As filed with the Securities and Exchange Commission on December 22, 1998
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ESG Re LIMITED
(Exact Name of Registrant as Specified in its Charter)
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Bermuda None
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Skandia International House
16 Church Street
Hamilton, HM 11 Bermuda
(441) 295-2185
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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CT Corporation System
1633 Broadway
New York, New York 10019
(212) 664-1666
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------------
copy to:
Richard S. Borisoff, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
(212) 373-3000
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Approximate date of commencement of proposed sale to public:
From time to time or at one time after the effective date of this
registration statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
|_| ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price per Aggregate Registration
Securities to be Registered Registered(1) Share(2) Offering Price(2) Fee
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<S> <C> <C> <C> <C>
Common Shares, $1.00 par value per share........ 2,673,899 Shares $19.50 $52,141,031 $14,496
==================================================================================================================================
</TABLE>
(1) Plus such additional shares as may be issued by reason of stock splits,
stock dividends and similar transactions.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c). The proposed maximum offering price per share
is based upon the average bid and asked prices of the Registrant's Common
Shares on December 18, 1998 on the Nasdaq National Market.
----------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
Subject to completion, dated December 22, 1998
PROSPECTUS
ESG Re LIMITED
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2,673,899 Common Shares
---------------------------
This is a public offering of 2,673,899 Common Shares of ESG Re Limited
by certain holders of our Common Shares. We will not receive any proceeds from
the sale of shares by the Selling Shareholders.
The Common Shares are listed on the Nasdaq National Market under the
trading symbol "ESREF".
The Selling Shareholders may offer from time to time the Common Shares
covered by this Prospectus on Nasdaq, on other markets where our Common Shares
may be traded or in negotiated transactions, at whatever prices which are
current when particular sales take place or at other prices to which they agree.
The Selling Shareholders will pay any brokerage fees or commissions relating to
the sales by them. See "Plan of Distribution." The registration of the Selling
Shareholders' shares does not necessarily mean that any of them will sell their
shares.
---------------------------
Investing in the Common Shares involves certain risks. See "Risk
Factors" beginning on page 2.
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Per Share Total
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Public Offering Price ................................ $ $
Underwriting Discounts and Commissions ............... $ $
Proceeds to the Company .............................. $0.00 $0.00
Proceeds to Selling Shareholders ..................... $ $
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
Prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The information contained in this Prospectus is not complete and may be changed.
We may not sell these securities until the registration statement relating to
this offering and filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
<PAGE>
In this Prospectus, the "Company," "ESG," "we," "us" and "our" refer to
ESG Re Limited and its consolidated subsidiaries.
The shares have not been recommended by any federal or state securities
commission or regulatory authority or the Registrar of Companies of Bermuda or
the Bermuda Monetary Authority. Furthermore, these authorities have not
confirmed that this Prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
This Prospectus may not be distributed to any person in the United Kingdom
unless that person is a qualifying institution or corporation or other person
within article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1986 of the United Kingdom. The person must
also be either a qualifying securities professional within regulation 7(2)(a) of
the Public Offers of Securities Regulations 1995 of the United Kingdom or
personally selected by or on behalf of the underwriters.
---------------------------
We have not undertaken any action to permit a public offering of the
shares outside the United States or to permit the possession or distribution of
this Prospectus outside the United States. Persons outside the United States who
come into possession of this Prospectus must inform themselves about and observe
any restrictions relating to the offering of the shares and the distribution of
this Prospectus outside of the United States.
---------------------------
For North Carolina Residents: The Commissioner of Insurance for the State
of North Carolina has not approved or disapproved this offering, nor has the
Commissioner passed upon the accuracy or adequacy of this Prospectus. The buyer
in North Carolina understands that neither the ESG Re Limited nor its
subsidiaries is licensed in North Carolina pursuant to Chapter 58 of the North
Carolina General Statutes.
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<PAGE>
AVAILABLE INFORMATION
We have filed a Registration Statement on Form S-3 regarding the
offering with the Securities and Exchange Commission (the "SEC"). This
Prospectus, which is a part of the Registration Statement, does not contain all
of the information included in the Registration Statement, and you should refer
to the Registration Statement and its exhibits to read that information.
References in this Prospectus to any of our contracts or other documents are not
necessarily complete, and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract or document. You may
read and copy the Registration Statement, the related exhibits and the other
materials we file with the SEC at the SEC's public reference room in Washington,
D.C., and at the SEC's regional offices in Chicago, Illinois and New York, New
York. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. The SEC also maintains an Internet site
that contains reports, proxy and information statements and other information
regarding issuers that file with the SEC, including the Company. The site's
address is http://www.sec.gov.
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any of these reports,
statements or other information at the SEC's Internet site or at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. You can request copies of those documents, upon payment of a
duplicating fee, by writing to the SEC.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" in this Prospectus
other information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this Prospectus, and
information that we file later with the SEC will automatically update and
supersede the earlier filed or incorporated information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we sell all of the securities covered by this Prospectus:
o Our Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
o Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1998, June 30, 1998 and September 30, 1998;
o Our Definitive Proxy Statement on Form 14A for our Annual General
Meeting of Shareholders held on May 4, 1998;
o Our Current Reports on Form 8-K, filed March 10, 1998; and
o The description of our Common Shares contained in our Registration
Statement on Form 8-A, filed with the SEC on December 9, 1997.
We have filed each of these documents with the SEC, and they are available
from the SEC's Internet site and public reference rooms described under
"Available Information" above. You may also request a copy of these filings, at
no cost, by writing or telephoning us at the following address:
Corporate Secretary
ESG Re Limited
16 Church Street
Hamilton HM11, Bermuda
(441) 295-2185
You should rely only on the information incorporated by reference or
provided in this Prospectus or any Prospectus Supplement. We have not authorized
anyone else to provide you with different information.
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<PAGE>
PREPARATION OF FINANCIAL STATEMENTS
Our financial statements have been prepared in accordance with U.S.
Generally Accepted Accounting Principles ("U.S. GAAP"). Audited financial
statements as of December 31, 1997 are incorporated into this Prospectus and the
Registration Statement by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, which has been filed with the SEC
as an exhibit to the Registration Statement. As used in this Prospectus, "$"
refers to U.S. dollars and "BD$" refers to Bermuda dollars.
ENFORCEABILITY OF CIVIL LIABILITIES
We are organized under the laws of Bermuda, and all or substantially
all of our assets are located outside the United States. In addition, certain of
the members of our Board of Directors and all of our senior executive officers
are non-residents of the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon those
persons or to enforce in United States courts judgments against them, and
judgments of United States courts predicated upon civil liability provisions of
the federal securities laws of the United States. Our Bermuda counsel, Appleby,
Spurling & Kempe, has advised us that there is doubt as to the enforceability,
in original actions in Bermuda courts, of judgments of United States courts
obtained in actions against such persons predicated upon the civil liability
provisions of the federal securities laws of the United States.
We have appointed CT Corporation System, New York, New York, as our
agent to receive service of process. This appointment cannot be revoked and
applies to litigation brought in any U.S. federal or state court relating to
violations of U.S. federal securities laws in connection with the transactions
covered by this Prospectus.
FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this
Prospectus may contain forward-looking statements within the meaning of Section
27A of the U.S. Securities Act of 1933, and Section 21E of the U.S. Exchange Act
of 1934, and as such may involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
our company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative thereof or other variations
thereon or comparable terminology. Factors which could have a material adverse
effect on the operations and future prospects of our Company include, but are
not limited to, changes in: (a) the frequency and severity of insured loss
events, including catastrophes, (b) mortality and morbidity levels, (c)
persistency levels, (d) prevailing levels of interest rates, (e) currency
exchange rates, (f) general competitive factors, (g) changes in laws and
regulations, and (h) general economic conditions. These and other factors are
discussed in "Risk Factors," and elsewhere in this Prospectus. These risks and
uncertainties should be considered in evaluating any forward-looking statements
contained or incorporated by reference in this Prospectus.
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THE COMPANY
We were formed on August 21, 1997, under the laws of Bermuda. Through
our subsidiaries, European Specialty Reinsurance (Bermuda) Limited, European
Specialty Reinsurance (Ireland) Limited, European Specialty Ruckversicherung AG
and Accent Europe Insurance Company Limited, we are a specialty
reinsurer/insurer providing innovative risk solutions and capacity on a global
basis in the fields of accident, health, life and special risk reinsurance to
insurers and selected reinsurers.
In December 1997, we raised gross proceeds of $257 million in a
combined private placement and initial public offering. The proceeds from those
offerings provided the capitalization for us to assume for our own account risks
that our wholly owned reinsurance management subsidiary, ES Management,
previously underwrote on behalf of unaffiliated reinsurance companies.
Subsequent to the offerings, we assumed a 30% share of the pool business which
ES Management underwrote in 1997 on behalf of other reinsurance companies. In
addition, since that time we have separately negotiated additional retrocessions
with certain other reinsurance companies.
We distinguish ourselves by offering "intelligent reinsurance" products
and services for particular underwriting problems, actuarial support, product
design, and, in the field of medical expense reinsurance, loss prevention and
disease management.
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Our executive offices are located 16 Church Street, Hamilton HM11,
Bermuda, and our telephone number is (441) 295-2185.
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RISK FACTORS
You should carefully consider the following risk factors together with
all of the other information included or incorporated by reference in this
Prospectus before you decide to purchase shares of our Common Stock. This
Section includes or refers to certain forward-looking statements. You should
refer to the explanation of the qualifications and limitations on such
forward-looking statements discussed in this Prospectus.
Cyclicality of Reinsurance Industry
The insurance and reinsurance industries are cyclical. Historically,
reinsurers have experienced significant fluctuations in operating results due to
volatile and sometimes unpredictable developments, many of which are beyond the
direct control of the reinsurer. These developments include competition,
frequency of occurrence or severity of natural disasters and other catastrophic
events, levels of capacity, general economic conditions and other factors. The
underwriting results of primary insurers and prevailing general economic
conditions significantly influence the demand for reinsurance. The supply of
reinsurance is related primarily to prevailing prices, the levels of insured
losses, levels of industry surplus and utilization of underwriting capacity
that, in turn, may fluctuate in response to changes in rates of return on
investments being earned in the insurance and reinsurance industries.
As a result of these factors, the reinsurance business historically has
been a cyclical industry characterized by periods of intense price competition
due to excessive underwriting capacity, as well as periods when shortages of
underwriting capacity permitted favorable premium levels. Increases in the
frequency and severity of losses suffered by insurers can significantly affect
these cycles. Conversely, the absence of severe or frequent catastrophe and
other loss events could result in declining premium rates in the global market.
We expect to experience the effects of such cyclicality, changes in premium
rates, the frequency or severity of catastrophes or other loss events or other
factors affecting the insurance or reinsurance industries, any of which could
have a material adverse effect on our results of operations in future periods.
Volatility of Results
Our specialty risk lines of reinsurance are characterized by a
relatively small number of large risks, like the risk of cancellation of a World
Cup Soccer championship or the nonappearance of a performing artist. It is
difficult to predict if and when such a cancellation or non-appearing will
occur. Volatile and unpredictable developments in the specialty risk lines could
have a material adverse effect on our results of operations.
Exposure to Catastrophic Events
As with other reinsurers, our operating results and financial condition
can be adversely affected by catastrophes. Catastrophes can give rise to claims
under our life reinsurance coverages. Catastrophes can be caused by various
events including hurricanes, windstorms, earthquakes, hail, explosions, severe
winter weather and fires, the incidence and severity of which are inherently
unpredictable. We seek to manage our exposure to catastrophe losses through
selective underwriting practices, including the monitoring of risk accumulations
on a geographic basis, and through the purchase of catastrophe retrocessional
reinsurance. Such practices, including management of risk accumulations on a
geographic basis, and the reinsurance purchased by us, may not be adequate to
protect us against material catastrophe losses. In addition, retrocessional
reinsurance may not be available in the future at commercially reasonable rates.
Although we seek to limit our exposure to acceptable levels, it is
possible that an actual catastrophic event or multiple catastrophic events could
have a material adverse effect on our financial condition, results of operations
and cash flows.
Adequacy of Loss Reserves
We maintain loss reserves for the ultimate payment of all losses and
loss adjustment expenses ("LAE") incurred with respect to our underwriting
business. Reserves are estimates for reported but not paid claims and
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for incurred but not reported ("IBNR") claims involving actuarial and
statistical projections at a given time to reflect our expectations of the costs
of the ultimate settlement and administration of claims. These reserves do not
represent an exact calculation of liability, but rather are estimates of what we
expect the ultimate settlement and administration of claims to cost based on
actuarial and statistical projections, at a given time, of facts and
circumstances then known and estimates of trends in claims severity and other
variable factors, including new concepts of liability. The process of estimating
these reserves is inherently imprecise and involves the evaluation of many
variables. Under U.S. GAAP, we are not permitted to establish loss reserves with
respect to personal and special risk reinsurance until an event which may give
rise to a claim occurs.
