As filed with the Securities and Exchange Commission on April 23, 1999
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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)
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copy to:
Richard S. Borisoff, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
(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 as determined by market conditions.
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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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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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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
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, $1.00 par value per share 2,000,000 Shares $16.94 $33,880,000 $9,418.64
===================================================================================================================
</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 April 16, 1999 on the Nasdaq National Market.
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<PAGE>
PROSPECTUS
ESG RE LIMITED
DIVIDEND REINVESTMENT AND
SHARE PURCHASE PLAN
2,000,000 Common Shares
We have established a distribution reinvestment and share purchase plan
to provide our shareholders with a simple and convenient method of investing
cash distributions in additional common shares of our company. These plan
participants and interested new investors, not currently our shareholders, may
also purchase our common shares on a monthly basis with optional cash payments.
If plan participants purchase common shares with optional cash payments in
excess of $12,500 per month, we may offer a discount on our share price ranging
from 0% to 3%.
To enroll in the plan, simply complete the enclosed authorization form
and return it in the envelope provided. Enrollment in the plan is entirely
voluntary, and plan participants may terminate their participation at any time.
A participant in the plan may obtain additional common shares by:
o reinvesting distributions relating to all or part of our
common shares held by the participant.
o making optional cash payments of not less than $50 and up
to $12,500 per month, whether or not the participant's
distributions on our common shares are being reinvested.
o making optional cash payments in excess of $12,500 per
month with our permission, whether or not the
participant's distributions on our common shares are being
reinvested.
Our common shares are listed on the Nasdaq National Market under the
symbol "ESREF." On , 1999, our closing price was $ .
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See "Risk Factors" beginning on page 2 for factors relevant to an
investment in our common shares.
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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 date of the Prospectus is , 1999.
<PAGE>
In this prospectus, the "company," "we," "us" and "our" refer to ESG Re
Limited and its consolidated subsidiaries.
Neither the Registrar of Companies of Bermuda or the Bermuda Monetary
Authority have recommended the common shares being offered by this document.
Furthermore, these authorities have not confirmed that this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
This document 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 or is a member or
creditor of our company or of another body corporate in the same group as our
company. 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 our company.
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We have not undertaken any action to permit a public offering of the common
shares covered by this document 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
our common shares and the distribution of this prospectus outside of the United
States.
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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. A buyer in
North Carolina must understand that neither 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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ENFORCEABILITY OF CIVIL LIABILITIES
We are organized under the laws of Bermuda, and substantially all of our
assets are located outside the United States. In addition, a majority of the
members of our board of directors and 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 and to realize in the United States upon judgments of courts of the
United States predicated upon the civil liability of such persons under 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.
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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 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 our common shares. This section
includes or refers to forward-looking statements. You should refer to the
explanation of the qualifications and limitations on such forward-looking
statements discussed on page 9 of this document.
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 (1) competition, (2)
frequency of occurrence or severity of natural disasters and other catastrophic
events, (3) levels of capacity, (4) general economic conditions and (5) 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 (1) prevailing prices, (2) the
levels of insured losses, (3) levels of industry surplus and (4) 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
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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 incurred with respect to our underwriting business. Reserves
are estimates for reported but not paid claims and for incurred but not reported
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. generally
accepted accounting principles, 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 (1) occurrence of an insured loss, (2) reporting
of the loss to the primary insurer and, ultimately, to the reinsurer, (3)
primary insurer's payment of that loss and (4) 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 $44,379,000 as of December 31, 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 loss adjustment expenses paid may deviate, perhaps
substantially, from estimates
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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, Joan H. Dillard 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.
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
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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. 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 established 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 adopted the Euro on
January 1, 1999.
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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
accommodate 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 our 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 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 54%, 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
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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 our common shares and any other voting
securities directly or indirectly beneficially or constructively owned by any
person, other than John C Head and persons deemed to own our common shares with
him for purposes of the Internal Revenue Code of 1986, will be limited in the
aggregate to 9.9% of the voting power of our company. 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 our common shares, pro rata based on the number of common
shares held by all such other holders, 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.
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 we pay fees to Head Asset Management. Conflicts of interest
could arise with respect to future transactions involving our 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
our common shares, or the availability of our common shares for future sale,
will have on the market price of our common shares prevailing from time to time.
Sales of substantial amounts of our common shares, or the perception that such
sales could occur, could adversely affect the market price of our 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 our
common shares and Class B warrants to purchase our common shares. The common
shares of our company offered by this document are freely transferable without
restriction or further registration under the Securities Act of 1933, 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 of 1933 (which sales will be
subject to the volume limitations and other restrictions of Rule 144).
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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 our 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 U.S. 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 the 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 our 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 (1) force us to compile information and process
transactions manually, (2) if compliance problems persisted, impair our ability
to receive premiums from and make claim payments to our ceding companies, (3)
impair our ability to obtain information about our investments or (4) 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, we do not expect such scenarios to occur and do not expect material
disruption to business.
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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 underwritten 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.
FORWARD-LOOKING INFORMATION
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. Securities Exchange Act
of 1934. Such information 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 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: (1) the frequency and severity of insured loss
events, including catastrophes, (2) mortality and morbidity levels, (3)
persistency levels, (4) prevailing levels of interest rates, (5) currency
exchange rates and (6) changes in laws. These and other factors are discussed in
"Risk Factors" above, 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.
THE PLAN
The following summary and questions and answers explain and constitute the
plan. Shareholders who do not participate in the plan will receive cash
distributions, as declared, paid in the usual manner.
Summary of Plan
Our plan provides our shareholders and interested new investors with a
convenient and attractive method of investing cash distributions and optional
cash payments in additional common shares without payment of any brokerage
commission or service charge.
For the reinvestment of cash distributions, the price of our common shares
to plan participants will be: (1) the average price of our common shares on the
Nasdaq National Market on the corresponding investment date or (2) the average
of the prices State Street Bank and Trust pays for the common shares it
purchases with reinvested distributions for the related quarter. For optional
cash payments, the price of our common shares to plan participants will be: (1)
the average price of our common shares on the Nasdaq National Market on the
corresponding investment date or (2) the average of the prices State Street Bank
and Trust pays for the common shares it purchases with optional cash payments
for the related month.
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Depending on the availability of our common shares registered for issuance
under the plan, there is no minimum or maximum limitation on the amount of
distributions a plan participant may reinvest under the plan. See Question 2.
For the purchase of our common shares with optional cash payments,
participants must invest at least $50 per month and no more than $12,500 per
month. We may waive the $12,500 maximum amount. See Question 17. Participants
may make optional cash payments in excess of $12,500 per month only upon our
receipt and acceptance of a completed request for waiver form from a
participant. Each month, at least three business days prior to each record date
for an investment, we will establish any discount and minimum share price
applicable to optional cash payments that exceed $12,500 per month. The minimum
share price will be an amount that our average share price on the Nasdaq
National Market must exceed before plan participants may invest optional cash
payments in excess of $12,500 per month.
For optional cash payments, we will establish on a monthly basis a ten-day
pricing period to determine (1) the date of investment of such payments and (2)
the price that plan participants will pay for our common shares. We expect the
pricing period to be the period beginning on the fifth trading day of each month
and ending at the close of the tenth consecutive trading day thereafter. For
optional cash payments that exceed $12,500 only, for each business day on the
Nasdaq National Market of the related ten-day pricing period on which the
minimum share price discussed above is not satisfied, one-tenth of a
participant's optional cash payment will be returned without interest. There
will be no minimum share price applicable to optional cash payments that do not
exceed $12,500 per month or the reinvestment of distributions in additional
common shares. Optional cash payments of less than $50 and that portion of any
optional cash payment which exceeds the maximum monthly purchase limit of
$12,500, unless we waive such limit, may be returned to the participant without
interest. Participants may request that State Street Bank and Trust Company, the
plan administrator, sell any or all shares it holds in the plan on behalf of
such participants. See Question 27.
Common shares purchased directly from us with optional cash payments in
excess of the monthly dollar limitation may reflect a discount between 0% and 3%
from the price otherwise payable for the shares. The discount may change (but
will not vary from the range of between 0% and 3%) or be discontinued at our
discretion after a review of current market conditions, the level of plan
participation and our current and projected capital needs.
Depending on the availability of common shares registered for issuance
under the plan, there is no total maximum number of shares that can be issued
pursuant to the reinvestment of distributions and no preestablished maximum
limit applies to optional cash payments that may be made pursuant to requests
for waiver. As of the date hereof, 2,000,000 of our common shares have been
registered and are available for sale under the plan.
We expect to grant requests for waiver to financial intermediaries,
including brokers and dealers, and other participants in the future. Grants of
requests for waiver will be made in our sole discretion based on a variety of
factors, which may include:
o our current and projected capital needs and the alternatives
available to us to meet those needs,
o prevailing market prices for our common shares,
o general economic and market conditions,
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o expected aberrations in the price or trading volume of our
common shares,
o the potential disruption of the price of our common shares by a
financial intermediary,
o the number of our common shares held by the participant
submitting the waiver request,
o the past actions of a participant under the plan,
o the aggregate amount of optional cash payments for which such
waivers have been submitted, and
o the administrative constraints associated with granting such
waivers.
To the extent that we grant requests for waiver, it is expected that a greater
number of our common shares will be issued under the optional cash payment
feature of the plan as opposed to the distribution reinvestment feature of the
plan.
Purpose
1. What is the purpose of the plan?
The primary purpose of the plan is to provide eligible holders of our
common shares and interested new investors with a convenient and simple method
of increasing their investment in our company by (1) investing cash
distributions in additional common shares and (2) investing optional cash
payments in additional common shares, in either case without payment of any
brokerage commission or service charge. See Question 5 for a description of the
holders who are eligible to participate in the plan. We may also use the plan to
raise additional capital through the sale each month of a portion of the common
shares available for issuance under the plan to current holders and interested
new investors (including brokers or dealers). Persons who make such purchases in
connection with a distribution of our common shares may be deemed to be
underwriters under the federal securities laws. These sales will be effected
through our ability to waive limitations applicable to the amounts which plan
participants may invest pursuant to the plan's optional cash payment feature.
