Meeting. If a shareholder appoints
a person other than the persons named in the proxy to represent him, such
person must vote the shares in respect of which he is appointed proxy holder
in accordance with the directions of the shareholder appointing him. A
submitted proxy is revocable by a shareholder at any time prior to it being
voted provided that such shareholder gives written notice to the Company at or
prior to the Annual Meeting that such shareholder intends to vote in person or
by submitting a subsequently dated proxy. Attendance at the Annual Meeting by
a shareholder who has given a proxy shall not in and of itself constitute a
revocation of such proxy.
Abstentions and "non-votes" will be counted as present in determining the
existence of a quorum. (A "non-vote" occurs when a nominee (typically, a
broker-dealer) holding shares for a beneficial owner attends a meeting with
respect to such shares (in person or by proxy) but does not vote on one or
more proposals because the nominee does not have discretionary voting power
with respect thereto and has not received instructions from the beneficial
owner.) The affirmative vote of a plurality of the shares present or
represented by proxy and voting on the matters in question at the Annual
Meeting will be required to elect the nominees for election as directors and
for the ratification of Deloitte & Touche as independent auditors of the
Company. Therefore, abstentions and "non-votes" will not have the effect of
votes in opposition to the election of a director or "no" votes on the
proposed ratification of the selection of the independent auditors of the
Company.
Banks, brokerage houses and other institutions, nominees or fiduciaries will
be requested to forward the proxy materials to the beneficial owners of the
Common Shares held of record by such persons and entities.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of seven members.
At the Annual Meeting, one director will be elected to serve until the 1999
Annual General Meeting of Shareholders, one director will be elected to serve
until the 2000 Annual General Meeting of Shareholders, and two directors will
be elected to serve until the 2001 Annual General Meeting of Shareholders and,
in each case, to hold office until their successors are duly elected and
qualified.
The Company's Board of Directors is divided into three classes as follows:
the first class, whose initial term expires at the 1998 Annual General Meeting
of Shareholders, is comprised of John C Head III and Wolfgang M. Wand; the
second class, whose term expires at the 1999 Annual General Meeting of
Shareholders, is comprised of Kenneth P. Morse and William J. Poutsiaka; and
the third class, whose term expires at the 2000 Annual General Meeting of
Shareholders, is comprised of Steven H. Debrovner, David L. Newkirk and Edward
A. Tilly. Since Messrs. Debrovner and Morse were initially appointed by the
Board of Directors in February 1998 to fill vacancies on the Board of
Directors, the initial terms of Messrs. Debrovner and Morse expire at the 1998
Annual Meeting in accordance with the Company's Bye-laws. Otherwise, following
their initial terms, all classes of directors shall be elected to three-year
terms.
Each Proxy will be voted in accordance with the directions thereon or, if no
directions are indicated, in favor of election of the four directors named
below whose election has been proposed and recommended by the Board of
Directors. The presence, in person or by proxy, of a majority of the
outstanding Common Shares is required for a quorum for the election of
directors at the Annual Meeting, but if a quorum should not be present, the
meeting may be adjourned from time to time until a quorum is obtained.
Election of directors at the Annual Meeting will be decided by a plurality of
votes cast. The individual nominees (each, a "Nominee," collectively,
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the "Nominees") are listed below. Each Nominee has consented to be named in
this Proxy Statement and has agreed to serve as a Board member if elected. If
any Nominee shall, prior to the Annual Meeting, become unavailable for
election as a director, the persons named in the accompanying Proxy will vote
for such other nominee, if any, in their discretion as may be recommended by
the Board of Directors, or the Board of Directors may reduce the number of
directors to eliminate the vacancy.
The respective ages, positions with the Company, business experience,
directorships in other companies and Board committee memberships of the four
Nominees for election and for the continuing directors are set forth below.
Each of the four Nominees is currently a director of the Company whose term
expires on May 4, 1998. Upon election, Mr. Morse will serve a one-year term
expiring at the 1999 Annual General Meeting of Shareholders, Mr. Debrovner
will serve a two-year term expiring at the 2000 Annual General Meeting of
Shareholders, and Messrs. Head and Wand will serve three-year terms expiring
at the 2001 Annual General Meeting of Shareholders.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- ---------------------------
<S> <C> <C>
NOMINEES:
John C Head III 49 Chairman of the Board
John C Head III has served as Chairman of the
Board since the inception of the Company and
is a member of the Compensation Committee. Mr.
Head has been a Managing Member of Head &
Company L.L.C., an investment banking firm
specializing in the insurance industry, since
1987. Mr. Head is also a director of PartnerRe
Ltd., Kiln Capital plc, FFTW, Inc. and other
private companies.
