<PAGE>
As filed with the Securities and Exchange Commission on September 17, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
EVEREST REINSURANCE GROUP, LTD.
(Exact Name of Registrant as Specified in its Charter)
Bermuda 6321 Not Applicable
(State or Other
Jurisdiction of
Incorporation or
Organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer
Identification No.)
c/o ABG Financial & Management CT Corporation System
Services Inc. 1633 Broadway
Parker House New York, New York 10019
Wildey Business Park, Wildey Road (212) 664-1666
St. Michael, Barbados (Name, Address, Including Zip Code,
(246) 436-6287 and Telephone Number, Including
(Address, Including Zip Code, and Area Code, of Agent for Service)
Telephone Number, Including Area
Code, of Registrant's Principal
Executive Offices)
----------------
Copies to:
Richard Warren Shepro, Esq. Janet J. Burak, Esq.
Carol S. Rivers, Esq. Everest Reinsurance Holdings, Inc.
Mayer, Brown & Platt 477 Martinsville Road
190 South LaSalle Street P.O. Box 830
Chicago, Illinois 60603 Liberty Corner, New Jersey 07938-
(312) 782-0600 0830
(908) 604-3000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Proposed Maximum Aggregate
Title of Each Class of Amount to be Offering Price Offering Price Amount of
Securities to be Registered Registered Per Unit (1) (1) Registration Fee
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shares, par value
$.01 per share............ 48,655,428 $26.90625 $1,309,135,110 $363,940
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee
calculated in accordance with Rule 457(f) under the Securities Act of 1933.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
Everest Reinsurance Holdings, Inc.
477 Martinsville Road
Liberty Corner, New Jersey 07938
[Mailing Date], 1999
RESTRUCTURING PROPOSED--YOUR VOTE IS VERY IMPORTANT
Dear Fellow Stockholders:
The board of directors of Everest Reinsurance Holdings, Inc. ("Everest
Holdings") has called a special meeting of stockholders for [Meeting Date],
1999, at which you will be asked to consider and vote to adopt an agreement and
plan of merger that will cause a restructuring of Everest Holdings.
As a result of the restructuring, Everest Holdings will become a wholly-
owned subsidiary of a new holding company called Everest Reinsurance Group,
Ltd. ("Everest Group"). Everest Group was recently organized under the laws of
Bermuda and has its principal offices in Barbados. In addition, each
outstanding share of common stock of Everest Holdings will be converted into
one common share of Everest Group. We expect that Everest Group common shares
will be listed on the New York Stock Exchange (the "NYSE") under Everest
Holdings' current trading symbol, "RE." The exchange of Everest Holdings common
stock for Everest Group common shares will be a taxable transaction in which
gain, if any (but not loss), will be recognized by stockholders.
The board of directors of Everest Holdings believes that the proposed
restructuring will provide us with an enhanced ability to compete and create
better returns for our stockholders by permitting us to take maximum advantage
of favorable business, regulatory, tax and financing environments in Bermuda
and Barbados. Accordingly, the board of directors has declared the agreement
and plan of merger to be advisable, has approved it and recommends that
stockholders vote "FOR" its adoption.
YOUR VOTE IS VERY IMPORTANT. We cannot implement the restructuring unless
the stockholders vote to adopt the agreement and plan of merger at the special
meeting. Whether or not you plan to attend the special meeting of stockholders,
please take the time to indicate your voting instructions on the enclosed proxy
card and return it promptly in the postage prepaid envelope provided for that
purpose. If you attend the special meeting in person, you may vote personally
on all matters brought before the special meeting even if you have previously
submitted your proxy.
Sincerely,
Joseph V. Taranto
Chairman and Chief Executive Officer
Please see page 7 for risk factors relating to the restructuring that you
should consider.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued under
this document or determined if this document is truthful or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated [Mailing Date], 1999, and is first
being mailed to stockholders on or about [Mailing Date], 1999.
<PAGE>
[LOGO]
Everest Reinsurance Holdings, Inc.
477 Martinsville Road
Liberty Corner, New Jersey 07938
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Everest Reinsurance Holdings, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Everest
Reinsurance Holdings, Inc., a Delaware corporation ("Everest Holdings"), will
be held on [Meeting Date], 1999 at [Meeting Time] at [Meeting Place]. The
purpose of the special meeting is to consider and vote on the following
matters:
1. A proposal to adopt an agreement and plan of merger among Everest
Holdings, Everest Reinsurance Group, Ltd., a Bermuda company ("Everest
Group"), and Everest Re Merger Corporation, a Delaware corporation and
wholly-owned subsidiary of Everest Group ("Everest Merger"), that will
cause a restructuring of Everest Holdings. As a result of the
restructuring, Everest Holdings will become a wholly-owned subsidiary of
Everest Group and each outstanding share of common stock of Everest
Holdings will be converted into one common share of Everest Group.
2. Such other business related to the proposed restructuring as may
properly come before the special meeting.
The board of directors has fixed the close of business on [Record Date],
1999 as the record date for the special meeting, and only stockholders of
record at such time will be entitled to notice of, and to vote at, the special
meeting.
A form of proxy and a proxy statement/prospectus containing more detailed
information with respect to the matters to be considered at the special
meeting, including a copy of the agreement and plan of merger attached as
Appendix A, accompany and form a part of this notice.
Whether or not you plan to attend the special meeting, please promptly
submit your proxy with voting instructions. You may submit your proxy with
voting instructions by mail by completing, signing, dating and returning the
accompanying proxy card in the enclosed self-addressed, stamped envelope. If
you attend the special meeting and desire to revoke your proxy in writing and
vote in person, you may do so. In any event, a proxy may be revoked in writing
at any time before it is exercised.
THE EVEREST HOLDINGS BOARD OF DIRECTORS HAS DECLARED THE AGREEMENT AND PLAN
OF MERGER TO BE ADVISABLE, HAS APPROVED IT AND RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" ITS ADOPTION.
By Order of the Board of Directors,
Janet J. Burak
Secretary
Liberty Corner, New Jersey
[Mailing Date], 1999
STOCKHOLDERS WITH ANY QUESTIONS ABOUT THE RESTRUCTURING
AND THE RELATED TRANSACTIONS SHOULD CALL EVEREST HOLDINGS'
VICE PRESIDENT, INVESTOR RELATIONS,
MR. JAMES H. FOSTER, AT (908) 604-3169
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Everest Holdings from other documents that are not included in or
delivered with this document. This information is available to you without
charge upon your written or oral request to:
Everest Reinsurance Holdings, Inc.
477 Martinsville Road
P.O. Box 830
Liberty Corner, New Jersey 07938-0830
Attention: Janet J. Burak
(908) 604-3000
To ensure timely delivery of the documents, any request should be made by
, 1999, five business days before the special meeting of
stockholders.
For a description of where you can obtain more information about Everest
Holdings, see "Where You Can Find More Information."
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REFERENCES TO ADDITIONAL INFORMATION...................................... i
QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES FOR THE MEETING............. 1
SUMMARY................................................................... 2
SELECTED CONSOLIDATED FINANCIAL DATA...................................... 5
RISK FACTORS.............................................................. 7
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS...................... 13
THE COMPANIES............................................................. 14
MARKET PRICE AND DIVIDEND INFORMATION..................................... 16
FINANCIAL INFORMATION ABOUT EVEREST GROUP................................. 17
FUTURE PLANS.............................................................. 17
THE SPECIAL MEETING....................................................... 17
THE PROPOSED RESTRUCTURING................................................ 19
MANAGEMENT................................................................ 26
MATERIAL TAX CONSIDERATIONS............................................... 29
DESCRIPTION OF EVEREST GROUP SHARE CAPITAL................................ 40
REGULATORY CONSIDERATIONS ASSOCIATED WITH OPERATING IN BERMUDA AND
BARBADOS................................................................. 45
LEGAL MATTERS............................................................. 51
EXPERTS................................................................... 52
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING......................... 52
ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES
LAWS..................................................................... 52
WHERE YOU CAN FIND MORE INFORMATION....................................... 53
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS
ABOUT VOTING PROCEDURES FOR THE MEETING
Q: What am I being asked to vote on?
A: You are being asked to vote in favor of a merger as a result of which
Everest Holdings will become a wholly-owned subsidiary of a new holding
company, Everest Group, and you will receive one common share of Everest
Group for each share of common stock of Everest Holdings that you own.
Q: What do I need to do now?
A: After you have carefully read this document, complete, sign, date and mail
your proxy card in the enclosed envelope so that your shares will be
represented at the special meeting.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: No. Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker to vote your shares, following the
directions provided by your broker. Your failure to instruct your broker to
vote your shares will be the equivalent of voting against the adoption of
the agreement and plan of merger.
Q: Can I change my vote after I have submitted my proxy with voting
instructions?
A: Yes. There are three ways in which you may revoke your proxy and change your
vote. First, you may send a written notice to the party to whom you
submitted your proxy stating that you would like to revoke your proxy. The
notice must be received before the special meeting to be effective. Second,
you may complete and submit a new proxy card by mail. The latest proxy
actually received by Everest Holdings prior to the special meeting will be
recorded and any earlier proxies will be revoked. Third, you may attend the
special meeting and vote in person. Simply attending the special meeting,
however, will not revoke your proxy. If you have instructed a broker to vote
your shares, you must follow directions received from your broker to change
or revoke your proxy.
Q: Should I send in my stock certificates?
A: No. You should not send in your stock certificates at this time. If the
restructuring is completed, a transmittal form with instructions on how to
exchange your Everest Holdings stock certificates for Everest Group share
certificates will be mailed to you.
Q: When do you expect the restructuring to be completed?
A: We are working to complete the restructuring as soon as possible. We hope to
complete the restructuring shortly after the special meeting of Everest
Holdings stockholders, assuming that the required stockholder approval is
obtained at the meeting.
Q: Whom should I call with questions?
A: Stockholders with any questions about the restructuring and the related
transactions should call Everest Holdings' Vice President, Investor
Relations, Mr. James H. Foster, at (908) 604-3169.
1
<PAGE>
SUMMARY
This summary, together with the preceding question and answer section,
highlights selected information contained in this document and may not contain
all of the information that is important to you. We urge you to read carefully
this entire document and the other documents referred to in this document in
order to understand the restructuring fully. For a description of where you can
obtain more information about Everest Holdings, see "Where You Can Find More
Information."
The Companies
Everest Holdings........ Everest Holdings was formed in 1993 as the holding
company for Everest Reinsurance Company ("Everest
Re"), a property and casualty reinsurer, and its
subsidiaries.
Everest Group........... Everest Group was recently organized under the laws
of Bermuda and is wholly owned by Everest Holdings.
As a result of the restructuring, Everest Group will
become the new holding company for Everest Holdings
and its subsidiaries. Everest Group has no
significant assets or capitalization and has not
engaged in any business or prior activities other
than in connection with the restructuring.
Everest Merger.......... Everest Merger was recently organized under the laws
of Delaware in order to accomplish the proposed
restructuring and is wholly owned by Everest Group.
Everest Merger has no significant assets or
capitalization and has not engaged in any business or
prior activities other than in connection with the
restructuring.
The Special Meeting
Date and place of The special meeting of stockholders will be held on
meeting................. [Meeting Date], 1999 at [Meeting Time] at [Meeting
Place].
Who may vote............ Holders of record of shares of Everest Holdings
common stock at the close of business on [Record
Date], 1999 will be entitled to vote in person or by
proxy at the special meeting.
Purpose of the meeting.. . To consider and adopt an agreement and plan of
merger; and
. To transact such other business related to the
proposed restructuring as may properly come before
the special meeting.
Vote required........... Adoption of the agreement and plan of merger requires
the affirmative vote of a majority of the shares of
Everest Holdings common stock. As of [Record Date],
1999, directors and executive officers of Everest
Holdings and their affiliates owned beneficially
approximately % of the shares of Everest
Holdings common stock outstanding on such date.
The Restructuring
Description of the Everest Merger will be merged into Everest Holdings,
restructuring........... with Everest Holdings as the surviving corporation.
As a result of the merger, Everest Holdings will
become a subsidiary of Everest Group and each
2
<PAGE>
outstanding share of common stock of Everest Holdings
will be converted into one common share of Everest
Group. Following the merger, Everest Group will
capitalize a Bermuda-based reinsurance subsidiary
called Everest Reinsurance (Bermuda) Ltd. ("Everest
Bermuda").
Structure immediately
after the
restructuring...........
Everest Group will be a publicly owned holding
company, organized under the laws of Bermuda and
having its principal offices in Barbados, and will
own all of the stock of Everest Holdings and all of
the share capital of Everest Bermuda.
Reasons for the The board of directors of Everest Holdings believes
restructuring........... that the proposed restructuring will provide us with
an enhanced ability to compete and create better
returns for our stockholders by permitting us to take
maximum advantage of favorable business, regulatory,
tax and financing environments in Bermuda and
Barbados.
Recommendation of the
board of directors......
The board of directors of Everest Holdings has
declared the agreement and plan of merger to be
advisable, has approved it and recommends that
stockholders vote "FOR" its adoption.
Conditions of the The obligation of Everest Holdings and Everest Merger
merger.................. to complete the merger is subject to the satisfaction
or waiver of the following conditions:
. adoption of the agreement and plan of merger by the
Everest Holdings stockholders;
. effectiveness of the registration statement for the
Everest Group common shares to be issued in the
merger;
. approval by the New York Stock Exchange ("NYSE")
for the listing of the Everest Group common shares
to be issued in the merger;
. approval of the merger by government regulatory
authorities and the expiration of applicable
waiting periods; and
. absence of any order or injunction preventing
completion of the merger.
Effective date.......... If approved by the Everest Holdings stockholders, the
merger will become effective on [Effective Time],
1999, subject to the above conditions. However, the
board of directors of Everest Holdings can abandon or
delay the merger at any time before it becomes
effective, even after the merger has been approved by
the stockholders.
Regulatory approvals.... Everest Group has filed applications seeking approval
of its acquisition of control of Everest Holdings'
insurance subsidiaries with the insurance and
financial services regulatory authorities in the
states and countries where those subsidiaries are
domiciled or licensed and will give written notice of
the restructuring to the insurance and financial
services regulatory authorities in other
jurisdictions where those subsidiaries are licensed.
Appraisal rights........ Under Section 262 of the Delaware General Corporation
Law, Everest Holdings stockholders have no right to a
court determination, in a
3
<PAGE>
proceeding known as an appraisal, of the value of
their shares in connection with the restructuring.
See "The Proposed Restructuring--Absence of Appraisal
Rights."
Material U.S. federal
income tax
consequences............
The restructuring will not be taxable for federal
income tax purposes to Everest Holdings. However, a
U.S. holder of Everest Holdings common stock will
recognize gain in an amount equal to the excess, if
any, of the fair market value of the Everest Group
common shares received at the effective time of the
restructuring over such holder's adjusted basis in
the Everest Holdings common stock surrendered. "See
Material Tax Considerations."
Exchange of stock If the restructuring is completed, stockholders will
certificates............ be mailed a transmittal form with instructions on how
to exchange their stock certificates for share
certificates of Everest Group.
Limitations on
transfer, ownership and
voting power of Everest
Group common shares.....
Under Everest Group's bye-laws, Everest Group may
refuse to recognize a transfer of common shares, and
may redeem or purchase common shares from any
shareholder, if the board of directors has reason to
believe that such transfer, or such shareholder's
ownership of common shares, would result in (1) any
shareholder that is not an investment company, as
defined in the Investment Company Act of 1940,
beneficially owning more than 5.0% of any class of
the issued and outstanding share capital of Everest
Group, (2) any shareholder owning, directly or
indirectly, more than 9.9% of any class of the issued
and outstanding share capital of Everest Group or (3)
any adverse tax, regulatory or legal consequences to
Everest Group, any of its subsidiaries or any of its
shareholders. In addition, Everest Group's bye-laws
provide that the voting rights of any shareholder
owning, directly or indirectly, more than 9.9% of the
voting power of the issued and outstanding share
capital of Everest Group will ordinarily be limited
to a voting power of 9.9%. Because of the attribution
and constructive ownership rules of the U.S. Internal
Revenue Code of 1986 (the "Code") and the rules of
the Securities and Exchange Commission (the "SEC")
regarding determination of beneficial ownership, some
shareholders and transferees may become subject to
these limitations whether or not they directly hold
of record more than 9.9% of Everest Group's issued
and outstanding share capital. See "Description of
Everest Group Share Capital--Common Shares."
4
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of
Everest Holdings in accordance with U.S. generally accepted accounting
principles ("GAAP"). The GAAP selected consolidated financial data of Everest
Holdings as of and for the years ended December 31, 1998, 1997, 1996, 1995 and
1994 are derived from the consolidated financial statements of Everest
Holdings, which were audited by PricewaterhouseCoopers LLP (1998, 1997 and
1996) and by other independent auditors (1995 and 1994). The GAAP selected
consolidated financial data as of and for the six months ended June 30, 1999
and 1998 are derived from unaudited financial statements of Everest Holdings,
which, in the opinion of management, reflect all adjustments (consisting only
of normal recurring accruals) necessary for a fair statement of such data. The
results of operations for any interim period may not be indicative of results
of operations for the full year. The following table also presents selected
unconsolidated financial data from the statutory financial statements filed by
Everest Re with the Delaware Insurance Department and prepared in accordance
with statutory accounting principles ("SAP"), which differ from GAAP. The
statutory financial statements are unconsolidated and reflect the net assets of
Everest Re's insurance company subsidiaries on the equity method. You should
read the following financial data in conjunction with Everest Holdings'
consolidated financial statements and accompanying notes, which are
incorporated by reference into this document.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(unaudited) Year Ended December 31,
------------------ ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data
Gross premiums written.. $ 537.1 $ 520.5 $1,045.9 $1,075.0 $1,044.0 $ 949.5 $ 953.2
Net premiums written.... 513.9 498.3 1,016.6 1,031.1 1,030.5 783.2 863.2
Net premiums earned..... 509.6 506.1 1,068.0 1,049.8 973.6 753.3 853.3
Net investment income... 126.7 122.5 244.9 228.5 191.9 166.0 143.6
Net realized capital
gains (losses) (1)..... (9.5) 2.5 (0.8) 15.9 5.7 33.8 (10.5)
Total revenue.......... 624.9 633.3 1,315.2 1,299.2 1,169.3 948.9 982.8
-------- -------- -------- -------- -------- -------- --------
Losses and loss
adjustment expense
("LAE") incurred
(including
catastrophes).......... 365.7 374.1 778.4 765.4 716.0 674.7 720.8
Total catastrophe losses
(2).................... 17.6 7.0 30.6 8.6 7.1 31.4 81.9
Commission, brokerage,
taxes and fees......... 136.2 125.9 274.6 274.8 254.6 227.4 197.9
Other underwriting
expenses............... 24.0 24.2 49.6 51.7 54.9 60.0 68.3
Compensation related to
public offering........ -- -- -- -- -- 13.3 --
Restructuring and early
retirement costs....... -- -- -- -- -- -- 7.8
Total expenses (3)..... 525.9 524.3 1,102.5 1,091.9 1,025.5 975.4 994.8
Income (loss) before
taxes (3).............. 98.9 109.0 212.7 207.3 143.8 (26.6) (12.0)
Income tax (benefit).... 19.6 25.7 47.5 52.3 31.8 (27.3) (22.6)
Net income (3).......... $ 79.3 $ 83.3 $ 165.2 $ 155.0 $ 112.0 $ 0.7 $ 10.7
======== ======== ======== ======== ======== ======== ========
Net income per basic
share (4).............. $ 1.61 $ 1.65 $ 3.28 $ 3.07 $ 2.22 $ 0.01 $ 0.21
======== ======== ======== ======== ======== ======== ========
Net income per diluted
share (5).............. $ 1.60 $ 1.64 $ 3.26 $ 3.05 $ 2.21 $ 0.01 $ 0.21
======== ======== ======== ======== ======== ======== ========
Dividends paid per
share.................. $ 0.12 $ 0.10 $ 0.20 $ 0.16 $ 0.12 $ 0.14 $ 0.15
======== ======== ======== ======== ======== ======== ========
Certain GAAP Financial
Ratios
Loss and LAE ratio (6).. 71.8% 73.9% 72.9% 72.9% 73.5% 89.6% 84.5%
Underwriting expense
ratio (7).............. 31.4 29.7 30.3 31.1 31.8 39.9 31.2
-------- -------- -------- -------- -------- -------- --------
Combined ratio.......... 103.2% 103.6% 103.2% 104.0% 105.3% 129.5% 115.7%
======== ======== ======== ======== ======== ======== ========
Certain SAP Data (8)
Ratio of net premiums
written to surplus (9). 0.9x 1.0x 1.0x 1.4x 1.2x 1.0x 1.2x
Statutory surplus....... $1,135.0 $ 990.7 $1,059.4 $ 908.8 $ 772.7 $ 686.9 $ 600.7
Loss and LAE ratio (10). 71.6% 73.3% 72.2% 75.7% 71.2% 92.2% 85.8%
Underwriting expense
ratio (11)............. 31.8 29.6 31.1 25.6 31.7 38.9 32.6
-------- -------- -------- -------- -------- -------- --------
Combined ratio.......... 103.4% 102.9% 103.3% 101.3% 102.9% 131.1% 118.4%
======== ======== ======== ======== ======== ======== ========
Balance Sheet Data (at
end of period)
Total investments and
cash................... $4,252.7 $4,343.5 $4,325.8 $4,163.3 $3,624.6 $3,238.3 $2,573.2
Total assets............ 5,941.6 5,732.4 5,996.7 5,538.0 5,047.8 4,647.8 4,040.6
Loss and LAE reserves... 3,718.2 3,486.1 3,800.0 3,437.8 3,246.9 2,969.3 2,706.4
Total liabilities....... 4,530.8 4,333.0 4,517.5 4,230.5 3,961.7 3,664.2 3,299.6
Stockholders' equity
(12)................... 1,410.8 1,399.4 1,479.2 1,307.5 1,086.0 983.6 741.0
Book value per share
(13)................... 29.00 27.72 29.59 25.90 21.51 19.36 14.82
</TABLE>
5
<PAGE>
- --------
(1) After-tax operating income (loss), before after-tax net realized capital
gains or losses, was $85.5 million (or $1.74 per basic share and $1.73 per
diluted share), $81.7 million (or $1.62 per basic share and $1.61 per
diluted share), $165.7 million (or $3.29 per basic share and $3.27 per
diluted share), $144.6 million (or $2.86 per basic and $2.85 per diluted
share), $108.3 million (or $2.14 per basic and diluted share), ($21.2)
million (or ($0.42) per basic and diluted share) and $17.5 million (or
$0.35 per basic and diluted share) for the periods ended June 30, 1999 and
1998 and the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively. Supplemental after-tax operating income, before net realized
gains and excluding IPO-related charges was, $78.4 million (or $1.56 per
basic and diluted share) for the year ended December 31, 1995.
(2) Catastrophe losses are net of reinsurance. A catastrophe is defined, for
purposes of the Selected Consolidated Financial Data, as an event that
causes a pre-tax loss before reinsurance of at least $5.0 million and has
an event date of January 1, 1988 or later.
(3) Some amounts may not reconcile due to rounding.
(4) Based on weighted average basic shares outstanding of 49.2 million, 50.5
million, 50.4 million, 50.5 million, 50.6 million, 50.2 million and 50.0
million for the periods ended June 30, 1999 and 1998 and the years ended
December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
(5) Based on weighted average diluted shares outstanding of 49.5 million, 50.8
million, 50.7 million, 50.8 million, 50.7 million, 50.2 million and 50.0
million for the periods ended June 30, 1999 and 1998 and the years ended
December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
(6) GAAP losses and LAE incurred as a percentage of GAAP net premiums earned.
(7) GAAP underwriting expenses as a percentage of GAAP net premiums earned.
Including restructuring and early retirement costs, incurred in the fourth
quarter of 1994, Everest Holdings' GAAP underwriting expense ratio in 1994
was 32.1%.
(8) Statutory results are on a Everest Re legal entity basis; consequently,
investments in subsidiary operations are accounted for on an equity basis.
Effective January 1, 1997, the reinsurance operations of Everest Re
Holdings, Ltd. were transferred to Everest Re on a portfolio basis.
Excluding the impact of the portfolio transaction, the 1997 ratio of net
written premiums to surplus, the 1997 loss and LAE ratio, the 1997
underwriting expense ratio and the 1997 combined ratio were 1.1 x, 70.5%,
32.2% and 102.7%, respectively.
(9) Statutory net premiums written as a percentage of period-end surplus.
(10) Statutory losses and LAE incurred as a percentage of SAP net premiums
earned.
(11) Statutory underwriting expenses as a percentage of SAP net premiums
written.
(12) Excluding net unrealized appreciation (depreciation) of investments,
stockholders' equity was $1,315.6 million, $1,224.3 million, $1,281.6
million, $1,147.1 million, $1,008.3 million, $899.9 million and $799.1
million as of June 30, 1999 and 1998 and December 31, 1998, 1997, 1996,
1995 and 1994, respectively.
(13) Based on 48.7 million shares outstanding for June 30, 1999, 50.5 million
shares outstanding for June 30, 1998, 50.0 million shares outstanding for
December 31, 1998, 50.5 million shares outstanding for December 31, 1997
and 1996, 50.8 million shares outstanding for December 31, 1995, and 50.0
million shares outstanding for December 31, 1994.
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RISK FACTORS
You should carefully consider the following factors, in addition to the
other information provided in this document, before you vote on the agreement
and plan of merger.
We may not be able to realize fully the potential benefits from the
restructuring, which could have a material adverse effect on Everest Group.
The process of restructuring and of conducting the business of Everest Group
from Bermuda and Barbados will entail significant costs. We may not be able to
realize the full extent of, or any of, the anticipated benefits of the
restructuring, which could have a material adverse effect upon our business.
See "The Proposed Restructuring--Reasons for the Restructuring."
The merger is subject to the receipt of consents and approvals from government
entities that may impose conditions that could have a material adverse effect
on Everest Group or cause us to abandon the merger.
We must obtain several consents, orders, approvals and clearances from state
and foreign governmental entities to complete the merger. Such consents,
orders, approvals and clearances may contain conditions that place restrictions
on our operations. These restrictions could have a material adverse effect on
our business and may cause us to abandon the merger. See "The Proposed
Restructuring--Regulatory Filings, Approvals and Clearances" and "The Merger
Agreement--Conditions of the Merger."
Everest Group will be dependent on dividends and payments from its subsidiaries
that may be restricted by law.
Everest Group, like Everest Holdings, will be a holding company with no
operations or significant assets other than its ownership of the capital stock
of its subsidiaries. Future dividends and other permitted payments from those
subsidiaries are expected to be Everest Group's sole source of funds to pay
expenses and dividends, if any. The ability of Everest Group's insurance
subsidiaries, and thus of Everest Group itself, to pay dividends will be
subject to legal and regulatory constraints. Accordingly, we may not be able to
declare or pay dividends in the future.
The start-up of new operations in Bermuda and Barbados will entail business and
financial risks.
Everest Group is newly formed and Everest Bermuda is in the process of being
formed. Start-up companies must develop business relations, establish operating
procedures, hire staff, obtain facilities and complete other tasks appropriate
for the conduct of their intended business activities. Everest Group and
Everest Bermuda may not be successful in this regard. In addition, the start-up
of new operations in Bermuda and Barbados will result in additional expenses,
currently estimated to be approximately $3 million annually, and will require a
significant time commitment by certain senior executives.
Everest Group and Everest Bermuda could be subject to U.S. corporate income
tax.
We intend to conduct our Bermuda operations in a manner that will cause
Everest Bermuda not to be engaged in the conduct of a trade or business in the
United States. Based on our compliance with guidelines designed to ensure that
we do not engage in such conduct, we have been advised by our United States
counsel that Everest Bermuda should not be required to pay U.S. corporate
income tax, other than withholding tax on certain U.S. source income. However,
if the Internal Revenue Service (the "IRS") successfully contended that Everest
Bermuda is engaged in a trade or business in the United States, Everest Bermuda
would be subject to U.S. corporate income tax on that portion of its net income
effectively connected with a U.S. trade or business, and possibly the U.S.
branch profits tax.
We intend to conduct our Barbados operations in a manner that will cause
Everest Group not to be engaged in the conduct of a trade or business in the
United States. Based on our compliance with guidelines designed to ensure that
we generate only immaterial amounts, if any, of income that is effectively
connected
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with the conduct of such a trade or business, we have been advised by our
United States counsel that Everest Group should not be required to pay a
significant amount of U.S. corporate income tax, other than withholding tax on
certain U.S. source income. However, if the IRS successfully contended that
Everest Group has material amounts of income that is effectively connected to
the conduct of a U.S. trade or business, Everest Group would be subject to U.S.
corporate income tax on that income, and possibly the branch profits tax.
Even if the IRS successfully contended that Everest Bermuda is engaged in a
U.S. trade or business, if Everest Bermuda were entitled to benefits under the
U.S.-Bermuda income tax treaty (the "Bermuda Treaty"), the Bermuda Treaty would
preclude the IRS from taxing Everest Bermuda's income except to the extent that
such income were attributable to a permanent establishment maintained by
Everest Bermuda in the United States. We intend to operate Everest Bermuda in
such a way that it will not have a permanent establishment in the United
States. We do not believe that Everest Bermuda will have any material income
attributable to a permanent establishment in the United States. If the IRS
successfully contended that Everest Bermuda did have income attributable to a
permanent establishment in the United States, Everest Bermuda would be subject
to U.S. tax to such extent. Furthermore, if the IRS successfully contended that
Everest Bermuda is not entitled to the benefit of the Bermuda Treaty and that
Everest Bermuda is engaged in the conduct of a U.S. trade or business, Everest
Bermuda would be taxed on income effectively connected with such trade or
business.
Similarly, even if the IRS successfully contended that Everest Group has
material amounts of income that is effectively connected to the conduct of a
U.S. trade or business, if Everest Group were entitled to benefits under the
U.S.-Barbados income tax treaty (the "Barbados Treaty"), the Barbados Treaty
would preclude the IRS from taxing Everest Group on such income, except to the
extent that such income were attributable to a permanent establishment
maintained by Everest Group in the United States. We believe Everest Group is
eligible for the benefits of the Barbados Treaty. We do not believe that
Everest Group will have material amounts of income attributable to a permanent
establishment in the United States. If the IRS successfully contended, however,
that Everest Group did have income attributable to a permanent establishment,
Everest Group would be subject to U.S. tax to such extent. Furthermore, if the
IRS successfully contended that Everest Group is not entitled to the benefits
of the Barbados Treaty and that Everest Group is engaged in the conduct of a
U.S. trade or business, Everest Group would be taxed on income effectively
connected with such trade or business.
If Everest Bermuda becomes subject to U.S. income tax or the U.S. branch
profits tax on its income and/or Everest Group has more than immaterial amounts
of income effectively connected with the conduct of a U.S. trade or business,
Everest Group's net income would be materially adversely affected.
Everest Group shareholders could be subject to U.S. taxes.
Under special provisions of the Code applicable to the restructuring, a U.S.
holder of Everest Holdings common stock will recognize gain in an amount equal
to the excess, if any, of the fair market value of the Everest Group common
shares at the time of the restructuring over such holder's adjusted basis in
the Everest Holdings common stock surrendered. However, a U.S. holder of
Everest Holdings common stock will not recognize loss in the restructuring if
the fair market value of the Everest Group common shares at the time of the
restructuring is less than such holder's adjusted basis in the Everest Holdings
common stock surrendered.
Other than as described above, U.S. holders of Everest Group common shares
will generally not be subject to any U.S. tax until they receive a distribution
from Everest Group or dispose of their Everest Group common shares. However,
special provisions of the Code may apply to U.S. taxpayers who directly,
indirectly or by attribution own 10% or more of the total combined voting power
of all classes of share capital of Everest Group and/or Everest Bermuda. Under
these provisions, such taxpayers generally will be required to include in their
income their pro rata share of certain types of income of Everest Group and/or
Everest Bermuda as earned, even if not distributed. We have attempted to avoid
having our shareholders become subject to these provisions by including in
Everest Group's bye-laws provisions that limit the ownership of the common
shares to levels that will not subject U.S. shareholders to U.S. tax on
undistributed income under these provisions. Based on these bye-laws, we have
been advised by our United States counsel that Everest Group shareholders
should not be subject to U.S. tax on undistributed income.
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In addition, special provisions of the Code apply to U.S. persons who are
shareholders of a foreign insurance company and have related person investment
income ("RPII") allocated to them. RPII is investment income and premium income
derived from the direct or indirect insurance or reinsurance of the risk of:
. any U.S. taxpayer who directly or indirectly through foreign entities
owns shares of a foreign insurance company, or
. any person related to such a U.S. taxpayer.
The RPII provisions of the Code could apply to U.S. taxpayers who directly,
indirectly or by attribution own any shares of Everest Bermuda if:
. 25% or more of the value or voting power of the share capital of Everest
Bermuda is owned directly, indirectly or by attribution by U.S.
taxpayers,
. 20% or more of the value or voting power of the share capital of Everest
Bermuda is owned directly, indirectly or by attribution by (1) U.S.
taxpayers insured or reinsured by Everest Bermuda or (2) persons related
to them, and
. Everest Bermuda has gross RPII equal to 20% or more of its gross
insurance income.
We currently anticipate that less than 20% or more of the value or voting power
of the share capital of Everest Bermuda will be owned directly, indirectly or
by attribution by U.S. taxpayers insured or reinsured by Everest Bermuda or by
persons related to them, and/or that less than 20% of the gross insurance
income of Everest Bermuda for any taxable year will constitute RPII. However,
if 20% or more of Everest Bermuda's gross insurance income is RPII, since
Everest Group's U.S. shareholders are treated by the Code as indirectly owning
shares of Everest Bermuda, they will be required to include in their income
their pro rata share of Everest Bermuda's RPII income as earned, even if not
distributed.
Gains resulting from the sale of Everest Group common shares by U.S.
shareholders could be taxed in the U.S. as dividends.
Generally, a U.S. shareholder will realize capital gain or loss on the sale
or exchange of the common shares after the restructuring. However, the IRS
could contend that special provisions of the Code apply and that the amount of
any gain equal to Everest Group's allocable untaxed earnings and profits should
be taxed as a dividend. If the IRS successfully contended that such provisions
apply to us, shareholders would be taxed on such amount at the rates applicable
to ordinary income rather than the lower rates applicable to long-term capital
gains. We have been advised by our United States counsel that these provisions
of the Code should not apply to the disposition of any common shares by a U.S.
shareholder who holds less than 10% of the common shares.
The Organization for Economic Cooperation and Development and the European
Union are considering measures that might increase our taxes.
The Organization for Economic Cooperation and Development and the European
Union are considering measures to limit harmful tax competition. These measures
are largely directed at counteracting the effects of tax havens and
preferential tax regimes in countries around the world. If these measures are
adopted by a substantial number of member countries and if Bermuda or Barbados
is considered to be engaged in harmful tax competition, we might be subject to
additional taxes, which could have a material adverse effect on our business.
We could be subject to Bermuda tax.
Everest Group and Everest Bermuda currently are not subject to income or
capital gains taxes in Bermuda. We have received assurances from the Bermuda
Minister of Finance under The Exempted Undertakings Tax Protection Act 1966 of
Bermuda to the effect that if any legislation is enacted in Bermuda that
imposes any 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, subject to conditions, such tax will not apply to
Everest Group, Everest Bermuda or to any of their operations or the shares,
debentures or other obligations of Everest Group or
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Everest Bermuda until March 28, 2016. However, Everest Group and Everest
Bermuda could be subject to such taxes in Bermuda after that date.
Everest Group could be subject to Barbados tax.
Everest Group will be licensed as an international business company under
the Barbados International Business Companies Act, 1991-24. As a result,
Everest Group will be entitled to special tax benefits, including a preferred
rate of tax on profits and gains and an exemption from withholding tax in
respect of any dividends, interest, royalties, fees or management fees deemed
to be paid to another international business company or to a person not
resident in Barbados. Everest Group has not received any assurance from the
Barbados government regarding its continued eligibility for this preferred
status or assurances that any future changes to the International Business
Companies Act will not reduce or eliminate these benefits. However, we intend
to apply to the Minister of Finance for such a guarantee, which would be
applicable for a period of fifteen years.
Your Everest Group common shares may be redeemed or purchased by Everest Group
and your right to transfer Everest Group common shares may be limited.
Everest Group's bye-laws provide that if our board of directors has reason
to believe that:
. any person that is not an investment company beneficially owns more than
5.0% of any class of Everest Group's issued and outstanding share
capital,
. any person controls, based on the definition of control discussed in the
next paragraph, more than 9.9% of any class of Everest Group's issued and
outstanding share capital, or
. share ownership by any shareholder may cause adverse tax, regulatory or
legal consequences to Everest Group, any of its subsidiaries or any of
its shareholders,
then Everest Group will have the option, but not the obligation, to redeem or
purchase, at fair market value, all or any part of the common shares held by
such shareholder to the extent the board of directors determines it is
necessary or advisable to avoid or cure any adverse or potential adverse
consequences. In addition, Everest Group's bye-laws require the prior approval
of our board of directors for any transfer of common shares that the board of
directors has reason to believe would cause any of the above three conditions
to exist. Furthermore, the board of directors has the authority to request from
any shareholder or proposed transferee information for the purpose of
determining whether any transfer should be made. If any shareholder or proposed
transferee fails to respond to a request for such information or submits
incomplete or inaccurate information, the board of directors may decline such
transfer.