To the extent we sell shares under the plan, we will receive additional
funds for working capital purposes. The plan is intended for the benefit of
investors in our company and not for individuals or investors who engage in
transactions which may cause aberrations in the price or trading volume of our
common shares. From time to time, financial intermediaries may engage in
positioning transactions in order to benefit from the discount from the market
price of our common shares acquired through the reinvestment of distributions or
optional cash payments under the plan. Such transactions may cause fluctuations
in the price or trading volume of our common shares. We reserve the right to
modify, suspend or terminate participation in the plan by otherwise eligible
holders of our common shares or interested new investors in order to eliminate
practices which are, in our sole discretion, not consistent with the purposes or
operation of the plan or which adversely affect the price of our common shares.
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Options Available to Participants
2. What options are available to enrolled participants?
Eligible holders of our common shares may elect to have cash distributions
paid on all or a portion of their common shares automatically reinvested in
additional common shares. Cash distributions are paid on our common shares when
and as declared by our board of directors. Subject to the availability of common
shares registered for issuance under the plan, there is no minimum limitation on
the amount of distributions a participant may reinvest under the distribution
reinvestment feature of the plan.
Each month plan participants may also elect to invest optional cash payments
in additional common shares, subject to a minimum per month purchase limit of
$50 and a maximum per month purchase limit of $12,500, which we may waive. See
Question 17 for information concerning limitations applicable to optional cash
payments and the availability of waivers with respect to these limitations.
Participants may make optional cash payments each month even if distributions on
their common shares are not being reinvested and whether or not a distribution
has been declared.
Advantages and Disadvantages
3. What are the advantages and disadvantages of the plan?
Advantages:
o The plan provides participants with the opportunity to reinvest cash
distributions paid on all or a portion of their common shares in additional
common shares without payment of any brokerage commission or service charge on
common shares purchased directly from our company or in the open market.
o The plan provides participants with the opportunity to make monthly
investments of optional cash payments, subject to minimum and maximum amounts,
for the purchase of additional common shares without payment of any brokerage
commission or service charge on common shares purchased directly from our
company or in the open market. If we grant requests for waiver for cash
purchases in excess of the monthly limitation, such purchases may be made at a
discount to the market price of our common shares at our discretion.
o Subject to the availability of common shares registered for issuance
under the plan, all cash distributions paid on participants' common shares can
be fully invested in additional common shares because the plan permits
fractional shares to be credited to plan accounts. Distributions on such
fractional shares, as well as on whole shares, will also be reinvested in
additional shares, which will be credited to plan accounts.
o The administrator of the plan, State Street Bank and Trust Company, at
no charge to participants, provides for the safekeeping of our common shares
credited to each plan account.
o Periodic statements reflecting all current activity, including share
purchases and latest plan account balance, simplify participants' record
keeping. See Question 22 for information concerning reports to participants.
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Disadvantages:
o Neither State Street nor our company will pay any interest on
distributions or optional cash payments held pending reinvestment or investment.
See Question 11. In addition, monthly optional cash payments in excess of
$12,500 may be returned to participants in the event that a minimum share price
for the purchase of our common shares is not met for any trading day during a
ten-day pricing period established by us on a monthly basis for the investment
of optional cash purchases. We will base this minimum share price on the average
price of our common shares on the Nasdaq National Market during such ten-day
period. See Question 17.
o With respect to optional cash payments, the actual number of shares to
be issued to a participant's plan account will not be determined until after the
end of the relevant ten-day pricing period. Therefore, during the pricing period
participants will not know the actual number of shares they have purchased or
the price they have paid.
o With respect to optional cash payments, the price of our common shares
to plan participants may exceed the price at which our common shares are trading
after the investment date.
o Because State Street must receive optional cash payments at least five
business days before the related ten-day pricing period, the purchases made with
those payments will be exposed to changes in market conditions for a longer
period of time than in the case of typical secondary market transactions. By the
same token, once received, a payment will be used to make purchases under the
plan unless State Street receives a written request prior to the record date for
the investment date with respect to which such participant has delivered
optional cash payments. See Questions 18 and 20.
o Resales of common shares credited to a participant's account under the
plan will involve a nominal fee per transaction paid to State Street (if State
Street makes such resale at the request of a participant), a brokerage
commission and any applicable share transfer taxes on the resales. See Questions
21 and 27.
Administration
4. Who administers the plan?
We have retained State Street as plan administrator to administer the plan,
keep records, send statements of account activity to each participant and
perform other duties relating to the plan. Shares purchased under the plan and
held by State Street will be registered in State Street's name or the name of
its nominee for the benefit of the participants. In the event that State Street
resigns or otherwise ceases to act as plan administrator, we will appoint a new
plan administrator to administer the plan.
State Street also acts as distribution disbursing agent, transfer agent and
registrar for our common shares.
Participation
For purposes of this section, responses will generally be based upon the
method by which the holder holds his or her common shares. Generally, holders
are either record owners or beneficial owners. A record owner is a holder who
owns our common shares in his or her own name. A beneficial owner is a holder
who beneficially owns common shares that are registered in a name other
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than his or her own name (for example, the shares are held in the name of a
broker, bank or other nominee). A record owner may participate directly in the
plan, whereas a beneficial owner will have to either become a record owner by
having one or more shares transferred into his or her own name or coordinate his
or her participation in the plan through the broker, bank or other nominee in
whose name the beneficial owner's shares are held. If a beneficial owner who
desires to become a participant encounters any difficulties in coordinating his
or her participation in the plan with his or her broker, bank or other nominee,
he or she should call our Investor Relations Department in Ireland at
353-1-612-6550.
5. Who is eligible to participate?
All record owners or beneficial owners of at least one of our common shares
are eligible to participate in the plan. A record owner may participate directly
in the plan. A beneficial owner must either become a record owner by having one
or more shares transferred into his or her own name or arrange with the broker,
bank or other nominee who is the record holder to participate on his or her
behalf. In addition, interested new investors may participate in the optional
cash payment feature of the plan.
To facilitate participation by beneficial owners, we have made arrangements
with State Street Bank and Trust to reinvest distributions, on a per
distribution basis, and accept optional cash payments under the plan by record
holders such as brokers, banks and other nominees, on behalf of beneficial
owners.
6. How does an eligible shareholder or interested new investor participate?
Record owners may join the plan by completing and signing the authorization
form included with the plan and returning it to State Street. A non-postage-paid
return envelope is provided for this purpose. Authorization forms may be
obtained at any time by written request to State Street and Trust Company, c/o
EquiServe, L.P., P.O. Box 8200, Boston, Massachusetts 02266-8200 or by
telephoning State Street at (XXX) XXX-XXXX.
Beneficial owners who wish to join the plan must instruct their broker, bank
or other nominee to complete and sign the authorization form. The broker, bank
or other nominee will forward the completed authorization form to its securities
depository and the securities depository will provide State Street with the
information necessary to allow the beneficial owner to participate in the plan.
See Question 8 for a discussion of the broker and nominee form, which is
required to be used for optional cash payments of a beneficial owner whose
broker, bank or other nominee holds the beneficial owner's shares in the name of
a major securities depository. See also Question 16.
If a record owner or the broker, bank or other nominee on behalf of a
beneficial owner submits a properly executed authorization form without electing
an investment option, such authorization form will be deemed to indicate the
intention of such record owner or beneficial owner, as the case may be, to apply
all cash distributions and optional cash payments, if applicable, toward the
purchase of additional common shares of our company. See Question 7 for
investment options.
7. What does the authorization form provide?
The authorization form appoints State Street as agent for a plan participant
and directs us to pay to State Street Bank each participant's cash distributions
on all or a specified number of our common shares owned by the participant on
the applicable record date, as well as on all whole and fractional
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common shares credited to a participant's plan account. The authorization form
directs State Street to purchase on the relevant investment date additional
common shares with such distributions and optional cash payments, if any, made
by the participant. The authorization form also directs State Street to reinvest
automatically all subsequent distributions with respect to common shares
credited to a participant's plan account. Distributions will continue to be
reinvested on the number of common shares specified by a plan participant and on
all common shares credited to a participant's plan account until the participant
specifies otherwise by contacting State Street, withdraws from the plan (see
Questions 26 and 27) or the plan is terminated.
The authorization form provides for the purchase of additional common shares
of our company through the following investment options:
o If "Full Distribution Reinvestment" is elected, State Street will apply
all cash distributions on all common shares then or subsequently registered in
the participant's name, and all cash distributions on all common shares credited
to the participant's plan account, together with any optional cash payments,
toward the purchase of additional common shares.
o If "Partial Distribution Reinvestment" is elected, State Street will apply
all cash distributions on only the number of common shares registered in the
participant's name and specified on the authorization form and all cash
distributions on all common shares credited to the participant's plan account,
together with any optional cash payments, toward the purchase of additional
common shares. Shares subsequently held in the participant's name will not be
included if this option is chosen.
o If "Optional Cash Payments Only" is elected, the participant will continue
to receive cash distributions on common shares registered in that participant's
name, if any, in the usual manner. However, State Street will apply all cash
distributions on all common shares credited to the participant's plan account,
together with any optional cash payments received from the participant, toward
the purchase of additional common shares.
Each participant may select any one of these three options. In each case,
distributions will be reinvested on all common shares specified by a plan
participant and on all common shares held in the participant's plan account,
including distributions on our common shares purchased with any optional cash
payments, until a participant specifies otherwise by contacting State Street, or
withdraws from the plan altogether or until the plan is terminated. If a
participant would prefer to receive cash payments of distributions paid on
common shares credited to the participant's plan account rather than reinvest
such distributions, those shares must be withdrawn from the plan by written
notification to State Street. See Questions 26 and 27 regarding withdrawal of
common shares credited to a participant's plan account.
Participants may change their investment options at any time by requesting a
new authorization form and returning it to State Street at the address set forth
in Question 37. See Question 11 for the effective date for any change in
investment options.
8. What does the broker and nominee form provide?
The broker and nominee form provides the only means by which a broker, bank
or other nominee holding shares of a beneficial owner in the name of a major
securities depository may invest optional cash payments on behalf of such
beneficial owner. A broker and nominee form must be delivered to State Street
each time such broker, bank or other nominee transmits optional cash payments on
behalf
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of a beneficial owner. Broker and nominee forms will be furnished at any time
upon request of our Investor Relations Department at 353-1-612-6550.
