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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number 1-15731
EVEREST RE GROUP, LTD.
(Exact name of registrant as specified in its charter)
BERMUDA NOT APPLICABLE
(State or other jurisdiction) (I.R.S. Employer
of incorporation or organization) Identification No.)
C/O ABG FINANCIAL & MANAGEMENT SERVICES, INC.
PARKER HOUSE
WILDEY BUSINESS PARK, WILDEY ROAD
ST. MICHAEL, BARBADOS
(246) 436-6287
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Shares, $.01 par value per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value on March 16, 2000 of the voting stock held
by non-affiliates of the registrant was $1,315.8 million.
At March 16, 2000, the number of shares outstanding of the registrant's
common shares was 45,819,697.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Items 10, 11, 12, and 13 of Form 10-K
is incorporated by reference into Part III hereof from the registrant's proxy
statement for the 2000 Annual General Meeting of Shareholders, which will be
filed with the Securities and Exchange Commission within 120 days of the close
of the registrant's fiscal year ended December 31, 1999.
SUCCESSION PURSUANT TO RULE 12G-3
On February 24, 2000, Everest Re Group, Ltd., a Bermuda company ("Group"),
became the successor registrant to Everest Reinsurance Holdings, Inc., a
Delaware corporation ("Holdings"), pursuant to Rule 12g-3(a) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As the result
of a merger and restructuring, effective on February 24, 2000, Holdings became a
wholly-owned subsidiary of Group and holders of Holdings' common stock, $0.01
par value per share, automatically became holders of the same number of Group
common shares, $0.01 par value per share, which shares continue to be traded on
the New York Stock Exchange under the same ticker symbol, "RE". Pursuant to Rule
12g-3(g) under the Exchange Act, Group is filing this Annual Report on Form 10-K
for its predecessor registrant, Holdings, covering the last full fiscal year of
Holdings before the February 24, 2000 succession.
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<PAGE>
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. Business........................................................... 1
2. Properties......................................................... 22
3. Legal Proceedings.................................................. 22
4. Submission of Matters to a Vote of Security Holders................ 22
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................... 22
6. Selected Financial Data............................................ 23
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 25
7A. Quantitative and Qualitative Disclosures About Market Risk......... 39
8. Financial Statements and Supplementary Data........................ 39
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................... 39
PART III
10. Directors and Executive Officers of the Registrant................ 39
11. Executive Compensation............................................ 39
12. Security Ownership of Certain Beneficial Owners
and Management................................................... 39
13. Certain Relationships and Related Transactions.................... 39
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K...................................................... 39
<PAGE>
PART I
Unless otherwise indicated, (i) all financial data in this document have been
prepared using generally accepted accounting principles ("GAAP"), and (ii) all
statutory financial data referred to in this document refer to statutory
financial data of Everest Re. As used in this document, "Everest Re" means
Everest Reinsurance Company and its subsidiaries (unless the context otherwise
requires); "Holdings" means Everest Reinsurance Holdings, Inc.; "Group" means
Everest Re Group, Ltd. (formerly Everest Reinsurance Group, Ltd.); and the
"Company" means Group and its subsidiaries, except when referring to periods
prior to February 24, 2000, when it means Holdings and its subsidiaries.
ITEM 1. BUSINESS
THE COMPANY
Group, a Bermuda company, with its principal executive offices in Barbados, was
established in 1999 as a wholly-owned subsidiary of Holdings. On February 24,
2000, a corporate restructuring was completed and Group became the new parent
holding company of Holdings, which remains the holding company for the Company's
U.S. operations. Holders of Holdings' common stock automatically became holders
of the same number of Group common shares. The restructuring also involved the
establishment of a Bermuda-based reinsurance subsidiary, Everest Reinsurance
(Bermuda), Ltd. ("Bermuda Re"), as a wholly-owned subsidiary of Group, which is
expected to commence operations later this year. Bermuda Re is registered in
Bermuda as a Class 4 insurer and long-term insurer and is authorized to write
property and casualty business and life and annuity business. Prior to the
restructuring, Group had no significant assets or capitalization and had not
engaged in any business or prior activities other than in connection with the
restructuring. In connection with the restructuring, Group also formed a new
Delaware subsidiary to perform administrative and back-office functions for
Group and its U.S. based and non-U.S. based subsidiaries.
On March 14, 2000, Holdings completed public offerings of $200 million principal
amount of 8.75% senior notes due March 15, 2010 and $250 million principal
amount of 8.50% senior notes due March 15, 2005. Holdings retained approximately
$50 million of the net proceeds for general corporate purposes. Approximately
$400 million of the net proceeds were distributed by Holdings to Group and
approximately $250 million were used by Group to capitalize Bermuda Re. The
remainder of the proceeds that were distributed to Group will be used for
general corporate purposes. See Note 15B of Notes to Consolidated Financial
Statements.
Holdings, a Delaware corporation, was established in 1993 to serve as the parent
holding company of Everest Re (formed in 1973), a property and casualty
reinsurer. Until October 6, 1995, Holdings was an indirect wholly-owned
subsidiary of The Prudential Insurance Company of America ("The Prudential"). On
October 6, 1995, The Prudential sold its entire interest in Holdings' shares of
common stock in an initial public offering (the "IPO").
Holdings, through its wholly-owned subsidiary, Everest Re, underwrites property
and casualty reinsurance on a treaty and facultative basis for insurance and
reinsurance companies in the United States and selected international markets.
Everest Re writes reinsurance both through brokers and directly with ceding
insurance companies, giving it the flexibility to pursue business regardless of
the ceding company's preferred reinsurance purchasing method. Everest Re and its
subsidiaries also write primary insurance. The Company had gross premiums
written in 1999 of $1,141.8 million and stockholders' equity at December 31,
1999 of $1,327.5 million and Everest Re had statutory surplus at December 31,
1999 of $1,147.6 million. Based on industry data at December 31, 1999 published
by the Reinsurance Association of America ("RAA"), Everest Re is the sixth
largest reinsurance company in the United States, ranked by statutory surplus,
and is rated "A+" ("Superior") by A.M. Best, an independent insurance industry
rating organization that rates insurance companies on factors of concern to
policyholders.
Following is a summary of Everest Holdings' and Everest Re's operating
subsidiaries:
o Everest National Insurance Company ("Everest National"), 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.
o Everest Insurance Company of Canada ("Everest 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.
<PAGE>
o Everest Indemnity Insurance Company ("Everest Indemnity"), 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.
o Mt. McKinley Managers, L.L.C. ("Mt. McKinley"), 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.
o Everest Re Holdings, Ltd. ("Everest Ltd."), a Bermuda company formed
in 1998, 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 $91 million of investments, the management of
which constitutes its principal operations.
o Southeastern Security Insurance Company ("Southeastern Security"), a
Georgia insurance company licensed in Georgia and acquired by Everest
Re in January 2000, writes primary insurance on an admitted basis.
REINSURANCE INDUSTRY OVERVIEW
Reinsurance is an arrangement in which an insurance company, the reinsurer,
agrees to indemnify another insurance company, the ceding company, against all
or a portion of the insurance risks underwritten by the ceding company under one
or more insurance contracts. Reinsurance can provide a ceding company with
several benefits, including a reduction in net liability on individual risks,
catastrophe protection from large or multiple losses and assistance in
maintaining acceptable financial ratios. Reinsurance also provides a ceding
company with additional underwriting capacity by permitting it to accept larger
risks and write more business than would be possible without a concomitant
increase in capital and surplus. Reinsurance, however, does not discharge the
ceding company from its liability to policyholders.
There are two basic types of reinsurance arrangements: treaty and facultative
reinsurance. In treaty reinsurance, the ceding company is obligated to cede and
the reinsurer is obligated to assume a specified portion of a type or category
of risks insured by the ceding company. Treaty reinsurers, including Everest Re,
do not separately evaluate each of the individual risks assumed under their
treaties and, consequently, after a review of the ceding company's underwriting
practices, are largely dependent on the original risk underwriting decisions
made by the ceding company. Such dependence subjects reinsurers in general,
including Everest Re, to the possibility that the ceding companies have not
adequately evaluated the risks to be reinsured and, therefore, that the premiums
ceded in connection therewith may not adequately compensate the reinsurer for
the risk assumed. The reinsurer's evaluation of the ceding company's risk
management and underwriting practices, therefore, will usually impact the
pricing of the treaty. In facultative reinsurance, the ceding company cedes and
the reinsurer assumes all or part of the risk under a single insurance contract.
Facultative reinsurance is negotiated separately for each insurance contract
that is reinsured. Facultative reinsurance normally is purchased by ceding
companies for individual risks not covered by their reinsurance treaties, for
amounts in excess of the dollar limits of their reinsurance treaties and for
unusual risks. Underwriting expenses and, in particular, personnel costs, are
higher on facultative business because each risk is individually underwritten
and administered. The ability to separately evaluate each risk reinsured,
however, increases the probability that the reinsurer can price the contract to
more accurately reflect the risks involved.
Both treaty and facultative reinsurance can be written on either a pro rata
basis or an excess of loss basis. With respect to pro rata reinsurance, the
ceding company and the reinsurer share the premiums as well as the losses and
expenses in an agreed proportion. In the case of reinsurance written on an
excess of loss basis, the reinsurer indemnifies the ceding company against all
or a specified portion of losses and expenses in excess of a specified dollar
amount, known as the ceding company's retention or reinsurer's attachment point,
generally subject to a negotiated reinsurance contract limit.
2
<PAGE>
Premiums payable by the ceding company to a reinsurer for excess of loss
reinsurance are not directly proportional to the premiums that the ceding
company receives because the reinsurer does not assume a proportionate risk. In
contrast, premiums that the ceding company pays to the reinsurer for pro rata
reinsurance are proportional to the premiums that the ceding company receives,
consistent with the proportional sharing of risk. In addition, in pro rata
reinsurance the reinsurer generally pays the ceding company a ceding commission.
The ceding commission generally is based on the ceding company's cost of
acquiring the business being reinsured (commissions, premium taxes, assessments
and miscellaneous administrative expense) and also may include a profit factor
for producing the business.
Reinsurers typically purchase reinsurance to cover their own risk exposure.
Reinsurance of a reinsurer's business is called a retrocession. Reinsurance
companies cede risks under retrocessional agreements to other reinsurers, known
as retrocessionaires, for reasons similar to those that cause primary insurers
to purchase reinsurance: to reduce net liability on individual risks, protect
against catastrophic losses, stabilize financial ratios and obtain additional
underwriting capacity.
Reinsurance can be written through professional reinsurance brokers or directly
with ceding companies. From a ceding company's perspective, both the broker
market and the direct market have advantages and disadvantages. A ceding
company's decision to select one market over the other will be influenced by its
perception of such advantages and disadvantages relative to the reinsurance
coverage being placed.
BUSINESS STRATEGY
The Company's 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. The
Company also seeks to manage its catastrophe exposures and control expenses and
retrocessional costs, which are incurred when reinsurers purchase reinsurance.
The Company's 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 the Company.
The Company's products include the full range of property and casualty
coverages, including marine, aviation, surety, errors & omissions liability
("E&O"), directors' & officers' liability ("D&O"), medical malpractice, other
specialty lines, accident and health, workers compensation, non-standard auto
and loss portfolios. The Company's 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.
The Company's underwriting strategy emphasizes underwriting profitability rather
than premium volume, writing specialized risks and integration of underwriting
expertise across all underwriting units. Key elements of this strategy are
prudent risk selection, appropriate pricing through strict underwriting
discipline and adjusting the Company's business mix to respond to changing
market conditions. The Company 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.
The Company's underwriting strategy also emphasizes flexibility and
responsiveness to changing market conditions, such as increased demand or
favorable pricing trends. The Company believes that its existing strengths,
including its broad underwriting expertise, international presence and
substantial capital, facilitate adjustments to its mix of business
geographically, by line of business and by type of coverage, allowing it to
capitalize on those market opportunities that provide the greatest potential for
underwriting profitability. The Company's primary insurance infrastructure
further facilitates this strategy by allowing the Company to develop business
that requires the Company to issue primary insurance policies. The Company will
also continue to carefully monitor its mix of business to avoid inappropriate
concentrations of geographic or other risk.
The Company's underwriting guidelines seek to limit the accumulation of known
risks in exposed areas, to require that business which is exposed to catastrophe
losses be written with greater geographic spread and to maintain a
cost-effective retrocession program. The Company's underwriting guidelines also
seek to better reflect the relationship between premiums and risk assumed while
maintaining the Company's probable maximum loss at appropriate levels.
3
<PAGE>
SEGMENT INFORMATION
The Company, through its subsidiaries, operates in five operating segments: U.S.
Broker Treaty, U.S. Direct Treaty Reinsurance and Insurance, U.S. Facultative,
Marine, Aviation and Surety and International. These segments are generally
referred to as operations in this document. The U.S. Broker Treaty operation
writes property, accident and health and casualty reinsurance through
reinsurance brokers within the United States. The U.S. Direct Treaty Reinsurance
and Insurance operation writes property, accident and health and casualty
reinsurance directly with ceding companies and primary property and casualty
insurance, through agency relationships and program administrators within the
United States. The U.S. Facultative operation writes property, casualty and
specialty business within the United States. The Marine, Aviation and Surety
operation writes marine, aviation and surety business within the United States
and worldwide. The International operation writes reinsurance through the
Company's branches in Belgium, London, Canada, Hong Kong and Singapore, in
addition to foreign "home-office" business. The U.S. Facultative, Marine,
Aviation and Surety and International operations write business through brokers
and directly with ceding companies.
These segments are managed in a carefully coordinated fashion with strong
elements of central control, including with respect to capital, investments and
support operations. As a result, management monitors and evaluates the financial
performance of these operating segments based upon their underwriting gain or
loss ("underwriting results"). See Note 14 of Notes to Consolidated Financial
Statements.
MARKETING
The Company writes its business on a worldwide basis for many different
customers and for many lines of property and casualty business, providing a
broad array of coverages. The Company is not materially dependent on any single
customer, small group of customers, line of business or geographical area. For
the 1999 calendar year, no single customer generated more than 7.3% of the
Company's gross premiums written. The Company does not believe that the
reduction of business assumed from any one customer will have a material adverse
effect on its future financial condition or results of operations due to the
Company's competitive position in the market place and the continuing
availability of other sources of business.
Approximately 68.5% and 31.5% of the Company's 1999 gross premiums written were
written in the broker and direct markets, respectively. The Company's ability to
write reinsurance both through brokers and directly with ceding companies gives
it the flexibility to pursue business regardless of the ceding company's
preferred reinsurance purchasing method.
The reinsurance broker market consists of several substantial national and
international brokers and a number of smaller specialized brokers. Brokers do
not have the authority to bind the Company with respect to reinsurance
agreements, nor does the Company commit in advance to accept any portion of the
business that brokers submit to it. Reinsurance business from any ceding
company, whether new or renewal, is subject to acceptance by the Company.
Brokerage fees generally are paid by reinsurers. The Company's ten largest
brokers accounted for an aggregate of approximately 53.0% of gross premiums
written in 1999 with the two largest brokers accounting for approximately 17.9%
and 13.4%, respectively, of gross premiums written. The Company does not believe
that the reduction of business assumed from any one broker will have a
materially adverse effect on the Company due to its competitive position in the
market place, relationships with ceding companies and the continuing
availability of other sources of business.
The direct market remains an important distribution system for reinsurance
business written by Everest Re and primary insurance written through Everest
National and Everest Indemnity in the United States and Everest Canada in
Canada. Direct placement of reinsurance enables Everest Re to access clients who
prefer to place their reinsurance directly with their reinsurers based upon the
reinsurer's in-depth understanding of the ceding company's needs. The Company's
primary insurance business is written principally through general agency
relationships. The Company evaluates each business relationship, including the
underwriting expertise and experience of each distribution channel selected,
performs an analysis to evaluate financial security and monitors performance.
UNDERWRITING OPERATIONS
The following table presents the distribution of the Company's gross premiums
written by its U.S. Broker Treaty, U.S. Direct Treaty Reinsurance and Insurance,
Marine, Aviation and Surety, U.S. Facultative and International operations for
the years ended December 31, 1999, 1998, 1997, 1996 and 1995, classified
according to whether the premium is derived from property or casualty business
and whether it represents pro rata or excess of loss business:
4
<PAGE>
<TABLE>
<CAPTION>
GROSS PREMIUMS WRITTEN BY OPERATION
YEARS ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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(DOLLARS IN MILLIONS) $ % $ % $ % $ % $ %
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. BROKER TREATY
Property
Pro Rata(1) $ 98.8 8.7% $ 59.0 5.6% $ 62.8 5.8% $ 45.4 4.4% $ 51.7 5.4%
Excess 44.7 3.9 41.3 3.9 53.3 5.0 60.4 5.8 59.0 6.2
Casualty
Pro Rata(1) 128.9 11.3 110.9 10.6 84.6 7.9 63.4 6.1 18.5 1.9
Excess 174.1 15.2 149.0 14.2 124.3 11.6 137.5 13.2 122.6 12.9
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Total(2) 446.6 39.1 360.2 34.4 325.0 30.2 306.8 29.4 251.8 26.5
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U.S. DIRECT TREATY
REINSURANCE AND
INSURANCE
Property
Pro Rata(1) 94.9 8.3 4.6 0.4 11.7 1.1 12.6 1.2 3.3 0.3
Excess 0.8 0.1 1.4 0.1 4.4 0.4 8.9 0.9 9.1 1.0
Casualty
Pro Rata(1) 90.5 7.9 148.6 14.2 128.0 11.9 114.5 11.0 99.8 10.5
Excess 4.7 0.4 14.6 1.4 14.3 1.3 12.5 1.2 10.0 1.1
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Total(2) 191.0 16.7 169.2 16.2 158.4 14.7 148.6 14.2 122.2 12.9
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MARINE, AVIATION
AND SURETY
Property
Pro Rata(1) 72.3 6.3 62.5 6.0 92.9 8.6 94.6 9.1 89.2 9.4
Excess 19.2 1.7 15.6 1.5 16.9 1.6 17.8 1.7 18.7 2.0
Casualty
Pro Rata(1) 32.3 2.8 39.3 3.8 45.4 4.2 43.1 4.1 53.0 5.6
Excess 2.9 0.3 3.0 0.3 6.4 0.6 5.6 0.5 6.0 0.6
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Total(2) 126.7 11.1 120.4 11.5 161.6 15.0 161.1 15.4 166.9 17.6
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U.S. FACULTATIVE
Property
Pro Rata(1) - - - - - - - - - -
Excess 21.9 1.9 22.5 2.2 29.0 2.7 26.9 2.6 22.3 2.3
Casualty
Pro Rata(1) - - - - - - - - - -
Excess 43.3 3.8 49.0 4.7 53.4 5.0 61.8 5.9 46.6 4.9
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Total(2) 65.2 5.7 71.5 6.8 82.4 7.7 88.7 8.5 68.8 7.2
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TOTAL U.S.
Property
Pro Rata(1) 266.0 23.3 126.1 12.1 167.4 15.6 152.6 14.6 144.2 15.2
Excess 86.6 7.6 80.8 7.7 103.6 9.6 114.0 10.9 109.1 11.5
Casualty
Pro Rata(1) 251.8 22.1 298.8 28.6 258.0 24.0 221.1 21.2 171.3 18.0
Excess 225.1 19.7 215.6 20.6 198.4 18.5 217.6 20.8 185.2 19.5
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Total(2) 829.5 72.6 721.3 69.0 727.4 67.7 705.2 67.5 609.7 64.2
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INTERNATIONAL
Property
Pro Rata(1) 124.6 10.9 141.9 13.6 144.2 13.4 124.2 11.9 136.2 14.3
Excess 54.8 4.8 45.7 4.4 62.9 5.9 79.8 7.6 84.9 8.9
Casualty
Pro Rata(1) 84.4 7.4 93.4 8.9 99.2 9.2 90.5 8.7 66.4 7.0
Excess 48.5 4.3 43.6 4.2 41.3 3.8 44.4 4.3 52.3 5.5
--------------------------------------------------------------------------------------------
Total(2) 312.3 27.5 324.6 31.1 347.6 32.4 338.8 32.5 339.8 35.8
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TOTAL COMPANY
Property
Pro Rata(1) 390.6 34.2 268.0 25.6 311.6 29.0 276.7 26.5 280.4 29.5
Excess 141.4 12.4 126.5 12.1 166.5 15.5 193.8 18.6 194.0 20.4
Casualty
Pro Rata(1) 336.2 29.4 392.2 37.5 357.2 33.2 311.6 29.8 237.6 25.0
Excess 273.6 24.0 259.2 24.8 239.7 22.3 261.9 25.1 237.5 25.0
--------------------------------------------------------------------------------------------
Total(2) $ 1,141.8 100.0% $ 1,045.9 100.0% $ 1,075.0 100.0% $ 1,044.0 100.0% $ 949.5 100.0%
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</TABLE>
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(1) For purposes of the presentation above, pro rata reinsurance means
reinsurance attaching to the first dollar of loss incurred by the ceding
company.
(2) Certain totals and subtotals may not reconcile due to rounding.
5
<PAGE>
U.S. BROKER TREATY OPERATION. The Company's U.S. Broker Treaty operation writes
property, accident and health and casualty reinsurance through reinsurance
brokers. The Company targets certain brokers and, through the broker market,
specialty companies and small to medium sized standard lines companies. The U.S.
Broker Treaty operation also writes portions of reinsurance programs for larger,
national insurance companies.
In 1999, $143.6 million of gross premiums written were attributable to domestic
property business (which in 1999 and 1998 included accident and health
business), of which 31.2% was written on an excess of loss basis and 68.8% was
written on a pro rata basis. This unit utilizes sophisticated underwriting
methods which management believes are necessary to analyze and price property
business, particularly that segment of the property market which has catastrophe
exposure. Accident and health underwriting utilizes both third party and
proprietary actuarial pricing techniques.
Domestic casualty business accounted for $303.0 million of gross premiums
written in 1999, of which 57.5% was written on an excess of loss basis and 42.5%
was written on a pro rata basis. The treaty casualty portfolio consists
principally of professional liability, D&O liability, workers' compensation,
excess and surplus lines, and other liability coverages. As a result of the
complex technical nature of most of these risks, the Company's casualty
underwriters tend to specialize by line of business and work closely with the
Company's pricing actuaries.
DIRECT TREATY REINSURANCE AND INSURANCE OPERATION. The Company's direct treaty
reinsurance unit writes a full line of property, accident and health, and
casualty business. In 1999, direct accident and health business accounted for
$84.6 million of gross premiums written, of which 100.0% was written on a pro
rata basis. In 1999, direct treaty business accounted for $36.0 million of gross
premiums written, of which 15.4% was written on an excess of loss basis and
84.6% was written on a pro rata basis. The direct accident and health business
primarily focuses on specific and aggregate excess reinsurance of self-insured
health plans and first dollar medical reinsurance. The direct accident and
health underwriters generally target small to medium sized health employers. The
U.S. direct treaty underwriters target companies which place their business
predominantly in the direct market, including small to medium sized regional
ceding companies, and seek to develop long-term relationships with such
companies. A broad array of coverages are offered.
In 1999, the Company's domestic insurance business consisted of $70.4 million of
gross premiums written, primarily through Everest National. Everest National
targets commercial property and casualty business written through agency
relationships with program administrators. With respect to primary insurance
written through such agents, the Company supplements the initial underwriting
process with periodic claims and underwriting reviews.
MARINE, AVIATION AND SURETY OPERATION. The Company's marine and aviation unit
focuses on ceding companies with a particular expertise in marine and aviation
business. The marine and aviation business is written primarily through brokers
and contains a significant international component written primarily in the
London market. Surety business underwritten by the Company consists mainly of
reinsurance of contract surety bonds
Gross premiums written by the marine and aviation unit in 1999 totaled $70.7
million, substantially all of which was written on a treaty basis and 69.5% of
which was sourced through reinsurance brokers. Marine treaties represented 50.1%
of marine and aviation gross premiums written in 1999 and consisted of hull and
liability coverage. Approximately 82.5% of the marine unit premiums in 1999 were
written on a pro rata basis and 17.5% as excess of loss. Aviation premiums
accounted for 49.9% of marine and aviation gross premiums written in 1999 and
included reinsurance for airlines, general aviation and satellites.
Approximately 91.7% of the aviation unit's premiums in 1999 were written on a
pro rata basis and 8.3% as excess of loss.
In 1999, gross premiums written by the surety unit totaled $56.0 million.
Approximately 76.8% of the surety unit premiums in 1999 were written on a pro
rata basis and 23.2% on an excess of loss basis. Most of the portfolio is
reinsurance of contract surety bonds written directly with ceding companies,
with the remainder being credit reinsurance, mostly in international markets.
The unit's strategy is to maintain long-term relationships with major surety and
fidelity writers and to continue to expand its international business.
FACULTATIVE OPERATION. The Company's U.S. Facultative operation conducts
business both through brokers and directly with ceding companies. The U.S.
Facultative operation consists of three underwriting units representing
property, casualty and specialty lines of business. Business is written from a
facultative headquarters office in New York and satellite offices in Chicago and
San Francisco. In 1999, $21.0 million, $27.5 million and $16.7 million of gross
premiums written were attributable to property, general casualty and specialty
lines of business, respectively.
INTERNATIONAL OPERATION. The Company's International operation is designed to
enable it to capitalize on the growth opportunities in the international
reinsurance market. The Company targets several international markets,
including: Europe and the London market, which are serviced by branches in
London and Brussels; Canada, with a branch in Toronto; Asia and Australia,
with branches in Hong Kong and Singapore; and Latin America, Africa and the
Middle East, which business is serviced from the Company's New Jersey
headquarters and Miami office. The Company also writes "home-foreign" business,
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which provides reinsurance on the international portfolios of U.S. insurers,
from its headquarters in New Jersey. Approximately 57.4% of the gross premiums
written by the Company's international underwriters in 1999 represented property
business, while the balance represented casualty business. As with its U.S.
operations, the Company's International operation focuses on financially sound
companies that have strong management and underwriting discipline and expertise.
Approximately 72.4% of the Company's international business was written through
brokers, with the remainder written directly with ceding companies.
In 1999, the Company's gross premiums written by its London and Brussels
branches totaled $150.8 million and consisted of pro rata property (29.1%),
excess property (27.9%), pro rata casualty (30.6%) and excess casualty (12.4%).
Substantially all of the London and Brussels premiums consisted of treaty
reinsurance. The Brussels office focuses on the continental European reinsurance
markets, while the London office covers international business written through
the London market. Gross premiums written in 1999 from the Brussels and London
offices totaled $46.3 million and $104.5 million, respectively.
Gross premiums written by the Company's Canadian office totaled $46.9 million in
1999 and consisted of pro rata property (16.0%), excess property (11.1%), pro
rata multi-line (36.6%), excess casualty (35.3%) and primary insurance written
by Everest Canada (1.0%). Approximately 69.9% of the Canadian premiums consisted
of treaty reinsurance while 29.1% was facultative reinsurance and 1.0% was
primary insurance.
The Company's Hong Kong and Singapore branches cover the Asian and Australian
markets and accounted for $24.7 million of gross written premiums in 1999. This
business consisted of pro rata property (75.8%), excess property (5.2%), pro
rata casualty (15.1%) and excess casualty (3.9%).
International business written out of the Company's New Jersey and Miami offices
accounted for $89.9 million of gross premiums written in 1999 and consisted of
pro rata treaty property (60.3%), pro rata treaty casualty (19.2%), excess
treaty property (6.2%), excess treaty casualty (8.1%) and excess facultative
property and casualty (6.2%). Of this international business, 54.0% was sourced
from Latin America, 23.1% was sourced from the Middle East, 1.1% was sourced
from Europe, 4.0% was sourced from Africa, 0.7% was sourced from Asia and 17.1%
was "home-foreign" business.
GEOGRAPHIC AREAS
The Company conducts its business both in the United States and in a number of
foreign countries. For select financial information about geographic areas, see
Note 14 of Notes to the Consolidated Financial Statements. Risks attendant to
the foreign operations of the Company parallel those attendant to the United
States operations of the Company, with the primary exception of foreign exchange
risks. See ITEM 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Safe Harbor Disclosure".
