<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ESG RE LIMITED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
ESG RE LIMITED
16 CHURCH STREET
HAMILTON, HM 11
BERMUDA
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 8, 2000
To the Shareholders:
The Annual General Meeting of Shareholders of ESG Re Limited (the "Company")
will be held at 9:00 a.m., Monday, May 8, 2000, at the Waterloo House, 100 Pitts
Bay Road, Pembroke, HM08 Bermuda, for the following purposes:
1. To elect one Class 1 director to serve until the 2001 Annual General
Meeting of Shareholders, two Class 2 directors to serve until the 2002 Annual
General Meeting of Shareholders, and three Class 3 directors to serve until the
2003 Annual General Meeting of Shareholders and, in each case, to hold office
until their successors are duly elected and qualified;
2. To ratify the appointment of Deloitte & Touche, independent auditors, as
the Company's auditors for the ensuing year ending with the 2001 Annual General
Meeting of Shareholders and to refer the determination of auditors' remuneration
to the Board of Directors;
3. To vote on a shareholder proposal recommending the initiation of
discussions with possible purchasers relating to an acquisition of the Company;
and
4. To transact such other business as may properly come before the meeting,
or any adjournment or adjournments thereof.
Shareholders of record at the close of business on Wednesday, March 15,
2000, will be entitled to receive notice of, and to vote at, the meeting.
All shareholders are cordially invited to attend the Annual General Meeting.
By order of the Board of Directors
Margaret L. Webster
Corporate Secretary
Hamilton, Bermuda
April 3, 2000
WE NEED YOUR PROXY VOTE IMMEDIATELY. A SHAREHOLDER MAY THINK HIS VOTE IS NOT
IMPORTANT, BUT IT IS VITAL. BY LAW, THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
WILL HAVE TO BE ADJOURNED WITHOUT CONDUCTING ANY BUSINESS IF LESS THAN A QUORUM
IS REPRESENTED. IN THAT EVENT, THE COMPANY WOULD CONTINUE TO SOLICIT VOTES IN AN
ATTEMPT TO ACHIEVE A QUORUM. CLEARLY, YOUR VOTE COULD BE CRITICAL TO ENABLE THE
COMPANY TO HOLD THE MEETING AS SCHEDULED, SO PLEASE RETURN YOUR PROXY CARD
IMMEDIATELY. YOU AND ALL OTHER SHAREHOLDERS WILL BENEFIT FROM YOUR COOPERATION.
<PAGE>
PROXY STATEMENT
ESG RE LIMITED
ANNUAL GENERAL MEETING OF SHAREHOLDERS
MAY 8, 2000
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of ESG Re Limited (the
"Company") from holders of the Company's common shares, par value $1.00 per
share (the "Common Shares"). The proxies will be voted at the Annual General
Meeting of Shareholders to be held at 9:00 a.m., Monday, May 8, 2000, at the
Waterloo House, 100 Pitts Bay Road, Pembroke, HM08 Bermuda, and at any
adjournment or adjournments thereof (the "Annual Meeting"), for the purposes set
forth in the accompanying Notice of Annual General Meeting of Shareholders. The
cost of solicitation of proxies is to be borne by the Company.
The Board has fixed the close of business on Wednesday, March 15, 2000, as
the record date (the "Record Date") for determining the shareholders of the
Company entitled to receive notice of, and to vote at, the Annual Meeting. At
the close of business on the Record Date, an aggregate of 12,260,199 Common
Shares were issued and outstanding, each share entitling the holder thereof to
one vote on each matter to be voted upon at the Annual Meeting, except that if a
person (other than John C Head III and certain affiliates) constructively or
beneficially, directly or indirectly, owns more than 9.9% of the voting power of
the issued Common Shares, the voting rights with respect to such shares will be
limited, in the aggregate, to voting power of 9.9%, pursuant to a formula
specified in the Company's Bye-Laws. The presence, in person or by proxy, of the
holders of a majority of the Common Shares outstanding (without regard to the
limitation on voting referred to above) is necessary to constitute a quorum for
the transaction of business at the Annual Meeting.
It is estimated that proxy materials will be mailed to shareholders of
record on or about April 3, 2000. The mailing address for the return of proxies
in the enclosed postage paid envelope is c/o Boston EquiServe, P.O. Box 9391,
Boston, MA 02205-9969.
At the Annual Meeting, shareholders of the Company will be asked to
(i) elect one director to serve on the Board until the completion of a one year
term (a Class 1 director), elect two directors to serve on the Board until the
completion of a two year term (Class 2 directors) and elect three directors to
serve on the Board until the completion of three-year terms (Class 3 directors),
(ii) ratify the appointment of Deloitte & Touche, independent auditors, as the
Company's auditors for the ensuing period ending with the 2001 Annual General
Meeting of Shareholders and to refer the determination of the auditors'
remuneration to the Board of Directors, (iii) vote on a shareholder proposal
recommending the initiation of discussions with possible purchasers relating to
an acquisition of the Company, and (iv) transact such other business as may
properly come before the meeting, or any adjournment or adjournments thereof.
All matters referenced in this Proxy Statement upon which shareholders are
called to vote will be decided by a plurality of votes cast.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 is being mailed to shareholders together with this Proxy
Statement.
<PAGE>
SOLICITATION AND REVOCATION
PROXIES IN THE FORM ENCLOSED ARE SOLICITED BY, OR ON BEHALF OF, THE BOARD OF
DIRECTORS OF THE COMPANY. THE PERSONS NAMED IN THE FORM OF PROXY HAVE BEEN
DESIGNATED AS PROXIES BY THE BOARD OF DIRECTORS. Such persons designated as
proxies are (i) the Chairman of the Board and Chief Executive Officer and
(ii) the Deputy Chairman of the Board of the Company. A shareholder desiring to
appoint some other person to represent him at the Annual Meeting may do so
either by inserting such person's name in the blank space provided on the
enclosed proxy card, or by completing another form of proxy and, in either case,
delivering the completed proxy to the address indicated above before the time of
the Annual Meeting. It is the responsibility of the shareholder appointing some
other person to represent him to inform such person of this appointment.
Common Shares represented at the Annual Meeting by a properly executed and
unrevoked proxy will be voted in accordance with instructions made thereon, or
if no instructions are noted, the proxy will be voted in favor of the nominees
for directors as set out in this Proxy Statement and in favor of the
ratification of appointment of Deloitte & Touche as independent auditors and
will not be voted on the shareholder proposal, all as more specifically set
forth in the Notice of Annual Meeting. If a shareholder appoints a person other
than the persons named in the proxy to represent him, such person must vote the
shares in respect of which he is appointed proxy holder in accordance with the
directions of the shareholder appointing him. A submitted proxy is revocable by
a shareholder at any time prior to it being voted provided that such shareholder
gives written notice to the Company at or prior to the Annual Meeting that such
shareholder intends to vote in person or by submitting a subsequently dated
proxy. Attendance at the Annual Meeting by a shareholder who has given a proxy
shall not in and of itself constitute a revocation of such proxy.
Abstentions and "non-votes" will be counted as present in determining the
existence of a quorum. (A "non-vote" occurs when a nominee (typically, a
broker-dealer) holding shares for a beneficial owner attends a meeting with
respect to such shares (in person or by proxy) but does not vote on one or more
proposals because the nominee does not have discretionary voting power with
respect thereto and has not received instructions from the beneficial owner.)
The affirmative vote of a plurality of the shares present or represented by
proxy and voting on the matters in question at the Annual Meeting will be
required to elect the nominees for election as directors, for the ratification
of Deloitte & Touche as independent auditors of the Company, and for adoption of
the shareholder proposal. Therefore, abstentions and "non-votes" will not have
the effect of votes in opposition to the election of a director or "no" votes on
the proposed ratification of the selection of the independent auditors of the
Company or adoption of the shareholder proposal.