Prior to submitting a broker and nominee form, the broker, bank or other
nominee for a beneficial owner must submit a completed authorization form on
behalf of the beneficial owner.
The broker and nominee form and appropriate instructions must be received
by State Street not later than the applicable record date or the optional cash
payment will not be invested until the following investment date.
9. Is partial participation possible under the plan?
Yes. Record owners or the broker, bank or other nominee for beneficial
owners may designate on the authorization form a number of shares for which
distributions are to be reinvested. Distributions will thereafter be reinvested
only on the number of shares specified, and the record owner or beneficial
owner, as the case may be, will continue to receive cash distributions on the
remainder of the shares. See Question 7.
10. When may an eligible shareholder or interested new investor join the
plan?
A record owner or beneficial owner or interested new investor may join the
plan at any time. Once in the plan, a participant remains in the plan until he
or she withdraws from the plan, we terminate his or her participation in the
plan or we terminate the plan. See Question 27 regarding withdrawal from the
plan.
11. When will distributions be reinvested and/or optional cash payments be
invested?
When shares are purchased from our company, such purchases will be made on
the applicable "investment date" in each month. The investment dates for
participation in the plan will be as follows:
Distribution Reinvestment
o For common shares acquired directly from us and relating to a
distribution reinvestment, the investment date will be the distribution payment
date relating to the common shares, as declared by our board of directors.
o For common shares acquired in open market purchases and relating to a
distribution reinvestment, the investment date will be a date no later than ten
business days after the distribution payment date.
If State Street receives an authorization form prior to the record date
for a distribution payment, the election to reinvest distributions will begin
with that distribution payment. If State Street receives an authorization form
on or after any such record date, reinvestment of distributions will begin on
the distribution payment date following the next record date if the participant
is still a shareholder of record. Record dates for payment of distributions
normally precede payment dates by approximately two weeks.
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Optional Cash Payments
o For common shares acquired directly from us and relating to optional
cash payments of $12,500 or less per month, the investment date will be the last
day of the ten-day pricing period established by our company on a monthly basis
for optional cash payment investments.
o For common shares acquired directly from us and relating to optional
cash payments of greater than $12,500 per month made after an accepted request
for waiver, the investment date will be each day on which the Nasdaq National
Market is open for business in a ten-day pricing period. On each such day, 1/10
of a participant's optional cash payment in each month will be invested.
o For common shares acquired in open market purchases and relating to
optional cash payments, the investment date will be a date not more than 30 days
after the last business day before the applicable ten-day pricing period.
See Schedule A for a list of the expected pricing period commencement
dates and conclusion dates. We expect the ten-day pricing period to be the
period beginning on the fifth trading day of each month and ending at the close
of the tenth consecutive trading day thereafter.
When State Street makes open market purchases, such purchases may be
made on any securities exchange where the shares are traded, in the
over-the-counter market or by negotiated transactions. Such purchases may also
be made on terms with respect to price, delivery and other matters as agreed to
by State Street. Neither our company nor any participant will have any
authorization or power to direct the time or price at which shares will be
purchased or the selection of the broker or dealer through or from whom State
Street will make purchases. However, when State Street makes open market
purchases, State Street will use its reasonable best efforts to purchase the
shares at the lowest possible price.
See Question 17 for information concerning limitations on the minimum
and maximum amounts of optional cash payments that may be made each month and
Question 18 for information as to when optional cash payments must be received
to be invested on each investment date.
State Street will allocate and credit shares to participants' accounts
as follows: (1) shares purchased from our company will be allocated and credited
as of the appropriate investment date; and (2) shares purchased in open market
transactions will be allocated and credited as of the date on which State Street
completes the purchases of the aggregate number of shares to be purchased on
behalf of all participants with distributions to be reinvested or optional cash
payments, as the case may be, during the month.
No interest will be paid on cash distributions or optional cash payments
pending investment or reinvestment under the terms of the plan. Since no
interest is paid on cash held by State Street, it normally will be in the best
interest of a participant to defer optional cash payments until shortly before
commencement of the pricing period.
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Purchases and Prices of Shares
12. What will be the price to participants of shares purchased under the
plan?
Distribution Reinvestment
o For common shares acquired directly from us and relating to a
distribution reinvestment, the price per common share will be the average of the
high and low sales prices, computed to four decimal places, of our common shares
on the Nasdaq National Market on the corresponding investment date, or if no
trading occurs in our common shares on the investment date, the average of the
high and low sales prices for the first trading day immediately before the
investment date for which trades are reported.
o For common shares acquired in open market purchases and
relating to a distribution reinvestment, the price per common share will be the
weighted average of the actual prices State Street pays, computed to four
decimal places, for all of the common shares it purchases with all participants'
reinvested distributions for the related quarter.
If a participant desires to opt out of the distribution
reinvestment feature of the plan when the common shares relating to distribution
reinvestments will be purchased in the open market, a participant must notify
State Street no later than the record date for the related distribution payment
date. For information as to the source of the common shares to be purchased
under the plan, see Question 15.
Optional Cash Payments
o For common shares acquired directly from us with optional cash
payments, the price per common share will be the average of the daily high and
low sale prices, computed to four decimal places, of our common shares as
reported on the Nasdaq National Market for the trading day relating to each
corresponding investment date or, if no trading occurs in our common shares on
such trading day, for the trading day immediately preceding such investment date
for which trades are reported, less any applicable discount. A "trading day"
means a day on which trades in our common shares are reported on the Nasdaq
National Market.
o For common shares acquired through open market purchases with
optional cash payment, the price per common shares will be the weighted average
of the actual prices State Street pays, computed to four decimal places, for all
of our common shares it purchases with all participants' optional cash payments
for the related month.
Neither our company nor any participant will have any
authorization or power to direct the time or price at which shares will be
purchased or the selection of the broker or dealer through or from whom State
Street will make purchases. However, when State Street makes open market
purchases, it will use its best efforts to purchase the shares at the lowest
possible price.
Discount
Each month, at least three business days before to the applicable
record date, we may establish a discount from the market price applicable to
optional cash payments in excess of the $12,500 per month limitation during a
corresponding ten-day pricing period or otherwise. We will notify State Street
of any such discount. The discount may be between 0% and 3% of the price plan
participants otherwise pay for our common shares and may vary each month. Once
established, the
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discount will apply uniformly to all optional cash payments made during that
month in excess of the monthly limitation. We will establish any discount in our
sole discretion after a review of current market conditions, the level of
participation in the plan and our current and projected capital needs. The
discount feature applies only to the issuance of common shares purchased
directly from us with optional cash payments under an accepted waiver. It does
not apply to open market purchases made with optional cash payments or the
reinvestment of distributions.
Neither our company nor State Street will be required to provide
any written notice to participants as to any discount, but current information
regarding the discount applicable to the next ten-day pricing period may be
obtained by contacting us at 353-1-612-6550. Setting a discount for an
investment date shall not affect the setting of a discount for any subsequent
investment date.
13. What are the record dates and investment dates for distribution
reinvestment?
For the reinvestment of distributions, the "record date" is the record date
declared by our board of directors for such distribution. Likewise, the
distribution payment date declared by our board of directors constitutes the
investment date applicable to the reinvestment of such distribution for common
shares acquired directly from our company. The investment date for common shares
purchased in open market transactions will be no later than ten business days
following the distribution payment date. Distributions will be reinvested on the
investment date using the applicable market price discussed above in Question
12. Generally, record dates for quarterly distributions on our common shares
will precede the distribution payment dates by approximately two weeks. See
Schedule A for a list of the future distribution record dates and payment dates.
Please refer to Question 18 for a discussion of the record dates and investment
dates applicable to optional cash payments.
14. How will the number of shares purchased for a participant be determined?
A participant's plan account will be credited with the number of shares,
including fractions computed to four decimal places, equal to the total amount
to be invested on behalf of such participant divided by the purchase price per
share as calculated pursuant to the methods described in Question 12, as
applicable. The total amount to be invested will depend on the amount of any
distributions paid on a specified number of our common shares owned by the
participant and common shares otherwise credited to such participant's plan
account and available for investment on the related investment date, or the
amount of any optional cash payments made by such participant and available for
investment on the related investment date. Subject to the availability of common
shares registered for issuance under the plan, there is no total maximum number
of shares available for issuance pursuant to the reinvestment of distributions.
15. What is the source of common shares purchased under the plan?
Plan shares will be purchased either directly from us or on the open market,
or by a combination of these methods, at our option. We will determine the
source of our common shares to be purchased under the plan at least three
business days before the relevant record date, and will notify State Street of
the same. Neither our company nor State Street will be required to provide any
written notice to participants as to the source of our common shares to be
purchased under the plan. However, participants may obtain current information
regarding the source of our common shares by contacting our Investor Relations
Department at the number listed above.
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16. How does the optional cash payment feature of the plan work?
All record holders and interested new investors who have timely submitted
signed authorization forms indicating their intention to participate in this
feature of the plan, and all beneficial owners whose brokers, banks or other
nominees have timely submitted signed authorization forms indicating their
intention to participate in this feature of the plan, are eligible to make
optional cash payments during any month, whether or not a distribution is
declared. If a broker, bank or other nominee holds shares of a beneficial owner
in the name of a major securities depository, optional cash payments must be
made through the use of the broker and nominee form. See Question 8. Optional
cash payments must be accompanied by an authorization form or a broker and
nominee form, as applicable. Each month, State Street will apply any optional
cash payment received from a participant no later than one business day before
the beginning of that month's ten-day pricing period to the purchase of
additional common shares for the account of the participant on the following
investment date.
17. What limitations apply to optional cash payments?
General
Each optional cash payment is subject to a minimum per month purchase
limit of $50 and a maximum per month purchase limit of $12,500. For purposes of
these limitations, we will aggregate all plan accounts under the common control
or management of a participant, which we will determine at our sole discretion.
Generally, optional cash payments of less than $50 and that portion of any
optional cash payment exceeding the maximum monthly purchase limit of $12,500,
unless we waive that limit, will be returned to participants without interest at
the end of the relevant ten-day pricing period.
