<PAGE>
As filed with the Securities and Exchange Commission on December 22, 1999
Registration No. 333-87361
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
EVEREST RE 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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(2)
</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.
(2) Previously paid.
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], 2000
Restructuring proposed--your vote is very important
Dear Fellow Stockholders:
The board of directors of Everest Reinsurance Holdings, Inc., which is
referred to in this letter as Everest Holdings, has called a special meeting of
stockholders for [Meeting Date], 2000. The purpose of the meeting is to
consider and vote on 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 Re Group, Ltd., which
is referred to in this letter as Everest Group. Everest Group was recently
organized under the laws of Bermuda and has its principal offices in Barbados.
Also as a result of the restructuring, each outstanding share of common stock
of Everest Holdings will automatically convert into one common share of Everest
Group. We expect to list the Everest Group common shares on the New York Stock
Exchange 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 stockholders will recognize gain, if any, but not loss.
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], 2000, and is first
being mailed to stockholders on or about [Mailing Date], 2000.
<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 referred to in this document
as Everest Holdings, will be held on [Meeting Date], 2000 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 Re Group, Ltd., a Bermuda company referred to in this
document as Everest Group, and Everest Re Merger Corporation, a Delaware
corporation and wholly-owned subsidiary of Everest Group that is
referred to in this document as Everest Merger. The proposed merger 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 automatically convert into one common share of Everest
Group.
2. Any other business related to the proposed restructuring that 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 that 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], 2000
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, you should make any request for
documents by , 2000, which is 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
RISK FACTORS.............................................................. 7
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS...................... 13
THE COMPANIES............................................................. 14
RECENT DEVELOPMENTS....................................................... 17
MARKET PRICE AND DIVIDEND INFORMATION..................................... 17
FINANCIAL INFORMATION ABOUT EVEREST GROUP................................. 18
THE SPECIAL MEETING....................................................... 18
THE PROPOSED RESTRUCTURING................................................ 20
MANAGEMENT................................................................ 29
MATERIAL TAX CONSIDERATIONS............................................... 31
DESCRIPTION OF EVEREST GROUP SHARE CAPITAL................................ 43
REGULATORY CONSIDERATIONS ASSOCIATED WITH OPERATING IN BERMUDA AND
BARBADOS................................................................. 49
LEGAL MATTERS............................................................. 54
EXPERTS................................................................... 54
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING......................... 55
ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES
LAWS..................................................................... 55
WHERE YOU CAN FIND MORE INFORMATION....................................... 55
</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.
Everest Holdings must receive the notice before the special meeting. Second,
you may complete and submit a new proxy card by mail. Everest Holdings will
record the latest proxy actually received by it prior to the special meeting
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, Everest Group will mail to you a transmittal
form with instructions on how to exchange your Everest Holdings stock
certificates for Everest Group share certificates.
Q: When do you expect to complete the restructuring?
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 restructuring is approved by the
stockholders 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 Reinsurance
Holdings, Inc...........
Everest Holdings was formed in 1993 as the holding
company for Everest Reinsurance Company, a property
and casualty reinsurer referred to in this document
as Everest Re, and its subsidiaries. The mailing
address of its 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.
Everest Group was recently organized under the laws
Everest Re Group, Ltd... 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 its 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 Re Merger Everest Merger was recently organized under the laws
Corporation............. 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
meeting................. The special meeting of stockholders will be held on
[Meeting Date], 2000 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], 2000 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 any other business related to the
proposed restructuring that 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],
2000, directors and executive officers of Everest
Holdings and their affiliates owned beneficially
approximately % of the shares of Everest
Holdings common stock outstanding on that date.
2
<PAGE>
The Restructuring
Description of the
restructuring........... Everest Merger will be merged into Everest Holdings,
with Everest Holdings as the surviving corporation.
As a result of the merger, Everest Holdings will
become a subsidiary of Everest Group and each
outstanding share of common stock of Everest Holdings
will automatically convert into one common share of
Everest Group. Each shareholder's percentage
ownership in Everest Group immediately following the
restructuring will be identical to that shareholder's
percentage interest in Everest Holdings immediately
before the restructuring. Following the merger,
Everest Group will capitalize a Bermuda-based
reinsurance subsidiary called Everest Reinsurance
(Bermuda) Ltd., referred to in this document as
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 executive 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 Everest
Group with an enhanced ability to compete and create
better returns for stockholders by permitting Everest
Group 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 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],
2000, 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 stockholders have approved
the merger.
Regulatory approvals.... Everest Group has obtained the approval of its
acquisition of control of Everest Holdings' insurance
subsidiaries from the insurance regulatory
authorities in Delaware and Arizona and will give
written notice of the
3
<PAGE>
restructuring to the insurance and financial services
regulatory authorities in other U.S. jurisdictions
where those 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 the countries where Everest Holdings'
insurance subsidiaries are domiciled or licensed.
Appraisal rights........ Under Section 262 of the Delaware General Corporation
Law, Everest Holdings stockholders have no right to a
court determination, in a 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 that holder's adjusted basis in
the Everest Holdings common stock surrendered. "See
Material Tax Considerations."
Exchange of stock
certificates............ If the restructuring is completed, Everest Group will
mail to stockholders a transmittal form with
instructions on how to exchange 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
redeem or purchase common shares from any person, and
may decline to register a transfer of common shares,
if the board of directors has reason to believe that
the ownership of common shares, or the transfer,
would result in:
. any person 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,
. any person owning, directly or indirectly, more
than 9.9% of any class of the issued and
outstanding share capital of Everest Group or
. 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 limit the
voting rights of any person owning, directly or
indirectly, more than 9.9% of the voting power of the
issued and outstanding share capital of Everest
Group. Because of the attribution and constructive
ownership rules of the U.S. Internal Revenue Code of
1986, referred to in this document as the Code, and
the rules of the SEC regarding determination of
beneficial ownership, some persons 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, which are referred to in this document as 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 nine months ended September 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 that 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, which are referred to in this document as
SAP and 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. The
term "LAE" refers to loss adjustment expense.
<TABLE>
<CAPTION>
Nine Months Ended
September 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.. $ 836.6 $ 792.9 $1,045.9 $1,075.0 $1,044.0 $ 949.5 $ 953.2
Net premiums written.... 804.3 756.3 1,016.6 1,031.1 1,030.5 783.2 863.2
Net premiums earned..... 795.0 771.3 1,068.0 1,049.8 973.6 753.3 853.3
Net investment income... 188.9 183.2 244.9 228.5 191.9 166.0 143.6
Net realized capital
gains (losses) (1)..... (17.1) 3.5 (0.8) 15.9 5.7 33.8 (10.5)
Total revenue.......... 966.3 960.7 1,315.2 1,299.2 1,169.3 948.9 982.8
-------- -------- -------- -------- -------- -------- --------
Losses and LAE incurred
(including
catastrophes).......... 568.9 564.0 778.4 765.4 716.0 674.7 720.8
Total catastrophe losses
(2).................... 25.3 17.1 30.6 8.6 7.1 31.4 81.9
Commission, brokerage,
taxes and fees......... 214.4 197.7 274.6 274.8 254.6 227.4 197.9
Other underwriting
expenses............... 36.1 36.2 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)..... 819.4 798.0 1,102.5 1,091.9 1,025.5 975.4 994.8
Income (loss) before
taxes (3).............. 146.9 162.7 212.7 207.3 143.8 (26.6) (12.0)
Income tax (benefit).... 28.4 37.2 47.5 52.3 31.8 (27.3) (22.6)
Net income (3).......... $ 118.5 $ 125.5 $ 165.2 $ 155.0 $ 112.0 $ 0.7 $ 10.7
======== ======== ======== ======== ======== ======== ========
Net income per basic
share (4).............. $ 2.42 $ 2.49 $ 3.28 $ 3.07 $ 2.22 $ 0.01 $ 0.21
======== ======== ======== ======== ======== ======== ========
Net income per diluted
share (5).............. $ 2.41 $ 2.47 $ 3.26 $ 3.05 $ 2.21 $ 0.01 $ 0.21
======== ======== ======== ======== ======== ======== ========
Dividends paid per
share.................. $ 0.18 $ 0.15 $ 0.20 $ 0.16 $ 0.12 $ 0.14 $ 0.15
======== ======== ======== ======== ======== ======== ========
Certain GAAP Financial
Ratios
Loss and LAE ratio (6).. 71.6% 73.1% 72.9% 72.9% 73.5% 89.6% 84.5%
Underwriting expense
ratio (7).............. 31.5 30.4 30.3 31.1 31.8 39.9 31.2
-------- -------- -------- -------- -------- -------- --------
Combined ratio.......... 103.1% 103.5% 103.2% 104.0% 105.3% 129.5% 115.7%
======== ======== ======== ======== ======== ======== ========
Certain SAP Data (8)
Ratio of net premiums
written to surplus (9). 1.0x 1.0x 1.0x 1.4x 1.2x 1.0x 1.2x
Statutory surplus....... $1,128.1 $ 998.7 $1,059.4 $ 908.8 $ 772.7 $ 686.9 $ 600.7
Loss and LAE ratio (10). 71.3% 72.2% 72.2% 75.7% 71.2% 92.2% 85.8%
Underwriting expense
ratio (11)............. 31.5 30.4 31.1 25.6 31.7 38.9 32.6
-------- -------- -------- -------- -------- -------- --------
Combined ratio.......... 102.8% 102.6% 103.3% 101.3% 102.9% 131.1% 118.4%
======== ======== ======== ======== ======== ======== ========
Balance Sheet Data (at
end of period)
Total investments and
cash................... $4,160.7 $4,450.2 $4,325.8 $4,163.3 $3,624.6 $3,238.3 $2,573.2
Total assets............ 5,783.1 5,811.9 5,996.7 5,538.0 5,047.8 4,647.8 4,040.6
Loss and LAE reserves... 3,698.0 3,491.7 3,800.0 3,437.8 3,246.9 2,969.3 2,706.4
Total liabilities....... 4,405.3 4,353.4 4,517.5 4,230.5 3,961.7 3,664.2 3,299.6
Stockholders' equity
(12)................... 1,377.8 1,458.6 1,479.2 1,307.5 1,086.0 983.6 741.0
Book value per share
(13)................... 28.61 29.00 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 $129.7 million (or $2.64 per basic share and $2.63 per
diluted share), $123.2 million (or $2.44 per basic share and $2.43 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 September 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 49.0 million, 50.5
million, 50.4 million, 50.5 million, 50.6 million, 50.2 million and 50.0
million for the periods ended September 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 49.2 million, 50.8
million, 50.7 million, 50.8 million, 50.7 million, 50.2 million and 50.0
million for the periods ended September 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 $1,339.9 million, $1,254.1 million, $1,281.6
million, $1,147.1 million, $1,008.3 million, $899.9 million and $799.1
million as of September 30, 1999 and 1998 and December 31, 1998, 1997,
1996, 1995 and 1994, respectively.
(13) Based on 48.2 million shares outstanding for September 30, 1999, 50.3
million shares outstanding for September 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.
6
<PAGE>
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.
The potential benefits from the restructuring are not guaranteed.
Everest Group anticipates that several potential benefits will result from
the restructuring. However, these potential benefits are not guaranteed.
Everest Group may not realize benefits from the Bermuda and Barbados business,
regulatory and tax environments. As a result, Everest Group may not experience
any competitive advantages or enhanced returns for shareholders from the
restructuring. In addition, Everest Holdings currently estimates that the
process of restructuring will result in expenses of approximately $4 million.
These expenses will be incurred regardless of whether Everest Group is able to
realize any benefits of the restructuring. See "The Proposed Restructuring--
Background and Reasons for the Restructuring."
Everest Group and Everest Bermuda may not be successful in launching their
start-up operations.
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 require a significant time
commitment by the senior executives of Everest Group.
If Everest Group and Everest Holdings are not able to raise funds in the public
or private debt markets to capitalize Everest Bermuda, then Everest Group may
be unable to access the Bermuda market as planned.
As soon as practicable following the restructuring, Everest Group intends to
capitalize Everest Bermuda with approximately $250 million. Everest Group
intends to obtain funds for this purpose from Everest Holdings. Everest
Holdings, in turn, intends to obtain funds for this purpose either through
offerings of its debt and/or trust preferred securities or through bridge
financing. However, Everest Holdings may not be able to successfully complete
the offerings of debt and/or trust preferred securities or obtain bridge
financing on satisfactory terms. As a result, Everest Group may not be able to
capitalize Everest Bermuda and conduct business in the Bermuda reinsurance
market as contemplated.
Everest Group and/or Everest Bermuda may become subject to U.S. corporate
income tax, which will reduce Everest Group's net income.
Everest Holdings currently is subject to U.S. income tax on its worldwide
income. After the restructuring, Everest Holdings and its subsidiaries will
continue to be subject to U.S. income tax on their operations and Everest Group
will be subject to U.S. income tax on management fees that it may charge its
subsidiaries. Everest Group anticipates that its non-U.S. operations will not
be subject to U.S. income tax other than withholding tax on U.S. source
dividend income. Everest Group expects that the income of its Bermuda
subsidiaries may be as much as 20% of its worldwide income from operations.
Everest Group intends to conduct its 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 compliance with guidelines designed to
ensure that Everest Bermuda does not engage in the conduct of a U.S. trade or
business, Everest Group has been advised by Mayer, Brown & Platt, its United
States counsel, that Everest Bermuda should not be required to pay U.S.
corporate income tax, other than withholding tax on U.S. source dividend
income. However, if the IRS successfully contended that Everest Bermuda is
engaged in a trade or business in the United States, Everest Bermuda would be
required to pay U.S. corporate income tax on that income that is subject to the
taxing jurisdiction of the United States, and possibly the U.S. branch profits
tax.