Under Everest Group's bye-laws, a person controls shares if that person:
. owns the shares directly,
. is a U.S. person and is treated as owning the shares by application of
the attribution and constructive ownership rules of Sections 958 (a) and
958(b) or 544 and 554 of the Code, or
. beneficially owns the shares, directly or indirectly, within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange
Act").
Because of the attribution and constructive ownership rules of the Code and the
rules of the SEC regarding determination of beneficial ownership, some
shareholders may become subject to the redemption or purchase of their common
shares, whether or not the shareholder directly holds of record more than 9.9%
of Everest Group's issued and outstanding share capital. For the same reason,
some transfers may not be permitted, whether or not the transferee would
directly hold of record more than 9.9% of Everest Group's issued and
outstanding share capital.
These ownership and transfer limitations, together with the voting
limitations described below and the provisions of Everest Group's bye-laws
providing for a staggered board of directors, may have the effect of rendering
more difficult or discouraging unsolicited takeover bids from third parties or
the removal of incumbent management of Everest Group.
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Your voting rights may be limited.
Everest Group's bye-laws provide that if any shareholder controls, based on
the definition of control discussed above, more than 9.9% of any class of
Everest Group's issued and outstanding share capital, such shareholder's voting
rights will be reduced so that it may not exercise more than approximately 9.9%
of Everest Group's total voting rights. Because of the attribution and
constructive ownership rules of the Code and the rules of the SEC regarding
determination of beneficial ownership, some shareholders' voting rights may be
reduced, whether or not such shareholder directly holds of record more than
9.9% of Everest Group's total voting power. Furthermore, our board of directors
has the authority to request from any shareholder information for the purpose
of determining whether such shareholder's voting rights should be reduced. If
any shareholder fails to respond to a request for such information or submits
incomplete or inaccurate information, the board of directors may determine to
disregard all votes attached to such shareholder's common shares.
These voting limitations, together with the ownership and transfer
limitations described above and the provisions of Everest Group's bye-laws
providing for a staggered board of directors, may have the effect of rendering
more difficult or discouraging unsolicited takeover bids from third parties or
the removal of incumbent management of Everest Group.
You may not be able to effect service of process on, or recover against,
Everest Group and some of its directors, officers and experts named in this
document.
Everest Group is organized under the laws of Bermuda. Some of its directors
and officers, as well as some of the experts named in this document, may reside
outside the United States. A substantial portion of their assets and Everest
Group's assets may be located in jurisdictions outside the United States.
Everest Group has appointed an agent in the City of New York to receive service
of process with respect to actions arising out of or in connection with
violations of U.S. federal securities laws relating to offers and sales of
Everest Group common shares to the public in connection with the restructuring.
Nevertheless, you may not be able to effect service of process within the
United States upon Everest Group's directors, officers and experts who may
reside outside the United States, or to recover against them or Everest Group
on judgments of U.S. courts or to obtain original judgments against them or
Everest Group in Bermuda courts, including judgments predicated on civil
liability provisions of the U.S. federal securities laws.
We may not be able to raise funds in the public or private debt markets to
capitalize Everest Bermuda.
As soon as practicable following the restructuring, Everest Holdings intends
to offer for sale approximately $450 million of debt and/or trust preferred
securities. Everest Holdings plans to distribute the proceeds from these
offerings to Everest Group and Everest Group intends to use approximately $400
million of that distribution to capitalize Everest Bermuda. The board of
directors of Everest Holdings may delay the offerings of debt and/or trust
preferred securities for an indefinite period if it determines that market
conditions following the completion of the merger are not favorable for
conducting such offerings. In that case, Everest Group may fund its
distribution to Everest Group using bridge financing, which it would expect to
retire using the proceeds of such offerings. However, Everest Holdings may not
be able to successfully complete the offerings of debt and/or trust preferred
securities or, if such offerings are delayed, obtain bridge financing on
satisfactory terms. As a result, Everest Group may not be able to capitalize
Everest Bermuda as contemplated, which could have a material adverse effect on
our business.
U.S. taxes could increase and new taxes could be imposed.
Everest Bermuda will be subject to an excise tax on reinsurance and
insurance premiums paid to Everest Bermuda with respect to risks located in the
United States. In addition, Everest Bermuda may be subject to withholding tax
on certain investment income from United States sources. These taxes could
increase and other taxes could be imposed on Everest Bermuda's business in the
future, which could have a material adverse effect on our business.
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Everest Bermuda may not receive a favorable insurance rating.
Insurance ratings are used by insurers and reinsurance and insurance
intermediaries as an important means of assessing the financial strength and
quality of reinsurers. In addition, the rating of a company purchasing
reinsurance may be adversely affected by an unfavorable rating or the lack of a
rating of its reinsurer. Everest Bermuda currently has no insurance ratings.
The failure of Everest Bermuda to receive a favorable rating could have a
material adverse effect on our business. Moreover, any rating that Everest
Bermuda receives could be lower than the ratings assigned to Everest Re or our
various competitors and could be downgraded or withdrawn by the rating agency
in the future, which could have a material adverse effect on our business.
Bermuda regulations will impose restrictions on the business of Everest
Bermuda.
Everest Bermuda will be a registered Bermuda insurance company and will be
subject to regulation and supervision in Bermuda. Everest Bermuda will be
registered as a Class 4 insurer, eligible to write property and casualty
insurance, as well as a long-term insurer, eligible to write life insurance.
Among other things, Bermuda statutes and regulations will prescribe minimum
levels of capital and surplus and solvency standards that Everest Bermuda must
meet, will limit transfers of ownership of Everest Bermuda's capital shares and
will provide for periodic examinations of Everest Bermuda and its financial
condition. These statutes and regulations may restrict the ability of Everest
Bermuda to write reinsurance or insurance policies and to distribute funds to
Everest Group. See "Regulatory Considerations Associated with Operating in
Bermuda and Barbados--Bermuda Insurance Regulation."
Regulatory challenges abroad and in the United States could adversely affect
our business.
Everest Bermuda does not intend to be licensed or admitted as an insurer or
reinsurer in any jurisdiction in the United States. Everest Bermuda does not
intend to conduct any activities that may constitute the transaction of the
business of insurance in any jurisdiction in which it is not licensed or
otherwise authorized to engage in such activities. However, in some
jurisdictions it is not entirely clear what activities would constitute a
prohibited transaction of insurance business and it is possible that insurance
regulators in those jurisdictions could raise challenges to Everest Bermuda's
activities. Any restriction on Everest Bermuda's activities resulting from
these challenges could adversely affect our business.
Recently, the insurance and reinsurance regulatory framework has become
subject to increased scrutiny in many jurisdictions. In the past, there have
been congressional and other initiatives in the United States regarding
increased supervision and regulation of the insurance industry, including
proposals to supervise and regulate reinsurers domiciled outside the United
States. If Everest Bermuda were to become subject to any insurance laws of the
United States or any state thereof or of any other jurisdiction at any time in
the future, it might not be in compliance with such laws. Complying with such
laws could have a material adverse effect on Everest Bermuda's business.
Everest Bermuda may need to be licensed or admitted in additional jurisdictions
to develop its business.
As Everest Bermuda's business develops, we will monitor the need to obtain
licenses in jurisdictions other than Bermuda in order to comply with applicable
law or to be able to engage in additional insurance-related activities. In
addition, Everest Bermuda may be at a competitive disadvantage in jurisdictions
where it is not licensed or does not enjoy an exemption from licensing relative
to competitors that are so licensed or exempt from licensing. Everest Bermuda
may not be able to obtain any additional licenses that it determines are
necessary or desirable. Furthermore, the process of obtaining such licenses is
often costly and may take a long time.
Everest Bermuda will need to arrange for security to back its reinsurance.
Many jurisdictions do not permit insurance companies to take credit for
reinsurance obtained from unlicensed or non-admitted insurers on their
statutory financial statements without appropriate security. We expect that
Everest Bermuda's reinsurance clients will typically require it to post a
letter of credit or enter into
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other security arrangements. If Everest Bermuda is unable to obtain a letter of
credit facility on commercially acceptable terms or unable to arrange for other
types of security, its ability to operate its business will be severely
limited. If Everest Bermuda defaults on any letter of credit that it obtains,
it may be required to prematurely liquidate a substantial portion of its
investment portfolio and other assets pledged as collateral.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document and the information incorporated by reference in it include
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 (the "Securities Act") and Section 21E of the Exchange
Act. We intend these forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements in these sections. In some
cases, you can identify these statements by our use of forward-looking words
such as "may," "will," "should," "anticipate," "estimate," "expect," "plan,"
"believe," "predict," "potential" or "intend." All statements regarding the
expected benefits of the restructuring and merger and related matters are
forward-looking statements. You should be aware that these statements and any
other forward-looking statements in this document only reflect our expectations
and are not guarantees of performance. These statements involve risks,
uncertainties and assumptions. Actual events or results may differ materially
from our expectations. Important factors that could cause our actual results to
be materially different from our expectations include those discussed in this
document under the caption "Risk Factors" and the following:
. changes in the level of competition in the domestic and international
reinsurance or primary insurance markets that adversely affect the volume
or profitability of our reinsurance or insurance business, including the
intensification of price and contract terms competition, the entry of new
competitors, consolidation in the reinsurance and insurance industry and
the development of new products by new and existing competitors;
. changes in the demand for reinsurance and insurance products of the type
that we and our ceding insurance customers offer;
. our ability to execute our strategies;
. catastrophe losses in our domestic or international reinsurance or
insurance business;
. adverse development on claim and claim expense liabilities related to
business written in prior years, including evolving case law and its
effect on environmental and other latent injury claims, changing
government regulations, newly identified toxins, newly reported claims,
new theories of liability, or new insurance and reinsurance contract
interpretations, to the extent that such adverse development exceeds the
limits available under or is not covered by our stop loss agreement;
. greater than expected loss ratios on reinsurance or insurance written by
us;
. changes in inflation that affect the profitability of our current
reinsurance and insurance businesses or the adequacy of our claim and
claim expense liabilities;
. changes in our retrocessional arrangements;
. lower than estimated retrocessional or reinsurance recoveries on losses,
including losses due to a decline in the creditworthiness of our
retrocessionaires or reinsurers;
. changes in the reinsurance/retrocessional market impacting our ability to
cede risks above our desired level of retention;
. changes in interest rates, increases in which cause a reduction in the
market value of our fixed income investment portfolio and our common
stockholders' equity, and decreases in which cause a reduction of income
earned on new cash flow from operations as well as on the reinvestment of
the proceeds from sales, calls or maturities of existing investments;
. decline in the value of our common equity investments;
. changes in the composition of our investment portfolio;
. gains or losses related to changes in foreign currency exchange rates;
. changes in the role of reinsurance brokers and our relationship with such
brokers;
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. impact of Year 2000 computer hardware, software and microprocessors
embedded in certain equipment issues on our operations and potential for
Year 2000 claims under reinsurance and insurance contracts written by us;
. impact of the Euro on our operations or financial condition;
. adverse results in litigation matters, including litigation related to
environmental, asbestos and other potential mass tort claims;
. changes in our capital needs;
. changes in our ratings;
. the impact of current and future regulatory environments, generally, and
on the ability of our subsidiaries to enter and exit reinsurance or
insurance markets; and
. changes in the commission or brokerage levels that competitors are
willing to offer to ceding companies, brokers or agents.
We undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
THE COMPANIES
Everest Holdings
Everest Holdings was established in 1993 in Delaware to serve as the parent
holding company of Everest Re, a property and casualty reinsurer formed in
1973. Until October 6, 1995, Everest Holdings was an indirect, wholly-owned
subsidiary of The Prudential Insurance Company of America ("The Prudential").
On October 6, 1995, The Prudential sold its entire interest in Everest
Holdings' shares of common stock in an initial public offering.
Everest Holdings, through Everest Re, underwrites property and casualty
reinsurance on a treaty and facultative basis for insurance and reinsurance
companies in the United States and selected international markets. Everest Re
writes reinsurance both through brokers and directly with ceding insurance
companies, giving it the flexibility to pursue business regardless of the
ceding company's preferred reinsurance purchasing method. Everest Re and its
subsidiaries also write primary insurance. Based on industry data at December
31, 1998 published by the Reinsurance Association of America, Everest Re is the
sixth largest reinsurance company in the United States, ranked by statutory
surplus.
Following is a summary of Everest Holdings' and Everest Re's operating
subsidiaries:
. Everest National Insurance Company, an Arizona insurance company
("Everest National"), is licensed in 42 states and the District of
Columbia and writes primary insurance on an admitted basis.
. Everest Insurance Company of Canada ("Everest Canada") is licensed in all
Canadian provinces and territories and is federally licensed to write
primary insurance under the Insurance Companies Act of Canada.
Everest Indemnity Insurance Company ("Everest Indemnity"), a Delaware
insurance company formed in 1997, engages in the excess and surplus lines
insurance business in the United States. Everest Indemnity is licensed in
Delaware and is eligible to write business in 39 states, the District of
Columbia and the Commonwealth of Puerto Rico on a non-admitted basis.
. Mt. McKinley Managers, L.L.C. ("Mt. McKinley"), a New Jersey limited
liability company, is licensed in New Jersey as an insurance producer,
including surplus lines authority. After a 1998 acquisition of the assets
of insurance agency operations in Alabama and Georgia, the continuing
insurance agency operations are now carried on by subsidiaries of Mt.
McKinley. These subsidiaries are WorkCare Southeast, Inc. ("WorkCare
Alabama"), an Alabama insurance agency, and WorkCare Southeast of
Georgia, Inc. ("WorkCare Georgia"), a Georgia insurance agency.
. Everest Re Holdings, Ltd., a Bermuda company formed in 1998 ("Everest
Ltd."), owns Everest Re Ltd., a United Kingdom company that is in the
process of being dissolved, as its reinsurance operations have been
converted into branch operations of Everest Re.
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Everest Holdings' products include a full range of property and casualty
coverages, including marine, aviation, surety, errors and omissions, directors'
and officers', medical malpractice, other specialty liability lines, accident
and health, workers compensation, non-standard auto and loss portfolios. Our
distribution channels include both the direct and broker reinsurance markets,
international and domestic markets, reinsurance, both treaty and facultative,
and insurance, both admitted and non-admitted.
Our business strategies include effective management of the underwriting
cycle, management of catastrophe exposures and retrocessional costs and expense
control. Our underwriting strategies seek to capitalize on our staff's
expertise and our flexibility to offer multiple products through multiple
production sources in a cost efficient manner. Efforts to control expenses and
to operate in a cost efficient manner are a continuing focus for us.
Our underwriting strategy emphasizes underwriting profitability rather than
premium volume, the writing of specialized risks and integration of
underwriting expertise across all underwriting units. Key elements of this
strategy are prudent risk selection, appropriate pricing through strict
underwriting discipline and adjustment of our business mix to respond to
changing market conditions. We focus on reinsuring companies that effectively
manage the underwriting cycle through proper analysis and pricing of underlying
risks and whose underwriting guidelines and performance are compatible with our
objectives.
Our underwriting strategy also emphasizes flexibility and responsiveness to
changing market conditions, such as increased demand or favorable pricing
trends. We believe that our existing strengths, including our broad
underwriting expertise, international presence, diverse distribution
capabilities and substantial capital, facilitate adjustments to our mix of
business geographically, by line of business and by type of coverage. We
believe that this allows us to capitalize on those market opportunities that
provide the greatest potential for underwriting profitability. Our primary
insurance infrastructure further facilitates this strategy by permitting us to
develop business that requires us to issue primary insurance policies. We
carefully monitor our mix of business to avoid inappropriate concentrations of
geographic or other risk.
Our underwriting guidelines seek to limit the accumulation of known risks in
exposed areas, to require that business which is exposed to catastrophe losses
be written with appropriate geographic spread and to maintain a cost-effective
retrocession program. Our underwriting guidelines also seek to better reflect
the relationship between premiums and risk assumed while maintaining our
probable maximum loss at appropriate levels.
Our principal executive offices are located at 477 Martinsville Road, P.O.
Box 830, Liberty Corner, New Jersey 07938-0830, and our telephone number is
(908) 604-3000.
Everest Group
Everest Group was recently organized under the laws of Bermuda and is wholly
owned by Everest Holdings. As a result of the restructuring, Everest Group will
become the new holding company for Everest Holdings and its subsidiaries.
Everest Group has no significant assets or capitalization and has not engaged
in any business or prior activities other than in connection with the
restructuring. The mailing address of Everest Group's principal executive
offices is c/o ABG Financial & Management Services Inc., Parker House, Wildey
Business Park, Wildey Road, St. Michael, Barbados and its telephone number is
(246) .
Everest Merger
Everest Merger was recently organized under the laws of Delaware in order to
accomplish the proposed restructuring and is wholly owned by Everest Group.
Everest Merger has no significant assets or capitalization and has not engaged
in any business or prior activities other than in connection with the
restructuring. The mailing address of Everest Merger's principal executive
offices is 477 Martinsville Road, P.O. Box 830, Liberty Corner, New Jersey
07938-0830, and its telephone number is (908) 604-3000.
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MARKET PRICE AND DIVIDEND INFORMATION
The common stock of Everest Holdings is traded on the NYSE under the symbol
"RE." The following table shows, for the calendar quarters indicated, the high
and low sales prices per share of Everest Holdings common stock as reported on
the NYSE Composite Tape:
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1997
First Quarter............................................ 32.7500 26.0000
Second Quarter........................................... 40.2500 26.7500
Third Quarter............................................ 41.1250 34.5000
Fourth Quarter........................................... 43.0000 33.0000
1998
First Quarter............................................ 41.6250 35.2500
Second Quarter........................................... 45.2500 36.1250
Third Quarter............................................ 43.5000 34.1875
Fourth Quarter........................................... 38.9375 28.7500
1999
First Quarter............................................ 38.9375 30.1250
Second Quarter........................................... 34.8125 28.8750
Third Quarter (through September 16, 1999)............... 35.6875 26.5000
</TABLE>
Recent Closing Prices
On September 16, 1999, the last trading day before public announcement of
the restructuring, the closing sales price of Everest Holdings common stock was
$27.125 per share. On , 1999, the last practicable trading day prior
to the date of this document, the closing sales price of Everest Holdings
common stock was $ per share.
The market price of Everest Holdings common stock will fluctuate prior to
the restructuring. Similarly, the market value of the Everest Group common
shares that Everest Holdings stockholders will receive in the restructuring may
fluctuate following the restructuring. You should obtain current market
quotations for Everest Holdings common stock. The future prices or markets for
Everest Holdings common stock or Everest Group common shares cannot be
predicted.
Number of Stockholders
As of [Record Date], 1999, there were approximately [120] stockholders of
record who held shares of Everest Holdings common stock, as shown on the
records of Everest Holdings' transfer agent for such shares. That number
excludes the beneficial owners of shares held in "street" name or held through
participants in depositories, such as The Depository Trust Company.
Everest Holdings is currently the sole shareholder of Everest Group.
Dividend History and Restrictions
In 1995, the board of directors of Everest Holdings established a policy of
declaring regular quarterly cash dividends. The first such dividend was $0.03
per share, declared and paid in the fourth quarter of 1995. Everest Holdings
declared and paid its regular quarterly cash dividend of $0.03 per share for
each quarter of 1996, $0.04 per share for each quarter of 1997, $0.05 per share
for each quarter of 1998 and $0.06 per share for each of the first three
quarters of 1999.
The declaration and payment of future dividends, if any, by Everest
Holdings, and after the restructuring is completed by Everest Group, will be at
the discretion of the board of directors and will depend upon many
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factors, including earnings, financial condition, business needs and growth
objectives, capital and surplus requirements of operating subsidiaries,
regulatory restrictions, rating agency considerations and other factors. As an
insurance holding company, Everest Holdings depends, and after the
restructuring is completed Everest Group will depend, on dividends and other
permitted payments from its subsidiaries to pay cash dividends to its
stockholders. After the restructuring is completed, the payment of dividends to
Everest Group by Everest Holdings and to Everest Holdings by Everest Re will be
subject to Delaware insurance regulatory restrictions and the payment of
dividends to Everest Group by Everest Bermuda will be subject to Bermuda
insurance regulatory restrictions.
FINANCIAL INFORMATION ABOUT EVEREST GROUP
The balance sheet showing the initial capitalization of Everest Group
appears on page F-3 of this document. Pro forma financial information regarding
Everest Group and its consolidated subsidiaries giving effect to the
restructuring has not been included in this document because, immediately
following the restructuring, the consolidated financial statements of Everest
Group will be the same as the consolidated financial statements of Everest
Holdings immediately prior to the restructuring. At all times prior to the
completion of the restructuring, Everest Group will have only nominal
capitalization and no operations. Furthermore, there is currently no trading
market for the Everest Group common shares, since Everest Holdings is, and
until the restructuring will continue to be, the owner of all the issued and
outstanding common shares.
FUTURE PLANS
As soon as practicable following the restructuring, Everest Holdings intends
to offer for sale approximately $450 million of debt and/or trust preferred
securities. Everest Holdings plans to distribute the proceeds from these
offerings to Everest Group and Everest Group intends to use approximately $400
million of that distribution to capitalize Everest Bermuda. The board of
directors of Everest Holdings may delay the offerings of debt and/or trust
preferred securities for an indefinite period if it determines that market
conditions following the completion of the merger are not favorable for
conducting such offerings. In that case, Everest Group may fund its
distribution to Everest Group using bridge financing, which it would expect to
retire using the proceeds of such offerings.
Subject to regulatory approval, Everest Bermuda will be registered in
Bermuda as a Class 4 insurer, eligible to write property and casualty
insurance, as well as a long-term insurer, eligible to write life insurance.
Initially, Everest Bermuda's revenues will derive primarily from investment of
its capital. Over time, incremental revenues will also be derived from premium
income. Everest Bermuda intends to emphasize traditional property and casualty
reinsurance lines, including property catastrophe and casualty excess
reinsurance, and also to expand its product offerings into alternative risk and
financial product and life insurance lines. Everest Bermuda will operate in the
Bermuda insurance and reinsurance marketplace as well as internationally.
THE SPECIAL MEETING
Solicitation of Proxies
This document is being furnished to Everest Holdings stockholders in
connection with the solicitation of proxies by the Everest Holdings board of
directors for use at the special meeting of stockholders to be held on [Meeting
Date], 1999 at [Meeting Time] at [Meeting Place]. This document and the
enclosed proxy card are being mailed to stockholders on or about [Mailing
Date], 1999.
In addition to solicitation by mail, directors, officers and employees of
Everest Holdings may solicit proxies from the stockholders of Everest Holdings
personally or by telephone, telecopy or telegram or other forms of
communication. None of these persons will be specifically compensated for such
services but they may be reimbursed for their reasonable out-of-pocket
expenses. Brokerage houses, nominees, fiduciaries and other custodians will be
requested to forward soliciting materials to beneficial owners and will be
reimbursed for their reasonable expenses incurred in sending such materials to
beneficial owners.
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Everest Holdings has also retained Corporate Investor Communications, Inc.
to assist in the solicitation of proxies from its stockholders. The fee paid by
Everest Holdings to Corporate Investor Communications, Inc. for such services
will be approximately $ , plus reimbursement of reasonable out-of-pocket
costs and expenses.
Record Date
The Everest Holdings board of directors has fixed the close of business on
[Record Date], 1999 as the record date for the determination of the holders of
Everest Holdings common stock entitled to receive notice of and to vote at the
special meeting. You may vote at the special meeting only if you owned Everest
Holdings common stock at that time.
As of the record date, there were shares of Everest Holdings
common stock issued and outstanding. Each share of Everest Holdings common
stock outstanding on the record date is entitled to one vote on each matter
properly submitted at the special meeting.
Voting
Adoption of the agreement and plan of merger requires the affirmative vote
of a majority of the shares of Everest Holdings common stock.
Any abstention and any broker non-vote, as explained below, will have the
same effect as a vote against the adoption of the agreement and plan of merger.
Under the rules of the NYSE, brokers who hold shares in street name for
customers will not have authority to vote on the adoption of the agreement and
plan of merger unless they receive specific instructions from the beneficial
owners of such shares. Shares that are not voted because brokers did not
receive any such instructions are referred to as "broker non-votes."
The presence, in person or represented by proxy, of a majority of the shares
of Everest Holdings common stock entitled to vote at the special meeting will
constitute a quorum for the transaction of business. Abstentions and broker
non-votes will be counted as present for purposes of determining a quorum.
As of [Record Date], 1999, directors and executive officers of Everest
Holdings and their affiliates owned beneficially an aggregate of
shares of Everest Holdings common stock, including shares that may be acquired
within 60 days of such date upon the exercise of stock options, or
approximately % of the shares of Everest Holdings common stock outstanding
on such date. The directors and executive officers have indicated their
intention to vote the shares they hold in favor of the adoption of the
agreement and plan of merger.
Proxies
Each copy of this document mailed to Everest Holdings stockholders is
accompanied by a form of proxy for use at the special meeting. Shares of
Everest Holdings common stock represented by a proxy properly submitted as
described below and received at or prior to the special meeting, unless
subsequently revoked, will be voted in accordance with the instructions on the
proxy.
To submit a proxy, holders of Everest Holdings common stock should complete,
sign, date and mail the proxy card provided with this document in accordance
with the instructions set forth on such card. If a proxy card is signed and
returned without indicating any voting instructions, shares of Everest Holdings
common stock represented by the proxy will be voted "FOR" the adoption of the
agreement and plan of merger.
Any person who submits a proxy with voting instructions may revoke it any
time before it is voted:
. by giving written notice of revocation to Everest Holdings, addressed to
Janet J. Burak, 477 Martinsville Road, P.O. Box 830, Liberty Corner, New
Jersey 07938-0830, if the notice of revocation is received by Everest
Holdings prior to the special meeting;
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<PAGE>
. by submitting a later dated proxy with voting instructions by mail, if
the proxy is received by Everest Holdings prior to the special meeting;
or
. by voting in person at the special meeting, although a proxy is not
revoked by simply attending the special meeting.
Everest Holdings stockholders who have instructed a broker to vote their
shares must follow directions received from their broker to revoke their proxy.
Other Matters
The Everest Holdings board of directors is not currently aware of any
business to be acted upon at its special meeting of stockholders, other than as
described in this document. If, however, other matters related to the proposed
restructuring and merger are properly brought before the special meeting, the
persons appointed as proxies will have discretion to vote or to act thereon
according to their best judgment, unless otherwise indicated on any particular
proxy. The persons appointed as proxies also will have discretion to vote on
adjournment of the special meeting. Such adjournment may be for the purpose of
soliciting additional proxies. Notwithstanding the foregoing, shares
represented by proxies voting against the adoption of the agreement and plan of
merger will be voted against a proposal to adjourn the special meeting for the
purpose of soliciting additional proxies.
THE PROPOSED RESTRUCTURING
Description of the Restructuring
On September 16, 1999, the board of directors of Everest Holdings approved a
plan under which Everest Holdings and its subsidiaries would be restructured as
follows:
. Everest Group, a company organized in Bermuda and with its principal
office in Barbados, will become the new publicly-owned parent corporation
of Everest Holdings.
. Everest Holdings, as a subsidiary of Everest Group, will continue to act
as the holding company for the subsidiaries of Everest Holdings in the
United States and Canada.
. Everest Group will also be the holding corporation for a new Bermuda-
based reinsurance subsidiary, Everest Bermuda.
The restructuring would be accomplished in the following steps:
. Everest Holdings has organized a subsidiary, Everest Group, under the
laws of Bermuda and established its principal office in Barbados.
. Everest Group has organized a Delaware subsidiary, Everest Merger.
. Everest Merger will be merged into Everest Holdings, with Everest
Holdings as the surviving corporation. When the merger is completed,
Everest Holdings will become a subsidiary of Everest Group and each
outstanding share of common stock of Everest Holdings will be converted
into one common share of Everest Group.
. After the merger is completed, Everest Group will capitalize Everest
Bermuda, its Bermuda-based reinsurance subsidiary.
The present corporate structure of Everest Holdings and its subsidiaries and
the corporate structure that would result from the proposed restructuring are
illustrated on the following pages.
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20
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[AFTER THE RESTRUCTURING CHART]
21
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Background and Reasons for the Restructuring
International activities of Everest Holdings and its subsidiaries are a
significant part of Everest Holdings' activities. Everest Holdings and its
subsidiaries have offices in Canada, the United Kingdom, Belgium, Hong Kong and
Singapore, as well as in the United States. In 1998, approximately 31% of the
gross premiums written by Everest Holdings and its subsidiaries represented
non-U.S. based risks or risks written by non-U.S. based reinsureds, principally
in the United Kingdom, continental Europe, Latin America, Australia and Asia.
Everest Holdings does not have any operations in Bermuda, which has become one
of the largest insurance markets in the world for property catastrophe and high
excess liability coverages.
The board of directors of Everest Holdings believes that the proposed
restructuring will provide us with an enhanced ability to compete and create
better returns for our stockholders by permitting us to take maximum advantage
of favorable business, regulatory, tax and financing environments in Bermuda
and Barbados. In particular, the board is recommending the restructuring for
the following reasons:
. The board of directors believes that Bermuda is an important insurance
market that attracts a significant deal flow because of its favorable
business, regulatory and tax environments, and having a presence in
Bermuda is important as a competitive matter.
. The board of directors believes that the establishment of a Bermuda
presence will favorably affect our ability to write additional lines of
reinsurance.
. The board of directors believes that a holding company structure in the
form proposed by the restructuring will provide a more suitable corporate
structure for expansion of our business and future acquisitions and
diversification opportunities. We currently have no specific plans for
material acquisitions or to significantly diversify our business from the
business we are currently conducting and intend to conduct subsequent to
the restructuring.
. The board of directors believes that the establishment of Bermuda and
Barbados operations will, over a period of time, reduce corporate income
taxes because, unlike the U.S. tax system which imposes corporate income
tax on the worldwide income of U.S. corporations, Bermuda generally
imposes no corporate income taxes on foreign income and Barbados
generally imposes corporate income tax only on some foreign income of a
non-Barbados company managed and controlled in Barbados. Income taxes
should therefore be reduced to the extent operations after the
restructuring are conducted outside of the United States and outside of
other countries with significant corporate taxes. To the extent that our
taxes are reduced, we expect to be able to price our products more
competitively.
Accordingly, the board of directors of Everest Holdings has declared the
agreement and plan of merger to be advisable, has approved it and recommends
that stockholders vote "FOR" its adoption.
All statements regarding the expected benefits of the restructuring and
merger and related matters are forward-looking statements. You should be aware
that these statements and any other forward-looking statements in this document
only reflect our expectations and are not guarantees of performance. These
statements involve risks, uncertainties and assumptions. Actual events or
results may differ materially from our expectations. Important factors that
could cause our actual results to be materially different from our expectations
include those discussed in this document under the caption "Risk Factors" and
"Cautionary Note Regarding Forward-Looking Statements."
Terms of the Agreement and Plan of Merger
The following is a summary of the material provisions of the agreement and
plan of merger, which is attached as Appendix A to this document and is
incorporated into it by reference. We urge you to read the agreement and plan
of merger carefully and in its entirety.
The agreement and plan of merger provides that at the effective time of the
merger:
. Everest Merger will be merged with and into Everest Holdings, with
Everest Holdings as the surviving corporation;
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. each share of Everest Holdings common stock issued and outstanding
immediately prior to the merger will be converted into one Everest Group
common share;
. each share of Everest Merger common stock issued and outstanding
immediately prior to the merger will remain outstanding and be converted
into one share of the surviving corporation;
. the certificate of incorporation of Everest Holdings as in force and
effect immediately prior to the effective time of the merger will be the
certificate of incorporation of the surviving corporation;
. the by-laws of Everest Holdings as in force and effect immediately prior
to the effective time of the merger will be the by-laws of the surviving
corporation; and
. the directors and officers of Everest Holdings who are in office
immediately prior to the effective time of the merger will be the
directors and officers of the surviving corporation and will remain in
office until the election and qualification of their successors or until
their tenure is otherwise terminated in accordance with the by-laws of
the surviving corporation.
Effects of the Restructuring
As a result of the proposed restructuring, the stockholders of Everest
Holdings will become the shareholders of Everest Group. The interests of the
Everest Group shareholders will be the same as their interests in Everest
Holdings prior to the restructuring, with each shareholder owning the same
number of Everest Group common shares as the number of shares of Everest
Holdings common stock owned immediately prior to the restructuring.
The rights of stockholders of Everest Holdings currently are governed by
Delaware law and the certificate of incorporation and by-laws of Everest
Holdings. After the restructuring, the rights of shareholders of Everest Group
will be governed by Bermuda law and the memorandum of association and bye-laws
of Everest Group. We have filed copies of the memorandum of association and
bye-laws of Everest Group as exhibits to the registration statement of which
this document is a part. For a discussion of material differences between the
rights of Everest Holdings stockholders and Everest Group shareholders, see
"Description of Everest Group Share Capital--Comparison of Rights of Holders of
Everest Group Common Shares and Holders of Everest Holdings Common Stock."
Conditions of the Merger
The obligation of Everest Holdings and Everest Merger to effect the merger
is subject to the satisfaction or waiver of the following conditions:
. the Everest Holdings stockholders will have adopted the agreement and
plan of merger;
. the registration statement on Form S-4 filed with the SEC to register the
Everest Group common shares to be issued in the merger will have become
effective under the Securities Act and no stop order or proceeding
seeking a stop order with respect to such registration statement will be
in effect;
. the Everest Group common shares issuable to stockholders pursuant to the
agreement and plan of merger will have been approved by the NYSE for
listing, subject to official notice of issuance;
. the merger will have received all required approvals from applicable
governmental and regulatory authorities, and all applicable waiting
periods will have expired; and
. no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the merger will
be in effect.
Effective Time of the Merger
If the Everest Holdings stockholders approve the agreement and plan of
merger, the merger will become effective after the filing of a certificate of
merger with the Secretary of State of the State of Delaware in accordance with
Delaware law. It is currently contemplated that the certificate of merger will
be filed and the
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merger will become effective on [Effective Time], 1999, or as soon thereafter
as the above conditions are satisfied.
In the event the conditions to the merger are not satisfied, the merger may
be abandoned or delayed even after the restructuring and merger have been
approved by the Everest Holdings stockholders. In addition, the merger may be
abandoned or delayed for any reason by the board of directors of Everest
Holdings at any time prior to its becoming effective, even though the agreement
and plan of merger has been approved by the Everest Holdings stockholders and
all conditions to the merger have been satisfied.
Additional Agreements
Benefit Plans and Stock Options
The agreement and plan of merger provides that, at the effective time of the
merger, Everest Group will assume all of the rights and obligations of Everest
Holdings under (1) the annual incentive plan, (2) the executive performance
annual incentive plan, (3) the 1995 stock incentive plan, (4) the 1995 stock
option plan for non-employee directors, (5) the senior executive change of
control plan and (6) all other plans, arrangements or agreements under which
Everest Holdings stock options have been granted. All outstanding options to
purchase Everest Holdings common stock will be converted into equivalent
options to purchase Everest Group common shares, with any adjustment or
amendment appropriate in order to accommodate Bermuda law issues. Sponsorship
of other benefit plans, such as pension, profit sharing and welfare benefit
plans, should not be affected by the merger.
Change of Control Provisions
To the extent that the merger could constitute a "change of control" that
would trigger additional benefits, including vesting of stock options awarded
to its employees and directors, Everest Holdings has asked the affected
employees and directors to agree in writing that the restructuring will not
constitute or result in a "change of control" or similar event. Everest
Holdings expects that all affected employees and directors will consent to
provide this written agreement and, in any event, does not expect to incur any
material costs even if the restructuring triggers such provisions.
Employment Agreements
In connection with the restructuring, Everest Group will establish a new
Delaware subsidiary, Everest Global Services, Inc. ("Everest Services"), that
will employ persons, including persons currently employed by Everest Re, who
will perform services both within the United States and outside the United
States for various companies in the Everest Group family of companies. Everest
Services will enter into an employment agreement with Mr. Taranto on
substantially the same terms as his existing employment agreements. Everest
Group and other affiliated companies may also be parties to and/or guarantors
of certain obligations under that agreement. In addition, in anticipation of
the restructuring, Everest Group has entered into a change of control agreement
with Mr. Taranto that is comparable to the agreement he currently has with
Everest Holdings.
Rights Agreement
On September 24, 1998, the board of directors of Everest Holdings declared a
dividend of one preferred share purchase right for each outstanding share of
Everest Holdings common stock. Under the terms of a rights agreement between
Everest Holdings and the rights agent, First Chicago Trust Company of New York,
the rights are triggered only when a person or group acquires 15% or more of
Everest Holdings common stock or makes, or announces its intention to make, a
tender offer for 15% or more of Everest Holdings common stock. When triggered,
each right entitles its holder under certain circumstances to purchase Everest
Holdings common stock at half-price. The foregoing brief description of the
rights and the Everest Holdings rights agreement does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
text of the Everest Holdings rights agreement, which is incorporated herein by
reference to Exhibit 4.1 to
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Everest Holdings' Current Report on Form 8-K dated September 28, 1998. For more
information on how to obtain this document, see "Where You Can Find More
Information."
The board of directors of Everest Holdings has amended the rights agreement
to provide that it will not be triggered by the agreement and plan of merger or
the restructuring.