The inherent uncertainties of estimating reserves are increased for
reinsurers, as compared to primary insurers, because of the significant lapse of
time that can occur between the occurrence of an insured loss, the reporting of
the loss to the primary insurer and, ultimately, to the reinsurer, the primary
insurer's payment of that loss and subsequent payment by the reinsurer. These
uncertainties are compounded by the necessity of relying on ceding companies for
information on reported claims and by differing reserving practices among ceding
companies. We establish reserves to the extent that, in the judgment of
management, the facts and prevailing law indicate an exposure for us or our
ceding company.
We periodically review and update our methods for establishing
reserves. Management considers many factors when setting reserves including:
o information from ceding companies;
o historical trends, such as reserving patterns, loss payments,
pending levels of unpaid claims and product mix;
o internal methodologies that analyze our experience with similar
cases;
o current legal interpretations of coverage and liability; and
o economic conditions.
Based on these considerations, management believes that adequate provision has
been made for our reserves, which were $39,983,000 as of September 30, 1998.
Because our reinsurance business only began operating last year, our estimation
of reserves may be inherently less reliable than the reserve estimations of a
reinsurer with a stable volume of business and an established long-term loss
history. Actual losses and LAE paid may deviate, perhaps substantially, from
estimates reflected in the loss reserves in our financial statements. If our
loss reserves prove inadequate due to the occurrence of unpredicted events or
unpredicted demographic or political developments, we will be required to
increase loss reserves with a corresponding reduction in our net income during
the period in which the deficiency is identified. There can be no assurance that
losses will not exceed our loss reserves and have a material adverse effect on
our financial condition. results of operations and cash flows in a particular
period.
Additional losses, the type or magnitude of which we cannot foresee,
may emerge in the future. Such future losses also could have material adverse
effects on our future consolidated financial condition, results of operations
and cash flows.
Dependence on Key Personnel
We place substantial reliance on the reinsurance industry experience
and the continued services of our senior management, led by Wolfgang M. Wand,
Steven H. Debrovner and Renate M. Nellich. While we believe that, if necessary,
we could find replacements for our key personnel, the loss of their services
could have a material adverse effect on our operations.
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Dependence on Key Clients
We depend on a limited number of clients for a substantial portion of
our premium revenue. We have in excess of 400 centrally administered reinsurance
acceptances from clients. During 1998, our largest client, Caisse Centrale de
Reassurance, accounted for approximately 13.5% of our premium revenue. Our
second largest client, Best Meridian Insurance Company, accounted for
approximately 7.5% of our premium revenue in 1998. The non-renewal of even a
limited number of programs or policies could adversely affect our business. We
will solicit new clients, but cannot assure that we will be successful in doing
so.
Competition, Ratings and Letters of Credit
The reinsurance business is highly competitive. We compete for business
in the European, United States and other international reinsurance and insurance
markets with numerous international and domestic reinsurance and insurance
companies, some of which have greater financial resources and higher ratings
than we do. Competition is based on many factors, including the perceived
financial strength of a reinsurer, premium charges, terms and conditions
offered, services provided, ratings assigned by independent rating agencies,
speed of claims payment and reputation and experience in the line of reinsurance
to be written. Ultimately, this competition could affect our ability to attract
business on profitable terms.
Ratings by insurance rating agencies distinguish reinsurers from one
another. Insurance ratings are used by insurers and reinsurance intermediaries
as important means of assessing the financial strength and quality of
reinsurers. Ratings are based on quantitative evaluations of performance with
respect to profitability, leverage and liquidity and qualitative evaluations of
spread of risk, reinsurance programs, investments, reserves and management. We
are currently rated A- by Standard & Poor's, a division of The McGraw Hill
Companies, Inc. Our failure to maintain these ratings could have a material
adverse effect on our business.
We are not licensed or admitted as reinsurers in any jurisdiction other
than Bermuda, Ireland and Germany. Because many jurisdictions do not permit
insurance companies to take credit for reinsurance obtained from unlicensed or
non-admitted insurers on their statutory financial statements unless security is
posted, our reinsurance contracts may frequently require us to post a letter of
credit or other security immediately or after a reinsured reports a claim. We
have a letter of credit facility to cover our obligations in such situations.
The failure to maintain our letter of credit facility, or to obtain a
replacement, could have a material adverse effect on our results of operations.
Regulation
We are subject to the general corporate and insurance laws and
regulations of Bermuda, Ireland and Germany, our jurisdiction of incorporation
and that of each of our principal operating subsidiaries, and the laws and
regulations of the other jurisdictions in which such entities are licensed or
authorized to do business. The insurance laws of each state of the United States
and of many non-U.S. jurisdictions regulate the sale of insurance and
reinsurance within their jurisdiction by foreign insurers that are not admitted
to do business within such jurisdiction. We do not maintain an office or
solicit, advertise, settle claims or conduct other insurance activities in any
jurisdiction where the conduct of such activities would be prohibited by our
lack of license in such jurisdiction. There can be no assurances that inquiries
or challenges relating to our activities will not be raised in the future or
that our location, regulatory status or restrictions on our activities will not
adversely affect our ability to conduct our business. No assurance can be given
that if we were to become subject to any such laws of the United States or any
state thereof or of any other country at any time in the future, our operations
would be in compliance with such laws. We are unable to predict what additional
government regulations, if any, affecting our business may be promulgated in the
future or how they might be interpreted. Such changes could have a material
adverse effect on us or the insurance industry in general.
Impact of Changes in Foreign Exchange Rates
Our functional currency is the U.S. dollar. However, because we write a
portion of our business in currencies other than the U.S. dollar and maintain
investments denominated in currencies other than the U.S.
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dollar, we could experience significant exchange gains and losses, which will in
turn affect our results of operations. While a substantial portion of our
investments are in U.S. dollar-denominated instruments, we are exposed to
significant underwriting losses in currencies other than U.S. dollars. Exchange
rate fluctuations may increase our losses (as measured in U.S. dollars) as claim
amounts are settled.
Impact of Euro
On January 1, 1999, eleven of the fifteen member countries of the
European Union are scheduled to establish fixed conversion rates between their
existing sovereign currencies and a newly formed currency, the Euro. The
participating countries have agreed to adopt the Euro as their common legal
currency, to issue sovereign debt exclusively in the Euro and to redenominate
outstanding sovereign debt. Between January 1, 1999 and January 1, 2000, either
the Euro or a participating country's local currency may be used as legal
tender, and public and private parties may pay for goods and services using
either the Euro or a local currency. Beginning January 1, 2002, new
Euro-denominated bills and coins will be issued and by July 1, 2002, the
participating countries local currencies will no longer be legal tender for any
transactions. We have operations in Germany, Austria, Belgium, Denmark, Spain,
France, Great Britain, Ireland, Italy, Luxembourg and the Netherlands, each of
which is a member of the European Union. Each of these countries other than
Denmark and Great Britain are scheduled to adopt the Euro on January 1, 1999.
Although there can be no assurance, the nature of our reinsurance
business and our investments are such that we do not expect the introduction of
the Euro to have a material impact on our business, operations or financial
condition.
In addition, systems which support our operations require modifications
to accomodate transactions denominated in the Euro. Although there can be no
assurance we will not be materially adversely affected by a failure to
successfully make the required modifications, we are substantially finished
making the required modifications, and the impact of a failure to fully modify
our systems is not expected to be material to our business, operations or
financial condition.
Tax Matters
We operate our business in a manner that does not cause us to be viewed
as engaged in a trade or business in the United States and, thus, does not
require us or any of our subsidiaries, other than our U.S. subsidiary, to pay
United States corporate income taxes (other than withholding taxes). However,
because there is considerable uncertainty as to the activities which constitute
being engaged in a trade or business within the United States, there can be no
assurances that the United States Internal Revenue Service will not contend
successfully that we or one of our non-U.S. subsidiaries is engaged in a trade
or business in the United States. If we or any of our non-U.S. subsidiaries were
subject to U.S. income tax, our shareholders' equity and earnings could be
materially adversely affected. See "Certain Tax Considerations--Taxation of the
Company and its Subsidiaries."
If one of our insurance subsidiaries has related person insurance
income, determined on a gross basis, in excess of 20% of its gross insurance
income for any fiscal year, each U.S. shareholder who owns Common Shares
(directly or through foreign entities) on the last day of such fiscal year may
be required to include in such shareholder's gross income for U.S. tax purposes
a proportionate share of such related person insurance income. Related person
insurance income is income attributable to insurance or reinsurance policies
where the direct or indirect insureds are U.S. shareholders or are related to
U.S. shareholders. Related person insurance income may be included in a U.S.
shareholder's gross income whether or not such shareholder or a person related
to it is a policyholder. While we attempt to operate our business so that
related person insurance income does not exceed 20% of gross insurance income,
there can be no assurance that we will not have gross related person insurance
income exceeding such threshold. See"Certain Tax Considerations--Taxation of
Shareholders."
We operate our business in a manner that does not cause us and our
subsidiaries, other than our German subsidiaries, to be subject to tax in
Germany. However, because the test for determining this is essentially
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factual and there is considerable uncertainty as to the activities which will
cause a foreign corporation to be subject to tax in Germany, there can be no
assurance that German tax authorities will not successfully contend that the we
are subject to tax in Germany. If we were subject to German tax, our
shareholders' equity and earnings would be materially and adversely affected. At
present, the overall effective tax rate in Germany would be approximately 56%,
although non-deductible expenses would increase the overall effective tax
burden. See "Certain Tax Considerations--Taxation of the Company and its
Subsidiaries." We also operate our business in a manner that will not cause us
or any of our subsidiaries, other than our Canadian subsidiary, to be subject to
tax in Canada. However, because this is essentially a factual test and there is
considerable uncertainty as to the activities which will cause a foreign
corporation to be subject to tax in Canada, there can be no assurance that
Canadian tax authorities will not successfully contend that we and/or a
non-Canadian subsidiary are subject to tax in Canada. If we and/or one of our
non-Canadian subsidiaries were subject to Canadian tax, our shareholders' equity
and earnings could be materially and adversely affected. At present, the overall
effective tax rate in Canada is approximately 44%. See "Certain Tax
Considerations--Taxation of the Company and its Subsidiaries."
Anti-Takeover Considerations
The provision for a staggered Board of Directors and voting cut-backs
in our Bye-Laws will have the effect of discouraging unsolicited takeover bids
from third parties or the removal of incumbent management. Our Bye-Laws provide
that the voting rights with respect to Common Shares and any other voting
securities directly or indirectly beneficially or constructively owned by any
person, other than the Head group, will be limited in the aggregate to a voting
power of 9.9%. The voting rights for all shares held by such person in excess of
the 9.9% limitation will be allocated to the other holders of Common Shares, pro
rata based on the number of Common Shares held by all such other holders of
Common Shares, subject only to the further limitation that no shareholder
allocated any such voting rights, other than the Head group, may exceed the 9.9%
limitation as a result of such allocation. In addition, the terms of our
outstanding Class B Warrants provide that any such Class B Warrants remaining
unvested at the time of a change of control will vest immediately upon the
occurrence of such change.
Certain Transactions, Conflicts of Interest and Business Opportunities
We have an agreement with Head Asset Management L.L.C., an affiliate of
Head & Company L.L.C., relating to the provision of investment management
services, for which the we pay fees. Conflicts of interest could arise with
respect to future transactions involving the Selling Shareholders, on the one
hand, and ourselves, on the other hand. Such transactions must be approved by a
majority vote of the disinterested members of our Board of Directors. Conflicts
of interest could also arise with respect to business opportunities that could
be advantageous to Head & Company, on the one hand, and ourselves, on the other
hand. Head & Company, through its affiliates, makes investments in insurance and
reinsurance companies and companies providing services to the insurance
industry. We may compete with affiliates of Head & Company on personal and
special risk reinsurance programs for the same prospective clients. In such
cases, we will conduct our underwriting and pricing analyses independently.
Shares Eligible for Future Sale
No prediction can be made as to the effect, if any, that future sales
of Common Shares, or the availability of Common Shares for future sale, will
have on the market price of the Common Shares prevailing from time to time.
Sales of substantial amounts of the Common Shares, or the perception that such
sales could occur, could adversely affect the market price of the Common Shares
and may make it more difficult for us to sell equity securities in the future.
There are currently outstanding Common Shares, Class A Warrants to purchase
Common Shares and Class B Warrants to purchase Common Shares. The Common Shares
offered are freely transferable without restriction or further registration
under the Securities Act, except for any of those Common Shares owned at any
time by one of our "affiliates" within the meaning of Rule 144 under the
Securities Act (which sales will be subject to the volume limitations and
certain other restrictions).
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Service of Process and Enforcement of Judgments
The majority of our officers and directors are residents of
jurisdictions outside the United States. All or a substantial portion of our
assets and the assets of such officers and directors are or may be located in
jurisdictions outside the United States. Although we have irrevocably agreed
that we may be served with process in New York, New York with respect to actions
based on offers and sales of the Common Shares made hereby, it may be difficult
for investors to effect service of process within the United States on directors
and officers who reside outside the United States or to recover against us or
such directors and officers on judgments of United States courts predicated upon
civil liabilities under the United States federal securities laws. See
"Enforceability of Civil Liabilities."