Wolfgang M. Wand 45 Managing Director and Chief
Executive Officer
Wolfgang M. Wand, has served as a director and
Managing Director and Chief Executive Officer
since the inception of the Company. In 1993,
Mr. Wand co-founded and became Managing
Director of European Specialty Group Holding
AG ("ESG Germany"), through which the Company
operated its reinsurance management businesses
prior to its initial public offering in
December 1997. Following the reunification of
Germany, Mr. Wand served, on behalf of the
German government's privatization agency, the
Treuhandanstalt, in connection with the
privatization and restructuring of the East
German economy, as Chairman of the Board of
Directors for certain segments of the German
shoe manufacturing industry from 1991 to 1992.
Mr. Wand serves as a member of the German
delegation of the International Chamber of
Commerce and is a representative on the
Chamber's Committee for insurance affairs in
Eastern Europe.
Steven H. Debrovner 60 Chief Operating Officer
Steven H. Debrovner, has served as a director
of the Company since February 1998, and as
Chief Operating Officer since the inception of
the Company. Mr. Debrovner co-founded ESG
Germany with Mr. Wand in 1993. Prior thereto,
Mr. Debrovner served as the head of marketing
for all non-life business at CIGNA Worldwide
headquarters in Philadelphia from 1987 to
1993. In 1974, Mr. Debrovner created the
European accident and health activities for
AFIA and, subsequently, CIGNA. Mr. Debrovner
began his insurance underwriting experience
with American International Group, Inc. in
1967.
</TABLE>
3
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<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------------- --- ------------------------
<S> <C> <C>
Kenneth P. Morse 51 Director
Kenneth P. Morse, has served as a director of the Company
since February 1998. Mr. Morse has served as the Managing
Director of the MIT Entrepreneurship Center and as Senior
Lecturer at the MIT Sloan School of Management since
1996. Prior thereto, Mr. Morse was the Managing Director
and member of the Board of Directors of AspenTech Europe
S.A./N.V. from 1992 to 1996. From 1980 to 1996, Mr. Morse
was one of the founders of, and responsible for sales and
marketing at, several high tech companies, including 3Com
Corporation and Aspen Technology, Inc.
CONTINUING DIRECTORS:
David L. Newkirk (1)(2) 45 Director
David L. Newkirk has been Vice President of Booz-Allen &
Hamilton International (U.K.) Ltd. and various of its
wholly-owned subsidiaries since 1991.
William J. Poutsiaka (1) 45 Director
William J. Poutsiaka has been President and Chief
Executive Officer of Arkwright Mutual Insurance Company
in Waltham, Massachusetts since 1994, and has served in
other executive capacities for such company since 1989.
Edward A. Tilly (1)(2) 54 Director
Edward A. Tilly has been Chairman and Chief Executive of
the Consolidated Financial Insurance group of companies,
which are subsidiaries of General Electric Company, since
1994. Prior thereto, Mr. Tilly was Chairman and Chief
Executive of Financial Insurance Group, since 1989.
</TABLE>
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(1) Member of the Company's Audit Committee.
(2) Member of the Company's Compensation Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF THE FOUR DIRECTORS NAMED ABOVE.
THE BOARD AND ITS COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee, each of which reports to the Board of Directors. The Audit
Committee consists of Messrs. Newkirk, Poutsiaka and Tilly. The Compensation
Committee consists of Messrs. Head, Tilly and Newkirk. The Board of Directors
is responsible for, among other things, the nomination of additional
directors.
The Audit Committee oversees the financial reporting process and the
internal control structure of the Company and establishes standards for review
of the Company's compliance with applicable accounting and regulatory
requirements. The Audit Committee meets with management and with the Company's
independent auditors to review matters relating to the quality of financial
reporting and internal accounting control, including the nature, extent and
results of their audits, and otherwise maintains communications between the
Company's independent auditors and the Board of Directors.
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The Compensation Committee oversees all compensation matters for executive
officers and the Board of Directors and reviews the performance of executive
officers of the Company. The Compensation Committee is also responsible for
all forms of noncurrent monetary compensation, including the administration of
the Non- Management Directors' Compensation and Option Plan and the Company's
1997 Stock Option Plan.
To date in 1998, the Board of Directors has met on February 5, 1998,
February 27, 1998, and March 9, 1998. In 1997, the Board of Directors met on
August 21, 1997 and September 20, 1997.
INFORMATION REGARDING THE SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS
The table below sets forth the beneficial ownership of Common Shares by all
persons who beneficially own 5% or more of the Common Shares and by all
directors and executive officers of the Company as of March 20, 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
----------------------------------------- ----------------------- --------
<S> <C> <C>
John C Head III.......................... 3,391,180 (2)(4)(5) 21.7%
Madie Ivy
1330 Avenue of the Americas
New York, New York 10019................ 3,355,417 (3)(4)(5) 21.7%
HMI Partners L.P.