Everest Group does not currently have a rights agreement in place, and the
agreement and plan of merger does not provide for the adoption of a rights
agreement by Everest Group. However, the Everest Group board of directors may
choose at any time following the restructuring to adopt a rights agreement,
which may include some or all of the provisions of the Everest Holdings rights
agreement.
Exchange of Stock Certificates
Stockholders should not send their Everest Holdings stock certificates with
their proxy cards. If the merger is completed, a transmittal form with
instructions on how to exchange stock certificates for share certificates of
Everest Group will be mailed to stockholders.
Stock Exchange Listing
Everest Holdings common stock is currently listed on the NYSE under the
symbol "RE." We are applying to list the Everest Group common shares that will
be issued in the merger on the NYSE. We are requesting that these common shares
be listed on the NYSE under Everest Holdings' current trading symbol, "RE."
Absence of Appraisal Rights
Appraisal rights are statutory rights that enable stockholders who object to
certain extraordinary transactions, such as mergers, to demand that the
corporation pay the fair value for their shares as determined by a court in a
judicial proceeding in lieu of receiving the consideration offered to
stockholders in connection with the extraordinary transaction. Appraisal rights
are not available in all circumstances.
Under Section 262 of the Delaware General Corporation Law, Everest Holdings
stockholders are not entitled to appraisal rights in connection with the merger
because Everest Holdings common stock was listed on the NYSE on the record date
for the special meeting and the common shares that stockholders will be
entitled to receive will be listed on the NYSE at the completion of the merger.
Resale of Everest Group Common Shares
The common shares issuable to stockholders in the merger have been
registered under the Securities Act of 1933. Such shares may be traded freely
and without restriction by those shareholders not deemed to be "affiliates" of
Everest Holdings or of Everest Group. "Affiliates" are generally defined as
persons who control, are controlled by or are under common control with,
Everest Holdings or Everest Group at the time of the special meeting. Everest
Group common shares received by those stockholders of Everest Holdings who are
deemed to be "affiliates" of Everest Holdings or Everest Group may be resold
without registration only as provided for by Rule 145, or as otherwise
permitted, under the Securities Act of 1933. The registration statement to
register the Everest Group common shares to be issued in the merger, of which
this document is a part, does not cover any resales of common shares received
by affiliates of Everest Holdings or Everest Group in the merger.
Regulatory Filings and Approvals
Everest Holdings' insurance subsidiaries are subject to the insurance
statutes and regulations of the states and foreign countries in which they are
domiciled or licensed. In the United States, state insurance holding company
statutes generally require approval of the acquisition of control of insurance
companies domiciled or
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commercially domiciled in such states, whether such acquisition of control is
direct or indirect. Accordingly, Everest Group has filed or will file
applications seeking approval of its acquisition of control of Everest
Holdings' insurance subsidiaries with the insurance regulatory authorities in
Delaware, where Everest Re and Everest Indemnity are domiciled, and in Arizona,
where Everest National is domiciled. Everest Group will also give written
notice of the restructuring to the insurance regulatory authorities in some
other states where Everest Holdings' insurance subsidiaries are licensed.
Outside of the United States, Everest Group has filed or will file
applications seeking approval of the restructuring with the insurance and
financial services regulatory authorities in Canada, where Everest Canada is
domiciled and Everest Re has branch operations, and in the United Kingdom,
where Everest Re has branch operations. Everest Group will also give written
notice of the restructuring to the insurance and financial services regulatory
authorities in Belgium, Hong Kong and Singapore, where Everest Re has branch
operations, and Russia, where Everest Re maintains a representative office.
Receipt of approvals from the appropriate regulatory authorities in
Delaware, Arizona, Canada and the United Kingdom is a condition to the merger,
although the agreement and plan of merger allows Everest Holdings, Everest
Group and Everest Merger to waive this condition. We cannot assure you that
these approvals will be obtained, or, if obtained, will not include conditions
that could result in the abandonment of the restructuring. We have not
determined how we will respond to conditions that may be sought by governmental
entities in connection with any requisite approvals. If any conditions are
sought by governmental entities, we will make such determinations at the
appropriate time.
Accounting Treatment of the Restructuring
It is anticipated that the acquisition by Everest Group of Everest Holdings
in connection with the restructuring will be accounted for at historical cost
in a manner similar to a pooling of interests.
MANAGEMENT
Board of Directors
The board of directors of Everest Group will consist of six members and will
be divided into three classes of two directors each. The Class I directors will
be subject to election at the 2000 annual general meeting of shareholders, the
Class II directors at the 2001 annual general meeting of shareholders and the
Class III directors at the 2002 annual general meeting of shareholders. Prior
to the restructuring, Everest Holdings will elect all of the current directors
of Everest Holdings to serve for comparable terms as directors of Everest
Group. Information about each of those individuals is set forth below.
Martin Abrahams, 66, became a Class I director of Everest Holdings on March
12, 1996 and a director of Everest Re on March 13, 1996. Mr. Abrahams,
currently retired, served with the accounting firm of Coopers & Lybrand L.L.P.
from 1957 and was a partner in that firm from 1969 to 1995.
Kenneth J. Duffy, 69, became a Class II director of Everest Holdings on
March 12, 1996 and a director of Everest Re on March 13, 1996. Mr. Duffy is
currently a Senior Advisor to CGU plc, an insurance holding company, having
been associated with that organization for more than 40 years. He served as
President and Chief Executive of Commercial Union Corporation, the CGU United
States subsidiary, from January 1985, as Chairman and Chief Executive from
January 1993 and as Chairman from his retirement in January 1995 until October
1998. He is the President and a director of Curepool (Bermuda) Ltd. He is also
a vice president of the Insurance Institute of London and a fellow of the
Institute of Risk Management.
John R. Dunne, 69, became a Class I director of Everest Holdings and a
director of Everest Re on June 10, 1996. Mr. Dunne, an attorney and member of
the bar of both New York and the District of Columbia, has
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since 1994 been counsel to the law firm of Whiteman, Osterman & Hanna in
Albany, New York. Mr. Dunne was counsel to the Washington DC law firm of Bayh,
Connaughton & Malone from 1993 to 1994. From 1990 to 1993, he served as an
Assistant Attorney General for the United States Government, Department of
Justice. From 1966 to 1989 Mr. Dunne served as a New York State Senator while
concurrently practicing law as a partner in New York law firms. Mr. Dunne is a
director of CGU Corporation.
Thomas J. Gallagher, 50, became a Class III director of Everest Holdings on
March 13, 1996 and has served as a director of Everest Re since 1987. Elected
President and Chief Operating Officer of both Everest Holdings and Everest Re
on February 24, 1997, Mr. Gallagher had been Executive Vice President of both
companies since December 1995 and a Senior Vice President of Everest Holdings
since 1994 and of Everest Re since 1989. Since joining Everest Re in 1975, he
has served as an underwriter in the facultative and treaty departments, as vice
president in charge of the facultative department and as vice president in
charge of the treaty casualty department. Mr. Gallagher currently serves as a
director and Chairman of Everest National, as a director and Chairman of
Everest Canada, as a director and Chairman and Chief Executive Officer of
Everest Indemnity and as a director of WorkCare Alabama and WorkCare Georgia.
William F. Galtney, Jr., 47, became a Class III director of Everest Holdings
on March 12, 1996 and a director of Everest Re on March 13, 1996. Since 1983,
Mr. Galtney has been the Chairman and Chief Executive Officer of Healthcare
Insurance Services, Inc., a managing general and surplus lines agency
indirectly owned by The Galtney Group, Inc. ("GGI"), a holding company of which
he is also Chairman and Chief Executive Officer. Mr. Galtney also serves as
either the chairman or a director of various subsidiaries and affiliates of
GGI. Mr. Galtney is a director of Mutual Risk Management Ltd.
Joseph V. Taranto, 50, became a Class II director and Chairman of the Board
and Chief Executive Officer of Everest Holdings and Everest Re on October 17,
1994 and served as President of both companies from December 1994 until Mr.
Gallagher's election as President on February 24, 1997. Mr. Taranto was a
director and President of Transatlantic Holdings, Inc. and a director and
President of Transatlantic Reinsurance Company and Putnam Reinsurance Company
(both subsidiaries of Transatlantic Holdings, Inc.) from 1986 to 1994.
Following the restructuring, the number of directors constituting the board
of directors of Everest Holdings will be reduced to three and Joseph V.
Taranto, Thomas J. Gallagher and Stephen L. Limauro will serve as those
directors.
Executive Officers
Prior to the restructuring, the board of directors of Everest Group will
elect all of the current executive officers of Everest Holdings to serve in
identical capacities as executive officers of Everest Group. In addition to Mr.
Taranto, who will serve as Chairman of the Board and Chief Executive Officer,
and Mr. Gallagher, who will serve as Deputy Chairman, President and Chief
Operating Officer, the following current executive officers of Everest Holdings
will become executive officers of Everest Group:
Stephen L. Limauro, 48, became Comptroller of Everest Holdings on September
25, 1997. He became a Senior Vice President of Everest Holdings and Everest Re
on February 23, 1999. He served as Assistant Comptroller of Everest Re from
June 20, 1988 until September 25, 1997. From May 1995 until September 1997, he
was Vice President, Treasurer and Assistant Comptroller of Everest Holdings.
Mr. Limauro also is a director and Comptroller of Everest National and Everest
Indemnity. He also serves as a director, Assistant Treasurer and Assistant
Controller to Everest Canada and he is Comptroller of Mt. McKinley. He serves
as a director and President of Everest Ltd. and is Comptroller of WorkCare
Alabama and WorkCare Georgia and Chief Accountant of WorkCare, Inc.
Janet J. Burak (formerly Janet Burak Melchione), 48, became Vice President,
General Counsel and Secretary of Everest Holdings upon its organization on
November 11, 1993. She became a Senior Vice
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President of Everest Holdings and Everest Re on January 31, 1994. Ms. Burak has
served as General Counsel of Everest Re since 1985 and in 1986 was appointed
Secretary. Ms. Burak is a director and Assistant Secretary of Everest National
and Everest Indemnity. She is a director, Vice President and Assistant
Secretary of Everest Ltd., Secretary of Everest Canada and Assistant Secretary
of Mt. McKinley, WorkCare Alabama and WorkCare Georgia. She serves as Associate
General Counsel of WorkCare, Inc.
Transitional Directors and Officers of Everest Group
The board of directors of Everest Group currently consists of two directors,
Mr. Limauro, who serves as Chairman, and Ms. Burak, who serves as Deputy
Chairman. Mr. Limauro and Ms. Burak will resign from those positions prior to
the restructuring, whereupon the individuals described above under the captions
"Board of Directors" and "Executive Officers" will be elected or appointed to
their respective positions.
Director and Executive Compensation
Everest Group has not paid compensation to any person before the date of
this document and is not expected to do so prior to the restructuring.
Following the restructuring, Everest Group anticipates that the compensation
received by persons serving as officers and directors of Everest Group will be
the same as the compensation currently paid to such persons for serving as
officers and directors of Everest Holdings.
Information concerning compensation of directors and executive officers of
Everest Holdings is contained in Everest Holdings' Annual Report on Form 10-K
for the year ended December 31, 1998 and is incorporated in this document by
reference. For more information on how to obtain this report, see "Where You
Can Find More Information."
Stock Ownership of Certain Beneficial Owners and Management
Information concerning stock ownership of certain beneficial owners and
management of Everest Holdings is contained in Everest Holdings' Annual Report
on Form 10-K for the year ended December 31, 1998 and is incorporated in this
document by reference. For more information on how to obtain this report, see
"Where You Can Find More Information."
All of the outstanding capital shares of Everest Group are currently owned,
and until the completion of the restructuring will continue to be owned, by
Everest Holdings.
Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions of
Everest Holdings is contained in Everest Holdings' Annual Report on Form 10-K
for the year ended December 31, 1998 and is incorporated in this document by
reference. For more information on how to obtain this report, see "Where You
Can Find More Information."
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MATERIAL TAX CONSIDERATIONS
This discussion covers the principal Bermuda, Barbados and U.S. federal
income tax consequences of the restructuring and of the ownership and
disposition of Everest Group common shares. Other tax considerations not
discussed below may be applicable to the restructuring and to a decision to
hold or dispose of Everest Group common shares. Unless explicitly noted to the
contrary, this discussion applies only to investors who are, as defined below,
U.S. holders holding the shares of Everest Holdings and Everest Group as
capital assets. The tax treatment of any particular stockholder may vary
depending on such stockholder's particular tax situation or status. In
addition, this discussion is based on current law. Legislative, judicial or
administrative changes may be forthcoming that could be retroactive and could
affect this discussion. Consequently, you should consult your tax advisors as
to the specific tax consequences to you of the restructuring and of the
ownership and disposition of Everest Group common shares, including tax return
reporting requirements, the applicability and effect of federal, state, local,
foreign and other applicable tax laws and the effect of any proposed changes in
the tax laws.
As used in this discussion, the term "U.S. person" means:
. a citizen or resident of the United States;
. a corporation, partnership, or other entity created or organized in the
United States or under the laws of the United States or of any of its
political subdivisions;
. an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
. any trust if, and only if, a court within the United States is able to
exercise primary supervision over the administration of the trust and one
or more U.S. persons have the authority to control all substantial
decisions of the trust.
As used in this discussion, the term "U.S. holder" means a U.S. person who
holds Everest Holdings common stock or Everest Group common shares as "capital
assets" within the meaning of Section 1221 of the Code.
The discussion of Bermuda tax law below is based on the opinion of Conyers
Dill & Pearman, our Bermuda counsel, and is subject to the qualifications and
assumptions set forth in their opinion. The discussion of Barbados tax law is
based on the opinion of Clarke & Co., our Barbados counsel, and is subject to
the qualifications and assumptions set forth in their opinion. The discussion
of U.S. federal income tax law below is based on the opinion of Mayer, Brown &
Platt, our United States counsel, and is subject to the qualifications and
assumptions set forth in their opinion.
Tax Consequences of the Restructuring
Bermuda
Under current Bermuda law, no income tax, capital gains tax or withholding
tax will be payable by Everest Holdings, Everest Group or any Everest Holdings
stockholder as a consequence of the restructuring.
Barbados
No income tax, capital gains tax or withholding tax will be payable in
Barbados by Everest Holdings, Everest Group or any Everest Holdings stockholder
by reason of the restructuring.
United States
The following is a summary of the principal U.S. federal income tax
consequences of the restructuring to U.S. holders of Everest Holdings common
stock. This summary is not binding on the IRS, and there can be no
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assurance that the IRS will not take a position contrary to one or more of the
positions described below, or that such positions would be upheld by the courts
if challenged by the IRS. No rulings have been or will be requested from the
IRS with respect to any aspect of the restructuring.
We have received an opinion from our United States counsel, Mayer, Brown &
Platt, to the effect that the merger will be treated for U.S. federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. This opinion is based in part on certain representations made by Everest
Holdings and certain Everest Holdings stockholders with respect to the lack of
a plan or intent to dispose of the Everest Group common shares they would
receive in the merger. Assuming that the merger so qualifies as a
reorganization, it will not constitute a taxable event for either Everest
Holdings or Everest Group at the corporate level. However, at the stockholder
level, under Section 367 of the Code and the related regulations, the exchange
of Everest Holdings common stock for Everest Group common shares will not
qualify for nonrecognition of gain treatment. As a result:
. a U.S. holder of Everest Holdings common stock will recognize gain in an
amount equal to the excess, if any, of the fair market value of the
Everest Group common shares at the time of the merger over such holder's
adjusted basis in the Everest Holdings common stock surrendered; and
. a U.S. holder of Everest Holdings common stock will not recognize loss in
the merger if the fair market value of the Everest Group common shares at
the time of the merger is less than such holder's adjusted basis in the
Everest Holdings common stock surrendered.
Any gain recognized will be capital gain and will be long-term capital gain
if, as of the date of the reorganization, the shares of Everest Holdings were
held for more than one year. A U.S. holder that recognizes gain with respect to
the reorganization will have an aggregate basis in its Everest Group shares
equal to the aggregate adjusted tax basis in the Everest Holdings common stock
surrendered in the merger, increased by the amount of gain recognized. The
holding period for any Everest Group common shares received by a U.S. holder
recognizing gain in the merger will commence at the effective time of the
merger. A U.S. holder that realizes but does not recognize loss as a result of
the reorganization will have an aggregate basis in its Everest Group shares
equal to that of its Everest Holdings common stock surrendered therefor in the
merger. The holding period for any Everest Group shares received by a
shareholder realizing but not recognizing loss in the merger will include the
period such shareholder held its Everest Holdings common stock. If a U.S.
holder owns blocks of Everest Holdings stock that have different tax bases or
holding periods, each block will be subject separately to the tax treatment
described in this paragraph.
Information Reporting
Pursuant to Section 6038B of the Code, a U.S. holder who realizes loss on
the merger or who does not report taxable gain from the merger on his timely
filed federal income tax return for the year that includes the merger is
required to file an information return on IRS Form 926 reporting the merger
along with certain additional information that must be attached thereto. Form
926 and its required attachments must be filed with such holder's U.S. federal
income tax return for the taxable year that includes the reorganization. The
information that must be included with Form 926 is described in applicable
regulations. Everest Holdings will provide such information to its U.S. holders
to enable each U.S. holder to file its Form 926 on a timely basis. A U.S.
holder's failure to provide the information required by Section 6038B of the
Code may result in, among other things, such holder's being subject to a
penalty equal to 10% of the fair market value of such U.S. holder's Everest
Holdings common stock exchanged in the reorganization.
In addition, applicable regulations under Section 368 of the Code require
that a U.S. holder file with its U.S. income tax return in the year of the
reorganization all facts pertinent thereto, including (1) a statement of the
basis of Everest Holdings common stock converted in the reorganization and (2)
a statement of the amount of Everest Group common shares received in the
reorganization, based upon the fair market value of such common shares on the
date of the reorganization.
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Backup Withholding.
Under Section 3406 of the Code and the regulations thereunder, a U.S. holder
of Everest Holdings common stock may be subject to backup withholding at the
rate of 31% of the "reportable payment," i.e., "gross proceeds," on the
exchange of its Everest Holdings common stock for Everest Group common shares.
A U.S. holder who participates in the merger may become subject to U.S. backup
withholding tax at a rate of 31% with respect to the consideration received in
the merger unless such holder:
. is a corporation or other exempt recipient and, if required, demonstrates
its status as such; or
. provides a United States taxpayer identification number, certifies that
the taxpayer identification number provided is correct and that the
holder has not been notified by the IRS that it is subject to backup
withholding due to the under-reporting of interest or dividends, and
otherwise complies with the applicable requirements of the backup
withholding rules.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided that the required information is furnished to the IRS. Presumably, the
"reportable payment" or "gross proceeds" would be the fair market value of the
Everest Group common shares received in exchange for Everest Holdings common
stock, although the Code and regulations are not clear. Nor is it clear how
withholding would be effected since the consideration received is stock rather
than cash. Everest Holdings stockholders are strongly urged to comply with the
taxpayer identification number and other information furnishing requirements of
Section 3406 of the Code and the regulations thereunder.
Taxation of Everest Group and Its Subsidiaries
Bermuda
Under current Bermuda law, there is no income tax or capital gains tax
payable by Everest Group or Everest Bermuda. Everest Group and Everest Bermuda
have received from the Bermuda Minister of Finance an assurance under The
Exempted Undertakings Tax Protection Act, 1966 of Bermuda that in the event
Bermuda enacts 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 such tax will not apply to Everest
Group, to Everest Bermuda or to any of their operations or their shares,
debentures or other obligations, until March 28, 2016. This assurance will not
prevent the imposition of any tax or duty on persons ordinarily resident in
Bermuda or the imposition of any tax payable in accordance with the provisions
of The Land Tax Act 1967 of Bermuda or otherwise payable in relation to any
property leased to Everest Group or Everest Bermuda. Everest Group currently
pays annual Bermuda government fees of BD$1,695. Everest Bermuda currently pays
annual Bermuda government fees of BD$7,120 and annual insurance fees of
BD$15,000. We anticipate that, based on current rates, the annual governmental
fee payable by Everest Group after the issuance of additional common shares in
the merger will be BD$7,120. In addition, all entities employing individuals in
Bermuda are required to pay a payroll tax and various other taxes, directly or
indirectly, to the Bermuda government.
Barbados
Everest Group will be registered in Barbados as an external company under
the Companies Act, Cap. 308 of Barbados and will be licensed as an
international business company under the Barbados International Business
Companies Act, 1991-24. As a result, Everest Group will be entitled to tax
benefits, including a preferred rate of corporation tax on profits and gains
and an exemption from withholding tax in respect of any dividends, interest,
royalties, management fees, fees or other income paid or deemed to be paid to a
person who is not resident in Barbados or who, if so resident, carries on an
international business.
Everest Group will be subject to a Barbados corporation tax, assessed at a
rate of 2.5% on profits and gains of up to 10 million Barbados dollars
(approximately U.S. $5 million), and at declining rates on profits and gains
exceeding that amount. Everest Group may elect to take a credit in respect of
taxes paid to a country
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other than Barbados, provided, that such an election does not reduce the tax
payable in Barbados to a rate less than 1% of the profits and gains of Everest
Group in any taxable year. As a company incorporated outside of Barbados but
managed and controlled in Barbados, Everest Group's taxable income will not
include certain distributions from non-Barbados sources.
Under Barbados law, capital gains are not taxable and so Everest Group will
not be subject to any such tax. The transfer of securities or assets, other
than taxable assets, of Everest Group to a non-resident or to another
international business company is also exempted from the payment of Barbados
property transfer tax and stamp duty.
As an international business company, Everest Group will also be exempt from
duties and other imposts on assets that it imports into Barbados for use in its
business. Such assets would include equipment, plant, machinery fixtures,
appliances, apparatus, tools and spare parts, and such raw materials, goods,
components and articles as are necessary for Everest Group to carry on its
international business.
United States
In general, a foreign corporation is subject to:
. U.S. federal income tax at graduated rates on its taxable income that is
treated as effectively connected to its conduct of a trade or business
within the United States;
. U.S. branch profits tax on its effectively connected earnings and profits
deemed repatriated out of the United States; and
. U.S. withholding tax on certain types of U.S. source income (e.g.,
dividends) not effectively connected with a U.S. trade or business.
In addition, the United States imposes an excise tax on insurance and
reinsurance premiums paid to foreign insurers or reinsurers with respect to
risks located in the United States.
Corporate Income Tax and Branch Profits Tax
Absent the benefits of the Bermuda Treaty or Barbados Treaty, if either
Everest Group or Everest Bermuda is subject to U.S. federal income tax, it
would be taxed at regular corporate rates on all of its income that is
effectively connected with the conduct of its U.S. business. Such income tax,
if imposed, would be computed in a manner generally analogous to that applied
to the income of a domestic corporation, except that a foreign corporation is
allowed deductions and credits only if it files a U.S. income tax return.
Therefore, Everest Group and Everest Bermuda intend to file protective U.S.
income tax returns on a timely basis in order to preserve their right to claim
tax deductions and credits if either company subsequently is determined to be
subject to U.S. tax on a net basis. In addition, Everest Group or Everest
Bermuda would be subject to the branch profits tax. The highest marginal
federal income tax rates currently are 35% for a corporation's effectively
connected income and 30% for the branch profits tax.
We have received written guidelines from our United States counsel regarding
practices to be avoided so that Everest Bermuda will not be engaged in the
conduct of a trade or business in the United States and so that Everest Group
will not inadvertently have material amounts of income effectively connected
with the conduct of a trade or business within the United States. We have been
advised by counsel that if we comply with these guidelines, Everest Bermuda
should not be subject to U.S. corporate income tax (other than withholding tax
on certain U.S. source income) and Everest Group should not be subject to U.S.
corporate income tax (other than withholding tax on certain U.S. source income)
on material amounts of income. Everest Bermuda and Everest Group have
represented to counsel that they will follow these guidelines. Even with the
guidelines, however, the determination of whether activities constitute being
engaged in the conduct of a trade or business and whether income is effectively
connected to a U.S. trade or business is essentially factual in nature. There
are no definitive standards provided by the Code, regulations or court
decisions. As a result, the IRS could contend
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that Everest Bermuda is engaged in the conduct of a trade or business in the
United States and/or that Everest Group has material amounts of income
effectively connected to the conduct of a trade or business in the United
States. Any income of Everest Bermuda or Everest Group effectively connected to
the conduct of trade or business in the United States would be subject to
corporate income tax and possibly the U.S. branch profits tax.
The United States and Bermuda have entered into the Bermuda Treaty, which
provides some relief from U.S. income tax on effectively connected income and
the U.S. branch profits tax for insurance enterprises. Under the Bermuda
Treaty, business profits earned by an operating insurance company that is a
resident of Bermuda, such as Everest Bermuda, may be taxed in the United States
only if such profits are attributable to the conduct of a trade or business
carried on through a permanent establishment in the United States. For purposes
of the Bermuda Treaty, a permanent establishment generally is defined to
include a branch, office or other fixed place of business through which the
business of the enterprise is carried on, or an agent of dependent status that
has, and habitually exercises in the United States, authority to conclude
contracts in the name of the corporation. An insurance enterprise resident in
Bermuda will be entitled to the benefits of the Bermuda Treaty only if its
stock is traded in the public market or Bermuda residents or U.S. citizens or
residents own 50% or more of its equity and the enterprise does not use its
income in substantial part, directly or indirectly, to make disproportionate
distributions to, or to meet liabilities to, persons who are not Bermuda
residents or U.S. citizens or residents (the "Bermuda Treaty Benefits Test").
It is uncertain whether Everest Bermuda is entitled to relief under the
permanent establishment provisions of the Bermuda Treaty, as it is the
subsidiary of a publicly-traded company rather than a publicly-traded company
itself. No regulations interpreting the Bermuda Treaty have been issued. As a
result, the IRS could contend that Everest Bermuda is not entitled to the
benefits of the Bermuda Treaty.
Even if Everest Bermuda is entitled to the benefits of the Bermuda Treaty,
the determination of whether a permanent establishment in the United States
exists is essentially factual in nature. As a result, the IRS could contend
that Everest Bermuda has a permanent establishment in the United States and is
subject to U.S. federal income tax as well as the branch profits tax. See "Risk
Factors--Everest Group and Everest Bermuda could be subject to U.S. corporate
income tax." If Everest Bermuda is entitled to the benefits of the Bermuda
Treaty and has a U.S. permanent establishment, it would only be taxed at
regular corporate rates on all of its income that is attributable to its U.S.
permanent establishment. It would also be subject to the branch profits tax on
such income. If Everest Bermuda qualified for Bermuda Treaty benefits and did
not have a permanent establishment in the U.S. but was nonetheless found to be
engaged in business in the United States, there is an argument that premium
income would be exempt from U.S. tax but that its investment income effectively
connected with its U.S. business would be subject to U.S. income taxes on a net
basis, and that the branch profits tax may be applicable to that investment
income.
The United States and Barbados have entered into the Barbados Treaty, which
provides some relief from U.S. income tax on effectively connected income and
the U.S. branch profits tax. Under the Barbados Treaty, business profits earned
by a company that is managed and controlled in Barbados, such as Everest Group,
may be taxed in the United States only if such profits are attributable to the
conduct of a trade or business carried on through a permanent establishment in
the United States. In addition, the branch profits tax on deemed dividends from
any U.S. permanent establishment is reduced to a rate of 5%, provided, that the
Barbados resident also is a qualified resident under the branch profits rules
of the Code. For purposes of the Barbados Treaty, a permanent establishment
generally is defined to include a branch, office or other fixed place of
business through which the business of the enterprise is carried on, or an
agent of dependent status that has, and habitually exercises in the United
States, authority to conclude contracts in the name of the corporation. A
company resident in Barbados will be entitled to the benefits of the Barbados
Treaty if it is publicly traded within the meaning of the Barbados Treaty. The
stock of Everest Group should qualify as being publicly traded for this
purpose. We believe that Everest Group will be resident in Barbados and
therefore entitled to the benefits of the Barbados Treaty.
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Because we believe that Everest Group is entitled to the benefits of the
Barbados Treaty, it can operate under less restrictive guidelines that are
designed to ensure that it does not have a permanent establishment in the
United States. Even though Everest Group is entitled to the benefits of the
Barbados Treaty, the determination of whether a permanent establishment in the
United States exists is essentially factual in nature. As a result, the IRS
could contend that Everest Group has a permanent establishment in the United
States and is subject to U.S. federal income tax on material amounts of income.
See "Risk Factors--Everest Group and Everest Bermuda could be subject to U.S.
corporate income tax." Everest Group would be taxed at regular corporate rates
on all of its income attributable to its U.S. permanent establishment. It would
also be subject to a reduced rate of branch profits tax on such income.
Withholding Tax
Foreign corporations are subject to U.S. income tax on some "fixed or
determinable annual or periodical gains, profits and income" derived from
sources within the United States, such as dividends and some interest on
investments. This tax generally is imposed at a rate of 30% on the gross income
subject to the tax. The tax is eliminated with respect to some types of U.S.
source income, such as portfolio interest, and with respect to income that is
effectively connected with the foreign corporation's conduct of a U.S. trade or
business.
The rate of withholding tax may be reduced by applicable treaties. The
Bermuda Treaty, the benefits of which Everest Bermuda may be entitled to,
contains no provision reducing the rate of withholding tax. The Barbados
Treaty, the benefits of which Everest Group believes it is entitled to, reduces
the rate of withholding tax on interest to 5% and reduces the rate of
withholding tax on dividends to 5% for dividends received from a subsidiary and
15% for dividends received in respect of ownership interests below 10%.
Insurance Excise Tax
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 rates of tax applicable to premiums paid to Everest
Bermuda are 4% for direct casualty insurance and indemnity bonds and 1% for
reinsurance premiums and direct insurance of life, sickness and accident
policies and annuity contracts.
Taxation of Shareholders
Bermuda Taxation
There will be no Bermuda withholding tax on dividends paid by Everest Group.
Barbados Taxation
Because of Everest Group's status as an international business company,
there will be no Barbados withholding tax on dividends paid by Everest Group to
shareholders who are not resident in Barbados or who, if so resident, carry on
an international business.
United States Taxation of Shareholders
Taxation of Dividends. Generally, cash distributions made on Everest Group
common shares will constitute dividends for U.S. federal income tax purposes to
the extent paid out of current or accumulated earnings and profits of Everest
Group. U.S. holders generally will be subject to U.S. federal income tax on the
receipt of such dividends. Such dividends generally will not be eligible for
the dividends received deduction. To the extent that a distribution exceeds
earnings and profits, it will be treated first as a return of the U.S. holder's
basis to the extent of that basis, and then as gain from the sale of a capital
asset. Except for backup withholding, dividends paid by Everest Group will not
be subject to U.S. withholding tax.
Possible Classification of Everest Group or Everest Bermuda as a Controlled
Foreign Corporation. Under Section 951(a) of the Code, if a foreign
corporation, such as Everest Group or Everest Bermuda, meets the definition of
a controlled foreign corporation ("CFC") for an uninterrupted period of 30 days
or more during any taxable year, then each shareholder who meets the definition
of a "U.S. 10% shareholder" of that corporation on the last day of that taxable
year must include in its gross income for U.S. federal income tax
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purposes its pro rata share of the CFC's "subpart F income" for such year, even
if the subpart F income is not distributed to the shareholder. In addition, the
U.S. 10% shareholders of a CFC may be deemed to receive taxable distributions
to the extent the CFC invests its earnings in specified types of U.S. property.
All of Everest Group's and Everest Bermuda's income is expected to be subpart F
income.
"Subpart F income" includes:
. ""foreign personal holding company income," such as interest, dividends
and other types of passive investment income, and
. ""insurance income," which is defined to include any income that is
attributable to the issuing or reinsuring of any insurance or annuity
contract that would be taxed under the insurance company provisions of
the Code if such income were the income of a domestic insurance company.
"Subpart F income" does not include:
. any income from sources within the United States that is effectively
connected with the conduct of a trade or business within the United
States and not exempted or subject to a reduced rate of tax by applicable
treaty,
. some income subject to high foreign taxes, and
. ""exempt insurance income" derived prior to January 1, 2000 by a
"qualifying insurance company" as defined in Section 953(e) of the Code.
Under Section 951(b) of the Code, the definition of "U.S. shareholder"
includes any U.S. person who directly, indirectly or by attribution owns 10% or
more of the total combined voting power of all classes of stock of a foreign
corporation. Shares of Everest Bermuda held indirectly by U.S. persons through
Everest Group will be treated as held by U.S. persons for purposes of
determining the 10% shareholders of Everest Bermuda. A U.S. person will be
treated as owning indirectly a proportion of the shares of Everest Bermuda
corresponding to the ratio that the value of the Everest Group common shares
owned by such person bears to the value of all the issued and outstanding share
capital of Everest Group.
In general, a foreign corporation is treated as a CFC only if its U.S. 10%
shareholders collectively own more than 50% of the total combined voting power
or total value of the corporation's stock on any day (the "50% Test"). However,
for purposes of taking subpart F income into account, a foreign insurance
company will be treated as a CFC if more than 25% of the total combined voting
power or total value of its stock is owned by U.S. 10% shareholders and other
conditions that are expected to be met apply.
Everest Group's bye-laws include provisions that are intended to limit the
ownership of the common shares to levels that will not subject shareholders to
these provisions. Based on these bye-laws, we have been advised by our United
States counsel that neither Everest Group nor Everest Bermuda should be a CFC
and that Everest Group shareholders should not be subject to these provisions.
However, Everest Group or Everest Bermuda could in the future become a CFC and
these provisions could apply. See "Risk Factors--Our shareholders could be
subject to U.S. taxes" and "Description of Everest Group Share Capital--Common
Shares."
RPII Companies. A different definition of "controlled foreign corporation"
applies in the case of a foreign corporation that earns gross related person
insurance income ("RPII"). Section 953(c)(2) of the Code defines RPII as any
"insurance income," as defined in the bullet point above, derived from the
direct or indirect insurance or reinsurance of the risk of any U.S. taxpayer
who directly or indirectly through foreign entities owns any shares of the
foreign insurance company or of any "related person" to such a U.S. taxpayer.
Everest Bermuda generally will be treated as a CFC if its "RPII shareholders"
directly, indirectly or by attribution own 25% or more of the value or voting
power of such corporation's share capital on any day during a taxable year. If
Everest Bermuda is a CFC for an uninterrupted period of at least 30 days during
any taxable year under these special RPII rules, and no exception applies, each
RPII shareholder of Everest Bermuda on the last day of Everest Bermuda's
taxable year will be required to include in its gross income for U.S. federal
income tax
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purposes its pro rata share of the RPII for the entire taxable year, determined
as if all such RPII were distributed proportionately only to such RPII
shareholders at that date, but limited by Everest Bermuda's current-year
earnings and profits and reduced by the RPII shareholder's share, if any, of
prior-year deficits in earnings and profits. For this purpose, the term "RPII
shareholder" generally includes all U.S. persons who directly, indirectly or by
attribution own any amount of the Everest Group common shares and the term
"related person" 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 measured by either more than 50%
in value or more than 50% in voting power of stock, applying constructive
ownership principles.
RPII Exceptions. The special RPII rules do not apply if direct and indirect
insureds and persons related to such insureds, whether or not U.S. persons, are
treated at all times during the taxable year as owning, directly, indirectly or
by attribution, less than 20% of the voting power and less than 20% of the
value of the stock of Everest Bermuda (the "RPII 20% Ownership Exception"). The
special RPII rules also do not apply if the RPII of Everest Bermuda, determined
on a gross basis, is less than 20% of Everest Bermuda's gross insurance income
for such taxable year (the "RPII 20% Gross Income Exception"). We intend to
operate Everest Bermuda in a way which qualifies for one or both of these
exceptions. However, there can be no assurance that we will always so qualify.
Computation of RPII. In order to determine how much RPII Everest Bermuda has
earned in each taxable year, Everest Group intends to obtain and rely upon
information from its insureds to determine whether any of the insureds or
persons related to them own Everest Group common shares and are U.S. persons.
Everest Group may not be able to determine whether any of the underlying
insureds of the insurance companies to which Everest Bermuda provides insurance
or reinsurance are RPII shareholders or related persons to such shareholders.
Consequently, Everest Group may not be able to determine accurately the gross
amount of RPII earned by Everest Bermuda in a given taxable year. For any year
in which Everest Group determines that gross RPII is 20% or more of Everest
Bermuda's gross insurance income, Everest Group may also seek information from
its shareholders as to whether direct or indirect owners of Everest Group
common shares at the end of the year are U.S. persons so that the RPII may be
determined and apportioned among such persons. In any such year, Everest Group
will inform all shareholders of the amount of RPII per share and that RPII
shareholders are obligated to file a return reporting such amounts. To the
extent that Everest Group is unable to determine whether a direct or indirect
owner of Everest Group common shares is a U.S. person Everest Group may assume
that such owner is not a U.S. person for the purpose of allocating RPII,
thereby increasing the per share RPII amount for all RPII shareholders.