Banks, brokerage houses and other institutions, nominees or fiduciaries will
be requested to forward the proxy materials to the beneficial owners of the
Common Shares held of record by such persons and entities.
2
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
In accordance with the Bye-Laws of the Company, the Board is divided into
three classes, each class serving for a three year term, and which classes are
to be evenly distributed. Due to retirements and resignations in the last
several months, the directors are no longer evenly distributed among the
classes.
The current Board of Directors is divided into three classes with membership
as follows:
<TABLE>
<S> <C> <C>
Class 1 John C Head III Term expires at the 2001 Annual General Meeting
Class 2 Gerald Moller(1) Term expires at the 2002 Annual General Meeting
Class 3 Steven H. Debrovner Term expires at the 2000 Annual General Meeting
David L. Newkirk
Edward A. Tilly
</TABLE>
- ------------------------
(1) Mr. Moller was initially appointed by the Board of Directors in July 1999 to
fill a vacancy created on the Board of Directors. Under the Company's
Bye-laws, the initial term of any director appointed by the Board expires at
the next regular Annual General Meeting. As a result, Mr. Moller is required
to stand for re-election at the 2000 Annual General Meeting.
With this situation in mind, and with the consent of the affected directors,
the Board is proposing the following nominees for election at this meeting:
<TABLE>
<S> <C> <C>
Class 1 Gerald Moller Term expires at the 2001 Annual General Meeting
Class 2 Edward A. Tilly Term expires at the 2002 Annual General Meeting
David Charles Winn
Class 3 Steven H. Debrovner Term expires at the 2003 Annual General Meeting
Isao Kuzuhara
David L. Newkirk
</TABLE>
Mr. Moller has accepted nomination to Class 1 and Mr. Tilly has accepted
nomination to Class 2. Messrs. Winn and Kuzuhara are new nominees and have
accepted nomination to Class 2 and Class 3, respectively. Mr. Head will continue
to serve the remainder of his term in Class 1.
The respective ages, positions with the Company, business experience,
directorships in other companies and Board committee memberships of all Nominees
for election and of the continuing director are set forth below.
Each Proxy will be voted in accordance with the directions thereon or, if no
directions are indicated, in favor of election of all directors named below
whose election has been proposed and recommended by the Board of Directors. The
presence, in person or by proxy, of a majority of the outstanding Common Shares
is required for a quorum for the election of directors at the Annual Meeting,
but if a quorum should not be present, the meeting may be adjourned from time to
time until a quorum is obtained. Election of directors at the Annual Meeting
will be decided by a plurality of votes cast. The individual nominees (each, a
"Nominee" and collectively, the "Nominees") are listed below. Each Nominee has
consented to be named in this Proxy Statement and has agreed to serve as a Board
member if elected. If any Nominee shall, prior to the Annual Meeting, become
unavailable for election as a director, the persons named in the accompanying
Proxy will vote for such other nominee, if any, in their discretion as may be
recommended by the Board of Directors, or the Board of Directors may reduce the
number of directors to eliminate the vacancy.
3
<PAGE>
NOMINEES:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
CLASS 1 DIRECTOR--TO SERVE UNTIL THE 2001 ANNUAL
GENERAL MEETING
Gerald Moller 56 Director, Chief Executive
Officer--Health
Gerald Moller joined the Company as Chief Executive
Officer of its Health Division on July 1, 1999. Prior
thereto Dr. Moller was head of marketing and
development for Pharma, Roche and a member of the
executive committee of Hoffman La Roche, in Basel,
from April 1998 to December 1998. From May 1995 to
March 1998, he was Chief Executive Officer of
Boehringer Mannheim Group, Amsterdam, and a member of
the Board of Corange Ltd., Bermuda. He served as
Chief Executive Officer of Boehringer Mannheim
Therapeutics, Mannheim, from May 1994 to May 1995.
Dr. Moller also serves as Director and Chairman of
Morphosys AG in Munich.
CLASS 2 DIRECTORS--TO SERVE UNTIL THE 2002 ANNUAL
GENERAL MEETING
Edward A. Tilly (1)(2) 56 Director
Edward A. Tilly was appointed by the Board to serve
as Deputy Chairman in September 1999. Mr. Tilly has
served as a director of the Company since December
1997. He is the former Chairman and Chief Executive
of the Consolidated Financial Insurance group of
companies, which are subsidiaries of General Electric
Company where he served since 1994. Between 1989 and
1994, Mr. Tilly was Chairman and Chief Executive of
Financial Insurance Group.
David Charles Winn 50 Director
David Charles Winn is Executive, Financial Services,
Business Innovations Services, IBM Personal Computer
Company for Europe, Middle East and Africa ("EMEA"),
a position he has held since September 1999. From
June 1997 to September 1999 he served as Vice
President, Marketing, of EMEA, and was General
Manager of EMEA from January 1995 to June 1997.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
CLASS 3 DIRECTORS--TO SERVE UNTIL THE 2003 ANNUAL
GENERAL MEETING
Steven H. Debrovner 62 Director, Chief Executive
Officer--Reinsurance
Steven H. Debrovner has served as a director of the
Company since February 1998. He served as the Chief
Operating Officer from the inception of the Company
until November 1998 and is currently serving as the
Chief Executive Officer--Reinsurance. Mr. Debrovner
co-founded ESG Germany in 1993. Prior thereto, Mr.
Debrovner served as the head of marketing for all
non-life business at CIGNA Worldwide headquarters in
Philadelphia from 1987 to 1993. In 1974, Mr.
Debrovner created the European accident and health
activities for AFIA and, subsequently, CIGNA. Mr.
Debrovner began his insurance underwriting experience
with American International Group, Inc. in 1967.
Isao Kuzuhara 62 Director
Isao Kuzuhara is retired from and is currently
serving as a non-executive advisor to The Dai-Tokyo
Fire & Marine Insurance Company Ltd. ("Dai-Toyko").
Mr. Kuzuhara retired as Senior Managing Director of
Dai-Tokyo in June 1998, a position he had held since
June 1991. Mr. Kuzuhara served as a Director of
Dai-Tokyo from 1983 to 1998.
David L. Newkirk (1)(2) 47 Director
David L. Newkirk is Director of European Operations
for Booz-Allen & Hamilton International, Inc. ("BAH")
and has been Vice President of BAH and various of its
wholly-owned subsidiaries since 1991. Mr. Newkirk has
served as a director of the Company since December
1997.
CONTINUING DIRECTOR:
John C Head III (2) 51 Chairman of the Board and
Chief Executive Officer
John C Head III has served as Chairman of the Board
since the inception of the Company and is a member of
the Compensation Committee. He was appointed Chief
Executive Officer of the Company in September 1999
upon the resignation of Wolfgang M. Wand. Mr. Head
has been a Managing Member of Head & Company L.L.C.,
an investment banking firm specializing in the
insurance industry, since 1987. Mr. Head is also a
director of PartnerRe Ltd., FFTW, Inc. and other
private companies.
</TABLE>
- ------------------------
(1) Member of the Company's Audit Committee.
(2) Member of the Company's Compensation Committee.
5
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF THE SIX DIRECTORS NAMED ABOVE.
THE BOARD AND ITS COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee, each of which reports to the Board of Directors. The Audit Committee
consists of Messrs. Newkirk and Tilly. The Compensation Committee consists of
Messrs. Head, Tilly and Newkirk. The Board of Directors is responsible for,
among other things, the nomination of additional directors.
The Audit Committee oversees the financial reporting process and the
internal control structure of the Company and establishes standards for review
of the Company's compliance with applicable accounting and regulatory
requirements. The Audit Committee meets with management and with the Company's
independent auditors to review matters relating to the quality of financial
reporting and internal accounting control, including the nature, extent and
results of their audits, and otherwise maintains communications between the
Company's independent auditors and the Board of Directors. The Audit Committee
met four times in 1999.