Holding Company Structure and Dividends
We are a holding company with no operations or significant assets other
than through its ownership of the capital stock of our subsidiaries. Future
dividends and other permitted payments from subsidiaries are our sole source of
funds to pay expenses and dividends, if any. While we are not subject to any
significant legal prohibitions on the payment of dividends, our subsidiaries are
subject to regulatory constraints that affect their ability to pay dividends to
us.
Year 2000 Compatibility of Our Systems and Insurance of Year 2000 Related Losses
A significant percentage of the software that runs most computers
relies on two-digit date codes to perform a number of computation and decision
making functions. These programs may fail from an inability to interpret date
codes properly, misreading "00" for the year 1900 instead of the year 2000.
Insurance policies with a January 1, 2000 or later expiration date could be
affected by a Year 2000 malfunction. The Year 2000 issue has the potential to
affect us through the disruption of the processing of business and general
corporate transactions, both at the Company and between us and other businesses
with which we interact, and through the bringing of claims asserting that costs
related to the Year 2000 issue are covered under insurance in respect of which
we have a reinsurance obligation.
We believe that our Year 2000 program, anticipated to be completed no
later than June 30, 1999, will result in our proprietary operating systems,
application software programs and computer hardware being Year 2000 compliant in
all material respects, though there can be no assurance in that regard. Although
we do not rely on computer dependent-transactions to the same extent as many
other businesses, if our internal processing environment cannot be made Year
2000-compliant, or if any of our significant business partners or service
providers or other business entities experience serious Year 2000 problems, we
might experience disruption in our business. Such disruption, among other
things, could conceivably (a) force us to compile information and process
transactions manually, (b) if compliance problems persisted, impair our ability
to receive premiums from and make claim payments to our ceding companies, (c)
impair our ability to obtain information about our investments, or (d) impair
the value of our fixed maturity and equity investments, if the entities
underlying those investments have substantial Year 2000 costs, liabilities or
disruptions. Any or all of the types of possible disruptions in such a "worst
case scenario" could materially increase the cost of doing business, could
impair our ability to make required regulatory filings and could materially
affect our results of operations, liquidity or financial condition. However,
based upon current information, the Company does not expect such scenarios to
occur and does not expect material disruption to its business.
Although we have not received any claims made under policies for which
we have reinsurance obligations related to business losses caused by Year 2000
malfunctions or costs incurred in connection with prevention or correction of
Year 2000 problems, it is conceivable that such claims could be made. Published
estimates of Year 2000 business losses and costs are in the many billions of
dollars. We are working with our ceding companies to attempt to determine
whether any prospective or existing business written carries potential Year 2000
exposures, and we are attempting to exclude as many of such exposures as
possible from our contracts with ceding companies. Nevertheless, there can be no
assurance that Year 2000 related claims will not have a material adverse effect
on our results of operations.
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CERTAIN TAX CONSIDERATIONS
The following summary of the taxation of the Company, ES Bermuda, ESG
Germany, ES Ireland and Accent Europe and the taxation of shareholders of the
Company is based upon current law. Legislative, judicial or administrative
changes may be forthcoming that could affect this summary. Statements made below
as to Bermuda law set forth the opinion of Appleby, Spurling & Kempe, Bermuda
counsel to the Company. Statements made below as to United States law set forth
the opinion of Paul, Weiss, Rifkind, Wharton and Garrison, United States counsel
to the Company. Statements made below as to German taxation set forth the
opinion of Deloitte & Touche GmbH, German advisors to the Company. Statements
made below as to United Kingdom taxation set forth the opinion of Deloitte &
Touche, United Kingdom advisors to the Company. Statements made below as to
Canadian taxation set forth the opinion of Deloitte & Touche, Canadian advisors
to the Company. Statements made below as to Irish law set forth the opinion of
Matheson Ormsby Prentice, Irish counsel to the Company.
Taxation of the Company and its Subsidiaries
Bermuda
The Company and ES Bermuda have each received from the Minister of
Finance of Bermuda a written undertaking under the Exempted Undertakings Tax
Protection Act, 1966 (as amended) of Bermuda, to the effect that in the event of
there being enacted in Bermuda any legislation imposing tax computed on profits
or income, or computed on any capital asset, gain or appreciation, or any tax in
the nature of estate duty or inheritance tax, then the imposition of any such
tax shall not be applicable to the Company and ES Bermuda or to any of their
operations or the shares, debentures or other obligations of the Company and ES
Bermuda until March 28, 2016. These assurances are subject to the proviso that
they are not construed so as to prevent the application of any tax or duty to
such persons as are ordinarily resident in Bermuda or to prevent the application
of any tax payable in accordance with the provisions of The Land Tax Act 1967 of
Bermuda or otherwise payable in relation to the land leased to the Company and
ES Bermuda. Each of the Company and ES Bermuda is required to pay certain annual
Bermuda government fees and ES Bermuda, additionally, is required to pay certain
insurance registration fees as an insurer under the Insurance Act 1978. Under
current rates, the Company pays a fixed fee of BD$15,900 and ES Bermuda pays a
total of BD$18,400 per year (which includes the annual Bermuda government fee
and the annual insurance registration fee). Currently there is no Bermuda
withholding tax on dividends that may be paid by ES Bermuda to the Company.
United States
The Company and its non-U.S. subsidiaries intend to operate their
business in a manner that will not cause them to be treated as engaged in a
trade or business within the United States. On this basis, the Company and its
non-U.S. subsidiaries do not expect to be required to pay U.S. income tax (other
than withholding tax as described below). However, because there is considerable
uncertainty as to the activities which constitute being engaged in a trade or
business in the United States, there can be no assurances that the Internal
Revenue Service (the "IRS") will not contend successfully that the Company or a
subsidiary is engaged in a trade or business in the United States. A foreign
corporation deemed to be so engaged (i) would be subject to U.S. income tax, as
well as the branch profits tax, on its income which is treated as effectively
connected with the conduct of that trade or business except to the extent the
corporation is entitled to relief under the permanent establishment provision of
a tax treaty, as discussed below, and (ii) would be required to file yearly
income tax returns. Such income tax, if imposed, would be based on effectively
connected income computed in a manner generally analogous to that applied to the
income of a domestic corporation, except that a foreign corporation can claim an
allowance of deductions and credits only if it files a U.S. income tax return.
Under regulations, the foreign corporation would be entitled to deductions and
credits for a taxable year only if the return for that year is filed timely
under rules set forth therein. Currently, the maximum federal tax rate on a
corporation's effectively connected income is 35% and the branch profits tax
rate is 30%. The branch profits tax is imposed each year on a corporation's
effectively connected earnings and profits (with certain adjustments) deemed
repatriated out of the United States.
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Under the tax convention between Bermuda and the United States (the
"Bermuda Treaty"), a Bermuda company, such as ES Bermuda, predominantly engaged
in the insurance business is subject to U.S. income tax on income found to be
effectively connected with a U.S. trade or business only if that trade or
business is conducted through a permanent establishment in the United States.
The Bermuda Treaty exemption, according to its terms, does not apply to
dividends and interest income. While there can be no assurances, the Company
does not believe ES Bermuda will have a permanent establishment in the United
States. ES Bermuda would not be entitled to the benefits of the Bermuda Treaty,
however, if (i) 50% or more of ES Bermuda's stock were beneficially owned,
directly or indirectly, by persons other than Bermuda residents or U.S. citizens
or residents, or (ii) ES Bermuda's income were used in substantial part to make
disproportionate distributions to, or to meet certain liabilities to, persons
who are not Bermuda residents or U.S. citizens or residents. While there can be
no assurances, the Company believes that the above exception to Bermuda Treaty
benefits will not apply to ES Bermuda after the Offerings. The Bermuda Treaty
does not provide relief from the U.S. branch profits tax.
ES Ireland intends to operate its business activities in a manner that
will not result in its being considered to be engaged in a trade or business or
to have a permanent establishment in the United States under the income tax
treaty between Ireland and the United States (the "Irish Treaty"). Whether or
not a company is engaged in a trade or business or has a permanent establishment
in the United States is essentially a factual test, and there is considerable
uncertainty as to the activities that will cause a foreign corporation to be
subject to tax in the United States, and thus, there can be no assurance that
U.S. tax authorities will not successfully contend that ES Ireland is subject to
United States tax. If, however, ES Ireland were subject to U.S. tax, it is not
expected that the amount of such tax would materially affect the Company's
shareholders' equity and earnings.
Under the income tax treaty between Germany and the United States (the
"German Treaty") ES Germany (or any other German subsidiary of the Company) will
generally not be subject to United States Federal income tax unless it engages
in a trade or business in the United States through a permanent establishment.
While there can be no assurances, the Company believes that ES Germany and other
German subsidiaries of the Company will operate their business activities in a
manner that will not result in them being considered to be engaged in a trade or
business or to have a permanent establishment in the United States.
Under the income tax treaty between United Kingdom and the United
States (the "U.K. Treaty"), ESG UK (or any other U.K. subsidiary of the Company)
will generally not be subject to United States Federal income tax unless it
engages in a trade or business in the United States through a permanent
establishment. While there can be no assurances, the Company believes that ESG
UK will operate its business activities in a manner that will not result in its
being considered to be engaged in a trade or business or to have a permanent
establishment in the United States.
Under the income tax treaty between Canada and the United States, ES
North America will generally not be subject to United States Federal income tax
by reason of its Toronto operations unless it engages in a trade or business in
the United States through a permanent establishment. While there can be no
assurances, the Company believes that its Toronto operations will operate its
business activities in a manner that will not result in its being considered to
be engaged in a trade or business or to have a permanent establishment in the
United States.
Foreign corporations not engaged in a trade or business in the United
States are nonetheless subject to U.S. income tax on certain "fixed or
determinable annual or periodic gains, profits and income" derived from sources
within the United States as enumerated in Section 881(a) of the Code (such as
dividends and certain interest on investments).
The United States also imposes an excise tax on insurance and
reinsurance premiums paid to foreign insurers or reinsurers with respect to
risks located in the United States. The rate of tax applicable to reinsurance
premiums paid to ES Bermuda, ESG UK, ES Ireland and ES North America is 1% of
gross premiums.
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Ireland
In general, Irish companies must pay corporation tax on their trading
income at the rate of 32% (reducing to 28% in 1999). However, a company which
holds a certificate (a "Certificate") under Section 446 of the Taxes
Consolidation Act, 1997 ("IFSC Company") qualifies for special relief. The
effect of Section 446 Taxes Consolidation Act, 1997 ("Section 446") is to reduce
the rate of corporation tax on income arising from the trading operations
specified in a Certificate to 10%, provided the conditions attaching to the
Certificate are met. Section 446 defines the trading operations specified in a
Certificate as relevant trading operations ("Relevant Trading Operations"). The
Irish Authorities have approved the grant of a Certificate to ES Ireland. The
Certificate has been issued and unless it is revoked, it shall remain in force
until December 31, 2005. The principal Relevant Trading Operations of ES Ireland
comprise:
(a) the provision of reinsurance facilities consisting of the
underwriting by ES Ireland of reinsurance placements of insurance or
reinsurance companies where such placements are solely in respect of
risks arising outside Ireland; and
(b) reinsurance (retrocession) of the risk referred to at (a)
above with insurance and reinsurance companies.
To the extent that ES Ireland is engaged in activities outside the scope of its
Relevant Trading Operations, its profits on such activities will be liable to
Irish taxation at the rate of 32% (reducing to 28% in 1999).
Withholding Taxes/Advance Corporation Tax. There is no withholding tax on
interest payments made by IFSC Companies in the course of carrying on their
Relevant Trading Operations.
There is no withholding tax on the payment of dividends by Irish resident
companies. However, the Irish Minister for Finance announced in his Budget
Speech the introduction of withholding tax, at the standard rate of income
taxation (currently 24%), on the payment of dividends by Irish resident
companies, subject to certain exceptions. The exceptions, as announced, are
dividends paid to:
(a) companies resident in Ireland;
(b) companies resident in a European Union member state;
(c) companies resident in a jurisdiction with which Ireland
has entered into a double tax treaty;
(d) companies resident in a jurisdiction outside the European
Union with which Ireland does not have a double tax treaty, if the
company is ultimately controlled by shareholders resident in a European
Union member state or in a treaty country.
Advance corporation tax ("ACT") is payable on dividends paid by an IFSC
company to a non-resident 75% parent in a country which does not have a tax
treaty with Ireland. Where the dividends are paid out of profits earned carrying
out relevant trading operations the ACT payable is one eighteenth of the
dividend. ACT may be offset against the general corporation tax liability of the
IFSC Company. ACT is being abolished with effect from April 6, 1999. No ACT will
be payable on dividends paid on or after that date.
Stamp Duty. Irish capital duty will generally arise in respect of
monies subscribed for shares in Irish limited liability companies such as ES
Ireland. The rate of duty is 1%. Irish capital duty does not arise in respect of
monies subscribed to unlimited companies or to limited companies if the
effective center of management of that limited company is located in another
European Union member state. Where the effective center of management of a
limited liability company is in another member state, there may be a liability
to capital duty in that other state.