UNDERWRITING PROCESS
Everest Re offers ceding companies full service capability, including actuarial,
claims, accounting and systems support, either directly or through the broker
community. Everest Re's capacity for both property and casualty risks allows it
to underwrite entire contracts or major portions thereof that might otherwise
need to be syndicated among several reinsurers. Everest Re's strategy is to act
as "lead" reinsurer in many of the reinsurance treaties it underwrites. The lead
reinsurer on a treaty generally accepts one of the largest percentage shares of
the treaty and is in a stronger position to negotiate price, terms and
conditions than is a reinsurer which takes a smaller position. Management
believes this strategy enables it to more effectively influence the terms and
conditions of the treaties on which it participates. When Everest Re does not
lead the treaty, it may still suggest changes to any aspect of the treaty.
Everest Re may decline to participate in a treaty based upon its assessment of
all relevant factors.
Everest Re's treaty underwriting process emphasizes a team approach among
Everest Re's underwriters, actuaries and claims staff. Treaties are reviewed for
compliance with Everest Re's general underwriting standards and certain larger
treaties are evaluated in part based upon actuarial analyses conducted by
Everest Re. The actuarial models used in such analyses are tailored in each case
to the exposures and experience underlying the specific treaty and the loss
experience for the risks covered by such treaties. Everest Re does not
separately evaluate each of the individual risks assumed under its treaties.
Everest Re does, however, generally evaluate the underwriting guidelines of its
ceding companies to determine their adequacy prior to entering into a treaty.
Everest Re, when appropriate, also conducts underwriting audits at the offices
of ceding companies to ensure that the ceding companies operate within such
guidelines. Underwriting audits focus on the quality of the underwriting staff,
the selection and pricing of risks and the capability of monitoring price levels
over time. Claim audits, when appropriate, are performed in order to evaluate
the client's claims handling abilities and practices.
Everest Re's domestic facultative underwriters operate within guidelines
specifying acceptable types of risks, limits and maximum risk exposures.
Specified classes of risks and large premium risks are referred to the Company's
New York facultative headquarters for specific review before premium
quotations are given to clients. In addition, Everest Re's guidelines require
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certain types of risks to be submitted for review because of their aggregate
limits, complexity or volatility regardless of premium amount or size of the
insured on the underlying contract.
Everest National and Everest Canada write property, casualty and professional
liability coverages for homogeneous risks through select program managers. These
programs are evaluated based upon actuarial analysis and the program manager's
capabilities. The Company's rates, forms and underwriting guidelines are
tailored to specific risk types.
RISK MANAGEMENT AND RETROCESSION ARRANGEMENTS
Everest Re manages its risk of loss through a combination of aggregate exposure
limits, underwriting guidelines that take into account risks, prices and
coverage, and retrocessional arrangements.
Everest Re is exposed to multiple insured losses arising out of a single
occurrence, whether a natural event, such as a hurricane or an earthquake, or
other catastrophe, such as a riot or an explosion at a major factory. Any such
catastrophic event could generate insured losses in one or many of Everest Re's
treaties or lines of business. Everest Re employs various techniques, including
licensed software modeling, to assess its accumulated exposure to property
catastrophe losses and summarizes that exposure in terms of the probable maximum
loss ("PML"). The Company defines PML as its anticipated maximum loss, taking
into account contract limits, caused by a single catastrophe affecting a broad
contiguous geographic area, such as that caused by a hurricane or earthquake of
such a magnitude that it is expected to occur once in every 100 years.
Management estimates that the Company's greatest catastrophe exposure worldwide
from any single event is to hurricanes and earthquakes in the coastal regions of
the United States, where Everest Re estimates it has a PML exposure, before
reinsurance, of approximately $181 million in each such region based on its
current book of business. Similarly, management estimates that the largest
current PML exposure, before reinsurance, outside the United States is
approximately $98 million. There can be no assurance that Everest Re will not
experience losses from one or more catastrophic events that exceed, perhaps by a
substantial amount, its estimated PML.
Underwriting guidelines have been established for each business unit. These
guidelines place dollar limits on the amount of business that can be written
based on a variety of factors, including ceding company, line of business,
geographical location and risk hazards. In each case, those guidelines permit
limited exceptions, which must be authorized by the Company's senior management.
Everest Re does not typically retrocede individual risks, but does, from time to
time, purchase retrocessional protections where the underwriter deems it to be
prudent to reinsure a portion of the specific risk being assumed. Everest Re
also participates in "common account" retrocessional arrangements for certain
reinsurance treaties. Common account reinsurance arrangements are arrangements
whereby the ceding company purchases a cover for the benefit of the ceding
company and its reinsurers on a reinsurance treaty. Common account
retrocessional arrangements reduce the effect of individual or aggregate losses
to all participating companies with respect to a reinsurance treaty, including
the ceding company.
During 1999, Everest Re purchased a three-layer property facultative
retrocession program which provided coverage of 52.5% of $3 million of losses in
excess of $2 million in retained losses per facultative certificate and 100% of
$15 million of losses in excess of $5 million of retained losses per facultative
certificate. For 2000, this three-layer property facultative retrocession
program provides 53.5% of $3 million of losses in excess of $2 million in
retained losses per facultative certificate and 100% of $15 million of losses in
excess of $5 million of retained losses per facultative certificate. During
1999, Everest Re purchased three retrocessional workers' compensation excess of
loss treaties which collectively provide coverage of $115 million of losses in
excess of $5 million of retained losses on accidental death and dismemberment
claims resulting from a catastrophe loss. In 2000, these retrocessional workers'
compensation treaties provide coverage for 50% of $115 million of losses in
excess of $5 million of retained losses on accidental death and dismemberment
claims resulting from a catastrophe loss. During 1999, the Company also
purchased a workers' compensation reinsurance program which provided for
statutory limits coverage in excess of $75,000 of losses per occurrence on the
Company's primary workers' compensation insurance business. This program has
been continued for 2000.
For 1999, the Company also purchased reinsurance covering certain primary
insurance programs written by the Company, including an 85.0% quota share of
primary California non-standard automobile business. For the period October 1,
1999 through October 1, 2000, the Company purchased a 50% quota share of $1
million net retained liability and $4 million excess $1 million of automatic
property facultative protection covering Texas property and casualty program
business.
For the period from May 15, 1999 through May 15, 2000, the Company's catastrophe
retrocession program provides coverage of 75.0% of $20.0 million of losses per
occurrence in excess of $10.0 million in losses incurred by the Company outside
of the United States, provided that the Company's net loss per occurrence is
$15.0 million. For the period from May 23, 1999 through May 23, 2000, the
Company's catastrophe retrocession program provides coverage of 85% of $20.0
million of losses per occurrence in excess of $30.0 million in losses incurred
by the Company outside of the United States.
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The Company also purchases a corporate level retrocession covering the potential
accumulation of all exposures. During 1999, the Company purchased an accident
year aggregate excess of loss retrocession agreement which provided up to $175.0
million of coverage if Everest Re's statutory basis accident year loss ratio
exceeds a loss ratio attachment point provided in the contract for the 1999
accident year. This retrocession responds on an aggregate basis with respect to
both property and casualty losses, including those arising from catastrophes.
The attachment point is net of inuring reinsurance and retrocessions and
includes adjustable premium provisions which effectively cause the Company to
offset, on a pre-tax income basis, up to 50% of such ceded losses, depending
upon the character of the underlying losses, through additional premiums. The
maximum recovery is $175.0 million before giving effect to a maximum adjustable
premium of $86.3 million. For 2000, the Company purchased an accident year
aggregate excess of loss retrocession agreement which provides up to $175.0
million of coverage if Everest Re's statutory basis accident year loss ratio
exceeds a loss ratio attachment point provided in the contract for the 2000
accident year. The attachment point is net of inuring reinsurance and
retrocessions and includes adjustable premium provisions which effectively cause
the Company to offset, on a pre-tax income basis, up to 49.2% of such ceded
losses, depending upon the character of the underlying losses, through
additional premiums. The maximum recovery is $175.0 million before giving effect
to a maximum adjustable premium of $85.8 million.
Although the catastrophe and aggregate excess of loss retrocessions have terms
which provide for additional premiums to be paid to the retrocessionaire in the
event that losses are ceded, all aspects of the Company's retrocessional program
have been structured to permit these agreements to be accounted for as
reinsurance under Statement of Financial Accounting Standards ("SFAS") No. 113.
If a single catastrophe were to occur in the United States that resulted in
$181.0 million of gross losses and allocated loss adjustment expenses ("ALAE")
in 2000 (an amount equivalent to Everest Re's PML), management estimates that
the effect (including additional premiums and retained losses and ALAE) on the
Company's income before taxes would be $91.8 million. This pre-tax net loss
estimate assumes that Everest Re's aggregate losses and ALAE for 2000 would
exceed the threshold loss ratio requirement in the aggregate excess of loss
cover by at least $175.0 million.
In addition, Everest Re continues to have coverage under an aggregate stop loss
retrocession agreement (the "Stop Loss Agreement") purchased from Gibraltar
Casualty Company ("Gibraltar"), an affiliate of The Prudential, in 1995. See
"Relationships with Gibraltar and Stop Loss Agreement" and ITEM 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition".
As of December 31, 1999, Everest Re had retrocessional arrangements with 428
retrocessionaires, and it carried as an asset $742.5 million in reinsurance
receivables with respect to losses ceded to retrocessionaires, which, except for
$9.5 million which is due from Gibraltar in the first quarter of 2000 under the
terms of the Stop Loss Agreement, will not be due to Everest Re until Everest Re
makes payment on the underlying claims. Of this amount, $345.4 million, or
46.5%, was receivable from Gibraltar ($80.4 million, net of collateral held and
liability balances for which Everest Re has a contractual right of offset),
including the $9.5 million due under the Stop Loss Agreement. An additional
$145.0 million, or 19.5%, was receivable from Continental Insurance Company
("Continental"). No other retrocessionaire accounted for more than $25.0 million
of Everest Re's receivables. See ITEM 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Financial Condition".
Everest Re's arrangement with Continental is managed on a funds held basis,
which means that Everest Re has not released premium payments to the
retrocessionaire but rather retains such payments to secure obligations of the
retrocessionaire, records them as a liability and reduces the liability account
as payments become due. As of December 31, 1999, such funds had reduced Everest
Re's net exposure to Continental to $80.1 million.
No assurance can be given that the Company will be able to obtain retrocessional
coverage similar to that currently in place in the future. Although management
carefully selects its retrocessionaires, the Company is subject to credit risk
with respect to its retrocessions because the ceding of risk to
retrocessionaires does not relieve the reinsurer of its liability to ceding
companies.
RELATIONSHIPS WITH GIBRALTAR
During its early years, Everest Re wrote some direct insurance. In 1978, Everest
Re expanded its direct insurance operation by forming Gibraltar as a subsidiary.
In 1985, Gibraltar and Everest Re ceased writing new and renewal direct
insurance. Gibraltar's ongoing operations relate to servicing claims arising
from the previously written direct insurance and the Stop Loss Agreement.
While Gibraltar actively wrote direct insurance, it was able to reinsure certain
business through Everest Re's management underwriting facility ("MUF"). Begun in
1977, MUF was a reinsurance arrangement pursuant to which Everest Re ceded
certain business to a number of insurance and reinsurance companies (the "MUF
Participants"), many of them domiciled outside the United States. Gibraltar
ceded its MUF-qualifying business first to Everest Re, which then immediately
and entirely retroceded it to the MUF Participants. As a result of these
cessions to Everest Re, Everest Re became, and remains, a reinsurer of Gibraltar
with respect to the Gibraltar MUF cessions. As of December 31, 1999, Gibraltar's
reinsurance receivables from Everest Re totaled $155.1 million. MUF became
inactive with respect to new business in 1991.
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Following the 1985 decision to cease writing new and renewal business, Everest
Re and Gibraltar entered into the following agreements pursuant to which
Gibraltar became, and remains, a reinsurer of Everest Re (the "Gibraltar
Contracts"):
o In 1986, Gibraltar reinsured all insurance obligations of Everest
Re pursuant to certain insurance contracts written by Everest Re's
former direct excess insurance operations, which ceased writing
business in 1985 (the "Ceded Direct Insurance") (the "Direct
Excess Retrocession").
o In 1989, Gibraltar reinsured Everest Re's medical malpractice and
other professional liability reinsurance written in 1988 and prior
years (the "Professional Liability Retrocession").
o During 1985 through 1990, Gibraltar and Everest Re commuted the
obligations of a number of MUF Participants. In exchange for a
cash payment from each commuted MUF Participant, Gibraltar assumed
the obligations of such MUF Participant. The commuted business
included assumed reinsurance originally retroceded to MUF
Participants by Everest Re and direct insurance ceded by Everest
Re and Gibraltar.
In 1991, Everest Re distributed the stock of Gibraltar to PRUCO, Inc., a direct,
wholly-owned subsidiary of The Prudential ("PRUCO"). Simultaneously, PRUCO and
Gibraltar entered into a surplus maintenance agreement (the "PRUCO Surplus
Maintenance Agreement") pursuant to which PRUCO agreed to purchase such amount
of surplus notes as may be necessary to maintain Gibraltar's statutory surplus
at no less than $15 million at all times. PRUCO shortly thereafter distributed
the stock of Gibraltar to The Prudential.
The Direct Excess Retrocession can be terminated by either Gibraltar or Everest
Re upon 90 days' notice, whereas the Professional Liability Retrocession can
only be terminated by Everest Re. A total of $105.6 million of the Gibraltar
receivables is attributable to the Direct Excess Retrocession. If the Direct
Excess Retrocession is terminated, all outstanding claims, including incurred
but not reported losses ("IBNR"), will be commuted with the value of such
claims, which may not exceed Everest Re's then outstanding loss reserves with
respect thereto, to be mutually agreed upon or, if no agreement can be reached,
determined by an actuary or appraiser mutually appointed. At the time of the
IPO, the parties agreed that if Gibraltar terminates the Direct Excess
Retrocession and the parties cannot agree on the value of the claims to be
commuted, Everest Re's chief actuary will determine such value. Gibraltar could
arbitrate the actuary's determination. If the Direct Excess Retrocession were to
be so terminated and Everest Re's ultimate losses on the Ceded Direct Insurance
were to exceed the commutation amount, the resulting reserve increases would
constitute adverse development eligible for coverage under the Stop Loss
Agreement (described below), subject to the applicable limits thereof.
STOP LOSS AGREEMENT. On October 5, 1995, in connection with the IPO Everest Re
and Gibraltar entered into the Stop Loss Agreement. The Stop Loss Agreement is
intended to mitigate the impact on the Company's future earnings that could
result from the adverse development, if any, of Everest Re's consolidated
reserves for losses, allocated LAE and uncollectible reinsurance as of June 30,
1995, including IBNR; provided, that adverse development, if any, of such
reserves relating to catastrophes (as defined in the Stop Loss Agreement) will
only be covered to the extent that the catastrophe event to which such reserves
relate occurred prior to January 1, 1995. For a description of the Stop Loss
Agreement, see ITEM 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition" and Note 7 of Notes
to Consolidated Financial Statements.
STANDBY CAPITAL CONTRIBUTION AGREEMENT AND PRUCO INDEMNITY. On October 6, 1995,
Holdings agreed, pursuant to a Standby Capital Contribution Agreement (the
"Capital Contribution Agreement"), to make certain capital contributions
("Capital Contributions") to Everest Re. Also, on October 6, 1995, PRUCO agreed
to make payments ("Indemnity Payments") to Holdings, pursuant to an Indemnity
Agreement (the "PRUCO Indemnity"), in an amount equal to the Capital
Contributions.
PRUDENTIAL GUARANTEES. On October 6, 1995, The Prudential guaranteed (i) up to
$775.0 million of Gibraltar's obligations to Everest Re, and (ii) PRUCO's
obligation to make the Indemnity Payments (the "Prudential Guarantees"). The
Prudential agreed, subject to the terms and conditions thereof, to guarantee
Gibraltar's (i) payment obligations with respect to the Stop Loss Agreement,
subject to maximum aggregate payments of $375.0 million, and (ii) payment
obligations under the Gibraltar Contracts, subject to maximum aggregate payments
of $400.0 million. The maximum aggregate payments under the Prudential Guarantee
of Gibraltar's obligations will be reduced in certain circumstances to take
account of payments made and collateral provided in respect of the guaranteed
obligations. See ITEM 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition".
As of December 31, 1999, based on publicly available information, The Prudential
had statutory basis total assets of $191.5 billion, and statutory surplus of
$9.2 billion.
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ACQUISITION OF GIBRALTAR. On February 24, 2000, Holdings entered into an
agreement with The Prudential to acquire all of the issued and outstanding
shares of Gibraltar. Upon the closing of this acquisition, which is subject to
customary closing conditions and the receipt of regulatory approvals:
o Everest Re's current reinsurance contracts, including the Stop
Loss Agreement, will remain in effect. However, these contracts
will become transactions with affiliates with the financial
impact eliminated through inter-company accounts.
o The Prudential Guarantees will be terminated and Prudential will
be released from its obligations.
o The PRUCO Surplus Maintenance Agreement will be terminated.
o The PRUCO Indemnity will be terminated and PRUCO will be released
from its obligations.
See Note 15C of Notes to Consolidated Financial Statements.
CLAIMS
Claims are managed by the Company's professional claims staff whose
responsibilities include reviewing initial loss reports and coverage issues,
monitoring claims handling activities of ceding companies, establishing and
adjusting proper case reserves and approving payment of claims. In addition to
claims assessment, processing and payment, the claims staff selectively conducts
comprehensive claims audits of both specific claims and overall claims
procedures at the offices of selected ceding companies. In most instances,
primary insurance claims are handled by third party claims services providers
who have limited authorities and are subject to oversight by the Company's
professional claims staff.
RESERVES FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Significant periods of time may elapse between the occurrence of an insured
loss, the reporting of the loss to the ceding company and the reinsurer and the
ceding company's payment of that loss and subsequent payments to the ceding
company by the reinsurer. To recognize liabilities for unpaid losses and LAE,
insurers and reinsurers establish reserves, which are balance sheet liabilities
representing estimates of future amounts needed to pay reported and unreported
claims and related expenses on losses that have already occurred. Actual losses
and LAE paid may deviate, perhaps substantially, from such reserves. To the
extent reserves prove to be insufficient to cover actual losses and LAE after
taking into account available retrocessional coverage, including the reinsurance
provided through the Stop Loss Agreement, Everest Re would have to augment such
reserves and incur a charge to earnings which could be material in the period
such augmentation takes place. See ITEM 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Loss and LAE Reserves".
While the reserving process is difficult and subjective for the ceding
companies, the inherent uncertainties of estimating such reserves are even
greater for the reinsurer, due primarily to the longer time between the date of
an occurrence and the reporting of any attendant claims to the reinsurer, the
diversity of development patterns among different types of reinsurance treaties
or facultative contracts, the necessary reliance on the ceding companies for
information regarding reported claims and differing reserving practices among
ceding companies. In addition, trends that have affected development of
liabilities in the past may not necessarily occur or affect liability
development to the same degree in the future. Thus, actual losses and LAE may
deviate, perhaps substantially, from estimates of reserves reflected in the
Company's consolidated financial statements.
Like many other property and casualty insurance and reinsurance companies,
Everest Re has experienced adverse loss development for prior accident years,
which has led to adjustments in losses and LAE reserves. The increase in net
reserves for prior accident years reduced net income for the periods in which
the adjustments were made. There can be no assurance that adverse development
from prior years will not continue in the future or that such adverse
development will not have a material adverse effect on net income. Adverse
Development will be reinsured under the Stop Loss Agreement, up to the maximum
limits thereunder and subject to the other terms and conditions thereof. See
"Relationships with Gibraltar - Stop Loss Agreement".
CHANGES IN HISTORICAL RESERVES
The following table shows changes in historical loss reserves for Everest Re for
1989 and subsequent years. The table is presented on a GAAP basis except that
the Company's loss reserves for its Canadian branch operations are presented in
local currency, Canadian dollars. The impact of this presentation, as summarized
in the "Reconciliation of Reserves for Losses and LAE from Statutory Basis to
GAAP Basis" (see page 14), is not material. The top line of each table shows the
estimated reserves for unpaid losses and LAE recorded at each year-end date.
Each amount in the top line represents the estimated amount of future payments
for losses and LAE on claims occurring in that year and in all prior years. The
upper (paid) portion of the table presents the cumulative amounts paid through
each subsequent year on those claims for which reserves were carried as
of each specific year end. The lower (liability re-estimated) portion
shows the re-estimated amount of the previously recorded reserves based on
experience as of the end of each succeeding year. The estimate changes as
more information becomes known about the actual claims for which the
initial reserves were carried. The cumulative redundancy/deficiency
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line represents the cumulative change in estimates since the initial reserve was
established. It is equal to the latest liability re-estimated amount less the
initial reserve.
Each amount other than the original reserves in the top half of the table below
includes the effects of all changes in amounts for prior periods. For example,
if a loss settled in 1992 for $100,000 was first reserved in 1989 at $60,000 and
remained unchanged until settlement, the $40,000 deficiency (actual loss minus
original estimate) would be included in the cumulative redundancy (deficiency)
in each of the years in the period 1989 through 1991 shown below. Conditions and
trends that have affected development of liability in the past may not
necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on this table.
<TABLE>
<CAPTION>
TEN YEAR GAAP LOSS DEVELOPMENT TABLE PRESENTED NET OF REINSURANCE
WITH SUPPLEMENTAL GROSS DATA (1) (2)
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves for unpaid
loss and LAE $1,766.7 $1,891.9 $1,752.9 $1,854.7 $1,934.2 $2,104.2 $2,316.1 $2,551.6 $2,810.0 $2,953.5 $2,977.4
Paid (cumulative)
as of:
One year later 321.9 597.1 333.3 461.5 403.5 359.5 270.4 331.2 450.8 484.3
Two years later 829.5 785.9 550.4 740.1 627.7 638.0 502.8 619.2 747.9
Three years later 966.3 933.1 758.3 897.0 820.5 828.0 682.0 813.7
Four years later 1,078.2 1,096.9 868.1 1,036.0 953.0 983.6 806.3
Five years later 1,209.0 1,176.9 970.0 1,141.0 1,071.5 1,143.4
Six years later 1,276.3 1,257.3 1,052.9 1,232.7 1,202.2
Seven years later 1,346.6 1,329.8 1,130.3 1,334.8
Eight years later 1,407.9 1,395.6 1,210.0
Nine years later 1,462.1 1,450.9
Ten years later 1,511.8
Liability re-estimated
as of:
One year later 1,835.4 1,866.3 1,737.8 1,929.2 2,008.5 2,120.8 2,286.5 2,548.4 2,836.2 2,918.1
Two years later 1,834.3 1,872.8 1,775.7 1,988.9 2,015.4 2,233.7 2,264.5 2,575.9 2,802.2
Three years later 1,849.5 1,907.5 1,843.3 2,010.0 2,119.0 2,271.2 2,285.1 2,546.0
Four years later 1,913.6 1,976.5 1,855.7 2,111.9 2,164.5 2,452.3 2,260.7
Five years later 1,982.3 1,984.3 1,955.1 2,155.3 2,344.9 2,381.7
Six years later 1,984.1 2,080.0 1,995.8 2,332.3 2,278.3
Seven years later 2,089.4 2,123.2 2,178.0 2,269.9
Eight years later 2,135.9 2,307.8 2,115.5
Nine years later 2,310.8 2,242.9
Ten years later 2,245.2
Cumulative
redundancy/
(deficiency) $ (478.5) $ (351.0) $ (362.6) $ (415.2) $ (344.1) $ (277.5) $ 55.4 $ 5.6 $ 7.8 $ 35.4
==================================================================================================
Gross liability-
end of year $3,017.0 $3,298.2 $3,498.7 $3,869.2 $3,705.2
Reinsurance
receivable 700.9 746.6 688.7 915.7 727.8
------------------------------------------------
Net liability-end
of year 2,316.1 2,551.6 2,810.0 2,953.5 $2,977.4
----------------------------------------========
Gross re-estimated
liability at
December 31, 1999 3,482.5 3,616.0 3,728.4 3,808.5
Re-estimated
receivable
at December 31,
1999 1,221.8 1,070.0 926.2 890.4
--------------------------------------
Net re-estimated
liability at
December 31, 1999 2,260.7 2,546.0 2,802.2 2,918.1
--------------------------------------
Gross cumulative
redundancy/
(deficiency) $ (465.5) $ (317.8) $ (229.7) $ 60.7
======================================
</TABLE>
- ----------
(1) Includes Gibraltar data through September 30, 1991
(2) The Canadian Branch reserves are reflected in Canadian dollars.
12
<PAGE>
For years prior to 1989, management believes that two factors had the most
significant impact on loss development. First, through the mid-1980's, a number
of industry and external factors, such as the propensity of courts to award
large damage awards in liability cases, combined to increase loss frequency and
severity to unexpectedly high levels. Second, contracts written prior to 1986
contained coverage terms which, for Everest Re and the industry in general, have
been interpreted by courts to provide coverage for asbestos and environmental
exposures not contemplated by either the pricing or the initial reserving of the
contracts. Legal developments during the mid-1980's necessitated additional
reserving for such exposures on both a case and IBNR basis. Net incurred losses
with respect to asbestos and environmental claims, net of reinsurance, were $0
million, $15.4 million, $3.5, $0 and $0 million in 1999, 1998, 1997, 1996 and
1995, respectively. Substantially all of these losses related to pre-1986
exposures. The absence of net incurred losses in 1996 and 1995 is attributable
to coverage under the Stop Loss Agreement. The net incurred losses in 1998 and
1997 reflected coinsurance under the Stop Loss Agreement.
To the extent loss reserves on assumed reinsurance need to be increased, Everest
Re would be entitled to payments consistent with the terms of the Stop Loss
Agreement. See "Relationships with Gibraltar - Stop Loss Agreement".
Additionally, Holdings may be required to make payments under the Capital
Contribution Agreement for which it would be entitled to indemnification under
the PRUCO Indemnity. See "Relationships with Gibraltar - Standby Capital
Contribution Agreement and PRUCO Indemnity". To the extent loss reserves on the
Ceded Direct Insurance need to be increased and subject to the terms of the
Gibraltar Contracts, Everest Re will be entitled to 100% protection from
Gibraltar under the Gibraltar Contracts, which reinsurance obligations are
guaranteed by The Prudential subject to the terms and conditions of the
applicable Prudential Guarantee. See "Relationships with Gibraltar - Prudential
Guarantees". Management believes that adequate provision has been made for
Everest Re's loss and LAE reserves regardless of the availability of any such
payments under the Stop Loss Agreement, the PRUCO Indemnity, and the Prudential
Guarantees. Additionally, while there can be no assurance that reserves for and
losses from these claims will not increase in the future, management believes
that Everest Re's existing reserves and retrocessional arrangements lessen the
probability that such increases would have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
The Ten Year GAAP Loss Development Table includes Gibraltar data until September
30, 1991, at which time Everest Re distributed the stock of Gibraltar to PRUCO.
Thus the 1989-1990 "Reserves for unpaid loss and LAE" includes the Gibraltar
liability. Similarly, the "Paid (cumulative) as of" and "Liability re-estimated
as of" data include Gibraltar experience until September 30, 1991. At the time
of the distribution of Gibraltar, Gibraltar still had $288.5 million of reserves
outstanding. To more accurately reflect reserve development, the Gibraltar
reserves were removed from the reserves for unpaid losses and LAE line for
periods after 1991 and the $288.5 million was treated as a paid loss. The amount
so treated as paid in 1991 was $288.5 million for each of the years 1989 through
1990. The cumulative reserve (deficiency) relating to Gibraltar for 1989 was
($98.1) million and for 1990 was ($30.0) million. The cumulative reserve
(deficiency) relating to Everest Re excluding Gibraltar for 1989 was ($380.4)
million and for 1990 was ($321.0) million.
The following table is derived from the Ten Year GAAP Loss Development Table
above and summarizes the effect of reserve re-estimates, net of reinsurance, on
calendar year operations for the same ten year period ended December 31, 1999.
Each column represents the amount of reserve re-estimates made in the indicated
calendar year and shows the accident years to which the re-estimates are
applicable. The amounts in the total accident year column on the far right
represent the cumulative reserve re-estimates for the indicated accident years.