On December 23, 1999, the Securities and Exchange Commission issued SEC
Release No. 34-42266 adopting new requirements for corporate audit committees.
In addition, during 1999, the National Association of Securities Dealers, Inc.,
the regulating body for Nasdaq, on which the Company's shares are traded, also
adopted amended rules for traded companies which relate to audit committees. The
Audit Committee has reviewed the SEC Release and the amended NASD listing
standards and intends to comply with both within the timeframes for compliance
set out in each.
The Compensation Committee oversees all compensation matters for executive
officers and the Board of Directors and reviews the performance of executive
officers of the Company. The Compensation Committee is also responsible for all
forms of noncurrent monetary compensation, including the administration of the
Non-Management Directors' Compensation and Option Plan and the Company's 1997
Stock Option Plan and 2000 Restricted Stock Plan. The Compensation Committee met
five times in 1999.
In September 1999, the Board created a Special Committee of non-management
directors to review and recommend compensation for John C Head III as the
newly-appointed Chief Executive Officer and for Edward A Tilly as Deputy
Chairman. Messrs. Morse, Newkirk and Poutsiaka served on this committee. The
results of this Committee's review and recommendations are set out under
"Executive Compensation" with respect to Mr. Head and under "Compensation of
Directors" with respect to Mr. Tilly. The Special Committee met once in 1999.
To date in 2000, the Board of Directors has met once, on February 25, 2000.
In 1999, the Board of Directors met on February 25, 1999, May 7, 1999,
August 10, 1999, and November 8, 1999. All directors attended 100% of these
meetings.
6
<PAGE>
INFORMATION REGARDING THE SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
MANAGEMENT AND DIRECTORS
The table below sets forth the beneficial ownership of Common Shares,
Class A Warrants, vested Class B Warrants and vested options by all persons who
beneficially own 5% or more of the Common Shares and by all directors and
executive officers of the Company as of March 15, 2000.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------ ----------------------- --------
<S> <C> <C>
John C Head III......................................... 4,392,606(2)(4)(5) 35.8%
Madie Ivy............................................... 3,692,457(3)(4)(5) 30.1%
1330 Avenue of the Americas
New York, New York 10019
HMI Partners L.L.C...................................... 1,815,672(4) 14.8%
1330 Avenue of the Americas
New York, New York 10019
Heracles-B L.P.......................................... 1,815,672(4) 14.8%
1330 Avenue of the Americas
New York, New York 10019
Vicuna Advisors LLC..................................... 1,322,000(6) 10.8%
C/o Kenneth F. Cooper
230 Park Avenue, 7(th) Floor
New York, New York 10169
ESG Partners (Bermuda) L.P.............................. 916,143(5) 7.5%
1330 Avenue of the Americas
New York, New York 10019
Heracles ESG L.L.C...................................... 916,143(5) 7.5%
1330 Avenue of the Americas
New York, New York 10019
HPB Associates, L.P..................................... 912,500(7) 7.4%
888 Seventh Avenue
New York, New York 10106
Goldman Sachs Asset Management.......................... 778,800(8) 6.4%
One New York Plaza
New York, New York 10004
Steven H. Debrovner..................................... 362,150(9) 3.0%
Wolfgang M. Wand........................................ 230,910(10) 1.9%
Edward A. Tilly......................................... 157,000(11) 1.3%
Joan H. Dillard......................................... 134,075(12) 1.1%
David L. Newkirk........................................ 59,000(13) *
Margaret L. Webster..................................... 44,650(14) *
Gerald Moller........................................... 18,750(15) *
Renate Nellich.......................................... 1,000(16) *
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------ ----------------------- --------
<S> <C> <C>
Isao Kuzuhara........................................... -0- *
David Charles Winn...................................... -0- *
All directors and executive officers (10 persons)....... 5,192,281(1) 42.4%
</TABLE>
- ------------------------
* Denotes beneficial ownership of less than 1%.
(1) Assumes the exercise of Class A Warrants and vested Class B Warrants, but
not unvested Class B Warrants (which are subject to certain performance
criteria) and includes all Options vested or vesting within 60 days.
(2) Includes (a) 8,785 Common Shares, Class A Warrants to purchase 885 Common
Shares and Options to purchase 350,000 Common Shares held by Mr. Head;
(b) 21,196 Common Shares, Class A Warrants to purchase 1,416 Common Shares,
and Options to purchase 141,428 Common Shares, held by certain trusts for
the benefit of the minor children of Mr. Head and Ms. Ivy; (c) 243,995
Common Shares and Class A Warrants to purchase 16,277 Common Shares held by
certain pension plan trusts of Head Company and other entities which are
affiliates of HMI Partners L.L.C. of which Mr. Head is a General Partner of
the Managing Member; (d) 465,241 Common Shares and Class A Warrants to
purchase 61,568 Common Shares held by an affiliate of ESG Partners (Bermuda)
L.P. of which Mr. Head is a Managing Member of the General Partner; and
(e) 350,000 Common Shares awarded March 14, 2000 under the Company's 2000
Restricted Stock Plan, which shares are subject to forfeiture under certain
conditions. Mr. Head is married to Ms. Ivy.
(3) Includes (a) 8,636 Common Shares and Class A Warrants to purchase 885 Common
Shares held by Ms. Ivy; (b) 21,196 Common Shares, Class A Warrants to
purchase 1,416 Common Shares, and Options to purchase 141,428 Common Shares
held by certain trusts for the benefit of the minor children of Mr. Head and
Ms. Ivy; (c) 243,995 Common Shares and Class A Warrants to purchase 16,277
Common Shares held by certain pension plan trusts of Head Company and other
entities which are affiliates of HMI Partners L.L.C. of which Ms. Ivy is a
General Partner of the Managing Member; and (d) 465,241 Common Shares and
Class A Warrants to purchase 61,568 Common Shares held by an affiliate of
ESG Partners (Bermuda) L.P. of which Ms. Ivy is a Managing Member of the
General Partner.
(4) Includes 455,457 Common Shares, Class A Warrants to purchase 1,083,975
Common Shares and Class B Warrants to purchase 276,240 Common Shares held by
HMI Partners L.L.C., the Managing Member of which is Heracles-B L.P., of
which Mr. Head and Ms. Ivy are the General Partners.
(5) Includes 812,505 Common Shares and Class A Warrants to purchase 103,638
Common Shares held by ESG Partners (Bermuda) L.P., the General Partner of
which is Heracles ESG L.L.C., of which Mr. Head and Ms. Ivy are the Managing
Members.
(6) The Common Shares are owned by the following entities: Vicuna Advisors LLC,
a Delaware limited liability company (with shared voting and shared
dispositive power over 1,322,000 shares); Vicuna Partners LLC, a Delaware
limited liability company (with shared voting and shared dispositive power
over 1,322,000 shares); Vicuna Capital I L.P., a Delaware limited
partnership (with shared voting and shared dispositive power over 979,100
shares); and WNP Investment Partnership L.P., a Delaware limited partnership
(with shared voting and shared dispositive power over 342,900 shares). The
source of this information is the Schedule 13G/A dated February 14, 2000
filed by Vicuna Advisors LLC with the Commission.
8
<PAGE>
(7) The Common Shares are owned by the following entities: HPB Associates, L.P.,
a Delaware limited partnership (with shared voting and shared dispositive
power over 912,500 shares); HPB Group, LLC, a Delaware limited liability.
(with shared voting and shared dispositive power over 912,500 shares); and
Howard P. Berkowitz, a United States citizen (with shared voting and shared
dispositive power over 912,500 shares). The source of this information is
the Schedule 13G dated September 24, 1999 filed by HPB Associates, L.P. with
the Commission.
(8) Goldman Sachs Asset Management is a separate operating division of Goldman,
Sachs & Co. They hold sole voting power over 594,900 shares and sole
dispositive power over 778,700 shares. The source of this information is the
Schedule 13G dated February 14, 2000 filed by Goldman Sachs Asset Management
with the Commission.