Apportionment of RPII to RPII Shareholders. The amount of RPII includible in
the income of a RPII shareholder is based on the net RPII income for the year
after deducting related expenses such as losses, loss reserves and operating
expenses. Every U.S. person who directly, indirectly or by attribution owns
Everest Group common shares on the last day of any taxable year of Everest
Bermuda in which Everest Bermuda does not meet either the RPII 20% Ownership
Exception or the RPII 20% Gross Income Exception should expect that for such
year it will be required to include in gross income its share of Everest
Bermuda's RPII for the entire year, whether or not distributed, even though it
may not have owned the shares for the entire year. A U.S. person who owns
Everest Group common shares during such taxable year but not on the last day of
the taxable year, which would normally be December 31, is not required to
include in gross income any part of Everest Bermuda's RPII. The amount of RPII
allocable to each U.S. holder of Everest Group common shares who is required to
include RPII of Everest Bermuda in income for a given taxable year normally
will bear the same ratio to the total RPII of Everest Bermuda for that taxable
year as the number of common shares owned by that U.S. holder bears to the
aggregate number of common shares owned by all U.S. holders. If Everest Bermuda
has RPII and Everest Group makes a distribution of such RPII to a U.S. holder
with respect to the common shares, such dividends will not be taxable to the
extent of any RPII that has been included in the gross income of that U.S.
holder for the taxable year in which the distribution was paid or for any prior
year.
Basis Adjustments. A RPII shareholder's tax basis in its Everest Group
common shares will be increased by the amount of any RPII that the shareholder
includes in income. The RPII shareholder's tax basis in its
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Everest Group common shares will be reduced by the amount of such distributions
that are excluded from income. In general, a RPII shareholder will not be able
to exclude from income distributions with respect to RPII that a prior
shareholder included in income.
Information Reporting. Every U.S. person who "controls" a foreign
corporation by owning directly or by attribution more than 50% of the total
combined voting power of all classes of stock of such corporation entitled to
vote, or more than 50% of the total value of shares of all classes of stock of
such corporation, for an uninterrupted period of 30 days or more during a
taxable year of that foreign corporation, must file Form 5471 with its U.S.
income tax return. However, the IRS also requires any U.S. person that is
treated as a U.S. 10% shareholder or RPII shareholder of a CFC and that owns
shares in that CFC directly, indirectly or by attribution to file Form 5471. As
a result, if Everest Bermuda's gross RPII for a taxable year constitutes 20% or
more of its gross insurance income for such period, any U.S. person treated as
owning any shares of Everest Bermuda directly or indirectly on the last day of
such taxable year is a RPII shareholder for purposes of the RPII rules and must
file Form 5471. In addition, U.S. persons who own more than 10% in vote or
value of the outstanding stock of Everest Group or Everest Bermuda at any time
during a taxable year must sometimes file Form 5471 even if neither corporation
is a CFC. For any taxable year in which Everest Group determines that Everest
Bermuda's gross RPII constitutes 20% or more of its gross insurance income,
Everest Group intends to mail to all shareholders of record, and will make
available through the transfer agent with respect to the common shares, Form
5471 (completed with information from Everest Group) for attachment to the
returns of shareholders. A tax-exempt organization that is treated as a U.S.
10% shareholder or a RPII shareholder for any purpose under subpart F also must
file Form 5471 in the circumstances described above. Failure to file Form 5471
may result in penalties.
Tax-Exempt Shareholders. Section 512(b)(17) of the Code requires a tax-
exempt entity that directly, indirectly or by attribution owns shares of
Everest Group or Everest Bermuda to treat as unrelated business taxable income
("UBTI") within the meaning of Section 512 of the Code the portion of any
deemed distribution to such shareholder of subpart F income under Section
951(a) of the Code that is attributable to insurance income which, if derived
directly by such shareholder, would be treated as UBTI. This rule does not
apply to income attributable to a policy of insurance or reinsurance with
respect to which the person directly or indirectly insured is (1) the tax-
exempt shareholder, (2) an affiliate of the tax-exempt shareholder which itself
is exempt from tax under Section 501(a) of the Code or (3) a director or
officer of, or an individual who directly or indirectly performs services for,
the tax-exempt shareholder or an exempt affiliate but only if the insurance
covers primarily risks associated with the performance of services in
connection with the tax-exempt shareholder or exempt affiliate.
Section 512(b)(17) of the Code applies to amounts included in gross income
in any taxable year. Thus, if a tax-exempt entity owning stock in Everest Group
were required to report subpart F income because Everest Bermuda's gross RPII
were to equal or exceed 20% of its gross insurance income, or because Everest
Group or Everest Bermuda were otherwise treated as a CFC for a taxable year and
the tax-exempt entity was a U.S. 10% shareholder, the tax-exempt entity owning
stock in Everest Group would be required to treat a portion of Everest Group's
subpart F income as UBTI. If you are a tax-exempt entity, you should consult
your tax advisors as to the potential impact of Section 512(b)(17) and the UBTI
provisions of the Code.
Uncertainty as to Application of RPII. The RPII provisions of the Code have
never been interpreted by the courts. In 1991, the IRS proposed regulations
interpreting the RPII provisions of the Code. It is not certain whether these
regulations will be adopted in their proposed form or what changes or
clarifications might ultimately be made or whether any such changes, as well as
any interpretation or application of RPII by the IRS, the courts or otherwise,
might have retroactive effect. Accordingly, the meaning of the RPII provisions
and their application to Everest Group and Everest Bermuda is uncertain.
Foreign Tax Credit. Only a portion of the RPII and dividends paid by Everest
Group will be treated as foreign source income for purposes of computing a
shareholder's U.S. foreign tax credit limitation. This is because it is
anticipated that U.S. persons will own a majority of Everest Group's shares
after the restructuring
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and because a substantial part of Everest Bermuda's business includes the
insurance of U.S. risks. We have been advised by our United States counsel 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. As a result, it may not be possible for certain
U.S. holders to utilize excess foreign tax credits to reduce U.S. tax on such
income.
Dispositions of Everest Group common shares. Subject to the potential
application of the "controlled foreign corporation" and "passive foreign
investment company" rules, capital gain or loss realized by a U.S. holder on
the sale, exchange or other disposition of Everest Group common shares will be
includible in gross income as capital gain or loss in an amount equal to the
difference between such holder's basis in the common shares and the amount
realized on the sale, exchange or other disposition. If a U.S. holder's holding
period for the common shares is more than one year, any gain will be subject to
the U.S. federal income tax at a current maximum marginal rate of 20% for
individuals and 35% for corporations.
Section 1248 of the Code provides that if a U.S. person directly, indirectly
or by attribution owns 10% or more of the voting shares of a corporation that
is a CFC, any gain from the sale or exchange of the shares 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. Section 953(c)(7) of the Code
generally provides that Section 1248 also will apply to the sale or exchange of
shares by a RPII shareholder in a foreign corporation that earns RPII and is
characterized as a CFC under the RPII rules if the foreign corporation would be
taxed as an insurance company if it were a domestic corporation, regardless of
whether the shareholder is a U.S. 10% shareholder or whether such corporation
meets either the RPII 20% Ownership Exception or the RPII 20% Gross Income
Exception. Existing Treasury Department regulations do not specifically address
whether Section 1248 of the Code would apply when a foreign corporation such as
Everest Group is not a CFC but the foreign corporation has an insurance company
subsidiary such as Everest Bermuda that is a CFC for purposes of requiring U.S.
shareholders to take RPII into account.
We have been advised by our United States counsel that Section 1248 of the
Code should not apply to dispositions of Everest Group common shares because
Everest Group will not have any U.S. 10% shareholders and Everest Group is not
directly engaged in the insurance business. However, the IRS may interpret
proposed regulations under Section 953 of the Code, or the Treasury Department
may amend the proposed regulations under Section 953 of the Code or other
regulations, to provide that Section 1248 will apply to dispositions of shares
in a corporation such as Everest Group which is engaged in the insurance
business indirectly through its subsidiaries.
Passive Foreign Investment Companies. Sections 1291 through 1298 of the Code
contain special rules applicable to foreign corporations that are "passive
foreign investment companies" ("PFICs"). In general, a foreign corporation will
be a PFIC if 75% or more of its gross income constitutes "passive income" (the
"75% Income Test") or 50% or more of its assets produce, or are held for the
production of, passive income (the "50% Asset Test"). If Everest Group meets
either the 75% Income Test or the 50% Asset Test, unless U.S. shareholders make
a "QEF election" or "mark to market" election as described below, they will be
subject to a special tax and an interest charge at the time of the sale of, or
receipt of an "excess distribution" with respect to, their shares. In addition,
a portion of any gain may be recharacterized as ordinary income. In general, a
shareholder receives an "excess distribution" if the amount of the distribution
is more than 125% of the average distribution with respect to the stock during
the three preceding taxable years or shorter period during which the taxpayer
held the stock. In general, the special tax and interest charges are based on
the value of the deferral of the taxes that are deemed due during the period
the U.S. shareholder owned the shares. The special tax is computed by assuming
that the excess distribution or gain with respect to the shares was taxed in
equal portions throughout the holder's period of ownership at the highest
marginal tax rate. The interest charge is computed using the applicable rate
imposed on underpayments of U.S. federal income tax for that period. In
general, if a U.S. shareholder owns stock in a foreign corporation during any
taxable year in which that corporation is a PFIC, the stock will generally be
treated as stock in a PFIC for all subsequent years.
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The special PFIC tax rules described above will not apply to a U.S. holder
if the U.S. holder elects to have Everest Group treated as a "qualified
electing fund" (a "QEF election") and Everest Group provides required
information to U.S. holders. If Everest Group is treated as a PFIC, it intends
to notify U.S. holders and to provide to U.S. holders the information required
to make such QEF election effective.
A U.S. holder that makes a QEF election will be currently taxed on its pro
rata share of Everest Group's ordinary earnings at ordinary income rates and
net capital gain at capital gains rates for each taxable year, regardless of
whether or not the holder receives distributions. The U.S. holder's basis in
the common shares will be increased to reflect taxed but undistributed income.
Distributions of income that were previously taxed will result in a
corresponding reduction of basis in the common shares and will not be taxed
again upon actual distribution to the U.S. holder.
Alternatively, a U.S. holder of common shares in a PFIC that qualify as
"marketable stock" may make a mark to market election. A U.S. holder who makes
a mark to market election is not subject to the PFIC rules described above, but
instead:
. must include in each year as ordinary income any excess of the fair
market value of the common shares at the end of the taxable year over
their adjusted basis, and
. will be permitted an ordinary loss in respect of any excess of the
adjusted basis of the common shares over their fair market value at the
end of the taxable year, but only to the extent of the net amount
previously included in income as a result of the mark to market election.
The U.S. holder's basis in the common shares will be adjusted to reflect any
such income or loss amounts. The mark to market election is only available with
respect to stock traded on some U.S. exchanges and other exchanges designated
by the United States Treasury. We expect that this election will be available
to U.S. holders of common shares.
For the above purposes, the term "passive income" means income of a kind
that would be characterized as foreign personal holding company income under
Section 954(c) of the Code, and generally includes interest, dividends,
annuities and other investment income. 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 . . ." (the "Insurance Company Exception"). This exception is intended
to ensure that income derived by a bona fide insurance company is not treated
as passive income. As a result, to the extent such income is attributable to
financial reserves in excess of the reasonable needs of the insurance business,
it may be treated as passive income for purposes of the PFIC rules. The PFIC
statutory provisions also 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
value of the stock. We have been advised by our United States counsel that
Everest Bermuda should be entitled to the Insurance Company Exception and,
therefore, that none of its income or assets should be considered to be passive
unless Everest Bermuda has assets in excess of the reasonable needs of its
business. We have also been advised by such counsel that, under the look-
through rule, Everest Group would be deemed to own its proportionate share of
the assets and to have received its proportionate share of the income of
Everest Bermuda and Everest Holdings and its subsidiaries for purposes of the
75% Income and 50% Asset Tests, and, therefore Everest Group should not be
considered a PFIC. However, no final regulations interpreting the substantive
PFIC provisions have yet been issued. As a result, substantial uncertainty
exists with respect to their application or their possible retroactivity. You
should consult your tax advisors as to the effects of these rules.
Backup Withholding.
Paying agents and custodians located in the United States will be required
to report information to the IRS with respect to payments of dividends on the
Everest Group common shares to holders of common shares or to
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paying agents or custodians located in the United States. In addition, a holder
of Everest Group 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.
Sales of Everest Group common shares through brokers by some U.S. persons
also may be subject to backup withholding. Sales by corporations, certain tax-
exempt entities, individual retirement plans, REITs, some financial
institutions and other "exempt recipients" as defined in applicable Treasury
regulations currently are not subject to backup withholding. You should consult
your own tax advisors regarding the possible applicability of the back-up
withholding provisions to you.
DESCRIPTION OF EVEREST GROUP SHARE CAPITAL
The following description of Everest Group's share capital summarizes
provisions of Everest Group's memorandum of association and bye-laws. We have
filed copies of the memorandum of association and bye-laws as exhibits to the
registration statement of which this document is a part.
General
The authorized share capital of Everest Group consists of (1) 200,000,000
common shares, par value $.01 per share, of which approximately
will be outstanding after the restructuring, and (2) 50,000,000 preferred
shares, par value $.01 per share, none of which will be outstanding after the
restructuring. Everest Holdings currently owns 1,200,000 common shares, which
constitute all of the outstanding common shares of Everest Group. Immediately
after the merger is completed, Everest Group will repurchase the 1,200,000
common shares currently owned by Everest Holdings for an aggregate price of
$12,000 and such common shares will be canceled.
From time to time prior to the restructuring, Everest Holdings may make
repurchases of its common stock. From time to time after the restructuring,
Everest Group may make repurchases of common shares either directly or through
its subsidiaries.
Common Shares
Holders of Everest Group common shares have no pre-emptive, redemption,
conversion or sinking fund rights. The quorum required for a general meeting of
shareholders is two or more persons present in person and representing in
person or by proxy more than 50% of the issued and outstanding common shares.
Except as described below, holders of common shares are entitled to one vote
per share on all matters submitted to a vote of holders of common shares. Most
matters to be approved by holders of common shares require approval by a simple
majority of the votes cast at a meeting at which a quorum is present.
In the event of a liquidation, dissolution or winding-up of Everest Group,
the holders of common shares are entitled to share equally and ratably in the
assets of Everest Group, if any remain after the payment of all debts and
liabilities of the company and the liquidation preference of any outstanding
preferred shares.
Limitation on Voting Rights. If and for as long as the aggregate number of
Controlled Shares (as defined below) of any person exceeds 9.9% of the total
voting power of all of the issued and outstanding share capital of Everest
Group, each such issued Controlled Share, regardless of the identity of the
registered holder, will confer only a fraction of a vote as determined by the
following formula (the "Formula"):
(T-C)
------------
(9.1 X C)
Where: "T" is the aggregate number of votes conferred by all the issued and
outstanding share capital immediately prior to that application of the
Formula with respect to any particular shareholder,
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adjusted to take into account any prior reduction taken with respect to
any other shareholder pursuant to the "sequencing provision" described
below;
"C" is the number of Controlled Shares attributable to such person; and
"Controlled Shares" of any person refers to all shares of the issued and
outstanding share capital owned by such person, whether (1) directly,
(2) with respect to persons who are U.S. persons, by application of the
attribution and constructive ownership rules of sections 958(a) and
958(b) or 544 and 554 of the Code or (3) beneficially, directly or
indirectly, within the meaning of Section 13(d)(3) of the Exchange Act.
The Formula will be applied successively as many times as may be necessary
to ensure that the aggregate number of Controlled Shares of any person does not
exceed 9.9% of the total voting power of all of the issued and outstanding
share capital at any time (the "sequencing provision"). For the purposes of
determining the votes exercisable by shareholders as of any date, the Formula
will be applied to the shares of each shareholder in declining order based on
the respective numbers of total Controlled Shares attributable to each
shareholder. For example, the Formula will be applied first to the votes of
shares held by the shareholder to whom the largest number of total Controlled
Shares is attributable and thereafter sequentially with respect to the
shareholder with the next largest number of total Controlled Shares. In each
case, calculations are made on the basis of the aggregate number of votes
conferred by the shares as of such date, as reduced by the application of the
Formula to any shares of any shareholder with a larger number of total
Controlled Shares as of such date.
The directors retain discretion to make final adjustments to the aggregate
number of votes attaching to the shares of any shareholder that they consider
fair and reasonable in all the circumstances to ensure that the aggregate
number of Controlled Shares of any person does not exceed 9.9% of the total
voting power of Everest Group.
Restrictions on Transfer. The bye-laws of Everest Group require the prior
approval of our board of directors for any transfer of shares that the board of
directors has reason to believe would result in (1) any shareholder that is not
an investment company beneficially owning more than 5.0% of any class of the
issued and outstanding share capital of Everest Group, (2) any shareholder
holding Controlled Shares in excess of 9.9% of any class of the issued and
outstanding share capital of Everest Group or (3) any adverse tax, regulatory
or legal consequences to Everest Group, any of its subsidiaries or any of its
shareholders.
If the directors refuse to register a transfer for any reason, they must
notify the proposed transferor and transferee within 30 days of such refusal.
Everest Group's bye-laws also provide that the board of directors may suspend
the registration of transfers at such time and for such periods as the board
may determine, provided that they may not suspend the registration of transfers
for more than 45 days in any period of 365 consecutive days.
Conyers Dill & Pearman, Bermuda counsel to Everest Group, have advised us
that while the precise form of the restrictions on transfer contained in the
bye-laws is untested, as a matter of general principle, restrictions on
transfers are enforceable under Bermuda law and are not uncommon. A proposed
transferee will be permitted to dispose of any common shares purchased that
violate the restrictions and as to the transfer of which registration is
refused. The transferor of such common shares will be deemed to own such common
shares for dividend, voting and reporting purposes until a transfer of such
common shares has been registered on the Register of Members of Everest Group.
Repurchase Rights. The bye-laws of Everest Group provide that if our board
of directors has reason to believe that (1) any shareholder that is not an
investment company beneficially owns more than 5.0% of any class of the issued
and outstanding share capital of Everest Group, (2) any shareholder holds
Controlled Shares in excess of 9.9% of any class of the issued and outstanding
share capital of Everest Group or (3) share ownership by any shareholder may
result in adverse tax, regulatory or legal consequences to Everest Group, any
of its subsidiaries or any other shareholder, then Everest Group will have the
option, but not the obligation, to redeem or purchase all or any part of the
common shares held by such shareholder to the extent the board of
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directors determines it is necessary or advisable to avoid or cure any adverse
or potential adverse consequences. The price to be paid for such common shares
will be the fair market value of such shares.
Information Requirements. The bye-laws of Everest Group provide that the
board of directors may require any shareholder or proposed transferee of shares
to certify or otherwise provide to the board of directors complete and accurate
information necessary for it to give effect to the limitations on voting,
restrictions on transfer and repurchase rights. If any shareholder or proposed
transferee fails to respond to such request in a timely fashion or if the board
of directors has reason to believe that any certification or other information
provided is inaccurate or incomplete, the board of directors may decline to
approve any transfer to which such request relates or may determine to
disregard for all purpose all votes attached to any common shares held by such
shareholder.
Transfer Agent. The transfer agent and registrar for the Everest Group
common shares is First Chicago Trust Company of New York.
Preferred Shares
Under the terms of the Everest Group bye-laws, the board of directors by
resolution may establish one or more series of preferred shares having such
number of shares, designation, powers, preferences, voting rights, dividend
rates, redemption provisions and other rights, qualifications, limitations or
restrictions as may be fixed by the board of directors without any further
shareholder approval. The issuance of preferred shares could have the effect of
discouraging an attempt to obtain control of Everest Group. The issuance of
preferred shares also could adversely affect the voting power of the holders of
common shares, deny shareholders the receipt of a premium on their common
shares in the event of a tender or other offer for the common shares and have a
depressive effect on the market price of the common shares. Everest Group has
no present plan to issue any preferred shares.
Comparison of Rights of Holders of Everest Group Common Shares and Holders of
Everest Holdings Common Stock
The rights of Everest Holdings stockholders currently are governed by
Delaware law, the Everest Holdings certificate of incorporation and the Everest
Holdings by-laws. After the restructuring, holders of Everest Holdings common
stock will become holders of common shares of Everest Group and the rights of
Everest Group shareholders will be governed by Bermuda law, the Everest Group
memorandum of association and the Everest Group bye-laws. It is not practical
to describe all of the differences between the Everest Holdings by-laws and the
Everest Group bye-laws or all of the differences between Delaware corporation
law and Bermuda companies law. However, the following is a summary of the
material differences between Bermuda law and the Everest Group bye-laws. The
Everest Group memorandum of association and the Everest Group bye-laws have
been filed as exhibits to the registration statement of which this document is
a part and are incorporated into it by reference. For information on how to
obtain these documents, see "Where You Can Find More Information."
Election of Directors. The Everest Group bye-laws provide for the board of
directors to be elected annually at the annual meeting of shareholders or at a
special meeting called for that purpose. The size of the board is fixed by
resolution adopted from time to time by a majority of the directors and may be
any number between three and 12. The board is divided into three approximately
equal classes and each class serves for a three-year term, with the terms of
each class expiring in successive years. These provisions are substantially
similar to the Everest Holdings by-law provisions that currently govern the
Everest Holdings board of directors, except that the size of the Everest
Holdings board is not required to be in the range of three to 12 members.
Removal of Directors. The Everest Group bye-laws provide that a director may
be removed prior to the expiration of such director's term, but only for cause,
at a special meeting of shareholders at which the votes of 66 2/3% of the
shares entitled to vote are cast in favor of removal. The director whose
removal is being
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considered must be served with at least 14 days prior notice of the special
meeting and must be given the opportunity to be heard at the meeting. Under
Delaware law, when a corporation's board of directors is divided into classes,
as is the board of Everest Holdings, directors may be removed, but only for
cause, by the vote of the holders of a majority of the shares entitled to vote.
Alternate Directors. The Everest Group bye-laws provide, as permitted by
Bermuda law, that each director may appoint an alternate director, who shall
have the power to attend and vote at any meeting of the board of directors at
which such director is not personally present and to sign written consents in
place of such director. Delaware law does not provide for alternate directors.
Committees of the Board of Directors. The Everest Group bye-laws provide, as
permitted by Bermuda law, that the board of directors may delegate any of its
powers to committees that the board appoints, and such committees may consist
partly or entirely of non-directors. Delaware law allows the board of directors
of a corporation to delegate many of its powers to committees, but such
committees may consist only of directors.
Special Meetings of Shareholders. The Everest Group bye-laws provide that
special meetings of shareholders (1) may be called by the Chairman of the
Board, the Deputy Chairman, any two Directors or any Director and the Secretary
and (2) shall be called at the request of shareholders holding not less than
10% of the voting shares of the company. The Everest Holdings by-laws provide
that special meetings of shareholders may be called by the Chairman of the
Board and Chief Executive Officer, the President or the board of directors.
They do not give shareholders the power to call a special meeting.
Fiduciary Duties of Directors and Officers. The Companies Act 1981 of
Bermuda imposes two main fiduciary duties on each director and officer:
(1) Duty of good faith. A director or officer must act honestly and in good
faith with a view to the best interests of the company. This means that
in conflict of interest situations, a director or officer must place
the best interests of the company above his own personal interests. It
also means that a director or officer may not use his position as a
director to make a personal profit from opportunities that rightfully
belong to the company.
(2) Duty of care. A director or officer must exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable
circumstances. This means that a director or officer must act
reasonably in accordance with the level of skill expected from a person
of his knowledge and experience. A director must attend diligently to
the company's affairs, but is permitted to do so on an intermittent
rather than a continuous basis. A director or officer may delegate
management functions to suitably qualified persons, although he will
not avoid his duty by delegation to others.
These two duties are similar to the duty of loyalty and the duty of care
that directors and officers have under Delaware law. Delaware courts generally
presume that directors have fulfilled their duty of care so long as their
conduct does not involve fraud, illegality, conflict of interest, lack of a
rational business purpose or gross negligence. A Bermuda court is likely to
interfere with decisions of directors only if the directors acted in bad faith
or exceeded the powers granted to them under the company's bye-laws, or if the
court finds that no reasonable board of directors could have come to the
decision that was reached.
Under Bermuda law, directors and officers owe fiduciary duties to the
company as a whole and not to shareholders individually. If a company suffers
any losses due to acts or omissions of its directors or officers that
constitute a breach of their duties to the company, then the company may be
able to recover its losses from those directors or officers. Examples of such
situations would be misappropriation of the company's assets or transactions
undertaken on behalf of the company for an unlawful purpose. Under Delaware
law, directors and officers owe fiduciary duties to both the corporation and
its shareholders.
Limitation of Liability of Directors and Officers. The Everest Group bye-
laws provide that shareholders waive all claims or rights of action that they
might have, individually or in the right of the company, against any director
or officer for any act or failure to act in the performance of such director's
or officer's duties.
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However, this waiver does not apply to claims involving fraud or dishonesty.
This waiver may have the effect of barring claims arising under U.S. federal
securities laws. Under Delaware law, a corporation may include in its
certificate of incorporation provisions limiting the personal liability of its
directors to the corporation or its stockholders for monetary damages for many
types of breach of fiduciary duty. However, no such provision can limit
liability for any breach of the duty of loyalty, acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law, the
authorization of unlawful dividends, stock repurchases or stock redemptions, or
any transaction from which a director derived an improper personal benefit.
Moreover, such a provision would not be likely to bar claims arising under U.S.
federal securities laws.
Interested Directors. Bermuda law and the Everest Group bye-laws provide
that if a director has a personal interest in a transaction to which the
company is also a party and if the director discloses the nature of this
personal interest at the first opportunity, either at a meeting of directors or
in writing to the directors, then the company will not be able to declare the
transaction void solely due to the existence of such personal interest and the
director will not be liable to the company for any profit realized from the
transaction. Under Delaware law, a corporation may be able to declare a
transaction with an interested director to be void unless one of the following
conditions is fulfilled: (1) the material facts as to the interested director's
relationship or interests are disclosed or are known to the board of directors
and the board in good faith authorizes the transaction by the affirmative vote
of a majority of the disinterested directors, (2) such material facts are
disclosed or are known to the stockholders entitled to vote on such transaction
and the transaction is specifically approved in good faith by the holders of a
majority of the voting shares or (3) the transaction is fair to the corporation
as of the time it is authorized, approved or ratified. Under Delaware law, an
interested director could be held liable for a transaction in which such
director derived an improper personal benefit.
Mergers and Similar Arrangements. Everest Group may acquire the business of
another Bermuda exempted company or a company incorporated outside Bermuda if
that business fits within the business purpose of Everest Group as described in
its memorandum of association. Everest Group may also amalgamate with another
Bermuda company or with an entity incorporated outside Bermuda. In an
amalgamation, two or more companies join together and continue as a single
company. An amalgamation of unaffiliated companies requires the approval of a
majority of votes cast at a general meeting of the shareholders of each
company. If a shareholder of an amalgamating company is not satisfied that fair
value has been paid for his shares, that shareholder may apply to a Bermuda
court for a proper valuation of his shares. However, the court ordinarily would
not block an amalgamation for that reason unless there were evidence of fraud
or bad faith. When a holding company amalgamates with one or more of its
wholly-owned subsidiary companies, or when two or more wholly-owned
subsidiaries of the same holding company amalgamate with each other, the
directors of the amalgamating companies can approve the amalgamation without
obtaining shareholder approval. Under Delaware law, a merger, consolidation or
sale of all or substantially all the assets of a corporation generally must be
approved by the board of directors and a majority of the outstanding voting
shares. A stockholder of a Delaware corporation participating in major
corporate transactions may be entitled to have the fair value of the
stockholder's shares appraised by a court and to receive that appraised value
in cash instead of the consideration that the stockholder would otherwise
receive in the transaction. Delaware law permits a parent corporation, acting
by resolution of its board of directors and without any shareholder vote, to
merge with any subsidiary of which it owns at least 90% of each class of
capital stock. Upon any such merger, dissenting stockholders of the subsidiary
have appraisal rights.
Takeovers. Under Bermuda law, if an acquiror makes an offer for shares of a
company and, within four months of the offer, the holders of not less than 90%
of the shares that are the subject of the offer tender their shares, the
acquiror may give the nontendering shareholders notice requiring them to
transfer their shares on the terms of the offer. Within one month of receiving
the notice, dissenting shareholders may apply to the court objecting to the
transfer. The burden is on the dissenting shareholders to show that the court
should exercise its discretion to enjoin the transfer. The court will be
unlikely to do this unless there is evidence of fraud or bad faith or collusion
between the acquiror and the tendering shareholders aimed at unfairly forcing
out minority shareholders. Under another provision of Bermuda law, the holders
of 95% of the shares of a company may
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give notice to the remaining shareholders requiring them to sell their shares
on the terms described in the notice. Within one month of receiving the notice,
dissenting shareholders may apply to the court for an appraisal of their
shares. If the court's appraisal is higher than the price specified in the
notice, then all shareholders who sold their shares under the terms of the
notice are entitled to receive that higher price. There are no comparable
provisions under Delaware law.
Shareholder's Suits. The rights of shareholders under Bermuda law are not as
extensive as the rights of shareholders under legislation or judicial precedent
in many United States jurisdictions. Class actions and derivative actions are
generally not available to shareholders under the laws of Bermuda. However, the
Bermuda courts ordinarily would be expected to follow English case law
precedent, which would permit a shareholder to bring an action in the name of
Everest Group if the directors or officers are alleged to be acting beyond the
corporate power of the company, committing illegal acts or violating the
memorandum of association or bye-laws of the company. In addition, minority
shareholders would probably be able to challenge a corporate action that
allegedly constituted a fraud against them or required the approval of a
greater percentage of the company's shareholders than actually approved it. The
winning party in such an action generally would be able to recover a portion of
attorneys' fees incurred in connection with such action. Under Delaware law,
class actions and derivative actions generally are available to stockholders
for breach of fiduciary duty, corporate waste and actions not taken in
accordance with applicable law. In such actions, the court has discretion to
permit the winning party to recover its attorneys' fees.
Indemnification of Directors and Officers. Under Bermuda law, a company may
indemnify its directors or officers, in their capacity as such, against loss or
liability for any negligence, default, breach of duty or breach of trust of
which they may be guilty in relation to the company, unless their conduct
involved fraud or dishonesty. The Everest Group bye-laws provide for such
indemnification. Under Delaware law, a corporation may indemnify a director or
officer who becomes a party to an action, suit or proceeding because of his
position as a director or officer if (1) the director or officer acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and (2) if the action or proceeding involves
a criminal offense, the director or officer had no reasonable cause to believe
his conduct was unlawful.
Inspection of Corporate Records. Members of the general public have the
right to inspect the public documents of Everest Group available at the office
of the Registrar of Companies in Bermuda. These documents include the
memorandum of association, which describes the company's permitted purposes and
powers, any amendments to the memorandum of association and documents relating
to any change in the company's authorized share capital. Shareholders of
Everest Group have the additional right to inspect the company's bye-laws,
minutes of general meetings of shareholders and audited financial statements
that must be presented to the annual general meeting of shareholders. The
register of shareholders of Everest Group also is open to inspection by
shareholders without charge, and to members of the public for a fee. Everest
Group is required to maintain its share register at its registered office in
Bermuda but may establish a branch register outside Bermuda. Everest Group is
required to keep at its registered office a register of its directors and
officers that is open for inspection by members of the public without charge.
However, Bermuda law does not provide a general right for shareholders to
inspect or obtain copies of any other corporate records. Under Delaware law,
any shareholder may inspect or obtain copies of a corporation's shareholder
list and its other books and records for any purpose reasonably related to such
person's interest as a shareholder.
REGULATORY CONSIDERATIONS
ASSOCIATED WITH OPERATING IN BERMUDA AND BARBADOS
Bermuda Insurance Regulation
The Bermuda Insurance Act 1978 and related regulations (the "Insurance Act")
regulate insurance companies, including companies such as Everest Bermuda that
write insurance and reinsurance business. The Insurance Act gives the Bermuda
Minister of Finance power to register, supervise, investigate and intervene in
the affairs of insurance companies. The registration of an insurer under the
Insurance Act is subject to
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compliance with the terms of its registration and any other conditions that the
Minister may impose from time to time. The Minister is assisted by an insurance
advisory committee and its various subcommittees. In addition, the Bermuda
Registrar of Companies is responsible for the day-to-day supervision of
insurers.
Types of Registration. Everest Bermuda is registered as both a Class 4
insurer and a long-term insurer. A Class 4 insurer is a property and casualty
insurance company that is eligible to write property catastrophe and excess
liability business and is required to maintain a statutory capital and surplus
of not less than $100 million. A long-term insurer is an insurance company that
writes long-term business, which is generally defined in the Insurance Act to
include life and annuity business.
Principal Representative. Every registered insurer is required to maintain a
principal office in Bermuda and to have a principal representative in Bermuda.
For the purpose of the Insurance Act, Everest Bermuda's principal office is at
Richmond House, 12 Par-la-Ville Road, Hamilton HM 08, Bermuda, and Everest
Bermuda's principal representative is Westbroke Limited. Without a reason
acceptable to the Minister, an insurer may not terminate the appointment of its
principal representative, and the principal representative may not cease to act
in that capacity, without giving the Minister 30 days' advance notice in
writing. The principal representative has the statutory duty to submit a report
to the Minister within 30 days of becoming aware that the insurer is likely to
become insolvent, is not in compliance with some provisions of the Insurance
Act or other requirements imposed by the Minister, is involved in any criminal
proceedings or is no longer carrying on insurance business in or from Bermuda.
Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who annually audits and reports on the insurer's statutory
financial statements and statutory financial return. The independent auditor
must be approved by the Minister of Finance and may be the same person or firm
that audits the insurer's financial statements and reports for presentation to
its shareholders. Everest Bermuda's independent auditor is
PricewaterhouseCoopers.
Approved Actuary. Every registered long-term insurer must appoint an actuary
approved by the Minister of Finance. The approved actuary, who is normally a
qualified life actuary, prepares a certificate that is filed annually with the
insurer's statutory financial return. This certificate must state the actuary's
opinion as to whether the aggregate amount of the insurer's liabilities for
long-term business at the end of the financial year exceeded the aggregate
amount of those liabilities as shown in the insurer's statutory balance sheet.
Everest Bermuda's approved actuary is .
Loss Reserve Specialist. As a registered Class 4 insurer, Everest Bermuda is
required to appoint a loss reserve specialist approved by the Minister of
Finance. The loss reserve specialist, who is normally a qualified casualty
actuary, prepares an opinion on the adequacy of the insurer's loss reserves
that is filed annually with the insurer's statutory financial return. Everest
Bermuda's approved loss reserve specialist is .
Long-term Business Fund. An insurer that writes long-term business is
required to keep its accounts for this business separate from its other
business accounts and to credit all receipts from its long-term business to a
long-term business fund. Generally, the insurer can only make payments from
this fund for purposes related to its long-term business. However, it can make
payments from this fund for other purposes if its approved actuary certifies
that the amount of those payments is surplus available to persons other than
policyholders.
Annual Statutory Financial Return. Within four months after its financial
year end, Everest Bermuda is required to file a statutory financial return with
the Registrar of Companies. This return includes Everest Bermuda's statutory
financial statements, solvency certificates, a report of the approved
independent auditor, a certificate of the approved actuary, the opinion of the
loss reserve specialist and a schedule of reinsurance ceded. In the solvency
certificates, Everest Bermuda's principal representative and at least two
directors must certify, among other matters, whether Everest Bermuda has met
its minimum solvency margin and complied with the conditions attached to its
certificate of registration. The statutory financial return also must disclose
whether the insurer's accounts have been audited for any purpose other than
compliance with the Insurance Act.
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Statutory Financial Statements. The statutory financial statements include a
balance sheet, an income statement, a statement of capital and surplus and
detailed information about premiums, claims, reinsurance and investments. The
form and content of the statutory financial statements are prescribed by
regulations issued by the Minister of Finance. As a result, these statements
are different from the financial statements prepared for presentation to our
shareholders, which are prepared in accordance with GAAP. The statutory
financial statements and the statutory financial return are filed with the
Registrar of Companies but are not available for public inspection.
Minimum Solvency Margin. The Insurance Act requires the value of the long-
term business assets of an insurer, such as Everest Bermuda, that writes long-
term business to exceed the amount of its long-term business liabilities by at
least $250,000. The Insurance Act also provides that the value of the general
business assets of a Class 4 insurer, such as Everest Bermuda, must exceed the
amount of its general business liabilities by at least the prescribed minimum
solvency margin. Everest Bermuda's minimum solvency margin is equal to the
highest of the following three figures:
. $100,000,000;
. 50% of net premiums written, provided that net premiums written cannot be
less than 75% of gross premiums written, even if more than 25% of gross
premiums written have been ceded by Everest Bermuda; and
. 15% of loss and other insurance reserves.
If a Class 4 insurer fails at any time to meet its general business solvency
margin, it is required to file a written report with the Minister of Finance,
giving details of the circumstances and the insurer's plans for rectifying the
failure, within 30 days of becoming aware of that failure or having reason to
believe that such a failure has occurred. If the insurer's total statutory
capital and surplus falls to $75 million or less, this period is extended to 45
days, but the report is required to include unaudited interim statutory
financial statements and additional information regarding the insurer's
solvency and the adequacy of its loss reserves.
Restrictions on Payment of Dividends. There are several restrictions on
Everest Bermuda's ability to pay dividends:
. Everest Bermuda cannot declare or pay any dividends during a financial
year if it cannot meet its minimum solvency margin or minimum liquidity
ratio, or if declaring or paying those dividends would cause it to fail
to meet its minimum solvency margin or minimum liquidity ratio.