<TABLE>
<CAPTION>
EFFECT OF RESERVE RE-ESTIMATES ON CALENDAR YEAR OPERATIONS
CALENDAR YEAR ENDED DECEMBER 31, CUMULATIVE RE-
------------------------------------------------------------------------------------------ ESTIMATES FOR
(DOLLARS IN EACH ACCIDENT
MILLIONS) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 YEAR
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accident
Years
1989 & prior $ (68.7) $ 1.1 $ (15.2) $ (64.1) $ (68.6) $ (1.8) $(105.3) $ (46.6) $(174.9) $ 65.5 $ (478.6)
1990 24.5 8.7 29.4 (0.4) (6.0) 9.7 3.3 (9.7) (0.7) 58.8
1991 21.6 (3.2) 1.4 (4.6) (3.8) 2.5 2.4 (2.3) 14.0
1992 (36.6) 7.9 (8.7) (2.5) (2.7) 5.2 (0.1) (37.5)
1993 (14.6) 14.2 (1.7) (2.1) (3.4) 4.2 (3.4)
1994 (9.8) (9.2) 8.0 (0.7) 4.0 (7.7)
1995 142.4 59.6 160.4 (46.2) 316.2
1996 (18.8) (6.8) 5.5 (20.1)
1997 1.4 4.1 5.5
1998 1.4 1.4
Total calendar
year effect $ (68.7) $ 25.6 $ 15.1 $ (74.5) $ (74.3) $ (16.7) $ 29.6 $ 3.2 $ (26.1) $ 35.4 $ (151.4)
</TABLE>
13
<PAGE>
As illustrated by this table, the factors which caused the deficiencies shown in
the Ten Year GAAP Loss Development Table relate almost entirely to accident
years prior to 1990 principally reflecting the impact of asbestos and
environmental exposures discussed above. The significant favorable development
experienced for the 1995 accident year is due to recoveries under the Stop Loss
Agreement. This contract, because of its 1995 inception date, is attributed to
the 1995 accident year. Aggregate historical development excluding the impact of
these two unusual items is not material.
The following table presents a reconciliation of beginning and ending reserve
balances for the years indicated on a GAAP basis:
<TABLE>
<CAPTION>
RECONCILIATION OF RESERVES FOR LOSSES AND LAE
YEARS ENDED DECEMBER 31,
-----------------------------------------------
(DOLLARS IN MILLIONS) 1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Reserves at beginning
of period $ 3,800.0 $ 3,437.8 $ 3,246.9
-----------------------------------------------
Incurred related to:
Current year 807.0 752.3 768.6
Prior years (35.4) 26.1 (3.2)
-----------------------------------------------
Total incurred losses 771.6 778.4 765.4
-----------------------------------------------
Paid related to:
Current year 252.4 192.4 185.3
Prior years 484.3 450.8 331.2
-----------------------------------------------
Total paid losses 736.7 643.2 516.5
-----------------------------------------------
Change in reinsurance
receivables on unpaid
losses and LAE (187.9) 227.0 (58.0)
-----------------------------------------------
Reserves at end of period $ 3,647.0 $ 3,800.0 $ 3,437.8
===============================================
</TABLE>
The reconciliation of reserves on a GAAP basis to reserves reported on a
statutory basis for each of the three years in the period ended December 31,
1999 is shown below:
<TABLE>
<CAPTION>
RECONCILIATION OF RESERVES FOR LOSSES AND LAE
FROM STATUTORY BASIS TO GAAP BASIS
YEARS ENDED DECEMBER 31,
------------------------------------------------
(DOLLARS IN MILLIONS) 1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Statutory reserves-net (1) $ 2,959.4 $ 2,922.9 $ 2,778.5
Statutory retroactive
reinsurance reserves 17.8 29.8 31.4
------------------------------------------------
Subtotal 2,977.2 2,952.7 2,809.9
Foreign subsidiary
reserves (1) 0.2 0.8 0.1
------------------------------------------------
Subtotal-net reserves as
shown in loss development
schedule 2,977.4 2,953.5 2,810.0
Reinsurance receivable on
unpaid losses 727.8 915.7 688.7
------------------------------------------------
Subtotal-gross reserves as
shown in loss development
schedule 3,705.2 3,869.2 3,498.7
Foreign translation effect
of Canadian reserves (2) (58.2) (69.2) (60.9)
------------------------------------------------
Reserves on a GAAP basis $ 3,647.0 $ 3,800.0 $ 3,437.8
================================================
</TABLE>
- --------------------
(1) On January 1, 1997, the insurance operations of Everest Re Ltd. were
converted to branches of Everest Re. For 1999, 1998 and 1997, the net
reserves for the branches are included in statutory net reserves. For 1999,
1998 and 1997, the foreign subsidiary reserve amounts represent the
reserves for Everest Canada.
(2) Pursuant to statutory accounting conventions, reserves with respect to the
Canadian Branch are reflected in Canadian dollars.
14
<PAGE>
RESERVES FOR ASBESTOS AND ENVIRONMENTAL LOSSES AND LOSS ADJUSTMENT EXPENSES
Everest Re's reserves include an estimate of Everest Re's ultimate liability for
asbestos and environmental claims for which ultimate value cannot be estimated
using traditional reserving techniques. There are significant uncertainties in
estimating the amount of Everest Re's potential losses from asbestos and
environmental claims. See ITEM 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Asbestos and Environmental
Exposures" and Note 11 of Notes to Consolidated Financial Statements.
The following table summarizes the composition of Everest Re's total reserves
for asbestos and environmental losses, gross and net of reinsurance for the
years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
(DOLLARS IN MILLIONS) 1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Case reserves reported
by ceding companies $ 146.9 $ 137.5 $ 125.9
Additional reserves
established by Everest Re
(assumed reinsurance) 70.8 67.9 52.0
Case reserves established
by Everest Re (Ceded
Direct Insurance) 47.3 40.9 45.8
IBNR reserves 349.2 414.5 222.4
-----------------------------------------------
Gross reserves 614.2 660.8 446.1
Reinsurance receivable (249.1) (397.3) (233.7)
-----------------------------------------------
Net reserves $ 365.1 $ 263.5 $ 212.4
===============================================
</TABLE>
Everest Re's asbestos and environmental claims are managed by an experienced
staff consisting of eight people. This claims unit works closely with members of
Everest Re's in-house legal staff on legal developments. The claims unit also
meets with the management of primary insurance companies to understand their
asbestos and environmental exposures and reserving practices.
Additional losses, the type or magnitude of which cannot be foreseen by the
Company, or the reinsurance and insurance industry generally, may emerge in the
future. Such future emergence, to the extent not covered by existing
retrocessional contracts, including the Stop Loss Agreement, could have material
adverse effects on the Company's future financial condition, results of
operations and cash flows.
INVESTMENTS
Everest Re's overall financial strength and results of operations are, in part,
dependent on the quality and performance of its investment portfolio. Net
investment income and net realized capital gains (losses) on Everest Re's
invested assets constituted 18.1%, 18.6% and 18.8% of the Company's revenues for
the years ending December 31, 1999, 1998 and 1997, respectively. The Company's
cash and invested assets totaled $4,139.2 million at December 31, 1999 of which
92.7% were cash or investment grade fixed maturities.
Everest Re's current investment strategy seeks to maximize after-tax income
through a high quality, diversified, taxable bond and tax-exempt fixed maturity
portfolio, while maintaining an adequate level of liquidity. Everest Re's mix of
taxable and tax-preferenced investments is adjusted continuously, consistent
with Everest Re's current and projected operating results, market conditions and
tax position. Additionally, Everest Re invests in marketable equity securities
which it believes will enhance the risk-adjusted total return of the investment
portfolio.
The Investment Committee of Everest Re's Board of Directors is responsible for
establishing investment policy and guidelines and, together with senior
management, for overseeing their execution. Everest Re's investment portfolio is
in compliance with the insurance laws of the state of Delaware, its domiciliary
state, and of other jurisdictions in which it is regulated. These laws prescribe
the kind, quality and concentration of investments which may be made by
insurance companies. In general, these laws permit investments, within specified
limits and subject to certain qualifications, in government obligations,
corporate bonds, preferred and common stocks, real estate mortgages and real
estate. An independent investment advisor is utilized to manage the Company's
investment portfolio within the established guidelines and is required to report
activities on a current basis and to meet with the Company periodically to
review and discuss the portfolio structure, securities selection and performance
results.
Everest Re's investment guidelines include a current duration guideline of five
to six years. The duration of an investment is based on the maturity of the
security but also reflects the payment of interest and the possibility of early
prepayment of such security. This investment duration guideline is established
and periodically revised by management considering economic and business factors
including Everest Re's average duration of potential liabilities which, at
December 31, 1999, was approximately five years based on the estimated payouts
of underwriting liabilities using standard duration calculations.
15
<PAGE>
Approximately 8.4% of the Company's consolidated reserves for losses and LAE and
unearned premiums represents estimated amounts payable in foreign currencies.
For each currency in which the Company has established substantial reserves, the
Company seeks to maintain invested assets denominated in such currency in an
amount comparable to the estimated liabilities which are denominated in such
currency.
As of December 31, 1999, 97.1% of Everest Re's total investments and cash were
comprised of fixed maturity investments or cash and 95.2% of Everest Re's fixed
maturities consisted of investment grade securities. The average maturity of
fixed maturities was 8.3 years at December 31, 1999, and their overall duration
was 5.8 years. As of December 31, 1999, Everest Re did not have any material
holdings of issuers who management believes are experiencing cash flow
difficulty to an extent that the ability of the obligor to meet debt service
payments is threatened or any investments in commercial real estate or direct
commercial mortgages. Also, investments in derivative products (i.e., products
which include features such as futures, forwards, swaps, options and other
investments with similar characteristics) are generally prohibited, without the
prior approval of Everest Re's Investment Committee. At December 31, 1999, the
Company had no investments in derivative products.
As of December 31, 1999, the common stock portfolio was $90.7 million at market
value, comprising 2.2% of total investments and cash and is managed with a
growth and income orientation consisting primarily of investments in dividend
paying mid and large capitalization companies.
The following table reflects investment results for Everest Re for each of the
five years in the period ended December 31, 1999:
<TABLE>
<CAPTION>
PRE-TAX
PRE-TAX REALIZED NET
(DOLLARS IN MILLIONS) AVERAGE INVESTMENT EFFECTIVE CAPITAL GAINS
YEARS ENDED DECEMBER 31, INVESTMENTS(1) INCOME(2) YIELD (LOSSES)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $ 4,219.4 $ 253.0 6.00% $ (16.8)
1998 4,243.3 244.9 5.77 (0.8)
1997 3,888.9 228.5 5.88 15.9
1996 3,416.4 191.9 5.62 5.7
1995 2,894.9 166.0 5.73 33.8
</TABLE>
- -----------------
(1) Average of the beginning and ending carrying values of investments and
cash, less net funds held and non-interest bearing cash. Bonds, common
stock and redeemable and non-redeemable preferred stocks are carried at
market value.
(2) After investment expenses, excluding realized net capital gains (losses).
The following table summarizes fixed maturities as of December 31, 1999 and
1998:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
(DOLLARS IN MILLIONS) COST APPRECIATION DEPRECIATION VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1999:
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 135.5 $ 0.5 $ 1.5 $ 134.5
Obligations of states and
political subdivisions 2,066.4 37.9 76.3 2,028.0
Corporate securities 877.8 1.6 30.4 849.0
Mortgage-backed securities 337.4 2.3 1.9 337.8
Foreign government securities 250.6 11.9 0.4 262.1
Foreign corporate securities 272.9 4.5 3.5 273.9
------------------------------------------------------
Total $ 3,940.6 $ 58.7 $ 114.0 $ 3,885.3
======================================================
December 31, 1998:
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 152.0 $ 7.6 $ - $ 159.6
Obligations of states and
political subdivisions 1,982.5 134.4 0.5 2,116.4
Corporate securities 839.9 46.5 5.7 880.7
Mortgage-backed securities 388.8 20.2 0.1 408.9
Foreign government securities 241.3 29.8 - 271.1
Foreign corporate securities 246.6 17.5 0.2 263.9
------------------------------------------------------
Total $ 3,851.1 $ 256.0 $ 6.5 $ 4,100.6
======================================================
</TABLE>
16
<PAGE>
The following table presents the credit quality distribution by the National
Association of Insurance Commissioners ("NAIC") rating of Everest Re's fixed
maturities as of December 31, 1999:
<TABLE>
<CAPTION>
NAIC PERCENT OF
RATING(1) STANDARD AND POOR'S EQUIVALENT DESCRIPTION AMOUNT TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 AAA/AA/A $ 3,266.7 84.1%
2 BBB 433.6 11.2
3 BB 179.9 4.6
4 B 5.1 0.1
5 CCC/CC/C - -
6 CI/D - -
-----------------------
Total $ 3,885.3 100.0%
=======================
</TABLE>
- --------------
(1) The Securities Valuation Office of the NAIC maintains a security valuation
system that assigns a numerical rating to securities. The numerical
ratings generally correspond to Standard & Poor's classifications, as
indicated, although Standard & Poor's has not necessarily rated the
securities indicated. Rating categories 1 and 2 are considered investment
grade and categories 3 through 6 are considered non-investment grade.
The following table summarizes fixed maturities by contractual maturity as of
December 31, 1999:
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT TOTAL
--------------------------
<S> <C> <C>
Maturity category:
Less than one year $ 98.1 2.5%
Due after 1-5 years 547.0 14.1
Due after 5-10 years 1,501.7 38.7
Due after 10 years 1,400.7 36.1
--------------------------
Subtotal (2) 3,547.5 91.3
Mortgage-backed securities (1) 337.8 8.7
--------------------------
Total (2) $ 3,885.3 100.0%
==========================
</TABLE>
- ------------
(1) Mortgage-backed securities generally are more likely to be prepaid than
other fixed maturities. Therefore, contractual maturities are excluded
from this table since they may not be indicative of actual maturities.
(2) Certain totals may not reconcile due to rounding.
RATINGS
Everest Re currently has a rating of "A+" ("Superior") from A.M. Best, an
independent insurance industry rating organization which rates companies on
factors of concern to policyholders. A.M. Best states that the "A+" ("Superior")
rating is assigned to those companies which, in its opinion, have, on balance,
achieved superior financial strength, operating performance and market profile
when compared to the standards established by A.M. Best and have demonstrated a
very strong ability to meet their ongoing obligations to policyholders. The "A+"
("Superior") rating is the second highest of fifteen ratings assigned by A.M.
Best, which range from "A++" ("Superior") to "F" (In liquidation). Additionally,
A.M. Best has eleven classifications within the "Not Assigned" category.
Everest Re currently has a claims-paying ability rating of "AA-" (Very Strong)
from Standard & Poor's, an independent rating organization which rates an
insurance company's financial capacity to meet the obligations of its insurance
policies in accordance with their terms. Standard & Poor's states that the "AA-"
rating is assigned to those companies which, in its opinion, offer excellent
financial security and whose capacity to meet policyholder obligations is strong
under a variety of economic and underwriting conditions. The "AA-" rating is the
fourth highest of nineteen ratings assigned by Standard & Poor's, which range
from "AAA" (Superior) to "R" (Regulatory Action). Ratings from AA to B may be
modified by the use of a plus or minus sign to show relative standing of the
insurer within those rating categories.
Everest Re currently has an insurance financial strength rating of "A1" (Good)
from Moody's. Moody's states that insurance companies rated "A" offer good
financial security. However, elements may be present which suggest a
susceptibility to impairment sometime in the future. Moody's rating gradations
are shown through the use of nine distinct symbols, each symbol representing a
group of ratings in which the financial security is broadly the same. The "A1"
(Good) rating is the fifth highest of ratings assigned by Moody's, which range
from "Aaa" (Exceptional) to "C" (Lowest). Moody's further distinguishes the
ranking of an insurer within its generic rating classification from Aa to B with
1, 2 and 3 ("1" being the highest).
17
<PAGE>
Everest National is currently rated "A+" ("Superior") by A.M. Best and "AA-"
(Very Strong) by Standard & Poor's based on its affiliation with Everest Re.
The foregoing A.M. Best, Standard & Poor's and Moody's ratings are based upon
factors of concern to policyholders and should not be considered an indication
of the degree or lack of risk involved in an equity investment in an insurance
company.
Holdings' senior notes due March 15, 2005 and March 15, 2010 have the following
investment grade ratings: "A-" from Standard & Poor's, "A3" from Moody's, and
"a" from A.M. Best. Debt ratings are a current assessment of the
credit-worthiness of an obligor with respect to a specific obligation. A company
with a debt rating of "A-" is considered by Standard & Poor's to have a strong
capacity to pay interest and repay principal, although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. The "A-" rating from Standard &
Poor's is the seventh highest of 24 ratings assigned by Standard & Poor's, which
range from "AAA" to "D". A company with a debt rating of "A3" is considered to
be an upper-medium-grade obligation by Moody's. This rating represents adequate
capacity with respect to repayment of principal and interest, but elements may
be present which suggest a susceptibility to impairment sometime in the future.
The "A3" rating is the seventh highest of 21 ratings assigned by Moody's which
range from "AAA" to "C". A company with a debt rating of "a" is considered by
A.M. Best to have a strong capacity and willingness to meet the terms of the
obligation and possesses a low level of credit risk. The "a" rating is the sixth
highest of 19 ratings assigned by A.M. Best, which range from "aaa" to "ccc".
All of the above-mentioned ratings are continually monitored and revised, if
necessary, by each of the rating agencies.
COMPETITION
The worldwide property and casualty reinsurance and insurance businesses are
highly competitive and have experienced severe price competition and expanding
terms and conditions over the last several years. Competition with respect to
the types of reinsurance and insurance business in which the Company is engaged
is based on many factors, including the perceived overall financial strength of
the reinsurer or insurer, A.M. Best's and/or Standard & Poor's rating of the
reinsurer or insurer, underwriting expertise, the jurisdictions where the
reinsurer or insurer is licensed or otherwise authorized, premiums charged,
other terms and conditions of the reinsurance and insurance business offered,
services offered, speed of claims payment and reputation and experience in lines
written.
The Company competes in the United States and international reinsurance and
insurance markets with numerous international and domestic reinsurance and
insurance business companies. The Company's competitors include independent
reinsurance companies, subsidiaries or affiliates of established worldwide
insurance companies, reinsurance departments of certain primary insurance
companies and domestic and international underwriting operations, including
underwriting syndicates in Lloyd's of London. Some of these competitors have
greater financial resources than the Company, have been operating for longer
than the Company, and have established long-term and continuing business
relationships throughout the industry, which can be a significant competitive
advantage. In addition, the Company expects to face further competition in the
future.
Since 1987, the worldwide reinsurance and insurance industries have experienced
increased global competition. Competition has increased as a result of the
consolidation of reinsurance companies, the formation of new reinsurance
companies, including several well capitalized Bermuda-based companies which
operate within a tax-advantaged jurisdiction, and generally greater capital
levels maintained by reinsurance companies resulting from earnings growth,
investment gains, mergers and other factors. Lloyd's of London also has made
several operational changes that have increased the reinsurance capacity at
Lloyd's and enhanced its competitive position. In addition, the potential for
securitization of reinsurance and insurance risks through the capital markets
provide an additional source of reinsurance and insurance capacity. During this
same period, the demand for reinsurance by primary insurers has been adversely
affected by several factors, including consolidation of primary insurers,
increased primary insurer capital levels and continued access to capital markets
and increases in primary insurer's net retention levels.
Management believes that the factors noted above which affect the demand for and
supply of reinsurance and insurance have resulted in increasingly competitive
market conditions and have influenced the continuing pressure on insurance and
reinsurance rates and the expansion of contract terms in the current market
place. The Company also believes that the reinsurance and insurance industries,
including reinsurance brokers, will continue to undergo further consolidation
and that reinsurers will need significant size, financial strength and service
capabilities to compete effectively.
18
<PAGE>
Employees
As of March 1, 2000, the Company employed 404 persons, including 25 persons in
Southeastern Security, which was acquired in January, 2000. Management believes
that its employee relations are good. None of the Company's employees are
subject to collective bargaining agreements, and the Company is not aware of any
current efforts to implement such agreements at Everest Re.
INFORMATION RELATING TO DOMESTIC AND FOREIGN OPERATIONS
Financial information relating to geographic areas of operation set forth in
Note 14 of Notes to Consolidated Financial Statements of the Company is
incorporated herein by reference.
REGULATORY MATTERS
The Company and its insurer subsidiaries are subject to regulation under the
insurance statutes of the various jurisdictions in which they conduct business,
including essentially all states of the United States, Canada, Hong Kong,
Singapore, the United Kingdom, and Bermuda. These regulations vary from
jurisdiction to jurisdiction and are generally designed to protect ceding
insurance companies and policyholders by regulating the Company's financial
integrity and ability to meet its obligations relating to its business
transactions and operations. Many of these regulations require reporting of
information designed to allow insurance regulators to closely monitor the
Company's performance.
INSURANCE HOLDING COMPANY REGULATION. Under applicable United States laws and
regulations, no person, corporation or other entity may acquire a controlling
interest in the Company, unless such person, corporation or entity has obtained
the prior approval for such acquisition from the Insurance Commissioners of
Delaware and the other states in which the Company's insurance subsidiaries are
domiciled, currently Arizona and Georgia. Under these laws, "control" is
presumed when any person acquires, directly or indirectly, 10% or more of the
voting securities of an insurance company. To obtain the approval of any such
change in control, the proposed acquirer must file an application with the
relevant insurance commissioner disclosing, amongst other things, the acquirer's
background and that of its directors and officers, the acquirer's financial
condition, and its proposed changes in the management and operations of the
insurance company. U.S. state regulators also require prior notice or regulatory
approval of certain material inter-affiliate transactions within the holding
company structure. See "Dividends".
The Insurance Companies Act of Canada also requires prior approval by the
Minister of Finance of anyone acquiring a significant interest in an authorized
Canadian insurance company. In addition, the Company is subject to regulation by
the insurance regulators of other states and foreign jurisdictions in which it
does business. Certain of these states and foreign jurisdictions impose
regulations regulating the ability of any person to acquire control of an
insurance company authorized to do business in that jurisdiction without
appropriate regulatory approval similar to those described above.
DIVIDENDS. Under Bermuda law, the Company is prohibited from declaring or paying
a dividend if such payment would reduce the realizable value of its assets to an
amount less than the aggregate value of its liabilities and its issued share
capital and share premium (additional paid-in capital) accounts. The Company's
ability to pay dividends and its operating expenses is dependent upon dividends
from its subsidiaries. The payment of such dividends by insurer subsidiaries is
limited under Bermuda and the United States laws in which the Company's
insurance and reinsurance subsidiaries are licensed to transact business. The
limitations are generally based upon net income and compliance with applicable
policyholders' surplus or minimum solvency margin and liquidity ratio
requirements as determined in accordance with the relevant statutory accounting
practices. As Holdings has outstanding debt obligations, it is dependent upon
dividends and other permissible payments from Everest Re to enable Holdings to
meet its debt and operating expense obligations and to pay dividends to the
Company.
The payment of dividends to Holdings by Everest Re is subject to limitations
imposed by Delaware law. Generally, Everest Re may only pay dividends out of its
statutory earned surplus, which was $774.6 million at December 31, 1999, and
only after it has given 10 days prior notice to the Delaware Insurance
Commissioner. During this 10-day period, the Commissioner may, by order, limit
or disallow the payment of ordinary dividends if the Commissioner finds the
insurer to be presently or potentially in financial distress. Further, the
maximum amount of dividends that may be paid without the prior approval of the
Delaware Insurance Commissioner in any twelve month period is the greater of (i)
10% of an insurer's statutory surplus as of the end of the prior calendar year
or (ii) the insurer's statutory net income, not including realized capital
gains, for the prior calendar year. Under this definition, the maximum amount
that will be available for the payment of dividends by Everest Re in 2000
without triggering the requirement for prior approval of regulatory authorities
in connection with a dividend is $166.5 million.
19
<PAGE>
Under Bermuda law, Bermuda Re is unable to declare or pay a dividend if it fails
to meet its minimum solvency margin or minimum liquidity ratio, or if after
payment of the dividend, it fails to meet its minimum solvency margin or minimum
liquidity ratio. As a long-term insurer, Bermuda Re is also 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, exceeds its liabilities for long-term business by at
least the $250,000 minimum solvency margin. Prior approval of the Bermuda
Minister of Finance is required if Bermuda Re's dividend payments would reduce
its prior year-end total statutory capital by 15.0% or more.
INSURANCE REGULATION. U.S. domestic property and casualty insurers, including
reinsurers, are subject to regulation by their state of domicile and by those
states in which they are licensed. The regulation of reinsurers is typically
related to the reinsurer's financial condition, investments, management and
operation. The rates and policy terms of reinsurance agreements generally are
not subject to direct regulation by any governmental authority.
The operations of Everest Re's foreign branch offices in Canada, Hong Kong,
Singapore and the United Kingdom are subject to regulation by the insurance
regulatory officials of those jurisdictions. Management believes that the
Company is in material compliance with applicable laws and regulations
pertaining to its business and operations.
Bermuda Re is not admitted to do business as an insurer in any jurisdiction in
the U.S. Bermuda Re conducts its insurance business from its offices in Bermuda.
In Bermuda, Bermuda Re is regulated by the Insurance Act 1978 (as amended) and
related regulations (the "Act"). The Act establishes solvency and liquidity
standards, auditing and reporting requirements and subjects Bermuda Re to the
supervision, investigation and intervention powers of the Minister of Finance.
Under the Act, Bermuda Re, as a Class 4 insurer, is required to maintain $100
million in statutory capital and surplus, to have an independent auditor
approved by the Minister of Finance conduct an annual audit and report on its
statutory financial statements and filings, and to have an appointed loss
reserve specialist (also approved by the Minister of Finance) review and report
on its loss reserves annually.
Bermuda Re is also registered under the Act as a long-term insurer and is
thereby authorized to write life and annuity business. As a long-term insurer,
Bermuda Re is required to maintain a long-term business fund, to separately
account for this business and to have an approved actuary prepare a certificate
concerning its long-term business assets and liabilities to be filed annually.
Everest Canada, Everest Indemnity, Everest National and Southeastern Security
are subject to regulation similar to the U.S. domestic regulation applicable to
Everest Re. In addition, Everest National and Southeastern Security must comply
with substantial regulatory requirements in each state where they conduct
business. These additional requirements include, but are not limited to, rate
and policy form requirements, requirements with regard to licensing, agent
appointments, participation in residual markets and claims handling procedures.
These regulations are primarily designed for the protection of policyholders.
LICENSES. Everest Re is a licensed property and casualty insurer and/or
reinsurer in all states (except Nevada and Wyoming), the District of Columbia
and Puerto Rico. In New Hampshire and Puerto Rico, Everest Re is licensed for
reinsurance only. Such licensing enables U.S. domestic ceding company clients to
take credit for reinsurance ceded to Everest Re.
Everest Re is licensed as a property and casualty reinsurer in Canada. It is
also authorized to conduct reinsurance business in the United Kingdom, Hong Kong
and Singapore. Everest Re can also write reinsurance in other foreign countries.
Because some jurisdictions require a reinsurer to register in order to be an
acceptable market for local insurers, Everest Re is registered as a foreign
insurer and/or reinsurer in the following countries: Argentina, Bolivia, Chile,
Colombia, Ecuador, El Salvador, Guatemala, Mexico, Peru, Venezuela and the
Philippines. Everest National is licensed in 42 states and the District of
Columbia. Everest Indemnity is licensed in Delaware and is eligible to write
insurance on a surplus lines basis in 39 states, the District of Columbia and
Puerto Rico. Southeastern Security is licensed in Georgia. Everest Canada is
federally licensed under the Insurance Companies Act of Canada and licensed in
all Canadian provinces and territories. Bermuda Re is registered as a Class 4
insurer and a long-term insurer in Bermuda.
20
<PAGE>
PERIODIC EXAMINATIONS. Everest Re, Everest National, Everest Indemnity and
Southeastern Security are subject to periodic examination (usually every 3
years) of their affairs by the insurance departments of the states in which they
are licensed, authorized or accredited. Everest Re's, Everest National's and
Everest Indemnity's last examination reports were as of December 31, 1997. None
of these reports contained any material recommendations. Southeastern Security's
last examination report was as of December 31, 1997. The Company intends to
comply with the recommendations noted therein.