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The transfer of the beneficial ownership of any shares in ES Ireland
will give rise to Irish stamp duty at a rate of 1%. Stamp duty becomes payable
when the share transfer is executed. No stamp duty is chargeable on a transfer
of nominal or legal title.
No stamp duty is payable on the issue of policies of insurance which
relate to risk located outside Ireland.
Germany
ESG Germany and its subsidiaries will be subject to tax in Germany on
their income. By entering into fiscal unity (Organschaft) with ES Germany and
the other German subsidiaries of ESG Germany, the income of the subordinated
companies is directly attributed to ESG Germany. Fiscal unity requires that the
subordinated companies are integrated financially, organizationally and
economically from the beginning of the respective business year and that a
profit and loss pooling agreement has been concluded for a period of at least
five years and is in fact carried on.
ESG Germany will be subject to trade tax on its income (including the
income of the Company's other subsidiaries attributed to it) at an effective
rate of about 19% based upon the current municipal multiplier of 470% for
Hamburg. The remaining profit after the deduction of the trade tax on income as
a business expense is subject to corporate income tax at a retention rate of 45%
for retained earnings which is reduced to 30% if the profits are distributed to
ESG UK, its immediate parent corporation. Additionally, a solidarity surcharge
of 7.5% is levied on the corporate income tax. Accordingly, the overall
effective tax rate in Germany will be approximately 58% for retained earnings
and 45% for distributed earnings. Non-deductible expenses would increase the
overall effective tax burden.
Dividends paid by ESG Germany to ESG UK will be exempt from German
withholding tax and solidarity surcharge, provided there is sufficient business
purpose for ESG UK under German tax law. The Company expects that a sufficient
business purpose will be found, under German tax law, because ESG UK will own
all of the shares of ES North America, European Specialty Limited, and European
Specialty Insurance Management Services Limited, in addition to all of the
shares of ESG Germany, and will provide management functions for these
companies. If sufficient business purpose were lacking, ESG Germany would have
to withhold 25% withholding tax and a solidarity surcharge of 7.5% on the
withholding tax on dividends paid to ESG UK. The total withholding tax burden
would then be 26.875%.
ES Ireland will not be subject to tax in Germany unless it operates
through a permanent establishment in Germany. Although it is not free from
doubt, the Company expects that ES Germany will qualify as an independent agent
acting in the ordinary course of its business for ES Ireland and thus will not
constitute a permanent establishment. In this regard, it is intended that the
activities of ES Germany will be structured as follows:
ES Germany will be independently capitalized at a level comparable to
that of other German reinsurers with similar levels of business and will assume
a considerable part of the business. ES Germany will have its own employees with
extensive experience, knowledge and relationships in the reinsurance industry,
and decisions regarding the underwriting business will be made in Germany by
employees of ES Germany. ES Germany will write reinsurance policies on behalf of
itself, ES Ireland and to a considerable extent also on behalf of unrelated
companies. ES Ireland will not direct the manner in which ES Germany operates,
nor will it exercise any other form of control over ES Germany's operations. ES
Ireland will not guarantee the profitability of ES Germany, there will be no
common employees, and the fees charged by ES Germany to ES Ireland will be
calculated on the same basis as those charged to the unrelated reinsurers.
Although not free from doubt, the Company believes that structuring the
activities of ES Germany as described above should also support the opinion that
ES Bermuda, which assumes business from ES Ireland, is not subject to tax in
Germany. The tax position of ES Bermuda is strengthened by the fact that it will
have no contractual relationship with ES Germany. If ES Ireland or ES Bermuda
were taxed in Germany, the current overall effective tax rate would be
approximately 56%, although non-deductible expenses would increase the overall
effective tax burden.
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United Kingdom
ESG UK and its U.K. subsidiaries will be subject to corporate income
tax in the United Kingdom at the 31% rate. ESG UK will be entitled to a foreign
tax credit for German taxes paid by ESG Germany, and for Canadian taxes paid by
ES North America, with respect to profits paid as dividends to ESG UK, so that
the effective U.K. corporate tax rate on dividends received from ESG Germany and
ES North America should be zero, on the assumption that foreign tax borne in
each jurisdiction is at least equivalent to the UK rate of taxation.
The Company intends that ESG UK qualify as an International Holding
Company ("IHC") for U.K. tax purposes. ESG UK may qualify as an IHC if the
shares of the Company are listed and traded on a non-U.K. stock exchange, or if
other tests are met. Assuming ESG UK qualifies as an IHC, dividends paid by ESG
UK to ESG will be exempt from ACT, to the extent they are comprised of dividends
from ESG Germany, or other non-U.K. subsidiaries of ESG UK. Dividends paid by
ESG UK, to the extent they are not comprised of dividends from non-U.K.
subsidiaries, will be subject to ACT, which may be offset, subject to certain
limitations, against the U.K. corporate tax of ESG UK and its U.K. subsidiaries.
On November 25, 1997, it was announced that ACT is to be abolished with respect
to dividends paid on or after April 6, 1999.
Canada
ES North America will be subject to Canadian federal and provincial
income tax on its income at a combined rate of approximately 44%. It will also
be subject to Canadian federal and provincial capital taxes at a combined rate
of up to 0.5%. Dividends paid by ES North America to ESG UK will be subject to
Canadian withholding tax at the rate of 10%.
Non-resident companies that carry on business in Canada may also be
subject to Canadian income and capital taxes on the profits of the business
carried on in Canada. Pursuant to the Canada-Ireland tax treaty, ES Ireland will
be subject to tax in Canada only if it carries on business through a permanent
establishment in Canada, and then only on income attributable to that permanent
establishment. The Company intends to operate so that none of its subsidiaries,
other than ES North America, is subject to tax in Canada.
Taxation of Shareholders
Bermuda Taxation
There is no Bermuda withholding tax on dividends paid by the Company.
United States Taxation of U.S. and Non-U.S. Shareholders
Classification as a Controlled Foreign Corporation ("CFC"). Under
Section 951(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
each "U.S. shareholder" of a CFC must include, among other things, in its gross
income for U.S. federal income tax purposes its pro rata share of the CFC's
Subpart F income, even if the Subpart F income is not distributed. Subpart F
income includes, inter alia, "insurance income," defined as including income
(including premium and investment income) attributable to the issuing (or
reinsuring) of any insurance or annuity contract in connection with risks
located in, liabilities arising out of activities in or lives or health of
residents of a country other than the country under the laws of which the
corporation is organized and which would be taxed under the provisions of the
Code relating to insurance companies if the income were the income of a domestic
insurance company. Subpart F insurance income does not, however, does not
include any income from sources within the United States that is effectively
connected with the conduct of a trade or business within the United States
(unless such income is exempt from, or subject to a reduced rate of, tax
pursuant to an income tax treaty with the United States), or in the case of a
company entitled to the benefits of an income tax treaty with the U.S., any
income which is attributable to a permanent establishment in the United States.
Moreover, Subpart F insurance income does not include any item of income
received by a CFC if such income was subject to an effective rate of income tax
imposed by a foreign country
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greater than 90% of the maximum rate specified in Section 11 of the Code. As
discussed above, such maximum tax rate is currently 35%.
Under Section 951(b) of the Code, any U.S. person who owns, directly or
indirectly through foreign persons, or is considered to own (by application of
the rules of constructive ownership set forth in Section 958(b) of the Code),
10% or more of the voting power of all classes of shares of the foreign
corporation will be considered to be a "U.S. shareholder." In general, a foreign
corporation is treated as a CFC if "U.S. shareholders" collectively own more
than 50% of the total combined voting power or total value of the corporation's
shares for an uninterrupted period of 30 days or more during any tax year.
Additionally, a 25% threshold applies if more than 75% of a foreign
corporation's gross premium or other income in respect of all risks is derived
from the issuance (or reinsurance) of insurance or annuity contracts with
respect to risks outside its country of organization. The Company believes that
neither the 25% or 50% ownership tests will apply to it or its subsidiaries
because (i) share ownership of ESG will be widely dispersed and (ii) under ESG's
Articles of Association, no U.S. Holder except John C Head III and persons
deemed to own Common Shares with him ("Head") under Section 958 of the Code are
permitted to hold as much as 10% of ESG's total combined voting power, and Head
is not permitted to hold more than 25% of such voting power. See "Risk
Factors--Anti-Takeover Considerations." Additionally, Head has no intention of
acquiring any shares that would cause them to be treated as owning 25% or more
of the total value of the Company. Therefore, the Company does not believe that
either it or any of its subsidiaries will be a CFC for U.S. federal income tax
purposes. In the absence of any controlling authority, however, there can be no
assurance that the IRS would not successfully take a contrary position regarding
the effect of the foregoing limitations on voting power and therefore assert
that the Company is a CFC. Moreover, if Head acquires sufficient shares that
would cause Head to be treated as owning more than 25% of the value of the
Company for an uninterrupted period of 30 days or more during any tax year, the
Company would be a CFC. If the Company or any subsidiary of the Company were
deemed to be a CFC, each "U.S. shareholder" would be required to include in its
gross income for U.S. federal income tax purposes its pro rata share of the
Company's Subpart F income, even if the Subpart F income is not distributed.
Subpart F income includes, among other things, "insurance income" within the
meaning of Section 953(a) of the Code.
Related Person Insurance Income ("RPII"). The discussion below is
generally applicable only to the RPII, if any, of ES Bermuda, ES Ireland, ESG
UK, ES North America or ES Germany. The rules below will not apply to ES
Bermuda, ES Ireland or ES Germany if (i) less than 20% of the voting power and
less than 20% of the total value of ES Bermuda, ES Ireland or ES Germany is
owned (directly or indirectly) by persons who are (directly or indirectly)
insured under any policy of insurance or reinsurance issued by such corporation
or who are related persons to any such person, (ii) the RPII of ES Bermuda, ES
Ireland or ES Germany for the taxable year is less than 20% of its insurance
income (as defined above but without provisions which limit insurance income to
income from countries other than the country in which the corporation was
created or organized), (iii) such foreign corporation elects to treat its RPII
as income effectively connected with the conduct of a trade or business in the
U.S., or (iv) ES Bermuda, ES Ireland or ES Germany elects to be treated as a
United States corporation.
RPII is defined in Section 953(c)(2) of the Code as any "insurance
income" attributable to policies of insurance (or reinsurance) with respect to
which the person (directly or indirectly) insured is a "U.S. shareholder" or a
"related person" to such a shareholder. For these purposes, a "U.S. shareholder"
generally includes any U.S. person who beneficially owns any amount (rather than
10% or more by vote) of ES Bermuda, ES Ireland or ES Germany shares. (Such "U.S.
shareholders" hereafter are referred to as "RPII Shareholders.") In determining
the RPII Shareholders of ES Bermuda, ES Ireland or ES Germany, shares of ES
Bermuda, ES Ireland or ES Germany held indirectly by U.S. persons through any
non-U.S. entity generally will be treated as held by such persons. The term
"related person" for these purposes generally means someone who controls or is
controlled by the RPII Shareholder, or someone who is controlled by the same
person or persons that control the RPII Shareholder. Control is generally
defined by reference to ownership interests in excess of 50% measured by vote or
value in the case of corporate entities.
If none of the exceptions described above applies and if all RPII
Shareholders own, directly or indirectly, 25% or more of the total combined
voting power or total value of ES Bermuda, ES Ireland or ES Germany
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shares, the RPII of ES Bermuda, ES Ireland or ES Germany must be included in the
gross income of each RPII Shareholder even though not distributed, under the
rules summarized below. Although no assurances can be given, the Company
anticipates that its RPII as a percentage of gross insurance income in 1997 and
in future fiscal years will not equal or exceed the 20% threshold.
Computation of RPII. In order to determine how much RPII ES Bermuda, ES
Ireland or ES Germany has earned in each fiscal year in which the Company
considers there to be a substantial possibility of it reaching or exceeding the
20% limits described above, the Company intends to obtain and rely upon
information from its RPII Shareholders to determine which, if any, of the RPII
Shareholders or persons related to such RPII Shareholders were or are insured by
ES Bermuda, ES Ireland or ES Germany. For any year in which gross RPII is 20% or
more of ES Bermuda, ES Ireland or ES Germany's gross insurance income, the
Company may also seek information from its shareholders as to whether beneficial
owners of shares at the end of the year are RPII Shareholders so that the status
of ES Bermuda, ES Ireland or ES Germany as a CFC and the apportionment of the
RPII among such persons may be determined. The Company may also take any other
reasonable actions it deems necessary to comply with the IRS rules.
There are currently no IRS rulings or Treasury Regulations that provide
a definitive method for determining whether an insured is, or is related to, an
RPII Shareholder or whether a beneficial owner of shares is a U.S. person.
Although there is no currently active regulations project, the U.S. Treasury
Department is authorized to promulgate regulations that provide that a person
will not be treated as an RPII Shareholder with respect to any foreign
corporation if neither such person nor any related person to such person is
(directly or indirectly) insured under any policy of insurance or reinsurance
issued by such foreign corporation. To the extent the Company is unable to make
determinations with respect to who constitutes an RPII Shareholder, it is
possible that it may assume that insureds are, or are related to, RPII
Shareholders for purposes of determining the amount of RPII, but may assume for
apportionment purposes that such owners are not RPII Shareholders, thereby
increasing the per share RPII amount for all known RPII Shareholders.