1330 Avenue of the Americas
New York, New York 10019................ 1,788,022 (4) 11.7%
Heracles-B L.P.
1330 Avenue of the Americas
New York, New York 10019................ 1,788,022 (4) 11.7%
ESG Partners (Bermuda) L.P.
1330 Avenue of the Americas
New York, New York 10019................ 886,793 (5) 6.3%
Heracles ESG L.L.C.
1330 Avenue of the Americas
New York, New York 10019................ 886,793 (5) 6.3%
Wolfgang M. Wand......................... 405,315 (6) 2.9%
Steven H. Debrovner...................... 252,100 (7) 1.8%
David L. Newkirk......................... 20,000 (8) *
William J. Poutsiaka..................... 20,000 (8) *
Edward A. Tilly.......................... 20,000 (8) *
Kenneth P. Morse......................... 20,000 (8) *
Renate M. Nellich........................ 7,250 (9) *
Gerhard Jurk............................. 6,250 (10) *
Anthony Parfitt.......................... 1,000 (11) *
All directors and executive officers (10
persons)................................ 4,097,381 (1) 26.3%
</TABLE>
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* Denotes beneficial ownership of less than 1%.
5
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(1) Assumes the exercise of Class A Warrants and vested Class B Warrants, but
not unvested Class B Warrants (which are subject to certain performance
criteria).
(2) Includes (a) 8,685 Common Shares and Class A Warrants to purchase 885
Common Shares held by Mr. Head, (b) 3,000 Common Shares held by certain
trusts for the benefit of the minor children of Mr. Head and Ms. Ivy, (c)
124,995 Common Shares and Class A Warrants to purchase 16,277 Common
Shares held by certain pension plan trusts of Head Company and other
entities created by affiliates of HMI Partners L.P., (d) 465,241 Common
Shares and Class A Warrants to purchase 61,568 Common Shares held by
affiliate investor of ESG Partners L.P. and (e) options to purchase
35,714 Common Shares held by certain trusts for the benefit of the minor
children of Mr. Head and Ms. Ivy. Mr. Head is married to Ms. Ivy.
(3) Includes (a) 8,636 Common Shares and Class A Warrants to purchase 885
Common Shares held by Ms. Ivy, (b) 3,000 Common Shares held by certain
trusts for the benefit of two minor children of Mr. Head and Ms. Ivy, (c)
124,995 Common Shares and Class A Warrants to purchase 16,277 Common
Shares held by certain pension plan trusts of Head Company and other
entities created by affiliates of HMI Partners L.P., (d) 465,241 Common
Shares and Class A Warrants to purchase 61,568 Common Shares held by
affiliate investor of ESG Partners L.P. and (e) options to purchase
35,714 Common Shares held by certain trusts for the benefit of the minor
children of Mr. Head and Ms. Ivy.
(4) Includes 427,807 Common Shares, Class A Warrants to purchase 1,083,975
Common Shares and Class B Warrants to purchase 276,240 Common Shares held
by HMI Partners L.P., the General Partner of which is Heracles-B L.P., of
which Mr. Head and Ms. Ivy are the General Partners.
(5) Includes 783,155 Common Shares and Class A Warrants to purchase 103,638
Common Shares held by ESG Partners (Bermuda) L.P., the General Partner of
which is Heracles ESG L.L.C., of which Mr. Head and Ms. Ivy are the
Managing Members.
(6) Includes 370,315 Common Shares, 144,405 of which are owned by Mr. Wand's
wife. Mr. Wand disclaims beneficial ownership of all such shares held by
his wife. Mr. Wand holds options to purchase 140,000 Common Shares,
35,000 of which are currently exercisable. See "Summary Compensation
Table."
(7) Includes 229,600 Common Shares. Mr. Debrovner holds options to purchase
90,000 Common Shares, 22,500 of which are currently exercisable. See
"Summary Compensation Table."
(8) Represents options to purchase Common Shares. See "Executive
Compensation."
(9) Includes 1,000 Common Shares. Ms. Nellich holds options to purchase
25,000 Common Shares, 6,250 of which are currently exercisable. See
"Summary Compensation Table."
(10) Mr. Jurk holds options to purchase 25,000 Common Shares, 6,250 of which
are currently exercisable. See "Summary Compensation Table."