NAIC RISK-BASED CAPITAL REQUIREMENTS. The U.S. National Association of Insurance
Commissioners ("NAIC") has instituted a formula to measure the amount of capital
appropriate for a property and casualty insurance company to support its overall
business operations in light of its size and risk profile. The major categories
of a company's risk profile are its asset risk, credit risk, and underwriting
risk. The standards are an effort by the NAIC to prevent insolvencies, to ward
off other financial difficulties of insurance companies, and to establish
uniform regulatory standards among state insurance departments.
Under the approved formula, a company's statutory surplus is compared to its
risk based capital ("RBC"). If this ratio is above a minimum threshold, no
action is necessary. Below this threshold are four distinct action levels at
which a regulator can intervene with increasing degrees of authority over a
domestic insurer as the ratio of surplus to RBC decreases. The mildest
intervention requires the company to submit a plan of appropriate corrective
actions. The most severe action requires the company to be rehabilitated or
liquidated.
Based upon Everest Re's, Everest National's, Everest Indemnity's and
Southeastern Security's financial positions at December 31, 1999, Everest Re,
Everest National, Everest Indemnity and Southeastern Security exceed the minimum
thresholds. Various proposals to change the RBC formula arise from time to time.
The Company is unable to predict whether any such proposal will be adopted, the
form in which any such proposals would be adopted or the effect, if any, the
adoption of any such proposal or change in the RBC calculations would have on
the Company.
CODIFICATION OF STATUTORY ACCOUNTING PRINCIPLES. The NAIC has drafted a
codification of statutory accounting principles, which a number of states have
adopted with an effective date of January 1, 2001. The Company has reviewed the
codification principles, is taking steps to implement such principles as
necessary, and does not believe that an adoption of such statutory accounting
principles by the various states will have a material impact upon the Company.
U.S. FINANCIAL SERVICES MODERNIZATION REFORM. In 1999, U.S. federal legislation
was passed permitting the establishment of financial holding companies
authorized to conduct banking, insurance and securities businesses. The same act
introduced new restrictions on affiliate transactions, privacy standards and
other measures to avoid adverse consequences associated with permitting the
affiliations of banks, insurance companies and securities firms. While this
legislation has prompted extensive discussions among state insurance regulators
regarding the need for some changes in state regulation and prompted
commentators to opine that this legislation will lead to consolidation and
efficiencies in the financial services arena, the Company is unable to predict
the impact of this new legislation on property and casualty insurers and
reinsurers, generally, and on the Company, in particular.
LEGISLATIVE AND REGULATORY PROPOSALS. Various regulatory and legislative changes
have from time to time been proposed that could affect reinsurers and insurers.
Among the proposals that have in the past been or are at present being
considered are the possible introduction of federal regulation in addition to,
or in lieu of, the current system of state regulation of insurers, Superfund
re-authorization, product liability and tort reform, state and federal
involvement in insuring catastrophes, limitations on the ability of primary
insurance carriers to effect premium rate increases or to cancel or not renew
existing policies, modifications to investment limitations, creation of
interstate compacts for multi-state insurer receivership proceedings or
multi-state insurance regulation and the elimination of tax benefits in
connection with certain reinsurance operations. The Company is unable to predict
whether any of these proposals will be adopted, the form in which any such
proposals would be adopted, or the impact, if any, such adoption would have on
the Company.
21
<PAGE>
ITEM 2. PROPERTIES
Everest Re's corporate offices are located in Liberty Corner, New Jersey, and
occupy approximately 112,000 square feet of office space under a sublease with
The Prudential that expires on November 29, 2003. In January, 1999, Everest Re
entered into an agreement to sub-sublease, for the remaining term of Everest
Re's sub-lease, approximately 27,000 square feet of space in Everest Re's
corporate headquarters. The Company's other twelve office locations occupy a
total of approximately 69,000 square feet, all of which are leased. Management
believes that the above described office space is adequate for its current and
anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in ordinary routine litigation and
arbitration proceedings incidental to its business. The Company does not believe
that there are any other material pending legal proceedings to which it or any
of its subsidiaries or their properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. (A) MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
From October 3, 1995 through February 23, 2000, the common stock of Holdings was
traded on the New York Stock Exchange under the symbol "RE". As a result of the
restructuring, the common shares of Group commenced trading on the New York
Stock Exchange on February 24, 2000 under the same symbol, "RE". Quarterly high
and low market prices of Holdings' common stock in 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
High Low
------------------------
<S> <C> <C>
First Quarter 1998: 41.6250 35.2500
Second Quarter 1998: 45.2500 36.1250
Third Quarter 1998: 43.5000 34.1875
Fourth Quarter 1998: 38.9375 28.7500
First Quarter 1999: 38.9375 30.1250
Second Quarter 1999: 34.8125 28.8750
Third Quarter 1999: 35.6875 21.9375
Fourth Quarter 1999: 27.2500 20.5000
</TABLE>
NUMBER OF HOLDERS OF COMMON SHARES
The number of record holders of common shares as of March 3, 2000 was 103. That
number excludes the beneficial owners of shares held in "street" names or held
through participants in depositories, such as The Depository Trust Company.
22
<PAGE>
DIVIDEND HISTORY AND RESTRICTIONS
In 1995, the Board of Directors of Holdings established a policy of declaring
regular quarterly cash dividends. The first such dividend was $0.03 per share,
declared and paid in the fourth quarter of 1995. The Company 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 quarter of 1999. The Board of Directors of
Group declared a dividend of $0.06 per share, payable on or before March 30,
2000 to shareholders of record on March 8, 2000.
The declaration and payment of future dividends, if any, by the Company will be
at the discretion of the Board of Directors and will depend upon many factors,
including the Company's 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, the Company depends on dividends and other permitted
payments from its subsidiaries to pay cash dividends to its stockholders. The
payment of dividends to Group by Holdings and to Holdings by Everest Re will be
subject to Delaware regulatory restrictions and the payment of dividends to
Group by Everest Bermuda will be subject to Bermuda insurance regulatory
restrictions. See "Regulatory Matters -- Dividends" and Note 10A of Notes to
Consolidated Financial Statements.
RECENT SALES OF UNREGISTERED SECURITIES
Information required by Item 701 of Regulation S-K:
(a) On October 1, 1999, 1,716 common shares of Holdings and on January
1, 2000, 1,780 common shares of Holdings (previously held as treasury
shares) were distributed.
(b) The securities were distributed to the Company's four non-employee
Directors.
(c) The securities were issued as compensation to the non-employee
Directors for services rendered to Holdings during the third and fourth
quarters of 1999.
(d) Exemption from registration was claimed pursuant to Section 4(2) of
the Securities Act of 1933. There was no public offering and the
participants in the transactions were Holdings and its non-employee
Directors.
(e) Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated GAAP financial data of the Company as of and
for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 were derived
from the consolidated financial statements of the Company, which were audited by
PricewaterhouseCoopers LLP (1999, 1998, 1997 and 1996) and by other independent
auditors (1995). The statutory data have been derived from statutory financial
statements of Everest Re filed with the Delaware Insurance Department. Such
statutory financial statements are prepared in accordance with Statutory
Accounting Principals ("SAP"), which differ from GAAP. The statutory financial
statements are unconsolidated and reflect the net assets of Everest Re's
subsidiaries, Everest Ltd., Everest National, Everest Canada and Everest
Indemnity on the equity method. The following financial data should be read in
conjunction with the Consolidated Financial Statements and accompanying notes.
The supplemental information for 1995 excludes the effects of an IPO-related
premium charge of $140.0 million ($91.0 million after taxes) for the Stop Loss
Agreement and an IPO-related compensation expense charge of $13.3 million ($8.7
million after taxes) principally for stock awards to the Company's Chief
Executive Officer. Such supplemental information is presented to facilitate an
understanding of the impact on the Company's results of operations of these
non-recurring charges, but should not, however, be considered as an alternative
to the respective amounts determined in accordance with GAAP as an indicator of
the Company's operating performance.
23
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT
PER SHARE AMOUNTS) 1999 1998 1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Gross premiums written $ 1,141.8 $ 1,045.9 $ 1,075.0 $ 1,044.0 $ 949.5
Net premiums written 1,095.6 1,016.6 1,031.1 1,030.5 783.2
Net premiums earned 1,071.5 1,068.0 1,049.8 973.6 753.3
Net investment income 253.0 244.9 228.5 191.9 166.0
Net realized capital
gains (losses)(1) (16.8) (0.8) 15.9 5.7 33.8
Total revenue 1,306.7 1,315.2 1,299.2 1,169.3 948.9
Losses and LAE incurred
(including catastrophes) 771.6 778.4 765.4 716.0 674.7
Total catastrophe losses(2) 45.9 30.6 8.6 7.1 31.4
Commission, brokerage,
taxes and fees 286.0 274.6 274.8 254.6 227.4
Other underwriting expenses 48.3 49.6 51.7 54.9 60.0
Interest expense 1.5 - - - -
Compensation related to
public offering - - - - 13.3
Non-recurring restructure
expenses 2.8 - - - -
Total expenses(3) 1,110.1 1,102.5 1,091.9 1,025.5 975.4
Income (loss) before
taxes(3) 196.6 212.7 207.3 143.8 (26.6)
Income tax (benefit) 38.5 47.5 52.3 31.8 (27.3)
Net income (3) $ 158.1 $ 165.2 $ 155.0 $ 112.0 $ 0.7
=========================================================
Net income per basic
share (4) $ 3.26 $ 3.28 $ 3.07 $ 2.22 $ 0.01
=========================================================
Net income per diluted
share (5) $ 3.25 $ 3.26 $ 3.05 $ 2.21 $ 0.01
=========================================================
Dividends paid per share $ 0.24 $ 0.20 $ 0.16 $ 0.12 $ 0.14
=========================================================
CERTAIN GAAP FINANCIAL
RATIOS:
Loss and LAE ratio(6) 72.0% 72.9% 72.9% 73.5% 89.6%
Underwriting expense
ratio 31.5 30.3 31.1 31.8 39.9
---------------------------------------------------------
Combined ratio 103.5% 103.2% 104.0% 105.3% 129.5%
=========================================================
CERTAIN SAP DATA(7):
Ratio of net premiums
written to surplus(8) 1.0x 1.0x 1.4x 1.2x 1.0x
Statutory surplus $ 1,147.6 $ 1,059.4 $ 908.8 $ 772.7 $ 686.9
Loss and LAE ratio(9) 71.8% 72.2% 75.7% 71.2% 92.2%
Underwriting expense
ratio(10) 31.5 31.1 25.6 31.7 38.9
---------------------------------------------------------
Combined ratio 103.3% 103.2% 101.3% 102.9% 131.1%
=========================================================
BALANCE SHEET DATA
(AT END OF PERIOD):
Total investments and
cash $ 4,139.2 $ 4,325.8 $ 4,163.3 $ 3,624.6 $ 3,238.3
Total assets 5,704.3 5,996.7 5,538.0 5,047.8 4,647.8
Loss and LAE reserves 3,647.0 3,800.0 3,437.8 3,246.9 2,969.3
Total liabilities 4,376.8 4,517.5 4,230.5 3,961.7 3,664.2
Stockholder's equity(11) 1,327.5 1,479.2 1,307.5 1,086.0 983.6
Book value per share(12) 28.57 29.59 25.90 21.51 19.36
SUPPLEMENTAL INFORMATION,
EXCLUDING IPO-RELATED
CHARGES:
Net premiums written $ 923.2
Net premiums earned 893.3
Income before taxes 126.8
Net income $ 100.4
=========
Net income per basic
and diluted share $ 2.00
=========
Supplemental GAAP
financial ratios:
Loss and LAE ratio 75.5%
Underwriting expense
ratio 32.2
---------
Combined ratio 107.7%
=========
Supplemental SAP data:
Ratio of net premiums
written to surplus 1.2x
Loss and LAE ratio 75.5%
Underwriting expense
ratio 32.0
---------
Combined ratio 107.5%
=========
</TABLE>
24
<PAGE>
- ------------
(1) After-tax operating income (loss), before after-tax net realized capital
gains or losses, was $169.0 million (or $3.48 per basic share and $3.47
per diluted share), $165.7 million (or $3.29 per basic 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) and
($21.2) million (or ($0.42) per basic and diluted share) for the years
ended December 31, 1999, 1998, 1997, 1996 and 1995, 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 48.5 million, 50.4
million, 50.5 million, 50.6 million and 50.2 million for 1999, 1998,
1997, 1996 and 1995, respectively.
(5) Based on weighted average diluted shares outstanding of 48.7 million,
50.7 million, 50.8 million, 50.7 million and 50.2 million for 1999,
1998, 1997, 1996 and 1995, respectively.
(6) GAAP losses and LAE incurred as a percentage of GAAP net premiums earned.
(7) 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 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.
(8) Statutory net premiums written as a percentage of period-end surplus.
(9) Statutory losses and LAE incurred as a percentage of SAP net premiums
earned.
(10) Statutory underwriting expenses as a percentage of SAP net premiums
written.
(11) Excluding net unrealized appreciation (depreciation) of investments,
stockholder's equity was $1,337.2 million, $1,281.6 million, $1,147.1
million, $1,008.3 million and $899.9 million as of December 31, 1999,
1998, 1997, 1996 and 1995, respectively.
(12) Based on 46.5 million shares outstanding for December 31, 1999, 50.0
million shares outstanding for December 31, 1998, 50.5 million shares
outstanding for December 31, 1997 and 1996 and 50.8 million shares
outstanding for December 31, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the Company's results of operations and
financial condition. This discussion and analysis should be read in conjunction
with the consolidated financial statements and the notes thereto presented under
ITEM 8.
RESTRUCTURING
Group, a Bermuda company, was established in 1999 as a wholly-owned subsidiary
of Holdings. On February 24, 2000, a corporate restructuring was completed and
Group became the new parent holding company of Holdings. Holders of Holdings'
common stock automatically became holders of the same number of Group common
shares. Prior to the restructuring, Group had no significant assets or
capitalization and had not engaged in any business or prior activities other
than in connection with the restructuring. See ITEM 1 - "The Business - Company"
for a further discussion.
RESULTS OF OPERATIONS
Industry Conditions. Since 1987, a number of factors, including the emergence of
significant reinsurance capacity from the Bermuda and rejuvenated Lloyds'
markets, higher retentions by primary insurance companies and consolidation and
increased capital levels in the insurance industry, have caused increasingly
competitive global market conditions across most lines of business and have
influenced the softening of prices and contract terms in the current market
place. The Company cannot predict with any reasonable certainty, if, when or to
what extent market conditions as a whole will change. See ITEM 1 -
"Business-Competition" for a further discussion.
SEGMENT INFORMATION
The Company, through its subsidiaries, operates in five operating segments: U.S.
Broker Treaty, U.S. Direct Treaty Reinsurance and Insurance, U.S. Facultative,
Marine, Aviation and Surety and International. These segments are generally
referred to as operations in this document. The U.S. Broker Treaty operation
writes property, accident and health and casualty reinsurance through
reinsurance brokers within the United States. The U.S. Direct Treaty Reinsurance
and Insurance operation writes property, accident and health and casualty
reinsurance directly with ceding companies and primary property and casualty
insurance, through agency relationships and program administrators within the
United States. The U.S. Facultative operation writes property, casualty and
specialty business through brokers and directly with ceding companies within the
United States. The Marine, Aviation and Surety operation writes marine, aviation
and surety business within the United States and worldwide. The International
operation writes reinsurance through the Company's branches in Belgium, London,
Canada, Hong Kong and Singapore, in addition to foreign "home-office" business.
The U.S. Facultative, Marine, Aviation and Surety and International operations
write business through brokers and directly with ceding companies.
25
<PAGE>
These segments are managed in a carefully coordinated fashion with strong
elements of central control, including with respect to capital, investments and
support operations. As a result, management monitors and evaluates the financial
performance of these operating segments based upon their underwriting gain or
loss ("underwriting results").
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
PREMIUMS. Gross premiums written increased 9.2% to $1,141.8 million in 1999 from
$1,045.9 million in 1998 as the Company took advantage of selected growth
opportunities, while continuing to maintain a disciplined underwriting approach.
Premium growth areas included a 24.0% ($86.4 million) increase in the U.S.
Broker Treaty premiums, largely attributable to growth in accident and health,
non-standard auto and workers' compensation lines where the Company's relatively
recent entry to these lines allowed it to selectively grow from a relatively
small base, a 12.9% ($21.8 million) increase in the U.S. Direct Treaty
Reinsurance and Insurance premiums mainly attributable to two large accident and
health reinsurance treaties, the impact of which offset declines elsewhere in
this operation and a 5.3% ($6.3 million) increase in the Marine, Aviation and
Surety operation. These increases were offset by an 8.8% ($6.3 million) decrease
in the U.S. Facultative premiums and a 3.8% ($12.3 million) decrease in the
International premiums reflecting highly competitive current market conditions.
The Company continued to decline business that did not meet its objectives
regarding underwriting profitability.
Ceded premiums increased to $46.3 million in 1999 from $29.3 million in 1998.
Ceded premiums in 1998 reflected a $32.3 million return premium relating to a
restructuring of the Company's catastrophe retrocessional protection. Absent the
impact of this return premium, the Company would have had lower ceded premiums
in 1999 as a result of the impact of the changes in the Company's catastrophe
retrocessional protections, partially offset by increased utilization of
contract specific retrocessions, including common account protections.
Net premiums written increased by 7.8% to $1,095.6 million in 1999 from $1,016.6
million in 1998, reflecting the growth in gross premiums written partially
offset by the increase in ceded premiums.
PREMIUM REVENUES. Net premiums earned increased by 0.3% to $1,071.5 million in
1999 from $1,068.0 million in 1998 consistent with the growth in premiums
written. Contributing to this increase was an 11.3% ($12.5 million) increase in
the Marine, Aviation and Surety operation, a 9.7% ($35.9 million) increase in
the U.S. Broker Treaty operation and a 5.4% ($9.4 million) increase in the U.S.
Direct Treaty Reinsurance and Insurance operation. These increases were
partially offset by a 14.6% ($49.8 million) decrease in the International
operation and a 6.2% ($4.5 million) decrease in the U.S. Facultative operation.
All of these changes reflect period to period changes in net written premiums
together with normal variability in earnings patterns.
EXPENSES. Incurred losses and loss adjustment expenses ("LAE") decreased by 0.9%
to $771.6 million in 1999 from $778.4 million in 1998. Incurred losses and LAE
include catastrophe losses, which include the impact of both current period
events and favorable and unfavorable development on prior period events and are
net of reinsurance. Net catastrophe losses for 1999 were $45.9 million mainly
arising from European storms ($19.5 million) and from the Rouge Steel Plant Fire
($13.0 million), together with lesser losses related to Hurricane Floyd, the
Turkish Earthquakes and the Oklahoma Tornadoes compared to net catastrophe
losses of $30.6 million for 1998. Net incurred losses and LAE for 1999 reflected
ceded losses and LAE of $7.4 million, including $7.2 million ceded under the
Stop Loss Agreement for 1999 offset by a $60.8 million reduction of the
Company's previous cessions to the Stop Loss Agreement as a result of the
Gibraltar dispute resolution, compared to ceded losses and LAE of $357.4 million
in 1998, including $153.9 million ceded under the Stop Loss Agreement.
Contributing to the decrease in incurred losses and LAE in 1999 from 1998 were
an 15.7% ($42.5 million) decrease in the International operation which
experienced unusual catastrophe losses in 1998 relating to hurricanes Georges
and Mitch and Canadian ice storms, a 3.2% ($4.2 million) decrease in the U.S.
Direct Treaty Reinsurance and Insurance operation, a 1.5% ($0.7 million)
decrease in the U.S. Facultative operation and a 0.1% ($0.4 million) decrease in
the Marine, Aviation and Surety operation. These decreases were partially offset
by a 16.3% ($40.9 million) increase in the U.S. Broker Treaty operation that was
affected by the Rouge Steel Plant Fire and Oklahoma tornados in 1999. Incurred
losses and LAE for each operation were also impacted by variability relating to
changes in the level of premium volume and mix of business by class and type.
The Company's loss and LAE ratio ("loss ratio") decreased by 0.9 percentage
points to 72.0% for 1999 from 72.9% in 1998. This decrease was attributable to
changes in the Company's mix of business, including the absence in 1999 of the
impact of certain reinsurance treaties with higher expected losses and lower
ceding commissions which were reflected in 1998, partially offset by the
increase in catastrophe losses in 1999. The Marine, Aviation and Surety
operation's loss ratio decreased by 7.9 percentage points to 67.1% for 1999 from
75.0% in 1998 mainly due to changes in the marine business. The U.S. Direct
Treaty Reinsurance and Insurance operation's loss ratio decreased by 6.1
percentage points to 68.5% for 1999 from 74.6% in 1998. This decrease
was mainly due to the absence in 1999 of the impact of certain reinsurance
26
<PAGE>
treaties with higher expected losses and lower ceding commission which were
reflected in 1998. The International operation's loss ratio decreased by 1.0
percentage points to 78.3% for 1999 from 79.3% in 1998 mainly due to lower net
catastrophe losses in 1999. The U.S. Broker Treaty operation's loss ratio
increased by 4.1 percentage points to 71.9% for 1999 from 67.8% in 1998
generally due to higher net catastrophe losses in 1999, in addition to changes
in the operation's mix of business. The U.S. Facultative operation's loss ratio
increased by 3.1 percentage points to 64.2% for 1999 from 61.1% in 1998. The
loss ratios for all operations are impacted by mix of business by class and
type.
Underwriting expenses increased by 4.0% to $337.0 million in 1999 from $324.1
million in 1998. Commission, brokerage, taxes and fees increased by $11.4
million attributable to increases in written premium and changes in the
Company's business mix. Other underwriting expenses increased by $1.5 million,
primarily attributable to $2.8 million of non-recurring reorganization expenses
in 1999, principally relating to the Company's restructuring to a Bermuda parent
holding company. Contributing to these underwriting expense increases were a
15.0% ($5.6 million) increase in the Marine, Aviation and Surety operation, an
8.5% ($4.7 million) increase in the U.S. Direct Treaty Reinsurance and Insurance
operation and 6.3% ($6.6 million) increase in the U.S. Broker Treaty operation.
These underwriting expense increases were partially offset by a 5.8% ($5.9
million) decrease in the International operation and a 2.8% ($0.6 million)
decrease in the U.S. Facultative operation. The changes for each operation's
expenses were principally the result of changes in commission expenses relating
to changes in premium volume and business mix by class and type. The Company's
expense ratio increased by 1.2 percentage points to 31.5% in 1999 from 30.3% in
1998.
The Company's combined ratio increased by 0.3 percentage points to 103.5% in
1999 from 103.2% in 1998. The U.S. Facultative operation's combined ratio
increased by 4.2 percentage points to 95.2% for 1999 from 91.1% in 1998. The
U.S. Broker Treaty operation's combined ratio increased by 3.2 percentage points
to 99.4% for 1999 from 96.2% in 1998. The International operation's combined
ratio increased by 2.1 percentage points to 111.5% for 1999 from 109.4% in 1998.
The Marine, Aviation and Surety operation's combined ratio decreased by 6.8
percentage points to 101.8% for 1999 from 108.6% in 1998. The U.S. Direct Treaty
Reinsurance and Insurance operation's combined ratio decreased by 5.2 percentage
points to 101.3% for 1999 from 106.5% in 1998. These changes reflect the expense
and loss ratio variability noted above.
Other loss for 1999 was $1.0 million compared to other income of $3.0 million in
1998. Other loss and income for the respective years were principally
attributable to the impact of fluctuations in foreign currency exchange rates.
INVESTMENTS. Net investment income increased 3.3% to $253.0 million in 1999 from
$244.9 million in 1998, principally reflecting the effect of investing the
$203.4 million of cash flow from operating activities in 1999. The Company's
pre-tax yield on average cash and invested assets increased to 6.2% in 1999 from
6.0% in 1998 principally reflecting a higher interest rate environment.
Net realized capital losses were $16.8 million in 1999 reflecting realized
capital losses on the Company's investments of $33.9 million which were offset
by $17.1 million of realized capital gains, compared to net realized losses of
$0.8 million in 1998. The net realized capital losses in 1998 reflected realized
capital losses of $13.5 million which were offset by $12.7 million of realized
capital gains. The realized capital losses in 1999 arose mainly from activity in
the Company's taxable and tax-exempt domestic fixed maturities portfolios,
whereas the realized capital losses in 1998 were attributable to activity in the
Company's tax-exempt fixed maturities portfolio. The realized capital gains in
1999 mainly arose from activity in the Company's domestic equity portfolio,
whereas the realized capital gains in 1998 were attributable to a combination of
the activity in the Company's taxable domestic fixed maturities portfolio and
domestic equity portfolio. The net realized losses in 1999 generally reflect a
specific program, which has been completed, to realize capital losses aimed at
recovering taxes on realized capital gains paid in prior years, with
corresponding reinvestment of proceeds at current reinvestment rates, and
enhancing the Company's long-term after-tax portfolio yield.
INCOME TAXES. The Company had income tax expense of $38.5 million in 1999
compared to $47.5 million in 1998, with the decrease resulting from the increase
in realized capital losses.
NET INCOME. Net income was $158.1 million in 1999 compared to $165.2 million in
1998. This decline mainly reflects increases in net capital losses.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
PREMIUMS. Gross premiums written decreased 2.7% to $1,045.9 million in 1998 from
$1,075.0 million in 1997 as the Company maintained a disciplined underwriting
approach in the face of increasingly competitive market conditions. Premium
growth areas included a 10.8% ($35.2 million) increase in the U.S. Broker Treaty
premiums, largely attributable to growth in non-standard auto, accident and
health and workers compensation lines where the Company's relatively recent
entry to these lines provided growth opportunities and a 6.8% ($10.8 million)
increase in the U.S. Direct Treaty Reinsurance and Insurance premiums mainly due
to portfolio reinsurance transactions. These increases were offset by a
27
<PAGE>
25.5% ($41.2 million) decrease in the Marine, Aviation, and Surety premiums, a
13.2% ($10.9 million) decrease in the U.S. Facultative premiums and a 6.6%
($23.0 million) decrease in the International premiums reflecting highly
competitive current market conditions. The Company continued to decline business
that did not meet the Company's objectives regarding underwriting profitability.
Ceded premiums decreased by 33.2% to $29.3 million in 1998 from $43.8 million in
1997, principally as a result of a $32.3 million return premium in 1998 relating
to a restructuring of the Company's catastrophe retrocessional protection. The
impact of this transaction was partially offset by increases in ceded premiums
in 1998 over 1997 attributable to increased utilization of contract specific
retrocessions, including common account protections, and reinstatement premiums
on corporate catastrophe reinsurance protections.
Net premiums written decreased by 1.4% to $1,016.6 million in 1998 from $1,031.1
million in 1997, reflecting the decreases in the International, Marine, Aviation
and Surety and U.S. Facultative gross written premiums, partially offset by
growth in the U.S. Broker Treaty and U.S. Direct Treaty Reinsurance and
Insurance premiums and the decrease in ceded premiums.
PREMIUM REVENUES. Net premiums earned increased by 1.7% to $1,068.0 million in
1998 from $1,049.8 million in 1997, with the increase attributable to normal
earnings patterns coupled with the decrease in premiums written. Contributing to
this increase was a 21.4% ($65.4 million) increase in the U.S. Broker Treaty
operation and an 11.4% ($17.7 million) increase in the U.S. Direct Treaty
Reinsurance and Insurance operation. These increases were partially offset by a
30.4% ($48.4 million) decrease in the Marine, Aviation and Surety operation, an
8.4% ($6.7 million) decrease in the U.S. Facultative operation and a 2.8% ($9.9
million) decrease in the International operation. All of these changes reflect
period to period changes in net written premiums together with normal
variability in earnings patterns.