Requests for Waiver
Participants may make optional cash payments of up to $12,500 per month
without our prior approval. A participant may make optional cash payments in
excess of $12,500 only upon our acceptance of a completed request for waiver
form from him and receipt of the waiver form by State Street. There is no
preestablished maximum limit applicable to optional cash payments that may be
made following an accepted request for waiver.
In order for an investor to be permitted to purchase common shares in
excess of the $12,500 monthly limit, our company and State Street must receive
and elect to accept a request for waiver form each month no later than the
record date for the applicable investment date. Request for waiver forms will be
furnished at any time upon request to State Street at the address or telephone
number specified in Question 37. Waivers will be accepted only with respect to
actual record participants that beneficially own their common shares and not for
the benefit of beneficial owners or multiple participants whose stock is held in
the name of other record holders. Participants interested in obtaining further
information about a request for waiver should contact our company at the number
listed above.
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We will consider waivers on the basis of a variety of factors, which may
include:
o our current and projected capital needs and the alternatives
available to us to meet those needs,
o prevailing market prices for our common shares and other company
securities,
o general economic and market conditions,
o expected aberrations in the price or trading volume of our
common shares,
o the potential disruption of the price of our common shares by a
financial intermediary,
o the number of our common shares held by the participant
submitting the waiver request,
o the past actions of a participant under the plan,
o the aggregate amount of optional cash payments for which such
waivers have been submitted, and
o the administrative constraints associated with granting such
waivers.
Grants of waivers will be made in our absolute discretion.
Minimum Share Price
Unless we waive our right to do so, we may establish for any ten-day
pricing period a minimum share price applicable only to the investment of
optional cash payments that exceed $12,500 per month and that are made pursuant
to requests for waiver. We would establish such price in order to provide us
with the ability to set a minimum price at which common shares will be sold
under the plan each month by virtue of such requests. We would establish a
minimum share price only when common shares will be purchased directly from us
on the applicable investment date. We will, at least three business days before
each record date, determine whether to establish a minimum share price and, if
established, its amount and so notify State Street. Such determination will be
made at our discretion after a review of current market conditions, the level of
participation in the plan and our current and projected capital needs. Neither
our company nor State Street will be required to provide any written notice to
participants as to whether we have established a minimum price for any ten-day
pricing period. However, participants may obtain current information regarding
any minimum price by contacting our company at the number listed above.
The minimum share price for optional cash payments made pursuant to
requests for waiver, if established for any ten-day pricing period, will be a
stated dollar amount that the average of the high and low sale prices of our
common shares on the Nasdaq National Market for each trading day of the relevant
ten-day pricing period must equal or exceed. In the event that a minimum share
price is not satisfied for a trading day in the ten-day pricing period, then
that trading day will be excluded from that ten-day pricing period and no
investment will occur on the corresponding investment date.
For each trading day on which the minimum share price is not satisfied,
1/10 of each optional cash payment made by a participant by virtue of a request
for waiver will be returned to such
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participant, without interest, after the end of the applicable ten-day pricing
period. Thus, for example, if the minimum price is not satisfied for three of
the ten trading days in a ten-day pricing period, 3/10 of each participant's
optional cash payment made by virtue of a request for waiver will be returned to
such participant by check, without interest, after the end of the applicable
ten-day pricing period. State Street expects to mail such checks within five to
ten business days from the end of the applicable ten-day pricing period. This
return procedure will only apply when shares are purchased directly from us for
optional cash payments made by virtue of requests for waiver and we have set a
minimum price for the relevant pricing period. See Question 15.
For any ten-day pricing period, we may waive our right to set a minimum
share price for optional cash payments made by virtue of requests for waiver.
Participants may ascertain whether the minimum price applicable to a given
pricing period has been set or waived, as applicable, by contacting our company
at the number listed above.
For a list of expected dates by which minimum share prices will be set
in 1999 and 2000, see Schedule A.
The minimum share price concept and return procedure discussed above
apply only to optional cash payments made by virtue of requests for waiver when
our common shares are to be purchased from us on the applicable investment date.
All other optional cash payments will be made at the price otherwise payable by
plan participants for our common shares less the discount, if any, without
regard to any minimum share price.
18. What are the record dates and investment dates for optional cash
payments?
Optional cash payments will be invested every month as of the related
investment date. The "record date" for optional cash payments is one business
day before the commencement of the related ten-day pricing period and the
"investment date" for optional cash payments of $12,500 or less per month is the
last day of the ten-day pricing period. For optional cash payments greater than
$12,500 per month made pursuant to requests for waiver, the "investment date" is
each day on which the Nasdaq National Market is open for business in a ten-day
pricing period.
If State Street receives optional cash payments by the record date, it will
apply such payments to the purchase of our common shares on the investment dates
that relate to that ten-day pricing period. Neither our company nor State Street
will pay any interest on optional cash payments held pending investment.
Generally, optional cash payments received after the record date will be held
for investment on the investment date relating to the next applicable ten-day
pricing period; such optional cash payments will not earn interest pending
investment.
For a schedule of expected record dates and pricing period commencement
dates and conclusion dates in 1999 and 2000, see Schedule A.
19. When must State Street receive optional cash payments?
Each month State Street will apply any optional cash payment for which good
funds are timely received to the purchase of our common shares for the account
of the participant during the next ten-day pricing period. In order for funds to
be invested during the next ten-day pricing period, State Street must have
received a check, money order or wire transfer by the end of the business day
immediately before the first trading day of the ensuing ten-day pricing period.
Such check, money
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order or wire transfer must have cleared on or before the first investment date
in such ten-day pricing period. Participants may use wire transfers only if
approved verbally in advance by State Street. State Street will accept checks
and money orders subject to timely collection as good funds and verification of
compliance with the terms of the plan. Checks or money orders should be made
payable to State Street and submitted together with, initially, the
authorization form or, subsequently, the form for additional investments
attached to participant's statements. Checks returned for any reason will not be
resubmitted for collection.
Neither our company nor State Street will pay any interest on optional cash
payments held pending investment. Since no interest is paid on cash held by
State Street, it normally will be in the best interest of a participant to defer
optional cash payments until shortly before commencement of the pricing period.
In order for payments to be invested on the first investment date in a
ten-day pricing period, in addition to the receipt of good funds by the first
investment date in a ten-day pricing period, State Street must receive an
authorization form or a broker and nominee form, as appropriate, as of the same
date. See Questions 6 and 8.
20. May optional cash payments be returned to participants?
If State Street receives a telephonic or written request at least five
business days before the record date for the investment date for which
participants have delivered optional cash payments to State Street, such
optional cash payments will be returned to the participant as soon as
practicable. If State Street receives such requests less than five business days
before such date, a participant's optional cash payment will not be returned but
instead will be invested on the next related investment date. Additionally, a
portion of each optional cash payment will be returned by check, without
interest, after the end of the ten-day pricing period for each trading day that
does not meet the minimum price, if any, applicable to optional cash payments
made pursuant to requests for waiver. See Question 17.
21. Are there any expenses to participants in connection with their
participation under the plan?
Participants will incur no brokerage commissions or service charges in
connection with the reinvestment of distributions or optional cash payments made
to acquire our common shares. In addition, we will pay all other costs of
administration of the plan. However, participants that request that State Street
sell all or any portion of their shares (see Question 27) must pay a nominal fee
of $15 per transaction to State Street, any related brokerage commissions (which
are not expected to exceed $.12 per share (subject to change)) and applicable
share transfer taxes.
Reports to Participants
22. What kind of reports will be sent to participants in the plan?
Each participant in the plan will receive a statement of his or her account
following each purchase of additional shares. These statements are participants'
continuing record of the cost of their purchases and should be retained for
income tax purposes. In addition, participants will receive copies of other
communications sent to holders of our common shares, including our annual report
to our shareholders, the notice of annual meeting and proxy statement in
connection with our annual meeting of shareholders and Internal Revenue Service
information for reporting distributions paid.
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Distributions on Fractions
23. Will participants be credited with distributions on fractions of shares?
Yes.
Certificates for Common Shares
24. Will certificates be issued for shares purchased?
No. Common shares purchased for participants will be held in the name of
State Street or its nominee. No certificates will be issued to participants for
shares in the plan unless a participant submits a written request to State
Street or until participation in the plan is terminated. At any time, a
participant may request State Street to send a certificate for some or all of
the whole shares credited to a participant's account. This request should be
mailed to State Street at the address set forth in the answer to Question 37.
Any remaining whole shares and any fractions of shares will remain credited to
the plan account. Certificates for fractional shares will not be issued under
any circumstances.
25. In whose name will certificates be registered when issued?
Each plan account is maintained in the name in which the related
participant's certificates were registered at the time of enrollment in the
plan. Share certificates for whole shares purchased under the plan will be
similarly registered when issued upon a participant's request. If a participant
is a beneficial owner, such request should be placed through such participant's
banker, broker or other nominee. See Question 6. A participant who wishes to
pledge shares credited to such participant's plan account must first withdraw
such shares from the account.
Withdrawals and Termination
26. When may participants withdraw from the plan?
A participant may withdraw from the plan with respect to all or a portion of
the shares held in his or her account in the plan at any time. If the request to
withdraw is received prior to a distribution record date set by our board of
directors for determining shareholders of record entitled to receive a
distribution, the request will be processed on the day following receipt of the
request by State Street.
If State Street receives the request to withdraw on or after a distribution
record date, but before a payment date, State Street, in its sole discretion,
may either pay such distribution in cash or reinvest it in shares for the
participant's account. The request for withdrawal will then be processed as
promptly as possible, following such distribution payment date. All
distributions subsequent to such distribution payment date or investment date
will be paid in cash unless a shareholder re-enrolls in the plan, which may be
done at any time.
Any optional cash payments which have been sent to State Street prior to a
request for withdrawal will also be invested on the next investment date unless
a participant expressly requests return of that payment in the request for
withdrawal, and the request for withdrawal is received by State Street at least
two business days prior to the first day of the corresponding ten-day pricing
period.
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27. How does a participant withdraw from the plan?