(11) Mr. Parfitt holds options to purchase 4,000 Common Shares, 1,000 of which
are currently exercisable. See "Summary Compensation Table."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Advisory Fee
For advisory services rendered by Head & Company L.L.C. ("Head Company"), of
which John C Head III is a Managing Member, in connection with the private
placement and initial public offering of Common Shares of the Company in
December 1997, Head Company was paid a fee of $2,500,000 and reimbursed for
reasonable out-of-pocket expenses.
Investment Advisory Agreement
The Company is party to an investment advisory agreement (the "Investment
Advisory Agreement") with Head Asset Management L.L.C. ("Head Asset
Management"), an affiliate of Head Company, to supervise and
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direct the investment of the Company's asset portfolio in accordance with, and
subject to, the investment objectives and guidelines established by the
Company. Pursuant to the terms of the Investment Advisory Agreement, the
Company pays Head Asset Management a fee, payable quarterly in arrears, equal
to 0.25% per annum of the first $200 million of assets under its management
declining to 0.15% per annum of the assets under its management, in excess of
$200 million. The Investment Advisory Agreement may be terminated upon 90 days
written notice by Head Asset Management or by the Company upon five days
written notice or upon shorter notice upon mutual written agreement by the
parties. In January 1998, Head Asset Management received fees of $45,579 from
the Company for investment advisory services performed in 1997.
Financial Services Agreement
The Company is party to a financial services agreement (the "Agreement")
with Head Company in connection with the analysis and implementation of
operating plans, capital plans, and strategic alternatives. Pursuant to the
terms of the Agreement, Head Company is paid a monthly fee of $50,000 and is
reimbursed for reasonable out-of-pocket expenses. The Agreement may be
terminated on the first day of any month subject to fourteen days prior
notification by either party. Because the Agreement was entered into on
January 2, 1998, Head Company did not receive any fees under the Agreement in
1997.
Transactions between Mr. Wand and Shareholder
During 1996, Mr. Wand received payments from ESG GmbH in consideration of a
loan made by Mr. Wand to a shareholder of European Specialty Group Holding AG
("ESG Germany") to enable such shareholder to purchase shares of ESG Germany.
In order to repay Mr. Wand, amounts payable to the debtor by ESG GmbH in
respect of reinsurance brokerage services provided by the debtor were paid
directly to Mr. Wand. For 1996, ESG GmbH paid Mr. Wand $32,870 in respect of
this loan. Such loan was repaid in full by the debtor prior to December 12,
1997.
Indemnification for Contingent Liabilities
Certain of the former shareholders of ESG Germany who participated in the
formation have agreed to indemnify ESG Germany for certain contingent
liabilities applicable to activity prior to 1997. Management believes that the
likelihood of incurring a loss related to any of those contingent liabilities
is remote.
Purchases of Securities in the Company
William J. Poutsiaka, a director of the Company, is President and Chief
Executive Officer of Arkwright Mutual Insurance Company, which purchased
securities in the Company in a private placement of such securities in
December 1997. In addition, affiliates of Head Company made capital
investments in such private placement.
EXECUTIVE COMPENSATION
The Company's executive compensation policies are formulated by the
Compensation Committee of the Board of Directors. The Company maintains a
philosophy that compensation of its executive officers should be competitive
with similarly situated executives of its competitors and peer companies. In
addition, compensation is linked to each executive officer's performance as
well as the overall operating performance of the Company.
Each of Messrs. Wand, Debrovner, Jurk and Parfitt and Ms. Nellich has an
employment agreement with the Company, as described below. The base salary
component of each executive's compensation is, pursuant to the terms of the
employment agreement, subject to annual review by the Compensation Committee.
The Compensation Committee may also make discretionary increases in the base
salary based on the executive's contribution to the Company. In addition,
under the terms of each employment agreement the Compensation Committee may
award bonuses to the executive for the prior year.
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Executive officers may also receive grants of stock options annually under
the Company's 1997 Stock Option Plan (the "Stock Option Plan"). Options are
granted at a price equal to the fair market value of the Company's Common
Shares on the date of the grant. The Board of Directors believes that grants
of stock options are an effective means of aligning an executive's
compensation with the interests of shareholders, since the value of such
options are tied directly to increases in the market value of the Company's
Common Shares. The Compensation Committee has sole discretionary authority to
interpret the Stock Option Plan and to determine the type of awards to grant,
when, if and to whom awards are granted, the number of Common Shares covered
by each award and the terms and conditions of the award. On December 12, 1997,
options for 140,000 Common Shares, 90,000 Common Shares, 25,000 Common Shares,
25,000 Common Shares and 4,000 Common Shares were granted to Messrs. Wand,
Debrovner and Jurk, Ms. Nellich and Mr. Parfitt, respectively. Compensation
and stock option information for each of these executive officers of the
Company is provided in the tables which follow.