EXPENSES. Incurred losses and LAE increased by 1.7% to $778.4 million in 1998
from $765.4 million in 1997. The Company's loss and LAE ratio remained at 72.9%
for 1998, as was the case in 1997. Net catastrophe losses for 1998 were $30.6
million mainly arising from Hurricanes Georges and Mitch, Canadian Ice Storm
losses and a major fire impacting a facultative coverage partially offset by
favorable development on prior period catastrophes compared to net catastrophe
losses of $8.6 million for 1997. Catastrophe losses include the impact of both
current period events and favorable and unfavorable development on prior period
events and are net of reinsurance. The underlying loss ratio increase was
attributable to changes to the Company's business mix consistent with its
underwriting strategy. Net incurred losses and LAE for 1998 reflected ceded
losses and LAE of $357.4 million, including $153.9 million ceded under the Stop
Loss Agreement. The ceded losses and LAE for 1998 principally reflect a $214.9
million increase in gross reserves with respect to asbestos exposures which the
Company judged to be necessary based on continuing reported and paid loss
emergence, particularly with respect to secondary defendants, internal and third
party statistical analysis, and its assessment of potential ultimate
liabilities, $25.7 million of non-asbestos related losses ceded under the Stop
Loss Agreement and $23.1 million ceded under various catastrophe retrocessions.
The 1998 ceded losses and LAE compares to ceded losses and LAE of $109.6 million
in 1997, including $45.0 million ceded under the Stop Loss Agreement.
Contributing to the increase in incurred losses and LAE in 1998 from 1997 were a
13.3% ($29.5 million) increase in the U.S. Broker Treaty operation, a 9.6%
($23.6 million) increase in the International operation and a 6.0% ($7.3
million) increase in the U.S. Direct Treaty Reinsurance and Insurance operation.
These increases were partially offset by a 31.3% ($20.3 million) decrease in the
U.S. Facultative operation and a 24.6% ($27.1 million) decrease in the Marine,
Aviation and Surety operation. Incurred losses and LAE for each operation were
also impacted by variability relating to changes in the level of premium volume
and mix of business by class and type.
Underwriting expenses decreased by 0.7% to $324.1 million in 1998 from $326.5
million in 1997. Commission, brokerage, taxes and fees decreased by $0.2 million
attributable to decreases in written premium and changes in the Company's
business mix. Other underwriting expenses decreased by $2.1 million, as the
Company's cost reduction initiatives continued to provide benefits over the
course of 1998 and 1997. The benefits more than offset the impact of salary and
other expense increases that were generally in line with inflation. Contributing
to these underwriting expense decreases were a 28.5% ($14.8 million) decrease in
the Marine, Aviation and Surety operation and a 10.1% ($2.4 million) decrease in
the U.S. Facultative operation. These underwriting expense decreases were
partially offset by a 12.8% ($11.9 million) increase in the U.S. Broker Treaty
operation, a 6.3% ($3.3 million) increase in the U.S. Direct Treaty Reinsurance
and Insurance operation and a 0.1% ($1.0 million) increase in the International
operation. The Company's expense ratio decreased by 0.8 percentage points to
30.3% in 1998 from 31.1% in 1997 as a result of the increase in premiums earned
and the decrease in underwriting expenses.
The Company's combined ratio decreased by 0.8 percentage points to 103.2% in
1998 from 104.0% in 1997 reflecting the lower expense ratio, increased earned
premium and loss ratio factors described above.
28
<PAGE>
INVESTMENTS. Pre-tax investment income increased 7.2% to $244.9 million in 1998
from $228.5 million in 1997, principally reflecting the effect of investing the
$183.3 million of cash flow from operating activities in 1998. The Company's
pre-tax yield on average cash and invested assets decreased to 5.8% in 1998 from
5.9% in 1997 reflecting an increase in tax preferenced investments and a lower
interest rate environment.
Net realized capital losses were $0.8 million in 1998 reflecting normal
portfolio management activity compared to a net realized capital gain of $15.9
million in 1997, mainly arising from a $14.0 million gain on the sale of the
Company's remaining investment in the common stock of Corporacion MAPFRE, a
publicly traded Spanish insurer.
INCOME TAXES. The Company had income tax expense of $47.5 million in 1998
compared to $52.3 million in 1997, with the decrease resulting from the
relationship of tax-exempt income to pre-tax income as the Company increased the
tax preferenced element of investment income at a rate greater than the increase
in pre-tax income as a result of growth in the Company's tax preferenced
investment holdings.
NET INCOME. Net income was $165.2 million in 1998 compared to $155.0 million in
1997. This improvement mainly reflects higher earned premium, higher investment
income, and lower income taxes partially offset by a decrease in net capital
gains and an increase in net incurred losses.
FINANCIAL CONDITION
CASH AND INVESTED ASSETS. Aggregate invested assets, including cash and
short-term investments, were $4,139.2 million at December 31, 1999, $4,325.8
million at December 31, 1998 and $4,163.3 million at December 31, 1997. The
decrease in cash and invested assets from 1998 to 1999 resulted primarily from
net realized and unrealized losses on investments of $318.9 million and $96.4
million in share repurchases, partially offset by $203.4 million in cash flows
from operations generated during the period and $59.0 million in credit facility
borrowings. The increase in cash and invested assets from 1997 to 1998 resulted
primarily from $183.3 million in cash flows from operations generated during the
period together with net realized and unrealized gains on investments of $57.2
million.
LOSS AND LAE RESERVES
GENERAL. Gross loss and LAE reserves totaled $3,647.0 million at December 31,
1999, $3,800.0 million at December 31, 1998 and $3,437.8 million at December 31,
1997. The decrease in 1999 was primarily attributable to a reduction in reserves
for 1995 and prior periods as a result of the Gibraltar dispute resolution
together with normal variability in claim settlements and an unchanged level of
earned premiums. The increase in 1998 was mainly due to reserve increases on
pre-1986 accident years for asbestos and environmental exposures, most of which
were ceded under various retrocessional arrangements resulting in an offsetting
increase to reinsurance receivables. Reinsurance receivables totaled $742.5
million at December 31, 1999, $982.0 million at December 31, 1998 and $692.5
million at December 31, 1997. At December 31, 1999, $345.4 million, or 46.5%, of
the total was receivable from Gibraltar, including $9.5 million which is
contractually due in the first quarter of 2000, $255.5 million which is
collateralized by funds held by the Company or offsetting liabilities and $80.4
million which is subject to the terms and conditions of The Prudential's
guarantee of Gibraltar's payment obligations to the Company. Additionally,
$145.0 million, or 19.5%, is receivable from Continental Insurance Company,
which is secured by a funds held arrangement wherein the Company has retained
the premium payments due the retrocessionaire, recognized a liability for such
amounts and reduces such liability as payments are due from the
retrocessionaire. No other retrocessionaire accounted for more than $25.0
million of the Company's receivable.
Everest Re maintains reserves to cover its estimated ultimate liability for
losses and LAE with respect to reported and unreported claims. Because reserves
are estimates of ultimate losses and LAE, management monitors reserve adequacy
over time, evaluating new information as it becomes known and adjusting
reserves, as necessary. Management considers many factors when setting reserves,
including: (i) current legal interpretations of coverage and liability; (ii)
economic conditions; (iii) internal actuarial methodologies which analyze
Everest Re's experience with similar cases, information from ceding companies
and historical trends, such as reserving patterns, loss payments, pending levels
of unpaid claims and product mix; and (iv) the uncertainties discussed below
regarding reserve requirements for asbestos and environmental claims. Based on
these considerations, management believes that adequate provision has been made
for Everest Re's loss and LAE reserves. Actual losses and LAE ultimately paid
may deviate, perhaps substantially, from such reserves.
ASBESTOS AND ENVIRONMENTAL EXPOSURES. Everest Re's asbestos claims typically
involve liability or potential liability for bodily injury from exposure to
asbestos or liability for property damage resulting from asbestos or asbestos
containing materials. Everest Re's environmental claims typically involve
potential liability for the mitigation or remediation of environmental
contamination or bodily injury or property damages caused by the release
of hazardous substances into the land, air or water. In addition to the
previously described general uncertainties inherent in estimating reserves,
there are significant additional uncertainties in estimating the amount
of Everest Re's potential losses from asbestos and environmental
29
<PAGE>
claims. Among the complications impacting the estimation of such losses are: (i)
potentially long waiting periods between exposure and manifestation of any
bodily injury or property damage; (ii) difficulty in identifying sources of
asbestos or environmental contamination; (iii) difficulty in properly allocating
responsibility and/or liability for asbestos or environmental damage; (iv)
changes in underlying laws and judicial interpretation of those laws; (v)
potential for an asbestos or environmental claim to involve many insurance
providers over many policy periods; (vi) long reporting delays, both from
insureds to insurance companies and ceding companies to reinsurers; (vii)
historical data concerning asbestos and environmental losses, which is more
limited than historical information on other types of casualty claims; (viii)
questions concerning interpretation and application of insurance and reinsurance
coverage; and (ix) uncertainty regarding the number and identity of insureds
with potential asbestos or environmental exposure. Although these complications
have become less severe in recent years, management believes that these factors
continue to render reserves for asbestos and environmental losses significantly
less subject to traditional actuarial methods than are reserves on other types
of losses. Given these uncertainties, management believes that no meaningful
range for such ultimate losses can be established. Everest Re establishes
reserves to the extent that, in the judgment of management, the facts and
prevailing law reflect an exposure for Everest Re or its ceding company. Due to
the uncertainties discussed above, the ultimate losses may vary materially from
current loss reserves and could have a material adverse effect on the Company's
future financial condition, results of operations and cash flows.
The table below summarizes reserves and claim activity for asbestos and
environmental claims, on both a gross and net of ceded reinsurance basis, for
the periods indicated:
<TABLE>
<CAPTION>
ASBESTOS AND ENVIRONMENTAL RESERVES
YEARS ENDED DECEMBER 31,
---------------------------------------
(DOLLARS IN MILLIONS) 1999 1998 1997
---------------------------------------
<S> <C> <C> <C>
Gross Basis:
Beginning of period reserves $ 660.8 $ 446.1 $ 423.3
---------------------------------------
Incurred losses and LAE:
Reported losses 68.9 57.6 80.5
Change in IBNR (65.2) 192.0 3.2
---------------------------------------
Total 3.7 249.6 83.7
Paid losses (50.3) (34.9) (60.9)
---------------------------------------
End of period reserves $ 614.2 $ 660.8 $ 446.1
=======================================
Net Basis:
Beginning of period reserves $ 263.5 $ 212.4 $ 199.6
---------------------------------------
Incurred losses and LAE:
Reported losses (1) 30.8 (105.9) (18.3)
Change in IBNR (30.8) 121.3 21.8
---------------------------------------
Total - 15.4 3.5
Paid losses (2) 101.6 35.7 9.3
---------------------------------------
End of period reserves $ 365.1 $ 263.5 $ 212.4
=======================================
</TABLE>
- ----------
(1) Net of $0.0 million in 1999, $138.5 million in 1998 and $41.2 million in
1997 ceded under the incurred loss reimbursement feature of the Stop Loss
Agreement.
(2) Net of $118.8 million in 1999, $39.7 million in 1998 and $22.6 million
in 1997 ceded as paid losses under the Stop Loss Agreement.
The gross IBNR reserves for asbestos and environmental exposures increased by
$192.0 million in 1998. During 1998, the Company reviewed all relevant data in
considering the estimate of ultimate reserves for asbestos and environmental
exposures. This included analysis of incurred and paid loss development,
qualitative assessments of claims, claimants, judgements and emerging trend
information. Overall, these analytical activities concluded that the underlying
ultimate exposures were greater than previously estimated, principally with
respect to continuing shifts in loss emergence and payment patterns, including
the unexpectedly large impact of newly reported claims for insureds/defendants
not previously expected to have significant exposures. The gross IBNR reserves
for asbestos and environmental exposures decreased by $65.2 million in 1999. The
decrease resulted primarily from management's belief that there has been no
material change in the ultimate asbestos and environmental loss exposures. Thus,
the reported incurred losses in 1999 were offset with corresponding reductions
in IBNR reserves.
30
<PAGE>
The $249.1 million of reinsurance receivables with respect to asbestos and
environmental reserves as of December 31, 1999 was attributable principally to
two retrocessional arrangements: (i) $166.5 million was ceded to various
insurance and reinsurance companies, including Gibraltar, in connection with
their participation in MUF; and (ii) $69.1 million resulting from the Company's
former direct excess insurance operations, which ceased writing business in 1985
and which has been 100% ceded to Gibraltar since 1986.
STOP LOSS AGREEMENT AND PRUDENTIAL GUARANTEES. To the extent reserves as of June
30, 1995 (December 31, 1994 for catastrophe losses) for losses, allocated LAE
and uncollectible reinsurance experience adverse development ("Adverse
Development"), Everest Re is entitled, at the time reserves are increased, to
payments under the Stop Loss Agreement, subject to the limit and other terms
thereof. Gibraltar's obligations to make payments to Everest Re under the Stop
Loss Agreement are guaranteed by The Prudential. Management expects that the
general effect of the Stop Loss Agreement will be to protect the Company's
consolidated earnings against up to $375.0 million of the first $400.0 million
of Adverse Development. There can be no assurance, however, that the Company's
net liability for such Adverse Development will be limited to $25.0 million.
With respect to liquidity, the incurred loss reimbursement features of these
agreements provide the Company with cash on or prior to the time it is required
to make payment on account of such Adverse Development. Through December 31,
1999, Adverse Development ceded under the Stop Loss Agreement have aggregated
$285.6 million with remaining limits available of $89.4 million as respects the
next $99.3 million of Adverse Development. Everest Re does not intend to enter
into any new stop loss agreements with respect to exposures arising from periods
prior to July 1, 1995 if the current Stop Loss Agreement with Gibraltar is
exhausted or when it terminates.
During the first quarter of 1999, Gibraltar disputed $63.0 million ceded under
the Stop Loss Agreement in the fourth quarter of 1998. Gibraltar also disputed
the Company's level of reserves previously ceded to and paid by Gibraltar under
the Stop Loss Agreement and claimed a refund of $91.7 million. These disputes
were based on Gibraltar's belief that there were redundancies in that portion of
Everest Re's IBNR reserves which were subject to the Stop Loss Agreement.
Pursuant to the terms of the Stop Loss Agreement, Everest Re and Gibraltar
appointed an independent examiner to review Everest Re's reserves underlying the
disputed amounts to determine the appropriate amount of cessions to Gibraltar,
and Everest Re placed the $91.7 million in a trust.
In December 1999, the independent examiner issued its findings with respect to
the disputed amounts. As a result, Everest Re and Gibraltar resolved these
disputes. The resolution resulted in Everest Re reducing its gross reserves for
1995 and prior periods by $67.6 million and reducing its claim to the Stop Loss
by $60.8 million. Everest Re will also receive $2.3 million in additional cash
from Gibraltar as a result of the revised billing and the trust noted above has
been terminated. The gross coverage limit under the Stop Loss Agreement,
excluding cessions of $8.0 million in the fourth quarter of 1999, has been
restored to $107.4 million. As a result, Everest Re will receive $9.5 million
from Gibraltar in the first quarter of 2000. Pursuant to the Stop Loss
Agreement, Everest Re will continue to evaluate its reserves each quarter to
determine if additional cessions are appropriate.
During the first quarter of 1999, Gibraltar disputed $39.7 million ceded under a
1986 quota share reinsurance ("Direct Excess Retrocession") through which
Gibraltar assumed 100% of the liabilities related to Everest Re's former direct
excess insurance operations which ceased writing business in 1985. Gibraltar
then commenced an arbitration proceeding in accordance with the terms of the
Direct Excess Retrocession. Gibraltar disputed the level of reserves established
by Everest Re primarily reflecting reserves for asbestos losses and Everest Re's
right to determine these reserves, but Gibraltar did not dispute its
responsibility to pay the ultimate losses in accordance with the terms of the
Direct Excess Retrocession. As a result of the dispute, Gibraltar initially
failed to provide funds or security to Everest Re in order to secure Gibraltar's
payment obligations to Everest Re in accordance with the terms of the Direct
Excess Retrocession. However, throughout the remainder of 1999, Gibraltar has
provided substantially all of the required funding to Everest Re and Everest Re
and Gibraltar agreed to halt the arbitration proceeding and to postpone the
resolution of the remaining disputed issues. Management does not expect that
this dispute will have a material adverse effect on the Company's future
financial condition, results of operations or cash flows.
The Prudential has guaranteed all of Gibraltar's obligations under the Stop Loss
Agreement and up to $400.0 million of Gibraltar's net obligations under all
other reinsurance agreements between Gibraltar and Everest Re. At December 31,
1999, Gibraltar's net obligations under such other reinsurance agreements
consisted of the following balances:
Reinsurance receivables from Gibraltar $ 345.4
Reserve for losses and loss adjustment
expenses assumed from Gibraltar (151.0)
Losses in the course of payment assumed
from Gibraltar (4.1)
Funds held by Everest Re under reinsurance
treaties with Gibraltar (109.9)
----------
Net obligations of Gibraltar $ 80.4
==========
31
<PAGE>
In addition, since June 30, 1995, Gibraltar has paid $167.3 million to Everest
Re in respect of such other reinsurance agreements.
On February 24, 2000, Holdings announced an agreement with The Prudential
Insurance Company of America to acquire all of the issued and outstanding shares
of Gibraltar Casualty Company for approximately $52.0 million. Closing of the
acquisition will be subject to the satisfaction of customary closing conditions
and the receipt of regulatory approvals.
Upon the closing of the acquisition:
o Everest Re's current reinsurance contracts with Gibraltar, including the
Stop Loss Agreement, will remain in effect. However, these contracts will
become transactions with affiliates with the financial impact eliminated
through inter-company accounts.
o The Prudential Guarantees will be terminated and Prudential will be
released from its obligations.
o The PRUCO Surplus Maintenance Agreement will be terminated.
o The PRUCO Indemnity will be terminated and PRUCO will be released from it
obligations.
In connection with the acquisition, The Prudential will provide reinsurance to
Gibraltar covering 80% of the first $200.0 million of any adverse development in
Gibraltar's reserves. See also ITEM 1 - "Relationships with Gibraltar" for a
further discussion.
STOCKHOLDERS' EQUITY. The Company's stockholders' equity decreased to $1,327.5
million as of December 31, 1999 from $1,479.2 million as of December 31, 1998
principally reflecting an increase of $207.3 million in unrealized depreciation
of investments and $96.4 million in share repurchases relating to the Company's
stock repurchase plan, partially offset by an increase of $146.4 million in
retained earnings for the year. Stockholder's equity as of December 31, 1998
increased to $1,479.2 million from $1,307.5 million as of December 31, 1997
principally reflecting an increase of $155.1 million in retained earnings and an
increase of $37.2 million in unrealized appreciation of investments. Dividends
of $11.6 million, $10.1 million and $8.1 million were declared and paid by
Holdings in 1999, 1998 and 1997, respectively.
The Company's stockholders' equity of $1,327.5 million exceeded Everest Re's
statutory-basis surplus of $1,147.6 million by $179.9 million at December 31,
1999. The primary differences between GAAP and SAP as they relate to the Company
are: (i) the deferral of acquisition costs under GAAP, which are immediately
expensed under SAP; (ii) the provision for deferred taxes on temporary tax
differences under GAAP, which are excluded under SAP; and (iii) the carrying at
market value of fixed maturities available for sale under GAAP, as compared to
at amortized cost under SAP.
LIQUIDITY AND CAPITAL RESOURCES
EVEREST RE. Everest Re's liquidity requirements are met on both a short-term and
long-term basis by funds provided by premiums collected, investment income and
collected reinsurance receivables balances, and from the sale and maturity of
investments. Everest Re's net cash flows from operating activities were $203.4
million, $183.3 million and $376.4 million, in 1999, 1998 and 1997,
respectively. The decreases from 1997 in cash provided by operating activities
were principally a result of increases in net paid losses reflecting maturation
of the Company's loss reserves combined with the changes in the Company's mix of
business and modest, if any, growth in gross written premium, all of which may
affect growth in cash flow from operations in subsequent periods, offset by
improved profitability. Recoveries under the Company's Stop Loss Agreement with
Gibraltar contributed $79.0 million, $31.9 million and $99.8 million of such net
cash flows in 1999, 1998 and 1997, respectively.
Proceeds and applications from sales and acquisitions of investment assets were
$941.1 million and $1,068.4 million, respectively, in 1999 principally
reflecting normal portfolio management activity aimed at enhancing the Company's
portfolio yield, compared to $634.2 million and $755.3 million, respectively, in
1998 and $1,077.0 million and $1,482.8 million, respectively, in 1997. Everest
Re's current investment strategy seeks to maximize after-tax income through a
high quality, diversified, duration sensitive, taxable bond and tax-exempt
municipal bond portfolio, while maintaining an adequate level of liquidity.
EXPOSURE TO CATASTROPHES. As with other reinsurers, Everest Re's operating
results and financial condition can be adversely affected by volatile and
unpredictable natural and other disasters, such as hurricanes, windstorms,
earthquakes, floods, fires and explosions. Although Everest Re attempts to limit
its exposure to acceptable levels, it is possible that an actual catastrophic
event or multiple catastrophic events could have a material adverse effect on
the financial condition, results of operations and cash flows of the Company.
32
<PAGE>
Everest Re employs various techniques, including licensed software modeling, to
assess its accumulated exposure to property catastrophe losses and summarizes
that exposure in terms of the probable maximum loss ("PML"). The Company defines
PML as its anticipated maximum loss, taking into account contract limits, caused
by a single catastrophe affecting a broad contiguous geographic area, such as
that caused by a hurricane or earthquake of such a magnitude that it is expected
to occur once in every 100 years. Management estimates that the Company's
greatest catastrophe exposure worldwide from any single event is to hurricanes
and earthquakes in the coastal regions of the United States, where Everest Re
estimates it has a PML exposure, before reinsurance, of approximately $181.0
million in each such region based on its current book of business. Similarly,
management estimates that the largest current PML exposure, before reinsurance,
outside the United States is approximately $98.0 million. There can be no
assurance that Everest Re will not experience losses from one or more
catastrophic events that exceed, perhaps by a substantial amount, its estimated
PML.
The Company maintains a corporate-level retrocessional protection program, above
and beyond retrocessions purchased with respect to specific assumed coverage, to
mitigate the potential impact of catastrophe losses. The principal components of
the Company's retrocessional protection program as it relates to catastrophes
are an accident year aggregate excess of loss treaty and the retrocessional
excess of loss coverage of international exposures. During 1999, the Company
purchased an accident year aggregate excess of loss protection which provides up
to $175.0 million of coverage if Everest Re's statutory basis accident year loss
ratio exceeds a loss ratio attachment point provided in the contract for the
1999 accident year. For 2000, the Company has purchased a new accident year
aggregate excess of loss protection which provides up to $175.0 million of
coverage if Everest Re's statutory basis accident year loss ratio exceeds a loss
ratio attachment point provided in the contract for the 2000 accident year. The
Company's retrocessional protection program, for the period from May 15, 1999
through May 15, 2000, includes a catastrophe retrocession which provides
coverage of 70.0% of $20.0 million of losses per occurrence in excess of $10.0
million in losses incurred by the Company outside of the United States, provided
that the Company's net loss per occurrence is $15.0 million. For the period from
May 23, 1999 through May 23, 2000, the Company's catastrophe retrocession
program provides coverage of 85% of $20.0 million of losses per occurrence in
excess of $30.0 million in losses incurred by the Company outside of the United
States. All aspects of the retrocession program have been structured to permit
the program to be accounted for as reinsurance under SFAS No. 113. See ITEM 1 -
"Risk Management and Retrocession Arrangements" for further details.
If a single catastrophe were to occur in the United States that resulted in
$181.0 million of gross losses and allocated loss adjustment expenses ("ALAE")
in 2000 (an amount equivalent to Everest Re's PML), management estimates that
the effect (including additional premiums and retained losses and ALAE) on the
Company's income before taxes would be $91.8 million. This pre-tax net loss
estimate assumes that Everest Re's aggregate losses and ALAE for 2000 would
exceed the threshold loss ratio requirement in the aggregate excess of loss
cover by at least $175.0 million.
GROUP. Under Bermuda law, Group is prohibited from declaring or paying a
dividend if such payment would reduce the realizable value of its assets to an
amount less than the aggregate value of its liabilities and its issued share
capital and share premium (additional paid-in capital) accounts. Group's ability
to pay dividends and its operating expenses is dependent upon dividends from its
subsidiaries. The payment of such dividends by insurer subsidiaries is limited
under Bermuda and the United States laws in which Group's insurance and
reinsurance subsidiaries are licensed to transact business. The limitations are
generally based upon net income and compliance with applicable policyholders'
surplus or minimum solvency margin and liquidity ratio requirements as
determined in accordance with the relevant statutory accounting practices.
BERMUDA RE. Under Bermuda law, Bermuda Re is unable to declare or pay a dividend
if it fails to meet its minimum solvency margin or minimum liquidity ratio, or
if after payment of the dividend, it fails to meet its minimum solvency margin
or minimum liquidity ratio. As a long-term insurer, Bermuda Re is also 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, exceeds its liabilities for long-term
business by at least the $250,000 minimum solvency margin. Prior approval of the
Bermuda Minister of Finance is required if Bermuda Re's dividend payments would
reduce its prior year end total statutory capital by 15.0% or more.
HOLDINGS. Holdings is a holding company whose only material asset is the capital
stock of Everest Re. Holdings' cash flow consists primarily of dividends and
other permissible payments from Everest Re and borrowings under credit
facilities and offerings. Holdings depends upon such payments for funds for
general corporate purposes, including its debt and operating expense
obligations.
On December 21, 1999, Holdings entered into a three-year senior revolving
credit facility with a syndicate of lenders (the "Credit Facility"), which
replaced its prior credit facility which had been extended in June 1999
and increased from $50.0 million to $75.0 million on November 9, 1999.
First Union National Bank is the administrative agent for the Credit
Facility. The Credit Facility will be used for liquidity and
general corporate purposes and to refinance existing debt under
33
<PAGE>
Holdings' prior credit facility, which has been terminated. The Credit Facility
provides for the borrowing of up to $150.0 million with interest at a rate
selected by Holdings equal to either (i) the Base Rate (as defined below) or
(ii) an adjusted London InterBank Offered Rate ("LIBOR") plus a margin. The Base
Rate is the higher of the rate of interest established by First Union National
Bank from time to time as its prime rate or the Federal Funds rate plus 0.5% per
annum. The amount of margin and the fees payable for the Credit Facility depend
upon Holdings' senior unsecured debt rating or, if such is not available, on the
financial strength rating of the Holdings' subsidiary, Everest Re. Group has
guaranteed all of Holdings' obligations under the Credit Facility.
The Credit Facility agreement requires Holdings to maintain a debt to capital
ratio of not greater than 0.35 to 1, a minimum interest coverage ratio of 2.5 to
1 and to maintain Everest Re's statutory surplus at $850.0 million plus 25% of
future aggregate net income and 25% of future aggregate capital contributions.
Everest Re's statutory surplus was $1,147.6 million for the year ended December
31, 1999. Holdings' debt to capital ratio was 0.04 for the year ended December
31, 1999. Holdings' minimum interest coverage ratio was 3.5 for the year ended
December 31, 1999. At December 31, 1999 and 1998, Holdings had outstanding
borrowings of $59.0 million and $0.0 million, respectively. Interest expense
incurred in connection with these borrowings was $1.5 million based on a
weighted average interest rate of 5.8%, $0.0 million and $0.0 million for the
periods ending December 31, 1999, December 31, 1998 and December 31, 1997,
respectively.
On March 14, 2000, Holdings completed public offerings of $200 million principal
amount of 8.75% senior notes due March 15, 2010 and $250 million principal
amount of 8.50% senior notes due March 15, 2005. Holdings retained approximately
$50 million of the net proceeds for general corporate purposes. Approximately
$400 million of the net proceeds were distributed by Holdings to Group and
approximately $250 million were used by Group to capitalize Bermuda Re. The
remainder of the proceeds that were distributed to Group will be used for
general corporate purposes. See Note 15B of Notes to Consolidated Financial
Statements.
The payment of dividends to Holdings by Everest Re is subject to limitations
imposed by the Delaware Insurance Code. Based upon these restrictions, the
maximum amount that will be available for payment of dividends to Holdings by
Everest Re in 2000 without the prior approval of regulatory authorities is
$166.5 million. Everest Re's future cash flow available to Holdings may be
influenced by a variety of factors, including changes in the property and
casualty reinsurance market, Everest Re's financial results, insurance
regulatory changes and changes in general economic conditions. The availability
of such cash flow to Holdings could also be influenced by, among other things,
changes in the limitations imposed by the Delaware Insurance Code on the payment
of dividends by Everest Re. Holdings expects that, absent significant
catastrophe losses, such restrictions should not affect Everest Re's ability to
declare and pay dividends sufficient to support Holdings' general corporate
needs.