7
<PAGE>
Even if the IRS successfully contended that Everest Bermuda is engaged in a
U.S. trade or business, Everest Bermuda believes that it will be entitled to
benefits under the U.S.-Bermuda income tax treaty. The Bermuda treaty would
preclude the IRS from taxing Everest Bermuda's income except to the extent that
its income were attributable to a permanent establishment maintained by Everest
Bermuda in the United States. Everest Group does not believe that Everest
Bermuda will have a permanent establishment in the United States or 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 on that income.
Everest Group intends to conduct its Barbados operations in a manner that
will cause it to minimize its U.S. tax exposure. Based on compliance with
guidelines designed to ensure that Everest Group generates only immaterial
amounts, if any, of income that is subject to the taxing jurisdiction of the
United States, Everest Group has been advised by Mayer, Brown & Platt, its
United States counsel, that it should be required to pay only immaterial
amounts, if any, of U.S. corporate income tax, other than withholding tax on
U.S. source dividend income. However, if the IRS successfully contended that
Everest Group has material amounts of income, Everest Group would be required
to pay U.S. corporate income tax on that income, and possibly the U.S. branch
profits tax.
Even if the IRS successfully contended that Everest Group has material
amounts of income that is subject to the taxing jurisdiction of the United
States, Everest Group believes that it will be entitled to benefits under the
U.S.-Barbados income tax treaty. The Barbados treaty would preclude the IRS
from taxing Everest Group's income, except to the extent that its income were
attributable to a permanent establishment maintained by Everest Group in the
United States. Everest Group does not believe that it 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 in the United States, Everest
Group would be subject to U.S. tax on that income.
If Everest Bermuda becomes subject to U.S. income tax on its income or if
Everest Group becomes subject to U.S. income tax on more than immaterial
amounts of income after the restructuring, their incomes could also be subject
to the U.S. branch profits tax. As a result, Everest Bermuda and Everest Group
would be subject to taxation at a higher combined effective rate than if they
were organized as U.S. corporations. The combined effect of the 35% U.S.
corporate income tax rate and the 30% branch profits tax rate is a net tax rate
of 54.5%. The imposition of these taxes would reduce Everest Group's net income
and reduce the anticipated tax benefits of the restructuring.
Everest Group shareholders could be subject to U.S. taxes on undistributed
income of Everest Group and/or Everest Bermuda.
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 that 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 the holder's adjusted basis in the Everest Holdings
common stock surrendered.
Other than as described above, U.S. holders of Everest Group common shares
generally will 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, those taxpayers generally will be required to include in
their income their pro rata share of the income of Everest Group and/or Everest
Bermuda as earned, even if not
8
<PAGE>
distributed. Everest Group has attempted to avoid having its shareholders
become subject to these provisions by including in its 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, Everest Group has been advised by Mayer, Brown & Platt, its
United States counsel, that Everest Group shareholders should not be subject to
U.S. tax on undistributed income.
In addition, special provisions of the Code apply to U.S. persons who are
shareholders of a foreign insurance company and have related person insurance
income allocated to them. Related person insurance income, often called 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 a U.S. taxpayer meeting the above definition.
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 U.S.
taxpayers, or persons related to U.S. taxpayers, who are insured or
reinsured by Everest Bermuda; and
. Everest Bermuda has gross RPII equal to 20% or more of its gross
insurance income.
Everest Group currently anticipates 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 neither of these conditions is satisfied, 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 those provisions
apply to Everest Group, shareholders would be taxed on that amount of gain at
the rates applicable to ordinary income rather than the lower rates applicable
to long-term capital gains. Everest Group has been advised by Mayer, Brown &
Platt, its 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 Everest Group's taxes and
reduce its net income.
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, Everest Group might be
subject to additional taxes, which could reduce its net income.
9
<PAGE>
Everest Group and/or Everest Bermuda may become subject to Bermuda tax, which
will reduce Everest Group's net income.
Everest Group currently is not subject to income or capital gains taxes in
Bermuda. Everest Group has received an assurance 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
that tax will not apply to Everest Group or to any of its operations or the
shares, debentures or other obligations of Everest Group until March 28, 2016.
This assurance does not prevent the application of any of those taxes to
persons ordinarily resident in Bermuda and does prevent the imposition of any
tax payable in accordance with the provisions of The Land Tax Act of 1967 of
Bermuda or otherwise payable in relation to any property leased to Everest
Group. Everest Group expects that Everest Bermuda, when it is organized, will
obtain a similar assurance from the Minister of Finance. However, Everest
Bermuda may not receive this assurance, which would reduce Everest Bermuda's
net income. There are currently no procedures for extending these assurances.
As a result, Everest Group and Everest Bermuda could be subject to taxes in
Bermuda after March 28, 2016, which could reduce their net income.
Everest Group may become subject to Barbados tax, which will reduce Everest
Group's net income.
Everest Group has applied for an international business company license
under the Barbados International Business Companies Act, 1991-24. If this
license is granted, 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 intends to apply to the
Minister of Finance for assurances 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. If given,
these assurances would be applicable for a period of fifteen years. However,
Everest Group may not receive this license or the assurances, which would
reduce its net income. There are currently no procedures for extending these
assurances. As a result, Everest Group could be ineligible for these benefits
after that period, which could reduce its net income.
Everest Group's net income will be reduced if U.S. excise and withholding taxes
are increased.
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 dividend 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 reduce Everest Group's net income.
In exchange for your Everest Holdings common stock, you will receive Everest
Group common shares, which may be redeemed or purchased by Everest Group and
will be subject to limitations on transfer.
The Everest Holdings common stock is nonredeemable and freely transferable.
In exchange for these shares, you will receive Everest Group common shares,
which under some circumstances may be redeemed or purchased by Everest Group
and will be subject to limitations on transfer. Everest Group's bye-laws
provide that if the 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 person 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
that person to the extent the board of directors determines it is
10
<PAGE>
necessary or advisable to avoid or cure any adverse or potential adverse
consequences. In addition, Everest Group's bye-laws permit its board of
directors to decline to register any transfer of common shares if it has reason
to believe that the transfer 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 this information or submits
incomplete or inaccurate information, the board of directors may decline to
register the 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 within the meaning of Section 13(d)(3) of
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,
the board of directors may decline to register some transfers 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.
In exchange for your Everest Holdings common stock, you will receive Everest
Group shares, which are subject to a cutback in voting rights.
The Everest Holdings common stock carries full voting rights. In exchange
for these shares, you will receive Everest Group shares, which under some
circumstances are subject to a cutback in voting rights. Everest Group's bye-
laws provide that if any person 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, that person'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 they
directly hold of record more than 9.9% of Everest Group's total voting power.
Furthermore, the board of directors has the authority to request from any
shareholder information for the purpose of determining whether that
shareholder's voting rights should be reduced. If any shareholder fails to
respond to a request for this information or submits incomplete or inaccurate
information, the board of directors may determine to disregard all votes
attached to that 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.
Everest Bermuda may not receive a favorable insurance rating, which could
adversely effect Everest Bermuda's ability to conduct business in the Bermuda
market.
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
11
<PAGE>
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 and
will not receive any ratings until after it has begun operations following the
restructuring. Any rating that Everest Bermuda receives could be lower than the
ratings assigned to Everest Re or its various competitors and could be
downgraded or withdrawn by the rating agency in the future. The failure of
Everest Bermuda to receive a favorable rating or a downgrade or withdrawal of a
rating could adversely effect Everest Group's ability to conduct business in
the Bermuda market.
Bermuda statutes and regulations may restrict the ability of Everest Bermuda to
write reinsurance or insurance policies and to distribute funds to Everest
Group.
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,
will provide for periodic examinations of Everest Bermuda and its financial
condition and will prescribe limitations on the ability of Everest Bermuda to
pay dividends and distributions. 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 in the United States could adversely affect Everest
Bermuda's ability to conduct business.
Everest Bermuda does not intend to be licensed or admitted as an insurer or
reinsurer in any U.S. jurisdiction. Under current law, Everest Bermuda
generally will be permitted to reinsure U.S. risks from its office in Bermuda
without obtaining those licenses. However, the insurance and reinsurance
regulatory framework has become subject to increased scrutiny. 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 U.S. state at any time in the future, it might be
required to post deposits or maintain minimum surplus levels and might be
prohibited from engaging in lines of business or from writing types of
policies. Complying with those laws could have a material adverse effect on
Everest Group's ability to conduct business in the Bermuda market.
Everest Bermuda may need to be licensed or admitted in additional jurisdictions
to develop its business.
As Everest Bermuda's business develops, it 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 those licenses is
often costly and may take a long time.
Everest Bermuda's ability to write reinsurance will be severely limited if it
is unable 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. Everest Group
expects that Everest Bermuda's reinsurance clients will typically require it to
post a letter of credit or enter into other security arrangements. If Everest
Bermuda is unable to obtain a letter of credit facility on
12
<PAGE>
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.
You may not be able to recover damages from Everest Group and some of its
directors, officers and experts named in this document if you sue them.
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. You also may not be able 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.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document and the information incorporated by reference in it include
"forward-looking statements" within the meaning of the U.S. federal securities
laws. Everest Holdings intends these forward-looking statements to be covered
by the safe harbor provisions of these laws. These safe harbor provisions only
apply to companies who have previously offered securities to the public.
Because Everest Group's offer of the common shares constitutes its initial
public offering of securities, the safe harbor provisions of the U.S. federal
securities laws do not apply to it. In some cases, you can identify forward-
looking statements by the 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 current expectations and are not
guarantees of performance. These statements involve risks, uncertainties and
assumptions. Actual events or results may differ materially from expectations.
Important factors that could cause actual results to be materially different
from 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 Everest Group's 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 Everest Group and its ceding insurance customers offer;
. Everest Group's ability to execute its strategies;
. catastrophe losses in Everest Group's 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 the adverse development exceeds the
limits available under or is not covered by Everest Re's stop loss
agreement with Gibraltar Casualty Company;
. greater than expected loss ratios on reinsurance or insurance written by
Everest Group;
13
<PAGE>
. changes in inflation that affect the profitability of Everest Group's
current reinsurance and insurance businesses or the adequacy of its claim
and claim expense liabilities;
. changes in Everest Group's retrocessional arrangements;
. lower than estimated retrocessional or reinsurance recoveries on losses,
including losses due to a decline in the creditworthiness of Everest
Group's retrocessionaires or reinsurers;
. changes in the reinsurance/retrocessional market impacting Everest
Group's ability to cede risks above its desired level of retention;
. changes in interest rates, increases in which cause a reduction in the
market value of Everest Group's fixed income investment portfolio and
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 Everest Group's common equity investments;
. changes in the composition of Everest Group's investment portfolio;
. gains or losses related to changes in foreign currency exchange rates;
. changes in the role of reinsurance brokers and Everest Group's
relationship with those brokers;
. impact of Year 2000 computer hardware, software and microprocessors
embedded in certain equipment on Everest Group's operations and potential
for Year 2000 claims under reinsurance and insurance contracts written by
Everest Group;
. impact of the Euro on Everest Group's operations or financial condition;
. adverse results in litigation matters, including litigation related to
environmental, asbestos and other potential mass tort claims;
. changes in Everest Group's capital needs;
. changes in Everest Group's ratings;
. the impact of current and future regulatory environments, generally, and
on the ability of Everest Group's 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.
Everest Group undertakes 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. 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. Reinsurance
is a form of insurance purchased by an insurance company to indemnify it for
all or part of the loss that it may sustain under insurance contracts that it
has written. Insurance companies purchasing reinsurance are often referred to
as ceding companies or reinsureds. Underwriting reinsurance on a treaty basis
means that Everest Re reinsures one or more insurance companies pursuant to an
agreement called a treaty, which sets forth the terms and conditions of the
reinsurance. Treaties generally automatically reinsure a specific line or class
of business. Underwriting reinsurance on a facultative basis means that Everest
Re reinsures one specific policy as opposed to the reinsurance of a specific
line or class of business.
14
<PAGE>
Everest Re writes reinsurance both through brokers and directly with ceding
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 property and casualty insurance. Primary
insurance is purchased by insureds to pay amounts to them for economic losses
sustained from unexpected events. 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.
Statutory surplus is the amount by which the assets of an insurer exceed the
insurer's liabilities, including the amounts required by law to be established
as reserves for the insurer's insurance obligations.
Following is a summary of Everest Holdings' and Everest Re's operating
subsidiaries:
. Everest National Insurance Company, an Arizona insurance company, is
licensed in 42 states and the District of Columbia and is authorized to
write primary insurance in the states in which it is licensed, often
called writing insurance on an admitted basis.
. Everest Insurance Company of Canada, a Canadian insurance company, 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, a Delaware insurance company, engages
in the excess and surplus lines insurance business in the United States.
Excess and surplus lines insurance is specialty property and liability
coverage that an insurer not licensed to write insurance in a particular
state is permitted to provide when the specific specialty coverage is
unavailable from admitted insurers. This is often called writing insurance
on a non-admitted basis. 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., a New Jersey limited liability company, is
licensed in New Jersey as an insurance producer, which is any
intermediary, such as an agent or broker, which acts as the conduit
between an insurance company and an insured. Mt. McKinley holds licenses
to allow it to act in New Jersey as an insurance producer in connection
with policies written on both an admitted and a surplus lines basis.
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., an Alabama insurance agency, and WorkCare
Southeast of Georgia, Inc., a Georgia insurance agency.
. Everest Re Holdings, Ltd., a Bermuda company formed in 1998 and referred
to in this document as Everest Ltd., owns Everest Re Ltd., a United
Kingdom company that is in the process of being dissolved because its
reinsurance operations have been converted into branch operations of
Everest Re. Everest Ltd. also holds approximately $100 million of
investments.