Apportionment of RPII to RPII Shareholders. The amount of RPII
includible in the income of any RPII Shareholder is based upon the net RPII
income for the year after deducting related expenses such as losses, loss
reserves and operating expenses. Where no exceptions apply, each RPII
Shareholder owning or treated as owning shares in ES Bermuda, ES Ireland or ES
Germany on the last day of ES Bermuda, ES Ireland or ES Germany's fiscal year
will be required to include in its gross income for federal income tax purposes
its share of the RPII for the entire taxable year, determined as if all such
RPII were distributed proportionately only to such RPII Shareholder at that
date, but limited to such RPII Shareholder's share of the ES Bermuda, ES Ireland
or ES Germany's earnings and profits for the current taxable year and reduced by
the RPII Shareholders' share, if any, of certain deficits in earnings and
profits for prior taxable years. This inclusion would be required even though
the shareholder may not have owned the Common Shares for more than one day
during the entire year. On the other hand, a RPII Shareholder who owns Common
Shares during a fiscal year but not on the last day of the fiscal year may not
be required to include in gross income any part of ES Bermuda, ES Ireland or ES
Germany's RPII.
Dispositions of Ordinary Shares. Section 1248 of the Code provides that
if a U.S. person owns directly or indirectly through foreign persons, or is
considered to own (by application of the rules of constructive ownership set
forth in section 958(b) of the Code), 10% or more of the voting shares of a
corporation that is or within a certain period was, a CFC (such person being
referred to as a "10% U.S. Shareholder"), any gain from the sale or exchange of
stock of such CFC may be treated as ordinary income to the extent of the CFC's
earnings and profits during the period that the shareholder held the shares
(with certain adjustments). A 10% U.S. Shareholder may, in certain
circumstances, be required to report a disposition of shares of a CFC by
attaching IRS Form 5471, Information Return with Respect to a Foreign
Corporation, to the U.S. income tax or information return that it would normally
file for the taxable year in which the disposition occurs. It is unclear whether
Section 1248 of the Code will also apply to the sale or exchange of shares in a
foreign insurance company that earns RPII, and 25% or more of the shares of
which are owned by U.S. persons, even if (i) the U.S. person is not a 10%
shareholder, (ii) RPII does not constitute 20% or more of the corporation's
gross insurance income and/or (iii) 20% or more of either the voting power or
value of the corporation is not owned
14
<PAGE>
directly or indirectly through foreign entities by persons (directly or
indirectly)insured (or reinsured) by such foreign insurer, or by persons related
to such insureds (or reinsureds).
The Company believes that such rules (and related reporting
requirements) will not apply to the disposition of Common Shares of ESG because
ESG does not expect to have any 10% U.S. Shareholders other than HMI Partners
L.P., ESG is not directly engaged in the insurance business, and the proposed
regulations issued by the U.S. Department of the Treasury ("Treasury
Department") on April 17, 1991 should be interpreted in this manner. No
assurance, however, can be given that the IRS will agree with this
interpretation or that the final Treasury regulations when issued will provide
that Section 1248 of the Code and the respective reporting requirements will
apply to the disposition of the shares of the Company.
If the IRS or Treasury Department were to make Section 1248 and the
Form 5471 filing requirement applicable to the sale of Common Shares, the
Company would notify shareholders that Section 1248 of the Code and the
requirement to file Form 5471 will apply to dispositions of Common Shares.
Thereafter, the Company will send a notice after the end of each calendar year
to all persons who were shareholders during the year notifying them that Section
1248 of the Code and the requirement to file Form 5471 apply to dispositions of
Common Shares. The Company will attach to this notice a copy of Form 5471
completed with all Company information and instructions for completing the
shareholder information.
Information Reporting. A U.S. Holder of Common Shares may have an
independent obligation to file a copy, for informational purposes, of IRS Form
5471 with its tax return for any taxable year in which such holder: (i) acquires
10% or more of the value of the Common Shares; or (ii) disposes of a sufficient
number of Common Shares to decrease its interest below 10%. The Form 5471 is an
information return on which the holder must provide data concerning the holder,
ESG and the acquisition or disposition of Common Shares.
Foreign Tax Credit. Because U.S. persons are likely to own a majority
of ESG shares, only a portion of the RPII and dividends paid by ESG (including
any gain from the sale of shares that are treated as a dividend under section
1248 of the Code) will be treated as foreign source income for purposes of
computing a shareholder's U.S. foreign tax credit limitation. The Company will
provide shareholders with information regarding the portion of such RPII or
dividend inclusions constituting foreign source income. It is likely that
substantially all of the RPII and dividends that are foreign source income will
constitute either "passive" or "financial services" income for foreign tax
credit limitation purposes. Thus, it may not be possible for most U.S. Holders
to utilize excess foreign tax credits to reduce U.S. tax on such income.
Passive Foreign Investment Companies. Sections 1291 through 1298 of the
Code contain special rules applicable to foreign corporations that are "passive
foreign investment companies" ("PFICs"). In general, a foreign corporation will
be a PFIC if 75% or more of its income constitutes "passive income" or 50% or
more of its assets produce passive income. If the Company were to be
characterized as a PFIC, its United States shareholders would be subject to a
penalty tax at the time of their sale of (or receipt of an "excess distribution"
with respect to) the Common Shares. In general, a shareholder receives an
"excess distribution" if the amount of the distribution is more than 125% of the
average distribution with respect to the Common Shares during the three
preceding taxable years (or shorter period during which the taxpayer held the
Common Shares). In general, the penalty tax is equivalent to the taxes that are
deemed due during the period the U.S. shareholder owned the Common Shares,
computed by assuming that the excess distribution or gain (in the case of a
sale) with respect to the Common Shares was taxed in equal portions throughout
the holder's period of ownership at the maximum tax rate for ordinary income
applicable to each such period, and an interest charge thereon. The interest
charge is equal to the applicable rate imposed on underpayment of U.S. federal
income tax for such period.
The PFIC statutory provisions contain an express exception for income
"derived in the active conduct of an insurance business by a corporation which
is predominantly engaged in an insurance business." This exception is intended
to ensure that income derived by a bona fide insurance company is not treated as
passive income, except to the extent such income is attributable to financial
reserves in excess of the reasonable needs of the insurance business. It is the
Company's intention that the Company and ES Bermuda, ES Ireland and ES Germany
taken together, will be predominantly engaged in an insurance business and will
not have financial
15
<PAGE>
reserves in excess of the reasonable needs of their insurance business. The PFIC
statutory provisions contain a look-through rule that states that, for purposes
of determining whether a foreign corporation is a PFIC, such foreign corporation
shall be treated as if it "received directly its proportionate share of the
income" and as if it "held its proportionate share of the assets" of any other
corporation in which it owns at least 25% of the shares. While no explicit
guidance is provided by the statutory language, the Company believes that under
the look-through rule the Company would be deemed to own the assets and to have
received any income of ES Bermuda, ES Ireland and ES Germany directly for the
purposes of determining whether the Company qualifies for the aforementioned
insurance exception. The Company believes, based upon the advice of counsel,
that its interpretation of the look-through rule is consistent with the
legislative intention generally to exclude bona fide insurance companies from
the application of PFIC provisions; there can, of course, be no assurance as to
what positions the IRS or a court might take in the future.
No regulations interpreting these specific issues under the PFIC
provisions have yet been issued. Therefore, substantial uncertainty exists with
respect to their application or their possible retroactivity. Each U.S. person
who is considering an investment in the Common Shares should consult its tax
advisor as to the effects of these rules.
Other. Dividends paid by the Company to U.S. corporate shareholders
will not be eligible for the dividends received deduction provided by section
243 of the Code.
Except as discussed below with respect to backup withholding, dividends
paid by the Company will not be subject to U.S. withholding tax.
Non-resident alien individuals will not be subject to U.S. estate tax
with respect to Common Shares of the Company.
Information reporting to the IRS by paying agents and custodians
located in the United States will be required with respect to payments of
dividends on the Common Shares to U.S. persons. Thus, a holder of Common Shares
may be subject to backup withholding at the rate of 31% with respect to
dividends paid by such persons, unless such holder (i) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (ii) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. The backup withholding tax is not
an additional tax and may be credited against a holder's regular federal income
tax liability.
Germany Taxation
Profits from the Company should not be taxed at the level of a German
shareholder until they are distributed.
However, because Bermuda is considered as a low tax state and the
Company's income should qualify as (normal) passive income and/or passive income
with investment character, German shareholders of the Company may be subject to
German CFC rules.
Under CFC rules, passive income qualifying as passive income with
investment character derived at the level of a foreign company, which is subject
to low taxation, is included in the income of a German resident in proportion to
his participation in the foreign company and is therefore subject to German
taxation. Such passive income is subject to German taxation if the German
resident has at least 10% of the shares or voting rights in the foreign company.
If the Company has (normal) passive income, its income would be
attributed to the German residents in proportion to their participation, if
German residents in their totality held more than 50% of the shares of voting
rights in the Company, even if the shareholding of each resident is lower than
10%.
16
<PAGE>
The CFC rules may also be applicable if one or several companies or
partnerships are interposed between the shareholders and the Company.
The CFC rules, under certain circumstances, may also require German
residents to include in income their proportionate share of the income of
subsidiaries of ESG. German residents are urged to consult their personal tax
advisors regarding the possible application of the CFC rules to their particular
circumstances.
---------------------------
The opinions of Appleby, Spurling & Kempe, Paul, Weiss, Rifkind,
Wharton and Garrison, Matheson Ormsby Prentice, Deloitte & Touche, Canada,
Deloitte &Touche, United Kingdom and Deloitte & Touche GmbH upon which the
foregoing discussion is based do not include any factual or accounting matters,
determinations or conclusions such as RPII amounts and computations and amounts
of components thereof (e.g., amounts or computations of income or expense items
or reserves entering into RPII computations) or facts relating to the Company's
business or activities. The summary is based upon current tax law. The tax
treatment of a holder of Common Shares, or of a person treated as a holder of
Common Shares for United States federal income, state, local or non-U.S. tax
purposes, may vary depending on the holder's particular tax situation.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could be retroactive and could affect the tax consequences to
holders of Common Shares. Prospective investors should consult their own tax
advisors concerning the united states federal, state, local and non-u.s. tax
consequences of owning the common shares.
USE OF PROCEEDS
The Selling Shareholders will receive all of the proceeds from the sale
of the Common Shares offered hereby. We will not receive any proceeds from the
sale of the Shares offered hereby.
17
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Shares by each of the Selling Shareholders as
of the date hereof, and is based on information provided by the respective
Selling Shareholders.
<TABLE>
<CAPTION>
Maximum
Number of Number of Shares Percentage
Shares Beneficially Shares to Be Beneficially Beneficially
Owned Prior to Which May Owned After this Owned After
Name this Offering Be Sold Offering(1) this Offering(1)
- ---- ------------- ------- ----------- ----------------
<S> <C> <C> <C> <C>
American Steadfast Capital LP 93,262 93,262 0 0
Arkwright Insurance Company 236,364 236,364 0 0
Citicorp North America, Inc. 94,759 94,759 0 0
Drake Holdings Limited 526,809 465,241 61,568 *
ESG Partners (Bermuda) L.P. (2) 896,143 783,155 112,988 *
Head Company Pension Plan 6,056 5,348 708 *
Head Company Profit Sharing Plan 106,952 106,952 0 0
Head Family Foundation 12,110 10,695 1,415 *
HMI Partners L.P. (3)(4) 1,815,672 427,807 1,387,865 10.0%
John C Head III (2)(3)(4)(5) 3,464,292 6,785 3,457,507 24.9%
Madie Ivy (2)(3)(4)(6) 3,464,243 6,684 3,457,559 24.8%
Charles Robert Ivy Head 1997 Trust 5,348 5,348 0 0
John C Head IV 1997 Trust 5,348 5,348 0 0
LIMIT plc 47,380 47,380 0 0
ORKLA ASA 71,070 71,070 0 0
Renaissance Executive Partners, L.P. 53,316 53,316 0 0
Renaissance Offshore Partners, L.P. 17,754 17,754 0 0
Storebrand Skadeforsikring AS 118,182 118,182 0 0
Third Avenue Value Fund, Inc. 118,449 118,449 0 0
- ------------------
</TABLE>
* Less than 1%.
(1) Assumes sale of all Common Shares registered hereunder, even though the
Selling Shareholders are under no obligation known to us to sell any
Common Shares at this time.
(2) Includes 792,505 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.
(3) These parties are subject to an agreement restricting them from selling
certain Common Shares controlled by them until December 12, 1999, unless
the underwriters of the Company's initial public offering consent to such
sale.