(9) Includes 274,900 Common Shares, of which 41,200 were issued March 14, 2000
under the Company's 2000 Restricted Stock Plan and are subject to forfeiture
under certain conditions. These restricted shares will vest as follows: 25%
on September 14, 2000; 25% on September 14, 2001; 25% on September 14, 2002;
and 25% on September 14, 2003. Mr. Debrovner holds options to purchase
236,500 Common Shares, 81,625 of which are currently exercisable and an
additional 5,625 will become exercisable on May 4, 2000. See "Summary
Compensation Table."
(10) Represents shares held by Mr. Wand. Mr. Wand resigned from the Company
effective September 30, 1999 and relinquished all rights to all stock
options held by him.
(11) Includes 5,000 Common Shares. Mr. Tilly holds options to purchase 152,000
Common Shares, all of which are currently exercisable. See "Compensation of
Directors."
(12) Includes 80,825 Common Shares, of which 30,600 were issued March 14, 2000
under the Company's 2000 Restricted Stock Plan and are subject to forfeiture
under certain conditions. These restricted shares will vest as follows: 25%
on September 14, 2000; 25% on September 14, 2001; 25% on September 14, 2002;
and 25% on September 14, 2003. Ms. Dillard holds options to purchase 150,500
Common Shares, 48,875 of which are currently exercisable and an additional
4,375 will become exercisable on May 4, 2000. See "Summary Compensation
Table."
(13) Includes 7,000 Common Shares owned by Mr. Newkirk's wife for the benefit of
their children. Mr. Newkirk disclaims beneficial ownership of all such
shares held by his wife. Mr. Newkirk holds options to purchase 52,000 Common
Shares, all of which are currently exercisable. See "Compensation of
Directors."
(14) Includes 30,900 Common Shares, of which 25,000 were issued March 14, 2000
under the Company's 2000 Restricted Stock Plan and are subject to forfeiture
under certain conditions. These restricted shares will vest as follows: 25%
on September 14, 2000; 25% on September 14, 2001; 25% on September 14, 2002;
and 25% on September 14, 2003. Ms. Webster holds options to purchase 55,000
Common Shares, of which 13,750 are currently exercisable. See "Summary
Compensation Table."
(15) Mr. Moller joined the Company on July 1, 1999. He holds options to purchase
75,000 Common Shares, of which 18,750 are currently exercisable. See
"Summary Compensation Table."
(16) Represents shares held by Ms. Nellich. Under the terms of the 1997 Stock
Option Plan, all vested and unvested stock options were cancelled effective
November 5, 1999. See "Summary Compensation Table."
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INVESTMENT ADVISORY AGREEMENT
The Company is party to an investment advisory agreement (the "Investment
Advisory Agreement") with Head Asset Management L.L.C. ("Head Asset
Management"), an affiliate of Head Company, to supervise and direct the
investment of the Company's asset portfolio in accordance with, and subject to,
the investment objectives and guidelines established by the Company. Pursuant to
the terms of the Investment Advisory Agreement, the Company pays Head Asset
Management a fee, payable quarterly in arrears, equal to 0.25% per annum of the
first $200 million of assets under its management declining to 0.15% per annum
of the assets under its management, in excess of $200 million. The Investment
Advisory Agreement may be terminated upon 90 days written notice by Head Asset
Management or by the Company upon five days written notice or upon shorter
notice upon mutual written agreement by the parties. The Company expensed
$495,000 and $549,000 under this agreement for the years ended December 31, 1999
and 1998, respectively.
INDEMNIFICATION FOR CONTINGENT LIABILITIES
Certain of the former shareholders of ESG Germany who participated in the
formation have agreed to indemnify ESG Germany for certain contingent
liabilities applicable to activity prior to 1997. Management believes that the
likelihood of incurring a loss related to any of those contingent liabilities is
remote.
CONSULTING FEE
No Director, or any firm with which they are affiliated, has rendered
services for fees to the Company during 1999.
PURCHASES OF SECURITIES IN THE COMPANY
Other than as disclosed herein, no Director, or any firm with which they are
affiliated, holds securities in the Company.
10
<PAGE>
EXECUTIVE COMPENSATION
The Company's executive compensation policies are formulated by the
Compensation Committee of the Board of Directors. The Company maintains a
philosophy that compensation of its executive officers should be competitive
with similarly situated executives of its competitors and peer companies. In
addition, compensation is linked to each executive officer's performance as well
as the overall operating performance of the Company.
Each of Messrs. Head and Debrovner, and Mesdames Dillard and Webster has an
employment agreement with the Company, as described below. The base salary
component of each executive's compensation is, pursuant to the terms of their
employment agreement, subject to annual review by the Compensation Committee.
The Compensation Committee may also make discretionary increases in the base
salary based on the executive's contribution to the Company. In addition, under
the terms of each employment agreement the Compensation Committee may award
bonuses to the executive for the prior year.
Executive officers may also receive grants of stock options under the
Company's 1997 Stock Option Plan (the "Stock Option Plan") and 2000 Restricted
Stock Plan. Options are granted at a price equal to the fair market value of the
Company's Common Shares on the date of the grant. The Board of Directors
believes that grants of stock options are an effective means of aligning an
executive's compensation with the interests of shareholders, since the value of
such options are tied directly to increases in the market value of the Company's
Common Shares. The Compensation Committee has sole discretionary authority to
interpret the Stock Option Plan and to determine the type of awards to grant,
when, if and to whom awards are granted, the number of Common Shares covered by
each award and the terms and conditions of the award.
The 2000 Restricted Stock Plan was approved by the Board of Directors of the
Company on February 25, 2000. The purpose of the Plan is to provide an incentive
to the officers and certain other key employees of the Company and its
affiliates (as determined by the Compensation Committee of the Board of
Directors) to contribute to the Company's future success and prosperity by
making available to them an opportunity to acquire a proprietary interest or to
increase their proprietary interest in the Company and to enhance the ability of
the Company and its affiliates to attract and retain qualified individuals upon
whom, in large measure, the progress, growth, and profitability of the Company
depend. The Compensation Committee has discretionary authority to interpret the
2000 Restricted Stock Plan and to determine the terms of any awards, when, if
and to whom awards are granted, and the number of Common Shares covered by each
award.
The Compensation Committee is comprised of the following Board members:
John C Head III
Edward A. Tilly
David L. Newkirk
The tables which follow summarize compensation paid by the Company and its
subsidiaries and certain information regarding options granted to the Company's
principal executive officers for the years ended December 31, 1999, 1998 and
1997.
11
<PAGE>
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION AWARDS
---------------------------------------- ----------------------
NUMBER OF
OTHER ANNUAL ----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS RSA(2)
- --------------------------- -------- -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
John C Head III (3) 1999 $ 1 $ 1 $ 26,666 425,000 100
Chairman of the Board and 1998 n/a n/a n/a 30,714 -0-
Chief Executive Officer 1997 n/a n/a n/a 35,714 -0-
Steven H. Debrovner (7) 1999 $300,000 $ 50,000(4) $120,000 50,000 100
Chief Executive Officer-- 1998 $300,000 $175,000(5) $ 14,004 22,500 -0-
Reinsurance 1997 $270,417 $ 28,746(6) $ 19,446 90,000 -0-
Joan H. Dillard (8) 1999 $250,000 $ 40,000(4) $100,947 30,000 100
Chief Financial Officer 1998 $203,789 $125,000(5) $ 15,733 62,500 -0-
1997 n/a n/a n/a n/a n/a
Gerald Moller (9) 1999 200,000 $ -0-(4) 12,487 75,000 -0-
Chief Executive Officer-- 1998 n/a n/a n/a n/a n/a
Health 1997 n/a n/a n/a n/a n/a
Margaret L. Webster (10) 1999 $150,000 $ 35,000(4) $ 39,512 10,000 100
Chief Administrative Officer, 1998 n/a n/a n/a n/a n/a
General Counsel & Company 1997 n/a n/a n/a n/a n/a
Secretary
Wolfgang M. Wand (11) 1999 $225,000 $ -0-(4) $ -0- 75,000 -0-
Former Chief Executive Officer 1998 $300,000 $235,000(5) $ -0- 37,500 -0-
1997 $254,964 $ 28,746(6) $ 34,495 140,000 -0-
Renate M. Nellich (12) 1999 $244,329 $ -0-(4) $ 11,220 20,000 -0-
Former President & CEO 1998 $250,000 $100,000(5) $ 11,749 10,000 -0-
ES North America 1997 $ 83,333 $ 8,997(6) $ 3,859 25,000 -0-
</TABLE>
- ------------------------
(1) Amounts paid in currencies other than U.S. dollars have been translated into
U.S. dollars at the average translation rate for the year.