The Compensation Committee is comprised of the following Board members:
John C Head III
Edward A. Tilly
David L. Newkirk
The tables which follow summarize compensation paid by the Company and its
subsidiaries and certain information regarding options granted to the
Company"s principal executive officers for the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION AWARDS
--------------------------------- -------
NUMBER
OTHER ANNUAL OF
NAME AND PRINCIPAL POSITION YEAR SALARY(2) BONUS COMPENSATION(3) OPTIONS
- -------------------------------- ---- --------- ------- --------------- -------
<S> <C> <C> <C> <C> <C>
Wolfgang M. Wand,
Managing Director and Chief
Executive Officer.............. 1997 $254,964 $28,746 $34,495(4) 140,000
Steven H. Debrovner,
Chief Operating Officer........ 1997 $270,417 $28,746 $19,446 90,000
Gerhard Jurk,
Chief Financial Officer........ 1997 $134,523 $14,373 $12,376 25,000
Renate M. Nellich,
Chief Executive Officer of ES
North America.................. 1997 $ 83,333 $ 8,997 $ 3,859 25,000
Anthony Parfitt,
Audit and Compliance Officer... 1997 $ 68,989 $ 3,449 $15,651 4,000
</TABLE>
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(1) Amounts paid in currencies other than U.S. dollars have been translated
into U.S. dollars at the average translation rate for the year.
(2) Throughout 1997, and following the Company's initial public offering, each
of Messrs. Wand, Debrovner, Jurk and Parfitt were employed by the Company
in its function as a reinsurance management company. Ms. Nellich has been
employed since September 1997.
(3) During 1997, Mr. Debrovner received $16,571 for life and health insurance,
and a vehicle allowance of $2,875; Mr. Jurk received $3,297 for life and
health insurance, and a vehicle allowance of $9,079; Ms. Nellich received
$640 for life and health insurance, and a vehicle allowance of $3,219; and
Mr. Parfitt received $3,923 for life and health insurance, social pension
contributions and unemployment insurance, and a vehicle allowance of
$11,728.
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(4) In 1997, Mr. Wand received $34,495 from European Specialty Group GmbH
("ESG GmbH"), a subsidiary of the Company, in connection with services
provided as designated legal representative of Les Mutuelles du Mans in
Germany. No such amounts will be paid in the future.
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL RATES OF
TOTAL OPTIONS SHARE PRICE APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE PRICE OPTION TERM
OPTIONS EMPLOYEES IN PER COMMON EXPIRATION ------------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ------------------------ --------- ------------- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Wolfgang M. Wand........ 140,000 39.5% $20.00 Dec. 12, 2007 $1,760,905 $4,462,479
Steven H. Debrovner..... 90,000 25.4% $20.00 Dec. 12, 2007 $1,132,010 $2,868,736
Gerhard Jurk............ 25,000 7.1% $20.00 Dec. 12, 2007 $ 314,447 $ 796,871
Renate M. Nellich....... 25,000 7.1% $20.00 Dec. 12, 2007 $ 314,447 $ 796,871
Anthony Parfitt......... 4,000 1.1% $20.00 Dec. 12, 2007 $ 50,312 $ 127,499
</TABLE>
- --------
(1) All options granted to date under the Company's 1997 Stock Option Plan
were at $20.00 per share, the initial public offering price of the Common
Shares. For each of the individuals listed above, 25% of such options
vested on December 12, 1997, and 25% vests on December 12, 1999, 2000 and
2001, respectively.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS OPTIONS IN-THE-MONEY
AT FISCAL YEAR END AT FISCAL YEAR END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
- ------------------------ --------------- -------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Wolfgang M. Wand........ -- -- 35,000/ $122,500/
105,000 $367,500
Steven H. Debrovner..... -- -- 22,500/ $78,750/
67,500 $236,250
Gerhard Jurk............ -- -- 6,250/ $21,875/
18,750 $65,625
Renate M. Nellich....... -- -- 6,250/ $21,875/
18,750 $65,625
Anthony Parfitt......... -- -- 1,000/ $3,500/
3,000 $10,500
</TABLE>
- --------
(1) Calculated based upon a price of $23.50 per share of the Company's Common
Shares at December 31, 1997.