(4) Includes 455,457 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 (a) 8,685 Common Shares and Class A Warrants to purchase 885
Common Shares held by Mr. Head, (b) 21,196 Common Shares held by certain
trusts for the benefit of the minor children of Mr. Head and Ms. Ivy, (c)
18
<PAGE>
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 an
affiliate investor of ESG Partners L.P., (e) options to purchase 33,214
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, (f) Class A
Warrants to purchase 1,416 Common Shares held by certain trusts for the
benefit of the minor children of Mr. Head and Ms. Ivy, (g) 792,505 Common
Shares and Class A Warrants to purchase 103,638 Common Shares held by ESG
Partners (Bermuda) L.P., (h) 106,952 Common Shares held by the Head
Company Profit Sharing Plan, and (i) 10,695 Common Shares and Class A
Warrants to purchase 1,145 Common Shares held by the Head Family
Foundation.
(6) Includes (a) 8,636 Common Shares and Class A Warrants to purchase 885
Common Shares held by Ms. Ivy, (b) 21,196 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., (e) options to purchase 33,214
Common Shares held by certain trusts for the benefit of the minor children
of Mr. Head and Ms. Ivy and (f) Class A Warrants to purchase 1,416 Common
Shares held by certain trusts for the benefit of the minor children of Mr.
Head and Ms. Ivy, (g) 792,505 Common Shares and Class A Warrants to
purchase 103,638 Common Shares held by ESG Partners (Bermuda) L.P., (h)
106,952 Common Shares held by the Head Company Profit Sharing Plan, and
(i) 10,695 Common Shares and Class A Warrants to purchase 1,145 Common
Shares held by the Head Family Foundation.
19
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the shares on behalf of the Selling
Shareholders. As used herein, "Selling Shareholders" includes donees and
pledgees selling shares received from a named Selling Shareholder after the date
of this Prospectus. All costs, expenses and fees in connection with the
registration of the Common Shares offered hereby will be borne by the Company.
Brokerage commissions and similar selling expenses, if any, attributable to the
sale of shares will be borne by the Selling Shareholders. Sales of shares may be
effected by Selling Shareholders from time to time in one or more types of
transactions (which may include block transactions) on Nasdaq, in the
over-the-counter market, in negotiated transactions, through put or call options
transactions relating to the Shares, through short sales, or a combination of
such methods of sale, at market prices prevailing at the time of sale, or at
negotiated prices. Such transactions may or may not involve brokers or dealers.
The Selling Shareholders have advised the Company that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of Shares by the Selling Shareholders.
The Selling Shareholders may effect such transactions by selling
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Shareholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Shareholders and any broker-dealers that act in connection
with the sale of shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. The Company has agreed to indemnify each Selling
Shareholder against certain liabilities, including liabilities arising under the
Securities Act. The Selling Shareholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
Shares against certain liabilities, including liabilities arising under the
Securities Act.
Because Selling Shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Shareholders
will be subject to the prospectus delivery requirements of the Securities Act,
which may include delivery through the facilities of Nasdaq pursuant to Rule 153
under the Securities Act. The Company has informed the Selling Shareholders that
the anti-manipulative provisions of Regulation M promulgated under the Exchange
Act may apply to their sales in the market.
Selling Shareholders also may resell all or a portion of the Shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
Upon the Company being notified by a Selling Shareholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
Prospectus will be filed, if required, pursuant to Rule 424(b) under the Act,
disclosing (i) the name of each such selling shareholder and of the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such shares were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus, and (vi) other facts
material to the transaction. In addition, upon the company being notified by a
Selling Shareholder that a donee or pledgee intends to sell more than 500
shares, a supplement to this Prospectus will be filed.
20
<PAGE>
LEGAL CONSIDERATIONS
The Company has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority.
The transfer of Common Shares between persons regarded as non-resident
in Bermuda for exchange control purposes and the issue of shares to such persons
may be effected without specific consent under the Exchange Control Act of 1972
and regulations thereunder. Issues and transfers of shares to any person
regarded as resident in Bermuda for exchange control purposes require specific
prior approval under the Exchange Control Act of 1972.
There are no limitations on the rights of persons regarded as
non-resident of Bermuda for foreign exchange control purposes owning Common
Shares to hold or vote their Common Shares. Because the Company has been
designated as a non-resident for Bermuda exchange control purposes, there are no
restrictions on its ability to transfer funds in and out of Bermuda or to pay
dividends to U.S. residents who are holders of Common Shares, other than in
respect of local Bermuda currency.
In accordance with Bermuda law, share certificates are issued only in
the names of corporations or individuals. In the case of an applicant acting in
a special capacity (for example, as an executor or trustee), certificates may,
at the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity, the Company
is not bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust.
The Company will take no notice of any trust applicable to any of its
Common Shares whether or not it had notice of such trust.
As an "exempted company," the Company is exempt from Bermuda laws
restricting the percentage of share capital that may be held by non-Bermudians,
but as an exempted company the Company may not participate in certain business
transactions, including: (i) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years) without the express authorization of the
Bermuda legislature; (ii) the taking of mortgages on land in Bermuda to secure
an amount in excess of $50,000 without the consent of the Minister of Finance of
Bermuda; (iii) the acquisition of securities created or issued by, or any
interest in, any local company or business, other than certain types of Bermuda
government securities or securities of another "exempted" company, partnership
or other corporation resident in Bermuda but incorporated abroad; or (iv) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda or under a license granted by
the Minister of Finance of Bermuda.
The Bermuda government actively encourages foreign investment in
"exempted" entities like the Company that are based in Bermuda but do not
operate in competition with local business. In addition to having no
restrictions on the degree of foreign ownership, the Company is subject neither
to taxes on its income or dividends nor to any foreign exchange controls in
Bermuda. In addition, there is no capital gains tax in Bermuda, and profits can
be accumulated by the Company, as required, without limitation.
EXPERTS
The consolidated financial statements of ESG Re Limited and
subsidiaries as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997, included in our Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and incorporated by reference
into this Prospectus, have been incorporated by reference in reliance on the
reports of Deloitte & Touche, Hamilton, Bermuda, independent accountants, and on
the authority of Deloitte & Touche as experts in accounting and auditing.
21
<PAGE>
LEGAL MATTERS
Certain legal matters have been passed upon for us by Paul, Weiss,
Rifkind, Wharton & Garrison, New York, New York, who will rely as to Bermuda law
upon the opinion of Appleby, Spurling & Kempe, Hamilton, Bermuda. The validity
of the issuance of the Common Shares offered hereby will be passed upon for us
by Appleby, Spurling & Kempe. Certain Bermuda tax matters will be passed upon
for us by Appleby, Spurling & Kempe. Certain German tax matters will be passed
upon for us by Deloitte & Touche GmbH. Certain United Kingdom tax matters will
be passed upon for us by Deloitte & Touche, United Kingdom. Certain Irish tax
matters will be passed upon for us by Matheson Ormsby Prentice, Ireland. Certain
Canada tax matters will be passed upon for us by Deloitte & Touche, Canada.
22
<PAGE>
================================================================================
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not 2,673,899 contained in this prospectus.
You must not Common Shares rely on any unauthorized information. This prospectus
does not offer to sell or buy any shares in any jurisdiction where it is
unlawful. The information in this prospectus is current ESG Re Limited as of ,
1998.
--------------
TABLE OF CONTENTS
--------------
Page
----
Available Information....................................................ii
Incorporation by Reference...............................................ii
Preparation of Financial Statements.....................................iii
Enforceability of Civil Liabilities.....................................iii
Forward-Looking Information.............................................iii
The Company...............................................................1
Risk Factors..............................................................2
Certain Tax Considerations................................................8
Use of Proceeds..........................................................17
Selling Shareholders.....................................................18
Plan of Distribution.....................................................20
Legal Considerations.....................................................21
Experts..................................................................21
Legal Matters............................................................22
================================================================================
================================================================================
2,673,899
Common Shares
ESG Re Limited
----------
PROSPECTUS
----------
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the approximate amount of the fees
and expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock.
Securities and Exchange Commission, registration fee.................$14,496
Printing and mailing expenses........................................ *
Accounting fees and expenses......................................... *
Legal fees and expenses.............................................. *
Miscellaneous expenses............................................... *
Total..................................................$ *
==========
- ----------
* To be filed by amendment.
Item 15. Indemnification of Directors and Officers
Section 98 of the Companies Act 1981 of Bermuda (the "Act") provides
generally that a Bermudian company may indemnify its directors, officers and
auditors against any liability which by virtue of Bermudian law otherwise would
be imposed on them, except in cases where such liability arises from fraud or
dishonesty of which such director, officer or auditor may be guilty in relation
to the company. Section 98 further provides that a Bermudian company may
indemnify its directors, officers and auditors against any liability incurred by
them in defending any proceedings, whether civil or criminal, in which judgment
is awarded in their favor or they are acquitted or in which they are acquitted
or granted relief by the Supreme Court of Bermuda in certain proceedings arising
under Section 281 of the Act. The Company has adopted provisions in its
Memorandum of Association and Bye-Laws that provide that the Company shall
indemnify its officers and directors to the maximum extent permitted under the
Act. The Company also entered into indemnification agreements with each of its
directors and officers to provide them with the maximum indemnification allowed
under its Memorandum of Association, Bye-Laws and the Act.
Item 16. Exhibits
3.1 -- Memorandum of Association of the Registrant (incorporated by
reference to Amendment No. 1 to the Registration Statement on Form
F-1 of the Registrant, as filed with the Securities and Exchange
Commission on December 9, 1997 (File No. 333-40341)).
3.2 -- Bye-laws of the Registrant (incorporated by reference to
Amendment No. 1 to the Registration Statement on Form F-1 of the
Registrant, as filed with the Securities and Exchange Commission
on December 9, 1997 (File No. 333-40341)).
4.1 -- Form of Share Certificate (incorporated by reference to
Amendment No. 1 to the Registration Statement on Form F-1 of the
Registrant, as filed with the Securities and Exchange Commission
on December 9, 1997 (File No. 333-40341)).
5.1 -- Form of Opinion of Appleby, Spurling & Kempe.
8.1 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain tax
matters.
8.2 -- Form of Opinion of Appleby, Sperling & Kempe as to certain tax matters.
8.3* -- Opinion of Deloitte & Touche GmbH as to certain tax matters.
8.4 -- Opinion of Deloitte & Touche, United Kingdom as to certain tax matters.
8.5 -- Form of Opinion of Deloitte & Touche, Canada as to certain tax matters.
8.6 -- Opinion of Matheson Ormsby Prentice as to certain tax matters.
II-1
<PAGE>
10.1 -- Form of Subscription Agreement, between ESG Re Limited and
certain Direct Purchasers, dated as of September 30, 1997
(incorporated by reference to Amendment No. 1 to the Registration
Statement on Form F-1 of the Registrant, as filed with the
Securities and Exchange Commission on December 9, 1997 (File No.
333-40341)).
10.2 -- Form of Registration Rights Agreement between ESG Re Limited
and the Direct Purchasers named therein (incorporated by reference
to Amendment No. 1 to the Registration Statement on Form F-1 of
the Registrant, as filed with the Securities and Exchange
Commission on December 9, 1997 (File No. 333-40341)).
10.3 -- Employment Agreement between European Specialty Group (United
Kingdom) Limited, ESG Re Limited and Wolfgang M. Wand, dated as of
December 1, 1997 (incorporated by reference to Amendment No. 1 to
the Registration Statement on Form F-1 of the Registrant, as filed
with the Securities and Exchange Commission on December 9, 1997
(File No. 333-40341)).
10.4 -- Employment Agreement between ESG Re Limited and Steven H.
Debrovner, dated as of December 1, 1997 (incorporated by reference
to Amendment No. 1 to the Registration Statement on Form F-1 of
the Registrant, as filed with the Securities and Exchange
Commission on December 9, 1997 (File No. 333-40341)).
10.5 -- Employment Agreement between European Specialty Group Holding
AG and Gerhard Jurk, dated as of December 1, 1997 (incorporated by
reference to Amendment No. 1 to the Registration Statement on Form
F-1 of the Registrant, as filed with the Securities and Exchange
Commission on December 9, 1997 (File No. 333-40341)).
10.6 -- Employment Agreement between European Specialty (North America)
Limited and Renate M. Nellich, dated as of December 1, 1997
(incorporated by reference to Amendment No. 1 to the Registration
Statement on Form F-1 of the Registrant, as filed with the
Securities and Exchange Commission on December 9, 1997 (File No.
333-40341)).
10.7 -- Investment Advisory Agreement between ESG Re Limited and Head
Asset Management L.L.C., dated as of December 1, 1997
(incorporated by reference to Amendment No. 1 to the Registration
Statement on Form F-1 of the Registrant, as filed with the
Securities and Exchange Commission on December 9, 1997 (File No.
333-40341)).
10.8 -- Investment Advisory Agreement between European Specialty
Ruckversicherung AG and Head Asset Management L.L.C., dated as of
December 1, 1997 (incorporated by reference to Amendment No. 1 to
the Registration Statement on Form F-1 of the Registrant, as filed
with the Securities and Exchange Commission on December 9, 1997
(File No. 333-40341)).
10.9 -- Form of Non-Management Directors' Compensation and Option Plan,
approved on December 3, 1997 between ESG Re Limited and
non-employee director optionees (incorporated by reference to
Exhibit 10.9 to the Registrant's Annual Report of Form 10-K for
the fiscal year ended December 31, 1997 (File No. 000-23481)).