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.
Everest Holdings' 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.
Everest Holdings' business strategies include effective management of the
underwriting cycle, which refers to the tendency of insurance premiums, profits
and the demand for and availability of coverage to rise and fall over time.
Everest Holdings also seeks to manage catastrophe exposures and control
expenses and retrocessional costs, which are incurred when reinsurers purchase
reinsurance. Everest Holdings' underwriting strategies seek to capitalize on
its staff's expertise and its flexibility to offer multiple products by
underwriting
reinsurance through brokers and directly with ceding companies and by writing
primary insurance on an admitted and non-admitted basis in a cost efficient
manner. Efforts to control expenses and to operate in a cost efficient manner
are a continuing focus for Everest Holdings.
15
<PAGE>
Everest Holdings' underwriting strategy emphasizes underwriting
profitability rather than premium volume, the writing of specialized risks and
the 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 Everest Holdings'
business mix to respond to changing market conditions. Everest Holdings focuses
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 its objectives.
Everest Holdings' underwriting strategy also emphasizes flexibility and
responsiveness to changing market conditions, such as increased demand or
favorable pricing trends. Everest Holdings believes that its existing
strengths, including its broad underwriting expertise, international presence,
diverse distribution capabilities and substantial capital, facilitate
adjustments to its mix of business geographically, by line of business and by
type of coverage. Everest Holdings believes that this makes it possible to
capitalize on those market opportunities that provide the greatest potential
for underwriting profitability. Everest Holdings' primary insurance
infrastructure further facilitates this strategy by permitting the development
of business that requires the issuance of primary insurance policies. Everest
Holdings carefully monitors its mix of business to avoid inappropriate
concentrations of geographic or other risk.
Everest Holdings' underwriting guidelines seek to limit the accumulation of
known risks in exposed areas, to require that business that is exposed to
catastrophe losses be written with appropriate geographic spread and to
maintain a cost-effective retrocession program. Those underwriting guidelines
also seek to better reflect the relationship between premiums and risk assumed
while maintaining probable maximum loss at appropriate levels.
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. As
soon as practicable following the restructuring, Everest Group intends to
capitalize Everest Bermuda with approximately $250 million. Everest Group
intends to obtain funds for this purpose from Everest Holdings. Everest
Holdings, in turn, intends to obtain funds for this purpose either through
offerings of its debt and/or trust preferred securities or through bridge
financing, which it would expect to retire using the proceeds of those
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 are also expected to 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 reinsurance lines. Everest Bermuda will
operate in the international insurance and reinsurance marketplace.
After the restructuring, Everest Group intends to establish a new Delaware
subsidiary, Everest Global Services, Inc., to perform administrative and back-
office functions for Everest Group and its insurance subsidiaries. After
Everest Global Services is established, Everest Re employees who are currently
performing administrative and back-office functions will be transferred to
employment with Everest Global Services and will perform those functions on
behalf of Everest Global Services.
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.
16
<PAGE>
RECENT DEVELOPMENTS
On December 21, 1999, Everest Holdings entered into a three year senior
revolving credit facility with a syndicate of lenders, which replaces its $75
million facility. First Union National Bank is the administrative agent for the
credit facility. The credit facility provides for borrowings of up to $150
million and bears interest at either the higher of the prime rate established
by First Union National Bank from time to time or the federal funds rate plus
0.5% per annum. Alternatively, Everest Holdings may elect to have the
borrowings bear interest at an adjusted London InterBank Offered Rate plus a
margin. The amount of the margin and fees payable for the credit facility
depend upon the senior unsecured debt rating or, if that is not available, the
financial strength rating of Everest Re. The credit facility requires Everest
Holdings to maintain specified debt to capital and interest coverage ratios and
to maintain statutory surplus of Everest Re at $850 million plus 25% of future
aggregate net income and 25% of future aggregate capital contributions. If the
restructuring is completed, Everest Group must guarantee the obligations of
Everest Holdings under the credit facility.
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............................................ 35.6875 21.9375
Fourth Quarter (through December 21, 1999)............... 27.2500 20.5000
</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 , 2000, 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], 2000, 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 the common stock. 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.
17
<PAGE>
Dividend History and Restrictions
In 1995, the board of directors of Everest Holdings established a policy of
declaring regular quarterly cash dividends. The first quarterly 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. Everest Holdings also has declared a dividend of $0.06
per share for the fourth quarter 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 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 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.
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], 2000 at [Meeting Time] at [Meeting Place]. This document and the
enclosed proxy card are being mailed to stockholders on or about [Mailing
Date], 2000.
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 those
services but Everest Holdings may reimburse them for their reasonable out-of-
pocket expenses. Everest Holdings will request brokerage houses, nominees,
fiduciaries and other custodians to forward soliciting materials to beneficial
owners and will reimburse them for their reasonable expenses incurred in
sending those materials to beneficial owners.
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 these services
will be approximately $6,500, plus reimbursement of reasonable out-of-pocket
costs and expenses.
18
<PAGE>
Record Date
The Everest Holdings board of directors has fixed the close of business on
[Record Date], 2000 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 those shares. Shares that are not voted because brokers did not
receive any specific 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], 2000, 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 that date upon the exercise of stock options, or
approximately % of the shares of Everest Holdings common stock outstanding
on that 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 the 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;
. 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.
19
<PAGE>
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 on those
matters 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. An adjournment may be proposed 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
executive offices 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.
In connection with the restructuring, Everest Group also intends to form a
new Delaware subsidiary, Everest Global Services, to perform administrative and
back-office functions for Everest Group and its
U.S.-based and non-U.S.-based subsidiaries.
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.
20
<PAGE>
21
<PAGE>
[AFTER THE RESTRUCTURING CHART]
22
<PAGE>
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 Everest Group with an enhanced ability to compete
and create better returns for stockholders by permitting Everest Group 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, compared to U.S. state regulatory
environments, the Bermuda regulatory environment offers insurance
companies more flexibility to price their products, develop new products
and write additional lines of reinsurance and imposes fewer restrictions
on an insurance company's ability to make investments and distribute
capital to shareholders.
. 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 Everest Group's business and future
acquisitions and diversification opportunities. Everest Group currently
has no specific plans for material acquisitions or to significantly
diversify its business from the business that Everest Holdings is
currently conducting and that Everest Bermuda is expected 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
Everest Group's taxes are reduced, it expects to be able to price its
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 current expectations and are not guarantees of performance. These
statements involve risks, uncertainties and assumptions. Actual events or
results may differ materially from expectations. Important factors that could
cause 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. You are urged to read the agreement and plan
of merger carefully and in its entirety.
23
<PAGE>
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;
. each share of Everest Holdings common stock issued and outstanding
immediately prior to the merger will automatically convert 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 automatically
convert into one share of the surviving corporation;
. each share of Everest Holdings common stock owned by Everest Holdings or
by any direct or indirect wholly-owned subsidiary of Everest Holdings
immediately prior to the effective time of the merger will automatically
be cancelled and no Everest Group common shares will be issued in
exchange for those shares of Everest Holdings common stock;
. 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. Each
shareholder's percentage ownership in Everest Group immediately following the
restructuring will be identical to that shareholder's percentage interest in
Everest Holdings immediately before 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 that 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 consents and approvals from
applicable governmental and regulatory authorities and other persons, and
all applicable waiting periods will have expired; and
24
<PAGE>
. 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.
The boards of directors of each of Everest Holdings and Everest Merger may
waive any of the above conditions at any time prior to the effective time of
the merger. As a practical matter, however, the parties will not be able to
waive any of the conditions other than those involving listing the common
shares on the NYSE and obtaining a consent or approval that has not yet been
obtained where the failure to obtain that consent or approval would not have a
material adverse effect on the business of Everest Group.
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 merger will become effective on [Effective Time], 2000, 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:
. 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 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, the affected employees and directors have
agreed in writing that the restructuring will not constitute or result in a
"change of control" or similar event.
Employment Agreements
The only executive officer of Everest Holdings and Everest Re who has a
written employment agreement with those companies is Joseph V. Taranto, the
Chairman and Chief Executive Officer. In connection with the
25
<PAGE>
restructuring, Mr. Taranto will enter into an amendment to his current
employment agreement with Everest Holdings and Everest Re. The amendment will
provide that Mr. Taranto will be the Chairman and Chief Executive Officer of
Everest Group and that he will provide services to Everest Group that are
comparable to those that he is required to provide for Everest Holdings under
the current employment agreement. Everest Group will be a party to the
employment agreement as amended and will have rights, powers, duties and
obligations under the employment agreement that are generally co-extensive with
those of Everest Holdings. References in Mr. Taranto's employment agreement to
benefit plans, arrangements and agreements that are being assumed by Everest
Group in connection with the restructuring will be changed to references to the
plans as assumed by Everest Group. Mr. Taranto will remain an employee of
Everest Re until Everest Global Services is established. The amendment to Mr.
Taranto's employment agreement will provide that upon the establishment of
Everest Global Services, and at the request of the board of directors of
Everest Group, Mr. Taranto will become an employee of Everest Global Services
and will provide services to Everest Re, as an employee of Everest Global
Services, that are the same as those he has provided to Everest Re under his
current employment agreement. Although Everest Global Services will be
substituted for Everest Re under the employment agreement upon Mr. Taranto's
transfer of employment to Everest Global Services, Everest Re will guarantee
the financial obligations of Everest Global Services under the employment
agreement. Mr. Taranto's transfer of employment to Everest Global Services will
not affect his positions as Chairman and Chief Executive Officer of Everest Re,
Everest Holdings and Everest Group or his participation in employee benefit
plans that are the same as those provided to employees of Everest Re.
In connection with the restructuring, Mr. Taranto will also enter into an
amendment to his current change of control agreement with Everest Holdings and
Everest Re that will provide that, after the restructuring, transactions with
respect to Everest Group will trigger benefits under the change of control
agreement to the same extent that transactions with respect to Everest Holdings
would trigger benefits prior to the amendment. After the amendment, any of the
following events with respect to Everest Group or Everest Re will constitute a
material change under the change of control agreement:
. the completion of a tender offer or exchange offer for the ownership of
securities of Everest Re or Everest Group representing 25% or more of the
combined voting power of that company's then outstanding voting
securities;
. the completion of a merger or consolidation of Everest Re or Everest
Group with another corporation that results in less than 75% of the
outstanding voting securities of the surviving or resulting corporation
being owned by the former stockholders of Everest Re, Everest Group or
their affiliates;
. the transfer by Everest Re or Everest Group of substantially all of its
assets to another corporation or entity that is not a wholly owned
subsidiary of Everest Re or Everest Group;
. the acquisition by any person of direct or indirect beneficial ownership
of securities of Everest Re or Everest Group representing 25% or more of
the combined voting power of the then outstanding securities of Everest
Re or Everest Group; and
. a tender offer, merger, consolidation, sale of assets or contested
election, or any combination of those transactions, which causes the
persons who were members of the board of directors of Everest Re or
Everest Group immediately before the transaction to cease to constitute
at least a majority of that board of directors.
In the event that Mr. Taranto becomes an employee of Everest Global
Services, Everest Global Services will become a party to the change of control
agreement and Everest Re will guarantee the financial obligations of Everest
Global Services under the agreement.
As amended, the change of control agreement will provide that if, within one
year after the occurrence of one of these material changes, Mr. Taranto
terminates his employment with Everest Re or Everest Global Services, as
applicable, for any reason or if Everest Re or Everest Global Services, as
applicable, terminates Mr. Taranto's employment for any reason other than for
due cause then Mr. Taranto will be entitled to the following benefits:
. all of Mr. Taranto's outstanding stock options will immediately vest and
become exercisable;
26
<PAGE>
. Mr. Taranto will receive a cash payment equal to the lesser of
. 2.99 multiplied by Mr. Taranto's annual compensation for the most
recent taxable year ending prior to the date of the material change,
less the value of Mr. Taranto's gross income in the most recent
taxable year ending prior to the date of a material change
attributable to Mr. Taranto's exercise of stock options, stock
appreciation rights and other stock-based awards granted to Mr.
Taranto, and
. 2.99 multiplied by Mr. Taranto's "annualized includible compensation
for the base period" as that phrase is defined in Section 280G(d) of
the Code;
. Mr. Taranto will continue to be covered under the medical and dental
insurance plans of Everest Re or Everest Global Services, as applicable,
for a period of three years from the date of termination; and
. Mr. Taranto will receive special retirement benefits in an amount that
will equal the retirement benefits he would have received had he
continued in the employ of Everest Re or Everest Global Services, as
applicable, for three years following his termination under the Everest
Reinsurance Retirement Plan and any supplemental, substitute, or
successor retirement plans.
In the event that the benefits Mr. Taranto receives under the change of
control agreement cause him to receive a "parachute payment" within the meaning
of Section 280G of the Code, Mr. Taranto's benefits will be reduced to an
amount that is one dollar less than the amount that would cause a parachute
payment. If an award made under the change of control agreement nevertheless
results in an assessment against Mr. Taranto of a "parachute tax" pursuant to
Section 4999 of the Code, Mr. Taranto will be entitled to receive an additional
amount of money that would put him in the same net tax position had no
parachute tax been incurred.
The change of control agreement will terminate on the earliest of the
following events:
. one year following a material change;
. termination by Mr. Taranto of his employment with Everest Re or Everest
Global Services, as applicable, under circumstances not following a
material change;
. the termination by Everest Re or Everest Global Services, as applicable,
of Mr. Taranto's employment for due cause; and
. December 31, 2001, or any date thereafter, with 60 days written notice.