During 1999, 1998 and 1997, Holdings declared and paid dividends of $11.6
million, $10.1 million and $8.1 million, respectively.
On March 21, 1996, the Holdings' Board of Directors approved a stock repurchase
plan authorizing the repurchase of an aggregate amount of 2,500,000 shares of
common stock from time to time in open market transactions. During 1999,
Holdings' Board of Directors extended this authorization by an additional
4,400,000 shares, bringing the total authorization to 6,900,000 shares. During
1999, 3,553,000 shares were repurchased at an average price of $27.14 per share
compared with 516,900 shares at an average price of $33.68 per share in 1998. At
December 31, 1999, 2,830,100 shares remain under the existing repurchase
authorization. Group's Board of Directors has continued this stock repurchase
plan.
MARKET SENSITIVE INSTRUMENTS
The Securities and Exchange Commission Financial Reporting Release #48 requires
registrants to clarify and expand upon the existing financial statement
disclosure requirements for derivative financial instruments, derivative
commodity instruments, and other financial instruments (collectively, "market
sensitive instruments").
The Company's current investment strategy does not provide for investments in
derivative financial instruments or derivative commodity instruments. The
Company's current investment strategy seeks to maximize after-tax income through
a high quality, diversified, taxable and tax-exempt fixed maturity portfolio,
while maintaining an adequate level of liquidity. The Company's mix of taxable
and tax-preferenced investments is adjusted continuously, consistent with its
current and projected operating results, market conditions, and tax position.
The fixed maturities in the investment portfolio are comprised of non-trading
available for sale securities. Additionally, the Company invests in marketable
equity securities, which it believes will enhance the risk-adjusted total return
of the investment portfolio.
34
<PAGE>
The overall strategy considers the scope of present and anticipated Company
operations. In particular, estimates of the financial impact resulting from
non-investment asset and liability transactions, together with the Company's
capital structure and other factors, are used to develop a net liability
analysis. This analysis includes estimated payout characteristics for which the
investments of the Company provide liquidity. This analysis is considered in the
development of specific investment strategies for asset allocation, duration,
and credit quality.
The $4.1 billion investment portfolio is comprised of fixed maturity securities
that are subject to interest rate risk and foreign currency rate risk, and
equity securities that are subject to equity price risk. The impact of these
risks in the investment portfolio is generally mitigated by changes in the value
of operating assets and liabilities and their associated income statement
impact.
Interest rate risk is the potential change in value of the fixed maturity
portfolio due to change in market interest rates. Further, it includes
prepayment risk in a declining interest rate environment on the $337.8 million
of the $3.9 billion fixed maturity portfolio, which consists of mortgage-backed
securities. Prepayment risk results from accelerated principal payments that
shorten the average life and thus, the expected yield of the security.
The tables below display the potential impact of market value fluctuations and
after-tax unrealized appreciation on the fixed maturity portfolio as of December
31, 1999 and 1998 based on parallel 200 basis point shifts in interest rates up
and down in 100 basis point increments. For legal entities with a U.S. dollar
functional currency, this modeling was performed on each security individually.
To generate appropriate price estimates on mortgage-backed securities, changes
in prepayment expectations under different interest rate environments are taken
into account. For legal entities with a non-U.S. dollar functional currency, the
effective duration of the involved portfolio of securities was used as a proxy
for the market value change under the various interest rate change scenarios.
During the year, there was no material change in the fixed maturity portfolio
with respect to interest rate risk. All amounts are in millions of U.S.$.
<TABLE>
<CAPTION>
1999
INTEREST RATE SHIFT IN BASIS POINTS
- ----------------------------------------------------------------------------------------------
-200 -100 0 100 200
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Market Value $ 4,481.6 $ 4,210.8 $ 3,958.8 $ 3,724.0 $ 3,508.0
Market Value Change
from Base (%) 13.2% 6.4% 0.0% (5.9)% (11.4)%
Change in Unrealized
Appreciation After-tax
from Base ($) $ 339.8 $ 163.7 $ 0 $ (152.7) $ (293.0)
</TABLE>
<TABLE>
<CAPTION>
1998
INTEREST RATE SHIFT IN BASIS POINTS
- ----------------------------------------------------------------------------------------------
-200 -100 0 100 200
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Market Value $ 4,638.4 $ 4,381.9 $ 4,135.4 $ 3,892.0 $ 3,653.8
Market Value Change from
Base (%) 12.2% 6.0% 0.0% (5.9)% (11.7)%
Change in Unrealized
Appreciation After-tax
from Base ($) $ 326.9 $ 160.2 $ 0 $ (158.2) $ (313.0)
</TABLE>
Foreign currency rate risk is the potential change in value, income, and cash
flow arising from adverse changes in foreign currency exchange rates. The
Company's foreign operations each maintain capital in the currency of the
country of its geographic location consistent with local regulatory guidelines.
Generally, the Company prefers to maintain the capital of its foreign operations
in U.S. dollar assets although this varies by regulatory jurisdiction in
accordance with market needs. Each foreign operation may conduct business in its
local currency as well as the currency of other countries in which it operates.
The primary foreign currency exposures are the Canadian Dollar, the British
Pound Sterling and the Euro for these foreign operations. The Company mitigates
foreign exchange exposure by a general matching of the currency and duration of
its assets to its corresponding operating liabilities. In accordance with FAS
52, the Company translates the assets, liabilities and income of non-U.S. dollar
functional currency legal entities to the U.S. dollar. This translation amount
is reported as a component of other comprehensive income. The primary functional
foreign currency exposures are the Canadian Dollar, the Belgian Franc and the
British Pound Sterling for these foreign operations.
35
<PAGE>
The tables below display the potential impact of a parallel 20% increase and
decrease in foreign exchange rates on the valuation of invested assets subject
to foreign currency exposure in 10% increments as of December 31, 1999 and 1998.
This analysis includes the after-tax impact of translation from transactional
currency to functional currency as well as the after-tax impact of translation
from functional currency to the U.S. dollar reporting currency. During the year,
the Company redenominated all invested assets whose currency was one of the
eleven eligible currencies to be converted to the Euro. The impact of the Euro
conversion was not material to the Company's business, operations or financial
condition. All amounts are in millions of U.S.$.
<TABLE>
<CAPTION>
1999
CHANGE IN FOREIGN EXCHANGE RATES IN PERCENT
- ----------------------------------------------------------------------------------------------
-20% -10% 0% 10% 20%
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total After-tax Foreign
Exchange Exposure $ (44.9) $ (23.5) $ 0 $ 24.9 $ 51.0
</TABLE>
<TABLE>
<CAPTION>
1998
CHANGE IN FOREIGN EXCHANGE RATES IN PERCENT
- ----------------------------------------------------------------------------------------------
-20% -10% 0% 10% 20%
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total After-tax Foreign
ExchangeExposure $ (31.0) $ (17.5) $ 0 $ 20.4 $ 42.8
</TABLE>
Equity risk is the potential change in market value of the common stock and
preferred stock portfolios arising from changing equity prices. The Company
invests in predominately high quality preferred and common stocks that are
traded on the major exchanges in the United States. The primary objective in
managing the $90.7 million equity portfolio is to provide long-term capital
growth through market appreciation and income.
The tables below display the impact on market value and after-tax unrealized
appreciation of a 20% change in equity prices up and down in 10% increments as
of December 31, 1999 and 1998. During the year, there was no material change in
the equity portfolio with respect to equity risk. All amounts are in millions of
U.S.$.
<TABLE>
<CAPTION>
1999
CHANGE IN EQUITY VALUES IN PERCENT
- ----------------------------------------------------------------------------------------------
-20% -10% 0% 10% 20%
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Value of the
Equity Portfolio $ 72.6 $ 81.6 $ 90.7 $ 99.8 $ 108.8
After-tax Change in
Unrealized Appreciation (11.8) (5.9) 0 5.9 11.8
</TABLE>
<TABLE>
<CAPTION>
1998
CHANGE IN EQUITY VALUES IN PERCENT
- ----------------------------------------------------------------------------------------------
-20% -10% 0% 10% 20%
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Value of the
Equity Portfolio $ 117.0 $ 131.6 $ 146.3 $ 160.9 $ 175.5
After-tax Change in
Unrealized Appreciation (19.0) (9.5) 0 9.5 19.0
</TABLE>
YEAR 2000 ISSUES AND READINESS DISCLOSURE
YEAR 2000 ISSUES. Many computers, software programs and microprocessors embedded
in certain equipment (collectively, "systems") were designed to accommodate only
two-digit date fields to represent a given year (e.g., "99" represents 1999). It
is possible that such systems, if not modified or replaced, will not be able to
accurately process data containing information relating to dates before, during
or after the year 2000. It is also possible that such systems could fail
entirely, although in many instances the consequences of a system not being
"year 2000 compliant" are unknown. This "year 2000 issue" has the potential to
affect the Company through (i) the disruption of the processing of business and
general corporate transactions, both at the Company and between the Company and
other business entities with which it interacts, and (ii) claims which may be
brought asserting that costs associated with the issue may be covered under
insurance or reinsurance contracts in which the Company participates.
READINESS. The Company has been actively engaged in a project to mitigate the
potential effects of the year 2000 issue. For each segment of its internal
computer processing environment (mainframe, midrange and PC equipment), the
Company has a multi-phase plan that involves (a) the identification and
assessment of year 2000 compliance, (b) the design and development of remedies
(including the replacement of non-compliant systems if needed), (c) testing of
year 2000 readiness (d) the implementation of fully integrated year
2000-compliant processing and (e) the development of appropriate contingency
plans. The Company completed all year 2000 preparations on mission-critical
systems prior to January 1, 2000. No material performance problems were detected
in such systems on or after January 1, 2000, although the Company continues to
monitor its technology environment for compliance.
36
<PAGE>
The Company has continued to actively survey its significant business partners
(e.g., ceding companies) and service providers (e.g., banks) concerning their
compliance status. No material disruption in these services or relationships was
detected on or after January 1, 2000, although the Company continues to be
watchful for signs of year 2000 problems.
COSTS. The Company's historical and expected future costs to make its systems
year 2000 compliant are not material. The total expected out-of-pocket costs of
the year 2000 effort are approximately $0.6 million, all of which had been
incurred as of December 31, 1999. These figures include only expenses
specifically related to year 2000 compliance and do not include the cost of
hardware or software acquisitions made in the normal course of business.
RISKS. The Company does not rely on computer-dependent transactions to the same
extent as many other businesses. However, in the event that the Company's
internal processing environment could not be made year 2000-compliant, or in the
event that significant business partners or service providers or other business
entities experienced serious year 2000 problems, the Company could experience
disruption in its business. This disruption could conceivably take several
forms: (a) having to compile information and process transactions manually, (b)
if compliance problems persisted, impairing the Company's ability to receive
premiums from and make claim payments to its ceding companies, (c) impairing the
Company's ability to obtain information about its investments or (d) impairing
the value of the Company's fixed maturity and equity investments, if the
entities underlying those investments themselves have substantial year 2000
costs, liabilities or disruptions. Any or all of the types of possible
disruptions in such a "worst case scenario" could materially increase the cost
of doing business, could impair the Company's ability to make required
regulatory filings and could materially affect the Company's financial
condition, results of operations or liquidity. However, based upon the absence
of any material disruption having occurred on or after January 1, 2000 and
current information, the Company does not expect such scenarios to occur and
does not expect material disruption to its business.
CONTINGENCY PLANS. The Company has developed a contingency plan which addresses
how each business unit in its corporate office would continue to perform its
mission-critical functions in the event of a systems failure related to year
2000. The plan has been extended to its branch offices and will be reevaluated
and updated as needed.
POTENTIAL CLAIMS EXPOSURE. Individuals or entities which experience business
disruption, increased costs or other problems associated with the year 2000
issue may assert claims, which could be substantial, against their own insurance
carrier to recover such costs or against other entities for damages. These
carriers or entities may in turn assert that such potential damages are covered
by insurance. Although some such claims have been made, it is not yet possible
to determine the extent to which such claims will be made against insurers,
whether such claims will be held to have merit or whether any such claims may be
made against insurance or reinsurance contracts in which the Company
participates.
SAFE HARBOR DISCLOSURE
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Act"), the Company sets forth below
cautionary statements identifying important factors that, among others, in some
cases have affected and that could cause its actual results to differ materially
from those which might be projected, forecasted, or estimated in its
forward-looking statements, as defined in the Act, made by or on behalf of the
Company in press releases, written statements or documents filed with the
Securities and Exchange Commission, or in its communications and discussions
with investors and analysts in the normal course of business through meetings,
phone calls and conference calls. These cautionary statements supplement other
factors contained in this report which could cause the Company's actual results
to differ materially from those which might be projected, forecasted or
estimated in its forward-looking statements.
Such forward-looking statements may include, but are not limited to, projections
of premium revenue, investment income, other revenue, losses, expenses, earnings
(including earnings per share), cash flows, plans for future operations, common
stockholders' equity (including book value per share), investments, financing
needs, capital plans, dividends, plans relating to products or services of the
Company, and estimates concerning the effects of litigation or other disputes,
as well as assumptions for any of the foregoing and are generally expressed with
words such as "believes," "estimates," "expects," "anticipates," "plans,"
"projects," "forecasts," "goals," "could have," "may have" and similar
expressions. Undue reliance on any forward-looking statements should be avoided.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the Company's results to differ materially from
such forward-looking statements. Such risks, uncertainties and other factors
include, but are not limited to, the following:
1) Changes in the level of competition in the domestic and international
reinsurance or primary insurance markets that adversely affect the
volume or profitability of the Company's reinsurance or insurance
business. These changes include, but are not limited to, 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;
37
<PAGE>
2) Changes in the demand for reinsurance and insurance products of the
type offered by the Company and its ceding insurer customers;
3) The ability of the Company to execute its strategies;
4) Catastrophe losses in the Company's domestic or international
reinsurance or insurance business;
5) Adverse development on claim and claim expense liabilities related to
business written in prior years, including, but not limited to,
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;
6) Greater than expected loss ratios on reinsurance or insurance written
by the Company;
7) Changes in inflation that affect the profitability of the Company's
current reinsurance and insurance businesses or the adequacy of its
claim and claim expense liabilities;
8) Changes in the Company's retrocessional arrangements;
9) Lower than estimated retrocessional or reinsurance recoveries on
losses, including, but not limited to, losses due to a decline in the
creditworthiness of the Company's retrocessionaires or reinsurers;
10) Changes in the reinsurance/retrocessional market impacting the
Company's ability to cede risks above its desired level of retention.
11) Changes in interest rates, increases in which cause a reduction in the
market value of the Company's fixed income investment portfolio, and
its 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;
12) Decline in the value of the Company's common equity investments;
13) Changes in the composition of the Company's investment portfolio;
14) Gains or losses related to changes in foreign currency exchange rates;
15) Changes in the role of reinsurance brokers and the relationship of the
Company with such brokers;
16) Impact of year 2000 computer hardware, software and microprocessors
embedded in certain equipment issues on the Company's operations and
potential for year 2000 claims under reinsurance and insurance
contracts written by the Company;
17) Adverse results in litigation matters, including, but not limited to,
litigation related to environmental, asbestos and other potential mass
tort claims;
18) Changes in the Company's capital needs;
19) Changes in the Company's ratings;
20) The impact of current and future regulatory environments, generally,
and on the ability of the Company's subsidiaries to enter and exit
reinsurance or insurance markets;
21) Changes in the commission or brokerage levels that competitors are
willing to offer to ceding companies, brokers or agents;
22) Adverse changes in tax treatment of the Company's business, including
changes in tax treatment by the U.S., Bermuda or Barbados or other
regulatory or political organizations with jurisdiction or potential
jurisdiction over the Company or its affiliates;
23) Lack of success by Everest Bermuda in launching its start-up operation
in Bermuda;
24) Changes in the regulatory environment or regulatory challenges that
may restrict the ability of Everest Bermuda to conduct business;
25) Inability of Everest Bermuda to arrange security to back its
reinsurance; and
26) Inability of Everest Bermuda to execute its business plan because of
inability to provide it financing.
38
<PAGE>
In addition to the factors outlined above that are directly related to the
Company's businesses, the Company is also subject to general business risks,
including, but not limited to, adverse state, federal or foreign legislation and
regulation, adverse publicity or news coverage, changes in general economic
factors, and the loss of key employees.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Market Sensitive Instruments" in ITEM 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in the accompanying Index to
Financial Statements and Schedules on page F-1 are filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the sections captioned "Election of Directors",
"Information Concerning Nominees", "Information Concerning Continuing Directors
and Executive Officers" and "Compliance with Section 16(a) of the Exchange Act"
in the Company's proxy statement for the 2000 Annual General Meeting of
Shareholders, which will be filed with the Commission within 120 days of the
close of the Company's fiscal year ended December 31, 1999 (the "Proxy
Statement"), which sections are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the sections captioned "Directors' Compensation" and
"Compensation of Executive Officers" in the Proxy Statement, which are
incorporated herein by reference, except that the Compensation Committee Report
and the Performance Graph are not so incorporated.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the sections captioned "Common Share Ownership by Directors
and Executive Officers" and "Principal Holders of Common Shares" in the Proxy
Statement, which are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the section captioned "Certain Transactions with Directors"
in the Proxy Statement, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedules listed in the accompanying Index to
Financial Statements and Schedules on page F-1 are filed as part of this report.
EXHIBITS
The exhibits listed on the accompanying Index to Exhibits on page E-1 are filed
as part of this report.
REPORTS ON FORM 8-K
A report on Form 8-K dated December 28, 1999 was filed on December 28, 1999
reporting that Holdings entered into a three-year $150 million revolving credit
facility with a syndicate of lenders. A report on Form 8-K dated February 23,
2000 was filed on February 24, 2000 reporting the completion of a corporate
restructuring involving the Company and reporting that Holdings entered into an
agreement with The Prudential Insurance Company of America to acquire Gibraltar
Casualty Company. A report on Form 8-K, dated March 14, 2000 was filed on March
15, 2000 reporting that Holdings closed its offering of 8.5% Senior Notes due
March 15, 2005 and 8.75% Senior Notes due March 15, 2010.
39
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON MARCH 27, 2000.
EVEREST RE GROUP, LTD.
By: /s/ JOSEPH V. TARANTO
-------------------------------
JOSEPH V. TARANTO
(CHAIRMAN AND CHIEF EXECUTIVE OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ JOSEPH V. TARANTO Chairman and Chief March 27, 2000
- ----------------------------- Executive Officer
JOSEPH V. TARANTO and Director
/s/ STEPHEN L. LIMAURO Senior Vice President, March 27, 2000
- ----------------------------- Chief Financial Officer,
STEPHEN L. LIMAURO Treasurer and Comptroller
/s/ MARTIN ABRAHAMS Director March 27, 2000
- -----------------------------
MARTIN ABRAHAMS
/s/ KENNETH J. DUFFY Director March 27, 2000
- -----------------------------
KENNETH J. DUFFY
/s/ JOHN R. DUNNE Director March 27, 2000
- -----------------------------
JOHN R. DUNNE
/s/ THOMAS J. GALLAGHER Director March 27, 2000
- -----------------------------
THOMAS J. GALLAGHER
/s/ WILLIAM F. GALTNEY, JR. Director March 27, 2000
- -----------------------------
WILLIAM F. GALTNEY, JR.
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGES
-----
EVEREST REINSURANCE HOLDINGS, INC.
Reports of Independent Accountants on Financial
Statements and Schedules...............................................F-2
Consolidated Balance Sheets at December 31, 1999 and 1998...............F-3
Consolidated Statements of Operations and Comprehensive
Income for the years ended December 31, 1999, 1998 and 1997............F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997...................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................................F-6
Notes to Consolidated Financial Statements..............................F-7
SCHEDULES
I Summary of Investments Other Than Investments in
Related Parties at December 31, 1999...................................S-1
II Condensed Financial Information of Registrant:
Balance Sheets as of December 31, 1999 and 1998........................S-2
Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.......................................S-3
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................................S-4
III Supplementary Insurance Information as of December 31, 1999 and
1998 and for the years ended December 31, 1999, 1998 and 1997..........S-5
IV Reinsurance for the years ended December 31, 1999, 1998 and 1997........S-6
Schedules other than those listed above are omitted for the reason that they are
not applicable or the information is otherwise contained in the Financial
Statements.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Everest Reinsurance Holdings, Inc.
In our opinion, the consolidated financial statements listed in the index on
page F-1 of this Form 10-K present fairly, in all material respects, the
financial position of Everest Reinsurance Holdings, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedules listed in the
index on page F-1 of this Form 10-K present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 9, 2000
Except for Notes 1 and 15, as to which the date is
March 14, 2000
F-2
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
(Dollars in thousands, except par
value per share) 1999 1998
------------------------------
<S> <C> <C>
ASSETS:
Fixed maturities - available for
sale, at market value (amortized
cost: 1999, $3,940,625; 1998,
$3,851,051) $ 3,885,278 $ 4,100,575
Equity securities, at market value
(cost: 1999, $50,224; 1998,
$91,787) 90,693 146,274
Short-term investments 73,558 34,846
Other invested assets 27,482 4,736
Cash 62,227 39,326
------------------------------
Total investments and cash 4,139,238 4,325,757
Accrued investment income 64,898 64,220
Premiums receivable 294,941 261,488
Reinsurance receivables 742,513 981,959
Funds held by reinsureds 157,237 200,302
Deferred acquisition costs 82,713 70,753
Prepaid reinsurance premiums 9,582 8,592
Deferred tax asset 188,326 62,237
Other assets 24,854 21,420
------------------------------
TOTAL ASSETS $ 5,704,302 $ 5,996,728
==============================
LIABILITIES:
Reserve for losses and
adjustment expenses $ 3,646,992 $ 3,800,041
Unearned premium reserve 308,563 284,640
Funds held under reinsurance
treaties 178,520 195,169
Losses in the course of
payment 67,065 64,630
Contingent commissions 58,169 111,344
Other net payable to reinsurers 13,217 18,731
Current federal income taxes (4,475) (581)
Revolving credit agreement
borrowings 59,000 -
Other liabilities 49,769 43,550
------------------------------
Total liabilities 4,376,820 4,517,524
------------------------------
Commitments and contingencies
(Note 11)
STOCKHOLDERS' EQUITY:
Preferred stock, par value: $0.01;
50 million shares authorized; no
shares issued and outstanding
(includes 0.2 million shares
of Series A Junior Preferred Stock) - -
Common stock, par value: $0.01; 200
million shares authorized; 50.9
million shares issued in 1999
and 1998 509 509
Additional paid-in capital 390,912 390,559
Unearned compensation (109) (240)
Accumulated other comprehensive
income, net of deferred income
taxes benefit of $9.1 million in
1999 and deferred income taxes of
$99.8 million in 1998 (16,701) 185,518
Retained earnings 1,074,941 928,500
Treasury stock, at cost; 4.4 million
shares in 1999 and 0.9 million
shares in 1998 (122,070) (25,642)
------------------------------
Total stockholders' equity 1,327,482 1,479,204
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 5,704,302 $ 5,996,728
==============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
(Dollars in thousands, except per
share amounts) 1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
REVENUES:
Premiums earned $ 1,071,451 $ 1,068,010 $ 1,049,847
Net investment income 252,999 244,909 228,546
Net realized capital
(loss)/gain (16,760) (765) 15,916
Other (loss)/income (1,030) 3,046 4,880
-----------------------------------------
1,306,660 1,315,200 1,299,189
-----------------------------------------
CLAIMS AND EXPENSES:
Incurred losses and
loss adjustment expenses 771,570 778,404 765,421
Commission, brokerage,
taxes and fees 285,957 274,559 274,796
Other underwriting expenses 48,263 49,561 51,672
Non-recurring restructure
expenses 2,798 - -
Interest expense 1,490 - -
-----------------------------------------
1,110,078 1,102,524 1,091,889
-----------------------------------------
INCOME BEFORE TAXES 196,582 212,676 207,300
Income tax 38,521 47,479 52,345
-----------------------------------------
NET INCOME $ 158,061 $ 165,197 $ 154,955
=========================================
Other comprehensive (loss)/
income, net of tax (202,219) 33,199 74,907
-----------------------------------------
COMPREHENSIVE (LOSS)/INCOME $ (44,158) $ 198,396 $ 229,862
=========================================
PER SHARE DATA:
Average shares outstanding
(000's) 48,509 50,374 50,476
Net income per common
share - basic $ 3.26 $ 3.28 $ 3.07
=========================================
Average diluted shares
outstanding (000's) 48,686 50,665 50,765
Net income per common
share - diluted $ 3.25 $ 3.26 $ 3.05
=========================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
(Dollars in thousands, except
per share amounts) 1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
COMMON STOCK (SHARES OUTSTANDING):
Balance, beginning of period 49,989,204 50,479,271 50,490,273
Issued during the period 17,400 34,436 22,600
Treasury stock acquired during
period (3,554,047) (529,040) (37,287)
Treasury stock reissued during
period 5,260 4,537 3,685
-----------------------------------------
Balance, end of period 46,457,817 49,989,204 50,479,271
=========================================
COMMON STOCK (PAR VALUE):
Balance, beginning of period $ 509 $ 508 $ 508
Issued during the period - 1 -
-----------------------------------------
Balance, end of period 509 509 508
-----------------------------------------
ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period 390,559 389,876 389,196
Common stock issued during the
period 317 610 636
Treasury stock reissued during
period 36 73 44
-----------------------------------------
Balance, end of period 390,912 390,559 389,876
-----------------------------------------
UNEARNED COMPENSATION:
Balance, beginning of period (240) (514) (374)
Net increase (decrease) during
the period 131 274 (140)
-----------------------------------------
Balance, end of period (109) (240) (514)
-----------------------------------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME, NET OF DEFERRED INCOME
TAXES:
Balance, beginning of period 185,518 152,319 77,412
Net increase (decrease) during
the period (202,219) 33,199 74,907
-----------------------------------------
Balance, end of period (16,701) 185,518 152,319
-----------------------------------------
RETAINED EARNINGS:
Balance, beginning of period 928,500 773,380 626,501
Net income 158,061 165,197 154,955
Dividends declared ( $0.24 per
share in 1999, $0.20 per
share in 1998 and $0.16 per
share in 1997) (11,620) (10,077) (8,076)
-----------------------------------------
Balance, end of period 1,074,941 928,500 773,380
-----------------------------------------
TREASURY STOCK AT COST:
Balance, beginning of period (25,642) (8,086) (7,220)
Treasury stock acquired during
period (96,551) (17,663) (953)
Treasury stock reissued during
period 123 107 87
-----------------------------------------
Balance, end of period (122,070) (25,642) (8,086)
-----------------------------------------
TOTAL STOCKHOLDERS' EQUITY, END
OF PERIOD $ 1,327,482 $ 1,479,204 $ 1,307,483
=========================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
(Dollars in thousands) 1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 158,061 $ 165,197 $ 154,955
Adjustments to reconcile net
income to net cash provided
by operating activities:
(Increase) in premiums
receivable (36,179) (4,466) (30,867)
Decrease (increase) in funds
held by reinsureds, net 23,007 (7,766) (1,065)
Decrease (increase) in
reinsurance receivables 239,763 (289,908) 56,544
(Increase) decrease in
deferred tax asset (17,169) (2,532) 10,451
(Decrease) increase in reserve
for losses and loss
adjustment expenses (133,706) 359,178 202,191
Increase (decrease) in unearned
premiums 25,077 (52,757) (16,970)
(Increase) decrease in other
assets and liabilities (67,106) 16,949 17,706
Non cash compensation expense 131 274 (140)
Accrual of bond discount/
amortization of bond premium (5,203) (1,617) (500)
Realized capital losses (gains) 16,760 765 (15,916)
-----------------------------------------
Net cash provided by operating
activities 203,436 183,317 376,389
-----------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from fixed maturities
matured/called - held to maturity - - 2,155
Proceeds from fixed maturities
matured/called - available
for sale 205,669 162,514 132,231
Proceeds from fixed maturities
sold - available for sale 665,873 373,327 880,189
Proceeds from equity securities
sold 69,397 50,508 59,494
Proceeds from other invested
assets sold 181 7,605 1,368
Cost of fixed maturities acquired
- available for sale (990,369) (731,500) (1,413,516)
Cost of equity securities acquired (16,643) (22,350) (45,825)
Cost of other invested assets
acquired (23,109) (935) -
Net (purchases) sales of
short-term securities (38,200) 40,273 (23,422)
Net (decrease) increase in
unsettled securities transactions (47) (499) 1,533
-----------------------------------------
Net cash (used in) investing
activities (127,248) (121,057) (405,793)
-----------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Acquisition of treasury stock
net of reissuances (96,392) (17,483) (822)
Common stock issued during the
period 317 610 636
Dividends paid to stockholders (11,620) (10,077) (8,076)
Net borrowings on revolving
credit agreement 59,000 - -
Net increase (decrease) in
collateral for loaned
securities - (47,119) 47,119
-----------------------------------------
Net cash (used in) provided by
financing activities (48,695) (74,069) 38,857
-----------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (4,592) (443) (10,470)
-----------------------------------------
Net increase (decrease) in cash 22,901 (12,252) (1,017)
Cash, beginning of period 39,326 51,578 52,595
-----------------------------------------
Cash, end of period $ 62,227 $ 39,326 $ 51,578
=========================================
Supplemental cash flow
information
Cash transactions:
Income taxes paid, net $ 59,586 $ 65,659 $ 53,645
Interest paid $ 1,384 $ - $ -
Non-cash financing
transaction:
Issuance of common stock $ 131 $ 274 $ (140)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BUSINESS AND BASIS OF PRESENTATION
Everest Re Group, Ltd. ("Group"), a Bermuda company, was established in 1999 as
a wholly-owned subsidiary of Everest Reinsurance Holdings, Inc. ("Holdings"). On
February 24, 2000, a corporate restructuring was completed and Group became the
new parent holding company of Holdings. Holders of Holdings' common stock
automatically became holders of the same number of Group common shares. Prior to
the restructuring, Group had no significant assets or capitalization and had not
engaged in any business or prior activities other than in connection with the
restructuring. Group, through its subsidiaries, principally provides property
and casualty reinsurance and insurance in the United States and internationally.