10.10 -- Form of 1997 Stock Option Plan, approved on December 3, 1997
between ESG Re Limited and certain optionees (incorporated by
reference to Exhibit 10.10 to the Registrant's Annual Report of
Form 10-K for the fiscal year ended December 31, 1997 (File No.
000-23481)).
23.1 -- Consent of Appleby, Spurling & Kempe (included in Exhibit 5.1).
23.2 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in
Exhibit 8.1).
23.3 -- Consent of Deloitte & Touche, Bermuda.
23.4* -- Consent of Deloitte & Touche GmbH (included in Exhibit 8.3).
23.5 -- Consent of Deloitte & Touche, United Kingdom (included in Exhibit
8.4).
23.6 -- Consent of Deloitte & Touche, Canada (included in Exhibit 8.5).
23.7 -- Consent of Matheson Ormsby & Prentice (included in Exhibit 8.6).
24 -- Power of Attorney (included on signature page hereto).
- ----------
* To be filed by Amendment.
II-2
<PAGE>
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
a prospectus pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offering therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the
II-3
<PAGE>
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question as to whether such indemnification by
it is against public policy as expressed in the Act, and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, New York, on the 22nd day of December, 1998.
ESG Re LIMITED
By: /s/ Joan H. Dillard
-----------------------
Joan H. Dillard
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Wolfgang M. Wand and Steven H. Debrovner and each or either of them,
his true and lawful attorney-in-fact with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement (or any registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933) and to cause the same to be filed, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting to said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing whatsoever requisite or desirable to be done in and about the premises, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things that said
attorneys-in-fact and agents, or either of them, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Wolfgang M. Wand Managing Director and Chief December 22, 1998
- ----------------------- Executive Officer and Director
Wolfgang M. Wand
/s/ Steven H. Debrovner Chief Operating Officer and December 22, 1998
- ----------------------- Director
Steven H. Debrovner
/s/ Joan H. Dillard Chief Financial Officer December 22, 1998
- ----------------------- (Principal Financial and
Joan H. Dillard Accounting Officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
Chairman of the Board
John C Head III
/s/ Kenneth P. Morse Director December 22, 1998
- --------------------
Kenneth P. Morse
/s/ David L. Newkirk Director December 22, 1998
- --------------------
David L. Newkirk
/s/ William J. Poutsiaka Director December 22, 1998
- ------------------------
William J. Poutsiaka
/s/ Edward A.Tilly Director December 22, 1998
Edward A. Tilly
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
3.1 Memorandum of Association of the Registrant (incorporated by reference
to Amendment No. 1 to the Registration Statement on Form F-1 of the
Registrant, as filed with the Securities and Exchange Commission on
December 9, 1997 (File No. 333-40341)).
3.2 Bye-laws of the Registrant (incorporated by reference to Amendment No.
1 to the Registration Statement on Form F-1 of the Registrant, as filed
with the Securities and Exchange Commission on December 9, 1997 (File
No. 333-40341)).
4.1 Form of Share Certificate (incorporated by reference to Amendment No. 1
to the Registration Statement on Form F-1 of the Registrant, as filed
with the Securities and Exchange Commission on December 9, 1997 (File
No. 333-40341)).
5.1 Form of Opinion of Appleby, Spurling & Kempe.
8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain tax
matters.
8.2 Form of Opinion of Appleby, Sperling & Kempe as to certain tax matters.
8.3* Opinion of Deloitte & Touche GmbH as to certain tax matters.
8.4 Opinion of Deloitte & Touche, United Kingdom as to certain tax matters.
8.5 Form of Opinion of Deloitte & Touche, Canada as to certain tax matters.
8.6 Opinion of Matheson Ormsby Prentice as to certain tax matters.
10.1 Form of Subscription Agreement, between ESG Re Limited and certain
Direct Purchasers, dated as of September 30, 1997 (incorporated by
reference to Amendment No. 1 to the Registration Statement on Form F-1
of the Registrant, as filed with the Securities and Exchange Commission
on December 9, 1997 (File No. 333-40341)).
10.2 Form of Registration Rights Agreement between ESG Re Limited and the
Direct Purchasers named therein (incorporated by reference to Amendment
No. 1 to the Registration Statement on Form F-1 of the Registrant, as
filed with the Securities and Exchange Commission on December 9, 1997
(File No.
333-40341)).
10.3 Employment Agreement between European Specialty Group (United Kingdom)
Limited, ESG Re Limited and Wolfgang M. Wand, dated as of December 1,
1997 (incorporated by reference to Amendment No. 1 to the Registration
Statement on Form F-1 of the Registrant, as filed with the Securities
and Exchange Commission on December 9, 1997 (File No. 333-40341)).
10.4 Employment Agreement between ESG Re Limited and Steven H. Debrovner,
dated as of December 1, 1997 (incorporated by reference to Amendment
No. 1 to the Registration Statement on Form F-1 of the Registrant, as
filed with the Securities and Exchange Commission on December 9, 1997
(File No. 333-40341)).
10.5 Employment Agreement between European Specialty Group Holding AG and
Gerhard Jurk, dated as of December 1, 1997 (incorporated by reference
to Amendment No. 1 to the Registration Statement on Form F-1 of the
Registrant, as filed with the Securities and Exchange Commission on
December 9, 1997 (File No. 333-40341)).
10.6 Employment Agreement between European Specialty (North America) Limited
and Renate M. Nellich, dated as of December 1, 1997 (incorporated by
reference to Amendment No. 1 to the Registration Statement on Form F-1
of the Registrant, as filed with the Securities and Exchange Commission
on December 9, 1997 (File No. 333-40341)).
10.7 Investment Advisory Agreement between ESG Re Limited and Head Asset
Management L.L.C., dated as of December 1, 1997 (incorporated by
reference to Amendment No. 1 to the Registration Statement on Form F-1
of the Registrant, as filed with the Securities and Exchange Commission
on December 9, 1997 (File No. 333-40341)).
10.8 Investment Advisory Agreement between European Specialty
Ruckversicherung AG and Head Asset Management L.L.C., dated as of
December 1, 1997 (incorporated by reference to Amendment No. 1 to the
Registration Statement on Form F-1 of the Registrant, as filed with the
Securities and Exchange Commission on December 9, 1997 (File No.
333-40341)).
II-7
<PAGE>
10.9 Form of Non-Management Directors' Compensation and Option Plan,
approved on December 3, 1997 between ESG Re Limited and non-employee
director optionees (incorporated by reference to Exhibit 10.9 to the
Registrant's Annual Report of Form 10-K for the fiscal year ended
December 31, 1997 (File No. 000-23481)).
10.10 Form of 1997 Stock Option Plan, approved on December 3, 1997 between
ESG Re Limited and certain optionees (incorporated by reference to
Exhibit 10.10 to the Registrant's Annual Report of Form 10-K for the
fiscal year ended December 31, 1997 (File No. 000-23481)).
23.1 Consent of Appleby, Spurling & Kempe (included in Exhibit 5.1).
23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in
Exhibit 8.1).
23.3 Consent of Deloitte & Touche, Bermuda.
23.4* Consent of Deloitte & Touche GmbH (included in Exhibit 8.3).
23.5 Consent of Deloitte & Touche, United Kingdom (included in Exhibit 8.4).
23.6 Consent of Deloitte & Touche, Canada (included in Exhibit 8.5).
23.7 Consent of Matheson Ormsby & Prentice (included in Exhibit 8.6).
24 Power of Attorney (included on signature page hereto).
- ----------
* To be filed by Amendment.
II-8
EXHIBIT 5.1
DRL/lb/63618.8
Direct Telephone: 298 3228
Direct Fax: 298 3366
Direct e-mail:
[ ] December 1998
ESG Re Limited
Skandia International House
Church Street
Hamilton HM 11
Bermuda
Dear Sirs
ESG Re Limited (the "Company")
We have acted as special Bermuda counsel to the Company with respect to the
Registration Statement, as filed with the Securities and Exchange Commission on
[ ] December 1998, on Form S-3 (Registration No. [ ]), and all amendments
thereto (collectively, the "Registration Statement") under the Securities Act of
1933 of the United States of America, as amended (the "Act"), and the Rules and
Regulations promulgated thereunder (the "Rules").
For the purposes of this opinion we have examined and relied upon the documents
listed (which in some cases, are also defined in the First Schedule to this
opinion (the "Documents"). Unless otherwise defined herein, capitalised terms
have the meanings assigned to them in the Registration Statement.
Assumptions
In stating our opinion we have assumed:
(a) the authenticity, accuracy and completeness of all Documents submitted
to us as originals and the conformity to authentic original Documents
of all Documents submitted to us as certified, conformed, notarised or
photostatic copies;
(b) the genuineness of all signatures on the Documents;
(c) that any factual statements made in the Registration Statement are
true, accurate and complete;
(d) that the search made on [ ] December 1998 of the Register of Companies
at the office of the Registrar of Companies referred to in paragraph 2
of the First
<PAGE>
2
Schedule to this opinion, was complete and accurate at the time of such
search and disclosed all information which is material for the purposes
of this opinion and such information has not since such date been
materially altered;
(e) that the search made on [ ] December 1998 in the Supreme Court Causes
Book at the Registry of the Supreme Court referred to in paragraph 3 of
the First Schedule to this opinion was complete and accurate at the
time of such search and disclosed all information which is material for
the purposes of this opinion and such information has not since such
date been materially altered;
(f) that the Resolutions are in full force and effect and have not been
rescinded, either in whole or in part, accurately record the
resolutions passed by the Board of Directors of the Company in a
meeting which was duly convened and at which a duly constituted quorum
was present and voting throughout; and
(g) that each Director of the Company, when the Board of Directors of the
Company adopted the Resolutions, discharged his fiduciary duty owed to
the Company and acted honestly and in good faith with a view to the
best interests of the Company.
Opinion
Based upon and subject to the foregoing, and subject to the reservations set out
below and any matters not disclosed to us, we are of the opinion that the
Shares, when issued, delivered and paid for as contemplated in the Registration
Statement have been duly authorized, validly issued, fully paid and
non-assessable. The term "non-assessable" is not a term of art in Bermuda;
however, for the purposes of this opinion non-assessable means that all calls in
regard of capital monies which may, be made in respect of the Shares (as
contemplated in the Registration Statement) have been made, and have been
satisfied.
Reservations
We have the following reservations:
(a) We express no opinion as to any law other than Bermuda law and none of
the opinions expressed herein relates to compliance with or matters
governed by the laws of any jurisdiction except Bermuda. This opinion
is limited to Bermuda law as applied by the Courts of Bermuda at the
date hereof.
(b) Where an obligation is to be performed in a jurisdiction other than
Bermuda, the courts of Bermuda may refuse to enforce it to the extent
that such performance would be illegal under the laws of, or contrary
to public policy of, such other jurisdiction.
<PAGE>
3
(c) Searches of the Register of Companies at the office of the Registrar of
Companies and of the Supreme Court Causes Book at the Registry of the
Supreme Court are not conclusive and it should be noted that the Register
of Companies and the Supreme Court Causes Book do not reveal:
(i) whether an application to the Supreme Court for a winding up petition
or for the appointment of a receiver or manager has been prepared but
not yet been presented or has been presented but does not appear in
the Causes Book at the date and time the Search is concluded;
(ii) whether any arbitration or administrative proceedings are pending or
whether any proceedings are threatened, or whether any arbitrator has
been appointed;
(iii) details of matters which have been lodged for filing or registration
which as a matter of general practice of the Registrar of Companies
would have or should have been disclosed on the public file but have
not actually been registered or to the extent that they have been
registered have not been disclosed or appear in the public records at
the date and time the search is concluded;
(iv) details of matters which should have been lodged for registration but
have not been lodged for registration at the date the search is
concluded; or
(v) whether a receiver or manager has been appointed privately pursuant to
the provisions of a debenture or other security, unless notice of the
fact has been entered in the register of charges in accordance with
the provisions of the Act.
Furthermore, in the absence of a statutorily defined system for the
registration of charges created by companies incorporated outside Bermuda
("overseas companies") over their assets located in Bermuda, it is not
possible to determine definitively from searches of the register of charges
maintained by the Registrar of Companies in respect of such overseas
companies what charges have been registered over any of their assets
located in Bermuda or whether any one charge has priority over any other
charge over such assets.
(d) In order to issue this opinion we have carried out the search referred to
in paragraph 2 of the First Schedule to this opinion on [ ] December 1998
and have not enquired as to whether there has been any change since that
time and date.
(p) In order to issue this opinion we have carried out the search referred to
in
<PAGE>
4
paragraph 3 of the First Schedule to this opinion at on [ ] December 1998
and have not enquired as to whether there has been any change since that
time and date.
<PAGE>
5
Disclosure
This opinion is addressed to you solely for your benefit and is neither to be
transmitted to any other person, nor relied upon by any other person or for any
other purpose nor quoted or referred to in any public document nor filed with
any governmental agency or person, without our prior written consent, except as
may be required by law or regulatory authority. Further, this opinion speaks as
of its date and is strictly limited to the matters stated herein and we assume
no obligation to review or update this opinion if applicable law or the existing
facts or circumstances should change.