. Everest Bermuda cannot declare or pay in any financial year dividends of
more than 25% of its total statutory capital and surplus, as shown on its
previous year's statutory financial statements, unless at least seven
days before payment of those dividends it files with the Registrar of
Companies an affidavit stating that it will continue to meet the required
margins.
. If Everest Bermuda fails to meet its minimum solvency margin or minimum
liquidity ratio on the last day of any financial year, it cannot declare
or pay any dividends during the next financial year without the approval
of the Minister of Finance.
. Everest Bermuda cannot reduce the total statutory capital stated in its
previous year's statutory financial statements by 15% or more without the
approval of the Minister of Finance.
. If Everest Bermuda writes long-term business, it cannot declare or pay a
dividend to anyone who is not a policyholder unless, after payment of the
dividend, the value of the assets in its long-term business fund, as
certified by its approved actuary, will exceed its liabilities for long-
term business by at least the $250,000 minimum solvency margin prescribed
by the Insurance Act. The amount of any such dividend may cannot exceed
the sum of (1) the amount by which Everest Bermuda's long-term business
solvency margin exceeds the $250,000 minimum and (2) any other funds
properly available for payment of dividends, such as funds derived from
business other than long-term business.
. The Minister of Finance may impose additional restrictions on Everest
Bermuda's ability to pay dividends, if the Minister believes that the
insurer is in danger of becoming insolvent or has violated the Insurance
Act or any of the conditions of its registration.
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Minimum Liquidity Ratio. As an insurer writing general business, Everest
Bermuda is required to maintain relevant assets equal in value to at least 75%
of the amount of its relevant liabilities. An insurer's relevant assets include
cash and time deposits, quoted investments, unquoted bonds and debentures,
first liens on real estate, investment income due and accrued, accounts and
premiums receivable and reinsurance balances receivable. There are certain
categories of assets that do not qualify as relevant assets unless specifically
permitted by the Minister of Finance. These categories include unquoted equity
securities, investments in and advances to affiliates and real estate and
collateral loans. An insurer's relevant liabilities are total general business
insurance reserves and total other liabilities less deferred income taxes,
miscellaneous liabilities and certain letters of credit, guarantees and other
instruments.
Restrictions on Transfer of Business and Winding-Up. Everest Bermuda may not
transfer all or any part of its long-term business, other than its reinsurance
business, to another insurer unless notice is given to policyholders, a report
on the plan of transfer is prepared by an approved actuary and the plan is
sanctioned by the Bermuda Supreme Court. An insurer carrying on long-term
business cannot be wound up or liquidated voluntarily, but only by order of the
Supreme Court upon petition of the insurer, its creditors, its policyholders or
the Registrar of Companies. This might increase the length of time required and
costs incurred for any winding up or liquidation of Everest Bermuda, when
compared to a voluntary winding up or liquidation.
Supervision, Investigation and Intervention. The Minister of Finance can
appoint an inspector to investigate the affairs of an insurer in order to
protect the interests of the insurer's policyholders or persons who may become
policyholders. The Minister may also order an insurer to produce documents or
information relating to its business. If the Minister believes that an insurer
is in danger of becoming insolvent or has violated the Insurance Act or any
conditions of its registration, then the Minister can order that insurer:
. not to take on any new insurance business,
. not to change the terms of any insurance contract in a way that would
increase the insurer's liabilities,
. not to make investments,
. to realize investments,
. to maintain assets,
. to transfer assets to the custody of a specified bank,
. not to declare or pay any dividends or other distributions,
. to limit the payment of dividends or other distributions, and/or
. to limit its premium income.
Cancellation of Insurer's Registration. The Minister of Finance has the
power to cancel an insurer's registration if the insurer fails to comply with
its obligations under the Insurance Act or fails to carry on business in
accordance with sound insurance principles.
Holding Company Regulation. The Insurance Act does not regulate the
activities of insurance holding companies, such as Everest Group, or holding
company systems.
Other Bermuda Law Considerations
Exchange Control Regulation and Prospectus Filing. We have obtained
permission for the issue and transfer of the Everest Group common shares from
the Bermuda Monetary Authority as required by The Exchange Control Act 1972 of
Bermuda and related regulations. In addition, we have filed this document with
the Registrar of Companies in Bermuda in accordance with The Companies Act 1981
of Bermuda.
IN GRANTING SUCH PERMISSION AND IN ACCEPTING THIS DOCUMENT FOR FILING, THE
BERMUDA MONETARY AUTHORITY AND THE REGISTRAR OF COMPANIES IN BERMUDA ACCEPT NO
RESPONSIBILITY FOR THE FINANCIAL SOUNDNESS OF ANY PROPOSAL OR FOR
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THE CORRECTNESS OF ANY OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THIS
DOCUMENT.
No further permission from the Bermuda Monetary authority will be required
to transfer common shares between persons regarded as non-resident in Bermuda
for exchange control purposes or to issue common shares to such persons after
the restructuring. However, permission will be required to issue or transfer
common shares to persons who are resident in Bermuda for exchange control
purposes. Permission will also be required to transfer any common shares of
Everest Bermuda. The Bermuda Monetary Authority has designated Everest Group
and Everest Bermuda as non-resident for exchange control purposes. This
designation allows Everest Group and Everest Bermuda to transfer funds in and
out of Bermuda, and to pay dividends to non-residents of Bermuda who are
holders of the common shares in currencies other than the Bermuda Dollar. There
are no limitations on the rights of holders of common shares who are regarded
as non-resident in Bermuda for exchange control purposes to hold or vote their
common shares, subject to the provisions of Everest Group's bye-laws.
Share Certificates. In accordance with Bermuda law, Everest Group will issue
share certificates only in the names of legal entities, corporations or
individuals. A record holder who is acting in a special capacity, such as an
executor or trustee, may ask that such special capacity be recorded on the
share certificate. However, Everest Group is not responsible for investigating
the proper administration of any such estate or trust. Everest Group will take
no notice of any trust applicable to any of its common shares whether or not it
had notice of such trust.
Exempted Company Status. Everest Group and Everest Bermuda are incorporated
in Bermuda as exempted companies. Under Bermuda law, exempted companies are
companies formed for the purpose of conducting business outside Bermuda from a
principal place of business in Bermuda. As a result, they are exempt from
Bermuda laws restricting the percentage of share capital that may be held by
non-Bermudians. Exempted companies are required to comply with certain resident
representative requirements, but we do not believe that such compliance will
result in any material expense to us. In addition, exempted companies are
restricted from engaging in certain business transactions, including:
. acquiring or holding land in Bermuda without the express authorization of
the Bermuda legislature, other than rental property required for their
business and leased for no more 50 years,
. taking mortgages on land in Bermuda to secure an obligation exceeding
$50,000 without the consent of the Minister of Finance,
. acquiring any bonds or debentures secured by any land in Bermuda, other
than certain types of Bermuda government securities, or
. conducting business of any kind in Bermuda, except in furtherance of
their business conducted outside Bermuda.
While Everest Bermuda is permitted to reinsure risks undertaken by any company
incorporated in Bermuda and is permitted to engage in the insurance and
reinsurance business, generally it is not permitted to insure Bermuda domestic
risks or risks of persons of, in or based in Bermuda without a special license
granted by the Minister of Finance.
Dividends. Under Bermuda's Companies Act, Everest Group and Everest Bermuda
are prohibited from declaring or paying a dividend, or from making a
distribution out of contributed surplus, if there are reasonable grounds for
believing that: (1) the company is, or would after the payment be, unable to
pay its liabilities as they become due; or (2) the realizable value of the
company's assets after payment of the dividend would be less than the sum of
its liabilities and its issued share capital and share premium accounts.
Resident Representative. Both Everest Group and Everest Bermuda are required
to comply with Bermuda resident representation provisions under Bermuda's
Companies Act. We do not believe that such compliance will result in any
material expense to us.
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Anti-Money Laundering Legislation. The Proceeds of Crime Act 1997 and the
Proceeds of Crime (Money Laundering) Regulations 1998 apply to certain
"regulated institutions," including insurance companies, to the extent that
they carry on long-term insurance business other than life insurance,
disability insurance or reinsurance. Under this legislation, which is primarily
aimed at preventing offenses relating to the proceeds of drug trafficking and
other serious crimes, regulated institutions and their employees have a duty of
vigilance and are required to do the following:
. verify their clients' bona fides,
. monitor, recognize and report to the police suspicious transactions,
. maintain certain records for prescribed time periods, and
. train employees and staff to recognize possible unlawful activities.
Under "Guidance Notes" published by the Bermuda government, life insurance
companies are directed to give special attention to transactions that involve
the purchase of a single premium product for cash, followed by the cancellation
of the policy and reinvestment of the cash proceeds.
Work Permits. Anyone who is not a Bermudian or the spouse of a Bermudian
cannot engage in any gainful occupation in Bermuda without a work permit. The
government does not grant or extend a work permit unless the employer can show
that the employment position has been publicly advertised and that no Bermudian
or spouse of a Bermudian is available who meets the minimum standards for the
position. Work permits are issued with an expiration date of up to five years.
Any employee of Everest Group or Everest Bermuda who is neither Bermudian nor a
spouse of a Bermudian will require government permission in order to work in
Bermuda. It is possible that such permission will be denied or, if granted,
will not be extended beyond its expiration date.
Barbados Regulation
Companies Act Registration. Everest Group will be registered in Barbados as
an external company under the Companies Act, Cap.308 of the laws of Barbados.
An external company is any incorporated or unincorporated body formed under the
laws of a country other than Barbados. An external company that is registered
may carry on its business in Barbados in accordance with its certificate of
registration and may exercise its corporate powers within Barbados.
Incapacity of company. An external company that is not registered under the
Barbados Companies Act may not maintain any action, suit or other proceeding in
any court in Barbados in respect of any contract made in whole or in part
within Barbados in the course of, or in connection with, the carrying on of any
business by the company in Barbados.
Suspension of Registration. The Minister responsible for Finance may suspend
or revoke the registration of any external company for failing to comply with
any requirements of the Barbados Companies Act. The rights of the creditors of
an external company are not affected by the suspension or revocation of the
registration of an external company under the Barbados Companies Act.
Attorney of Company. An external company must file with the Barbados
Registrar of Companies a fully executed power of attorney in the prescribed
form that will empower a person named in the power and resident in Barbados to
act as the attorney of the company for the purpose of receiving service of
process in all suits and proceedings by or against the company in Barbados, and
of receiving all lawful notices. A power of attorney must declare that service
of process in respect of suits and proceedings by or against the company and of
lawful notices on the attorney will be binding on the company for all purposes.
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<PAGE>
Fundamental Changes. Where in the case of an external company registered in
Barbados (1) the name of the company has been changed, (2) the corporate
instruments of the company have been altered, (3) the objects of the company
have been altered or its business has been restricted or (4) any change is made
among its directors, the company must within 30 days after the change has been
made file with the Registrar of Companies duly certified copies of the
instruments by which the change has been made or ordered to be made.
The registration of an external company ceases to be valid 60 days after a
change described above is made or ordered unless within that period the change
is filed with the Barbados Registrar of Companies.
Annual Returns. An external company shall, not later than the first day of
April in each year after the date of its registration, send to the Barbados
Registrar of Companies an annual return in the prescribed form containing the
prescribed information made up to the preceding thirty-first day of December
and accompanied with the prescribed fees. A director or officer must certify
the contents of any return made under this section. The Barbados Registrar of
Companies may strike off the register an external company that neglects or
refuses to file a return required under this section.
Audited Financial Statements. Everest Group will be required to forward
annual audited financial statements to the Minister responsible for Finance.
United States and Other Regulation
An insurer is generally prohibited by the insurance laws of each state in
the United States from transacting the business of insurance in any
jurisdiction where it is not licensed or admitted to do business. To the extent
that the U.S. subsidiaries of Everest Holdings are already licensed in various
U.S. jurisdictions, their ability to transact business will not be affected by
the restructuring. Everest Bermuda does not intend to become licensed in any
U.S. jurisidiction, but it will generally be permitted to reinsure U.S. risks
from its office in Bermuda without obtaining such licenses. Everest Bermuda
does not intend to conduct any activities that may constitute the transaction
of the business of insurance in any jurisdiction in which it is not licensed or
otherwise authorized to engage in such activities. However, in some
jurisdictions it is not entirely clear what activities would constitute a
prohibited transaction of insurance business and it is possible that insurance
regulators in those jurisdictions could raise challenges to our activities. Any
restrictions on our activities resulting from such challenges could adversely
affect our business.
As a reinsurer, Everest Bermuda will be affected by regulatory requirements
governing "credit for reinsurance" in the jurisdictions where our ceding
companies are located. In general, a ceding company can take credit on its
statutory financial statements for the unearned premiums, loss reserves, loss
expense reserves and policy reserves that it cedes to a reinsurer that is
licensed, accredited or approved by the jurisdiction where the ceding company
files statutory financial statements. Many jurisdictions also permit ceding
companies to take credit on their statutory financial statements for
reinsurance obtained from unlicensed or non-admitted reinsurers if certain
prescribed security arrangements are made.
LEGAL MATTERS
The validity under Bermuda law of the Everest Group common shares to be
issued to Everest Holdings stockholders in connection with the restructuring
has been passed upon for Everest Group by Conyers Dill & Pearman, Hamilton,
Bermuda. Conyers Dill & Pearman also has rendered an opinion regarding Bermuda
tax consequences of the restructuring referred to in "Material Tax
Considerations." Clarke & Co. has rendered an opinion regarding Barbados tax
consequences of the restructuring referred to in "Material Tax Considerations."
Mayer, Brown & Platt, Chicago, Illinois, has rendered an opinion regarding the
United States federal tax consequences of the restructuring referred to in
"Material Tax Considerations."
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EXPERTS
The consolidated financial statements of Everest Holdings appearing in
Everest Holdings' Annual Report on Form 10-K for the year ended December 31,
1998, have been audited by PricewaterhouseCoopers LLP, independent accountants,
as set forth in their report thereon included therein and incorporated herein
by reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The Everest Group financial statement as of September 14, 1999 included in
this document has been so included in reliance upon the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Everest Holdings will hold an annual meeting of stockholders in the year
2000 only if the restructuring is not completed before the time of such
meeting. To be considered for inclusion in the Everest Holdings proxy statement
relating to the 2000 annual meeting of stockholders, a stockholder proposal
must be received by the Secretary of Everest Holdings in proper form at the
company's principal executive offices, 477 Martinsville Road, P.O. Box 830,
Liberty Corner, New Jersey 07938-0830, no later than December 10, 1999. The
proxy solicited by the board of directors relating to the 2000 annual meeting
of stockholders will confer discretionary authority to vote on a stockholder
proposal if the Secretary of Everest Holdings receives notice of that proposal
after February 23, 2000.
ENFORCEABILITY OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS
Everest Group is organized under the laws of Bermuda. In addition, some of
its directors and officers, as well as some of the experts named in this
document, may reside outside the United States. A substantial portion of their
assets and Everest Group's assets may be located in jurisdictions outside the
United States. Everest Group may be served with process in the United States
with respect to actions arising out of or in connection with violations of U.S.
federal securities laws relating to offers and sales of Everest Group common
shares to the public in connection with the merger by serving CT Corporation
System, 1633 Broadway, New York, New York 10019, our U.S. agent appointed for
that purpose. Nevertheless, it may be difficult for you to effect service of
process within the United States upon Everest Group's directors, officers and
experts who reside outside the United States or to enforce in the United States
judgments of U.S. courts obtained in actions against Everest Group or its
directors and officers, as well as the experts named in this document, who
reside outside the United States.
We have been advised by Conyers Dill & Pearman, our Bermuda counsel, that
there is doubt whether the courts of Bermuda would (1) enforce judgments of
U.S. courts obtained in actions against Everest Group or its directors and
officers, as well as the experts named in this document, who reside outside the
United States predicated on the civil liability provisions of the U.S. federal
securities laws or (2) permit original actions to be brought in Bermuda against
Everest Group or those persons predicated solely on U.S. federal securities
laws. We also have been advised by Conyers Dill & Pearman that there is no
treaty in effect between the United States and Bermuda providing for such
enforcement, and there are grounds upon which Bermuda courts may not enforce
judgments of U.S. courts. In addition, some remedies available under the U.S.
federal securities laws may not be allowed in Bermuda courts as contrary to
Bermuda's public policy.
52
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WHERE YOU CAN FIND MORE INFORMATION
This document is part of a registration statement that we have filed with
the SEC. The registration statement, including the attached exhibits and
schedules, contains additional relevant information about Everest Holdings and
the Everest Group common shares. The rules and regulations of the SEC allow us
to omit some of the information included in the registration statement from
this document. In addition, Everest Holdings has filed reports, proxy
statements and other information with the SEC under the Exchange Act. You may
read and copy any of this information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661
You may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information regarding issuers, like us, that file
electronically with the SEC. The address of that site is http://www.sec.gov.
The SEC file number for documents filed by Everest Holdings under the Exchange
Act is 1-13816.
Everest Group will become subject to the same informational requirements as
Everest Holdings following the restructuring, and will file reports, proxy
statements and other information with the SEC in accordance with the Exchange
Act.
Everest Group will be treated as a domestic corporation for purposes of
certain requirements of the Exchange Act, including the proxy rules. Pursuant
to Rule 3b-4 under the Exchange Act, a "foreign private issuer" is a non-United
States issuer other than an issuer that meets the following conditions: (1)
more than 50% of the outstanding voting securities of the issuer are held of
record by residents of the United States and (2) any of the following: (i) the
majority of the executive officers or directors of the issuer are United States
citizens or residents, (ii) more than 50% of the assets of the issuer are
located in the United States or (iii) the business of the issuer is
administered principally in the United States. By virtue of (1) and (2)(i),
Everest Group does not expect that it will be a "foreign private issuer." If
Everest Group were to be treated as a "foreign private issuer," it would be
exempted from the proxy and short-swing profit rules under Sections 14 and 16
of the Exchange Act and, for reporting purposes under the Exchange Act, would
be subject to rules applicable to "foreign private issuers."
The SEC allows us to "incorporate by reference" information into this
document. This means we can disclose important information to you by referring
you to another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this document, except
for any such information that is superseded by information included directly in
this document, and later information that we file with the SEC will
automatically update and supersede that information.
This document incorporates by reference the documents listed below that we
have previously filed or will file with the SEC. They contain important
information about us.
. Our Annual Report on Form 10-K for the year ended December 31, 1998;
. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999
and June 30, 1999; and
. All documents filed with the SEC by us under Sections 13(a), 13(c) 14,
and 15(d) of the Exchange Act after the date of this document and before
the special meeting of stockholders, are considered to be part of this
document, effective as of the date these documents are filed.
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You can obtain any of the documents listed above from the SEC, through the
SEC's web site at the address described above, or directly from us, by
requesting them in writing or by telephone from Everest Holdings at the
following address:
Everest Reinsurance Holdings, Inc.
477 Martinsville Road
P.O. Box 830
Liberty Corner, New Jersey 07938-0830
Attention: Janet J. Burak
(908) 604-3000
We will provide a copy of any of these documents without charge, excluding
any exhibits unless the exhibit is specifically listed as an exhibit to the
registration statement of which this document is a part. If you would like to
request documents, please do so by , 1999, in order to receive
them before the special meeting of stockholders.
You should rely only on the information contained or incorporated by
reference in this document to vote on the proposed restructuring. Neither
Everest Holdings nor Everest Group has authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated [Mailing Date], 1999. You should not assume that the
information contained in this document is accurate as of any date other than
such date, and neither the mailing of this document to stockholders nor the
issuance of Everest Group common shares in the merger shall create any
implication to the contrary.
For North Carolina residents: Everest Group common shares have not been
approved or disapproved by the Commissioner of Insurance of the State of North
Carolina, nor has the Commissioner of Insurance ruled upon the accuracy or
adequacy of this document.
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INDEX TO BALANCE SHEET
<TABLE>
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS........................................... F-2
EVEREST REINSURANCE GROUP, LTD. BALANCE SHEET AS OF SEPTEMBER 14, 1999
(date of inception)........................................................ F-3
EVEREST REINSURANCE GROUP, LTD. NOTES TO FINANCIAL STATEMENT................ F-4
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Shareholder of Everest Reinsurance Group, Ltd.
In our opinion, the accompanying balance sheet presents fairly, in all material
respects, the financial position of Everest Reinsurance Group, Ltd. at
September 14, 1999 in conformity with generally accepted accounting principles
in the United States. This financial statement is the responsibility of the
Company's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this
statement in accordance with generally accepted auditing standards in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
Hamilton, Bermuda
September 17, 1999
F-2
<PAGE>
EVEREST REINSURANCE GROUP, LTD.
BALANCE SHEET
As of September 14, 1999 (date of inception)
(Expressed in United States Dollars)
<TABLE>
<S> <C>
ASSETS
Cash................................................................. $50,000
-------
Total Assets....................................................... $50,000
=======
SHAREHOLDER'S EQUITY
Common shares, $0.01 par value (1,200,000 shares authorized, issued
and outstanding).................................................... $12,000
Paid in capital...................................................... 38,000
-------
Total Shareholder's Equity......................................... $50,000
=======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
EVEREST REINSURANCE GROUP, LTD.
NOTES TO FINANCIAL STATEMENT
September 14, 1999 (date of inception)
1. ORGANIZATION
Everest Reinsurance Group, Ltd. (the "Company") was incorporated on August
26, 1999 as a holding company under the laws of Bermuda. On September 14, 1999,
the initial capitalization of the Company was made. The Company is a wholly
owned subsidiary of Everest Reinsurance Holdings, Inc., a publicly held
Delaware holding company ("Everest Holdings").
2. OTHER MATTERS
A. All cash balances are held in a non-interest bearing account at the Bank
of N.T. Butterfield & Son Limited in Hamilton, Bermuda.
B. All amounts are reported in U.S. dollars.
3. SUBSEQUENT EVENT (PROPOSED REORGANIZATION)
On September 16, 1999, the board of directors of Everest Holdings
unanimously approved a proposed corporate restructuring pursuant to which the
Company will become the parent holding company of Everest Holdings. Everest
Holdings, through its subsidiaries, provides property and casualty reinsurance
and insurance products to national and international markets.
In connection with the restructuring, the Company has organized a Delaware
subsidiary, Everest Re Merger Corporation ("Everest Merger"). Everest Merger
will be merged into Everest Holdings, with Everest Holdings as the surviving
corporation. Upon completion of the merger, Everest Holdings will become a
subsidiary of the Company and each outstanding share of common stock of Everest
Holdings will be converted into one common share of the Company. The merger
must be approved by the stockholders of Everest Holdings. The board of
directors and shareholder of the Company must approve a resolution to increase
the number of authorized shares prior to the merger.
After the consummation of the restructuring, the Company will carry on the
holding company functions currently conducted by Everest Holdings. The Company
also intends to form and capitalize Everest Reinsurance (Bermuda) Ltd., which
will be a wholly-owned subsidiary of the Company, the purpose of which will be
to expand the Company's underwriting operations into the Bermuda marketplace.
F-4
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of September 17, 1999 among Everest
Reinsurance Holdings, Inc., a Delaware corporation ("Everest Holdings"),
Everest Reinsurance Group, Ltd., a Bermuda company and wholly-owned subsidiary
of Everest Holdings ("Everest Group"), and Everest Re Merger Corporation, a
Delaware corporation and wholly-owned subsidiary of Everest Group ("Everest
Merger").
WHEREAS, the respective Boards of Directors of Everest Holdings, Everest
Group and Everest Merger deem it advisable and in the best interests of their
respective stockholders to reorganize so that Everest Group becomes the parent
holding company for Everest Holdings;
WHEREAS, the respective Boards of Directors of Everest Holdings, Everest
Group and Everest Merger have approved the merger of Everest Merger with and
into Everest Holdings (the "Merger"), upon the terms and subject to the
conditions set forth in this Agreement, whereby each outstanding share of
common stock, par value $.01 per share, of Everest Holdings ("Everest Holdings
Common Stock") (other than those shares held by Everest Holdings or any direct
or indirect wholly-owned subsidiary of Everest Holdings), will be automatically
converted into one common share, par value $.01 per share, of Everest Group
("Everest Group Common Share"), and each outstanding share of common stock, par
value $.01 per share, of Everest Merger ("Everest Merger Common Stock"), will
be automatically converted into one share of Everest Holdings Common Stock; and
WHEREAS, the Merger requires the approval of Everest Group, as sole
stockholder of Everest Merger, and the approval of the holders of a majority of
the outstanding shares of Everest Holdings Common Stock entitled to vote
thereon at the meeting of holders of Everest Holdings Common Stock to be called
therefor (the "Everest Holdings Stockholder Approval");
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
MERGER
1.01. Merger. Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"), Everest Merger shall be merged with and into Everest
Holdings at the Effective Time (as defined in Section 1.02). Following the
Effective Time, the separate corporate existence of Everest Merger shall cease
and Everest Holdings shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Everest Merger in accordance with the DGCL.
1.02. Effective Time. Subject to the provisions of this Agreement, as soon
as practicable following the satisfaction or waiver of the conditions set forth
in Section 5.01, the parties shall file a certificate of merger or other
appropriate documents (in any case, the "Certificate of Merger") executed in
accordance with the DGCL and shall make all other filings or recordings
required under the DGCL. The Merger shall become effective at the close of
business on the date that the Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware, or at such later time as Everest
Merger and Everest Holdings shall agree should be specified in the Certificate
of Merger (the time the Merger becomes effective being hereinafter referred to
as the "Effective Time").
1.03. Effects of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
A-1
<PAGE>
ARTICLE II
NAME, CERTIFICATE OF INCORPORATION, BY-LAWS,
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
2.01. Name of the Surviving Corporation. The name of the Surviving
Corporation shall be "Everest Reinsurance Holdings, Inc."
2.02. Certificate of Incorporation. The Certificate of Incorporation of
Everest Holdings, as in force and effect immediately prior to the Effective
Time, shall, from and after the Effective Time, be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
2.03. By-Laws. The by-laws of Everest Holdings, as in force and effect
immediately prior to the Effective Time, shall, from and after the Effective
Time, be the by-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
2.04. Directors. The directors of Everest Holdings in office immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
and shall hold their respective directorships until the election and
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the certificate of incorporation and by-laws of
the Surviving Corporation, or as otherwise provided by applicable law.
2.05. Officers. The officers of Everest Holdings in office immediately prior
to the Effective Time shall be the officers of the Surviving Corporation and
shall hold their respective directorships until the election and qualification
of their respective successors or until their tenure is otherwise terminated in
accordance with the certificate of incorporation and by-laws of the Surviving
Corporation, or as otherwise provided by applicable law.
ARTICLE III
CONVERSION AND EXCHANGE OF STOCK
3.01. Conversion. At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any shares:
(a) Conversion of Everest Holdings Common Stock. Each issued and
outstanding share of Everest Holdings Common Stock (other than shares to be
canceled in accordance with Section 3.01(c)) shall be automatically
converted into and shall become one validly issued, fully paid and non-
assessable Everest Group Common Share.
(b) Everest Merger Common Stock. Each issued and outstanding share of
Everest Merger Common Stock shall be converted into and become one fully
paid and nonassessable share of Everest Holdings Common Stock.
(c) Cancellation of Everest Holdings-Owned Stock. Each outstanding
Everest Group Common Share that is owned by Everest Holdings prior to the
Effective Time shall immediately after the Effective Time be repurchased by
Everest Group for $0.01 per share, or $12,000 in the aggregate, and shall
upon such repurchase be canceled and retired and shall cease to be issued.
Each outstanding share of Everest Holdings Common Stock that is owned by
Everest Holdings or by any direct or indirect wholly-owned subsidiary of
Everest Holdings prior to the Effective Time shall automatically be
canceled and retired and shall cease to be issued and no Everest Group
Common Shares or other consideration shall be delivered or deliverable in
exchange for such shares of Everest Holdings Common Stock.
A-2
<PAGE>
3.02. Exchange of Stock.
(a) Exchange Procedures. Following the Effective Time, each holder of an
outstanding certificate or certificates theretofore representing shares of
Everest Holdings Common Stock may, but shall not be required to, surrender
the same to Everest Group for cancellation or transfer, and each such
holder or transferee will be entitled to receive certificates representing
the same number of Everest Group Common Shares as the shares of Everest
Holdings Common Stock previously represented by the stock certificates
surrendered. If any certificate representing Everest Group Common Shares is
to be issued in a name other than that in which the certificate theretofore
representing Everest Holdings Common Stock surrendered is registered, it
shall be a condition to such issuance that the certificate surrendered
shall be properly endorsed and otherwise in proper form for transfer and
that the person requesting such issuance shall either: (i) pay Everest
Group or its agents any taxes or other governmental charges required by
reason of the issuance of certificates representing Everest Group Common
Shares in a name other than that of the registered holder of the
certificate so surrendered; or (ii) establish to the satisfaction of
Everest Group or its agents that such taxes or governmental charges have
been paid. Until so surrendered or presented for transfer, each outstanding
certificate which, prior to the Effective Time, represented Everest
Holdings Common Stock shall be deemed and treated for all corporate
purposes to represent the ownership of the same number of Everest Group
Common Shares as though such surrender or transfer and exchange had taken
place.
(b) No Further Ownership Rights in Everest Holdings Common Stock. All
Everest Group Common Shares issued upon the surrender for exchange of
certificates in accordance with the terms of this Article III shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to the shares of Everest Holdings Common Stock theretofore
represented by such certificates, subject, however, to the Surviving
Corporation's obligation (if any) to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by Everest Holdings on such shares of Everest
Holdings Common Stock in accordance with the terms of this Agreement or
prior to the date of this Agreement and which remain unpaid at the
Effective Time. Following the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Everest Holdings Common Stock that were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged as provided in this Article III,
except as otherwise provided by law.
ARTICLE IV
EMPLOYEE BENEFIT AND COMPENSATION PLANS
4.01. Plans Assumed by Everest Group. At the Effective Time, Everest Group
shall assume all the rights and obligations of Everest Holdings under the
Annual Incentive Plan, the Executive Performance Annual Incentive Plan, the
1995 Stock Incentive Plan, the 1995 Stock Option Plan for Non-Employee
Directors, the Senior Executive Change of Control Plan and all other plans,
arrangements or agreements pursuant to which options with respect to Everest
Holdings Common Stock have been or may be granted, as each such plan,
arrangement or agreement has been or may be amended prior to the Effective Time
(collectively, the "Plans"). The outstanding options assumed by Everest Group
shall be exercisable upon the same terms and conditions as under the Plans and
the agreements relating thereto immediately prior to the Effective Time, except
that upon the exercise of such options Everest Group Common Shares shall be
issuable in lieu of shares of Everest Holdings Common Stock. The number of
Everest Group Common Shares issuable upon the exercise of an option immediately
after the Effective Time and the option price of each such option shall be the
number of shares and option price in effect immediately prior to the Effective
Time.
4.02. Other Benefit Plans. At the Effective Time, each employee benefit plan
and incentive compensation plan other than the Plans to which Everest Holdings
is then a party shall be assumed by, and continue to be the plan of, the
Surviving Corporation.
A-3
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT
5.01. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver of the following conditions:
(a) Stockholder Approval. The Everest Holdings Stockholder Approval
shall have been obtained.
(b) Form S-4. The registration statement on Form S-4 filed with the
Securities and Exchange Commission by Everest Group in connection with the
issuance of the Everest Group Common Shares in the Merger shall have become
effective under the Securities Act of 1933, as amended, and shall not be
the subject of any stop order or proceedings seeking a stop order.
(c) NYSE Listing. The Everest Group Common Shares issuable pursuant to
the terms of this Agreement shall have been approved for listing by the New
York Stock Exchange, Inc., subject to official notice of issuance.
(d) Governmental, Regulatory and Other Consents. All filings required to
be made prior to the Effective Time with, and all consents, approvals,
permits and authorizations required to be obtained prior to the Effective
Time from, any court or governmental or regulatory authority or agency,
domestic or foreign, or other person, in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby will have been made or obtained (as the case may be)
and all applicable waiting periods shall have expired.
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger or any of the other transactions
contemplated hereby shall be in effect.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.01. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether or not the Everest Holdings Stockholder Approval
shall have been obtained, by action of the Board of Directors of Everest
Holdings or of Everest Group.
6.02. Effect of Termination. In the event of termination of this Agreement
as provided in Section 6.01, this Agreement shall forthwith become void and
have no effect, without any liability or obligation on the part of Everest
Holdings, Everest Merger or Everest Group, other than the provisions of this
Article VI and Article VII.
6.03. Amendment. This Agreement may be amended by the parties at any time
before or after the Stockholder Approval shall have been obtained; provided,
however, that after any such approval, there shall be made no amendment that
by law requires further approval by the stockholders of Everest Holdings
without the further approval of such stockholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties.
6.04. Waiver. At any time prior to the Effective Time, the parties may
waive compliance by the other parties with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such
rights.
A-4
<PAGE>
6.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 6.01, an amendment of this
Agreement pursuant to Section 6.03 or a waiver pursuant to Section 6.04 shall,
in order to be effective, require in the case of Everest Holdings, Everest
Merger or Everest Group, action by its Board of Directors.
ARTICLE VII
GENERAL PROVISIONS
7.01 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Everest Holdings:
Everest Reinsurance Holdings, Inc.
477 Martinsville Road
P.O. Box 830
Liberty Corner, New Jersey 07938-0830
(b) if to Everest Group:
Everest Reinsurance Group, Ltd.
c/o ABG Financial & Management Services Inc.
Parker House
Wildey Business Park, Wildey Road
St. Michael, Barbados
(c) if to Everest Merger:
Everest Re Merger Corporation
c/o Everest Reinsurance Holdings, Inc.
477 Martinsville Road
P.O. Box 830
Liberty Corner, New Jersey 07938-0830
7.02. Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (a) constitutes
the entire agreement, and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter of
this Agreement and (b) except for the provisions of Articles III and IV, are
not intended to confer upon any person other than the parties any rights or
remedies.
7.03. Further Assurances. The parties shall execute and deliver such further
instruments and do such further acts and things as may be required to carry out
the intent and purposes of this Agreement.
7.04. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof.
A-5
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed, by their respective officers thereunto duly authorized, all as of the
date first written above.
Everest Reinsurance Holdings, Inc.
/s/ Stephen L. Limauro
By: _________________________________
Stephen L. Limauro
Name: ____________________________
Senior Vice President and
Comptroller
Title: ___________________________
Everest Re Merger Corporation
/s/ Janet J. Burak
By: _________________________________
Janet J. Burak
Name: ____________________________
Senior Vice President and
Secretary
Title: ___________________________
Everest Reinsurance Group, Ltd.
/s/ Janet J. Burak
By: _________________________________
Janet J. Burak
Name: ____________________________
Deputy Chairman
Title: ___________________________
A-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
(i) Everest Group is a Bermuda company. Section 98 of the Companies Act 1981
of Bermuda (the "Act") provides generally that a Bermuda company may indemnify
its directors, officers and auditors against any liability which by virtue of
rule of 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 Bermuda 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.
Section 30 of Everest Group's bye-laws provides that: (a) the directors,
officers and employees of Everest Group shall be indemnified out of the funds
of Everest Group from and against (and the agents of Everest Group may be
indemnified from and against) all actions, costs, charges, losses, damages and
expenses which they shall incur by reason of any act done in connection with
their duty as a director, officer, employee or agent of Everest Group; and (b)
expenses will be paid in advance of the final disposition of any action upon
receipt of an undertaking to repay such amounts if it is ultimately determined
that they are not entitled to indemnification.
Section 31 of Everest Group's bye-laws provides that each shareholder agrees
to waive any claim or right of action such shareholder might have against any
director or officer on account of any action taken by such director or officer,
or the failure of such director or officer to take any action in the
performance of his or her duties with or for Everest Group, provided that such
waiver does not extend to any matter in respect of any fraud or dishonesty that
may attach to such director or officer.
(ii) Everest Holdings is a Delaware corporation. Under Delaware law, a
corporation may indemnify a director or officer who becomes a party to an
action, suit or proceeding because of his position as a director or officer if
(1) the director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
(2) if the action or proceeding involves a criminal offense, the director or
officer had no reasonable cause to believe his conduct was unlawful. Article
VII of the certificate of incorporation of Everest Holdings provides that
Everest Holdings shall, to the fullest extent permitted by Delaware General
Corporation Law: (x) indemnify its officers, directors, employees and agents
and (y) advance expenses incurred by its officers, directors, employees or
agents in relation to any action, suit or proceeding. Article VII of the
certificate of incorporation of Everest Holdings further provides that Everest
Holdings may purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of Everest Holdings, or who is or
was serving at the request of Everest Holdings as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and incurred by him
arising in such capacity, whether or not Everest Holdings would be able to
indemnify him against such liability under the provisions of the Delaware
General Corporation Law. In addition, Article VII of the certificate of
incorporation of Everest Holdings provides that its directors shall not be
personally liable to Everest Holdings or its stockholders for monetary damages
for breach of fiduciary duty, except for liability (a) for any breach of the
director's duty of loyalty; (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (c) under
Section 174 of the Delaware General Corporation Law (relating to dividends and
repurchases of stock); and (d) for any transaction from which the director
derived an improper personal benefit.