(2) On December 16, 1999, the Board of Directors awarded 100 Common Shares to
each of the 91 full-time, active employees in the Company's Reinsurance
Division in recognition of their service to the Company in 1999. These
shares are restricted as to sale or transfer until July 1, 2000 but bear no
risk of forfeiture.
(3) Mr. Head became an employee of the Company, effective September 1, 1999,
upon the resignation of Wolfgang M. Wand. The amount shown under "Other
Annual Compensation" includes an accrual for a pension scheme to be
established (see "Establishment of Pension Scheme" below) and is calculated
as if Mr. Head were receiving an annual base salary of $400,000. Mr. Head
was granted options during 1998 and 1999 in accordance with the provisions
of the Non-Management Directors' Compensation and Option Plan (see
"Compensation of Directors" below). Mr. Head received options for 30,714
shares in 1998 and 75,000 in 1999 under that Plan. He received options for
350,000 shares under the 1997 Stock Option Plan, effective December 15,
1999, in connection with his employment agreement (see "Employment
Arrangements" below).
(4) The bonuses for 1999 were not paid to the principal executive officers until
the first quarter of 2000.
12
<PAGE>
(5) The bonuses for 1998 were not paid to the principal executive officers until
the first quarter of 1999.
(6) The bonuses for 1997 were not paid to the principal executive officers until
the first quarter of 1998.
(7) The amount shown under "Other Annual Compensation" includes an accrual for a
pension scheme to be established (See "Establishment of Pension Scheme"
below)
(8) The amount shown under "Other Annual Compensation" includes $10,189 paid for
health insurance premiums and $90,758 as an accrual for a pension scheme to
be established (See "Establishment of Pension Scheme" below)
(9) Mr. Moller joined the Company as Chief Executive Officer--Health on July 1,
1999. The salary indicated represents actual payments made for the period
July 1 to December 31, 1999 on a base salary of $400,000 per annum. The
amount shown under "Other Annual Compensation" includes $487 for Group
Accident coverage and $12,000 for a car allowance.
(10) Ms. Webster joined the Company as Chief Administrative Officer, General
Counsel and Company Secretary on March 1, 1999. The salary indicated
represents actual payments made for the period March 1 to December 31, 1999
on a base salary of $180,000 per annum. The amount shown under "Other Annual
Compensation" includes $9,512 paid for health insurance premiums and $30,000
as an accrual for a pension scheme to be established (See "Establishment of
Pension Scheme" below)
(11) Mr. Wand resigned from the Company, effective September 30, 1999. The
salary indicated represents actual payments made for the period January 1 to
September 30, 1999 on a base salary of $300,000 per annum.
(12) Ms. Nellich left the Company on November 5, 1999. The salary indicated
represents actual payments made for the period January 1 to November 1, 1999
on a base salary of $250,000 per annum. The amount shown under "Other Annual
Compensation" includes $2,020 for Life Insurance premiums and $9,200 for car
lease payments.
ESTABLISHMENT OF PENSION SCHEME
On February 25, 2000, the Board of Directors authorized the establishment of
a pension scheme for senior executives of the Company as provided under the
terms of the employment agreements between the Company and the executives. Once
a vehicle for the scheme is established, the Company will make a payment into
the scheme, on behalf of each participant, in an amount equal to 20% of the
participant's base salary for each year of employment since the time of hire or
the Company's initial public offering, whichever is later. While the vehicle has
not yet been established, an accrual has been made for the amounts to be paid.
Messrs. Head and Debrover and Mesdames Dillard and Webster are participants in
this scheme and the accruals for each of them are reflected in the footnotes to
the Summary Compensation Table above.
13
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL RATES OF
TOTAL OPTIONS SHARE PRICE APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE PRICE OPTION TERM
OPTIONS EMPLOYEES IN PER COMMON EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR SHARE(1) DATE 5% 10%
- ---- --------- ------------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Head III 70,000(2) 6.77% $ 16.81 2/25/09 $ 790,190 $1,955,244
5,000(2) .48% $ 16.50 5/7/09 $ 51,884 $ 131,484
350,000(3) 33.87% $5.4375 12/15/09 $1,482,207 $3,487,450
Steven H. Debrovner 50,000(4) 4.84% $ 16.81 2/25/09 $ 564,422 $1,396,603
Joan H. Dillard 30,000(4) 2.90% $ 16.81 2/25/09 $ 338,653 $ 837,962
Gerald Moller 75,000(4) 7.26% $15.375 7/31/09 $ 725,194 $1,837,784
Margaret L. Webster 10,000(4) .97% $ 16.81 2/25/09 $ 101,409 $ 256,991
Wolfgang M. Wand 75,000(4) 7.26% $ 16.81 9/30/99 (5) (5)
Renate M. Nellich 20,000(4) 1.94% $ 16.81 11/5/99 (6) (6)
</TABLE>
- ------------------------
(1) Under the terms of the Non-Management Directors Compensation and Option
Plan, the exercise price for options granted under the Plan is the average
of the closing price of the Common Shares on the Nasdaq market over the
prior 10 trading day period prior to grant. Under the terms of the 1997
Stock Option Plan, the Board has discretion to set the exercise price. The
Board has used a combination of closing price on the date of grant or the
average of the closing price of the Common Shares on the Nasdaq market over
the prior 10 trading day period prior to grant. The exercise prices shown
reflect a combination of these methods.
(2) Options granted to Mr. Head as non-management director and Chairman of the
Board and prior to the time he became Chief Executive Officer and an
employee of the Company. These options were granted under the Non-Management
Directors' Compensation and Option Plan. Options vest immediately upon
grant.
(3) Options granted to Mr. Head under the terms of an Employment Agreement
effective September 1, 1999, in connection with his assumption of the
position of Chief Executive Officer. These options were granted under the
1997 Stock Option Plan and vested immediately upon grant.
(4) Options granted under the 1997 Stock Option Plan and vest 25% on date of
grant and 25% on each of the second, third and fourth anniversary dates of
the date of grant.
(5) Mr. Wand resigned effective September 30, 1999 and relinquished all rights
to options granted to him.
(6) Under the terms of the 1997 Stock Option Plan all vested and unvested
options were cancelled effective November 5, 1999.
14
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS OPTIONS IN-THE-MONEY
AT FISCAL YEAR END AT FISCAL YEAR END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
- ---- --------------- -------------- ------------------- --------------------
<S> <C> <C> <C> <C>
John C Head III -- -- 491,428/0 $525,175/$0
Steven H. Debrovner -- -- 63,125/99,375 $ 0/$0
Joan H. Dillard -- -- 23,125/69,375 $ 0/$0
Gerald Moller -- -- 18,750/56,250 $ 0/$0
Margaret L. Webster -- -- 2,500/7,500 $ 0/$0
Wolfgang M. Wand -- -- 0/0 $ 0/$0
Renate M. Nellich -- -- 0/0 $ 0/$0
</TABLE>
- ------------------------
(1) Calculated based upon a price of $6.938 per share of the Company's Common
Shares at December 31, 1999.