We hereby specifically consent to the use of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" contained in the Prospectus included in the Registration Statement. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required by the Act or the Rules.
This opinion is governed by and is to be construed in accordance with Bermuda
law. It is given on the basis that it will not give rise to any legal
proceedings with respect thereto in any jurisdiction other than Bermuda.
Yours faithfully
<PAGE>
FIRST SCHEDULE
1. Certified copy of the Minutes of the Meeting of the Board of Directors of
the Company held on [ ] 1998 (the "Resolutions").
2. The entries and filings shown in respect of the Company on the file of the
Company maintained in the Register of Companies at office of the Registrar
of Companies in Hamilton, Bermuda, as revealed by a search on [ ] December
1998.
3. The entries and filings shown in the Supreme Court Causes Book maintained
at the Registry of the Supreme Court in Hamilton, Bermuda, as revealed by a
search on [ ] December 1998 in respect of the Company.
4. Certified copies of the Certificate of Incorporation, Memorandum of
Association and Bye-laws for the Company (collectively referred to as the
"Constitutional Documents").
5. A certified copy of the "Foreign Exchange Letter", dated [ ] 1997, issued
by the Bermuda Monetary Authority, Hamilton Bermuda in relation to the
Company.
6. A certified copy of the "Tax Assurance", dated [ ] 1997, issued by the
Registrar of Companies for the Minister of Finance in relation to the
Company.
7. A certified copy of that Register of Directors and Officers in respect of
the Company.
<PAGE>
SECOND SCHEDULE
Financial Institutions
EXHIBIT 8.1
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
(212) 373-3000
Writer's Direct Dial:
212-373-3000
Writer's Direct Fax:
December 21, 1998
Via EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
ESG Re Limited
Registration Statement
Ladies and Gentlemen:
In connection with the Registration Statement (the "Registration
Statement") filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
promulgated thereunder (the "Rules"), we have been requested to render our
opinion as to the matter hereinafter set forth.
In this regard, we have reviewed copies of the Registration Statement.
We have also made such other investigations of fact and law and have examined
the originals, or copies authenticated to our satisfaction, of such documents,
records, certificates or other instruments as in our judgment are necessary or
appropriate to render the opinion expressed below.
Based on the foregoing, we confirm that the opinion set forth in the
Registration Statement under "Certain Tax Considerations -- Taxation of the
Company and its Subsidiaries -- United States" and "Certain Tax Considerations
- -- Taxation of Shareholders -- United States Taxation of U.S. and non-U.S.
Shareholders" constitutes our opinion with respect to such matters.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
reference to our name therein.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrision
---------------------------------------------
Paul, Weiss, Rifkind, Wharton & Garrison
EXHIBIT 8.2
DRL/1b/63618.8
Direct Telephone: 298 3228
Direct Fax: 298 3366
Direct e-mail: [email protected]
[ ] December 1998
ESG Re Limited
Skandia International House
Church Street
Hamilton HM 11
Bermuda
Dear Sirs:
ESG Re Limited (the "Company")
We have acted as legal counsel in Bermuda to the Company and this opinion as to
Bermuda law is addressed to you in connection with the filing by the Company
with the Securities and Exchange Commission, Washington D.C. 20549 of a
Registration Statement on Form S-3 No [ ] with respect to the registration of
[ ] Common Shares of certain shareholders of the Company (the "Registration
Statement"). The documents include:
(i) a draft dated [ ] 1998 of the Registration Statement referred to above; and
(ii) the Prospectus issued by the Company in relation to the offering of the
Shares (the Registration Statement and the Prospectus are (the "Issue
Documents").
For the purposes of this opinion we have examined and relied upon the documents
listed in the First Schedule to this opinion and drafts dated [ ] 1998 of the
Issue Documents (the "Documents"). Unless otherwise defined herein, capitalised
terms have the meanings assigned to them in the Registration Statement.
Assumptions
In stating our opinion we have assumed:
<PAGE>
ESG Re Limited - 2 - [ ] December 1998
(a) the authenticity, accuracy and completeness of all Documents submitted to
us as originals and the conformity to authentic original Documents of all
Documents submitted to us as certified, conformed, notarised or photostatic
copies;
(b) the genuineness of all signatures on the Documents;
(c) the authority, capacity and power of each of the persons signing the
Documents;
(d) that any factual statements made in any of the Documents are true, accurate
and complete; and
(e) that the drafts of the Issue Documents which we have examined for the
purposes of this opinion do not differ in any material respect from those
drafts approved by the board of directors of the Company and its
shareholders pursuant to the relevant board resolutions, and that when
filed the Issue Documents will not differ in any material respect from the
drafts which we have examined.
Opinion
Based upon and subject to the foregoing and subject to the reservations set out
below and to any matters not disclosed to us, we are of the opinion that the
statements in the Registration Statement/Prospectus under the headings "Certain
Tax Considerations Taxation of the Company and its Subsidiaries - Bermuda" and
"Certain Tax Considerations - Taxation of Shareholders - Bermuda Taxation",
insofar as they purport to describe the provisions of the laws of Bermuda
referred to therein, are accurate and correct in all material respects.
Reservations
We have the following reservations:
(a) We express no opinion as to any law other than Bermuda law and none of the
opinions expressed herein relates to compliance with or matters governed by
the laws of any jurisdiction except Bermuda. This opinion is limited to
Bermuda law as applied by the Courts of Bermuda at the date hereof.
(b) Where an obligation is to be performed in a jurisdiction other than
Bermuda, the courts of Bermuda may refuse to enforce it to the extent that
such performance would be illegal under the laws of, or contrary to public
policy of, such other jurisdiction.
<PAGE>
ESG Re Limited - 3 - [ ] December 1998
Disclosure
This opinion is addressed to you in connection with the registration of Shares
with the Securities and Exchange Commission and is not to be made available to,
or relied on by any other person or entity, or for any other purpose, without
our prior written consent. We consent to the filing of this opinion as an
exhibit to the Registration Statement of the Company.
We also consent to the reference to our Firm in the Registration Statement.
This opinion is addressed to you solely for your benefit and is neither to be
transmitted to any other person, nor relied upon by any other person or for any
other purpose nor quoted or referred to in any public document nor filed with
any governmental agency or person, without our prior written consent, except as
may be required by law or regulatory authority. Further, this opinion speaks as
of its date and is strictly limited to the matters stated herein and we assume
no obligation to review or update this opinion if applicable laws or the
existing facts or circumstances should change.
This opinion is governed by and is to be construed in accordance with Bermuda
law. It is given on the basis that it will not give rise to any legal
proceedings with respect thereto in any jurisdiction other than Bermuda.
Yours faithfully
<PAGE>
FIRST SCHEDULE
1. Certified copies of the Certificate of Incorporation, Memorandum of
Association and Bye-laws of the Company.
2. A certified copy of the "Foreign Exchange Letter", dated [ ] 1997, issued
by the Bermuda Monetary Authority, Hamilton Bermuda in relation to the
Company.
3. A certified copy of the "Tax Assurance", dated [ ] 1997, issued by the
Registrar of Companies for the Minister of Finance in relation to the
Company.
<PAGE>
SECOND SCHEDULE
Underwriters/Purchasers
EXHIBIT 8.4
17 December 1998
Opinion of Deloitte & Touche
Special Tax Advisor for the Company
Dear Sirs
REGISTER STATEMENT ON FORM S-3
The discussion of tax matters set forth under the caption "Certain Tax
Considerations - Taxation of the Company and its Subsidiaries - United Kingdom"
in the Prospectus is accurate in all material respects and fairly presents the
information set out therein insofar as such statements constitute a summary of
United Kingdom taxation. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement on Form S-3 and to the references to our
Firm under the heading "Certain Tax Considerations" in the Prospectus.
Yours faithfully
/s/ Deloitte & Touche
EXHIBIT 8.5
Opinion of Deloitte & Touche
Special Tax Advisor for the Company
To the Board of Directors and Shareholders of ESG Re Ltd.
The discussion of tax matters set forth under the caption "Certain Tax
Considerations - Taxation of the Company and its Subsidiaries - Canada" in the
Registration Statement of ESG Re Ltd. on Form S-3 (the "Registration Statement")
constitutes our opinion with respect to the matters set forth therein. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our Firm under the heading "Certain Tax
Considerations" in the Prospectus.
Toronto, Canada
December 18, 1998
EXHIBIT 8.6
ESG Re Limited
16 Church Street
Hamilton
Bermuda
Our Ref Your Ref
AGW/LQ 18 December 1999
Dear Sirs
We have acted as Solicitors to ESG Re Limited (the "Company") in connection with
the Registration Statement on Form S-3 (the "Registration Statement").
We have been requested to give our opinion in relation to the matter hereinafter
set forth.
1. Basis of Opinion
1.1 This opinion is written only with respect to the laws of Ireland in effect
at the date of signing of this letter. We have made no investigation of and
express no opinion as to the laws of any other jurisdiction and we have
assumed, without enquiry, that there is nothing in the laws of any other
jurisdiction which would or might affect our opinion as stated herein. We
express no opinion on European Union law as it affects any jurisdiction
other than Ireland.
1.2 This opinion is strictly limited to
(i) the matters stated herein and does not extend to and is not to be read
as extending by implication or otherwise to any other matter; and
(ii) the document listed at 1.3 below.
1.3 For the purposes of giving this opinion we have examined a copy of the
Registration Statement.
We have not for the purposes of this opinion examined any other contracts,
opinions, instruments or other documents.
<PAGE>
1.4 We have not assisted in the investigation or verification of the facts or
reasonableness of any assumption or statements of opinion (except with
respect to the matters set forth in this opinion) contained in the
Registration Statement nor have we attempted to determine whether any
material facts have been omitted therefrom.
1.5 This letter speaks as of its date and we assume no obligation to update the
opinion set forth herein.
1.6 This opinion is to be construed in accordance with and governed by the laws
of Ireland as at the date hereof.
1.7 We express no opinion and make no representation or warranty, as to any
matter of fact.
1.8 All words and phrases defined in the Registration Statement and not defined
herein shall have the same meaning as are respectively assigned to them in
the Registration Statement.
2. Assumptions
For the purposes of expressing this opinion we have assumed (without any
responsibility on our part if any assumption proves to have been untrue as
we have not independently verified any assumption):-
2.1 the completeness and authenticity of all documents submitted to or
examined by us as originals;
2.2 the completeness and conformity to authentic originals of all
documents submitted to or examined by us as conformed, certified or
photostatic or facsimile copies and the completeness and authenticity
of the originals of such documents;
2.3 the authenticity of all signatures and seals on all documents
submitted to or examined by us;
2.4 that there is or are no factual information or documents possessed or
discoverable by persons other than ourselves of which are not aware
but of which we should be aware for the purposes of this opinion;
2.5 the absence of fraud and the presence of good faith on the part of all
parties referred to in the Registration Statement and their respective
officers, employees, agents and advisers.
2.6 the truth of all representations and information given to us in reply
to any queries we have made which we have considered necessary for the
purpose of giving this opinion.
2.7 there are no agreements or arrangements in existence which in any way
bear upon or are inconsistent with the opinions stated herein.
2
<PAGE>
3. Opinion
Based upon and subject to the foregoing and the qualifications mentioned
below and so far as the laws of Ireland as in force at the date of this
opinion and the current practices of the Irish Revenue Commissioners are
concerned, the paragraph under the heading "Ireland" in the section
entitled "Taxation of the Company and its Subsidiaries" in the section
entitled "CERTAIN TAX CONSIDERATIONS" of the Registration Statement
constitutes our opinion with respect to the matters set forth therein.
4. Qualifications
This opinion is delivered subject to the following qualifications:-
4.1 In his budget speech delivered on 2 December, 1998 the Irish Minister
for Finance announced, inter alia, that:
(a) the standard rate of corporation tax would be reduced from 32% as
follows:
1999 - 28%
2000 - 24% for trading profits and
25% for non trading profits
2001 - 20% for trading profits and
25% for non trading profits
2002 - 16% for trading profits and
25% for non trading profits
2003 - 12 1/2% for trading profits and
25% for non trading profits
and;
(b) it is his intention to introduce a withholding tax on dividends
paid by Irish resident companies.
5. Consent
We hereby consent to the use of this opinion in the section entitled
"CERTAIN TAX CONSEQUENCES" of the Registration Statement and to the
reference to our name therein and the filing of this opinion as an exhibit
to the Registration Statement.
Yours faithfully,
/s/ Matheson Ormsby Prentice
MATHESON ORMSBY PRENTICE
3
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
ESG Re Limited on Form S-3 of our report dated February 19, 1998, appearing in
the Annual Report on Form 10-K of ESG Re Limited for the year ended December 31,
1997 and to the reference to us under the heading "Experts" in the Prospectus,
which is a part of this Registration Statement.
/s/ Deloitte & Touche
- ---------------------
Deloitte & Touche
Chartered Accountants
Hamilton, Bermuda
December 18, 1998