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 some circumstances to purchase Everest
Holdings common stock at half-price. The Everest Holdings rights agreement is
filed as an exhibit to the registration statement of which this document is a
part. You should refer to the rights agreement for more detailed information.
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.
27
<PAGE>
Stock Exchange Listing
Everest Holdings common stock is currently listed on the NYSE under the
symbol "RE." Everest Group is applying to list the Everest Group common shares
that will be issued in the merger on the NYSE. Everest Group is 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. These shares may be traded freely and
without restriction by those shareholders not deemed to be "affiliates" of
Everest Holdings or of Everest Group, subject to restrictions contained in the
Everest Group bye-laws. "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. 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 commercially domiciled in those states, whether the
acquisition of control is direct or indirect. Accordingly, Everest Group has
obtained the approval of its acquisition of control of Everest Holdings'
insurance subsidiaries from 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.
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
28
<PAGE>
Holdings, Everest Group and Everest Merger to waive this condition. Everest
Group and Everest Holdings 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. Everest Group and Everest Holdings have not
determined how they 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, Everest Group and Everest
Holdings will make those 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 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 Southeast and WorkCare
Southeast of Georgia.
29
<PAGE>
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., 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 The
Galtney Group. 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 and Everest
Re on September 25, 1997 and Chief Financial Officer and Treasurer of Everest
Holdings and Everest Re on November 17, 1999. 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 Southeast and WorkCare Southeast of Georgia
and Chief Accountant of WorkCare, Inc.
Janet J. Burak (formerly Janet Burak Melchione), 49, became Vice President,
General Counsel and Secretary of Everest Holdings upon its organization on
November 11, 1993. She became a Senior Vice 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
Southeast and WorkCare Southeast of 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 and 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
30
<PAGE>
compensation received by persons serving as officers and directors of Everest
Group will be similar to the compensation paid to those persons prior to the
restructuring 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."
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 that 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.
31
<PAGE>
As used in this discussion, the term "U.S. holder" means a U.S. person that
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, Everest Group's Bermuda counsel. The discussion of Barbados tax
law below is based on the opinion of Clarke & Co., Everest Group's Barbados
counsel. The discussion of U.S. federal income tax law below is based on the
opinion of Mayer, Brown & Platt, Everest Group's United States counsel.
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 assurance
that the IRS will not take a position contrary to one or more of the positions
described below, or that those 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.
Everest Holdings has received an opinion from its 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 representations made by
Everest Holdings and particular 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 the 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 the 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
32
<PAGE>
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 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 when the 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 that realizes loss on
the merger or that does not report taxable gain from the merger on its 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 specific additional information that is required to be attached to
the form. Form 926 and its required attachments must be filed with the 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 that
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, the holder
becoming subject to a penalty equal to 10% of the fair market value of the 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 to the reorganization, 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 those
common shares on the date of the reorganization.
Backup Withholding.
Under Section 3406 of the Code and the related regulations, a U.S. holder
that participates in the merger may become subject to U.S. backup withholding
tax at a rate of 31% with respect to the "gross proceeds" received in the
merger unless that holder:
. is a corporation or other exempt recipient and, if required, demonstrates
that is has that status; 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 the holder's U.S. federal income tax liability
provided that the required information is furnished to the IRS. Presumably, the
"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 related regulations.
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 has received an
assurance from the Bermuda Minister of Finance under The
33
<PAGE>
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 that tax will not apply to Everest
Group, or to any of its operations or the shares, debentures or other
obligations of Everest Group, until March 28, 2016. This assurance will not
prevent the application of any of those taxes to 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. Everest Group expects that Everest Bermuda,
when it is organized, will obtain a similar assurance from the Minister of
Finance. Everest Group currently pays annual Bermuda government fees of $1,695.
Everest Group anticipates that, based on current rates, the annual governmental
fee payable by each of Everest Group and Everest Bermuda after the
restructuring will not exceed $26,500. Based on current rates, Everest Group
anticipates that Everest Bermuda will pay an insurance registration fee of
$15,000 and subsequently, annual insurance license fees of $15,000. 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 other than Barbados, provided, that the 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 distributions from non-Barbados sources.
Under Barbados law, capital gains are not taxable and so Everest Group will
not be subject to any capital gains 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 exempted from the payment of Barbados
property transfer tax but is subject to the payment of stamp duty of BDS$10 per
transaction.
As an international business company, Everest Group also will be exempt from
duties and other imposts on assets that it imports into Barbados for use in its
business. These assets would include equipment, plant, machinery fixtures,
appliances, apparatus, tools and spare parts, and any raw materials, goods,
components and articles that 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 interest, dividends and other similar types of
U.S. source income not effectively connected with a U.S. trade or
business.
34
<PAGE>
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. That 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, resulting in an effective
maximum U.S. federal income tax rate of 54.5%. The branch profits tax is
imposed each year on a corporation's effectively connected earnings and
profits, with some adjustments, deemed repatriated out of the United States,
which in Everest Group's or Everest Bermuda's case would be all of its net
profits subject to U.S. federal income tax.
Everest Group has received written guidelines from its 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.
Everest Group has been advised by counsel that if Everest Bermuda and Everest
Group comply with these guidelines, Everest Bermuda should not be subject to
U.S. corporate income tax, other than withholding tax on U.S. source dividend
income, and Everest Group should not be subject to U.S. corporate income tax,
other than withholding tax on U.S. source dividend income, on material amounts
of income. Everest Bermuda and Everest Group have represented to counsel that
they will follow these 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
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 some 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 those 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.
It is uncertain whether Everest Bermuda is entitled to relief under the
permanent establishment provisions of the Bermuda treaty because it is the
subsidiary of a publicly-traded company rather than a publicly-traded
35
<PAGE>
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/or Everest Bermuda may become subject to U.S.
corporate income tax, which will reduce Everest Group's net income." If Everest
Bermuda is entitled to the benefits of the Bermuda treaty and has a U.S.
permanent establishment, it would be taxed at regular corporate rates on all of
its income that is attributable to its U.S. permanent establishment. It also
would be subject to the branch profits tax on that 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 those 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. Everest Group believes that it will be resident in Barbados and
therefore entitled to the benefits of the Barbados treaty.
Because Everest Group believes that it 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/or Everest Bermuda may become subject to
U.S. corporate income tax, which will reduce Everest Group's net income." If
Everest Group is entitled to the benefits of the Barbados treaty and has a
permanent establishment in the United States, 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 that 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
36
<PAGE>
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 those dividends. However, those 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, or CFC. Under Section 951(a) of the Code, if a foreign
corporation, such as Everest Group or Everest Bermuda, meets the definition of
a 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 purposes its pro rata share of the CFC's
"subpart F income" for that 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 that 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;
37
<PAGE>
. 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 that 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. 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, Everest Group has been advised by
its 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--Everest Group
shareholders could be subject to U.S. taxes on undistributed income of Everest
Group and/or Everest Bermuda" 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, often called 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 a U.S. taxpayer
meeting that definition. 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 its 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 purposes its pro rata share of the RPII for the entire
taxable year, determined as if all the RPII were distributed proportionately
only to those 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 those 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. This is often called 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
38
<PAGE>
gross insurance income for the taxable year. This is often called the RPII 20%
gross income exception. Everest Group intends to operate Everest Bermuda in a
way which qualifies for one or both of these exceptions. However, there can be
no assurance that it 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 RPII 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 those persons. In addition, if neither of the
RPII exemptions is available, Everest Group will inform all shareholders of the
amount of RPII per share and that RPII shareholders are obligated to file a
return reporting those 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 the 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 qualify for either the RPII 20%
ownership exception or the RPII 20% gross income exception should expect that
for that 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 the 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 that RPII to a U.S.
holder with respect to the common shares, those 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 Everest Group
common shares will be reduced by the amount of any 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 that corporation entitled to
vote, or more than 50% of the total value of shares of all classes of stock of
that 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 that year, any U.S. person treated as
owning any shares of Everest Bermuda directly or indirectly on the last day of
that taxable year is a RPII shareholder for purposes of the RPII rules and must
file Form 5471. In addition, U.S. persons that own more than 10% in vote or
value of the outstanding
39
<PAGE>
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,
often called UBTI, within the meaning of Section 512 of the Code the portion of
any deemed distribution to that shareholder of subpart F income under Section
951(a) of the Code that is attributable to insurance income which, if derived
directly by that 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:
. the tax-exempt shareholder,
. an affiliate of the tax-exempt shareholder which itself is exempt from
tax under Section 501(a) of the Code or
. 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 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 and because a substantial part of Everest Bermuda's
business includes the insurance of U.S. risks. Everest Group has been advised
by its 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 some U.S. holders to utilize excess foreign tax credits
to reduce U.S. tax on that 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
40
<PAGE>
income as capital gain or loss in an amount equal to the difference between
that 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 the corporation
qualifies for 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.
Everest Group has been advised by its 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
U.S. 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," often called PFICs. In general, a foreign
corporation will be a PFIC if 75% or more of its gross income constitutes
"passive income" or 50% or more of its assets produce, or are held for the
production of, passive income. If Everest Group meets either the 75% income
test or the 50% asset test, unless U.S. shareholders make a "qualified electing
fund 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.
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", or QEF, 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 a 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
41
<PAGE>
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
those income or loss amounts, if any. The mark to market election is only
available with respect to stock traded on some U.S. exchanges and other
exchanges designated by the U.S. treasury department. Everest Group expects
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 . . ." This insurance company 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 that 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, the 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. Everest Group has been advised by its 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.
Everest Group has also been advised by its 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 determining
whether 75% of its income is passive and determining whether 50% of its assets
produce passive income. As a result, Everest Group should not be considered a
PFIC. However, no final regulations interpreting the substantive PFIC
provisions have yet been issued and 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 shareholders or to 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 paying agents and custodians located in the United States,
unless the 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.
42
<PAGE>
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 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. Everest
Group has 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 those 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 controlled share, regardless of the identity of the registered
holder, will confer only a fraction of a vote as determined by the following
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 person, adjusted to
take into account any prior reduction taken with respect to any
other person as a result of a previous application of the formula;
. ""C'' is the number of controlled shares attributable to the person;
and
43
<PAGE>
. Controlled shares of any person refers to all shares of the
issued and outstanding share capital owned by that person,
whether
. directly,
. 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
. beneficially within the meaning of Section 13(d)(3) of the
Exchange Act.
The formula will be applied successively, starting with the person to whom
the largest number of controlled shares is attributable, 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 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 permit its board of
directors to decline to register any transfer of common shares if it has reason
to believe that the transfer would result in:
. any person 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,
. any person holding controlled shares in excess of 9.9% of any class of
the issued and outstanding share capital of Everest Group or
. 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 their refusal.
Everest Group's bye-laws also provide that the board of directors may suspend
the registration of transfers at any time and for any periods that it
determines, 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 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 those common shares will be deemed to own those common shares for
dividend, voting and reporting purposes until a transfer of those common shares
has been registered on the shareholder register of Everest Group.
Repurchase Rights. The bye-laws of Everest Group provide that if the 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 the issued and outstanding share capital of Everest
Group,
. any person holds controlled shares in excess of 9.9% of any class of the
issued and outstanding share capital of Everest Group or
. share ownership by any person 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 so held to the extent the board
of directors determines it is necessary or advisable to avoid or
44
<PAGE>
cure any adverse or potential adverse consequences. The price to be paid for
any common shares redeemed or purchased will be the fair market value of those
shares, defined as the average of the high and low sale prices of the common
shares on the NYSE for the last 15 trading days immediately preceding the day
on which Everest Group sends a notice of redemption or purchase to the
shareholder.
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 that 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 that request relates or may determine to
disregard for all purpose all votes attached to any common shares held by that
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 the
number of shares, designation, powers, preferences, voting rights, dividend
rates, redemption provisions and other rights, qualifications, limitations or
restrictions that 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. 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 his or her term, but only for cause, at a
special meeting of shareholders at which the votes of
45
<PAGE>
66 2/3% of the shares entitled to vote are cast in favor of removal. The
director whose removal is being 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 or
committee at which that director is not personally present and to sign written
consents in place of that 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 those 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 those
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 this
type of situation 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 Everest Group and its shareholders waive all claims or rights
of action that they might have, individually or in the right of the
46
<PAGE>
company, against any director or officer for any act or failure to act in the
performance of that director's or officer's duties. 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, these provisions may not 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, these
provisions 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 that 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:
. 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,
. the material facts are disclosed or are known to the stockholders
entitled to vote on the transaction and the transaction is specifically
approved in good faith by the holders of a majority of the voting shares
or
. 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 that 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 merger of that type, 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
47
<PAGE>
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 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 an action of this type generally would be able to recover a
portion of attorneys' fees incurred in connection with the 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 these types of 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 directors or
officers, 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 this 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 or her 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, following the listing of the common shares on the NYSE, 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 that person's interest as a
shareholder.
48
<PAGE>
REGULATORY CONSIDERATIONS
ASSOCIATED WITH OPERATING IN BERMUDA AND BARBADOS
Bermuda Insurance Regulation
The Bermuda Insurance Act 1978 and related regulations, which are referred
to together in this document as the Insurance Act, regulate insurance
companies, including companies such as Everest Bermuda that will 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 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 will be 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 will
be at Richmond House, 12 Par-la-Ville Road, Hamilton HM 08, Bermuda, and
Everest Bermuda's principal representative will be 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 will be
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 will be .
Loss Reserve Specialist. Every registered Class 4 insurer 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 will be .
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 for distribution to
persons other than policyholders.
49
<PAGE>
Annual Statutory Financial Return. Within four months after its financial
year end, Everest Bermuda will be 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.