COMPENSATION OF DIRECTORS
Directors who are full-time employees of ESG or its subsidiaries will not be
paid any fees or additional compensation for services as members of the Board of
Directors or any committee thereof. Directors who are not full-time employees of
ESG or its subsidiaries ("Non-Management Directors") are eligible to participate
in the ESG Re Limited Non-Management Directors' Compensation and Option Plan
(the "Directors Plan"). A total of 1,000,000 Common Shares may be issued under
the Directors Plan, which limit will be proportionately adjusted in the event of
certain changes in the Company's capitalization, a merger or a similar
transaction. For their services, Non-Management Directors receive fees annually
which are paid in cash and/or Common Shares. The Non-Management Directors may
elect to receive all or a portion of such fees in options or to defer all or a
portion of such fees pursuant to the terms of the Directors Plan as described
below.
If a Non-Management Director elects to receive options in lieu of such stock
and cash payment, such Director will receive options for Common Shares with a
value, as determined by the Board, equal to two times the amount of fees that
would otherwise be payable. The Non-Management Directors may alternatively elect
to receive deferred compensation ("Deferred Compensation") indexed to the
greater of (i) total return on the Common Shares and (ii) the one-year U.S.
treasury bill rate. Deferred Compensation will be paid in cash, in accordance
with the terms of the Directors Plan. Directors' shares granted under the
Directors Plan will be subject to restrictions on transfer for six months after
receipt. Options granted under the Directors' Plan are granted at the fair
market value per share at the date of grant.
Under the Directors' Plan, Non-Management Directors will also receive
automatic annual awards of options to purchase 5,000 Common Shares (or such
other amount as the Board may determine) at an exercise price per share equal to
the then market price per share (or, in each case, a lesser amount prorated to
the extent the participating director did not serve on the Board of Directors
for the entire year preceding the relevant Annual General Meeting of
Shareholders), on each successive Annual General Meeting of Shareholders. The
Board also has discretionary authority to (i) award additional options to the
Chairman of the Board, the Deputy Chairman of the Board, the Committee Chairmen
and members of the Board of Directors or the Supervisory Board of any of the
subsidiaries of ESG and (ii) grant options to permit a Non-Management Director
to reacquire any Common Shares the Non- Management Director delivered as payment
of the exercise price or to satisfy any withholding obligation in connection
will the exercise of an option. All options are 100% vested and exercisable at
15
<PAGE>
the time of grant. Common Shares issued on exercise of options issued pursuant
to the Directors Plan may be either authorized but unissued shares or treasury
shares. Options granted under the Directors Plan are non-transferable, except in
limited circumstances in the Board's discretion as set forth in the Directors
Plan.
For services rendered from May 5, 1998 to May 6, 1999 (the "1998 Fee
Period"), Non-Management Directors received fees of $35,000. In addition to the
amounts paid to the Non-Management Directors, the Chairman received $55,000 for
services rendered during the 1998 Fee Period. For services rendered from May 7,
1999 to May 8, 2000 (the "1999 Fee Period"), each of the Non-Management
Directors received fees of $35,000. In addition to the amounts paid to the
Non-Management Directors, the Chairman received $55,000 for services rendered
during the 1999 Fee Period. For the 1998 Fee Period, each of the Non-Management
Directors elected to receive their fees in the form of options and received
options exercisable for 10,000 Common shares in lieu of the cash payment. For
the 1999 Fee Period, each of the Non-Management Directors elected to receive
their fees in the form of options and received options exercisable for 12,000
Common shares in lieu of the cash payment. All Non-Management Directors received
automatic annual awards of options exercisable for 5,000 Common shares for each
of the 1998 and 1999 Fee Periods.
The Directors Plan may be amended or terminated by the Board of Directors at
any time, in whole or in part. However, any amendment for which shareholder
approval is required by law will not be effective until such approval has been
attained. Unless earlier terminated, the Directors Plan will expire when all
options are issued, and no further options may be granted thereunder.
In February 1999, the Board of Directors approved an adjustment in the
Director's fees payable to John C. Head III. In his role as Chairman of the
Board, Mr. Head was asked to assume additional responsibilities related to
expansion of the Company's business and identification of opportunities for
non-organic growth. In lieu of all other fees payable to Mr. Head as a
non-management Director and Chairman, the Board approved a grant of options to
purchase 75,000 Common Shares and a cash fee of $120,000. Of that amount,
$90,000 was paid to Mr. Head in 1999 and $30,000 in the first quarter of 2000.
In recognition of the assumption of additional responsibilities as Deputy
Chairman of the Board, a Special Committee of the Board (see "The Board and Its
Committees" above) awarded an option exercisable for 100,000 Common shares to
Edward A. Tilly, a Non-Management Director. This option was granted under the
discretionary authority provision of the Directors' Plan. The option exercise
price is $6.47, the fair market value as of the date of grant, and is
immediately vested and exercisable.
All Directors are reimbursed for travel and other related expenses incurred
in attending meetings of the Board of Directors or committees thereof.
EMPLOYMENT ARRANGEMENTS
JOHN C HEAD III: The Company has entered into an employment agreement with
Mr. Head to serve as Chief Executive Officer, effective September 1, 1999. Under
this agreement, Mr. Head will receive an annual base salary of $1.00. The annual
base salary is subject to the review of the Compensation Committee of the Board
and can be increased but not decreased, at the Committee's discretion. The
initial term of employment commences September 1, 1999 and ends December 31,
2000, unless extended. The term will automatically renew for a one year period
if neither party gives notice to the other on or before August 14, 2000.
Thereafter, notice of non-renewal must be made by June 1 of each year. If
Mr. Head's employment terminates in connection with a Change of Control, he
shall be entitled to receive (i) his then effective base salary through the date
of termination; (ii) any bonus amount then payable; (iii) a pro-rata bonus for
the year in which the termination takes place; (iv) the then effective base
salary for the greater of the term remaining or one year; (v) highest bonus for
the greater of the term remaining or one year; (vi) the present lump sum value
of any benefits which would
16
<PAGE>
have accrued under any qualified and nonqualified retirement plan of the Company
in which he participated or could have participated at the time of termination,
had he remained employed for the remainder of the term, assuming a base salary
of $400,000 per year; (vii) a lump sum cash payment of $5,800,000; and
(viii) continuation of any welfare benefits equal to those being provided at the
time of termination until the end of the employment period had the termination
not taken place. In addition, should any payment or distribution by the Company
to Mr. Head result in the application of excise tax imposed by Section 4999 of
the Internal Revenue Code, or any similar tax imposed by state or local law,
Mr. Head will be entitled to receive an additional payment in amount such that,
after payment of all taxes, is equal to the excise tax imposed on the payments.
Under the terms of the agreement, Mr. Head will be provided with a $10,000,000
life insurance policy and a disability policy which will provide an annual
benefit of $500,000 in the event of his disability, subject to an annual premium
cap of $125,000. The agreement provides that Mr. Head will be granted a stock
option for 350,000 Common Shares, vesting immediately upon grant, at an option
price of $5.4375 per share, expiring 10 years from date of grant. The Board
authorized the grant effective December 15, 1999. The agreement also provides
for the granting of a restricted stock award under the Company's 2000 Restricted
Stock Plan for 350,000 shares. This grant was made on March 14, 2000. These
shares will vest 25% on June 1, 2000, and 25% on each June 1 thereafter if
Mr. Head is still an employee of the Company. Vesting will accelerate upon death
or Change of Control.
STEVEN H. DEBROVNER: The Company entered into an employment agreement with
Mr. Debrovner for a three year term to serve as the Chief Operating Officer,
effective as of December 1, 1997. Under the employment agreement,
Mr. Debrovner's initial annual base salary was $250,000. The annual base salary
was increased to $300,000 in 1998. Mr. Debrovner is entitled to participate in
all benefit plans generally available to senior executives of the Company.