II-1
<PAGE>
In addition to reiterating the indemnification provisions of certificate of
incorporation of Everest Holdings, Article VI, Section 11 of the by-laws of
Everest Holdings provides that the indemnification of any director, officer,
employee or agent includes reimbursement of expenses (including attorneys'
fees), judgments, fines and amount paid in settlement actually and reasonably
incurred by him in connection with the defense or settlement of an action, suit
or proceeding. Article VII, Section 11 also provides that advancements of
expenses shall be paid to the director, officer, employee or agent at
reasonable intervals in advance of the final disposition of such action, suit
or proceeding, upon receipt of an undertaking to repay such amounts if it shall
ultimately be determined that such person is not entitled to indemnification.
If an indemnification claim is not paid in a timely manner to the director,
officer, employee or agent, such person has the right to bring suit against
Everest Holdings to recover the unpaid amount of the claim.
(iii) Everest Group and Everest Holdings also maintain insurance on their
respective directors and officers, which covers liabilities under the federal
securities laws, excluding losses arising from any claim relating to any
deliberately dishonest or fraudulent act or omission, any criminal or malicious
act or omission, any willful violation of law or any accounting for profits for
the purchase or sale of securities of Everest Group or Everest Holdings within
the meaning of Section 16(b) of the Exchange Act.
Item 21. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger among Everest Holdings, Everest
Group and Everest Merger, dated as of September 17, 1999
(included as Appendix A to the proxy statement/prospectus
contained in this Registration Statement).
3.1 Memorandum of Association of Everest Group.
3.2 Form of Bye-laws of Everest Group.
3.3 Certificate of Incorporation of Everest Holdings (incorporated
by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 (No. 333-05771)).
3.4 By-laws (as amended and restated) of Everest Holdings
(incorporated by reference to Exhibit 3.2 to the Annual Report
on Form 10-K for the year ended December 31, 1997 (the "1997
10-K")).
4.1* Specimen Everest Group common share certificate.
5.1* Opinion of Conyers Dill & Pearman as to the validity of the
Everest Group common shares.
8.1* Opinion of Conyers Dill & Pearman as to certain Bermuda tax
matters (included in Exhibit 5.1).
8.2* Opinion of Clarke & Co. as to certain Barbados tax matters.
8.3* Opinion of Mayer, Brown & Platt as to certain United States
tax matters.
23.1* Consent of Conyers Dill & Pearman (included in Exhibit 5.1).
23.2* Consent of Clarke & Co. (included in Exhibit 8.2).
23.3* Consent of Mayer, Brown & Platt (included in Exhibit 8.3).
23.4 Consent of PricewaterhouseCoopers LLP.
23.5 Consent of PricewaterhouseCoopers.
27.1 Financial data schedule.
99.1 Form of proxy card of Everest Holdings.
99.2 Consent of Martin Abrahams.
99.3 Consent of Kenneth J. Duffy.
99.4 Consent of John R. Dunne
99.5 Consent of Thomas J. Gallagher.
99.6 Consent of William F. Galtney, Jr.
99.7 Consent of Joseph V. Taranto.
</TABLE>
- --------
*To be filed by amendment
II-2
<PAGE>
Item 22. 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;
(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;
(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 offered 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 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)(1)The undersigned registrant undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this Registration Statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The undersigned registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately preceding,
or (ii) that purports to meet the requirements of Section 10(a)(3)
of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part
of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes 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 offered therein,
and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 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 whether such
II-3
<PAGE>
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Liberty Corner, State of
New Jersey on the 17th day of September, 1999.
Everest Reinsurance Group, Ltd.
/s/ Stephen L. Limauro
By: _________________________________
Stephen L. Limauro
Chairman and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Joseph V.
Taranto, Stephen L. Limauro and Janet J. Burak, or any of them, such person's
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 1999.
<TABLE>
<S> <C>
/s/ Stephen L. Limauro Chairman and Director
___________________________________________ (Principal Executive Officer, Principal
Stephen L. Limauro Financial Officer and Principal
Accounting Officer)
/s/ Janet J. Burak Deputy Chairman and Director
___________________________________________
Janet J. Burak
/s/ Stephen L. Limauro Authorized Representative in the United
___________________________________________ States
Stephen L. Limauro
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger among Everest Holdings, Everest
Group and Everest Merger, dated as of September 17, 1999
(included as Appendix A to the proxy statement/prospectus
contained in this Registration Statement).
3.1 Memorandum of Association of Everest Group.
3.2 Form of Bye-laws of Everest Group.
3.3 Certificate of Incorporation of Everest Holdings (incorporated
by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 (No. 333-05771)).
3.4 By-laws (as amended and restated) of Everest Holdings
(incorporated by reference to Exhibit 3.2 to the Annual Report
on Form 10-K for the year ended December 31, 1997 (the "1997
10-K")).
4.1* Specimen Everest Group common share certificate.
5.1* Opinion of Conyers Dill & Pearman as to the validity of the
Everest Group common shares.
8.1* Opinion of Conyers Dill & Pearman as to certain Bermuda tax
matters (included in Exhibit 5.1).
8.2* Opinion of Clarke & Co. as to certain Barbados tax matters.
8.3* Opinion of Mayer, Brown & Platt as to certain United States
tax matters.
23.1* Consent of Conyers Dill & Pearman (included in Exhibit 5.1).
23.2* Consent of Clarke & Co. (included in Exhibit 8.2).
23.3* Consent of Mayer, Brown & Platt (included in Exhibit 8.3).
23.4 Consent of PricewaterhouseCoopers LLP.
23.5 Consent of PricewaterhouseCoopers.
27.1 Financial data schedule.
99.1 Form of proxy card of Everest Holdings.
99.2 Consent of Martin Abrahams.
99.3 Consent of Kenneth J. Duffy.
99.4 Consent of John R. Dunne
99.5 Consent of Thomas J. Gallagher.
99.6 Consent of William F. Galtney, Jr.
99.7 Consent of Joseph V. Taranto.
</TABLE>
- --------
*To be filed by amendment
II-6
<PAGE>
EXHIBIT 3.1
FORM NO. 2
[BERMUDA COAT OF ARMS]
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(Section 7(1) and (2))
MEMORANDUM OF ASSOCIATION
OF
Everest Reinsurance Group, Ltd.
(hereinafter referred to as "the Company")
1. The liability of the members of the Company is limited to the amount (if
any) for the time being unpaid on the shares respectively held by them.
2. We, the undersigned, namely,
<TABLE>
<CAPTION>
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF
STATUS SHARES
(Yes/No) SUBSCRIBED
<S> <C> <C> <C> <C>
Kevin C. Butler Clarendon House No Canadian One
2 Church Street
Hamilton HM 11
Bermuda
Donald H. Malcolm " No British One
John C.R. Collis " Yes British One
</TABLE>
do hereby respectively agree to take such number of shares of the Company as may
be allotted to us respectively by the provisional directors of the Company, not
exceeding the number of shares for which we have respectively subscribed, and to
satisfy such calls as may be made by the directors, provisional directors or
promoters of the Company in respect of the shares allotted to us respectively.
<PAGE>
3. The Company is to be an exempted Company as defined by the Companies Act
1981.
4. The Company, with the consent of the Minister of Finance, has power to hold
land situate in Bermuda not exceeding ___ in all, including the following
parcels:-
N/A
5. The authorised share capital of the Company is US$12,000 divided into
shares of US$0.01 each. The minimum subscribed share capital of the Company
is US$12,000.
6. The objects for which the Company is formed and incorporated are -
(i) packaging of goods of all kinds;
(ii) buying, selling and dealing in goods of all kinds;
(iii) designing and manufacturing of goods of all kinds;
(iv) mining and quarrying and exploration for metals, minerals, fossil
fuels and precious stones of all kinds and their preparation for
sale or use;
(v) exploring for, the drilling for, the moving, transporting and re-
fining petroleum and hydro carbon products including oil and oil
products;
(vi) scientific research including the improvement, discovery and
development of processes, inventions, patents and designs and the
construction, maintenance and operation of laboratories and
research centres;
(vii) land, sea and air undertakings including the land, ship and air
carriage of passengers, mails and goods of all kinds;
(viii) ships and aircraft owners, managers, operators, agents, builders
and repairers;
(ix) acquiring, owning, selling, chartering, repairing or dealing in
ships and aircraft;
(x) travel agents, freight contractors and forwarding agents;
(xi) dock owners, wharfingers, warehousemen;
(xii) ship chandlers and dealing in rope, canvas oil and ship stores of
all kinds;
(xiii) all forms of engineering;
(xiv) farmers, livestock breeders and keepers, graziers, butchers,
tanners and processors of and dealers in all kinds of live and
dead stock, wool, hides, tallow, grain, vegetables and other
produce;
(xv) acquiring by purchase or otherwise and holding as an investment
inventions, patents, trade marks, trade names, trade secrets,
designs and the like;
<PAGE>
(xvi) buying, selling, hiring, letting and dealing in conveyances of any
sort;
(xvii) employing, providing, hiring out and acting as agent for artists,
actors, entertainers of all sorts, authors, composers, producers,
directors, engineers and experts or specialists of any kind;
(xviii) to acquire by purchase or otherwise hold, sell, dispose of and
deal in real property situated outside Bermuda and in personal
property of all kinds wheresoever situated;
(xix) to enter into any guarantee, contract of indemnity or suretyship
and to assure, support or secure with or without consideration or
benefit the performance of any obligations of any person or
persons and to guarantee the fidelity of individuals filling or
about to fill situations of trust or confidence;
(xx) to carry on all and any functions of a holding company and or to
provide and or to co-ordinate management, advisory and
administrative services to all or any of the following: (i) any
subsidiary or affiliate (as such expressions are understood in the
Companies Act 1981 except such entity need not be a company under
the said Act) of the Company, wherever incorporated; (ii) any
entity (wherever existing) controlled, directly or indirectly, by
the Company; and (iii) any entity (wherever existing) in which the
Company owns, directly or indirectly, an equity interest of not
less than twenty percent of the total equity issued and
outstanding in that entity; and
(xxi) to provide and or procure financing and financial investment,
management and advisory services and administrative services to
all or any of the following: (i) any subsidiary or affiliate (as
such expressions are understood in the Companies Act 1981 except
such entity need not be a company under the said Act) of the
Company, wherever incorporated; (ii) any entity (wherever
existing) controlled, directly or indirectly, by the Company; and
(iii) any entity (wherever existing) in which the Company owns,
directly or indirectly, an equity interest of not less than twenty
percent of the total equity issued and outstanding in that entity;
and, in connection with any of the foregoing, to provide and or
procure credit, financial accommodation, loans and or advances
with or without interest to any such subsidiary or affiliate or
entity and to lend to and or deposit with any financial
institution, fund and or trust, all or any property of the Company
and or any interest therein to provide collateral for loans or
other forms of financing provided to any such subsidiary or
affiliate or entity.
7. Powers of the Company
1. The Company shall, pursuant to the Section 42 of the Companies Act
1981, have the power to issue preference shares which are, at the
option of the holder, liable to be redeemed.
2. The Company shall, pursuant to Section 42A of the Companies Act
1981, have the power to purchase its own shares from time to time.
<PAGE>
Signed by each subscriber in the presence of at least one witness attesting the
signature thereof
- --------------------------------- -----------------------------------
/s/ Kevin C. Butler /s/ Karen E. O'Connor
- --------------------------------- -----------------------------------
/s/ Donald H. Malcolm /s/ Karen E. O'Connor
- --------------------------------- -----------------------------------
/s/ John C.R. Collis /s/ Karen E. O'Connor
- --------------------------------- -----------------------------------
(Subscribers) (Witnesses)
SUBSCRIBED this 19/th/ day of August, 1999.
<PAGE>
THE COMPANIES ACT 1981
(Section 11(1))
Subject to any provision of the law a company limited by shares shall
without reference in its memorandum have the powers set out in the First
Schedule unless any of such powers are ex-cluded by its memorandum.
FIRST SCHEDULE
A company limited by shares may exercise all or any of the following powers
subject to any provision of the law or its memorandum --
1. to carry on any other business capable of being conveniently carried on in
connection with its business or likely to enhance the value of or making
profitable any of its property or rights;
2. to acquire or undertake the whole or any part of the business, property and
liabilities of any person carrying on any business that the company is
authorised to carry on;
3. to apply for register, purchase, lease, acquire, hold, use, control,
licence, sell, assign or dispose of patents, patent rights, copyrights,
trade makers, formulae, licences, inventions, processes, distinctive makers
and similar rights;
4. to enter into partnership or into any arrangement for sharing of profits,
union of interests, co-operation, joint venture, reciprocal concession or
otherwise with any person carrying on or engaged in or about to carry on or
engage in any business or transaction that the company is authorised to
carry on or engage in or any business or transaction capable of being
conducted so as to benefit the company;
5. to take or otherwise acquire and hold securities in any other body corporate
having objects altogether or in part similar to those of the company or
carrying on any business capable of being conducted so as to benefit the
company;
6. subject to section 96 to lend money to any employee or to any person having
dealings with the company or with whom the company proposes to have dealings
or to any other body corporate any of whose shares are held by the company;
7. to apply for, secure or acquire by grant, legislative enactment, assign-
ment, transfer, purchase or otherwise and to exercise, carry out and enjoy
any charter, licence, power, authority, franchise, concession, right or
privilege, that any government or authority or any body corporate or other
public body may be empowered to grant, and to pay for, aid in and contribute
toward carrying it into effect and to assume any liabilities or obligations
incidental thereto;
8. to establish and support or aid in the establishment and support of
associations, institutions, funds or trusts for the benefit of employees or
former employees of the company or its predecessors, or the depend-ants or
connections of such employees or former employees, and grant
<PAGE>
THE COMPANIES ACT 1981
pensions and allowances, and make payments towards insurance or for any
object similar to those set forth in this paragraph, and to subscribe or
guarantee money for charitable, benevolent, educational or religious objects
or for any exhibition or for any public, general or useful objects;
9. to promote any company for the purpose of acquiring or taking over any of
the property and liabilities of the company or for any other purpose that
may benefit the company;
10. to purchase, lease, take in exchange, hire or otherwise acquire any personal
property and any rights or privileges that the company considers necessary
or convenient for the purposes of its business;
11. to construct maintain, alter, renovate and demolish any buildings or works
necessary or convenient for its objects;
12. to take land in Bermuda by way of lease or letting agreement for a term not
exceeding twenty-one years, being land "bona fide" required for the purposes
of the business of the company and with the consent of the Minister granted
in his discretion to take land in Bermuda by way of lease or letting
agreement for a similar period in order to provide accommodation or
recreational facilities for its officers and employees and when no longer
necessary for any of the above purposes to terminate or transfer the lease
or letting agreement;
13. except to the extent, if any, as may be otherwise expressly provided in its
incorporating Act or memorandum and subject to the provisions of this Act
every company shall have power to invest the moneys of the Company by way of
mortgage of real or personal property of every description in Bermuda or
elsewhere and to sell, exchange, vary, or dispose of such mortgage as the
company shall from time to time determine;
14. to construct, improve, maintain, work, manage, carry out or control any
roads, ways, tramways, branches or sidings, bridges, reservoirs,
watercourses, wharves, factories, warehouses, electric works, shops, stores
and other works and conveniences that may advance the interests of the
company and contribute to, subsidise or otherwise assist or take part in the
construction, improvement, maintenance, working, management, carrying out or
control thereof;
15. to raise and assist in raising money for, and aid by way of bonus, loan,
promise, endorsement, guarantee or otherwise, any person and guarantee the
performance or fulfilment of any contracts or obligations of any person, and
in particular guarantee the payment of the principal of and interest on the
debt obligations of any such person;
16. to borrow or raise or secure the payment of money in such manner as the
company may think fit;
17. to draw, make, accept, endorse, discount, execute and issue bills of
exchange, promissory notes, bills of lading, warrants and other negotiable
or transferable instruments;
<PAGE>
THE COMPANIES ACT 1981
18. when properly authorised to do so, to sell, lease, exchange or otherwise
dispose of the undertaking of the company or any part thereof as an entirety
or substantially as an entirety for such consideration as the company thinks
fit;
19. to sell, improve, manage, develop, exchange, lease, dispose of, turn to
account or otherwise deal with the property of the company in the ordinary
course of its business;
20. to adopt such means of making known the products of the company as may seem
expedient, and in particular by advertising, by purchase and exhibition of
works of art or interest, by publication of books and periodicals and by
granting prizes and rewards and making donations;
21. to cause the company to be registered and recognised in any foreign
jurisdiction, and designate persons therein according to the laws of that
foreign jurisdiction or to represent the company and to accept service for
and on behalf of the company of any process or suit;
22. to allot and issue fully-paid shares of the company in payment or part
payment of any property purchased or otherwise acquired by the company or
for any past services performed for the company;
23. to distribute among the members of the company in cash, kind, specie or
otherwise as may be resolved, by way of dividend, bonus or in any other
manner considered advisable, any property of the company, but not so as to
decrease the capital of the company unless the distribution is made for the
purpose of enabling the company to be dissolved or the distribution, apart
from this paragraph, would be otherwise lawful;
24. to establish agencies and branches;
25. to take or hold mortgages, hypothecs, liens and charges to secure payment of
the purchase price, or of any unpaid balance of the purchase price, of any
part of the property of the company of whatsoever kind sold by the company,
or for any money due to the company from purchasers and others and to sell
or otherwise dispose of any such mortgage, hypothec, lien or charge;
26. to pay all costs and expenses of or incidental to the incorporation and
organization of the company;
27. to invest and deal with the moneys of the company not immediately required
for the objects of the company in such manner as may be determined;
28. to do any of the things authorized by this subsection and all things
authorized by its memorandum as principals, agents, contractors, trustees or
otherwise, and either alone or in conjunction with others;
<PAGE>
THE COMPANIES ACT 1981
29. to do all such other things as are incidental or conducive to the attainment
of the objects and the exercise of the powers of the company.
Every company may exercise its powers beyond the boundaries of Bermuda
to the extent to which the laws in force where the powers are sought to be
exercised permit.
<PAGE>
FORM NO. 1a
[BERMUDA COAT OF ARMS]
BERMUDA
THE COMPANIES ACT 1981
CONSENT
Pursuant to Section 4A
In exercise of the powers conferred upon him by section 4A of the Companies Act
1981, the Minister of Finance hereby gives his consent to:-
Everest Reinsurance Group, Ltd.
to carry on restricted business activities in accordance with the Companies Act
1981.
Dated this 26th day of August, 1999
/s/ Eugene Cox
MINISTER OF FINANCE
<PAGE>
FORM NO. 6 REGISTRATION NO. 26918
[BERMUDA COAT OF ARMS]
BERMUDA
CERTIFICATE OF INCORPORATION
I hereby in accordance with section 14 of the Companies Act 1981 issue this
Certificate of Incorporation and do certify that on the 26th day of August, 1999
Everest Reinsurance Group Ltd.
was registered by me in the Register maintained by me under the provisions of
the said section and that the status of the said company is that of an EXEMPTED
company.
Given under my hand and the Seal of the
REGISTRAR OF COMPANIES this 10th
day of September, 1999.
[SEAL OF THE REGISTRAR OF COMPANIES]
/s/ Cynthia Thomas
for Registrar of Companies
<PAGE>
EXHIBIT 3.2
B Y E - L A W S
of
EVEREST REINSURANCE GROUP, LTD.
(as amended September ___, 1999)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. INTERPRETATION.................................................... 1
BOARD OF DIRECTORS
2. Board of Directors................................................ 5
3. Management of the Company......................................... 5
4. Power to Appoint Managing Director or Chief Executive Officer..... 6
5. Power to Appoint Manager.......................................... 6
6. Power to Authorise Specific Actions............................... 6
7. Power to Appoint Attorney......................................... 6
8. Power to Delegate to a Committee.................................. 7
9. Power to Appoint and Dismiss Employees............................ 8
10. Power to Borrow and Charge Property............................... 8
DIRECTORS
11. Election of Directors............................................. 8
12. Nominations Proposed by Members................................... 9
13. Defects in Appointment of Directors............................... 9
14. Alternate Directors............................................... 9
15. Removal of Directors.............................................. 10
16. Vacancies on the Board............................................ 10
17. Notice of Meetings of the Board................................... 11
18. Quorum at Meetings of the Board................................... 11
19. Meetings of the Board............................................. 11
20. Unanimous Written Resolutions..................................... 12
21. Contracts and Disclosure of Directors' Interests.................. 12
22. Remuneration of Directors......................................... 12
OFFICERS
23. Officers of the Company........................................... 13
24. Appointment of Officers........................................... 13
25. Remuneration of Officers.......................................... 13
26. Duties of Officers................................................ 13
27. Chairman of Meetings.............................................. 13
28. Register of Directors and Officers................................ 13
29. Obligations of Board to Keep Minutes.............................. 14
</TABLE>
i
<PAGE>
INDEMNITY
<TABLE>
<S> <C>
30. Indemnification of Directors and Officers of the Company.......... 14
31. Waiver of Claim by Member......................................... 15
MEETINGS
32. Notice of Annual General Meeting.................................. 16
33. Notice of Special General Meeting................................. 16
34. Accidental Omission of Notice of General Meeting.................. 16
35. Meeting Called on Requisition of Members.......................... 16
36. Short Notice...................................................... 17
37. Postponement of Meetings.......................................... 17
38. Quorum for General Meeting........................................ 17
39. Adjournment of Meetings........................................... 17
40. Attendance at Meetings............................................ 17
41. Written Resolutions............................................... 18
42. Attendance of Directors........................................... 18
43. Voting at Meetings................................................ 19
44. Voting on Show of Hands........................................... 19
45. Decision of Chairman.............................................. 19
46. Demand for a Poll................................................. 19
47. Seniority of Joint Holders Voting................................. 20
48. Instrument of Proxy............................................... 20
49. Representation of Corporations at Meetings........................ 22
SHARE CAPITAL AND SHARES
50. Authorisation of Shares........................................... 22
51. Limitation on Voting Rights of Controlled Shares.................. 23
52. Limitations on Power to Issue Shares.............................. 24
53. Variation of Rights and Alteration of Share Capital............... 25
54. Repurchase of Shares by Company................................... 25
55. Registered Holder of Shares....................................... 27
56. Death of a Joint Holder........................................... 27
57. Share Certificates................................................ 27
REGISTER OF MEMBERS
58. Contents of Register of Members................................... 28
59. Inspection of Register of Members................................. 28
60. Setting of Record Date............................................ 28
</TABLE>
ii
<PAGE>
TRANSFER OF SHARES
<TABLE>
<S> <C>
61. Instrument of Transfer............................................ 29
62. Restrictions on Transfer.......................................... 29
63. Transfers by Joint Holders........................................ 30
TRANSMISSION OF SHARES
64. Representative of Deceased Member................................. 30
65. Registration on Death or Bankruptcy............................... 31
66. Registration Fees................................................. 31
DIVIDENDS AND OTHER DISTRIBUTIONS
67. Declaration of Dividends by the Board............................. 31
68. Other Distributions............................................... 31
69. Reserve Fund...................................................... 31
70. Deduction of Amounts Due to the Company........................... 32
71. Unclaimed Dividends............................................... 32
72. Interest on Dividend.............................................. 32
73. Capitalization.................................................... 32
ACCOUNTS AND FINANCIAL STATEMENTS
74. Records of Account................................................ 32
75. Financial Year End................................................ 33
76. Financial Statements.............................................. 33
AUDIT
77. Appointment of Auditor............................................ 33
78. Remuneration of Auditor........................................... 33
79. Vacation of Office of Auditor..................................... 33
80. Access to Books of the Company.................................... 33
81. Report of the Auditor............................................. 34
82. Benefits.......................................................... 34
83. Insurance......................................................... 34
84. Limitation on Accountability...................................... 35
NOTICES
85. Notices to Members of the Company................................. 35
86. Notices to Joint Members.......................................... 35
87. Service and Delivery of Notice.................................... 35
</TABLE>
iii
<PAGE>
REGISTERED OFFICE
<TABLE>
<S> <C>
88. Registered Office................................................. 35
SEAL OF THE COMPANY
89. The Seal.......................................................... 35
90. Manner in Which Seal Is to Be Affixed............................. 36
91. Destruction of Documents.......................................... 36
92. Sale of Shares.................................................... 37
93. Instrument of Transfer............................................ 37
94. Proceeds of Sale.................................................. 38
95. Determination to Liquidate........................................ 38
96. Winding-up/distribution by Liquidator............................. 38
ALTERATION OF BYE-LAWS
97. Alteration of Bye-laws............................................ 38
</TABLE>
<PAGE>
BYE-LAWS
OF
EVEREST REINSURANCE GROUP, LTD.
(as amended September __, 1999)
INTERPRETATION
--------------
1. Interpretation
--------------
(a) In these Bye-laws the following words and expressions shall, where not
inconsistent with the context, have the following meanings respectively:
(i) "Act" means the Companies Act 1981 of Bermuda, as amended, or
any Bermuda statute then in effect that has replaced such
statute, and any reference in these Bye-laws to a provision of
the Act means such provision as amended from time to time or
any provision of a Bermuda law from time to time in effect that
has replaced such provision;
(ii) "Alternate Director" means an alternate Director appointed in
accordance with these Bye-laws;
(iii) "Auditor" includes any individual, company or partnership;
(iv) "Board" means the Board of Directors appointed or elected
pursuant to these Bye-laws and acting by resolution in
accordance with the Act and these Bye-laws or the Directors
present at a meeting of Directors at which there is a quorum;
(v) "Business Day" means any day, other than a Saturday, a Sunday
or any day on which banks in Hamilton, Bermuda or the City of
New York, United States are authorised or obligated by law or
executive order to close;
(vi) "Code" means the United States Internal Revenue Code of 1986,
as amended, or any United States federal statute then in effect
that has replaced such statute, and any reference in these Bye-
laws to a provision of the Code or a rule or regulation
promulgated thereunder means such provision, rule or regulation
as amended from time to time or any provision of a United
States federal law, or any United States federal rule or
regulation, from time to time in effect that has replaced such
provision, rule or regulation;
1
<PAGE>
(vii) "Common Shares" means the common shares, initially having a par
value U.S. $0.01 per share, of the Company and includes a
fraction of a Common Share;
(viii) "Company" means the company for which these Bye-laws are
approved and confirmed;
(ix) "Controlled Shares" of any Person means all shares of the
issued and outstanding share capital of the Company owned by
such Person, whether:
(A) directly;
(B) with respect to Persons who are U.S. Persons, by
application of the attribution and constructive ownership
rules of Sections 958(a) and 958(b) of the Code;
(C) with respect to Persons who are U.S. Persons, by
application of the attribution and constructive ownership
rules of Sections 544 and 554 of the Code; or
(D) beneficially, directly or indirectly, within the meaning
of Section 13(d)(3) of the Exchange Act and the rules and
regulations thereunder;
(x) "Director" means a director of the Company and shall include an
Alternate Director;
(xi) "Exchange Act" means the United States Securities Exchange Act
of 1934, as amended, or any United States federal statute from
time to time in effect that has replaced such statute, and any
reference in these Bye-laws to a provision of the Exchange Act
or a rule or regulation promulgated thereunder means such
provision, rule or regulation as amended from time to time or
any provision of a United States federal law, or any United
States federal rule or regulation, from time to time in effect
that has replaced such provision, rule or regulation;
(xii) "Fair Market Value" means, with respect to a redemption or
purchase of any shares of the Company in accordance with these
Bye-laws, (A) if such shares are listed on a securities
exchange (or quoted in a securities quotation system), the
average of the high and low sale (or bid) prices of such shares
on such exchange (or in such quotation system), or, if such
shares are listed on (or quoted in) more than one exchange (or
quotation system), the average of the high and low sale (or
bid) prices of the shares on the principal securities exchange
(or quotation system) on which such shares are then traded, or,
if such shares are not then listed on a securities exchange (or
quotation system) but are traded in the over-the-counter
2
<PAGE>
market, the average of the latest bid and asked quotations for
such shares in such market, in each case for the last 15
trading days immediately preceding the day on which notice of
the redemption or purchase of such shares is sent pursuant to
these Bye-laws or (B) if no such sales (or bid) prices or
quotations are available because such shares are not publicly
traded or otherwise, the fair value of such shares as
determined by one independent nationally recognized investment
banking firm chosen by the Company and reasonably satisfactory
to the Member whose shares are to be so repurchased by the
Company, provided, that the calculation of the Fair Market
--------
Value of the shares made by such appointed investment banking
firm (x) shall not include any discount relating to the absence
of a public trading market for, or any transfer restrictions
on, such shares and (y) such calculation shall be final and the
fees and expenses stemming from such calculation shall be borne
by the Company or its assignee, as the case may be;
(xiii) "Investment Company" means a registered investment company
pursuant to the Investment Company Act;
(xiv) "Investment Company Act" means the United States Investment
Company Act of 1940, as amended from time to time, or any
federal statute from time to time in effect that has replaced
such statute, and any reference in these Bye-laws to a
provision of the Investment Company Act or a rule or regulation
promulgated thereunder means such provision, rule or regulation
as amended from time to time or any provision of a federal law,
or any federal rule or regulation, from time to time in effect
that has replaced such provision, rule or regulation;
(xv) "Maximum Percentage" means, with respect to any Person, nine
and nine-tenths percent (9.9%) or, if applicable, such other
percentage as the Board shall have previously approved for such
Person in accordance with these Bye-laws;
(xvi) "Member" means the Person registered in the Register of Members
as the holder of shares in the Company and, when two or more
Persons are so registered as joint holders of shares, means the
Person whose name stands first in the Register of Members as
one of such joint holders or all of such Persons as the context
so requires;
(xvii) "notice" means written notice as further defined in these Bye-
laws unless otherwise specifically stated;
(xviii) "Officer" means any individual appointed by the Board to hold
an office in the Company;
3
<PAGE>
(xix) "Person" means an individual, trust, estate, partnership,
association, company, corporation, firm or other legal entity;
(xx) "Preferred Shares" means the preferred shares, initially having
a par value U.S. $0.01 per share, of the Company and includes a
fraction of a Preferred Share;
(xxi) "Register of Directors and Officers" means the Register of
Directors and Officers referred to in Bye-law 28;
(xxii) "Register of Members" means the Register of Members referred to
in Bye-law 58; and
(xxiii) "Repurchase Price" means the Fair Market Value of the shares to
be redeemed or purchased on the date the Repurchase Notice (as
defined in paragraph (b) of Bye-law 54) with respect thereto is
sent by the Company;
(xxiv) "Secretary" means the individual appointed to perform any or
all the duties of secretary of the Company and includes any
deputy, assistant or acting secretary;
(xxv) "Securities Act" means the United States Securities Act of
1933, as amended, or any United States federal statute from
time to time in effect which has replaced such statute, and any
reference in these Bye-laws to a provision of the Securities
Act or a rule or regulation promulgated thereunder means such
provision, rule or regulation as amended from time to time or
any provision of a United States federal law, or any United
States federal rule or regulation, from time to time in effect
that has replaced such provision, rule or regulation;
(xxvi) "Share" means any share in the share capital of the Company;
(xxvii) "United States" means the United States of America and
dependent territories or any part thereof;
(xxviii) "U.S. Person" means, except as otherwise indicated, an
individual who is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized
in the United States or under the laws of the United States or
any political subdivision thereof, an estate whose income is
includable in gross income for United States federal income tax
purposes, regardless of its source, or a trust, if and only 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 U.S. Persons have the authority to control all
substantial decisions of the trust;
(b) In these Bye-laws, where not inconsistent with the context:
4
<PAGE>
(i) words denoting the plural number include the singular number and
vice versa;
(ii) words denoting the masculine gender include the feminine gender;
(iii) the word:
(A) "may" shall be construed as permissive;
(B) "shall" shall be construed as imperative; and
(iv) unless otherwise provided herein words or expressions defined in
the Act shall bear the same meaning in these Bye-laws.
(c) Expressions referring to writing or written shall, unless the contrary
intention appears, include facsimile, printing, lithography, photography,
electronic mail and other modes of representing words in a legible and non-
transitory form.
(d) Headings used in these Bye-laws are for convenience only and are not
to be used or relied upon in the construction hereof.
(e) In these Bye-laws, (i) powers of delegation shall not be restrictively
construed but the widest interpretation shall be given thereto, (ii) the word
"Board" in the context of the exercise of any power contained in these Bye-laws
includes any committee consisting of one or more individuals appointed by the
Board, any Director holding executive office and any local or divisional Board,
manager or agent of the Company to which or, as the case may be, to whom the
power in question has been delegated in accordance with the Act and these Bye-
laws, (iii) no power of delegation shall be limited by the existence of any
other power of delegation and (iv) except where expressly provided by the terms
of delegation, the delegation of a power shall not exclude the concurrent
exercise of that power by any Person who is for the time being authorised to
exercise it under these Bye-laws or under another delegation of the powers.
BOARD OF DIRECTORS
------------------
2. Board of Directors
------------------
The business of the Company shall be managed and conducted by the Board.
3. Management of the Company
-------------------------
(a) In managing the business of the Company, the Board may exercise all
such powers of the Company as are not, by statute or by these Bye-laws, required
to be exercised by the Company in general meeting subject, nevertheless, to
these Bye-laws and the provisions of any statute.
5
<PAGE>
(b) No regulation or alteration to these Bye-laws made by the Company in
general meeting shall invalidate any prior act of the Board which would have
been valid if that regulation or alteration had not been made.
(c) Subject to Section 39 of the Act, the Board may procure that the
Company pays to Members or third parties all expenses incurred in promoting and
incorporating the Company.
(d) The Board may exercise all the powers of the Company to discontinue
the Company to a named country or jurisdiction outside Bermuda pursuant to
Section 132G of the Act.
4. Power to appoint managing director or chief executive officer
-------------------------------------------------------------
The Board may from time to time appoint one or more Directors to the office
of managing director or chief executive officer of the Company who shall,
subject to the control of the Board, supervise and administer all of the general
business and affairs of the Company.
5. Power to appoint manager
------------------------
Without limiting the provisions of Bye-law 4, the Board may appoint an
individual, a company or a firm to act as manager of all or some of the
Company's day to day business and may entrust to and confer upon such manager
such powers and duties as it deems appropriate for the transaction or conduct of
such business.
6. Power to authorise specific actions
-----------------------------------
The Board may from time to time and at any time authorise any Director,
Officer or other Person or body of Persons to act on behalf of the Company for
any specific purpose and in connection therewith to execute any agreement,
document or instrument on behalf of the Company.
7. Power to appoint attorney
-------------------------
The Board may from time to time and at any time by power of attorney
appoint any Person or body of Persons, whether nominated directly or indirectly
by the Board, to be an attorney of the Company for such purposes and with such
powers, authorities and discretions (not exceeding those vested in or
exercisable by the Board) and for such period and subject to such conditions as
it may think fit and any such power of attorney may contain such provisions for
the protection and convenience of persons dealing with any such attorney as the
Board may think fit and may also authorise any such attorney to sub-delegate all
or any of the powers, authorities and discretions so vested in the attorney.
Such attorney may, if so authorised under the seal of the Company, execute any
deed or instrument under such attorney's personal seal with the same effect as
the affixation of the seal of the Company.
6
<PAGE>
8. Power to delegate to a committee
--------------------------------
The Board may delegate any of its powers to a committee of one or more
individuals appointed by the Board, which committee may consist partly or
entirely of non-Directors and every such committee shall conform to such
directions as the Board shall impose on them. Without limiting the foregoing,
such committees may include:
(a) an Executive Committee, which shall have all of the powers of the
Board between meetings of the Board;
(b) an Underwriting Committee, which shall, among other things, establish,
review and monitor the underwriting policies of the Company's subsidiary
companies or other companies associated with the Company, review underwriting
decisions, monitor any appointed underwriting services provider, advise the
Board with respect to actuarial services, review actuarial decisions, monitor
any provider of actuarial services and otherwise monitor the risks insured by
the Company's subsidiary companies or other companies associated with the
Company;
(c) an Investment Committee, which shall, among other things, establish,
review and monitor the investment policies of the Company and the Company's
subsidiary companies or other companies associated with the Company, review
investment decisions and review and monitor any provider of investment services;
(d) an Audit Committee, which shall, among other things, review the
internal administrative and accounting controls of the Company and the Company's
subsidiary companies or other companies associated with the Company and
recommend to the Board the appointment of independent auditors;
(e) a Compensation Committee, which shall, among other things, establish
and review the compensation policies and procedures of the Company and the
Company's subsidiary companies or other companies associated with the Company
and make recommendations to the Board with respect to compensation of Officers;
and
(f) a Nominating Committee, which shall, among other things, propose to
the Members or to continuing Directors, before any election of Directors by
Members or the filling of any vacancy by the Board, a slate of director
candidates equal in number to the vacancies to be filled (for purposes of
paragraph (f) of this Bye-law 8 only, "Director" shall not include Alternate
Director).
All Board committees shall conform to such directions as the Board shall
impose on them; provided, that each member shall have one vote, and each
--------
committee shall have the right as it deems appropriate to retain outside
advisors and experts. Each committee may adopt rules for the conduct of its
affairs, including rules governing the adoption of resolutions by unanimous
written consent, and the place, time, and notice of meetings, as shall be
advisable and as shall not be inconsistent with these Bye-laws regarding Board
meetings or with any applicable resolution adopted by the Board. Each committee
shall cause minutes to be made of all meetings of such committee and of the
7
<PAGE>
attendance thereat and shall cause such minutes and copies of resolutions
adopted by unanimous consent to be promptly inscribed or incorporated by the
Secretary in the minute book.
9. Power to appoint and dismiss employees
--------------------------------------
The Board may appoint, suspend or remove any Officer, manager, secretary,
clerk, agent or employee of the Company and may fix their remuneration and
determine their duties.