As used in this document, the "Company" means Group and its subsidiaries, except
when referring to periods prior to February 24, 2000, when it means Holdings and
its subsidiaries.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United States.
The statements include the following domestic and foreign direct and indirect
subsidiaries of Holdings: Group, Everest Re Merger Corporation, Everest
Reinsurance Company ("Everest Re"), Everest National Insurance Company ("Everest
National"), Everest Indemnity Insurance Company ("Everest Indemnity"), Everest
Re Holdings, Ltd. ("Everest Ltd."), a Bermuda domiciled successor company of
Everest Re Ltd. (the assets of which funded Everest Ltd. and which was formerly
known as Everest Reinsurance Ltd.) and Everest Insurance Company of Canada
("Everest Canada"). They also include Mt. McKinley Managers, L.L.C. ("Mt.
McKinley"), which was formed by Holdings and Everest National in 1997 as an
insurance producer and which acquired in 1998 the assets of certain agency
operations in Alabama and Georgia which now operate as Workcare Southeast, Inc.
("Workcare Southeast") and Workcare Southeast of Georgia, Inc. ("Workcare
Georgia"). Everest National also acquired an agency operation in Texas,
Workcare, Inc. The acquisition price of these three agency operations was $2.9
million and the transaction occurred on July 1, 1998. These acquisitions have
been accounted for by the purchase method. All material intercompany balances
and transactions have been eliminated in consolidation. All amounts are
reported in U.S. dollars.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities (and disclosure of
contingent assets and liabilities) at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. INVESTMENTS
Fixed maturity investments are classified as available for sale. Unrealized
appreciation and depreciation, as a result of temporary changes in market value
during the period, are reflected in "accumulated other comprehensive income" net
of income taxes in stockholders' equity. Unrealized losses, which are deemed
other than temporary, are charged to net income. Short-term investments are
stated at cost, which approximates market value. Equity securities are carried
at market value with unrealized appreciation or depreciation, net of applicable
deferred income tax, credited or charged directly to stockholder's equity.
Realized gains or losses on sale of investments are determined on the basis of
identified cost. With respect to securities which are not publicly traded,
market value has been determined based on pricing models. For publicly traded
securities, market value is based on quoted market prices. Other invested assets
include limited partnerships and rabbi trusts. The limited partnerships are
valued pursuant to the equity method of accounting, which approximates market
value. The Supplemental Retirement Plan rabbi trust is carried at market value,
while the Deferred Compensation Plan rabbi trust and Supplemental Savings Plan
rabbi trust are carried at cost. Cash includes cash and bank time deposits with
original maturities of ninety days or under.
C. UNCOLLECTIBLE REINSURANCE BALANCES
The Company provides reserves for uncollectible reinsurance balances based on
management's assessment of the collectibility of the outstanding balances. Such
reserves were $25.3 million at December 31, 1999 and $25.1 million at December
31, 1998. See also Note 7.
F-7
<PAGE>
D. DEFERRED ACQUISITION COSTS
Acquisition costs, consisting principally of commissions and brokerage expenses
and certain premium taxes and fees associated with the Company's primary
insurance business incurred at the time a contract or policy is issued, are
deferred and amortized over the period in which the related premiums are earned,
generally one year. Deferred policy acquisition costs are limited to their
estimated realizable value based on the related unearned premiums, anticipated
claims and claim expenses and anticipated investment income. Deferred
acquisition costs amortized to income were $280.3 million, $269.2 million and
$270.6 million in 1999, 1998 and 1997, respectively.
E. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVE
The reserve for unpaid losses and loss adjustment expenses is based on
individual case estimates and reports received from ceding companies. A
provision is included for losses and loss adjustment expenses incurred but not
reported ("IBNR") based on past experience. A provision is also included for
certain potential liabilities relating to asbestos and environmental exposures,
which liabilities cannot be estimated with traditional reserving techniques. See
also Note 11. The reserves are reviewed continually and any changes in estimates
are reflected in earnings in the period the adjustment is made. Management
believes that adequate provision has been made for the Company's loss and loss
adjustment expenses. Loss and loss adjustment expense reserves are presented
gross of reinsurance receivables and incurred losses and loss adjustment
expenses are presented net of ceded reinsurance.
Accruals for contingent commission liabilities are established for reinsurance
contracts that provide for the stated commission percentage to increase or
decrease based on the loss experience of the contract. Changes in the estimated
liability for such arrangements are recorded as contingent commissions. Accruals
for contingent commission liabilities are determined through the review of the
contracts that have these adjustable features and are estimated based on
expected loss and loss adjustment expenses.
F. PREMIUM REVENUES
Premiums written are earned ratably over the periods of the related insurance
and reinsurance contracts or policies. Unearned premium reserves are established
to cover the remainder of the unexpired contract period. Such reserves are
established based upon reports received from ceding companies or computed using
pro rata methods based on statistical data. Written and earned premiums, and the
related costs, which have not yet been reported to the Company are estimated and
accrued. Premiums are net of retrocessions (ceded reinsurance).
G. INCOME TAXES
The Company and its subsidiaries, where required, file their own federal tax
returns and calculate their current tax provisions accordingly. Deferred income
taxes have been recorded to recognize the tax effect of temporary differences
between the financial reporting and income tax bases of assets and liabilities.
Current tax liabilities were determined for individual companies based upon
their separate return basis taxable income. Members with taxable income incurred
an amount in lieu of the separate return basis federal tax. Members with a loss
for tax purposes recognized a current benefit in proportion to the amount of
their losses utilized in computing consolidated taxable income.
H. FOREIGN CURRENCY TRANSLATION
Assets and liabilities relating to foreign operations are translated into U.S.
dollars at the exchange rates in effect at the balance sheet date; revenues and
expenses are translated into U.S. dollars using average exchange rates. Gains
and losses resulting from translating foreign currency financial statements, net
of deferred income taxes, are excluded from net income and accumulated in
stockholder's equity.
F-8
<PAGE>
I. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common shares were exercised or converted into common shares or resulted
in the issuance of common shares that then shared in the earnings of the entity.
Net income per common share has been computed below in accordance with SFAS No.
128, based upon weighted average common and dilutive shares outstanding.
<TABLE>
<CAPTION>
(Dollar values in thousands
except per share amounts) 1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Net income (numerator) $ 158,061 $ 165,197 $ 154,955
========================================
Weighted average common and
effect of dilutive shares
used in the computation of
net income per share:
Average shares outstanding
- basic (denominator) 48,509 50,374 50,476
Effect of dilutive shares 177 291 289
----------------------------------------
Average shares outstanding
- diluted (denominator) 48,686 50,665 50,765
========================================
Net income per common share:
Basic $ 3.26 $ 3.28 $ 3.07
Diluted $ 3.25 $ 3.26 $ 3.05
</TABLE>
Options to purchase 1,339,451 common shares at prices ranging from $23.94 to
$39.16 per share, 738,600 common shares at prices ranging from $37.41 to $39.16
per share and 337,750 common shares at $39.16 per share were outstanding at the
end of 1999, 1998 and 1997, respectively, but were not included in the
computation of earnings per diluted share for the respective years, because the
options' exercise price was greater than the average market price of the common
shares at the end of such years. The options, which expire between June 10, 2006
and April 1, 2009, September 26, 2007 and September 25, 2008 and September 26,
2007, respectively, were still outstanding at the end of 1999 with the exception
of 12,900 and 32,500 shares, which were not included in the computation at the
end of 1998 and 1997, respectively.
J. SEGMENTATION
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This statement establishes standards for
the way a public enterprise reports information about its operating segments in
its financial statements. The Company, through its subsidiaries, operates in
five segments: U.S. Broker Treaty, U.S. Direct Treaty Reinsurance and Insurance,
U.S. Facultative, Marine, Aviation and Surety and International. The segments
reported in 1999 have changed from what was reported in 1998. The presentation
of segments for 1998 and 1997 has been modified to conform to the 1999
presentation. See also Note 14
K. FUTURE APPLICATION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement requires all derivatives to be
recognized as either assets or liabilities in the statement of financial
position and to be measured at fair value. This statement has been subsequently
deferred to be effective for all periods beginning after June 15, 2000.
Management believes that the statement will not have a material impact on the
financial position of the Company.
F-9
<PAGE>
2. INVESTMENTS
The amortized cost, market value, and gross unrealized appreciation and
depreciation of fixed maturity investments and equity securities are presented
in the tables below:
<TABLE>
<CAPTION>
(Dollar values in thousands) Amortized Unrealized Unrealized Market
Cost Appreciation Depreciation Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
As of December 31, 1999
Fixed maturities - available
for sale
U.S. Treasury securities
and obligations of U.S.
government agencies and
corporations $ 135,461 $ 501 $ 1,505 $ 134,457
Obligations of states and
political subdivisions 2,066,456 37,893 76,346 2,028,003
Corporate securities 877,803 1,642 30,390 849,055
Mortgage-backed securities 337,387 2,318 1,921 337,784
Foreign government securities 250,644 11,932 444 262,132
Foreign corporate securities 272,874 4,491 3,518 273,847
-------------------------------------------------------
Total fixed maturities $ 3,940,625 $ 58,777 $ 114,124 $ 3,885,278
=======================================================
Equity securities $ 50,224 $ 41,555 $ 1,086 $ 90,693
=======================================================
As of December 31, 1998
Fixed maturities - available
for sale
U.S. Treasury securities
and obligations of U.S.
government agencies and
corporations $ 151,976 $ 7,644 $ 4 $ 159,616
Obligations of states and
political subdivisions 1,982,490 134,411 470 2,116,431
Corporate securities 839,892 46,444 5,682 880,654
Mortgage-backed securities 388,843 20,171 68 408,946
Foreign government securities 241,310 29,744 - 271,054
Foreign corporate securities 246,540 17,547 213 263,874
-------------------------------------------------------
Total fixed maturities $ 3,851,051 $ 255,961 $ 6,437 $ 4,100,575
=======================================================
Equity securities $ 91,787 $ 54,748 $ 261 $ 146,274
=======================================================
</TABLE>
The amortized cost and market value of fixed maturities are shown in the
following table by contractual maturity. Mortgage-backed securities generally
are more likely to be prepaid than other fixed maturites. As the stated maturity
of such securities may not be indicative of actual maturities, the total for
mortgage-backed securities is shown separately.
<TABLE>
<CAPTION>
December 31, 1999,
--------------------------------
Amortized Market
(Dollar values in thousands) Cost Value
--------------------------------
<S> <C> <C>
Fixed maturities - available
for sale
Due in one year or less $ 100,615 $ 98,092
Due after one year through
five years 536,519 547,022
Due after five years through
ten years 1,484,449 1,501,727
Due after ten years 1,481,655 1,400,653
Mortgage-backed securities 337,387 337,784
--------------------------------
TOTAL $ 3,940,625 $ 3,885,278
================================
</TABLE>
Proceeds from sales of fixed maturity investments during 1999, 1998 and 1997
were $665.9 million, $373.3 million and $880.2 million, respectively. Gross
gains of $0.9 million, $6.3 million and $6.8 million, and gross losses of $28.5
million, $6.6 million and $9.4 million were realized on those sales during 1999,
1998 and 1997, respectively.
F-10
<PAGE>
The changes in net unrealized gains (losses) of investments of the Company
(including unrealized gains and losses on fixed maturities not reflected in
stockholders' equity) are derived from the following sources:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
(Dollar values in thousands) 1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Increase (decrease) during the
period between the market
value and cost of investments
carried at market value, and
deferred tax thereon:
Equity securities $ (14,018) $ 16,212 $ 6,361
Fixed maturities (304,872) 41,034 120,764
Other invested assets (42) - -
Deferred taxes 111,626 (20,036) (44,494)
----------------------------------------
Increase (decrease) in unrealized
appreciation, net of deferred
taxes, included in stockholders'
equity (207,306) 37,210 82,631
Increase (decrease) during the
period between the market value
and cost of fixed maturities
carried at amortized cost - - (7,852)
----------------------------------------
TOTAL $ (207,306) $ 37,210 $ 74,779
========================================
</TABLE>
The components of net investment income are presented in the table below:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
(Dollar values in thousands) 1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ 256,067 $ 249,382 $ 232,779
Equity securities 3,796 4,601 4,473
Short-term securities 3,702 2,849 3,435
Other interest income 1,652 3,273 2,582
----------------------------------------------
Total gross investment income 265,217 260,105 243,269
----------------------------------------------
Interest on funds held 9,133 11,983 11,173
Other investment expenses 3,085 3,213 3,550
----------------------------------------------
Total investment expenses 12,128 15,196 14,723
----------------------------------------------
Total net investment income $ 252,999 $ 244,909 $ 228,546
==============================================
</TABLE>
The components of realized capital (losses) gains are presented in the table
below:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
(Dollar values in thousands) 1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ (27,615) $ (287) $ (2,673)
Equity securities 10,836 (455) 18,572
Short-term investments 19 (23) 17
----------------------------------------------
TOTAL $ (16,760) $ (765) $ 15,916
==============================================
</TABLE>
Securities with a carrying value amount of $256.4 million at December 31, 1999
were on deposit with various state or governmental insurance departments in
compliance with insurance laws.
F-11
<PAGE>
3. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity in the reserve for losses and loss adjustment expenses is summarized as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
(Dollar values in thousands) 1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Reserves at January 1 $ 3,800,041 $ 3,437,818 $ 3,246,858
Less reinsurance recoverables 915,741 688,694 746,640
----------------------------------------------
Net balance at January 1 2,884,300 2,749,124 2,500,218
----------------------------------------------
Incurred related to:
Current year 806,930 752,349 768,597
Prior years (35,360) 26,055 (3,176)
----------------------------------------------
Total incurred losses and
loss adjustment expenses 771,570 778,404 765,421
----------------------------------------------
Paid related to:
Current year 252,407 192,404 185,310
Prior years 484,251 450,824 331,205
----------------------------------------------
Total paid losses and loss
adjustment expenses 736,658 643,228 516,515
----------------------------------------------
Net balance at December 31 2,919,212 2,884,300 2,749,124
Plus reinsurance recoverables 727,780 915,741 688,694
----------------------------------------------
Balance at December 31 $ 3,646,992 $ 3,800,041 $ 3,437,818
==============================================
</TABLE>
Prior year incurred losses decreased by $35.4 million in 1999, increased by
$26.1 million in 1998 and decreased by $3.2 million in 1997. These changes were
the result of normal reserve development inherent in the uncertainty in
establishing loss and LAE reserves, as well as the impact of foreign exchange
rate fluctuations on loss reserves and changes in the Company's coinsurance
under the Stop Loss Agreement. See also Note 7.
4. CREDIT LINE
On December 21, 1999, Holdings entered into a three-year senior revolving credit
facility with a syndicate of lenders (the "Credit Facility"). First Union
National Bank is the administrative agent for the Credit Facility. The Credit
Facility will be used for liquidity and general corporate purposes and to
refinance existing debt under Holdings' prior credit facility, which has been
terminated. The Credit Facility provides for the borrowing of up to $150.0
million with interest at a rate selected by the Company equal to either (i) the
Base Rate (as defined below) or (ii) an adjusted London InterBank Offered Rate
("LIBOR") plus a margin. The Base Rate is the higher of the rate of interest
established by First Union National Bank from time to time as its prime rate or
the Federal Funds rate plus 0.5% per annum. The amount of margin and the fees
payable for the Credit Facility depend upon Holdings' senior unsecured debt
rating or, if such is not available, on the financial strength rating of
Holdings' subsidiary, Everest Re. Group has guaranteed all of Holdings'
obligations under the Credit Facility.
The Credit Facility agreement requires Holdings to maintain a debt to capital
ratio of not greater than 0.35 to 1, a minimum interest coverage ratio of 2.5 to
1 and to maintain Everest Re's statutory surplus at $850.0 million plus 25% of
future aggregate net income and 25% of future aggregate capital contributions.
Everest Re's statutory surplus was $1,147.6 million for the year ended December
31, 1999. Holdings' debt to capital ratio was 0.04 for the year ended December
31, 1999. Holdings' minimum interest coverage ratio was 3.5 for the year ended
December 31, 1999.
As of December 31, 1999 and 1998, Holdings had outstanding borrowings of $59.0
million and $0.0 million, respectively. Interest expense incurred in connection
with these borrowings was $1.5 million based on a weighted average interest rate
of 5.8%, $0.0 million and $0.0 million for the periods ending December 31, 1999,
December 31, 1998 and December 31, 1997, respectively.
F-12
<PAGE>
5. OPERATING LEASE AGREEMENTS
The future minimum rental commitments, exclusive of cost escalation clauses, at
December 31, 1999 for all of the Company's operating leases with remaining
non-cancelable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
(Dollar values in thousands)
<S> <C>
2000 $ 4,192
2001 4,224
2002 3,768
2003 3,046
2004 365
Thereafter 366
--------
Total payments 15,961
Sublease income 2,887
--------
Net commitments $ 13,074
========
</TABLE>
All of these leases, the expiration terms of which range from 2000 to 2008, are
for the rental of office space. Rental expense, net of sublease rental income,
was $4.2 million, $5.3 million and $4.9 million for 1999, 1998 and 1997,
respectively.
6. INCOME TAXES
The components of income taxes for the periods presented are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
(Dollar values in thousands) 1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Current tax:
U.S. $ 53,076 $ 44,341 $ 18,892
Foreign 2,615 8,854 23,000
----------------------------------------
Total current tax 55,691 53,195 41,892
Total deferred U.S. tax (benefit) (17,170) (5,716) 10,453
----------------------------------------
Total income tax $ 38,521 $ 47,479 $ 52,345
========================================
</TABLE>
A reconciliation of the U.S. federal income tax rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
Increase (reduction) in taxes
resulting from:
Tax exempt income (17.5) (14.8) (12.1)
Other, net 2.1 2.1 2.4
----------------------------------------
Effective tax rate 19.6% 22.3% 25.3%
========================================
</TABLE>
F-13
<PAGE>
Deferred income taxes reflect the tax effect of the temporary differences
between the value of assets and liabilities for financial statement purposes and
such values as measured by the tax laws and regulations. The principal items
making up the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
(Dollar values in thousands) 1999 1998
-----------------------------
<S> <C> <C>
Deferred tax assets:
Reserve for losses and loss
adjustment expenses $ 189,640 $ 164,894
Unearned premium reserve 20,929 19,323
Foreign currency translation 3,899 6,637
Net operating loss carryforward 1,976 1,401
Other assets 8,833 6,505
Net unrealized depreciation
of investments 5,222 -
-----------------------------
Total deferred tax assets 230,499 198,760
-----------------------------
Deferred tax liabilities:
Deferred acquisition costs 28,949 24,764
Net unrealized appreciation
of investments - 106,404
Other liabilities 13,224 5,355
-----------------------------
Total deferred tax liabilities 42,173 136,523
-----------------------------
Net deferred tax assets $ 188,326 $ 62,237
=============================
</TABLE>
Holdings and other non-insurance companies have total net operating loss
carryforwards of $5.6 million which expire during years 2001-2020. Management
believes that it is more likely than not that the Company will realize the
benefits of its net deferred tax assets and, accordingly, no valuation allowance
has been recorded for the periods presented.
7. RETROCESSIONS
The Company utilizes retrocessional (reinsurance) agreements to reduce its
exposure to large claims and catastrophic loss occurrences. These agreements
provide for recovery from retrocessionaires of a portion of losses and loss
expenses under certain circumstances without relieving the insurer of its
obligation to the policyholder. Losses and loss adjustment expenses incurred and
earned premiums are after deduction for retrocessions. In the event
retrocessionaires were unable to meet their obligations under retrocession
agreements, the Company would not be able to realize the full value of the
reinsurance recoverable balances. The Company may hold partial collateral,
including letters of credit, under these agreements and has never suffered a
significant loss because of a retrocessionaire's default. See Note 1(C).
Effective October 5, 1995, Everest Re entered into a stop loss agreement (the
"Stop Loss Agreement") with Gibraltar Casualty Company ("Gibraltar"). This
agreement, for a premium of $140.0 million, provides protection against 100% of
the first $150.0 million of adverse development, if any, and 90% of the next
$250.0 million of adverse development, if any, of Everest Re's consolidated
reserves for losses and uncollectible reinsurance as of June 30, 1995, including
allocated loss adjustment expense and incurred but not reported losses, provided
that adverse development, if any, relating to catastrophes will be covered only
to the extent that the catastrophe event occurred prior to January 1, 1995. All
such adverse development is referred to herein as "Adverse Development".
Payments will be made to Everest Re under the Stop Loss Agreement as Adverse
Development is incurred by Everest Re. Coverage under the Stop Loss Agreement
terminates on December 31, 2007, or earlier if coverage is exhausted. Through
December 31, 1999 and 1998, cessions under the Stop Loss Agreement have
aggregated $285.6 million and $339.2 million, respectively, yielding remaining
limits, net of coinsurance, of $89.4 million and $35.8 million at December 31,
1999 and 1998, respectively.
F-14
<PAGE>
The Prudential has, subject to the terms and conditions of the guarantee,
guaranteed all of Gibraltar's payment obligations under the Stop Loss Agreement
and up to $400.0 million of Gibraltar's net payment obligations under all other
reinsurance agreements between Gibraltar and Everest Re, $167.3 million of which
has been discharged by loss payments made to the Company subsequent to June 30,
1995. See Note 15(C). At December 31, 1999, Gibraltar's net obligations under
such other reinsurance agreements consisted of the following balances:
<TABLE>
<CAPTION>
(Dollar values in thousands)
<S> <C>
Reinsurance receivables from Gibraltar $ 345,399
Reserve for losses and loss adjustment
expenses assumed from Gibraltar (151,058)
Losses in the course of payment assumed
from Gibraltar (4,090)
Funds held by Everest Re under reinsurance
treaties with Gibraltar (109,897)
---------
Net obligations of Gibraltar $ 80,354
=========
</TABLE>
During the first quarter of 1999, Gibraltar disputed $63.0 million ceded under
the Stop Loss Agreement in the fourth quarter of 1998. Gibraltar also disputed
the Company's level of reserves previously ceded to and paid by Gibraltar under
the Stop Loss Agreement and claimed a refund of $91.7 million. These disputes
were based on Gibraltar's belief that there were redundancies in that portion of
Everest Re's IBNR reserves which were subject to the Stop Loss Agreement.
Pursuant to the terms of the Stop Loss Agreement, Everest Re and Gibraltar
appointed an independent examiner to review the reserves underlying the disputed
amounts to determine the appropriate amount of cessions to Gibraltar, and
Everest Re placed the $91.7 million in a trust.
In December 1999, the independent examiner issued its findings with respect to
the disputed amounts. As a result of these findings and the Company's normal
year end reserve review, Everest Re and Gibraltar resolved these disputes. The
resolution resulted in Everest Re reducing its gross reserves for 1995 and prior
periods by $67.6 million and reducing its claim to the Stop Loss by $60.8
million. Everest Re will also receive $2.3 million in additional cash from
Gibraltar as a result of the revised billing and the trust noted above has been
terminated. The gross coverage limit under the Stop Loss Agreement, excluding
cessions of $8.0 million in the fourth quarter of 1999, has been restored to
$107.4 million. As a result, Everest Re will receive $9.5 million from Gibraltar
in the first quarter of 2000. Pursuant to the Stop Loss Agreement, Everest Re
will continue to evaluate its reserves each quarter to determine if additional
cessions are appropriate.
During the first quarter of 1999, Gibraltar disputed $39.7 million ceded under a
1986 quota share reinsurance ("Direct Excess Retrocession") through which
Gibraltar assumed 100% of the liabilities related to Everest Re's former direct
excess insurance operations which ceased writing business in 1985. Gibraltar
then commenced an arbitration proceeding in accordance with the Direct Excess
Retrocession. Gibraltar disputed the level of reserves established by Everest Re
primarily reflecting reserves for asbestos losses and Everest Re's right to
determine these reserves, but Gibraltar did not dispute its responsibility to
pay the ultimate losses in accordance with the terms of the Direct Excess
Retrocession. As a result of the dispute, Gibraltar initially failed to provide
funds or security to Everest Re in order to secure Gibraltar's payment
obligations to Everest Re in accordance with the terms of the Direct Excess
Retrocession. However, throughout the remainder of 1999, Gibraltar has provided
substantially all of the required funding to Everest Re and Everest Re and
Gibraltar agreed to halt the arbitration proceeding and to postpone the
resolution of the remaining disputed issues. Management does not expect that
this dispute will have a material adverse effect on the Company's future
financial condition, results of operations or cash flows.
Written and earned premiums are comprised of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
(Dollar values in thousands) 1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Written premium:
Direct $ 70,473 $ 78,976 $ 75,653
Assumed 1,071,344 966,914 999,316
Retroceded (46,248) (29,291) (43,827)
----------------------------------------------
Net written premium $ 1,095,569 $ 1,016,599 $ 1,031,142
==============================================
Earned premium
Direct $ 73,822 $ 75,017 $ 77,784
Assumed 1,042,921 1,022,611 1,012,168
Retroceded (45,292) (29,618) (40,105)
----------------------------------------------
Net earned premium $ 1,071,451 $ 1,068,010 $ 1,049,847
==============================================
</TABLE>
The amounts deducted from losses and loss adjustment expenses incurred for net
retrocessional recoveries were $7.4 million, $357.4 million and $109.6 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
F-15
<PAGE>
8. COMPREHENSIVE INCOME
The components of comprehensive income for the periods ending December 31, 1999,
1998 and 1997 are shown in the following table:
<TABLE>
<CAPTION>
(Dollar values in thousands) 1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Net Income $ 158,061 $ 165,197 $ 154,955
Other comprehensive income,
before tax:
Foreign currency translation
adjustments 7,824 (6,304) (11,891)
Unrealized (losses)/gains on
securities:
Unrealized (losses)/gains
arising during period (302,172) 58,012 111,209
Less: reclassification
adjustment for realized
losses/(gains) included in
net income 16,760 765 (15,916)
----------------------------------------------
Other comprehensive (losses)/
income, before tax (311,108) 50,943 115,234
----------------------------------------------
Income tax expense (benefit)
related to items of other
comprehensive income:
Tax expense (benefit) from
foreign currency translation 2,737 (2,292) (4,167)
Tax (benefit) expense from holding
(losses)/gains during period (105,760) 20,304 38,923
Tax (benefit) expense from (losses)
/gains included in net income (5,866) (268) 5,571
----------------------------------------------
Income tax (benefit) expense related
to items of other comprehensive
income: (108,889) 17,744 40,327
Other comprehensive (loss)/income,
net of tax (202,219) 33,199 74,907
----------------------------------------------
Comprehensive (Loss)/Income $ (44,158) $ 198,396 $ 229,862
==============================================
</TABLE>
The following table shows the components of the change in accumulated other
comprehensive income for the years ending December 31, 1999 and 1998.