COMPENSATION OF DIRECTORS
Directors who are full-time employees of ESG or its subsidiaries will not be
paid any fees or additional compensation for services as members of the Board
of Directors or any committee thereof. Directors who are not full-time
employees of ESG or its subsidiaries ("Non-Management Directors") are eligible
to participate in the ESG Re Limited Non-Management Directors' Compensation
and Option Plan (the "Directors Plan"). A total of 1,000,000 Common Shares may
be issued under the Directors Plan, which limit will be proportionately
adjusted in the event of certain changes in the Company's capitalization, a
merger or a similar transaction. For their services, Non-Management Directors
receive fees annually which are paid in cash, and Common Shares,
9
<PAGE>
unless the Non-Management Director otherwise elects to receive all or a
portion of such fees in options or to defer all or a portion of such fees
pursuant to the terms of the Directors Plan as described below. For services
rendered from the closing date of the Company's initial public offering on
December 12, 1997 (the "Closing Date") until the Annual Meeting, Non-
Management Directors will receive fees of $35,000. In addition to the amounts
paid to the Non-Management Directors, the Chairman will receive $55,000 for
services rendered from the Closing Date until the Annual Meeting. If a Non-
Management Director elects to receive options in lieu of such stock and cash
payment, such Director will receive options for Common Shares with a value, as
determined by the Board, equal to two times the amount of fees that would
otherwise be payable. The Non-Management Directors may alternatively elect to
receive deferred compensation ("Deferred Compensation") indexed to the greater
of (i) total return on the Common Shares and (ii) the one-year U.S. treasury
bill rate. Deferred Compensation will be paid in cash, in accordance with the
terms of the Directors Plan. Directors' shares granted under the Directors
Plan will be subject to restrictions on transfer for six months after receipt.
All Directors are reimbursed for travel and other related expenses incurred in
attending meetings of the Board of Directors or committees thereof.
In addition, under the Directors Plan, Non-Management Directors joining the
Board of Directors within one year of the Closing Date will receive options to
purchase 10,000 Common Shares. Options granted on the Closing Date were
granted at the initial public offering price and all other options will be
granted at the then market price per share. Non-Management Directors will also
receive automatic annual awards of options to purchase 5,000 Common Shares (or
such other amount as the Board may determine) at an exercise price per share
equal to the then market price per share (or, in each case, a lesser amount
prorated to the extent the participating director did not serve on the Board
of Directors for the entire year preceding the relevant Annual General Meeting
of Shareholders), on each successive Annual General Meeting of Shareholders.
The Board also has discretionary authority to (i) award additional options to
the Chairman of the Board, and the Committee Chairmen and members of the Board
of Directors or the Supervisory Board of any of the subsidiaries of ESG and
(ii) grant options to permit a Non-Management Director to reacquire any Common
Shares the Non-Management Director delivered as payment of the exercise price
or to satisfy any withholding obligation in connection will the exercise of an
option. All options are vested and exercisable at the time of grant. Common
Shares issued on exercise of options issued pursuant to the Directors Plan may
be either authorized but unissued shares or treasury shares. Options granted
under the Directors Plan are non-transferable, except in limited circumstances
in the Board's discretion as set forth in the Directors Plan.
The Directors Plan may be amended or terminated by the Board of Directors at
any time, in whole or in part. However, any amendment for which shareholder
approval is required by law will not be effective until such approval has been
attained. Unless earlier terminated, the Directors Plan will expire when all
options are issued, and no further options may be granted thereunder.
EMPLOYMENT ARRANGEMENTS
The Company and European Specialty Group (United Kingdom) Limited ("ESG
UK"), a subsidiary of the Company, entered into an Employment Agreement with
Mr. Wand to serve as Managing Director and Chief Executive Officer of the
Company, Chairman of ES Ireland and ESG Germany and Chief Executive Officer of
ESG UK, effective as of December 1, 1997. Mr. Wand's compensation under the
employment agreement includes (i) an annual base salary of $300,000, which is
subject to review annually for increase at the discretion of the Compensation
Committee, (ii) an annual bonus determined by the Compensation Committee
(which will be not less than $100,000 in 1998), and (iii) pension, welfare and
fringe benefits. Mr. Wand is entitled to receive reimbursement of expenses
incurred in connection with promotion of the business of the Company or any of
its subsidiaries, including expenses for travel and other expenses while away
from home, on business or in the service of the Company or any of its
subsidiaries. The term of the Employment Agreement is three years, subject to
automatic renewal for successive one-year periods unless the Company, ESG UK
or Mr. Wand provides written notice at least 12 months prior to the then
scheduled expiration date. In the event of termination of
10
<PAGE>
Mr. Wand's employment by the Company or ESG Germany without Cause (as defined
in the Employment Agreement) or by Mr. Wand for Good Reason (as defined in the
Employment Agreement), Mr. Wand will receive his then current base salary for
the remaining term of the agreement, but in no event less than 12 months base
salary. In the event that Mr. Wand's employment is terminated by the Company
or ESG Germany without Cause or by Mr. Wand for Good Reason within one year of
a Change in Control (as defined in the Employment Agreement), in addition to
the compensation otherwise payable to Mr. Wand upon his termination of
employment as set forth above, Mr. Wand will be entitled to a lump sum payment
in an amount which, when added to the present value of all other benefits or
payments which would constitute "Parachute Payments" (as defined in Section
280G of the Code), equals 2.99 times Mr. Wand's "Base Amount" (as defined in
Section 280G). In the event that any excise taxes are assessed under Section
4999 of the Code, the Company will reimburse Mr. Wand for such taxes. Mr. Wand
will retain any other rights and benefits as determined in accordance with the
applicable terms of the benefit programs maintained by the Company, ESG
Germany or any of its affiliates in which Mr. Wand participates. In the event
the Employment Agreement expires by reason of the Company's election not to
renew the term, or death or disability, Mr. Wand will receive his base salary
through the date of termination. In the event of the termination of Mr. Wand's
employment for Cause, or by Mr. Wand without Good Reason, Mr. Wand will be
entitled to his base salary through the date of termination. The Employment
Agreement prohibits Mr. Wand from using or disclosing confidential information
about the Company and its affiliates and their operations at any time and from
engaging in any competitive reinsurance or insurance business or soliciting
any employee of the Company or its affiliates for a period of 18 months after
the termination of employment (other than a termination within one year of a
Change in Control).