Effective as of November 1, 1998, Mr. Debrovner's title was amended to "Chief
Underwriting and Marketing Officer" and again amended in September 1999 to Chief
Executive Officer--Reinsurance, in order to reflect his Global Underwriting and
Marketing responsibilities. The employment agreement with Mr. Debrovner
automatically renews for one year periods unless either party gives notice one
year prior to renewal. In the event of termination by the Company without cause
or by Mr. Debrovner for good reason, Mr. Debrovner is entitled to receive his
then current base salary for the greater of the remainder of the term or one
year. In the event of termination due to non-renewal, death or disability,
Mr. Debrovner will be entitled to a lump sum payment equal to the then current
base salary for the remainder of the term. If Mr. Debrovner's employment is
terminated within one year of a Change of Control, in addition to the payments
called for under the agreement applicable to the term of the termination, he
shall be entitled to a lump sum payment which, when added to the present value
of all other benefits or payments, equals 2.99 times the Base Amount as defined
in Section 280G of the Internal Revenue Code.
JOAN H. DILLARD: The Company entered into an employment agreement with
Ms. Dillard for a three year term to serve as the Chief Financial Officer,
effective as of March 23, 1998. Under the employment agreement, Ms. Dillard's
annual base salary is $250,000. Ms. Dillard is entitled to participate in all
benefit plans generally available to senior executives of the Company. The
employment agreement with Ms. Dillard automatically renews for one year periods
unless either party gives notice one year prior to renewal. In the event of
termination by the Company without cause or by Ms. Dillard for good reason,
Ms. Dillard is entitled to receive her then current base salary for the greater
of the remainder of the term or one year. In the event of termination due to
non-renewal, death or disability, Ms. Dillard will be entitled to a lump sum
payment equal to the then current base salary for the remainder of the term. If
Ms. Dillard's employment is terminated within one year of a Change of Control,
in addition to the payments called for under the agreement applicable to the
term of the termination, she shall be entitled to a lump sum payment which, when
added to the present value of all other benefits or payments, equals 2.99 times
the Base Amount as defined in Section 280G of the Internal Revenue Code.
17
<PAGE>
MARGARET L. WEBSTER: The Company entered into an employment agreement with
Ms. Webster for a three year term to serve as the Chief Administrative Officer,
General Counsel and Company Secretary effective as of March 1, 1999. Under the
employment agreement, Ms. Webster's annual base salary is $180,000. Ms. Webster
is entitled to participate in all benefit plans generally available to senior
executives of the Company. The employment agreement with Ms. Webster
automatically renews for one year periods unless either party gives notice one
year prior to renewal. In the event of termination by the Company without cause
or by Ms. Webster for good reason, Ms. Webster is entitled to receive her then
current base salary for the greater of the remainder of the term or one year. In
the event of termination due to non-renewal, death or disability, Ms. Webster
will be entitled to a lump sum payment equal to the then current base salary for
the remainder of the term. If Ms. Webster's employment is terminated within one
year of a Change of Control, in addition to the payments called for under the
agreement applicable to the term of the termination, she shall be entitled to a
lump sum payment which, when added to the present value of all other benefits or
payments, equals 2.99 times the Base Amount as defined in Section 280G of the
Internal Revenue Code.
GERALD MOLLER: The Company does not currently have a written employment
agreement with Mr. Moller.
WOLFGANG M. WAND: Mr. Wand resigned from the Company effective September 30,
1999.
RENATE M. NELLICH: Ms. Nellich left the Company effective November 5, 1999.
These agreements prohibit the executives from using or disclosing
confidential information about the Company and its affiliates and their
operations and, in the case of Mr. Debrovner and Ms. Dillard, from engaging in
any competitive reinsurance or insurance business for a period of one year after
the term of employment.
The Board of Directors has endorsed a management policy to eliminate the use
of employment agreements, unless required by local law, in favor of the adoption
of broad-based policies that cover the issues typically addressed in employment
agreements. As part of the implementation of this program, notices of
non-renewal have been given to Steven H. Debrovner and Joan H. Dillard in
accordance with the notice provisions in their employment agreements. Similar
notices will be given to all other executives in accordance with the notice
provisions in their respective agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are John C Head III,
David L. Newkirk and Edward A. Tilly. Neither Mr. Newkirk nor Mr. Tilly is an
executive officer or employee of the Company or any of its subsidiaries.
The Company is party to an Investment Advisory Agreement with Head Asset
Management, an affiliate of Head Company. See "Certain Relationships and Related
Transactions."
18
<PAGE>
PERFORMANCE GRAPH
The graph set forth below compares the cumulative shareholder return on the
Company's Common Shares to such return on the Standard & Poor's Insurance Stock
Price Index and the Wilshire 5000 Stock Price Index for the period commencing
January 1, 1998, and ending on December 31, 1999 assuming $100 was invested on
January 1, 1998 (the "Investment Date"). Each measurement point on the graph
below represents the cumulative shareholder return from the Investment Date to
the measurement point date, as measured by the last sale price on such date. As
depicted in the graph below, as of December 31, 1999, the cumulative total
shareholder return on the Company's Common Shares was (73.5)%, and the
cumulative total return on the Standard & Poor's Insurance Stock Price Index and
the Wilshire 5000 Stock Price Index was 9.1% and 52.5%, respectively.
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ESG RE LIMITED STANDARD & POORS INSURANCE PRICE INDEX WILSHIRE 5000 STOCK PRICE INDEX
<S> <C> <C> <C>
12/31/97 100.00 100.00 100.00
3/31/98 125.88 111.80 113.26
6/30/98 98.82 115.17 115.47
9/30/98 79.41 95.29 101.58
12/31/98 84.71 107.97 123.43
3/31/99 80.00 111.58 128.09
6/30/99 80.59 116.73 138.09
9/30/99 63.53 108.06 128.95
12/31/99 26.47 109.11 152.51
</TABLE>
PROPOSAL 2
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Directors proposes and recommends that the shareholders ratify
the selection of the firm of Deloitte & Touche to serve as independent auditors
of the Company until the close of the 2001 Annual General Meeting of
Shareholders. Deloitte & Touche has served as the Company's independent auditors
from the Company's inception in August 1997 to the present. Unless otherwise
directed by the shareholders, proxies will be voted in favor of approval of the
selection of Deloitte & Touche to audit the Company's consolidated financial
statements for the fiscal year ended December 31, 2000. A representative of
Deloitte & Touche will attend the Annual Meeting and will have an opportunity to
make a statement, if such representative desires, and to respond to appropriate
questions. Shareholders at the Annual Meeting will also be asked to vote to
refer the determination of the auditors' remuneration to the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE AS THE COMPANY'S INDEPENDENT AUDITORS FOR 2000
AND THE REFERRAL TO THE BOARD OF DIRECTORS OF THE DETERMINATION OF THE AUDITORS'
REMUNERATION.
19
<PAGE>
PROPOSAL 3
SHAREHOLDER PROPOSAL
"Capital Preservation and Performance, L.P. ("CPP"), a holder of 9,000
shares of Class A Common Stock whose address is c/o Capital Preservation
Advisors, 9 Quaint Lane, Hamilton Square, New Jersey, 08690 has given notice of
its intention to propose the following resolution for consideration at the
annual meeting:
"RESOLVED: That the stockholders of ESG RE Limited ("ESG") hereby request
that the Board of Directors immediately initiate discussions with possible
purchasers relating to an acquisition of ESG by merger or tender offer."
PROPONENT'S SUPPORTING STATEMENT: The proponent, a holder of 9000 shares of the
common stock of ESG, believes that in order to maximize and preserve shareholder
value ESG should be sold." The proponent believes that the weak financial
performance is the result of poor capital allocation and operating management
decisions and lack of scale and management breadth. ESG made its initial public
offering in December, 1997 at a price of $20 per share and the company stressed
the benefits afforded by its top three managers: Wolfgang Wand, Renate Nellich,
and Steve Debrovner. Following operating difficulties which are described below,
Wolfgang Wand and Renate Nellich left the company in September 1999 and
November 1999, respectively.