A participant who wishes to withdraw from the plan with respect to all or a
portion of the shares held in his or her account in the plan must notify State
Street in writing at its address set forth in the answer to Question 37. Upon a
participant's withdrawal from the plan or termination of the plan by us,
certificates for the appropriate number of whole shares credited to his or her
account under the plan will be issued. A cash payment will be made for any
fraction of a share.
Upon withdrawal from the plan, a participant may also request in writing
that State Street sell all or part of the shares credited to his or her account
in the plan. State Street will sell the shares as requested within ten business
days after processing the request for withdrawal. The participant will receive
the proceeds of the sale, less a nominal fee per transaction paid to State
Street, any brokerage fees or commissions and any applicable share transfer
taxes, generally within five business days of the sale.
28. Are there any automatic termination provisions?
Participation in the plan will be terminated if State Street receives
written notice of the death or adjudicated incompetence of a participant,
together with satisfactory supporting documentation of the appointment of a
legal representative, at least five business days before the next record date
for purchases made through the reinvestment of distributions or optional cash
payments, as applicable. In the event State Street receives written notice of
death or adjudicated incompetence and such supporting documentation less than
five business days before the next record date for purchases made through the
reinvestment of distributions or optional cash payments, as applicable, shares
will be purchased for the participant with the related cash distribution or
optional cash payment and participation in the plan will not terminate until
after such distribution or payment has been reinvested. Thereafter, no
additional purchase of shares will be made for the participant's account and the
participant's shares and any cash distributions paid thereon will be forwarded
to such participant's legal representative.
We reserve the right to modify, suspend or terminate participation in the
plan by otherwise eligible holders of our common shares or interested investors
in order to eliminate practices which are, in the our sole discretion, not
consistent with the purposes or operation of the plan or which adversely affect
the price of our common shares.
Other Information
29. What happens if a participant sells or transfers all of the shares
registered in the participant's name?
If a participant disposes of all shares registered in his or her name, and
is not shown as a record owner on a distribution record date, the participant
may be terminated from the plan as of such date and such termination treated as
though a withdrawal notice had been received prior to the record date.
30. What happens if we declare a distribution payable in shares or declare a
share split?
Any distribution payable in shares and any additional shares we distribute
in connection with a share split in respect of shares credited to a
participant's plan account will be added to that account. Share distributions or
split shares that are attributable to shares registered in a participant's own
name
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and not in his or her plan account will be mailed directly to the participant as
in the case of shareholders of our company not participating in the plan.
31. How will shares held by State Street be voted at meetings of
shareholders?
If the participant is a record owner, the participant will receive a proxy
card covering both directly held shares and shares held in the plan. If the
participant is a beneficial owner, the participant will receive a proxy covering
shares held in the plan through his or her broker, bank or other nominee.
If a proxy is returned properly signed and marked for voting, all the shares
covered by the proxy will be voted as marked. If a proxy is returned properly
signed but no voting instructions are given, all of the participant's shares
will be voted in accordance with the recommendations of our board of directors,
unless applicable laws require otherwise. If the proxy is not returned, or if it
is returned unexecuted or improperly executed, shares registered in a
participant's name may be voted only by the participant in person.
32. What are the responsibilities of our company and State Street under the
plan?
Our company and State Street will not be liable in administering the plan
for any act done in good faith or required by applicable law or for any good
faith omission to act including, without limitation, (1) any claim of liability
arising out of the failure to terminate a participant's account upon his or her
death, (2) with respect to the prices at which our common shares are purchased
and/or the times when such purchases are made or (3) with respect to any
fluctuation in the market value before or after the purchase or sale of our
common shares. Notwithstanding the foregoing, nothing contained in the plan
limits our liability with respect to alleged violations of federal securities
laws.
Our company and State Street shall be entitled to rely on completed forms
and the proof of due authority to participate in the plan, without further
responsibility of investigation or inquiry.
33. May the plan be changed or discontinued?
Yes. We may suspend, terminate or amend the plan at any time. Notice will be
sent to participants of any suspension or termination, or of any amendment that
alters the plan terms and conditions, as soon as practicable after such action
by us.
We may substitute another administrator or agent in place of State Street at
any time. Participants will be promptly informed of any such substitution.
34. What are the federal income tax consequences of participation in the
plan?
The following summary describes United States Federal income tax
considerations of participation in the plan applicable to holders of our common
shares who are generally subject to United States Federal income tax ("U.S.
Shareholders"). This summary is for general information purposes only and is
based on the United States Internal Revenue Code of 1986, and Treasury
regulations under and judicial and administrative interpretations of, the Code,
all as in effect on the date of this prospectus and all of which are subject to
change. The tax treatment to a U.S. Shareholder may vary depending upon his
particular situation. Holders such as persons that are not United States
persons, as well as banks, insurance companies, tax-exempt organizations,
financial institutions, persons subject to the alternative minimum tax and
broker dealers, may be subject to special rules not
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discussed below. The following summary is limited to U.S. Shareholders who will
hold our common shares as "capital assets" within the meaning of Section 1221 of
the Internal Revenue Code. The discussion below does not address the effect of
any state, local or foreign tax law on a U.S. Shareholder.
As used here, the term "United States person" means (1) an individual
who is a citizen or resident of the United States, (2) a partnership,
corporation or other entity created or organized in or under the laws of the
United States or any state thereof, (3) an estate, the income of which is
subject to U.S. Federal income tax, regardless of source or (4) a trust if (a) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (b) one or more United States persons have the
authority to control all substantial decisions of the trust.
For United States Federal income tax purposes, a U.S. Shareholder who is
a participant in the plan (as a "U.S. Participant") will be treated as receiving
a distribution equal to the number of our common shares purchased with such U.S.
Participant's reinvested dividends multiplied by the fair market value of our
common shares on the date they were purchased. For purposes of this paragraph,
the "fair market value" of our common shares will be the average of the high and
low sales prices for that date, as reported by the exchange on which the common
shares are principally traded; if our common shares do not trade on that date,
the fair market value will be the weighted average of the mean of the high and
low sales prices on the nearest trading dates before and after the date of
purchase. This amount may differ from the price used to determine the number of
shares a shareholder will acquire under the plan.
A U.S. Shareholder who does not participate in the plan, and who
continues to receive cash dividends, will be treated as receiving a distribution
equal to the amount of cash received. In either case, subject to the discussion
below under "Certain Tax Considerations--Taxation of Shareholders--United States
Taxation of U.S. Shareholders and Non-U.S. Shareholders," the distribution will
be includible in the U.S. Shareholder's income as a taxable dividend to the
extent of our company's then current and accumulated earnings and profits as
determined for United States Federal income tax purposes. Any cash dividend also
will not be eligible for the dividends received deduction available to
corporations.
The tax basis to a U.S. Participant in each share or fraction of a share
acquired through the dividend reinvestment aspect of the plan will equal the
fair market value of that share or fraction of a share on the date it was
purchased. The holding period will begin on the day following the date of
purchase.
Subject to the discussion below under "Certain Tax
Considerations--Taxation of Shareholders--United States Taxation of U.S.
Shareholders and Non-U.S. Shareholders," the sale of our common shares will
generally result in the recognition of gain or loss in an amount equal to the
difference between the amount realized on the sale and the holder's adjusted
basis in such common shares. For individuals, gain from a sale or exchange will
be taxed at varying rates depending on whether the stock sold was held for one
year or less, more than one year but not more than eighteen months, or more than
eighteen months.
For U.S. Participants who are current shareholders of our company, it is
not entirely clear under current law how purchases of common shares from us
pursuant to the optional cash payment feature of the plan should be treated for
federal income tax purposes. We currently intend to take the position for tax
reporting purposes either that no distribution from us has occurred in
connection with optional cash purchases, or, alternatively, that any such
distribution is not taxable as a dividend. It is
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possible, however, that the Internal Revenue Service might contend that U.S.
Participants who are our shareholders should be treated for federal income tax
purposes as having received a distribution from us in an amount equal to the
excess, if any, of the fair market value (determined as the average of the high
and low trading prices) of our common shares on the investment date less the
amount of the optional cash payment, and that all or a portion of such
distribution should be treated as a taxable dividend. In the future, we may, in
light of subsequent developments in the tax laws or for other reasons, treat as
a taxable dividend all, or a portion, of the excess of the fair market value of
our common shares credited to a participant's plan account on the investment
date less the amount of the optional cash payment. U.S. Participants are
encouraged to consult with their own tax advisors with regard to the tax
treatment of optional cash purchases.
35. How are income tax withholding provisions applied to participants in the
plan?
If a participant fails to provide federal income tax certifications in the
manner required by law, distributions on common shares proceeds from the sale of
fractional shares and proceeds from the sale of common shares held for a
participant's account will be subject to federal income tax withholding at the
rate of 31%. If withholding is required for any reason, the appropriate amount
of tax will be withheld. Shareholders such as most corporations are, however,
exempt from the above withholding requirements.
If a participant is a foreign shareholder whose distributions are subject to
federal income tax withholding at the 31% rate (or a lower treaty rate), the
appropriate amount will be withheld and the balance in common shares will be
credited to such participant's account.
36. Who bears the risk of market fluctuations in our common shares?
A participant's investment in shares held in the plan account is no
different from his or her investment in directly held shares. The participant
bears the risk of any loss and enjoys the benefits of any gain from market price
changes with respect to such shares.
37. Who should be contacted with questions about the plan?
All correspondence regarding the plan should be directed to:
STATE STREET BANK AND TRUST COMPANY
c/o EquiServe, L.P.
P.O. Box 8200
Boston, Massachusetts 02266-8200
TELEPHONE: (XXX) XXX-XXXX
Please mention ESG RE LIMITED and this plan in all correspondence.
38. How is the plan interpreted?
We will determine any question of interpretation arising under the plan and
any such determination will be final. We may adopt any condition to
participation in the plan and its operation will be governed by the laws of
Bermuda.
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39. What are some of the participant responsibilities under the plan?
Common shares credited to a participant's plan are subject to escheat to the
state in which the participant resides in the event that such shares are deemed,
under such state's laws, to have been abandoned by the participant.
Participants, therefore, should notify State Street promptly in writing of any
change of address. Account statements and other communications to participants
will be addressed to them at the last address of record provided by participants
to State Street.