The Company has entered into an employment agreement with Mr. Debrovner to
serve as the Chief Operating Officer, effective as of December 1, 1997. ESG
Germany has entered into an employment agreement with Mr. Jurk to serve as
Chief Financial Officer of the Company, effective as of December 1, 1997. ES
North America has entered into an Employment Agreement with Ms. Nellich to
serve as Chief Executive Officer of ES North America, effective as of December
1, 1997. Mr. Parfitt, Audit and Compliance Officer, is party to a standard
employment agreement with European Specialty Rckversicherung AG, a subsidiary
of the Company. The employment agreements (the "Executive Agreements") of Mr.
Debrovner, Ms. Nellich and Mr. Jurk will continue, unless terminated upon one
year's notice, until September 1, 2000. Under the Executive Agreements, Mr.
Debrovner, Ms. Nellich and Mr. Jurk receive annual base salaries of $275,000,
$250,000 and $200,000, respectively. Other benefits granted to Mr. Debrovner,
Ms. Nellich and Mr. Jurk are similar to those granted to Mr. Wand. The
Executive Agreements prohibit the executives from using or disclosing
confidential information about the Company and its affiliates and their
operations and, in the case of Mr. Debrovner and Ms. Nellich, from engaging in
any competitive reinsurance or insurance business for a period of one year
after the term of employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are John C Head III,
David L. Newkirk and Edward A. Tilly, none of whom is an executive officer or
employee of the Company or any of its subsidiaries.
The Company is party to a Financial Services Agreement with Head Company, of
which John C Head III is a Managing Member, and an Investment Advisory
Agreement with Head Asset Management, an affiliate of Head Company. See
"Certain Relationships and Related Transactions."
11
<PAGE>
PERFORMANCE GRAPH
The graph set forth below compares the cumulative shareholder return on the
Company's Common Shares to such return on the Standard & Poor's Insurance
Stock Price Index and the Wilshire 5000 Stock Price Index for the period
commencing with the effective date of the initial public offering on December
12, 1997, and ending on December 31, 1997, assuming $100 was invested on
December 12, 1997 (the "Investment Date"). Each measurement point on the graph
below represents the cumulative shareholder return from the Investment Date to
the measurement point date, as measured by the last sale price on such date.
As depicted in the graph below, as of December 31, 1997, the cumulative total
shareholder return on the Company's Common Shares was 17.5%, and the
cumulative total return on the Standard & Poor's Insurance Stock Price Index
and the Wilshire 5000 Stock Price Index was 3.1% and 2.0%, respectively.
[LINE GRAPH APPEARS HERE PLOTTING PERFORMANCE]
12
<PAGE>
PROPOSAL 2
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Directors proposes and recommends that the shareholders ratify
the selection of the firm of Deloitte & Touche to serve as independent
auditors of the Company until the close of the 1999 Annual General Meeting of
Shareholders. Deloitte & Touche served as the Company's independent auditors
from the Company's inception in August 1997 to the present. Unless otherwise
directed by the shareholders, proxies will be voted in favor of approval of
the selection of Deloitte & Touche to audit the Company's consolidated
financial statements for the fiscal year ended December 31, 1998. A
representative of Deloitte & Touche will attend the Annual Meeting and will
have an opportunity to make a statement, if such representative desires, and
to respond to appropriate questions. Shareholders at the Annual Meeting will
also be asked to vote to refer the determination of the auditors' remuneration
to the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE AS THE COMPANY'S INDEPENDENT AUDITORS FOR 1998
AND THE REFERRAL TO THE BOARD OF DIRECTORS OF THE DETERMINATION OF THE
AUDITORS' REMUNERATION.