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 the
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 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 must exceed the amount of its general business liabilities by
at least the prescribed minimum solvency margin. Everest Bermuda's minimum
solvency margin will be 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 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 and Distributions. There will be
several restrictions on Everest Bermuda's ability to pay dividends and
distributions:
. Everest Bermuda will be unable to 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 will be unable to 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 will be unable
to declare or pay any dividends during the next financial year without
the approval of the Minister of Finance.
50
<PAGE>
. Everest Bermuda will be unable to 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 will be unable to
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 this
dividend may not 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.
Minimum Liquidity Ratio. As an insurer writing general business, Everest
Bermuda will be 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
some 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 some types of letters of credit,
guarantees and other instruments.
Restrictions on Transfer of Business and Winding-Up. Everest Bermuda will be
unable to 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.
51
<PAGE>
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. As required by the
Exchange Control Act 1972 of Bermuda and related regulations, the Bermuda
Monetary Authority has granted permission for the issue and transfer of the
common shares subject to the condition that the common shares are listed on an
appointed stock exchange, which includes the NYSE, by April 1, 1999. In
addition, Everest Group has filed this document with the Registrar of Companies
in Bermuda in accordance with The Companies Act 1981 of Bermuda.
In granting this 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 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 of Everest Group between persons regarded as non-
resident in Bermuda for exchange control purposes or to issue common shares to
those 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 the special capacity be recorded on the share
certificate. However, Everest Group is not responsible for investigating the
proper administration of any 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 the 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 resident
representative requirements, but Everest Group does not believe that this
compliance will result in any material expense. 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 some types of Bermuda government securities; or
. conducting business of any kind in Bermuda, except in furtherance of
their business conducted outside Bermuda.
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 with respect to risks located outside Bermuda.
52
<PAGE>
However, Everest Bermuda generally is not permitted without a special license
granted by the Minister of Finance to insure Bermuda domestic risks or risks of
individuals, companies, enterprises and other entities residing, incorporated
or existing under the laws of Bermuda. Everest Group does not contemplate that
Everest Bermuda will apply for that special license or insure the types of
risks for which that license is required.
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.
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. Work
permits are issued with an expiration date of up to five years. 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. This work permit requirement could make it more difficult for Everest
Group and Everest Bermuda to staff their Bermuda offices, since it is possible
that the government will deny a work permit to individuals that Everest Group
or Everest Bermuda wishes to hire or, if it initially grants a work permit,
will decline to extend that permit 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.
Fundamental Changes. Where in the case of an external company registered in
Barbados:
. the name of the company has been changed,
. the corporate instruments of the company have been altered,
. the objects of the company have been altered or its business has been
restricted or
. any change is made among its directors,
53
<PAGE>
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. As an external company, Everest Group is required to file an
annual return with the Barbados Registrar of Companies. This annual return,
which must be certified by a director or officer and accompanied by an annual
fee, includes updated information about the company's offices, corporate
structure, share capital, type of business, attorney and directors. 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 U.S. states and
foreign jurisdictions 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. and foreign 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. jurisdiction, but it will generally be permitted to
reinsure U.S. risks from its office in Bermuda without obtaining those
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 those activities.
As a reinsurer, Everest Bermuda will be affected by regulatory requirements
governing "credit for reinsurance" in the jurisdictions where its 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 the
reinsurer provides adequate security for its obligations.
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."
EXPERTS
The consolidated financial statements of Everest Holdings incorporated in
this registration statement by reference to Everest Holdings' Annual Report on
Form 10-K for the year ended December 31, 1998, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
54
<PAGE>
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 the meeting.
To be considered for inclusion in the Everest Holdings proxy statement relating
to the 2000 annual meeting of stockholders, a stockholder proposal must have
been 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, Everest Group's 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.
Everest Group has been advised by Conyers Dill & Pearman, its 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. Everest Group also has been advised by Conyers
Dill & Pearman that there is no treaty in effect between the United States and
Bermuda providing for that 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.
WHERE YOU CAN FIND MORE INFORMATION
This document is part of a registration statement 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 the omission of some
of the information included in the registration statement from this document.
In addition, Everest Holdings has filed
55
<PAGE>
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 Everest Group and
Everest Holdings, 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 most
requirements of the Exchange Act, including the proxy rules. Pursuant to Rule
3b-4 under the Exchange Act, a non-U.S. issuer is not a "foreign private
issuer" if more than 50% of the outstanding voting securities of the issuer are
held of record by residents of the United States and any of the following
conditions are satisfied:
.the majority of the executive officers or directors of the issuer are
United States citizens or residents,
.more than 50% of the assets of the issuer are located in the United States
or
.the business of the issuer is administered principally in the United
States.
Based on the anticipated ownership of its voting securities and the citizenship
of its executive officers and directors, 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 Everest Holdings to "incorporate by reference" information
into this document. This means that Everest Holdings 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 information that is superseded by information
included directly in this document, and later information that Everest Group or
Everest Holdings files with the SEC will automatically update and supersede
that information.
This document incorporates by reference the documents listed below that
Everest Holdings has previously filed or will file with the SEC. They contain
important information about Everest Holdings.
. Annual Report on Form 10-K for the year ended December 31, 1998;
. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999; and
. All documents filed with the SEC by Everest Holdings 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.
56
<PAGE>
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 Everest
Holdings, by requesting them in writing or by telephone 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
Everest Holdings 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 , 2000, 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], 2000. You should not assume that the
information contained in this document is accurate as of any date other than
that 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.
57
<PAGE>
INDEX TO BALANCE SHEET
<TABLE>
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS.......................................... F-2
EVEREST RE GROUP, LTD. (FORMERLY EVEREST REINSURANCE GROUP, LTD.) BALANCE
SHEET AS OF SEPTEMBER 14, 1999 (date of inception)........................ F-3
EVEREST RE GROUP, LTD. (FORMERLY 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 Re Group, Ltd. (formerly Everest Reinsurance Group,
Ltd.)
In our opinion, the accompanying balance sheet presents fairly, in all material
respects, the financial position of Everest Re Group, Ltd. (formerly 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 RE GROUP, LTD.
(FORMERLY 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 RE GROUP, LTD.
(FORMERLY EVEREST REINSURANCE GROUP, LTD.)
NOTES TO FINANCIAL STATEMENT
September 14, 1999 (date of inception)
1. ORGANIZATION
Everest Re Group, Ltd. (formerly 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).
4.1 Specimen Everest Group common share certificate.
*4.2 Rights Agreement, dated as of September 24, 1998, between
Everest Holdings and First Chicago Trust Company of New York,
as Rights Agent (incorporated by reference to Exhibit 4.1 to
the Current Report on Form 8-K filed on September 28, 1998).
*4.3 Amendment dated as of September 16, 1999 to Rights Agreement,
dated as of September 24, 1998, between Everest Holdings and
First Chicago Trust Company of New York (incorporated by
reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
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 Form of Opinion of Mayer, Brown & Platt as to certain United
States tax matters.
*10.1 Everest Holdings Annual Incentive Plan effective January 1,
1999 (incorporated by reference to Exhibit 10.1 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
*10.2 Everest Holdings Amended 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.3 to the Annual
Report on Form 10-K for the year ended December 31, 1995).
*10.3 Everest Holdings Amended Annual Incentive Plan (incorporated
by reference to Exhibit 10.4 to the Annual Report on Form 10-K
for the year ended December 31, 1995).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S> <C>
*10.4 Everest Holdings 1995 Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form S-8 (No. 333-05771)).
*10.5 Amended and Restated Employment Agreement between Everest Re
and Joseph V. Taranto effective as of October 11, 1994
(incorporated by reference to Exhibit 10.50 to the
Registration Statement on Form S-1 (No. 33-71652)).
*10.6 Resolution adopted by the Compensation Committee of Everest
Holdings on February 24, 1997 establishing a Chief Executive
Officer's Bonus Plan (incorporated by reference to Exhibit
10.8 to the Annual Report on Form 10-K for the year ended
December 31, 1997).
*10.7 Form of Non-Qualified Stock Option Award Agreement to be
entered into between Everest Holdings and participants in the
1995 Stock Incentive Plan (incorporated by reference to
Exhibit 10.15 to the Annual Report on Form 10-K for the year
ended December 31, 1995).
*10.8 Form of Restricted Stock Agreement to be entered into between
Everest Holdings and participants in the 1995 Stock Incentive
Plan (incorporated by reference to Exhibit 10.16 to the Annual
Report on Form 10-K for the year ended December 31, 1995).
*10.9 Form of Stock Option Agreement (Version 1) to be entered into
between Everest Holdings and participants in the 1995 Stock
Option Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.17 to the Annual Report on Form 10-K
for the year ended December 31, 1995).
*10.10 Form of Stock Option Agreement (Version 2) to be entered into
between Everest Holdings and participants in the 1995 Stock
Option Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.18 to the Annual Report on Form 10-K
for the year ended December 31, 1995).
*10.11 Deferred Compensation Plan, as amended, for certain United
States employees of Everest Holdings and its participating
subsidiaries (incorporated by reference to Exhibit 10.20 to
the Annual Report on Form 10-K for the year ended December 31,
1998).
*10.12 Employment Agreement with Joseph V. Taranto executed on July
15, 1998 (incorporated by reference to Exhibit 10.21 to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
*10.13 Change of Control Agreement with Joseph V. Taranto, effective
July 15, 1998 (incorporated by reference to Exhibit 10.22 to
the Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
*10.14 Senior Executive Change of Control Plan (incorporated by
reference to Exhibit 10.24 to the Quarterly Report on Form 10-
Q for the quarter ended September 30, 1998).
*10.15 Resolution adopted by the board of directors of Everest
Holdings on April 1, 1999 awarding stock options to outside
directors (incorporated by reference to Exhibit 10.25 to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).
*10.16 Executive Performance Annual Incentive Plan adopted by the
stockholders of Everest Holdings on May 20, 1999 (incorporated
by reference to Exhibit 10.26 to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
*10.17 Amendment to Amended and Restated Employment Agreement between
Everest Re, Everest Holdings and Joseph V. Taranto dated
September 21, 1999 (incorporated by reference to Exhibit 10.28
to the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
*10.18 Form of Amendment to Employment Agreement by and among
Everest Re, Everest Holdings, Everest Group and
Joseph V. Taranto.
*10.19 Form of Amendment to Change of Control Agreement by and among
Everest Re, Everest Holdings, Everest Group and
Joseph V. Taranto.
*21.1 Subsidiaries of Everest Group, giving effect to the proposed
restructuring.
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 Form of Consent of Mayer, Brown & Platt (included in Exhibit
8.3).
23.4 Consent of PricewaterhouseCoopers LLP.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S> <C>
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>
- --------
*Previously filed
II-4
<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-5
<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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to 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 22nd day of December, 1999.
Everest Re Group, Ltd.
/s/ Stephen L. Limauro
By: _________________________________
Stephen L. Limauro
Chairman and Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to registration statement has been signed by the following persons in
the capacities indicated on the 22nd day of December, 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-7
<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).
4.1 Specimen Everest Group common share certificate.
*4.2 Rights Agreement, dated as of September 24, 1998, between
Everest Holdings and First Chicago Trust Company of New York,
as Rights Agent (incorporated by reference to Exhibit 4.1 to
the Current Report on Form 8-K filed on September 28, 1998).
*4.3 Amendment dated as of September 16, 1999 to Rights Agreement,
dated as of September 24, 1998, between Everest Holdings and
First Chicago Trust Company of New York (incorporated by
reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
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.
*10.1 Everest Holdings Annual Incentive Plan effective January 1,
1999 (incorporated by reference to Exhibit 10.1 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
*10.2 Everest Holdings Amended 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.3 to the Annual
Report on Form 10-K for the year ended December 31, 1995).
*10.3 Everest Holdings Amended Annual Incentive Plan (incorporated
by reference to Exhibit 10.4 to the Annual Report on Form 10-K
for the year ended December 31, 1995).
*10.4 Everest Holdings 1995 Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form S-8 (No. 333-05771)).
*10.5 Amended and Restated Employment Agreement between Everest Re
and Joseph V. Taranto effective as of October 11, 1994
(incorporated by reference to Exhibit 10.50 to the
Registration Statement on Form S-1 (No. 33-71652)).
*10.6 Resolution adopted by the Compensation Committee of Everest
Holdings on February 24, 1997 establishing a Chief Executive
Officer's Bonus Plan (incorporated by reference to Exhibit
10.8 to the Annual Report on Form 10-K for the year ended
December 31, 1997).
*10.7 Form of Non-Qualified Stock Option Award Agreement to be
entered into between Everest Holdings and participants in the
1995 Stock Incentive Plan (incorporated by reference to
Exhibit 10.15 to the Annual Report on Form 10-K for the year
ended December 31, 1995).
*10.8 Form of Restricted Stock Agreement to be entered into between
Everest Holdings and participants in the 1995 Stock Incentive
Plan (incorporated by reference to Exhibit 10.16 to the Annual
Report on Form 10-K for the year ended December 31, 1995).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S> <C>
*10.9 Form of Stock Option Agreement (Version 1) to be entered into
between Everest Holdings and participants in the 1995 Stock
Option Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.17 to the Annual Report on Form 10-K
for the year ended December 31, 1995).
*10.10 Form of Stock Option Agreement (Version 2) to be entered into
between Everest Holdings and participants in the 1995 Stock
Option Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.18 to the Annual Report on Form 10-K
for the year ended December 31, 1995).
*10.11 Deferred Compensation Plan, as amended, for certain United
States employees of Everest Holdings and its participating
subsidiaries (incorporated by reference to Exhibit 10.20 to
the Annual Report on Form 10-K for the year ended December 31,
1998).