Participants will have no right to draw checks or drafts against their plan
accounts or to instruct State Street with respect to any common shares or cash
held by State Street except as expressly provided in this document.
CERTAIN TAX CONSIDERATIONS
The following summary of the taxation of our company, ES Bermuda, ESG
Germany, ES Ireland and Accent Europe and the taxation of our shareholders 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, our Bermuda counsel.
Statements made below as to United States law set forth the opinion of Paul,
Weiss, Rifkind, Wharton and Garrison, our United States counsel. Statements made
below as to German taxation set forth the opinion of Deloitte & Touche GmbH.
Statements made below as to United Kingdom taxation set forth the opinion of
Deloitte & Touche, our United Kingdom advisors. Statements made below as to
Canadian taxation set forth the opinion of Deloitte & Touche, our Canadian
advisors. Statements made below as to Irish law set forth the opinion of
Matheson Ormsby Prentice, our Irish counsel.
Taxation of Our Company and its Subsidiaries
Bermuda
Our 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 our company and ES Bermuda or to any of our
operations or those of ES Bermuda's or the shares, debentures or other
obligations of our company and ES Bermuda until March 28, 2016. These assurances
are qualified by the proviso that they are not construed 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 us and ES Bermuda.
Each of our company and ES Bermuda is required to pay annual Bermuda
government fees and ES Bermuda, additionally, is required to pay insurance
registration fees as an insurer under the Insurance Act 1978. Under current
rates, we pay 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 ES Bermuda may pay to us.
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United States
Our company and our non-U.S. subsidiaries intend to operate our business in
a manner that will not cause us to be treated as engaged in a trade or business
within the United States. On this basis, our company and our 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 will not contend successfully that we or a subsidiary of ours is
engaged in a trade or business in the United States. A foreign corporation
deemed to be so engaged (1) 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 (2) 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.
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, we do 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
(1) 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 (2) ES Bermuda's income were used in substantial part to make
disproportionate distributions to, or to meet liabilities to, persons who are
not Bermuda residents or U.S. citizens or residents. We believe that the above
exception to Bermuda Treaty benefits does not apply to ES Bermuda. 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 our 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, we believe that ES Germany and other
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of our German subsidiaries 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 of our U.K. subsidiaries) 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, we believe 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, we believe that our 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 Internal Revenue Code of
1986 (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.
Ireland
In general, Irish companies must pay corporation tax on their trading income
at the rate of 28%. 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:
(1) 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
(2) reinsurance (retrocession) of the risk referred to at (1)
above with insurance and reinsurance companies.
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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 28%.
Withholding Taxes. There is no withholding tax on interest payments made by
IFSC Companies in the course of carrying on their Relevant Trading Operations.
There is a withholding tax on the payment of dividends and distributions by
Irish resident companies at the standard rate of income taxation (currently
24%), subject to some exceptions. The exceptions are dividends and distributions
paid to:
o companies resident in Ireland;
o companies resident in a European Union member state;
o companies resident in a jurisdiction with which Ireland has entered into
a double tax treaty;
o 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; and
o companies which are not resident in Ireland and the principal class of
the shares of
o the company, or
o another company of which the company is a 75% subsidiary,
is substantially and regularly traded on one or more than one recognized
stock exchange in a jurisdiction with which Ireland has a double
taxation treaty or a European Union Member State or on such other stock
exchange as may be approved of by the Minister for Finance for this
purpose.
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.
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. If the requirements of a fiscal unity between ESG Germany and its other
German subsidiaries are met, the income of the subordinated companies will be
directly attributed to ESG Germany. Fiscal unity requires that the subordinated
companies are integrated financially, organizationally and economically
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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 our 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 40% 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 5.5% is
levied on the corporate income tax. Accordingly, the overall effective tax rate
in Germany will be approximately 54% for retained earnings and 45% for
distributed earnings. Non-deductible expenses would increase the overall
effective tax burden.
Dividends ESG Germany pays to ESG UK will be exempt from German withholding
tax and solidarity surcharge, but only if there is sufficient business purpose
for ESG UK or ESG UK carries out business activities on its own under German tax
law. We expect 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
5.5% on the withholding tax on dividends paid to ESG UK. The total withholding
tax burden would then be 26.375%.
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, we
expect 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 assumed 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 ES Germany charges to ES Ireland will be
calculated on the same basis as those charged to the unrelated reinsurers.
Although not free from doubt, we believe that structuring the activities of
ES Germany as described above should also support the opinion that ES Bermuda,
which assumes business from ES Ireland, should not be 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 54%,
although non-deductible expenses would increase the overall effective tax
burden.
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United Kingdom
Prior to April 1, 1999, ESG UK and its U.K. subsidiaries were subject to
corporate income tax in the United Kingdom at the 31% rate. As of April 1, 1999,
the corporate income tax rate in the United Kingdom is 30%. 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.
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 ES North America pays 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. We intend to operate so that none of our 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 our 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, 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, among other items,
"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 the 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 Internal Revenue Code relating to insurance
companies if the income were the income of a domestic insurance company.
Subpart F insurance income does not, however, 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 Internal
Revenue Code. As discussed above, such maximum tax rate is currently 35%.
Under Section 951(b) of the Internal Revenue 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 Internal Revenue Code), 10% or more of the voting power of all classes of
shares of a 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. We believe that
neither the 25% or 50% ownership tests will apply to us or our subsidiaries
because (1) our share ownership will be widely dispersed and (2) under our
articles of association, no U.S. Holder except John C Head III and persons
deemed to own our common shares with him ("Head") under Section 958 of the
Internal Revenue Code are permitted to hold as much as 10% of our 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 our company.
Therefore, we do not believe that either we or any of our 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 Internal Revenue Service
would not successfully take a contrary position regarding the effect of the
foregoing limitations on voting power and therefore assert that we are a CFC.
Moreover, if Head acquires sufficient shares that would cause Head to be treated
as owning more than 25% of the value of our company for an uninterrupted period
of 30 days or more during any tax year, we would be a CFC. If we or any
subsidiary of ours 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 our 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 Internal Revenue 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 (1) 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, (2) 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), (3)
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 (4) 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 Internal Revenue 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
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"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 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, we anticipate that our
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 we consider there
to be a substantial possibility of it reaching or exceeding the 20% limits
described above, we intend to obtain and rely upon information from our 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, we may also seek information
from our 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. We may also take any other reasonable actions we deem necessary to
comply with the Internal Revenue Service rules.
There are currently no Inland Revenue Service 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 we are unable
to make determinations with respect to who constitutes an RPII Shareholder, it
is possible that we 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. When 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 deficits in earnings and profits for prior
taxable years. This inclusion would be required even though the shareholder
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might not have owned our common shares for more than one day during the entire
year. On the other hand, a RPII Shareholder who owns our 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 Internal Revenue 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 Internal Revenue Code), 10% or more
of the voting shares of a corporation that is or within a period of time 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 some circumstances, be required to report a disposition of shares of a
CFC by attaching Internal Revenue Service 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 Internal Revenue 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 (1) the U.S. person is not a 10% shareholder, (2) RPII does not
constitute 20% or more of the corporation's gross insurance income and/or (3)
20% or more of either the voting power or value of the corporation is not owned
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).
We believe that such rules (and related reporting requirements) will not
apply to the disposition of our common shares because we do not expect to have
any 10% U.S. Shareholders other than HMI Partners L.P., we are not directly
engaged in the insurance business, and the proposed regulations issued by the
U.S. Department of the Treasury on April 17, 1991 should be interpreted in this
manner. No assurance, however, can be given that the Internal Revenue Service
will agree with this interpretation or that the final Treasury regulations when
issued will provide that Section 1248 of the Internal Revenue Code and the
respective reporting requirements will apply to the disposition of our shares.
If the IRS or U.S. Treasury department were to make Section 1248 and the
Form 5471 filing requirement applicable to the sale of common shares, we would
notify shareholders that Section 1248 of the Internal Revenue Code and the
requirement to file Form 5471 will apply to dispositions of our common shares.
Thereafter, we 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 Internal Revenue Code and the requirement to file Form 5471 apply to
dispositions of our common shares. We 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 our common shares may have an
independent obligation to file a copy, for informational purposes, of Internal
Revenue Service Form 5471 with its tax return for any taxable year in which such
holder: (1) acquires 10% or more of the value of our common shares; or (2)
disposes of a sufficient number of our 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, our company and the acquisition or
disposition of our common shares.
Foreign Tax Credit. Because U.S. persons are likely to own a majority of our
shares, only a portion of the RPII and dividends paid by us (including any gain
from the sale of shares that are
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treated as a dividend under section 1248 of the Internal Revenue Code) will be
treated as foreign source income for purposes of computing a shareholder's U.S.
foreign tax credit limitation. We 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
Internal Revenue 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 our assets produce passive income. If we were to be
characterized as a PFIC, our 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) our 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 our common shares during the three
preceding taxable years (or shorter period during which the taxpayer held our
common shares). In general, the penalty tax is equivalent to the taxes that are
deemed due during the period the U.S. shareholder owned our common shares,
computed by assuming that the excess distribution or gain (in the case of a
sale) with respect to our 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 our
intention that we and ES Bermuda, ES Ireland and ES Germany taken together, will
be predominantly engaged in an insurance business and will not have financial
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, we believe that under the
look-through rule we 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 we qualify for the aforementioned insurance exception. We
believe, based upon the advice of counsel, that our 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 Internal Revenue
Service 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 our common shares should consult its tax advisor as
to the effects of these rules.
Other. Dividends paid by our company to U.S. corporate shareholders will not
be eligible for the dividends received deduction provided by section 243 of the
Internal Revenue Code.
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Except as discussed below with respect to backup withholding, dividends paid
by our 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 our common shares.
Information reporting to the Internal Revenue Service by paying agents and
custodians located in the United States will be required with respect to
payments of dividends on our common shares to U.S. persons. Thus, a holder of
our common shares may be subject to backup withholding at the rate of 31% with
respect to dividends paid by such persons, unless such holder (1) is a
corporation or comes within other exempt categories and, when required,
demonstrates this fact, or (2) 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
Our profits 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 our company's
income should qualify as (normal) passive income and/or passive income with
investment character, German shareholders of our 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 we have (normal) passive income, our 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 our company,
even if the shareholding of each resident is lower than 10%.