MISCELLANEOUS
The Company will bear all of the costs of the solicitation of proxies for
use at the Annual Meeting. Banks, brokers, nominees and other custodians and
fiduciaries will be reimbursed for their reasonable out-of-pocket expenses in
forwarding soliciting material to their principals, the beneficial owners of
Common Shares of the Company. The costs of soliciting proxies will be borne by
the Company. It is estimated that these costs will be nominal.
Shareholders who do not expect to attend in person are urged to sign, date
and return the enclosed proxy card in the envelope provided. In order to avoid
unnecessary expense, we ask your cooperation in mailing your proxy card
promptly, no matter how large or how small your holdings may be.
At the date of this Proxy Statement, management has no knowledge of any
business, other than that described herein, which will be presented for
consideration at the Annual Meeting. In the event any other business is
properly presented at the Annual Meeting, it is intended that the persons
named in the enclosed proxy will have authority to vote such proxy in
accordance with their judgment on such business.
Proposals shareholders wish to include in the company's proxy statement for
the next Annual General Meeting of Shareholders must be sent to and received
by the Company no later than December 31, 1998 at 16 Church Street, Hamilton,
HM11, Bermuda.
By order of the Board of Directors
Anthony Parfitt
Secretary
Hamilton, Bermuda
April 10, 1998
13
<PAGE>
<TABLE>
<CAPTION>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
<S> <C> <C> <C> <C>
1. Election of Directors For All Nominees Withhold For All Except
John C Head III [ ] [ ] [ ]
ESG RE LIMITED Wolfgang M. Wand
Steven H. Debrovner
Kenneth P. Morse
Mark box at right if an address change has
been noted on the reverse side of this card. NOTE: If you do not wish your shares voted "For" a particular
nominee, mark the "For All Except" box and strike a line through the name(s)
of the nominee(s). Your shares will be voted for the remaining nominee(s).
RECORD DATE SHARES: 2. Ratification of the appointment of Deloitte & Touche as independent
auditors for the Company for the fiscal year ended 1998 and
referral of the determination of auditors' remuneration
to the Board of Directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting, or at any adjournment(s)
thereof.
Please be sure to sign and date this Proxy.
Please sign exactly as your name(s) appear(s) on the books of the
Date Company. Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more
than one name appears, a majority must sign. If a corporation, this
signature should be that of an authorized officer who should state his or
her title.
Shareholder sign here Co-owner to sign here
</TABLE>
<PAGE>
ESG RE LIMITED
Annual General Meeting of Shareholders - May 4, 1998
Proxy Solicited on Behalf of the Board of Directors
The undersigned shareholder of ESG Re Limited (the "Company") hereby appoints
John C Head III and Wolfgang M. Wand, and each of them, proxies of the
undersigned, with full power of substitution to each, to vote as indicated
herein, all of the shares of the Company standing in the name of the undersigned
at the close of business on Friday, March 20, 1998, at the 1998 Annual Meeting
of Shareholders of ESG Re Limited to be held at Waterloo House, 100 Pitts Bay
Road, Pembroke, HM08 Bermuda, Monday, May 4, 1998, at 11:00 a.m., and at any
adjournment or adjournments thereof, with all of the powers the undersigned
would possess if then and there personally present and especially (but without
limiting the general authorization and power hereby given) to vote as indicated
on the proposals as more fully described in the Proxy Statement for the meeting.
THIS PROXY IS SOLICITED BY, OR ON BEHALF OF, THE COMPANY'S BOARD OF DIRECTORS
AND WILL BE VOTED "FOR" PROPOSALS 1 AND 2 UNLESS OTHERWISE INDICATED.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) on the books of the Company.
Joint Owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
ESG RE LIMITED
IMPORTANT: PLEASE ACT PROMPTLY. VOTE, DATE, SIGN AND MAIL YOUR PROXY CARD
TODAY.
Dear Shareholder,
Please take note of the important information enclosed with this proxy
card. There are a number of issues related to the management and operation of
your Company that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
No matter how many shares you own, your vote is important. Voting can also
help your Company save money. To hold a meeting, a quorum must be represented.
Voting can save your Company the expense of another solicitation for proxies
required to achieve a quorum.
Please mark the boxes on this proxy card to indicate how your shares will
be voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual General Meeting of
Shareholders, May 4, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
ESG Re Limited