*10.12 Employment Agreement with Joseph V. Taranto executed on July
15, 1998 (incorporated by reference to Exhibit 10.21 to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
*10.13 Change of Control Agreement with Joseph V. Taranto, effective
July 15, 1998 (incorporated by reference to Exhibit 10.22 to
the Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
*10.14 Senior Executive Change of Control Plan (incorporated by
reference to Exhibit 10.24 to the Quarterly Report on Form 10-
Q for the quarter ended September 30, 1998).
*10.15 Resolution adopted by the board of directors of Everest
Holdings on April 1, 1999 awarding stock options to outside
directors (incorporated by reference to Exhibit 10.25 to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).
*10.16 Executive Performance Annual Incentive Plan adopted by the
stockholders of Everest Holdings on May 20, 1999 (incorporated
by reference to Exhibit 10.26 to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
*10.17 Amendment to Amended and Restated Employment Agreement between
Everest Re, Everest Holdings and Joseph V. Taranto dated
September 21, 1999 (incorporated by reference to Exhibit 10.28
to the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
*10.18 Form of Amendment to Employment Agreement by and among
Everest Re, Everest Holdings, Everest Group and
Joseph V. Taranto.
*10.19 Form of Amendment to Change of Control Agreement by and among
Everest Re, Everest Holdings, Everest Group and
Joseph V. Taranto.
*21.1 Subsidiaries of Everest Group, giving effect to the proposed
restructuring.
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 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>
- --------
*Previously filed
<PAGE>
Exhibit 3.2
B Y E - L A W S
of
EVEREST RE GROUP, LTD.
(as adopted on January ___, 2000)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INTERPRETATION.............................................................. 1
1. Interpretation.................................................... 1
BOARD OF DIRECTORS.......................................................... 5
2. Board of Directors................................................ 5
3. Management of the Company......................................... 6
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................................................................... 8
11. Election of Directors............................................. 8
12. Nominations proposed by Members................................... 9
13. Defects in appointment of Directors............................... 9
14. Alternate Directors...............................................10
15. Removal of Directors..............................................10
16. Vacancies on the Board............................................11
17. Notice of meetings of the Board...................................11
18. Quorum at meetings of the Board...................................12
19. Meetings of the Board.............................................12
20. Unanimous written resolutions.....................................12
21. Contracts and disclosure of Directors' interests..................12
22. Remuneration of Directors.........................................13
OFFICERS....................................................................13
23. Officers of the Company...........................................13
24. Appointment of Officers...........................................13
25. Remuneration of Officers..........................................14
26. Duties of Officers................................................14
27. Chairman of meetings..............................................14
28. Register of Directors and Officers................................14
MINUTES.....................................................................14
29. Obligations of Board to keep minutes..............................14
INDEMNITY...................................................................15
30. Indemnification of Directors and Officers of the Company..........15
31. Waiver of claim...................................................16
MEETINGS....................................................................16
32. Notice of annual general meeting..................................16
33. Notice of special general meeting.................................17
34. Accidental omission of notice of general meeting..................17
35. Meeting called on requisition of Members..........................17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
36. Short notice..................................................... 17
37. Postponement of meetings......................................... 18
38. Quorum for general meeting....................................... 18
39. Adjournment of meetings.......................................... 18
40. Business to be conducted at meetings............................. 18
41. Attendance at meetings........................................... 19
42. Written resolutions.............................................. 19
43. Attendance of Directors.......................................... 20
44. Voting at meetings............................................... 20
45. Voting on show of hands.......................................... 20
46. Decision of chairman............................................. 20
47. Demand for a poll................................................ 20
48. Seniority of joint holders voting................................ 21
49. Instrument of proxy.............................................. 21
50. Representation of corporations at meetings....................... 23
SHARE CAPITAL AND SHARES................................................... 23
51. Authorisation of shares.......................................... 23
52. Limitation on voting rights of controlled shares................. 24
53. Limitations on the power to issue shares......................... 25
54. Variation of rights and alteration of share capital.............. 26
55. Purchase of shares by Company.................................... 27
56. Registered holder of shares...................................... 28
57. Death of a joint holder.......................................... 29
58. Share certificates............................................... 29
REGISTER OF MEMBERS........................................................ 29
59. Contents of Register of Members.................................. 29
60. Inspection of Register of Members................................ 29
61. Setting of record date........................................... 30
TRANSFER OF SHARES......................................................... 30
62. Instrument of transfer........................................... 30
63. Restrictions on transfer......................................... 30
64. Transfers by joint holders....................................... 32
TRANSMISSION OF SHARES..................................................... 32
65. Representative of deceased Member................................ 32
66. Registration on death or bankruptcy.............................. 32
67. Registration Fees................................................ 33
DIVIDENDS AND OTHER DISTRIBUTIONS.......................................... 33
68. Declaration of dividends by the Board............................ 33
69. Other distributions.............................................. 33
70. Reserve fund..................................................... 33
71. Deduction of Amounts due to the Company.......................... 33
72. Unclaimed dividends.............................................. 33
73. Interest on dividend............................................. 33
CAPITALIZATION............................................................. 34
74. Capitalization................................................... 34
ACCOUNTS AND FINANCIAL STATEMENTS.......................................... 34
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
75. Records of account............................................... 34
76. Financial year end............................................... 34
77. Financial statements............................................. 34
AUDIT...................................................................... 35
78. Appointment of Auditor........................................... 35
79. Remuneration of Auditor.......................................... 35
80. Vacation of office of Auditor.................................... 35
81. Access to books of the Company................................... 35
82. Report of the Auditor............................................ 35
GRATUITIES, PENSIONS AND INSURANCE......................................... 36
83. Benefits......................................................... 36
84. Insurance........................................................ 36
85. Limitation on Accountability..................................... 36
NOTICES.................................................................... 36
86. Notices to Members of the Company................................ 36
87. Notices to joint Members......................................... 37
88. Service and delivery of notice................................... 37
REGISTERED OFFICE.......................................................... 37
89. Registered Office................................................ 37
SEAL OF THE COMPANY........................................................ 37
90. The seal......................................................... 37
91. Manner in which seal is to be affixed............................ 37
92. Destruction of Documents......................................... 37
UNTRACED MEMBERS........................................................... 38
93. Sale of Shares................................................... 38
94. Instrument of Transfer........................................... 39
95. Proceeds of Sale................................................. 39
WINDING-UP................................................................. 40
96. Determination to liquidate....................................... 40
97. Winding-up/distribution by liquidator............................ 40
ALTERATION OF BYE-LAWS..................................................... 41
98. Alteration of Bye-laws........................................... 41
</TABLE>
iii
<PAGE>
BYE-LAWS
OF
EVEREST RE GROUP, LTD.
(as adopted on Jaunuary __, 2000)
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;
<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 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
market, the average of the latest bid and asked quotations for
such shares
2
<PAGE>
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 Board and reasonably satisfactory
to the Member or Person 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;
(xix) "Person" means an individual, trust, estate, partnership,
association, company, corporation, firm or other legal entity
or enterprise;
3
<PAGE>
(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) "Record Date" means the date referred to in Bye-law 61;
(xxii) "Registered Office" means the office of the Company selected
to be the registered office in accordance with the provisions
of the Act and Bye-law 89;
(xxiii) "Register of Directors and Officers" means the Register of
Directors and Officers referred to in Bye-law 28;
(xxiv) "Register of Members" means the Register of Members referred
to in Bye-law 59;
(xxv) "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 55) with respect
thereto is sent by the Company;
(xxvi) "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;
(xxvii) "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;
(xxviii) "share" means any share in the share capital of the Company;
(xxix) "United States" means the United States of America and
dependent territories or any part thereof;
(xxx) "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
4
<PAGE>
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:
(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 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.
5
<PAGE>
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 and the business and affairs
of the Company shall be so controlled by the Board. The Board also may present
any petition and make any application in connection with the winding up or
liquidation of the Company.
(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 a
Person or body of Persons 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 (or for an unspecified length of
time) 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
6
<PAGE>
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.
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 (and the Board may appoint alternative
committee members or authorize the members to appoint their own alternates),
which committee may consist partly or entirely of non-Directors. 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 or
reinsured 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 of Officers and the compensation policies and
procedures of the Company and the Company's subsidiary companies or other
companies associated with the Company; 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
7
<PAGE>
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 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) Except as permitted under paragraph (d) of this Bye-law 11, 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 I, Class II and Class III. Each class shall 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 I Directors shall expire at the first
annual general meeting 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 general 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
general 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
8
<PAGE>
Director's successor shall have been duly elected or appointed or until such
Director's office is otherwise vacated.
(d) Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Shares shall have the right, voting separately by
class or series, to elect Directors at an annual or special general meeting, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of the Board resolution creating
such classes or series of Preferred Shares, and such Directors so elected shall
not be divided into classes pursuant to this Bye-law 11 unless expressly
provided by such terms.
(e) 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 Company at the Registered Office (or at such other place or
places as the Board may otherwise specify from time to time for this purpose)
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.
9
<PAGE>
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 received
by the Company at the Registered Office (or at such other place or places as the
Board may otherwise specify from time to time for this purpose). 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 in writing received by the
Company at the Registered Office (or at such other place or places as the Board
may otherwise specify from time to time for this purpose), 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 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 (66-2/3%) of the issued and outstanding shares conferring the right to
vote on such resolution; 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.
10
<PAGE>
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 (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 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.
11
<PAGE>
(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 an Alternate Director or another Director appointed in accordance
with the provisions of Section 91A of the Act.
19. Meetings of the Board
---------------------
(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. No Director may participate in any such meeting of
the Board while in the United States.
(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. An Alternate Director may sign
a resolution in writing in the stead of any Director for whom he or she has been
appointed an Alternate Director. Any resolution in writing may be signed within
or outside of the United States; provided, that the last Director or Alternate
Director, as the case may be, to sign the resolution must sign outside of the
United States.
21. Contracts and disclosure of Directors' interests
------------------------------------------------
(a) Any Director, or any Director's firm, partner or any company or
enterprise 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 or enterprise 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.
12
<PAGE>
(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.
(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 or her office
of Director for such period on such terms as to remuneration and otherwise as
the Board may determine.
(c) The Board may award special remuneration to any Director undertaking
any special work or services for, or undertaking any special mission on behalf
of, the Company other than his or her ordinary routine work as a Director. Any
fees paid to a Director who is also counsel or attorney to the Company, or
otherwise serves it in a profession capacity, shall be in addition to his or her
remuneration as a Director.
OFFICERS
--------
23. Officers of the Company
-----------------------
The Officers of the Company shall consist of a Chairman, a Deputy Chairman,
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,
except for the offices of Chairman and Deputy Chairman.
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
Secretary and additional Officers, if any, shall be appointed by the Board from
time to time; provided, that the Chairman may appoint any Officer ranking equal
or junior to a Vice President, and such appointee shall be deemed to be an
Officer for the purposes of these Bye-laws.
13
<PAGE>
25. Remuneration of Officers
------------------------
The Officers shall receive such remuneration as the Board may from time to
time determine; provided, that the Chairman shall be entitled to determine the
remuneration for those Officers appointed by the Chairman pursuant to Bye-law
24.
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 from
time to time by these Bye-laws, or the Board or, in the case of those Officers
appointed by the Chairman pursuant to Bye-law 24, the Chairman.
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 a Register of Directors and Officers and shall enter therein
the particulars required by the Act.
(b) The Register of Directors and Officers shall be open to inspection by
Members at the Registered Office 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.
14
<PAGE>
INDEMNITY
---------
30. Indemnification of Directors and Officers of the Company
--------------------------------------------------------
(a) The Company shall indemnify its Officers and Directors to the fullest
extent possible except as prohibited under the Act. Without limiting the
foregoing, the Directors, Secretary and other Officers (such term to include for
the purposes of Bye-laws 30 and 31, any Alternate Director or Person appointed
to any committee by the Board or any Person who is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including any employee
benefit plan)) 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, 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 (actual or alleged) 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, 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 authorized 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 authorized 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
15
<PAGE>
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. The Company, in the
discretion of the Board, may pay such expenses (including attorneys' fees)
incurred by agents of the Company or by Persons serving at the request of the
Company in any other capacity for or on behalf of the Company 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) The Company may purchase and maintain insurance to protect itself and
any Director, Officer or other Person entitled to indemnification pursuant to
this Bye-law to the fullest extent permitted by law.
(g) 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
---------------
The Company and each Member agrees to waive any claim or right of action it
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
16
<PAGE>
Member entitled to vote thereat as at the relevant Record Date 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 to each Member entitled to attend and vote thereat as at
the relevant Record Date, 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 Member 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.
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.
17
<PAGE>
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
before the time for such meeting to each Member entitled to attend and vote
thereat as at the relevant Record Date for the meeting being postponed. Fresh
notice of the date, time and place for the postponed meeting shall be given to
each Member entitled to attend and vote thereat as at the relevant Record Date
for the meeting being postponed 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 whether or not 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 with respect to a special general meeting.
40. Business to be conducted at meetings
Subject to the Act, business to be brought before a general meeting of the
Company must be specified in the notice of the meeting. Only business that the
Board has determined can be properly brought before a general meeting in
accordance with these Bye-laws and applicable law shall be conducted at any
general meeting, and the chairman of the general meeting may refuse to permit
any business to be brought before such meeting that has not been properly
brought before it in accordance with these Bye-laws and applicable law.
18
<PAGE>
41. Attendance at meetings
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; provided, that no Member may participate in any such meeting while in
the United States.
42. Written resolutions
(a) Subject to paragraph (f) of this Bye-law 42, 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, if earlier, the Record Date 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 42, 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. Any resolution in writing may be signed
within or outside the United States; provided, that the last Member to sign the
resolution must sign outside of the United States.
(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.
19
<PAGE>
43. 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.
44. 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.
45. 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.
46. 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.
47. 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.