10. Power to borrow and charge property
-----------------------------------
The Board may exercise all the powers of the Company to borrow money, to
assume, guarantee or otherwise become directly or indirectly liable for
indebtedness for borrowed money and to mortgage or charge its undertaking,
property and uncalled capital, or any part thereof, and may issue debentures,
debenture stock and other securities whether outright or as security for any
debt, liability or obligation of the Company or any third party.
DIRECTORS
---------
11. Election of Directors
---------------------
(a) The Board shall consist of not less than three and not more than 12
Directors, the exact number to be determined from time to time by resolution
adopted by the affirmative vote of more than fifty percent (50%) of the
Directors then in office; provided, that if no such resolution shall be in
--------
effect the number of Directors shall be six. Each Director shall be elected,
except in the case of casual vacancy, by the Members in the manner set forth in
paragraph (b) of this Bye-law 11 at the annual general meeting or any special
general meeting called for the purpose and who shall hold office for the term
set forth in paragraph (c) of this Bye-law 11.
(b) No individual shall, unless recommended for election by the Board or
any Nominating Committee of the Board, be eligible for election as a Director
unless advance notice of the nomination of such individual shall have been given
to the Company in the manner provided in Bye-law 12.
(c) The Board shall be divided into three classes of Directors, namely
Class 1, Class 2 and Class 3, each class to have approximately the same number
of Directors as determined by the Board or any Nominating Committee of the
Board. The initial term of the Class 1 Directors shall expire at the first
annual meeting of the Company's shareholders following the date that the Company
is subject to the reporting requirements of the Exchange Act. The initial term
of the Class II Directors shall expire at the second annual meeting following
the date that the Company is subject to the reporting requirements of the
Exchange Act. The initial term of the Class III Directors shall expire at the
third annual meeting following the date that the Company is subject to the
reporting requirements of the Exchange Act. Following their initial terms, all
classes of Directors shall be elected to three-year terms. Each Director shall
serve until the expiration of such Director's term or until such Director's
successor shall have been duly elected or appointed or until such Director's
office is otherwise vacated.
8
<PAGE>
(d) For the purposes of this Bye-law 11 only, "Director" shall not include
an Alternate Director.
12. Nominations proposed by Members
-------------------------------
(a) If a Member desires to nominate one or more individuals for election
as Directors at any general meeting duly called for the election of Directors,
written notice of such Member's intent to make such a nomination must be
received by the Secretary at the registered office of the Company not less than
120 days nor more than 150 days before the first anniversary of the date of the
notice convening the Company's annual general meeting of shareholders for the
prior year. Such notice shall set forth (i) the name and address, as it appears
in the Register of Members, of the Member who intends to make such nomination;
(ii) a representation that the Member is a holder of record of shares of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to make such nomination; (iii) the class and number of
shares of the Company which are held by the Member; (iv) the name and address of
each individual to be nominated; (v) a description of all arrangements or
understandings between the Member and any such nominee and any other person or
persons (naming such person or persons) pursuant to which such nomination is to
be made by the Member; (vi) such other information regarding any such nominee
proposed by such Member as would be required to be included in a proxy statement
filed pursuant to Regulation 14A under the Exchange Act, whether or not the
Company is then subject to such Regulation; and (vii) the consent of any such
nominee to serve as a Director, if so elected. The chairman of such general
meeting shall, if the facts warrant, refuse to acknowledge a nomination that is
not made in compliance with the procedure specified in this Bye-law 12, and any
such nomination not properly brought before the meeting shall not be considered.
13. Defects in appointment of Directors
-----------------------------------
All acts done bona fide by any meeting of the Board or by a committee of
the Board or by any individual acting as a Director shall, notwithstanding that
it be afterwards discovered that there was some defect in the appointment of any
Director or individual acting as aforesaid, or that they or any of them were
disqualified, be as valid as if every such individual had been duly appointed
and was qualified to be a Director.
14. Alternate Directors
-------------------
(a) Any Director may appoint an individual or individuals to act as a
Director in the alternative to himself or herself by notice in writing deposited
with the Secretary. Any individual so appointed shall have all the rights and
powers of the Director or Directors for whom such individual is appointed in the
alternative; provided, that such individual shall not be counted more than once
--------
in determining whether or not a quorum is present. Any Director may, upon notice
to the Secretary, remove or replace any individual so appointed as his or her
alternate with or without cause.
(b) An Alternate Director shall be entitled to receive notice of all
meetings of the Board and to attend and vote at any such meeting at which a
Director for whom such Alternate Director was
9
<PAGE>
appointed in the alternative is not personally present and generally to perform
at such meeting all the functions of such Director for whom such Alternate
Director was appointed.
(c) An Alternate Director shall be entitled to receive any proposed
written resolutions being circulated among the Directors for signature and an
Alternate Director may sign any written resolution in the absence of a Director
for whom such Alternate Director was appointed.
(d) An Alternate Director shall cease to be such if the Director for whom
such Alternate Director was appointed ceases for any reason to be a Director but
may be re-appointed as an alternate to the individual appointed to fill the
vacancy in accordance with these Bye-laws.
15. Removal of Directors
--------------------
(a) The Members shall not be entitled to remove a Director other than for
cause.
(b) Subject to any provision to the contrary in these Bye-laws, the
Members may, at any special general meeting convened for that purpose and held
in accordance with these Bye-laws, remove any Director for cause with the
sanction of a resolution passed by the holders of not less than sixty-six and
two-thirds percent (66 %) of the issued and outstanding Shares conferring the
right to vote; provided, that (i) the notice of any such meeting convened for
--------
the purpose of removing a Director shall contain a statement of the intention so
to do and be served on such Director not less than 14 days before the meeting
and (ii) at such meeting such Director shall be entitled to be heard on the
motion for such Director's removal.
(c) A vacancy on the Board created by the removal of a Director under the
provisions of paragraph (a) of this Bye-law 15 may be filled by the Members at
the meeting at which such Director is removed and, in the absence of such
appointment, the Board may fill any such vacancy in accordance with Bye-law 16.
A Director so appointed shall hold office for the balance of the term of such
vacant Board position, or until such Director's successor is elected or
appointed or such Director's office is otherwise vacated.
16. Vacancies on the Board
-----------------------
(a) The Board shall have the power from time to time and at any time to
appoint any individual as a Director to fill a vacancy on the Board occurring as
the result of the death, disability, disqualification, resignation or removal of
any Director or if such Director's office is otherwise vacated and to appoint an
Alternate Director to any Director so appointed. A Director so appointed shall
hold office for the balance of the term of such vacant Board position or until
such Director's successor is elected or appointed or such Director's office is
otherwise vacated.
(b) The Board may act notwithstanding any vacancy in its number but, if
and so long as its number is reduced below the number fixed by these Bye-laws as
the minimum number necessary for the transaction of business at meetings of the
Board, the continuing Directors or Director may, notwithstanding that the number
of Directors is below the number fixed by or in accordance with these Bye-laws
as the quorum or that there is only one continuing Director, act for the purpose
of
10
<PAGE>
(i) filling vacancies on the Board, (ii) summoning a general meeting of the
Company or (iii) preserving the assets of the Company, but not for any other
purpose.
(c) The office of Director shall be vacated if the Director:
(i) is removed from office pursuant to these Bye-laws or is
prohibited from being a Director by law;
(ii) is or becomes bankrupt or makes any arrangement or composition
with his creditors generally;
(iii) is or becomes of unsound mind as determined by the Board in its
sole discretion or dies;
(iv) resigns his or her office by notice in writing to the Company.
17. Notice of meetings of the Board
-------------------------------
(a) The Chairman or Deputy Chairman, or any two Directors may, and the
Secretary on the requisition of the Chairman, Deputy Chairman or any two
Directors shall, at any time summon a meeting of the Board by not less than
three (3) Business Days' notice in writing to each Director and Alternate
Director, unless such Director or Alternate Director consents to shorter notice.
(b) Notice of a meeting of the Board shall specify the general nature of
the business to be considered at such meeting and shall be deemed to be duly
given to a Director if it is given to such Director in person or otherwise
communicated or sent to such Director by mail, courier service, cable, telex,
telecopier, facsimile, electronic-mail or other mode of representing words in a
legible and non-transitory form at such Director's address in the Register of
Directors and Officers or any other address given by such Director to the
Company for this purpose. If such notice is sent by next-day courier, cable,
telex, telecopier, facsimile or electronic-mail it shall be deemed to have been
given the Business Day following the sending thereof and, if by registered mail,
three Business Days following the sending thereof.
(c) Meetings of the Board may be held within or outside of Bermuda and
shall be held outside of the United States.
18. Quorum at meetings of the Board
--------------------------------
The quorum necessary for the transaction of business at a meeting of the
Board shall be a majority of the Directors then in office, present in person or
represented by proxy.
19. Meetings of the Board
---------------------
11
<PAGE>
(a) The Board may meet for the transaction of business, adjourn and
otherwise regulate its meetings as it sees fit.
(b) Directors may participate in any meeting of the Board by means of such
telephone, electronic or other communication facilities as permit all persons
participating in the meeting to communicate with each other simultaneously and
instantaneously, and participation in such a meeting shall constitute presence
in person at such meeting.
(c) A resolution put to the vote at a duly constituted meeting of the
Board at which a quorum is present and acting throughout shall be carried by the
affirmative votes of a majority of the votes cast. Each Director shall have one
vote on all matters put to the Board for resolution, except that in the case of
an equality of votes the Chairman, if he or she is present (and if he or she is
not present, the Deputy Chairman, if he or she is present), shall have a second
or casting vote, otherwise no Director has a second or casting vote.
20. Unanimous written resolutions
-----------------------------
A resolution in writing signed by all the Directors, which may be in
counterparts, shall be as valid as if it had been passed at a meeting of the
Board duly called and constituted, such resolution to be effective on the date
on which the last Director signs the resolution.
21. Contracts and disclosure of Directors' interests
------------------------------------------------
(a) Any Director, or any Director's firm, partner or any company with whom
any Director is associated, may act in a professional capacity for the Company
and such Director or such Director's firm, partner or such company shall be
entitled to remuneration for professional services as if such Director were not
a Director; provided, that nothing herein contained shall authorise a Director
--------
or Director's firm, partner or such company to act as Auditor of the Company.
(b) A Director who is directly or indirectly interested in a contract or
proposed contract or arrangement with the Company shall declare the nature of
such interest as required by the Act.
(c) Following a declaration being made pursuant to this Bye-law 21, and
unless disqualified by the chairman of the relevant Board meeting, a Director
may vote in respect of any contract or arrangement or proposed contract or
arrangement in which such Director is interested and may be counted in the
quorum at such meeting.
22. Remuneration of Directors
-------------------------
(a) The remuneration (if any) of the Directors shall be determined by the
Board and shall be deemed to accrue from day to day. The Directors shall also
be reimbursed for all travel, hotel and other expenses properly incurred by them
in attending and returning from meetings of the Board, any committee appointed
by the Board, general meetings of the Company, or in connection with the
business of the Company or their duties as Directors generally.
12
<PAGE>
(b) A Director may hold any other office or place of profit under the
Company (other than the office of Auditor) in conjunction with his office of
Director for such period on such terms as to remuneration and otherwise as the
Board may determine.
OFFICERS
--------
23. Officers of the Company
-----------------------
The Officers of the Company shall consist of a Chairman, a Deputy Chairman,
a Chief Executive Officer, a Secretary and such additional Officers as the Board
may from time to time determine to be necessary or advisable in the conduct of
the affairs of the Company, all of whom shall be deemed to be Officers for the
purposes of these Bye-laws. The same individual may hold two or more offices in
the Company.
24. Appointment of Officers
-----------------------
The Board shall, as soon as possible after each annual general meeting,
appoint the Chairman and the Deputy Chairman who shall be Directors. The Chief
Executive Officer, Secretary and additional Officers, if any, shall be appointed
by the Board from time to time.
25. Remuneration of Officers
------------------------
The Officers shall receive such remuneration as the Board may from time to
time determine.
26. Duties of Officers
------------------
The Officers shall have such powers and perform such duties in the
management, business and affairs of the Company as may be delegated to them by
these Bye-laws or the Board from time to time.
27. Chairman of meetings
--------------------
The Chairman shall act as chairman at all meetings of the Members and of
the Board at which such individual is present. In his or her absence, the
Deputy Chairman shall act as chairman and in the absence of both of them a
chairman shall be appointed or elected by those present at the meeting and
entitled to vote.
28. Register of Directors and Officers
----------------------------------
(a) The Board shall cause to be kept in one or more books at the
registered office of the Company a Register of Directors and Officers and shall
enter therein the particulars required by the Act.
13
<PAGE>
(b) The Register of Directors and Officers shall be open to inspection by
Members at the office of the Company in compliance with the requirements of the
Act, subject to such reasonable restrictions as the Board may impose.
MINUTES
-------
29. Obligations of Board to keep minutes
------------------------------------
(a) The Board shall cause minutes to be duly entered in books provided for
the purpose:
(i) of all elections and appointments of Officers;
(ii) of the names of the Directors present at each meeting of the
Board and of any committee appointed by the Board; and
(iii) of all resolutions and proceedings of general meetings of the
Members, meetings of the Board, meetings of managers and
meetings of committees appointed by the Board.
(b) Minutes prepared in accordance with the Act and these Bye-laws shall
be kept by the Secretary at the registered office of the Company.
INDEMNITY
---------
30. Indemnification of Directors and Officers of the Company
--------------------------------------------------------
(a) The Directors, Secretary and other Officers (such term to include for
the purposes of Bye-laws 30 and 31, any Person appointed to any committee by the
Board) and employees of the Company acting in relation to any of the affairs of
the Company and the liquidator or trustees (if any) acting in relation to any of
the affairs of the Company, and every one of them, and their heirs, executors
and administrators, shall be indemnified and secured harmless out of the assets
of the Company (and the Company, in the discretion of the Board of Directors,
may so indemnify and secure harmless a Person by reason of the fact that such
Person was an agent of the Company or was serving at the request of the Company
in any other capacity for or on behalf of the Company) from and against all
actions, costs, charges, losses, damages and expenses (including, without
limitation, attorneys' fees) which they or any of them, their heirs, executors
or administrators, shall or may incur or sustain by or by reason of any act
done, concurred in or omitted in or about the execution of their duty, or
supposed duty, or in their respective offices or trusts, including, without
limitation, any acts taken or omitted with regard to subsidiary companies of the
Company, and none of them shall be answerable for the acts, receipts, neglects
or defaults of the others of them or for joining in any receipts for the sake of
conformity, or for the acts of or the solvency or honesty of any bankers or
other persons with whom any moneys or effects belonging to the Company shall or
may be lodged or deposited for safe custody, or for insufficiency or deficiency
of any security upon which any moneys of or belonging to the Company shall be
placed out on or invested, or for any other loss,
14
<PAGE>
misfortune or damage which may happen in the execution of their respective
offices or trusts, or in relation thereto; provided, that this indemnity shall
--------
not extend to any matter prohibited by the Act.
(b) Any indemnification under this Bye-law 30, unless ordered by a court,
shall be made by the Company only as authorised in the specific case upon a
determination that indemnification of such Person is proper in the circumstances
because such Person has met the applicable standard of conduct set forth in
paragraph (a) of this Bye-law 30. Such determination shall be made (i) by the
Board by a majority vote of disinterested Directors or (ii) if a majority of the
disinterested Directors so directs, by independent legal counsel in a written
opinion or (iii) by the Members.
(c) Expenses (including, without limitation, attorneys' fees) actually and
reasonably incurred by any Director, Secretary, other Officer or employee of the
Company in defending any civil, criminal, administrative or investigative
action, suit or proceeding or threat thereof for which indemnification is sought
pursuant to paragraph (a) of this Bye-law 30 shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such Person to repay such amount if it
shall be ultimately determined that such Person is not entitled to be
indemnified by the Company as authorised in these Bye-laws or otherwise pursuant
to applicable law; provided, that if it is determined by either (i) a majority
--------
vote of Directors who were not parties to such action, suit or proceeding or
(ii) if a majority of the disinterested Directors so directs, by independent
legal counsel in a written opinion, that there is no reasonable basis to believe
that such Person is entitled to be indemnified by the Company as authorised in
these Bye-laws or otherwise pursuant to applicable law, then no expense shall be
advanced in accordance with this paragraph (c) of this Bye-law 30. Such
expenses (including attorneys' fees) incurred by agents of the Company may be
paid upon the receipt of the aforesaid undertaking and such terms and
conditions, if any, as the Board deems appropriate.
(d) The indemnification and advancement of expenses provided in these Bye-
laws shall not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may now or hereafter be entitled
under any statute, agreement, vote of Members or otherwise, both as to action in
an official capacity and as to action in another capacity while holding such
office.
(e) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Bye-law 30 shall, unless otherwise provided when
authorised or ratified, continue as to a Person who has ceased to hold the
position for which such Person is entitled to be indemnified or advanced
expenses and shall inure to the benefit of the heirs, executors and
administrators of such a Person.
(f) No amendment or repeal of any provision of this Bye-law 30 shall
alter, to the detriment of any Person, the right of such Person to the
indemnification or advancement of expenses related to a claim based on an act or
failure to act which took place prior to such amendment, repeal or termination.
31. Waiver of claim by Member
-------------------------
15
<PAGE>
Each Member agrees to waive any claim or right of action such Member might
have, whether individually or by or in the right of the Company, against any
Director or Officer on account of any action taken by such Director or Officer,
or the failure of such Director or Officer to take any action in the performance
of his or her duties with or for the Company; provided, that such waiver shall
--------
not extend to any matter in respect of any fraud or dishonesty which may attach
to such Director or Officer.
MEETINGS
--------
32. Notice of annual general meeting
--------------------------------
The annual general meeting of the Company shall be held in each year at
such time and place as the Chairman, the Deputy Chairman or any two Directors or
any Director and the Secretary or the Board shall appoint. At least five days
written notice of such meeting shall be given to each Member stating the date,
place and time at which the meeting is to be held, that the election of
Directors will take place thereat, and as far as practicable, the other business
to be conducted at the meeting. The annual general meeting may be held within or
outside of Bermuda and shall be held outside of the United States.
33. Notice of special general meeting
---------------------------------
The Chairman, the Deputy Chairman or any two Directors or any Director and
the Secretary or the Board may convene a special general meeting of the Company
whenever in their judgment such a meeting is necessary, upon not less than five
days' written notice which shall state the date, time, place and the general
nature of the business to be considered at the meeting. Any special general
meeting may be held within or outside of Bermuda and shall be held outside of
the United States.
34. Accidental omission of notice of general meeting
------------------------------------------------
The accidental omission to give notice of a general meeting to, or the non-
receipt of notice of a general meeting by, any Person entitled to receive notice
shall not invalidate the proceedings at that meeting.
35. Meeting called on requisition of Members
----------------------------------------
Notwithstanding anything herein, the Board shall, on the requisition of
Members holding at the date of the deposit of the requisition not less than one-
tenth of such of the paid-up share capital of the Company as at the date of the
deposit carries the right to vote at general meetings of the Company, forthwith
proceed to convene a special general meeting of the Company and the provisions
of Section 74 of the Act shall apply.
16
<PAGE>
36. Short notice
-------------
A general meeting of the Company shall, notwithstanding that it is called
by shorter notice than that specified in these Bye-laws, be deemed to have been
properly called if it is so agreed by (a) all the Members entitled to attend and
vote thereat in the case of an annual general meeting; and (b) a majority in
number of the Members having the right to attend and vote at the meeting, being
a majority together holding not less than ninety-five percent (95%) in nominal
value of the shares conferring a right to attend and vote thereat in the case of
a special general meeting.
37. Postponement of meetings
------------------------
The Chairman or the Board may postpone any general meeting called in
accordance with the provisions of these Bye-laws (other than a meeting
requisitioned under Bye-law 35); provided, that notice of postponement is given
--------
to each Member before the time for such meeting. Fresh notice of the date, time
and place for the postponed meeting shall be given to each Member in accordance
with the provisions of these Bye-laws.
38. Quorum for general meeting
--------------------------
At any general meeting of the Company two or more individuals present in
person and representing in person or by proxy in excess of fifty percent (50%)
of the total issued and outstanding shares conferring a right to attend and vote
at such meeting throughout the meeting shall form a quorum for the transaction
of business; provided, that if the Company shall at any time have only one
--------
Member, one Member present in person or by proxy shall constitute a quorum for
the transaction of business at any general meeting of the Company held during
such time. If within half an hour from the time appointed for the meeting a
quorum is not present, the meeting shall stand adjourned to the same day one
week later, at the same time and place or to such other day, time or place as
the Chairman or the Board may determine. Unless the meeting is so adjourned to
a specific date and time, fresh notice of the date, time and place for the
resumption of the adjourned meeting shall be given to each Member in accordance
with the provisions of these Bye-laws. No business shall be transacted at any
general meeting unless a quorum is present when the meeting proceeds to
business and continues throughout the meeting, but the absence of a quorum shall
not preclude the appointment, choice or election of a chairman of the meeting
which shall not be treated as part of the business of the meeting.
39. Adjournment of meetings
-----------------------
The chairman of a general meeting may, with the consent of the Members at
any general meeting at which a quorum is present (and shall if so directed),
adjourn the meeting. Unless the meeting is so adjourned to a specific date and
time, fresh notice of the date, time and place for the resumption of the
adjourned meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.
40. Attendance at meetings
----------------------
17
<PAGE>
Unless the Chairman or the Board determines otherwise, Members may
participate in any general meeting by means of such telephone, electronic or
other communication facilities as permit all individuals participating in the
meeting to communicate with each other simultaneously and instantaneously, and
participation in such a meeting shall constitute presence in person at such
meeting.
41. Written resolutions
-------------------
(a) Subject to paragraph (f) of this Bye-law 41, anything which may be
done by resolution of the Company in general meeting or by resolution of a
meeting of any class of the Members of the Company, may, without a meeting and
without any previous notice being required, be done by resolution in writing
signed by, or, in the case of a Member that is a corporation whether or not a
company within the meaning of the Act, on behalf of, all the Members who at the
date of the resolution or the record date (if earlier) would be entitled to
attend the meeting and vote on the resolution.
(b) A resolution in writing may be signed by, or, in the case of a Member
that is a corporation whether or not a company within the meaning of the Act, on
behalf of, all the Members, or any class thereof, in as many counterparts as may
be necessary.
(c) For the purposes of this Bye-law 41, the date of the resolution is the
date when the resolution is signed by, or, in the case of a Member that is a
corporation whether or not a company within the meaning of the Act, on behalf
of, the last Member to sign and any reference in any Bye-law to the date of
passing of a resolution is, in relation to a resolution made in accordance with
this Bye-law, a reference to such date.
(d) A resolution in writing made in accordance with this Bye-law is as
valid as if it had been passed by the Company in general meeting or by a meeting
of the relevant class of Members, as the case may be, and any reference in any
Bye-law to a meeting at which a resolution is passed or to Members voting in
favor of a resolution shall be construed accordingly.
(e) A resolution in writing made in accordance with this Bye-law shall
constitute minutes for the purposes of Sections 81 and 82 of the Act.
(f) This Bye-law shall not apply to:
(i) a resolution passed pursuant to Section 89(5) of the Act; or
(ii) a resolution passed for the purpose of removing a Director
before the expiration of his term of office under these Bye-
laws.
42. Attendance of Directors
-----------------------
The Directors of the Company shall be entitled to receive notice of and to
attend and be heard at any general meeting.
18
<PAGE>
43. Voting at meetings
------------------
Subject to the provisions of the Act and these Bye-laws, any question
proposed for the consideration of the Members at any general meeting shall be
decided by the affirmative vote of a majority of the votes cast in accordance
with the provisions of these Bye-laws and in the case of an equality of votes
the resolution shall fail.
44. Voting on show of hands
-----------------------
At any general meeting a resolution put to the vote of the meeting shall,
in the first instance, be voted upon by a show of hands and, subject to any
rights or restrictions for the time being lawfully attached to any class of
shares and subject to the provisions of these Bye-laws, every Member present in
person and every individual holding a valid proxy at such meeting shall be
entitled to one vote and shall cast such vote by raising his or her hand.
45. Decision of chairman
--------------------
At any general meeting a declaration by the chairman of the meeting that a
question proposed for consideration has, on a show of hands, been carried, or
carried unanimously, or by a particular majority, or lost, and an entry to that
effect in a book containing the minutes of the proceedings of the Company shall,
subject to the provisions of these Bye-laws, be conclusive evidence of that
fact.
46. Demand for a poll
-----------------
(a) Notwithstanding the provisions of the immediately preceding two Bye-
laws, at any general meeting of the Company, in respect of any question proposed
for the consideration of the Members (whether before or on the declaration of
the result of a show of hands as provided for in these Bye-laws), a poll may be
demanded by any of the following Persons:
(i) the chairman of such meeting; or
(ii) at least three Members present in person or represented by
proxy; or
(iii) any Member or Members present in person or represented by
proxy and holding between them not less than one-tenth (1/10)
of the total voting rights of all the Members having the right
to vote at such meeting; or
(iv) any Member or Members present in person or represented by
proxy holding shares conferring the right to attend and vote
at such meeting on which an aggregate sum has been paid up
equal to not less than one-tenth (1/10) of the total sum paid
up on all Common Shares.
(b) Where, in accordance with the provisions of paragraph (a) of this Bye-
law 46, a poll is demanded, subject to any rights or restrictions for the time
being lawfully attached to any class of shares and subject to the provisions of
these Bye-laws, every Member present in person or by
19
<PAGE>
proxy at such meeting shall have one vote for each share conferring the right to
attend and vote at such meeting of which such Member is the registered holder or
for which such a proxyholder holds a proxy and such votes shall be counted in
the manner set out in paragraph (d) of this Bye-law 46 or, in the case of a
general meeting at which one or more Members or proxyholders are present by
telephone, in such manner as the chairman of the meeting may direct, and the
result of such poll shall be deemed to be the resolution of the meeting at which
the poll was demanded and shall replace any previous resolution upon the same
matter which has been the subject of a show of hands.
(c) A poll demanded in accordance with the provisions of paragraph (a) of
this Bye-law 46, for the purpose of electing a chairman of the meeting or on a
question of adjournment, shall be taken forthwith and a poll demanded on any
other question shall be taken in such manner and at such time and place as the
chairman (or acting chairman) may direct and any business other than that upon
which a poll has been demanded may be proceeded with pending the taking of the
poll.
(d) Where a vote is taken by poll, each Member present in person or by
proxy and entitled to vote shall be furnished with a ballot on which such Member
or proxyholder shall record his or her vote in such manner as shall be
determined at the meeting having regard to the nature of the question on which
the vote is taken, and each ballot paper shall be signed or initialed or
otherwise marked so as to identify the voter and the registered holder in the
case of a proxy. The Board may appoint one or more inspectors to act at any
meeting where a vote is taken by a poll. Each inspector shall take and sign an
oath faithfully to exercise the duties of inspector at such meeting with strict
impartiality and according to the best of his, her or its ability. The
inspectors shall determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies and examine and count all ballots and
determine the results of any vote. The inspector shall also hear and determine
challenges and questions arising in connection with the right to vote. No
Director or candidate for the office of Director shall act as an inspector. The
determination and decision of the inspectors shall be final and binding.
47. Seniority of joint holders voting
---------------------------------
In the case of joint holders, the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the votes
of the other joint holders, and for this purpose seniority shall be determined
by the order in which the names stand in the Register of Members.
48. Instrument of proxy
-------------------
(a) The instrument appointing a proxy shall be in writing under the hand
of the appointor or of his or her attorney authorised by him or her in writing
or, if the appointor is a corporation, either under its seal or under the hand
of an officer, attorney or other person authorised to sign the same.
(b) Any Member may appoint a standing proxy or (if a corporation)
representative by depositing at the Registered Office, or at such place or
places as the Board may otherwise specify
20
<PAGE>
for the purpose, a proxy or (if a corporation) an authorisation and such proxy
or authorisation shall be valid for all general meetings and adjournments
thereof or, resolutions in writing, as the case may be, until notice of
revocation is received at the Registered Office, or at such place or places as
the Board may otherwise specify for the purpose. Where a standing proxy or
authorisation exists, its operation shall be deemed to have been suspended at
any general meeting or adjournment thereof at which the Member is present or in
respect to which the Member has specially appointed a proxy or representative.
The Board may from time to time require such evidence as it shall deem necessary
as to the due execution and continuing validity of any such standing proxy or
authorisation and the operation of any such standing proxy or authorisation
shall be deemed to be suspended until such time as the Board determines that it
has received the requested evidence or other evidence satisfactory to it.
(c) Subject to paragraph (b) of this Bye-law 48, the instrument appointing
a proxy together with such other evidence as to its due execution as the Board
may from time to time require shall be delivered at the Registered Office (or at
such place or places as may be specified in the notice convening the meeting or
in any notice of any adjournment or, in either case or the case of a written
resolution, in any document sent therewith) not less than 24 hours or such other
period as the Board may determine, prior to the holding of the relevant meeting
or adjourned meeting at which the individual person named in the instrument
proposes to vote or, in the case of a poll taken subsequently to the date of a
meeting or adjourned meeting, before the time appointed for the taking of the
poll, or, in the case of a written resolution, prior to the effective date of
the written resolution and in default the instrument of proxy shall not be
treated as valid.
(d) Instruments of proxy shall be in any common form or other form as the
Board may approve and the Board may, if it thinks fit, send out with the notice
of any meeting or any written resolution forms of instruments of proxy for use
at that meeting or in connection with that written resolution. The instrument of
proxy shall be deemed to confer authority to demand or join in demanding a poll
and to vote on any amendment of a written resolution or amendment of a
resolution put to the meeting for which it is given as the proxy thinks fit. The
instrument of proxy shall unless the contrary is stated therein be valid as well
for any adjournment of the meeting as for the meeting to which it relates.
(e) A vote given in accordance with the terms of an instrument of proxy
shall be valid notwithstanding the previous death or unsoundness of mind of the
principal, or revocation of the instrument of proxy or of the authority under
which it was executed, provided, that no intimation in writing of such death,
--------
insanity or revocation shall have been received by the Company at the Registered
Office (or such other place as may be specified for the delivery of instruments
of proxy in the notice convening the meeting or other documents sent therewith)
at least one hour before the commencement of the meeting or adjourned meeting,
or the taking of the poll, or the day before the effective date of any written
resolution at which the instrument of proxy is used.
(f) Subject to the Act, the Board may at its discretion waive any of the
provisions of these Bye-laws related to proxies or authorisations and, in
particular, may accept such verbal or other assurances as it thinks fit as to
the right of any person to attend and vote on behalf of any Member at general
meetings or to sign written resolutions.
21
<PAGE>
49. Representation of corporations at meetings
------------------------------------------
A corporation which is a Member may, by written instrument, authorise such
individual as it thinks fit to act as its representative at any meeting of the
Members and the individual so authorised shall be entitled to exercise the same
powers on behalf of the corporation which such individual represents as that
corporation could exercise if it were an individual Member. Notwithstanding the
foregoing, the chairman of the meeting may accept such assurances as he or she
thinks fit as to the right of any individual to attend and vote at general
meetings on behalf of a corporation which is a Member.
SHARE CAPITAL AND SHARES
------------------------
50. Authorisation of shares
-----------------------
(a) Upon adoption of these Bye-laws, the share capital of the Company
shall initially be divided into two classes of shares consisting of (i) two
hundred million (200,000,000) Common Shares and (ii) fifty million (50,000,000)
Preferred Shares.
(b) Subject to the provisions of these Bye-laws, the holders of Common
Shares shall:
(i) be entitled to one vote per Common Share;
(ii) be entitled to such dividends as the Board may from time to
time declare;
(iii) in the event of a winding-up or dissolution of the Company,
whether voluntary or involuntary or for the purpose of a
reorganization or otherwise or upon any distribution of
capital, be entitled to share equally and ratably in the assets
of the Company, if any, remaining after the payment of all
debts and liabilities of the Company and the liquidation
preference of any outstanding Preferred Shares; and
(iv) generally be entitled to enjoy all of the rights attaching to
shares.
(c) Subject to these Bye-laws, the Act and to any resolution of the
Members to the contrary, the unissued share capital of the Company (as it
stands from time to time) shall be at the disposal of the Board and the Board
shall have power to issue, offer, allot, exchange or otherwise dispose of any
unissued shares of the Company, at such times, for such consideration and on
such terms and conditions as it may determine and any shares or class of shares
may be issued with such preferred, deferred or other special rights or such
restrictions, whether in regard to dividend, voting, return of capital or
otherwise as the Board may from time to time prescribe and the Board may
generally exercise the powers set out in Sections 45(1)(b), (c), (d) and (e) of
the Act. Further the Board shall have the power to issue, offer, allot,
exchange or otherwise dispose of options, warrants or other rights to purchase
or acquire shares or securities convertible into or exchangeable for shares
(including any employee benefit plan providing for the issuance of shares
22
<PAGE>
or options or rights in respect thereof), at such times, for such consideration
and on such terms and conditions as it may determine.
(d) The Board is authorised, subject to the Act, to issue the Preferred
Shares in series, at such times, for such consideration and on such terms and
conditions as it may determine, to establish from time to time the number of
Preferred Shares to be included in each such series, and to fix the designation,
powers, preferences, voting rights, dividend rates, redemption provisions and
other rights, qualifications, limitations or restrictions thereof. The terms of
any series of Preferred Shares shall be set forth in a Certificate of
Designation in the minutes of the Board authorising the issuance of such
Preferred Shares and such Certificate of Designations shall be attached as an
exhibit to these Bye-laws, but shall not form part of these Bye-laws, and may be
examined by any Member on request. The rights attaching to any Common Share
shall be deemed not to be altered by the allotment of any Preferred Share even
if such Preferred Share does or will rank in priority for payment of a dividend
or in respect of capital or which confer on the holder thereof voting rights
more favorable than those conferred by such Common Share and shall not otherwise
be deemed to be altered by the creation or issue of further shares ranking pari
passu therewith.
51. Limitation on voting rights of controlled shares
------------------------------------------------
(a) If and for so long as the aggregate number of Controlled Shares of any
Person exceeds the Maximum Percentage of the total voting power of all of the
issued and outstanding share capital of the Company (calculated after giving
effect to any prior reduction in voting rights attaching to Controlled Shares of
other Persons as provided in this Bye-law 51), each such Controlled Share,
regardless of the identity of the registered holder thereof, shall confer only a
fraction of a vote as determined by the following formula (the "Formula"):
(T - C) Divided By (9.1 x C)
Where: "T" is the aggregate number of votes
conferred by all the issued and
outstanding share capital immediately
prior to that application of the
Formula with respect to any particular
Member, adjusted to take into account
any prior reduction taken with respect
to any other Member pursuant to
paragraph (b) of this Bye-law 51 as at
the same date;
"C" is the number of Controlled Shares attributable to
such Person.
(b) The Formula shall be applied successively as many times as may be
necessary to ensure that the number of Controlled Shares of any Person does not
exceed the Maximum Percentage of the total voting power of all of the issued and
outstanding share capital of the Company at any time. For the purposes of
determining the votes exercisable by Members as at any date, the Formula shall
be applied to the shares of each Member in declining order based on the
respective numbers
23
<PAGE>
of total Controlled Shares attributable to each Member. Thus, the Formula will
be applied first to the votes of shares held by the Member to whom the largest
number of total Controlled Shares is attributable and thereafter sequentially
with respect to the Member with the next largest number of total Controlled
Shares. In each case, calculations shall be made on the basis of the aggregate
number of votes conferred by the shares as of such date, as reduced by the
application of the Formula to any issued shares of any Member with a larger
number of total Controlled Shares as of such date.
(c) Notwithstanding the provisions of paragraphs (a) and (b) of this Bye-
law 51, having applied the provisions thereof as best as they consider
reasonably practicable, the Board may make such final adjustments to the
aggregate number of votes attaching to the Controlled Shares of any Member that
it considers fair and reasonable in all the circumstances to ensure that the
number of Controlled Shares of any Person does not exceed the Maximum Percentage
of the total voting power of all of the issued and outstanding share capital of
the Company at any time.
(d) Notwithstanding anything in these Bye-laws, this Bye-law 51 shall not
apply for so long as the Company shall have only one Member.
52. Limitations on the power to issue shares
----------------------------------------
(a) Notwithstanding the provisions of paragraphs (c) and (d) of Bye-law
50, no share may be issued, without the prior written approval of the Board, if
the Board has reason to believe that the effect of such issuance would cause (i)
any Person that is not an Investment Company to beneficially own, directly or
indirectly (within the meaning of Section 13(d)(3) of the Exchange Act and the
rules and regulations thereunder), in excess of five percent (5%) of any class
of issued and outstanding share capital of the Company, (ii) the aggregate
number of Controlled Shares of any Person to exceed the Maximum Percentage of
any class of issued and outstanding share capital of the Company or (iii) any
adverse tax, regulatory or legal consequences to the Company, any of its
subsidiaries or any of the Members. Notwithstanding the foregoing provisions of
this Bye-law 52, the restrictions of this paragraph (a) of this Bye-law 52 shall
not apply to any issuance of shares to a Person acting as an underwriter in the
ordinary course of its business purchasing such shares for resale pursuant to a
purchase agreement to which the Company is a party.
(b) The Board shall, in connection with the issue of any share, have the
power to pay such commissions and brokerage fees and charges as may be permitted
by law.