"The first underwriting cycle of the North American business was not as
profitable as management had projected. Operating problems began being publicly
disclosed in August 1998 when projected earnings per share for fiscal 1999 were
revised down to $1.85. In November 1998, they were again revised downward to
$1.55 per share. Amid further deterioration in the business, by June 1999, the
company's anticipated profits for 1999 were down to $1.35. In fact, at the time
of this writing in December 1999, it seems assured that the company will operate
at a substantial loss for 1999.
"In the opinion of CPP the company's misallocation of capital is exemplified
by its investment in a German healthcare initiative. In September 1999, not less
than 60 days after publicly stating that these operations were expected to
generate run-rate earnings of $1.10/ per share by the end of 2000, ESG disclosed
that the value of the business would be written off and that ESG would seek to
immediately cease funding of this business.
"Third quarter 1999 results provide further evidence that company should be
sold. The company's North American business, which accounts for over 80% of
written premiums, generated extremely disappointing operating results. In the
aftermath of the third quarter earnings announcements, Standard & Poor's lowered
its claim paying rating on ESG to BBB from A- citing ESG's apparently poor
internal controls, unprofitability, and its failure to adhere to its originally
stated business plan. The company's stock price and market valuation have fallen
accordingly. With the departure of two of its key managers, reduced ratings and
an overhead burden which approaches $30 million per year, CPP believes that it
is difficult for the company to operate profitably and that shareholders'
interests would be best served by an expedient and value maximizing sale of ESG.
"While the adoption of this proposal will not legally bind the Board of
Directors, the proponent trusts that given the fiduciary responsibilities of the
directors, the directors will honor their stockholders request."
RESPONSE OF THE BOARD OF DIRECTORS TO SHAREHOLDER PROPOSAL
Capital Preservation and Performance, L.P has submitted the above proposal
for consideration at the Annual Meeting. This shareholder has represented to the
Company that it has continuously held 700 shares of the Company's Common Stock
for a one year period. The proponent calls upon the Directors to carry out their
fiduciary responsibilities and honor the request.
20
<PAGE>
Members of the Board and management have in the past assured and continue to
assure the proponent, during telephone conversations and through written
correspondence, that the Board has given thorough consideration to whether a
sale, through merger or tender offer, is in the best interests of the
shareholders at this time. Maximizing shareholder value is a basic tenet which
underlies all actions of the Board and was very much a factor in the decisions
which the Board made last Fall. The Board believes that adoption of a proposal
forcing the immediate initiation of discussions with possible purchasers removes
the element of timing as one of the tools to be used by the Board to obtain the
best possible price in any merger or acquisition transaction.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Company's review of copies of Forms 3, 4 and 5 and amendments
thereto furnished to the Company since January 1, 1999, all Directors and
executive officers of the Company have timely reported all transactions to the
Securities and Exchange Commission with one exception. At the meeting of the
Board of Directors held on May 7, 1999, the Board determined that
Messrs. Cormac Treacy, Controller, and Michael Nuenke, Treasurer, should be
considered "executive officers" for purposes of reporting under Section 16(a).
Forms 3 for each officer were filed on May 24, 1999, seven days after the filing
deadline of May 17.
MISCELLANEOUS
The Company will bear all of the costs of the solicitation of proxies for
use at the Annual Meeting. Banks, brokers, nominees and other custodians and
fiduciaries will be reimbursed for their reasonable out-of-pocket expenses in
forwarding soliciting material to their principals, the beneficial owners of
Common Shares of the Company. The costs of soliciting proxies will be borne by
the Company. It is estimated that these costs will be nominal.
Shareholders who do not expect to attend in person are urged to sign, date
and return the enclosed proxy card in the envelope provided. In order to avoid
unnecessary expense, we ask your cooperation in mailing your proxy card
promptly, no matter how large or how small your holdings may be.
At the date of this Proxy Statement, management has no knowledge of any
business, other than that described herein, which will be presented for
consideration at the Annual Meeting. In the event any other business is properly
presented at the Annual Meeting, it is intended that the persons named in the
enclosed proxy will have authority to vote such proxy in accordance with their
judgment on such business.
Proposals shareholders wish to include in the Company's proxy statement for
the 2001 Annual General Meeting of Shareholders must be sent to and received by
the Company no later than December 1, 2000 at 16 Church Street, Hamilton, HM11
Bermuda.
By order of the Board of Directors
Margaret L. Webster
Corporate Secretary
Hamilton, Bermuda
April 3, 2000
21
<PAGE>
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
ESG RE LIMITED
Mark box at right if an address change has / /
been noted on the reverse side of this card.
RECORD DATE SHARES:
Please be sure to sign and date this Proxy.
1. Election of Directors For All Nominees / / Withhold / / For One Nominee / /
Class 1 Directors
Gerald Moller
Class 2 Directors
Edward A. Tilly
David Charles Winn
Class 3 Directors
Steven H. Debrovner
Isao Kuzuhara
David L. Newkirk
NOTE: If you do not wish your shares voted "FOR" a particular nominee, mark the
"For One Nominee" and strike a line through the name of the other nominee for
whom you do not wish to vote "FOR". Your shares will be voted for the remaining
nominee.
2. Ratification of the appointment of Deloitte & Touche as independent auditors
for the Company for the fiscal year ended 2000 and referral of the determination
of auditors' remuneration to the Board of Directors.
FOR AGAINST ABSTAIN
/ / / / / /
<PAGE>
3. Adoption of the Shareholder Proposal recommending the initiation of
discussions with possible purchasers relating to an acquisition of the Company.
FOR AGAINST ABSTAIN
/ / / / / /
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting, or at any adjournment(s)
thereof.
Date
Please sign exactly as your name(s) appear(s) on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
ESG RE LIMITED
- --------------------------- --------------------------
Shareholder sign here Co-owner to sign here
ESG RE LIMITED
IMPORTANT: PLEASE ACT PROMPTLY. VOTE, DATE, SIGN AND MAIL YOUR PROXY CARD TODAY.
Dear Shareholder,
Please take note of the important information enclosed with this proxy
card. There are a number of issues related to the management and operation of
your Company that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
No matter how many shares you own, your vote is important. Voting can
also help your Company save money. To hold a meeting, a quorum must be
represented. Voting can save your Company the expense of another solicitation
for proxies required to achieve a quorum.
Please mark the boxes on this proxy card to indicate how your shares
will be voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual General Meeting of
Shareholders, May 8, 2000.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
ESG Re Limited
<PAGE>
ESG RE LIMITED
Annual General Meeting of Shareholders - May 8, 2000
Proxy Solicited on Behalf of the Board of Directors
The undersigned shareholder of ESG Re Limited (the "Company") hereby appoints
John C Head III and Edward A. Tilley, and each of them, proxies of the
undersigned, with full power of substitution to each, to vote as indicated
herein, all of the shares of the Company standing in the name of the undersigned
at the close of business on Wednesday, March 15, 2000, at the 2000 Annual
Meeting of Shareholders of ESG Re Limited to be held at Waterloo House, 100
Pitts Bay Road, Pembroke, HM08 Bermuda, Monday, May 8, 1999, at 9:00 a.m., and
at any adjournment or adjournments thereof, with all of the powers the
undersigned would possess if then and there personally present and especially
(but without limiting the general authorization and power hereby given) to vote
as indicated on the proposals as more fully described in the Proxy Statement for
the meeting.
THIS PROXY IS SOLICITED BY, OR ON BEHALF OF, THE COMPANY'S BOARD OF DIRECTORS
AND WILL BE VOTED "FOR" PROPOSALS 1 AND 2 AND WILL NOT BE VOTED ON PROPOSAL 3
UNLESS OTHERWISE INDICATED.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) on the books of the Company. Joint
Owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED?
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