20
<PAGE>
(b) Where, in accordance with the provisions of paragraph (a) of this Bye-
law 47, 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 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 47 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 47, 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
general 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 by reference to the Register of Members, 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.
48. 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.
49. Instrument of proxy
-------------------
(a) Every Member entitled to vote has the right to do so either in person
or by one or more Persons authorised by a written proxy executed and delivered
in accordance with these Bye-laws. 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.
21
<PAGE>
(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 from time to time 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
from time to time for the purpose. A Person so authorised as a proxy or
representative shall be entitled to exercise the same power on behalf of the
grantor of the authority as the grantor could exercise and the grantor shall for
the purpose of these Bye-laws be deemed to be present in person at any such
meeting if a Person so authorised is present at the meeting. 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 49, 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 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, or the chairman of
the relevant meeting may at his or her discretion with respect to such meeting
only, waive any of the provisions of these Bye-laws related to proxies or
authorisations and, in particular, may accept such verbal or
22
<PAGE>
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.
50. Representation of corporations at meetings
------------------------------------------
A corporation which is a Member may, by written instrument, authorise such
Person or Persons as it thinks fit to act as its representative at any meeting
of the Members and the Person or Persons so authorised shall be entitled to
exercise the same powers on behalf of the corporation which such Person or
Persons represent as that corporation could exercise if it were an individual
Member. Such corporation shall for the purpose of these Bye-laws be deemed to be
present in person at any such meeting if a Person so authorized is present at
the meeting. 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
or individuals to attend and vote at general meetings on behalf of a corporation
which is a Member.
SHARE CAPITAL AND SHARES
------------------------
51. 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. The Board may create classes of shares and may increase or
decrease the number of shares of any class as it sees fit. The Board also may,
subject to the Act, cancel, redeem or purchase shares of any class of shares.
(b) Subject to the provisions of these Bye-laws, the Common Shares shall
entitle the holders thereof to:
(i) one vote per Common Share;
(ii) 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 an
amalgamation, a reorganization or otherwise or upon any
distribution of capital, 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 issued and outstanding Preferred Shares or
other shares ranking ahead of the Common 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
23
<PAGE>
terms and conditions as it may determine and any shares or class of shares may
be issued as a new or existing class of shares and with such preferred, deferred
or other special rights or such restrictions or as comprising a new or existing
class of shares, 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 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 with similar or different rights or restrictions
as any other series and 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 or any Preferred
Share shall be deemed not to be altered by the allotment of any other 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 or existing
Preferred Share and shall not otherwise be deemed to be altered by the creation
or issue of further shares ranking pari passu therewith.
52. 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 52), 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 Person, adjusted to take into account
any prior reduction taken with respect to any other
Person pursuant to paragraph (b) of this Bye-law 52 as
at the same date;
24
<PAGE>
"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 Persons as at any date, the Formula shall
be applied to the shares of each Person in declining order based on the
respective numbers of total Controlled Shares attributable to each Person. Thus,
the Formula will be applied first to the votes of shares held by the Person to
whom the largest number of total Controlled Shares is attributable and
thereafter sequentially with respect to the Person 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 Person
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 52, 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 Person 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 52 shall not
apply for so long as the Company shall have only one Member.
53. Limitations on the power to issue shares
----------------------------------------
(a) Notwithstanding the provisions of paragraphs (c) and (d) of Bye-law
51, no share may be issued, without prior Board approval, 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 (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 or
any Person who beneficially owns (within the meaning of Section 13(d)(3) of the
Exchange Act and the rules and regulations thereunder) any of the issued and
outstanding share capital of the Company. The restrictions of this paragraph (a)
of this Bye-law 53 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.
25
<PAGE>
(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 53 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;
(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.
54. 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 alter
the conditions of its Memorandum of Association by all or any of those actions
listed in Section 45(1) of the Act and accordingly may 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
26
<PAGE>
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.
55. Purchase of shares by Company
-----------------------------
(a) Exercise of power to redeem and purchase shares of the Company
--------------------------------------------------------------
The Company shall have the power to, and 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 purchase right
-------------------------
Subject to Section 42A of the Act, if the Board has reason to believe that
(i) any Person that is not an Investment Company beneficially owns (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 exceeds the Maximum Percentage of any class of
issued and outstanding share capital of the Company or (iii) the direct or
indirect share ownership in the Company of any Person may result in adverse tax,
regulatory or legal consequences to the Company, any of its subsidiaries, any of
the Members or any Person who beneficially owns (within the meaning of Section
13(d)(3) of the Exchange Act and the rules and regulations thereunder) any of
the issued and outstanding share capital of the Company, the Company shall have
the option, but not the obligation, to redeem or purchase all or any part of the
shares so owned (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 the Person that owns and, where the registered holder of the shares is
not such Person, the Member that holds the shares to be redeemed or purchased
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 Persons 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 Person and such Member (if any), and
such Person and such Member (if any), shall sell to the Company or its designee,
the number of shares specified in the Repurchase Notice at a mutually agreeable
time and
27
<PAGE>
place. At such closing, the Company or its designee shall pay to such Person or
to such Member (as the Board may consider appropriate) the Repurchase Price by
wire transfer of immediately available funds and such Person and such Member (if
any), 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 Person (including without limitation a Member) shall be involuntarily
wound 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 Person's shares (the "Involuntary Transfer
Shares") shall be actually or purportedly transferred or otherwise disposed of,
such Person, or its legal representative or successor, and, where the registered
holder of the shares is not such Person, the Members that holds the shares,
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 Involuntary Transfer Shares for the Repurchase Price by delivering a
Repurchase Notice to such Person and such Member (if any). Within 10 days after
the delivery of the Repurchase Notice, the Company or its designee shall redeem
or purchase from such Person and such Member (if any), and such Person and such
Member (if any) 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 Person or to such Member (as the Board may consider appropriate) the
Repurchase Price by wire transfer of immediately available funds and such Person
and such Member (if any) 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.
56. 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
28
<PAGE>
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.
57. 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.
58. Share certificates
------------------
(a) Every Member shall be entitled to a share certificate under the seal
of the Company (or a facsimile or representation thereof as the Board may
determine) 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 determine, either generally or in a
particular case, that any or all signatures on share certificates may be printed
thereon or affixed by mechanical means. Notwithstanding the provisions of Bye-
law 91, the Board may determine that a share certificate need not be signed on
behalf of the Company.
(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 share 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 share certificate to be issued and may request an indemnity with or
without security for the lost share certificate as it sees fit.
REGISTER OF MEMBERS
-------------------
59. 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 56.
60. 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 (or at such other place or
places in Bermuda as the Board may from time to time determine) 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
29
<PAGE>
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.
61. 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 the Board may determine a different
record date for any adjournment or postponement thereof; and
(c) determining the Members entitled to execute a resolution in writing.
TRANSFER OF SHARES
------------------
62. 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.
63. Restrictions on transfer
------------------------
(a) Subject to the Act, this Bye-law 63 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 prior Board approval, 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 (within the
meaning of Section 13(d)(3) of the Exchange Act and the rules and
30
<PAGE>
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, any of
the Members or any Person who beneficially owns (within the meaning of Section
13(d)(3) of the Exchange Act and the rules and regulations thereunder) any of
the issued and outstanding share capital of the Company.
(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, any Person
that beneficially owns (within the meaning of Section 13(d)(3) of the Exchange
Act and the rules and regulations thereunder) any of the issued and outstanding
share capital of the Company 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 request for the purpose of giving effect to Bye-laws 52(a), 52(b),
53(a), 55(b), 55(c) and paragraph (b) of this Bye-law 63, 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, any Person that beneficially owns (within the meaning
of Section 13(d)(3) of the Exchange Act and the rules and regulations
thereunder) any of the issued and outstanding share capital of the Company or
any 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
31
<PAGE>
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 or owned by such Member or Person (and by the registered holder of such
shares owned by such Person).
(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.
64. 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
----------------------
65. 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
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.
66. 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.
32
<PAGE>
67. 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
---------------------------------
68. Declaration of dividends by the Board
-------------------------------------
Subject to any rights or restrictions at the time lawfully attached to any
class or series 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.
69. 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.
70. Reserve fund
------------
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 or general purpose.
71. 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.
72. 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 and belong 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.
73. Interest on dividend
--------------------
No dividend or distribution shall bear interest against the Company.
33
<PAGE>
CAPITALIZATION
--------------
74. 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 funds 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 funds 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
---------------------------------
75. 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;
(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 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 the
Act or as authorised by the Board.
76. 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.
77. 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.
34
<PAGE>
AUDIT
-----
78. 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.
79. 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.
80. 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.
81. 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 of the Company for any information in
their possession relating to the books or affairs of the Company.
82. 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 82 shall be those of the United States and the financial
statements and the report of the Auditor shall disclose this fact.
35
<PAGE>
GRATUITIES, PENSIONS AND INSURANCE
----------------------------------
83. 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 affiliates 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.
84. 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 of its subsidiaries or affiliates, or who are or were at any
time trustees of any pension fund in which Directors, Officers or employees of
the Company or any such subsidiary or affiliate 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 relation to their duties,
powers or offices in relation to the Company or any such other company,
subsidiary, affiliate or pension fund.
85. 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 83 or 84 and the receipt of
any such benefit shall not disqualify any individual from being or becoming a
Director of the Company.
NOTICES
-------
86. 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.
36
<PAGE>
87. 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.
88. Service and delivery of notice
------------------------------
Subject to Bye-law 86, 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
-----------------
89. Registered Office
-----------------
The Registered Office shall be at such address as the Board may fix from
time to time by resolution.
SEAL OF THE COMPANY
-------------------
90. The seal
--------
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.
91. 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.
92. 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 of Members, 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
37
<PAGE>
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 of Members 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
(c) references herein to the destruction of any document include
references to the disposal thereof in any manner.
UNTRACED MEMBERS
----------------
93. 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 93
(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;
(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
38
<PAGE>
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;
(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 93
(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.
94. Instrument of Transfer
----------------------
To give effect to any such sale or purchase pursuant to Bye-law 93, 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 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.
95. Proceeds of Sale
----------------
The net proceeds of sale or purchase of shares pursuant to Bye-law 93 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.
39
<PAGE>
WINDING-UP
----------
96. Determination to liquidate
Subject to the Act, the Company shall be wound up voluntarily by resolution
of the Members; provided, that the Board shall have the power to present any
petition and make application in connection with the winding up or liquidation
of the Company.
97. 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.
40
<PAGE>
ALTERATION OF BYE-LAWS
----------------------
98. 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 at least sixty-six and two-thirds percent (66 2/3%) of the issued and
outstanding share capital of the Company.
******
***
*
41
<PAGE>
EXHIBIT 4.1
[GRAPHIC]
COMMON SHARES COMMON SHARES
INCORPORATED IN THE ISLANDS OF BERMUDA SHARES
UNDER THE COMPANIES ACT, 1981
CINS G3223R 10 8
[GRAPHIC]
EVEREST RE GROUP, LTD.
THIS IS TO CERTIFY THAT
is the registered holder of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF PAR VALUE US$0.01 EACH OF
EVEREST RE GROUP, LTD., transferable on the books of the Company by the holder
hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Memorandum of Association and Bye-Laws of the Company and all amendments thereof
to all of which the holder by acceptance hereof assents and shall be
transferable in accordance therewith. This certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Company and the facsimile signatures of
its duly authorized officers.
Dated
[signature] [SEAL] [signature]
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
Countersigned and Registered:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Transfer Agent
and Registrar
By
Authorized Signature
<PAGE>
ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION OF, AND ANY EXERCISE
OF VOTING RIGHTS WITH RESPECT TO, THE SHARES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO ALL OF THE PROVISIONS OF THE BYE-LAWS OF THE COMPANY AS THEY MAY BE
AMENDED FROM TIME TO TIME. THE COMPANY WILL FURNISH A COPY OF ITS BYE-LAWS TO
THE HOLDER OF RECORD OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO
THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- __________ Custodian _________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act _______________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED _____________________________________________________________
(fill in amount for purposes of stamp duty)
________________________________________________________________________________
(name in full of Transferor)
hereby sell, assign and transfer unto __________________________________________
(name in full of Transferee)
________________________________________________________________________________
________________________________________________________________________________
(address)
____________________________________________________ shares of the capital stock
represented by the within Certificate, and does hereby constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said shares registered on the register of members of the within
named Company with full power of substitution in the premises.
Dated ______________________________
in the presence of:
__________________________
(Transferor)
__________________________________________
(witness)
Signature(s) Guaranteed:
_____________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[Letterhead of Conyers Dill & Pearman]
22 December 1999
Everest Re Group, Ltd.
c/o ABG Financial & Management Services Inc.
Parker House
Wildey Business Park, Wildey Road
St. Michael, Barbados
Dear Sirs:
Everest Re Group, Ltd.
We have acted as special legal counsel in Bermuda to Everest Re Group, Ltd., a
Bermuda company ("Everest Group"), in connection with the Registration Statement
on Form S-4 of Everest Group (Registration No. 333-87361), filed today with the
Securities and Exchange Commission under the United States Securities Act of
1933, as amended, (the "Registration Statement"), relating to a certain
restructuring involving, among other matters, the proposed issue by Everest
Group of its common shares, par value US$0.01 per share (the "Everest Group
Common Shares") under the Agreement and Plan of Merger dated as of 17 September
1999 (the "Merger Agreement") and made among Everest Group, Everest Re Merger
Corporation, a Delaware, U.S.A., corporation ("Merger Corp.") and Everest Re
Holdings, Inc., a Delaware, U.S.A., corporation ("Everest Holdings"). Pursuant
to the Merger Agreement, Merger Corp. will be merged with and into Everest
Holdings (the "Merger") and the said issue of the Everest Group Common Shares
would be in exchange (the
<PAGE>
2
"Exchange") for certain issued and outstanding shares of common stock, par value
US$.01 per share, of Everest Holdings (the "Everest Holdings Shares"). The
Registration Statement includes a proxy statement/prospectus (the "Joint Proxy
Statement/Prospectus") to be furnished to the stockholders of Everest Holdings
in connection with seeking their approval of the Merger Agreement.