The CFC rules may also be applicable if one or several companies or
partnerships are interposed between the shareholders and our company.
The CFC rules, under some circumstances, may also require German residents
to include in income their proportionate share of the income of our
subsidiaries. German residents are urged to consult their personal tax advisors
regarding the possible application of the CFC rules to their particular
circumstances.
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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 our business
or activities. The summary is based upon current tax law. The tax treatment of a
holder of our common shares, or of a person
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treated as a holder of our 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 our shareholders. Prospective investors should consult
their own tax advisors concerning the United States Federal, state, local and
non-U.S. tax consequences of owning our common shares.
USE OF PROCEEDS
We do not know either the number of our common shares that will be
ultimately sold pursuant to the plan or the prices at which such shares will be
sold. However, we propose to use the net proceeds from the sale of newly issued
common shares for working capital purposes.
PLAN OF DISTRIBUTION
Except to the extent State Street purchases common shares in open market
transactions, the common shares acquired under the plan will be sold directly by
our company through the plan. Shares acquired under the plan, including shares
purchased pursuant to waivers granted with respect to the optional cash payment
feature of the plan, may be sold in market transactions (including coverage of
short positions) on any national securities exchange on which our common shares
trade or in privately negotiated transactions. Our common shares are currently
traded on the Nasdaq National Market.
It is expected that a portion of the common shares available for issuance
under the plan will be issued pursuant to waivers of the applicable monthly
purchase maximum. If participants submit requests for waiver of the applicable
monthly purchase maximum for any investment date for an aggregate amount in
excess of the amount we are willing to accept, we will grant such requests in
our absolute discretion and on the basis of the factors described in Question 17
above.
Persons who make purchases in connection with a "distribution" of our common
shares, as that term is used under the Securities Act of 1933, may be deemed to
be underwriters under the federal securities laws. If a person is deemed to be
an underwriter, the difference between the price such person pays to our company
for common shares acquired under the plan, after deduction of any applicable
discount from the market price, and the price at which such shares are resold
may be deemed to constitute underwriting commissions received by that person in
connection with such transactions. We will not extend to any person who may be
deemed to be an underwriter any rights or privileges other than those to which
he or it would be entitled as a plan participant, nor will we enter into any
agreement with any such person regarding such person's purchase of such shares
or any resale or distribution of them. If such a purchaser believes himself or
itself to be an underwriter, we will make available to him or it copies of this
prospectus to be delivered to subsequent purchasers of our common shares from
him or it.
Subject to the availability of our common shares registered for issuance
under the plan, there is no total maximum number of shares that can be issued
pursuant to the reinvestment of distributions.
We will pay any and all brokerage commissions and related expenses incurred
in connection with purchases of our common shares under the plan. Upon
withdrawal by a participant from the plan by
40
<PAGE>
the sale of common shares held under the plan, the participant will receive the
proceeds of such sale less a nominal fee per transaction paid to State Street
(if such resale is made by State Street at the request of a participant), any
related brokerage commissions and any applicable transfer taxes.
Our common shares may not be available under the plan in all states. This
prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any of our common shares or other securities in any state or any other
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
LEGAL CONSIDERATIONS
We have been designated as a non-resident for exchange control purposes by
the Bermuda Monetary Authority.
The transfer of our 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 our common shares to
hold or vote their common shares. Because we have been designated as a
non-resident for Bermuda exchange control purposes, there are no restrictions on
our ability to transfer funds in and out of Bermuda or to pay dividends to U.S.
residents who are holders of our 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, we are not
bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust.
We will take no notice of any trust applicable to any of our common shares
whether or not we had notice of such trust.
As an "exempted company," we are exempt from Bermuda laws restricting the
percentage of share capital that may be held by non-Bermudians, but as an
exempted company we may not participate in business transactions such as (1) the
acquisition or holding of land in Bermuda (except that required for our 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; (2) 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; (3) the acquisition of
securities created or issued by, or any interest in, any local company or
business, other than select types of Bermuda government securities or securities
of another "exempted" company, partnership or other corporation resident in
Bermuda but incorporated abroad; or (4) the carrying on of business of any kind
in Bermuda, except in furtherance of our business 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 our company that are based in Bermuda but do not operate in
competition with local business. In addition
41
<PAGE>
to having no restrictions on the degree of foreign ownership, we are subject
neither to taxes on our income or dividends nor to any foreign exchange controls
in Bermuda. In addition, there is no capital gains tax in Bermuda, and we can
accumulate profits, as required, without limitation.
42
<PAGE>
EXPERTS
The consolidated financial statements of ESG Re Limited and subsidiaries as
of December 31, 1998 and 1997 and for each of the years in the three-year period
ended December 31, 1998, included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 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.
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, will issue an
opinion about certain U.S. tax matters and will rely, as to Bermuda law, upon
the opinion of Appleby, Spurling & Kempe, Hamilton, Bermuda. Appleby, Spurling &
Kempe will issue an opinion about the legality of the issuance of our common
shares offered by this prospectus. Appleby, Spurling & Kempe will also issue an
opinion regarding certain Bermuda tax matters. Deloitte & Touche GmbH will issue
an opinion regarding certain German tax matters. Deloitte & Touche, United
Kingdom, will issue an opinion regarding certain United Kingdom tax matters.
Matheson Ormsby Prentice, Ireland, will issue an opinion regarding certain Irish
tax matters. Deloitte & Touche, Canada, will issue an opinion regarding certain
Canadian tax matters.
WHERE YOU CAN FIND MORE 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. 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 our 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
43
<PAGE>
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,
1998;
o Our Definitive Proxy Statement on Schedule 14A filed with the SEC on
April 8, 1999; 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 "Where
You Can Find More 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.
PREPARATION OF FINANCIAL STATEMENTS
Our financial statements have been prepared in accordance with U.S.
generally accepted accounting principles. Audited financial statements as of
December 31, 1998 are incorporated into this prospectus and the registration
statement by reference to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1998. As used in this prospectus, "$" refers to U.S. dollars
and "BD$" refers to Bermuda dollars.
44
<PAGE>
SCHEDULE A
OPTIONAL CASH PAYMENTS
<TABLE>
<CAPTION>
Record Date and
Minimum Price and Optional Cash Pricing Period Pricing Period
Discount Set Date Payment Due Date Commencement Date Conclusion Date
- ------------------- ---------------- ----------------- ---------------
<S> <C> <C> <C>
June 1, 1999 June 6, 1999 June 7, 1999 June 18, 1999
June 30, 1999 July 6, 1999 July 7, 1999 July 20, 1999
August 2, 1999 August 6, 1999 August 6, 1999 August 19, 1999
September 1, 1999 September 7, 1999 September 8, 1999 September 21, 1999
October 1, 1999 October 6, 1999 October 7, 1999 October 20, 1999
November 1, 1999 November 4, 1999 November 5, 1999 November 18, 1999
December 1, 1999 December 6, 1999 December 7, 1999 December 20, 1999
January 3, 2000 January 6, 2000 January 7, 2000 January 20, 2000
February 1, 2000 February 6, 2000 February 7, 2000 February 18, 2000
March 1, 2000 March 6, 2000 March 7, 2000 March 20, 2000
April 3, 2000 April 6, 2000 April 7, 2000 April 20, 2000
May 1, 2000 May 4, 2000 May 5, 2000 May 18, 2000
June 1, 2000 June 6, 2000 June 7, 2000 June 20, 2000
July 3, 2000 July 9, 2000 July 10, 2000 July 21, 2000
August 1, 2000 August 6, 2000 August 7, 2000 August 18, 2000
September 1, 2000 September 7, 2000 September 8, 2000 September 21, 2000
October 2, 2000 October 5, 2000 October 6, 2000 October 19, 2000
November 1, 2000 November 6, 2000 November 7, 2000 November 20, 2000
</TABLE>
45
<PAGE>
======================================= ========================================
We have not authorized any dealer,
salesperson or other person to give any
information or represent anything not 2,000,000
contained in this prospectus. You must
not rely on any unauthorized information. Common Shares
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 as of
, 1999.
ESG Re Limited
-----------------
TABLE OF CONTENTS
-----------------
PROSPECTUS
Page
----
Enforceability of Civil Liabilities..ii
The Company...........................1
Risk Factors..........................2
Forward-Looking Information...........9
The Plan..............................9
Certain Tax Considerations ..........29
Use of Proceeds......................40
Plan of Distribution.................40
Legal Considerations.................41
Experts..............................42
Legal Matters........................42 , 1999
Where You Can Find More Information..42
Incorporation by Reference...........43
Preparation of Financial Statements..43
======================================= ========================================
46
<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................... $ 9,419
Printing and mailing expenses.......................................... 5,000
Accounting fees and expenses........................................... 30,000
Legal fees and expenses................................................ 50,000
Miscellaneous expenses................................................. 1,500
--------
Total.................................................... $ 95,919
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
A list of exhibits included as part of this registration statement is
set forth in the Exhibit Index which immediately precedes such exhibits and is
hereby incorporated by reference herein.
II-1
<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
II-2
<PAGE>
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 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-3
<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, or amendment thereto, to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of New York, New York, on the 23rd day of
April, 1999.
ESG RE LIMITED
By: /s/ Joan H. Dillard
-------------------
Joan H. Dillard
Chief Financial Officer
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, or amendment thereto, 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 April 23, 1999
- -------------------- Executive Officer and Director
Wolfgang M. Wand (Principal Executive Officer)
/s/ Steven H. Debrovner Chief Operating Officer and April 23, 1999
- ----------------------- Director
Steven H. Debrovner
II-4
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Joan H. Dillard Chief Financial Officer April 23, 1999
- ------------------- (Principal Financial and
Joan H. Dillard Accounting Officer)
/s/ John C Head III Chairman of the Board April 23, 1999
- -------------------
John C Head III
/s/ Kenneth P. Morse Director April 23, 1999
- --------------------
Kenneth P. Morse
Director
- --------------------
David L. Newkirk
/s/ William J. Poutsiaka Director April 23, 1999
- ------------------------
William J. Poutsiaka
/s/ Edward A. Tilly Director April 23, 1999
- -------------------
Edward A. Tilly
II-5
<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 Draft of Opinion of Appleby, Spurling & Kempe.