(c) The Company shall not give, whether directly or indirectly, whether by
means of loan, guarantee, provision of security or otherwise, any financial
assistance for the purpose of or in connection with a purchase or subscription
made or to be made by any Person of or for any shares in the Company, but
nothing in this Bye-law 52 shall prohibit transactions permitted pursuant to
Sections 39A, 39B and 39C of the Act.
(d) The Company may from time to time do any one or more of the following
things:
(i) make arrangements on the issue of shares for a difference between
the Members in the amounts and times of payments of calls on
their shares;
24
<PAGE>
(ii) accept from any Member the whole or a part of the amount
remaining unpaid on any shares held by such Member, although no
part of that amount has been called up;
(iii) pay dividends in proportion to the amount paid up on each share
where a larger amount is paid up on some shares than on others;
and
(iv) issue its shares in fractional denominations and deal with such
fractions to the same extent as its whole shares and shares in
fractional denominations shall have in proportion to the
respective fractions represented thereby all of the rights of
whole shares including (but without limiting the generality of
the foregoing) the right to vote, to receive dividends and
distributions and to participate in a winding up.
53. Variation of rights and alteration of share capital
---------------------------------------------------
(a) If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms
of issue of the shares of that class) may, whether or not the Company is being
wound-up, be varied with the consent in writing of the holders of not less than
a majority of the issued and outstanding shares of that class or with the
sanction of a resolution passed by the holders of not less than a majority of
the issued and outstanding shares of that class at a separate general meeting of
the holders of the shares of the class held in accordance with Section 47 (7) of
the Act. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly provided by
the terms of issue of the shares of that class, be deemed to be varied by the
creation or issue of further shares ranking pari passu therewith. The rights of
the holders of Common Shares shall not be deemed to be varied by the creation or
issue of shares with preferred or other rights, which may be effected by the
Board as provided in these Bye-laws without any vote or consent of the holders
of Common Shares.
(b) The Company may from time to time by resolution of the Members change
the currency denomination of, increase, alter or reduce its share capital in
accordance with the provisions of Sections 45 and 46 of the Act; provided, that
--------
any resolution of the Members to alter or reduce its share capital be by the
affirmative vote of Members representing not less than a majority of the votes
conferred by the issued and outstanding shares entitled to vote. Where, on any
alteration of share capital, fractions of shares or some other difficulty would
arise, the Board may deal with or resolve the same in such manner as it thinks
fit including, without limiting the generality of the foregoing, the issue to
Members, as appropriate, of fractions of shares and/or arranging for the sale or
transfer of the fractions of shares of Members to a purchaser thereof who shall
not be bound to see to the application of the purchase money, nor shall his or
her title to the same be affected by any irregularity in, or in invalidity of,
the proceedings relating to sale.
54. Repurchase of shares by Company
-------------------------------
(a) Exercise of power to redeem and purchase shares of the Company
--------------------------------------------------------------
25
<PAGE>
The Company may from time to time redeem or purchase all or any part of its
own shares pursuant to Sections 42 and 42A of the Act. The Board may, at its
discretion and without the sanction of a resolution of the Members, authorise
any redemption or purchase by the Company of its own shares (all or any part
thereof), of any class, at any price (whether at par or above or below par), and
so that any share to be so redeemed or purchased may be selected in any manner
whatsoever, upon such terms as the Board may in its discretion determine;
provided, that such redemption or purchase is effected in accordance with the
- --------
provisions of the Act. The rights attaching to any share shall be deemed not to
be altered (unless such right specifically provides otherwise) by any redemption
or purchase by the Company of any of its own shares.
(b) Unilateral repurchase right
---------------------------
Subject to Section 42A of the Act, if the Board has reason to believe that
(I) any Member that is not an Investment Company beneficially owns, directly or
indirectly (within the meaning of Section 13(d)(3) of the Exchange Act and the
rules and regulations thereunder), in excess of five percent (5%) of any class
of issued and outstanding share capital of the Company, (ii) the aggregate
number of Controlled Shares of any Member exceeds the Maximum Percentage of any
class of issued and outstanding share capital of the Company or (iii) the share
ownership of any Member may result in adverse tax, regulatory or legal
consequences to the Company, any of its subsidiaries or any of the Members, the
Company shall have the option, but not the obligation, to redeem or purchase all
or any part of the shares held by such Member (to the extent the Board, in the
reasonable exercise of its discretion, determines necessary or advisable to
avoid or cure any adverse or potential adverse consequences) for the Repurchase
Price by delivering written notice to such Member specifying the number of
shares to be redeemed or purchased and the Repurchase Price therefor (the
"Repurchase Notice"). The Company shall use all commercially reasonable efforts
to exercise its redemption or purchase option ratably among similarly situated
Members to the extent possible under the circumstances. Within 10 days after
the delivery of the Repurchase Notice, the Company or its designee shall redeem
or purchase from such Member, and such Member shall sell to the Company or its
designee, the number of shares specified in the Repurchase Notice at a mutually
agreeable time and place. At such closing, the Company or its designee shall
pay to such Member the Repurchase Price by wire transfer of immediately
available funds and such Member shall deliver to the Company or its designee
share certificates representing the redeemed or purchased shares duly endorsed
in blank or accompanied by duly executed stock powers. The Company may revoke
the Repurchase Notice at any time prior to payment for the shares.
(c) Unilateral repurchase right in the event of involuntary transfer
----------------------------------------------------------------
If a Member shall be involuntarily would up, dissolved or liquidated or
shall have entered in respect of it an order for relief under the United States
Bankruptcy Code (or any similar law of any applicable jurisdiction) or shall
otherwise be required to transfer involuntarily any or all of its shares
pursuant to a court order, foreclosure, tax lien, government seizure, death or
otherwise, and, in any such case as a result thereof, any or all of such
Member's shares (the "Involuntary Transfer Shares") shall be actually or
purportedly transferred or otherwise disposed of, such Member, or its legal
representative or successor, shall promptly give notice to the Company of such
transfer and the Company shall have the option, but not the obligation, to
redeem or purchase all or any part of the
26
<PAGE>
Involuntary Transfer Shares held by such Member for the Repurchase Price by
delivering a Repurchase Notice to such Member. Within 10 days after the delivery
of the Repurchase Notice, the Company or its designee shall redeem or purchase
from such Member, and such Member shall sell to the Company or its designee, the
number of Involuntary Transfer Shares specified in the Repurchase Notice at a
mutually agreeable time and place. At such closing, the Company or its designee
shall pay to such Member the Repurchase Price by wire transfer of immediately
available funds and such Member shall deliver to the Company or its designee
share certificates representing the Involuntary Transfer Shares duly endorsed in
blank or accompanied by duly executed stock powers. The Company may revoke the
Repurchase Notice at any time prior to the payment for shares.
55. Registered holder of shares
---------------------------
(a) The Company shall be entitled to treat the registered holder of any
share as the absolute owner thereof and, accordingly, except as ordered by a
court of competent jurisdiction or as required by law or as specifically
provided in these Bye-laws, no Person shall be recognized by the Company as
holding any share upon trust and the Company shall not be bound by or required
in any way to recognize (even when having notice thereof) any equitable,
contingent, future or partial interest in any share or any interest in any
fractional part of a share or (except only as otherwise provided in these Bye-
laws or by law) any other right in respect of any share except an absolute right
to the entirety thereof in the registered holder.
(b) Any dividend, interest or other monies payable in cash in respect of
shares may be paid by cheque or draft sent through the post directed to the
Member at such Member's address in the Register of Members or, in the case of
joint holders, to such address of the holder first named in the Register of
Members, or to such Person and to such address as the holder or joint holders
may in writing direct. If two or more Persons are registered as joint holders
of any shares, any one can give an effectual receipt for any dividend paid in
respect of such shares.
56. Death of a joint holder
-----------------------
Where two or more Persons are registered as joint holders of a share or
shares, then in the event of the death of any joint holder or holders the
remaining joint holder or holders shall be absolutely entitled to the said share
or shares and the Company shall recognize no claim in respect of the estate of
any joint holder except in the case of the last survivor of such joint holders.
57. Share certificates
------------------
(a) Every Member shall be entitled to a certificate under the seal of the
Company (or a facsimile or representation thereof) specifying the number and,
where appropriate, the class of shares held by such Member and whether the same
are fully paid up and, if not, how much has been paid thereon. The Board may by
resolution determine, either generally or in a particular case, that any or all
signatures on certificates may be printed thereon or affixed by mechanical
means. Notwithstanding the provisions of Bye-law 90, the Board may determine
that a share certificate need not be signed by any individual.
27
<PAGE>
(b) The Company shall be under no obligation to complete and deliver a
share certificate unless specifically called upon to do so by the Person to whom
such shares have been allotted.
(c) If any such certificate shall be proved to the satisfaction of the
Board to have been worn out, lost, mislaid or destroyed the Board may cause a
new certificate to be issued and request an indemnity for the lost certificate
if it sees fit.
REGISTER OF MEMBERS
-------------------
58. Contents of Register of Members
-------------------------------
The Board shall cause to be kept in one or more books a Register of Members
and shall enter therein the particulars required by the Act. Unless the Board
so determines, no Member or intending Member shall be entitled to have entered
in the Register of Members any indication of any trust or any equitable,
contingent, future or partial interest in any share or any interest in any
fractional part of a share and if any such entry exists or is permitted by the
Board it shall not be deemed to abrogate any of the provisions of paragraph (a)
of Bye-law 55.
59. Inspection of Register of Members
---------------------------------
(a) The Register of Members shall be open to inspection by Members or
other entitled Persons at the registered office of the Company during business
hours, subject to such reasonable restrictions as the Board may impose, so that
not less than two hours in each normal day of business in Bermuda be allowed for
inspection. The Register of Members may, after notice has been given by
advertisement in an appointed newspaper to that effect, be closed for any time
or times not exceeding in the whole 30 days in each year.
(b) Subject to the provisions of the Act, the Company may keep one or more
overseas or branch registers in any place, and the Board may make, amend and
revoke any such regulations as it may think fit respecting the keeping of such
registers and the contents thereof.
60. Setting of record date
----------------------
Notwithstanding any other provision of these Bye-laws, the Board shall fix
any date as the record date for:
(a) determining the Members entitled to receive any dividend;
(b) determining the Members entitled to receive notice of and to vote at
any general meeting of the Company; and
(c) determining the Members entitled to execute a resolution in writing.
28
<PAGE>
TRANSFER OF SHARES
------------------
61. Instrument of transfer
----------------------
(a) An instrument of transfer shall be in such common form or other form
as the Board or any transfer agent appointed from time to time may accept. Such
instrument of transfer shall be signed by or on behalf of the transferor. The
transferor shall be deemed to remain the holder of such share until the same has
been transferred to the transferee in the Register of Members.
(b) The Board may refuse to recognize any instrument of transfer unless it
is accompanied by the certificate in respect of the shares to which it relates
and by such other evidence as the Board may reasonably require to show the right
of the transferor to make the transfer.
62. Restrictions on transfer
------------------------
(a) Subject to the Act, this Bye-law 62 and such other restrictions
contained in these Bye-laws and elsewhere as may be applicable, any Member may
sell, assign, transfer or otherwise dispose of shares of the Company for which
the Member is the registered holder at the time and, upon receipt of a duly
executed form of transfer in writing, the Board shall procure the timely
registration of the same. If the Board refuses to register a transfer for any
reason it shall notify the proposed transferor and transferee within 30 days of
such refusal.
(b) Without the prior written approval of the Board, no transfer of any
share shall be registered if the Board has reason to believe that the effect of
such transfer would be to (I) increase the number of shares beneficially owned,
directly or indirectly (within the meaning of Section 13(d)(3) of the Exchange
Act and the rules and regulations thereunder), by any Person that is not an
Investment Company to more than five percent (5%) of any class of issued and
outstanding share capital of the Company, (ii) to increase the aggregate number
of Controlled Shares of any Person to more than the Maximum Percentage of any
class of issued and outstanding share capital of the Company or (iii) to result
in adverse tax, regulatory or legal consequences to the Company, any of its
subsidiaries or any of the Members.
(c) Without limiting the foregoing, no transfer of any share shall be
registered unless all applicable consents, authorisations, permissions or
approvals of any governmental body or agency in Bermuda, the United States or
any other applicable jurisdiction required to be obtained prior to such transfer
shall have been obtained.
(d) The registration of transfers may be suspended at such time and for
such periods as the Board may from time to time determine; provided, that such
--------
registration shall not be suspended for more than 45 days in any period of 365
consecutive days.
(e) The Board may, by notice in writing, require any Member, or any Person
proposing to acquire shares of the Company, to certify or otherwise provide to
the Board, within 10 Business Days of request, complete and accurate information
in writing as to such matters as the Board may
29
<PAGE>
request for the purpose of giving effect to Bye-laws 51(a), 51(b), 52(a), 54(b),
54(c) and paragraph (b) of this Bye-law 62, including information in respect of
the following matters:
(i) the number of shares of the Company in which such Person is
legally or beneficially interested;
(ii) the Persons who are beneficially interested in shares in
respect of which any Member is the registered holder;
(iii) the relationship, association or affiliation of such Person
with any other Member or Person whether by means of common
control or ownership or otherwise; and
(iv) any other facts or matters which the Board in its absolute
discretion may consider relevant to the determination of the
number of shares beneficially owned by any Person or the number
of Controlled Shares attributable to any Person.
If any Member or proposed acquiror does not respond to any such
request within the time specified therein, or if the Board has reason to believe
that any certification or other information provided pursuant to any such
request is inaccurate or incomplete, the Board may decline to approve any
transfer or issuance to which such request relates or may determine to disregard
for all purposes the votes attached to any shares held by such Member.
(f) The restrictions on transfer authorised or imposed by these
Bye-laws shall not be imposed in any circumstances in a way that would interfere
with the settlement of trades or transactions entered into through the
facilities of a stock exchange on which the shares are listed or traded from
time to time; provided, that the Company may decline to register transfers in
--------
accordance with these Bye-laws and resolutions of the Board after a settlement
has taken place.
63. Transfers by joint holders
--------------------------
The joint holders of any share or shares may transfer such share or shares
to one or more of such joint holders, and the surviving holder or holders of any
share or shares previously held by them jointly with a deceased Member may
transfer any such share to the executors or administrators of such deceased
Member.
TRANSMISSION OF SHARES
----------------------
64. Representative of deceased Member
---------------------------------
In the case of the death of a Member, the survivor or survivors where the
deceased Member was a joint holder, and the legal personal representatives of
the deceased Member where the deceased Member was a sole holder, shall be the
only persons recognized by the Company as having any title to the deceased
Member's interest in the shares. Nothing herein contained shall release the
30
<PAGE>
estate of a deceased joint holder from any liability in respect of any share
which had been jointly held by such deceased Member with other persons. Subject
to the provisions of Section 52 of the Act, for the purpose of this Bye-law,
"legal personal representative" means the executor or administrator of a
deceased Member or such other person as the Board may in its absolute discretion
decide as being properly authorised to deal with the shares of a deceased
Member.
65. Registration on death or bankruptcy
-----------------------------------
Any Person becoming entitled to a share in consequence of the death or
bankruptcy of any Member may be registered as a Member upon such evidence as the
Board may deem sufficient or may elect to nominate some Person to be registered
as a transferee of such share, and in such case the Person becoming entitled
shall execute in favor of such nominee an instrument of transfer in a form
satisfactory to the Board. On the presentation thereof to the Board, accompanied
by such evidence as the Board may require to prove the title of the transferor
and such other information as the Board shall deem necessary or appropriate, and
the transferee shall be registered as a Member but the Board shall, in either
case, have the same right to decline or suspend registration as it would have
had in the case of a transfer of the share by that Member before such Member's
death or bankruptcy, as the case may be.
66. Registration Fees
-----------------
A fee may be charged by the Company for registering any transfer, probate,
letters of administration, certificate of death or marriage, power of attorney,
distringas or stop notice, order of court or other instrument relating to or
affecting the title to any share, or otherwise making an entry in the Register
of Members relating to any share.
DIVIDENDS AND OTHER DISTRIBUTIONS
---------------------------------
67. Declaration of dividends by the Board
-------------------------------------
Subject to any rights or restrictions at the time lawfully attached to any
class of shares and subject to the provisions of these Bye-laws, the Board may,
in accordance with Section 54 of the Act, declare a dividend to be paid to the
Members, in proportion to the number of shares held by them, and such dividend
may be paid in cash or wholly or partly in specie in which case the Board may
fix the value for distribution in specie of any assets.
68. Other distributions
-------------------
The Board may declare and make such other distributions (in cash or in
specie) to the Members as may be lawfully made out of the assets of the Company.
69. Reserve fund
------------
31
<PAGE>
The Board may from time to time before declaring a dividend set aside, out
of the surplus or profits of the Company, such sum as it thinks proper as a
reserve fund to be used to meet contingencies or for equalizing dividends or for
any other special purpose.
70. Deduction of Amounts due to the Company
---------------------------------------
The Board may deduct from the dividends or distributions payable to any
Member all monies due from such Member to the Company.
71. Unclaimed dividends
-------------------
Any dividend or distribution unclaimed for a period of six years from the
date of declaration of such dividend or distribution shall be forfeited and
shall revert to the Company and the payment by the Board of any unclaimed
dividend or distribution, interest or other sum payable on or in respect of the
share into a separate account shall not constitute the Company a trustee in
respect thereof.
72. Interest on dividend
--------------------
No dividend or distribution shall bear interest against the Company.
CAPITALIZATION
--------------
73. Capitalization
--------------
(a) The Board may resolve to capitalize any part of the amount for the time
being standing to the credit of any of the Company's share premium or other
reserve accounts or to the credit of the profit and loss account or otherwise
available for distribution by applying such sum in paying up unissued shares to
be allotted as fully paid shares pro rata to the Members.
(b) The Board may resolve to capitalize any sum standing to the credit of a
reserve account or sums otherwise available for dividend or distribution by
applying such amounts in paying up in full partly paid shares of those Members
who would have been entitled to such sums if they were distributed by way of
dividend or distribution.
ACCOUNTS AND FINANCIAL STATEMENTS
---------------------------------
74. Records of account
------------------
The Board shall cause to be kept proper records of account with respect to
all transactions of the Company and in particular with respect to:
(a) all sums of money received and expended by the Company and the matters
in respect of which the receipt and expenditure relates;
32
<PAGE>
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Such records of account shall be kept at the registered office of the
Company or, subject to Section 83(2) of the Act, at such other place as the
Board thinks fit and shall be available for inspection by the Directors during
normal business hours. No Member in its capacity as a Member shall have any
right to inspect any accounting record or book or document of the Company except
as conferred by law or as authorised by the Board.
75. Financial year end
------------------
The financial year end of the Company may be determined by resolution of
the Board and failing such resolution shall be December 31 in each year.
76. Financial statements
--------------------
Subject to any rights to waive laying of accounts pursuant to Section 88 of
the Act, financial statements as required by the Act shall be laid before the
Members in general meeting.
AUDIT
-----
77. Appointment of Auditor
----------------------
Subject to Section 88 of the Act, at the annual general meeting or at a
subsequent special general meeting in each year, an independent representative
of the Members shall be appointed by them as Auditor of the accounts of the
Company. Such Auditor may be a Member but no Director, Officer or employee of
the Company shall, during his or her continuance in office, be eligible to act
as an Auditor of the Company.
78. Remuneration of Auditor
-----------------------
The remuneration of the Auditor shall be fixed by the Company in general
meeting or in such manner as the Members may determine.
79. Vacation of office of Auditor
-----------------------------
If the office of Auditor becomes vacant by the resignation or death of the
Auditor, or by the Auditor becoming incapable of acting by reason of illness or
other disability at a time when the Auditor's services are required, the Board
may fill the vacancy thereby created.
80. Access to books of the Company
------------------------------
The Auditor shall at all reasonable times have access to all books kept by
the Company and to all accounts and vouchers relating thereto, and the Auditor
may call on the Directors or Officers
33
<PAGE>
of the Company for any information in their possession relating to the books or
affairs of the Company.
81. Report of the Auditor
---------------------
(a) Subject to any rights to waive laying of accounts or appointment of an
Auditor pursuant to Section 88 of the Act, the accounts of the Company shall be
audited at least once in every year.
(b) The financial statements provided for by these Bye-laws shall be
audited by the Auditor in accordance with generally accepted auditing standards.
The Auditor shall make a written report thereon in accordance with generally
accepted auditing standards and the report of the Auditor shall be submitted to
the Members in general meeting.
(c) The generally accepted auditing standards referred to in paragraph (b)
of this Bye-law 81 shall be those of the United States and the financial
statements and the report of the Auditor shall disclose this fact.
GRATUITIES, PENSIONS AND INSURANCE
----------------------------------
82. Benefits
--------
The Board may (by establishment of or maintenance of schemes or otherwise)
provide benefits, whether by the payment of gratuities or pensions or by
insurance or otherwise, for any past or present Director, Officer or employee of
the Company or any of its subsidiaries or anybody corporate associated with, or
any business acquired by, any of them, and for any member of his or her family
(including a spouse and a former spouse) or any individual who is or was
dependent on him or her, and may (as well before as after he ceases to hold such
office or employment) contribute to any fund and pay premiums for the purchase
or provision of any such benefit.
83. Insurance
---------
Without prejudice to the provisions of Bye-laws 30 and 31, the Board shall
have the power to purchase and maintain insurance for or for the benefit of any
individuals who are or were at any time Directors, Officers, or employees of the
Company, or of any other company which is its holding company or in which the
Company or such holding company has any interest whether direct or indirect or
which is in any way allied to or associated with the Company, or of any
subsidiary of the Company or any such other company, or who are or were at any
time trustees of any pension fund in which employees of the Company or any such
other company or subsidiary are interested, including (without prejudice to the
generality of the foregoing) insurance against any liability incurred by such
individuals in respect of any act or omission in the actual or purported
execution or discharge of their duties or in the exercise or purported exercise
of their powers or otherwise in
34
<PAGE>
relation to their duties, powers or offices in relation to the Company or any
such other company, subsidiary or pension fund.
84. Limitation on Accountability
----------------------------
No Director or former Director shall be accountable to the Company or the
Members for any benefit provided pursuant to Bye-law 82 or 83 and the receipt
of any such benefit shall not disqualify any individual from being or becoming a
Director of the Company.
NOTICES
-------
85. Notices to Members of the Company
---------------------------------
A notice may be given by the Company to any Member either by delivering it
to such Member in person or by sending it to such Member's address in the
Register of Members or to such other address given for the purpose. For the
purposes of this Bye-law, a notice may be sent by mail, courier service, cable,
telex, telecopier, facsimile, electronic-mail or other mode of representing
words in a legible and non-transitory form. If such notice is sent by next-day
courier, cable, telex, telecopier, facsimile or electronic-mail, it shall be
deemed to have been given the Business Day following the sending thereof and, if
by registered mail, three Business Days following the sending thereof.
86. Notices to joint Members
------------------------
Any notice required to be given to a Member shall, with respect to any
shares held jointly by two or more Persons, be given to whichever of such
Persons is named first in the Register of Members and notice so given shall be
sufficient notice to all the holders of such shares.
87. Service and delivery of notice
------------------------------
Subject to Bye-law 85, any notice shall be deemed to have been served at
the time when the same would be delivered in the ordinary course of transmission
and, in proving such service, it shall be sufficient to prove that the notice
was properly addressed and prepaid, if posted, and the time when it was posted,
delivered to the courier or to the cable company or transmitted by telex,
facsimile or other method as the case may be.
REGISTERED OFFICE
-----------------
88. Registered Office
-----------------
The registered office of the Company shall be at such address as the Board
may fix from time to time by resolution.
SEAL OF THE COMPANY
-------------------
89. The seal
--------
35
<PAGE>
The seal of the Company shall be in such form as the Board may from time to
time determine. The Board may adopt one or more duplicate seals.
90. Manner in which seal is to be affixed
-------------------------------------
The seal of the Company shall not be affixed to any instrument except
attested by the signature of a Director and the Secretary or any two Directors,
or any person appointed by the Board for the purpose; provided, that any
--------
Director or Officer may affix the seal of the Company attested by such
Director's or Officer's signature only to any authenticated copies of these Bye-
laws, the incorporating documents of the Company, the minutes of any meetings or
any other documents required to be authenticated by such Director or Officer.
Any such signature may be printed or affixed by mechanical means on any share
certificate, debenture, stock certificate or other security certificate.
91. Destruction of Documents
------------------------
The Company shall be entitled to destroy all instruments of transfer of
shares which have been registered, and all other documents on the basis of which
any entry is made in the Register, at any time after the expiration of six years
from the date of registration thereof and all dividends mandates or variations
or cancellations thereof and notifications of change of address at any time
after the expiration of two years from the date of recording thereof and all
share certificates which have been canceled at any time after the expiration of
one year from the date of cancellation thereof and all paid dividends, warrants
and checks (cheques) at any time after the expiration of one year from the date
of actual payment thereof and all instruments of proxy which have been used for
the purpose of a poll at any time after the expiration of one year from the date
of such use and all instruments of proxy which have not been used for the
purpose of a poll at any time after one month from the end of the meeting to
which the instrument of proxy relates and at which no poll was demanded. It
shall conclusively be presumed in favor of the Company that every entry in the
Register purporting to have been made on the basis of an instrument of transfer
or other document so destroyed was duly and properly made, that every instrument
of transfer so destroyed was a valid and effective instrument duly and properly
registered, that every share certificate so destroyed was a valid and effective
certificate duly and properly canceled and that every other document
hereinbefore mentioned so destroyed was a valid and effective document in
accordance with the recorded particulars thereof in the books or records of the
Company; provided, that:
--------
(a) the provisions aforesaid shall apply only to the destruction of a
document in good faith and without notice of any claim (regardless of
the parties thereto) to which the document might be relevant;
(b) nothing herein contained shall be construed as imposing upon the
Company any liability in respect of the destruction of any such
document earlier than as aforesaid or in any other circumstances which
would not attach to the Company in the absence of this Bye-law; and
36
<PAGE>
(c) references herein to the destruction of any document include
references to the disposal thereof in any manner.
UNTRACED MEMBERS
----------------
92. Sale of Shares
--------------
The Company shall be entitled to sell at the best price reasonably
obtainable, or if the shares are listed on a stock exchange to purchase at the
trading price on the date of purchase, the shares of a Member or the shares to
which a Person is entitled by virtue of transmission on death, bankruptcy or
otherwise by operation of law; provided, that:
---------
(a) during the period of 12 years prior to the date of the publication of
the advertisements referred to in paragraph (b) of this Bye-law 92
(or, if published on different dates, the first thereof) at least
three dividends in respect of the shares in question have been
declared and all dividends, warrants and checks (cheques) that have
been sent in the manner authorised by these Bye-laws in respect of the
shares in question have remained uncashed; and
(b) the Company shall as soon as practicable after expiry of the said
period of 12 years have inserted advertisements both in a national
daily newspaper and in a newspaper circulating in the area of the last
known address of such Member or other Person giving notice of its
intention to sell or purchase the shares; and
(c) during the said period of 12 years and the period of three months
following the publication of the said advertisements the Company shall
have received no indication either of the whereabouts or of the
existence of such Member or person; and
(d) if the shares are listed on a stock exchange, notice shall have been
given to the relevant department of such stock exchange of the
Company's intention to make such sale or purchase prior to the
publication of advertisements.
If during any 12-year period referred to above, further shares have been issued
in right of those held at the beginning of such period or of any previously
issued during such period and all the other requirements of this Bye-law 92
(other than the requirement that they be in issue for 12 years) have been
satisfied in regard to the further shares, the Company may also sell or purchase
the further shares.
93. Instrument of Transfer
----------------------
To give effect to any such sale or purchase, the Board may authorise some
person to execute an instrument of transfer of the shares sold or purchased to,
or in accordance with the directions of, the purchaser and an instrument of
transfer executed by that person shall be as effective as if it had been
executed by the holder of, or person entitled by transmission to, the shares.
The transferee of
37
<PAGE>
any shares sold shall not be bound to see to the application of the purchase
money, nor shall his title to the shares be affected by any irregularity in, or
invalidity of, the proceedings relating to the sale.
94. Proceeds of Sale
----------------
The net proceeds of sale or purchase of shares shall belong to the Company
which, for the period of six years after the transfer or purchase, shall be
obliged to account to the former Member or other Person previously entitled as
aforesaid for an amount equal to such proceeds and shall enter the name of such
former Member or other Person in the books of the Company as a creditor for such
amount. No trust shall be created in respect of the debt, no interest shall be
payable in respect of the same and the Company shall not be required to account
for any money earned on the net proceeds, which may be employed in the business
of the Company or invested in such investments as the Board from time to time
thinks fit. After the said six-year period has passed, the net proceeds of
share shall become the property of the Company, absolutely, and any rights of
the former Member or other Person previously entitled as aforesaid shall
terminate completely.
WINDING-UP
----------
95. Determination to liquidate
--------------------------
Subject to the Act, the Company shall be wound up voluntarily by resolution
of the Members.
96. Winding-up/distribution by liquidator
-------------------------------------
If the Company shall be wound up the liquidator may, with the sanction of a
resolution of the Members, divide among the Members in specie or in kind the
whole or any part of the assets of the Company (whether they shall consist of
property of the same kind or not) and may, for such purpose, set such value as
he or she deems fair upon any property to be divided as aforesaid and may
determine how such division shall be carried out as between the Members or
different classes of Members. The liquidator may, with the like sanction, vest
the whole or any part of such assets in trustees upon such trusts for the
benefit of the Members as the liquidator shall think fit, but so that no Member
shall be compelled to accept any shares or other securities or assets whereon
there is any liability.
ALTERATION OF BYE-LAWS
----------------------
97. Alteration of Bye-laws
----------------------
No Bye-law shall be rescinded, altered or amended and no new Bye-law shall
be made until the same has been approved by a resolution of the Board and
confirmed by a resolution of the Members. Paragraph (b) of Bye-law 11 and all of
Bye-law 12 shall not be rescinded, altered or amended and no new Bye-law
inconsistent with such existing Bye-laws shall be made until the same has been
approved by a resolution of the Board and confirmed by a resolution of Members
holding
38
<PAGE>
at least sixty-six and two-thirds percent (66 2/3%) of the issued and
outstanding share capital of the Company.
******
***
*
39
<PAGE>
EXHIBIT 23.4
[Letterhead of PricewaterhouseCoopers LLP]
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Everest Reinsurance Group, Ltd. of our report dated
February 17, 1999 except for Note 14, as to which the date is March 11, 1999
relating to the financial statements and financial statement schedules, which
appears in Everest Reinsurance Holdings, Inc. Annual Report on Form 10-K for the
year ended December 31, 1998. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
September 17, 1999
New York, New York
<PAGE>
EXHIBIT 23.5
[Letterhead of PricewaterhouseCoopers]
Consent of Independent Accountants
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-4 of
Everest Reinsurance Group, Ltd. of our report dated September 17, 1999 relating
to the financial statement of Everest Reinsurance Group, Ltd., which appears in
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers
September 17, 1999
Hamilton, Bermuda
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE EVEREST
REINSURANCE GROUP LTD. FORM S-4 FOR THE PERIOD ENDED SEPTEMBER 14, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-14-1999
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 0
<CASH> 50
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 50
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 12
<OTHER-SE> 38
<TOTAL-LIABILITY-AND-EQUITY> 50
0
<INVESTMENT-INCOME> 0
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
EVEREST REINSURANCE HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J.V. Taranto, S.L. Limauro, and J.J. Burak, and
each of them, as proxies of the undersigned, each with full power to act without
the others and with full power of substitution, to vote all the shares of Common
Stock of EVEREST REINSURANCE HOLDINGS, INC. held in the name of the undersigned
at the close of business on [Record Date], at the Special Meeting of
Stockholders to be held on [Meeting Date], at [Meeting Time] (local time), and
at any adjournment thereof, with all the powers the undersigned would have if
personally present, as follows:
(CONTINUED ON OTHER SIDE)
<PAGE>
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING ITEMS:
1. APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER, dated as of
September 17, 1999, among Everest Reinsurance Holdings, Inc., Everest
Reinsurance Group, Ltd. and Everest Re Merger Corporation, providing
for, among other things, the merger of Everest Re Merger Corporation
with and into Everest Reinsurance Holdings, Inc., the conversion of
Everest Reinsurance Holdings, Inc. Common Stock into Everest
Reinsurance Group, Ltd. Common Shares and the conversion of Everest Re
Merger Corporation Common Stock into Everest Reinsurance Holdings,
Inc. Common Stock, as more fully described in the Proxy Statement
dated [Mailing Date] relating to the Special Meeting
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, upon such other matters as may properly come before the
meeting, all in accordance with the accompanying Notice and Proxy Statement,
receipt of which is acknowledged.
IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES REPRESENTED THEREBY
WILL BE VOTED. IF A CHOICE IS SPECIFIED BY THE STOCKHOLDER, THE SHARES WILL BE
VOTED ACCORDINGLY. IF NOT OTHERWISE SPECIFIED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR ITEM 1.
SIGNATURE(S) DATE
- -------------------------------------------
Sign exactly as name appears hereon.
When signing in a representative capacity,
please give full title.
<PAGE>
EXHIBIT 99.2
CONSENT TO BE NAMED IN THE REGISTRATION STATEMENT
To: Everest Reinsurance Group, Ltd.
The undersigned hereby consents to be named as a person about to become a
Director in the Registration Statement on Form S-4 (the "Registration
Statement") relating to the merger of Everest Re Merger Corporation, a wholly
owned subsidiary of Everest Reinsurance Group, Ltd. (the "Company"), with and
into Everest Reinsurance Holdings, Inc., as filed by the Company and to the
statements in such Registration Statement concerning the undersigned's intended
election to the Board of Directors of the Company.
Dated: September 16, 1999
By: /s/ Martin Abrahams
-----------------------------------
Martin Abrahams
<PAGE>
EXHIBIT 99.3
CONSENT TO BE NAMED IN THE REGISTRATION STATEMENT
To: Everest Reinsurance Group, Ltd.
The undersigned hereby consents to be named as a person about to become a
Director in the Registration Statement on Form S-4 (the "Registration
Statement") relating to the merger of Everest Re Merger Corporation, a wholly
owned subsidiary of Everest Reinsurance Group, Ltd. (the "Company"), with and
into Everest Reinsurance Holdings, Inc., as filed by the Company and to the
statements in such Registration Statement concerning the undersigned's intended
election to the Board of Directors of the Company.
Dated: September 16, 1999
By: /s/ Kenneth J. Duffy
----------------------------------
Kenneth J. Duffy
<PAGE>
EXHIBIT 99.4
CONSENT TO BE NAMED IN THE REGISTRATION STATEMENT
To: Everest Reinsurance Group, Ltd.
The undersigned hereby consents to be named as a person about to become a
Director in the Registration Statement on Form S-4 (the "Registration
Statement") relating to the merger of Everest Re Merger Corporation, a wholly
owned subsidiary of Everest Reinsurance Group, Ltd. (the "Company"), with and
into Everest Reinsurance Holdings, Inc., as filed by the Company and to the
statements in such Registration Statement concerning the undersigned's intended
election to the Board of Directors of the Company.
Dated: September 16, 1999
By: /s/ John R. Dunne
--------------------------------
John R. Dunne
<PAGE>
EXHIBIT 99.5
CONSENT TO BE NAMED IN THE REGISTRATION STATEMENT
To: Everest Reinsurance Group, Ltd.
The undersigned hereby consents to be named as a person about to become a
Director in the Registration Statement on Form S-4 (the "Registration
Statement") relating to the merger of Everest Re Merger Corporation, a wholly
owned subsidiary of Everest Reinsurance Group, Ltd. (the "Company"), with and
into Everest Reinsurance Holdings, Inc., as filed by the Company and to the
statements in such Registration Statement concerning the undersigned's intended
election to the Board of Directors of the Company.
Dated: September 16, 1999
By: /s/ Thomas J. Gallagher
---------------------------------
Thomas J. Gallagher
<PAGE>
EXHIBIT 99.6
CONSENT TO BE NAMED IN THE REGISTRATION STATEMENT
To: Everest Reinsurance Group, Ltd.
The undersigned hereby consents to be named as a person about to become a
Director in the Registration Statement on Form S-4 (the "Registration
Statement") relating to the merger of Everest Re Merger Corporation, a wholly
owned subsidiary of Everest Reinsurance Group, Ltd. (the "Company"), with and
into Everest Reinsurance Holdings, Inc., as filed by the Company and to the
statements in such Registration Statement concerning the undersigned's intended
election to the Board of Directors of the Company.
Dated: September 16, 1999
By: /s/ William F. Galtney, Jr.
--------------------------------------
William F. Galtney, Jr.
<PAGE>
EXHIBIT 99.7
CONSENT TO BE NAMED IN THE REGISTRATION STATEMENT
To: Everest Reinsurance Group, Ltd.
The undersigned hereby consents to be named as a person about to become a
Director in the Registration Statement on Form S-4 (the "Registration
Statement") relating to the merger of Everest Re Merger Corporation, a wholly
owned subsidiary of Everest Reinsurance Group, Ltd. (the "Company"), with and
into Everest Reinsurance Holdings, Inc., as filed by the Company and to the
statements in such Registration Statement concerning the undersigned's intended
election to the Board of Directors of the Company.
Dated: September 16, 1999
By: /s/ Joseph V. Taranto
------------------------------------
Joseph V. Taranto