For the purposes of giving this opinion, we have examined the following
documents:-
(i) the Registration Statement (including the Joint Proxy Statement/Prospectus
but excluding the exhibits and schedules thereto whether or not
specifically referred to therein); and
(ii) a facsimile copy of the Merger Agreement (which term does not include any
other instrument or agreement whether or not specifically referred to
therein or attached as an exhibit or schedule thereto).
The documents listed in items (i) through (ii) above are herein sometimes
collectively referred to as the "Documents".
We have also reviewed and have relied upon the memorandum of association and the
bye-laws of Everest Group (certified by the Secretary of Everest Group on 22
December 1999), minutes of a meeting of Everest Group's board of directors held
on 2 September 1999 (certified by the Secretary
<PAGE>
3
of Everest Group on 22 December 1999 and referred to herein as the "Minutes"),
correspondence on behalf of Everest Group with the Bermuda Monetary Authority
whereby the Bermuda Monetary Authority has granted certain permissions, inter
alia, for the issue (and subsequent transfer) of 200,000,000 of Everest Group
Common Shares (subject to conditions expressed in such correspondence) and such
other documents and made such enquiries as to questions of Bermuda law as we
have deemed necessary in order to render the opinions set forth below.
We have assumed:
(a) the genuineness and authenticity of all signatures and the conformity to
the originals of all copies (whether or not certified) of all documents
examined by us and the authenticity and completeness of the originals from
which such copies were taken;
(b) the capacity, power and authority of each of the parties to the Merger
Agreement, other than Everest Group, to enter into and perform its
respective obligations under the Merger Agreement and that the Merger
Agreement has been duly executed and delivered by each of the parties
thereto;
(c) the accuracy and completeness of all factual representations made in the
Documents and other documents reviewed by us;
<PAGE>
4
(d) that the resolutions contained in the Minutes remain in full force and
effect and have not been rescinded or amended;
(e) that, by the Merger and the Exchange pursuant to the Merger Agreement,
Everest Group will become the owner of the Everest Holdings Shares being
the subject of the Exchange under Delaware Law (as defined below) and the
laws of other jurisdictions applicable to Everest Holdings and Merger
Corp.;
(f) that, by acquiring ownership of the Everest Holdings Shares in the Merger
and the Exchange, Everest Group will receive money or money's worth at
least equal to the value of the Everest Group Common Shares being issued
and none of the Everest Group Common Shares will be issued for less than
par value;
(g) that there is no provision of the law of any jurisdiction, other than
Bermuda, which would have any implication in relation to the opinions
expressed herein;
(h) that the Merger Agreement, being expressed to be or is otherwise, governed
by the laws of the State of Delaware, U.S.A. ("Delaware Law") is valid,
binding and enforceable under Delaware Law in accordance with its terms;
<PAGE>
5
(i) that the issue and transfer of the Everest Group Common Shares or options
or warrants for any Everest Group Common Shares comply at all times with
the permissions already obtained from the Bermuda Monetary Authority and
that the Everest Group Common Shares will be listed on an appointed stock
exchange (which includes New York Stock Exchange, Inc.) by 1 April 2000;
and
(j) that the Registration Statement will be filed in compliance with section 26
of the Companies Act 1981.
In rendering the opinion expressed in paragraph 1 below, we have assumed that,
as referred to in the Minutes, the members of Everest Group will have approved
the Merger, the Exchange and the Merger Agreement prior to the effective time of
the Merger.
The obligations of Everest Group under the Merger Agreement:
(1) will be subject to the laws from time to time in effect relating to
bankruptcy, insolvency, liquidation, possessory liens, rights of set off,
reorganisation, amalgamation, moratorium or any other laws or legal
procedures, whether of a similar nature or otherwise, generally affecting
the rights of creditors;
<PAGE>
6
(2) will be subject to statutory limitation of the time within which
proceedings may be brought;
(3) will be subject to general principles of equity and, as such, specific
performance and injunctive relief, being equitable remedies, may not be
available; and
(4) may not be given effect to by a Bermuda court, whether or not it was
applying the Delaware Law, if and to the extent they constitute the payment
of an amount which is in the nature of a penalty and not in the nature of
liquidated damages.
"Non-assessability" is not a legal concept under Bermuda law, but when we
describe the Everest Group Common Shares as being "non-assessable" herein we
mean, subject to any contrary provision in any agreement between Everest Group
and any one of its shareholders holding any of the Everest Group Common Shares
(but only with respect to such shareholder), that no further sums are payable
with respect to the holding of such Everest Group Common Shares and the
shareholder shall not be bound by an alteration in the Memorandum of Association
or the Bye-laws of Everest Group after the date upon which it became a
shareholder if and so far as the alteration requires such shareholder to take or
subscribe for additional Everest Group Common Shares or in any way increases its
liability to contribute to the share capital of, or otherwise pay money to,
Everest Group. However, it should be noted that the limited liability of
shareholders will be subject to the common law doctrine of "piercing the
corporate veil".
<PAGE>
7
We have made no investigation of and express no opinion in relation to the laws
of any jurisdiction other than Bermuda. This opinion is to be governed by and
construed in accordance with the laws of Bermuda and is limited to and is given
on the basis of the current law and practice in Bermuda. This opinion is not to
be relied upon in respect of any matter other than the Registration Statement
and the Merger Agreement.
On the basis of, and subject to, the foregoing, we are of the opinion that:
1. Upon consummation of the transactions contemplated by the Merger Agreement
and registration of the Everest Group Common Shares (issued in the
Exchange) in Everest Group's Register of Members, the Everest Group Common
Shares will be validly issued and fully paid and non-assessable; and
2. the discussions set forth under the headings "Material Tax Considerations--
Tax Consequences of the Restructuring--Bermuda"; "Material Tax
Considerations--Taxation of Everest Group and its Subsidiaries--Bermuda";
and Material Tax Considerations--Taxation of Shareholders--Bermuda
Taxation" accurately reflect our opinion with respect to the matters set
forth therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to our firm under the sections entitled
"Material Tax Considerations", "Legal Matters" and
<PAGE>
8
"Enforceability of Civil Liabilities under United States Federal Securities
Laws" in the Registration Statement.
Yours faithfully,
/s/ Conyers Dill & Pearman
CONYERS DILL & PEARMAN
<PAGE>
Exhibit 8.2
1956.0001 22 December 1999
Everest Re Group, Ltd.
c/o ABG Financial & Management Services Inc.
Parker House
Wildey Business Park, Wildey Road
St. Michael, Barbados
Dear Sirs:
Re:Everest Re Group, Ltd.
----------------------
We are the legal advisers in Barbados to Everest Re Group, Ltd., a Bermuda
company ("Everest Group"). We have advised in connection with, inter alia:
(i) an application by Everest Group for registration in Barbados as an external
company under the Companies Act, Cap. 308 of Barbados;
(ii) the proposed application by Everest Group for an international business
company licence under the International Business Companies Act, 1991-24 of
Barbados;
We have also commented at your request on the Registration Statement
described below.
1. In rendering this opinion we have considered the following documents:
(a) Everest Group's Registration Statement on Form S-4 dated 22 December
1999 (Registration No. 333-87361) Amendment No. 2 relating to the
registration of common shares, par value $0.01 per share, of Everest
Group to be issued to stockholders of Everest Reinsurance Holdings,
Inc., a Delaware corporation ("Everest Holdings"), in connection with
the restructuring of Everest Holdings to become a wholly-owned
subsidiary of Everest Group (the "Restructuring");
and relevant laws of Barbados including:
<PAGE>
The International Business Companies Act, 1991-24; and
The Companies Act, Chapter 308.
2. In connection with this Opinion we have assumed:
(a) that the Restructuring will be effected in conformity with the
description in the Registration Statement;
(b) that Everest Group carries on business in conformity with the
description in the Registration Statement;
(c) that all signatures on the documents are genuine, that all documents
submitted to us as originals are authentic, that all copies of
documents submitted to us conform with the originals and the
Registration Statement will be filed in the form examined by us or a
form which we do not consider differs from such form in any material
respect.
We do not in our capacity as legal advisers to Everest Group in
Barbados have any personal knowledge of any matter which is inconsistent with
the facts assumed above but we have not carried on any investigation or
verification of those facts.
The law covered by the discussions set forth below is limited to the
law of Barbados. We are attorneys admitted to practice only in Barbados. We do
not opine on, and we assume no responsibility as to, the applicability to or the
effect on any of the matters covered herein, of the laws of any jurisdiction
other than those of Barbados.
Based upon and subject to the foregoing, we are of the opinion that
the discussions set forth under the headings "Material Tax Considerations--Tax
Consequences of the Restructuring--Barbados"; "Material Tax Considerations--
Taxation of Everest Group and Its Subsidiaries-- Barbados"; and "Material Tax
Considerations--Taxation of Shareholders--Barbados Taxation" accurately
reflect our opinion with respect to the matters set forth therein.
We as opinion givers, are under no obligation to advise the opinion
recipient of changes in law or fact that occur after the date of the opinion
letter - even though the change may affect the legal analysis, a legal
conclusion or informational confirmation in the discussions.
We hereby consent to the filing of this opinion as an
<PAGE>
exhibit to the Registration Statement and the reference to our firm under the
sections entitled "Material Tax Considerations" and "Legal Matters" in the
Registration Statement.
Yours faithfully,
CLARKE & CO.
Per: Rosalind Bynoe
<PAGE>
Exhibit 8.3
[Letterhead of Mayer, Brown & Platt]
December 22, 1999
Everest Re Group, Ltd.
c/o ABG Financial & Management Services Inc.
Parker House
Wildey Business Park, Wildey Road
St. Michael, Barbados
Everest Reinsurance Holdings, Inc.
477 Martinsville Road
P.O. Box 830
Liberty Corner, New Jersey 07938-0830
Re: Everest Re Group, Ltd. and Everest Reinsurance Holdings, Inc.
-------------------------------------------------------------
Gentlemen:
We have acted as counsel to Everest Re Group, Ltd., a Bermuda company
("Everest Group"), and to Everest Reinsurance Holdings, Inc., a Delaware
corporation ("Everest Holdings"), in connection with the Registration Statement
on Form S-4 of Everest Group (Registration No. 333-87361) (together with any
amendments thereto, the "Registration Statement"), filed with the Securities and
Exchange Commission under the United States Securities Act of 1933, as amended,
in connection with the Agreement and Plan of Merger, dated as of September 17,
1999 (the "Merger Agreement"), between Everest Group, Everest Re Merger
Corporation, a Delaware corporation ("Merger Corp."), and Everest Holdings,
pursuant to which, among other things, Merger Corp. will be merged with and into
Everest Holdings (the "Merger"), all as more fully described in the Registration
Statement. You have requested that we provide an opinion regarding the treatment
of the Merger under the Internal Revenue Code of 1986, as amended (the "Code"),
and the accuracy of the tax disclosures in the proxy statement/prospectus (the
"Joint Proxy Statement/Prospectus") to be furnished to the stockholders of
Everest Holdings in connection with seeking their approval of the Merger
Agreement.
In rendering the opinions set forth below, we have relied on (i) the
description of the transaction as set forth in the Merger Agreement and the
exhibits thereto, (ii) the description of the transaction as set forth in the
Joint Proxy Statement/Prospectus and the exhibits thereto, (iii) covenants made
by Everest Group, Merger Corp., and Everest Holdings in the Merger Agreement,
(iv) representations provided by Everest Group, Merger Corp., and Everest
Holdings concerning certain facts underlying and relating to the Merger, (v)
representations provided by
<PAGE>
December 22, 1999
Page 2
certain shareholders of Everest Holdings regarding their intention to retain the
common stock of Everest Group received in the Merger, (vi) Everest Group will
comply and will cause Everest Bermuda to comply, with certain guidelines
provided by Mayer, Brown & Platt 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
in the United States.
We have also examined such corporate records and other records,
instruments, certificates and documents as we consider necessary to enable us to
express these opinions.
Based on and subject to the foregoing, it is our opinion that:
(i) the summaries of U.S. federal income tax consequences set forth in the
Joint Proxy Statement/Prospectus under the captions "Material Tax
Considerations--Tax Consequences of the Restructuring--United States";
"Material Tax Considerations--Taxation of Everest Group and Its
Subsidiaries--United States"; and "Material Tax Considerations--
Taxation of Shareholders--United States Taxation of Shareholders" are
accurate in all material respects as to matters of law and legal
conclusions; and
(ii) 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.
In rendering the opinions set forth in the paragraph above, we have relied
upon the Code, legislative history, Treasury regulations, judicial authorities,
published positions of the Internal Revenue Service (the "IRS") and such other
authorities as we have considered to be relevant. No tax rulings will be sought
from the IRS with respect to any of the matters discussed herein.
We consent to the filing of this opinion as an exhibit to the Joint
Proxy/Statement Prospectus and to all references to this firm under the captions
"Risk Factors," "Material Tax Considerations" and "Legal Matters."
We are admitted to practice law in the State of Illinois and we express no
opinions as to matters under or involving any laws other than the laws of the
State of Illinois and the federal law of the United States of America.
Very truly yours,
/s/ Mayer, Brown & Platt
MAYER, BROWN & PLATT
<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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
December 22, 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.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
December 22, 1999
Hamilton, Bermuda