8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain tax
matters.
8.2 Draft of Opinion of Appleby, Spurling & Kempe as to certain tax matters.
8.3 Draft of 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 Opinion of Deloitte & Touche, Canada as to certain tax matters.
8.6 Opinion of Matheson Ormsby Prentice as to certain tax matters.
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).
Exhibit 5.1
[Letterhead of Appleby Sperling & Kempe]
April, 1999
ESG Re Limited
Skandia International House
Church Street
Hamilton HM 11
Bermuda
Dear Sirs:
ESG Re Limited (the "Company")
We have acted as Bermuda counsel to the Company with respect to the Registration
Statement, as filed with the Securities and Exchange Commission on 23 April,
1999, on Form S-3, 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 Schedule to this opinion
(the "Documents"). Unless otherwise defined herein, capitalized 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, notarized 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 22 April 1999 of the Register of Companies at
the office of the Registrar of Companies referred to in paragraph 2 of
the Schedule to this opinion, was complete and accurate at the time of
such search and
<PAGE>
2
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 of 22 April 1999 in the Supreme Court Causes Book
at the Registry of the Supreme Court referred to in paragraph 3 of the
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 common
shares, when issued, delivered and paid for as contemplated in the Registration
Statement, will have been duly authorized, validly issued, fully paid and
non-assessable.
Any reference in this opinion to shares being "non-assessable" shall mean, in
relation to fully-paid shares of a company and subject to any contrary provision
in any agreement in writing between such company and the holder of shares, that:
no shareholder shall be obliged to contribute further amounts to the capital of
the company, either in order to complete payment for their shares, to satisfy
claims of creditors of the company, or otherwise; and no shareholder shall be
bound by an alteration of the Memorandum of Association or Bye-laws of the
company after the date on which he became a shareholder, if and so far as the
alteration requires him to take, or subscribe for additional shares, or in any
way increases his liability to contribute to the share capital of, or otherwise
to pay money to, the company.
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.
<PAGE>
3
(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.
(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.
<PAGE>
4
(d) In order to issue this opinion we have carried out the search referred
to in paragraph 2 of the Schedule to this opinion on 22 April 1999 and
have not enquired as to whether there has been any change since that
time and date.
(e) In order to issue this opinion we have carried out the search referred
to in paragraph 3 of the Schedule to this opinion on 22 April 1999 and
have not enquired as to whether there has been any change since that
time and date.
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>
5
SCHEDULE
1. A draft copy of the Registration Statement dated 17 April 1999.
2. Certified copy of the Minutes of the Meeting of the Board of Directors
of the Company held on 10 November 1998 (the "Resolutions").
3. 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
22 April 1999.
4. The entries and filing shown in the Supreme Court Causes Book maintained
at the Registry of the Supreme Court in Hamilton, Bermuda, as revealed
by a search on 22 April 1999 in respect of the Company.
5. Certified copies of the Certificate of Incorporation, Memorandum of
Association and Bye-laws for the Company (collectively referred to as
the "Constitutional Documents").
6. A certified copy of the "Foreign Exchange Letter," dated 21 August 1997,
issued by the Bermuda Monetary Authority, Hamilton, Bermuda in relation
to the Company.
7. A certified copy of the "Tax Assurance," dated 18 September 1997, issued
by the Registrar of Companies for the Minister of Finance in relation to
the Company.
8. A certified copy of the Register of Directors and Officers in respect of
the Company.
Exhibit 8.1
[Letterhead of Paul, Weiss, Rifkind, Wharton & Garrison]
April 23, 1999
ESG Re Limited
Skandia International House
16 Church Street
Hamilton, HM 11 Bermuda
ESG Re Limited
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-3 (the "Registration Statement"), in the form being filed with the Securities
and Exchange Commission on the date hereof in connection with the registration
under the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations promulgated thereunder (the "Rules"), of 2,000,000 Common Shares
(the "Common Shares") of ESG Re Limited (the "Company"). The Common Shares are
to be sold
<PAGE>
from time to time pursuant to the Company's Dividend Reinvestment and Share
Purchase Plan in the manner set forth in the Registration Statement, the
prospectus contained therein (the "Prospectus") and any supplements to the
Prospectus.
We have made such 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. Our opinion is based upon the
laws, regulations, rulings and decisions currently in effect.
Based on the foregoing, we confirm that the opinion set forth in the
Registration Statement under "The Plan--Other Information--What are the federal
income tax consequences of participation in the plan?," "Certain Tax
Considerations--Taxation of Our 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 express no opinion as to matters of law and jurisdictions other than
the Federal law of the United States.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement
and the Prospectus under the caption "Legal Matters." In giving this consent, we
do not hereby admit that we come within the category of persons whose consent is
required by the Act or the Rules.
Very truly yours,
/s/ PAUL, WEISS, RIFKIND, WHARTON & GARRISON
--------------------------------------------
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
Exhibit 8.2
April, 1999
[Letterhead of Appleby Spurling & Kempe]
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 on 23 April
1999 of a Registration Statement on Form S-3 with respect to the Company (the
"Registration Statement"). The documents include a draft copy of the
Registration Statement referred to above dated 17 April 1999.
For the purposes of this opinion we have examined and relied upon the documents
listed in the Schedule to this opinion and the Registration Statement (the
"Documents"). Unless otherwise defined herein, capitalized 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, notarized 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
<PAGE>
2
(e) that the draft of the Registration Statement which we have examined for
the purposes of this opinion does not differ in any material respect
from the draft approved by the board of directors of the Company and its
shareholders pursuant to the relevant board resolutions, and that when
filed the Registration Statement will not differ in any material respect
from the draft which we 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 under the headings "Certain Tax
Considerations -- Taxation of Our 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.
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
<PAGE>
3
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>
4
SCHEDULE
1. Certified copies of the Certificate of Incorporation, Memorandum of
Association and Bye-laws of the Company.
2. Certified copy of the Minutes of the Meeting of the Board of Directors
of the Company held on 10 November 1998 (the "Resolutions").
3. A certified copy of the "Foreign Exchange Letter", dated 21 August 1997,
issued by the Bermuda Monetary Authority, Hamilton, Bermuda in relation
to the Company.
4. A certified copy of the "Tax Assurance", dated 18 September 1997, issued
by the Registrar of Companies for the Minister of Finance in relation to
the Company.
Exhibit 8.3
[Letterhead of Deloitte & Touche GmbH]
To the Board of
Directors and Shareholders of
ESG Re Limited
The discussion of tax matters set forth under the captions "Risk Factors - Tax
Matters" and "Certain Tax Considerations - Taxation of Our Company and its
Subsidiaries - Germany" and "Certain Tax Considerations - Taxation of
Shareholders - Germany Taxation" in the Registration Statement of ESG Re Limited
on Form S-3 (file no. 333- __) (the "Registration Statement") constitutes our
opinion with respect to the matters set forth therein, however, subject to the
following:
- - we are not the ongoing tax advisors to ESG Germany or its subsidiaries,
nor have we audited the 1997 financial statements of ESG Germany or any
of its subsidiaries nor the 1998 financial statements of ESG Germany or
any of its subsidiaries, nor have we prepared the 1997 or any earlier or
later tax returns of ESG Germany or any of its subsidiaries, nor have we
advised the Company or any of its subsidiaries on the implementation of
the structures as described in the Registration Statement on Form F-1 of
December 12, 1997;
- - we have not undertaken any investigation or verification or other review
of any statements of fact contained in the Form S-3;
- - we have assumed (without assuming any responsibility for the correctness
of any assumptions) that, to the extent they relate to Germany, the
Company and its subsidiaries have implemented and adhered to the
structures and situations of fact as described in the Registration
Statement on Form F-1 of December 12, 1997 and/or in the Registration
Statement, and thereby have satisfied and met in full all pertinent
requirements of German tax, commercial, corporate and any other law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our Firm under the heading
"Certain Tax Considerations" in the prospectus.
Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
Dusseldorf, Germany
, 1999
Exhibit 8.4
[Letterhead of Deloitte & Touche, United Kingdom]
ESG Re Ltd.
16 Church Street
Hamilton
Bermuda
23 April, 1999
Dear Sirs:
PROSPECTUS -- DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN
The discussion of tax matters set forth under the caption "Certain Tax
Considerations -- Taxation of Our Company and its Subsidiaries -- United
Kingdom" in the Prospectus is accurate in all material respects and fairly
presents the information set our therein insofar as such statements constitute a
summary of United Kingdom taxation. We hereby consent to the filing of this
opinion as an exhibit in the Prospectus and to the references to our firm under
the heading "Certain Tax Considerations" in the Prospectus.
Yours faithfully,
/s/ Deloitte & Touche
Exhibit 8.5
[Letterhead of Deloitte & Touche, Canada]
Opinion of Deloitte & Touche LLP
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 Our 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.
/s/ Deloitte & Touche
Toronto, Canada
April 23, 1999
Exhibit 8.6
[Letterhead of Matheson Ormsby Prentice]
ESG Re Limited
16 Church Street
Hamilton
Bermuda
23 April, 1999
Dear Sirs:
We have acted as Solicitors for ESG Re Limited (the "Company") in connection
with the Registration Statement on Form S-3 (the "Registration Statement") in
relation to the Dividend Reinvestment and Share Purchase Plan.
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 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 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>
2
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;
<PAGE>
3
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; and
2.7 there are no agreements or arrangements in existence which in any
way bear upon or are inconsistent with the opinions stated
herein.
3. Opinion
Based upon and subject to the foregoing 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 Our 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. Consent
We hereby consent to the use of this opinion in this section entitled
"CERTAIN TAX CONSEQUENCES" of this 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
Exhibit 23.3
[Letterhead of Deloitte & Touche, Bermuda]
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 March 8, 1999, appearing in the
Annual Report on Form 10-K of ESG Re Limited for the year ended December 31,
1998 and to the reference to us under the heading "Experts" in the prospectus,
which is a part of this Registration Statement.
/s/ DELOITTE & TOUCHE
Hamilton, Bermuda
April 23, 1999