<TABLE>
<CAPTION>
(Dollar values in thousands) 1999 1998
-----------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance of
accumulated other
comprehensive income $ 185,518 $ 152,319
---------- -----------
Beginning balance of foreign
currency translation
adjustments $ (12,090) $ (8,078)
Current period change in
foreign currency
translation adjustments 5,087 5,087 (4,012) (4,012)
-----------------------------------------------------
Ending balance of foreign
currency translation
adjustments (7,003) (12,090)
---------- ----------
Beginning balance of
unrealized gains on
securities 197,608 160,397
Current period change in
unrealized gains on
securities (207,306) (207,306) 37,211 37,211
-----------------------------------------------------
Ending balance of unrealized
gains on securities (9,698) 197,608
---------- ----------
Current period change in
accumulated other
comprehensive income (202,219) 33,199
---------- -----------
Ending balance of
accumulated other
comprehensive income $ (16,701) $ 185,518
========== ===========
</TABLE>
F-16
<PAGE>
9. EMPLOYEE BENEFIT PLANS
The Company maintains both a qualified and non-qualified defined benefit pension
plan for its U.S. employees. Generally, the Company computes the benefits based
on average earnings over a period prescribed by the plans and credited length of
service. The Company has not been required to fund contributions to its
qualified defined benefit pension plan for the years ended December 31, 1999 and
1998 because the Company's qualified plan was subject to the full funding
limitation under the Internal Revenue Service guidelines. The Company's
non-qualified defined benefit pension plan, established in 1998, provides
compensating pension benefits for participants whose benefits have been
curtailed under the qualified plan due to Internal Revenue Code limitations.
Pension expense for the Company's plans for the years ended December 31, 1999,
1998 and 1997 were $1.5 million, $1.6 million and $0.8 million, respectively.
The following table summarizes the status of these plans:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
(Dollar values in thousands) 1999 1998
----------------------------
<S> <C> <C>
Change in projected benefit
obligation:
Benefit obligation at
beginning of year $ 22,095 $ 17,115
Service cost 1,476 1,089
Interest cost 1,532 1,178
Change in accumulated
benefit obligation - 954
Affect of future salary
increases - 1,286
Actuarial gain 677 (228)
Change in discount rate (3,576) 869
Benefits paid (144) (168)
----------------------------
Benefit obligation at end
of year 22,060 22,095
----------------------------
Change in plan assets:
Fair value of plan assets
at beginning of year 18,132 17,389
Actual return on plan assets 2,475 911
Actual contributions during
the year 912 -
Benefits paid (144) (168)
----------------------------
Fair value of plan assets
at end of year 21,375 18,132
----------------------------
Funded status (685) (3,963)
Unrecognized prior service
cost 1,181 1,328
Unrecognized net loss or
(gain) (4,669) (913)
Additional liability (39) -
----------------------------
(Accrued) pension cost $ (4,212) $ (3,548)
============================
</TABLE>
Plan assets are comprised of shares in investment trusts with approximately 67%
and 33% of the underlying assets consisting of equity securities and fixed
maturities, respectively.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
(Dollar values in thousands) 1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,476 $ 2,001 $ 1,063
Interest cost 1,532 1,178 1,031
Expected return on assets (1,625) (1,560) (2,824)
Amortization of net loss (gain)
from earlier periods 6 (54) (10)
Amortization of unrecognized
prior service cost 147 - 1,510
------------------------------------------
Net periodic pension cost $ 1,536 $ 1,565 $ 770
==========================================
</TABLE>
The weighted average discount rates used to determine the actuarial present
value of the projected benefit obligation for 1999, 1998 and 1997 are 7.5%,
6.75% and 7.00%, respectively. The rate of compensation increase used to
determine the actuarial present value of the projected benefit obligation for
1999, 1998 and 1997 is 4.50%. The expected long-term rate of return on plan
assets for 1999, 1998 and 1997 is 9.0%.
F-17
<PAGE>
The Company also maintains both qualified and non-qualified defined contribution
plans ("Savings Plan" and "Non-Qualified Savings Plan", respectively) covering
U.S. employees. Under the plans, the Company contributes up to a maximum 3% of
the participants compensation based on the contribution percentage of the
employee. The Non-Qualified Savings Plan provides compensating savings plan
benefits for participants whose benefits have been curtailed under the Savings
Plan due to Internal Revenue Code limitations. The Company's incurred expenses
related to these plans were $0.6 million, $0.5 million and $0.5 million for
1999, 1998 and 1997, respectively.
In addition, the Company maintains several defined contribution pension plans
covering non-U.S. employees. Each branch office (Canada, London, Belgium, Hong
Kong and Singapore) maintains a separate plan for the non-U.S. employees working
in that location. The Company contributes various amounts based on salary, age,
and/or years of service. The contributions as a percentage of salary for the
branch offices range from 2% to 12%. The contributions are generally used to
purchase pension benefits from local insurance providers. The Company's incurred
expenses related to these plans were $0.3 million, $0.3 million and $0.7 million
for 1999, 1998 and 1997, respectively.
During 1998, the Company adopted a Senior Executive Change of Control Plan and
entered into a change of control agreement with the Chief Executive Officer,
which will provide benefits to certain officers in the event of a change in
control of the Company.
10. DIVIDEND RESTRICTIONS AND STATUTORY FINANCIAL INFORMATION
A. DIVIDEND RESTRICTIONS
Under Bermuda law, Group is prohibited from declaring or paying a dividend if
such payment would reduce the realizable value of its assets to an amount less
than the aggregate value of its liabilities and its issued share capital and
share premium (additional paid-in capital) accounts. Group's ability to pay
dividends and its operating expenses is dependent upon dividends from its
subsidiaries. The payment of such dividends by insurer subsidiaries is limited
under Bermuda and the United States laws in which Group's insurance and
reinsurance subsidiaries are licensed to transact business. The limitations are
generally based upon net income and compliance with applicable policyholders'
surplus or minimum solvency margin and liquidity ratio requirements as
determined in accordance with the relevant statutory accounting practices.
Under Bermuda law, Bermuda Re is unable to declare or pay a dividend if it fails
to meet its minimum solvency margin or minimum liquidity ratio, or if after
payment of the dividend, it fails to meet its minimum solvency margin or minimum
liquidity ratio. As a long-term insurer, Bermuda Re is also 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, exceeds its liabilities for long-term business by at
least the $250,000 minimum solvency margin. Prior approval of the Bermuda
Minister of Finance is required if Bermuda Re's dividend payments would reduce
its prior year-end total statutory capital by 15.0% or more.
Delaware law provides that an insurance company which is either an insurance
holding company or a member of an insurance holding system and is domiciled in
the state shall not pay dividends without giving prior notice to the Insurance
Commissioner of Delaware and may not pay dividends without the approval of the
Insurance Commissioner if the value of the proposed dividend, together with all
other dividends and distributions made in the preceding twelve months, exceeds
the greater of (1) 10% of statutory surplus or (2) net income, not including
realized capital gains, each as reported in the prior year's statutory annual
statement. In addition, no dividend may be paid in excess of unassigned earned
surplus. At December 31, 1999, Everest Re had $166.5 million available for
payment of dividends in 2000 without prior regulatory approval.
B. STATUTORY FINANCIAL INFORMATION
Everest Re prepares its statutory financial statements in accordance with
accounting practices prescribed or permitted by the National Association of
Insurance Commissioners ("NAIC") and the Delaware Insurance Department.
Prescribed statutory accounting practices are set forth in a variety of
publications of the NAIC, as well as state laws, regulations, and general
administrative rules. The capital and statutory surplus of Everest Re was
$1,147.6 million and $1,059.4 million at December 31, 1999 and 1998,
respectively. The statutory net income of Everest Re was $149.9 million, $176.7
million and $193.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-18
<PAGE>
11. CONTINGENCIES
Everest Re continues to receive claims under expired contracts which assert
alleged injuries and/or damages relating to or resulting from toxic torts, toxic
waste and other hazardous substances, such as asbestos. Everest Re's asbestos
claims typically involve liability or potential liability for bodily injury from
exposure to asbestos or for property damage resulting from asbestos or products
containing asbestos. Everest Re's environmental claims typically involve
potential liability for (i) the mitigation or remediation of environmental
contamination or (ii) bodily injury or property damages caused by the release of
hazardous substances into the land, air or water.
Everest Re's reserves include an estimate of Everest Re's ultimate liability for
asbestos and environmental claims for which ultimate value cannot be estimated
using traditional reserving techniques. There are significant uncertainties in
estimating the amount of Everest Re's potential losses from asbestos and
environmental claims. Among the complications are: (i) potentially long waiting
periods between exposure and manifestation of any bodily injury or property
damage; (ii) difficulty in identifying sources of asbestos or environmental
contamination; (iii) difficulty in properly allocating responsibility and/or
liability for asbestos or environmental damage; (iv) changes in underlying laws
and judicial interpretation of those laws; (v) potential for an asbestos or
environmental claim to involve many insurance providers over many policy
periods; (vi) long reporting delays, both from insureds to insurance companies
and ceding companies to reinsurers; (vii) historical data concerning asbestos
and environmental losses, which is more limited than historical information on
other types of casualty claims; (viii) questions concerning interpretation and
application of insurance and reinsurance coverage; and (ix) uncertainty
regarding the number and identity of insureds with potential asbestos or
environmental exposure.
Although these complications have become less severe in recent years, management
believes that these factors continue to render reserves for asbestos and
environmental losses significantly less subject to traditional actuarial methods
than are reserves on other types of losses. Given these uncertainties,
management believes that no meaningful range for such ultimate losses can be
established. Everest Re establishes reserves to the extent that, in the judgment
of management, the facts and prevailing law reflect an exposure for Everest Re
or its ceding company. Due to the uncertainties discussed above, the ultimate
losses may vary materially from current loss reserves and, if coverage under the
Stop Loss Agreement is exhausted, could have a material adverse effect on the
Company's future financial condition, results of operations and cash flows. See
Note 7 and 15(C).
The following table shows the development of prior year asbestos and
environmental reserves on both a gross and net of retrocessional basis for the
years ended:
<TABLE>
<CAPTION>
(Dollar values in thousands) 1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Gross basis
Beginning of reserves $ 660,793 $ 446,132 $ 423,336
Incurred losses 3,690 249,597 83,724
Paid losses (50,247) (34,936) (60,928)
-------------------------------------------
End of period reserves $ 614,236 $ 660,793 $ 446,132
===========================================
Net basis
Beginning of reserves $ 263,542 $ 212,376 $ 199,557
Incurred losses (1) - 15,385 3,490
Paid losses (2) 101,527 35,781 9,329
-------------------------------------------
End of period reserves $ 365,069 $ 263,542 $ 212,376
===========================================
</TABLE>
- ------------------
(1) Net of $0.0 million, $138.5 million and $41.2 million ceded in 1999, 1998
and 1997, respectively, under the incurred loss reimbursement feature of the
Stop Loss Agreement.
(2) Net of $118.8 million, $39.7 million and $22.6 million ceded paid losses in
1999, 1998 and 1997, respectively, under the Stop Loss Agreement.
At December 31, 1999, the gross reserves for asbestos and environmental losses
were comprised of $146.9 million representing case reserves reported by ceding
companies, $70.8 million representing additional case reserves established by
Everest Re on assumed reinsurance claims, $47.3 million representing case
reserves established by Everest Re on direct excess insurance claims and $349.2
million representing IBNR reserves.
To the extent loss reserves for claims incurred on June 30, 1995 (December 31,
1994 for catastrophe losses) or prior on assumed reinsurance needed to be
increased, and were not ceded to unaffiliated reinsurers under existing
reinsurance agreements, Everest Re would be entitled to certain reimbursements
under the Stop Loss Agreement. See Note 7. To the extent loss reserves
on direct excess insurance policies needed to be increased and were not
ceded to unaffiliated reinsurers under existing reinsurance agreements,
Everest Re would be entitled to 100% protection under a 100% quota share
retrocession entered into with Gibraltar in 1986. While there can be
no assurance that reserves for and losses from these claims would
F-19
<PAGE>
not increase in the future, management believes that Everest Re's existing
reserves and ceded reinsurance arrangements and reimbursements available under
the Stop Loss Agreement lessen the probability that such increases, if any,
would have a material effect on Everest Re's financial condition, results of
operations or cash flows. Everest Re does not intend to enter any new stop loss
agreements with respect to exposures arising from periods prior to July 1, 1995
if the current Stop Loss Agreement with Gibraltar is exhausted or when it
terminates. See Note 15(C).
Everest Re is also named in various legal proceedings incidental to its normal
business activities. In the opinion of Everest Re, none of these proceedings
would have a material adverse effect upon the financial condition, results of
operations or cash flows of Everest Re.
The Prudential sells annuities which are purchased by property and casualty
insurance companies to settle certain types of claim liabilities. In 1993 and
prior, Everest Re, for a fee, accepted the claim payment obligation of the
property and casualty insurer, and, concurrently, became the owner of the
annuity or assignee of the annuity proceeds. In these circumstances, Everest Re
would be liable if The Prudential were unable to make the annuity payments. The
estimated cost to replace all such annuities for which Everest Re was
contingently liable at December 31, 1999 and 1998 was $146.2 million and $143.2
million, respectively.
Everest Re has purchased annuities from an unaffiliated life insurance company
to settle certain claim liabilities of Everest Re. Should the life insurance
company become unable to make the annuity payments, Everest Re would be liable.
The estimated cost to replace such annuities at December 31, 1999 and 1998 was
$11.7 million and $10.8 million, respectively.
12. STOCK BASED COMPENSATION PLANS
The Company has in place its 1995 Stock Incentive Plan for key employees (the
`1995 Employee Plan"), its 1995 Stock Option Plan for Non-Employee Directors
(the "1995 Director Plan") and a 1999 Stock Option Agreement for Non-Employee
Directors (the "1999 Agreement") and applies APB Opinion 25 and related
interpretations in accounting for these plans and the 1999 Agreement.
Accordingly, no compensation expense has been recognized in the accompanying
financial statements in respect of stock options granted under these plans and
the 1999 Agreement.
Under the 1995 Employee Plan, a total of 3,949,000 shares of common stock have
been authorized to be granted as stock options, stock awards or restricted stock
awards to officers and key employees of the Company. At December 31, 1999, there
were 1,461,651 remaining shares available to be granted. Under the 1995 Director
Plan, a total of 50,000 shares of common stock have been authorized to be
granted as stock options to non-employee directors of the Company. At December
31, 1999, there were 38,145 remaining shares available to be granted. Under the
1999 Agreement, a total of 26,000 shares of common stock have been granted as
stock options to non-employee directors of the Company. Options granted under
the 1995 Employee Plan vest at 20% per year over five years, options granted
under the 1995 Director Plan vest at 50% per year over two years and options
granted under the 1999 Agreement vest at 33% per year over three years. All
options are exercisable at fair market value of the stock at the date of grant
and expire ten years after the date of grant. Restricted stock granted under the
1995 Employee Plan vests, beginning one year after the date of grant, in equal
annual installments over five years.
A summary of the status of the Company's stock options as of December 31, 1999,
1998 and 1997 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 1,307,099 $ 30.35 999,020 $ 26.39 732,570 $ 19.72
Granted 390,500 30.63 429,750 37.57 339,250 39.13
Exercised 17,400 18.24 34,436 17.74 11,100 16.75
Forfeited 26,100 32.54 87,235 25.58 61,700 19.00
------------ ------------ -----------
Outstanding, end of
year 1,654,099 $ 30.50 1,307,099 $ 30.35 999,020 $ 26.39
------------ ------------ -----------
Options exercisable
at year-end 603,299 365,189 215,313
============ ============ ===========
Weighted-average fair
value of options
granted during the
year $ 13.66 $ 17.21 $ 18.37
============ ============ ===========
</TABLE>
F-20
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/99 Contractual Life Exercise Price at 12/31/99 Exercise Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$16.75 to $20.94 308,000 5.6 $ 17.02 246,500 $ 17.02
$22.56 to $26.63 237,399 6.6 $ 24.13 147,399 $ 24.11
$30.63 to $39.16 1,108,700 8.5 $ 35.61 209,400 $ 38.50
-------------- -----------------------------------------------
1,654,099 7.7 $ 30.50 603,299 $ 26.21
============== ===============================================
</TABLE>
Since its 1995 initial public offering, the Company has issued to certain key
employees of the Company 58,100 restricted shares of stock. Upon issuance of
restricted shares, unearned compensation is charged to stockholders' equity for
the cost of the restricted stock and is amortized over the vesting period. The
amount of earned compensation recognized as expense with respect to restricted
stock awards was $131,667, $98,505 and $202,977 for 1999, 1998 and 1997,
respectively. In 1998, 10,460 restricted shares were forfeited, while 6,400
restricted shares were forfeited in 1997. The Company acquired 1,047 shares,
1,680 shares and 30,887 shares of its common stock at a cost of $28,989, $57,641
and $845,598 in 1999, 1998 and 1997, respectively. The 1997 acquisitions were
primarily from the Chief Executive Officer, to fund required withholding taxes
arising from a prior period stock award. Also, the Company recorded
contributions of paid in capital representing the tax benefits attributable to
the difference between the amount of compensation expense deductible for tax
purposes with respect to the stock awards and the amount of such compensation
expense reflected in the Company's financial statements.
Had the compensation cost for the Company's stock based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
(Dollar values in thousands
except per share amounts) 1999 1998 1997
--------------------------------------
<S> <C> <C> <C> <C>
Net Income As reported $ 158,061 $ 165,197 $ 154,955
Pro forma $ 153,768 $ 162,768 $ 153,492
Earnings per share - basic As reported $ 3.26 $ 3.28 $ 3.07
Pro forma $ 3.17 $ 3.23 $ 3.04
Earnings per share - diluted As reported $ 3.25 $ 3.26 $ 3.05
Pro forma $ 3.16 $ 3.21 $ 3.02
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: (i) dividend
yields ranging from 0.5% to 0.8%; (ii) expected volatility ranging from 32.9% to
34.8%; (iii) risk-free interest rates ranging from a low of 4.7% to a high of
7.0%; and (iv) expected life of 7.5 years.
In addition to the 1995 Employee Plan and 1995 Director Plan, the Company issued
5,260, 4,537 and 3,685 shares of treasury stock having an aggregate value of
$160,000, $179,135 and $131,250 to its non-employee directors as compensation
for their service as directors in 1999, 1998 and 1997, respectively.
13. RELATED-PARTY TRANSACTIONS
During the normal course of business, the Company, through its affiliates,
engages in arms-length reinsurance and brokerage and commission business
transactions with companies controlled or affiliated with its outside directors.
These transactions are immaterial to the Company's financial condition, results
of operations and cash flows.
14. SEGMENT REPORTING
The Company, through its subsidiaries, operates in five segments: U.S. Broker
Treaty, U.S Direct Treaty Reinsurance and Insurance, U.S. Facultative, Marine,
Aviation and Surety and International. These segments are generally referred to
as operations in this document. The U.S. Broker Treaty operation writes
property, accident and health and casualty reinsurance through reinsurance
brokers within the United States. The U.S. Direct Treaty Reinsurance and
Insurance operation writes property and casualty reinsurance directly with
ceding companies and primary property and casualty insurance, through
agency relationships and program administrators within the United States.
The U.S. Facultative operation writes property, casualty and specialty
business through brokers and directly with ceding companies within the
United States. The Marine, Aviation and Surety operation writes marine,
aviation and surety business within the United States and worldwide.
F-21
<PAGE>
The International operation writes reinsurance through the Company's branches in
Belgium, London, Canada, Hong Kong and Singapore, in addition to foreign
"home-office" business. The U.S. Facultative, Marine, Aviation and Surety and
International operations write business through brokers and directly with ceding
companies.
These segments are managed in a carefully coordinated fashion with strong
elements of central control, including with respect to capital, investments and
support operations. As a result, management monitors and evaluates the financial
performance of these operating segments based upon their underwriting gain or
loss ("underwriting results"). Underwriting results include earned premium less
loss and loss adjustment expenses incurred, commission and brokerage expenses
and other underwriting expenses. The accounting policies of the operating
segments are the same as those described in the summary of significant
accounting policies. See Note 1.
The Company does not maintain separate balance sheet data for each of its
operating segments. Accordingly, the Company does not review and evaluate the
financial results of its operating segments based upon balance sheet data.
The following tables present the relevant underwriting results for the operating
segments for the three years ended December 31, 1999, 1998 and 1997.
U.S. BROKER TREATY
------------------
<TABLE>
<CAPTION>
(Dollar values in thousands) 1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Earned premiums $ 406,003 $ 370,103 $ 304,747
Incurred losses and loss
adjustment expenses 291,814 250,883 221,407
Commission and brokerage 102,365 96,407 84,266
Other underwriting expenses 9,526 8,835 9,071
-------------------------------------------------
Underwriting gain/(loss) $ 2,298 $ 13,978 $ (9,997)
=================================================
</TABLE>
U.S. DIRECT TREATY REINSURANCE AND INSURANCE
--------------------------------------------
<TABLE>
<CAPTION>
(Dollar values in thousands) 1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Earned premiums $ 182,478 $ 173,124 $ 155,419
Incurred losses and loss
adjustment expenses 124,990 129,167 121,906
Commission and brokerage 47,873 43,875 41,047
Other underwriting expenses 12,046 11,349 10,913
-------------------------------------------------
Underwriting gain/(loss) $ (2,431) $ (11,267) $ (18,447)
=================================================
</TABLE>
U.S. FACULTATIVE
----------------
<TABLE>
<CAPTION>
(Dollar values in thousands) 1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Earned premiums $ 68,107 $ 72,631 $ 79,315
Incurred losses and loss
adjustment expenses 43,756 44,412 64,683
Commission and brokerage 14,876 15,381 18,004
Other underwriting expenses 6,244 6,345 6,162
-------------------------------------------------
Underwriting gain/(loss) $ 3,231 $ 6,493 $ (9,534)
=================================================
</TABLE>
MARINE, AVIATION AND SURETY
---------------------------
<TABLE>
<CAPTION>
(Dollar values in thousands) 1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Earned premiums $ 123,118 $ 110,631 $ 158,990
Incurred losses and loss
adjustment expenses 82,632 83,016 110,117
Commission and brokerage 38,897 32,536 47,261
Other underwriting expenses 3,749 4,538 4,625
-------------------------------------------------
Underwriting gain/(loss) $ (2,160) $ (9,459) $ (3,013)
=================================================
</TABLE>
INTERNATIONAL
-------------
<TABLE>
<CAPTION>
(Dollar values in thousands) 1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Earned premiums $ 291,745 $ 341,521 $ 351,376
Incurred losses and loss
adjustment expenses 228,378 270,926 247,308
Commission and brokerage 81,946 86,360 84,218
Other underwriting expenses 14,892 16,422 17,569
-------------------------------------------------
Underwriting gain/(loss) $ (33,471) $ (32,187) $ 2,281
=================================================
</TABLE>
F-22
<PAGE>
The following table reconciles the underwriting results for the operating
segments to income before tax as reported in the consolidated statements of
operations and comprehensive income:
<TABLE>
<CAPTION>
(Dollar values in thousands) 1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Underwriting gain (loss) $ (32,533) $ (32,442) $ (38,710)
Net investment income 252,999 244,909 228,546
Realized gain (loss) (16,760) (765) 15,916
Corporate expenses (4,604) (2,072) (3,332)
Interest expense 1,490 - -
Other income (expense) (1,030) 3,046 4,880
-------------------------------------------------
Income before taxes $ 196,582 $ 212,676 $ 207,300
=================================================
</TABLE>
The Company writes premium in the United States and selected international
markets. The revenues, net income and identifiable assets of the individual
foreign countries in which the Company writes business are not material.
Approximately 17.9%, 17.0% and 19.3% of the Company's gross premiums written in
1999, 1998 and 1997, respectively, were sourced through one intermediary.
15. SUBSEQUENT EVENTS
A. REORGANIZATION
Group, a Bermuda company, was established in 1999 as a wholly-owned subsidiary
of Holdings. On February 23, 2000, the stockholders of Holdings approved an
agreement and plan of merger to effect a restructuring. On February 24, 2000,
the restructuring was completed and Group became the new parent holding company
of Holdings. Holders of Holdings' common stock became holders of the same number
of Group common shares. Prior to the restructuring, Group had no significant
assets or capitalization and had not engaged in any business or prior activities
other than in connection with the restructuring. The restructuring also involved
the establishment of a Bermuda-based reinsurance subsidiary, Everest Reinsurance
(Bermuda), Ltd. ("Bermuda Re"), as a wholly-owned subsidiary of Group. Bermuda
Re is registered as a Class 4 insurer and long-term insurer and is eligible to
write property and casualty business and life and annuity business. In
connection with the restructuring, Group formed a new Delaware subsidiary,
Everest Global Services, Inc., to perform administrative and back-office
functions for Group and its U.S. and non-U.S. based subsidiaries.
B. ISSUANCE OF DEBT
On March 14, 2000, Holdings completed public offerings of $200.0 million
principal amount of 8.75% senior notes due March 15, 2010 and $250.0 million
principal amount of 8.50% senior notes due March 15, 2005. The net proceeds from
the sale of the notes were $197.7 million and $248.1 million, respectively,
after deducting underwriting discounts, less expenses incurred by Holdings in
connection with the offering. Holdings retained approximately $50.0 million of
the net proceeds for general corporate purposes. Approximately $400.0 million of
the net proceeds were distributed by Holdings to Group and approximately $250.0
million was used by Group to capitalize Bermuda Re. The remainder of the
proceeds that were distributed to Group will be used for general corporate
purposes.
C. GIBRALTAR ACQUISITION
On February 24, 2000, Holdings announced an agreement with The Prudential to
acquire all of the issued and outstanding shares of Gibraltar Casualty Company
for approximately $52.0 million. Closing of the acquisition will be subject to
the satisfaction of customary closing conditions and the receipt of regulatory
approvals.
Upon the closing of the acquisition:
o Everest Re's current reinsurance contracts with Gibraltar, including the
Stop Loss Agreement, will remain in effect. However, these contracts will
become transactions with affiliates with the financial impact eliminated
through inter-company accounts.
o The Prudential Guarantees will be terminated and The Prudential will be
released from its obligations.
F-23
<PAGE>
o In 1991, Everest Re distributed the stock of Gibraltar to PRUCO, Inc., a
direct, wholly-owned subsidiary of The Prudential ("PRUCO").
Simultaneously, PRUCO and Gibraltar entered into a surplus maintenance
agreement (the "PRUCO Surplus Maintenance Agreement") pursuant to which
PRUCO agreed to purchase such amount of surplus notes as may be necessary
to maintain Gibraltar's statutory surplus at no less than $15 million at
all times. PRUCO shortly thereafter distributed the stock of Gibraltar to
The Prudential. The PRUCO Surplus Maintenance Agreement will be
terminated.
o On October 6, 1995, Holdings agreed, pursuant to a Standby Capital
Contribution Agreement (the "Capital Contribution Agreement"), to make
certain capital contributions ("Capital Contributions") to Everest Re.
And, on October 6, 1995, PRUCO agreed to make payments ("Indemnity
Payments") to Holdings, pursuant to an Indemnity Agreement (the "PRUCO
Indemnity"), in an amount equal to the Capital Contributions. The PRUCO
Indemnity will be terminated and PRUCO will be released from it
obligations.
In connection with the acquisition, The Prudential will provide reinsurance to
Gibraltar covering 80% of the first $200.0 million of any adverse development in
Gibraltar's reserves.
16. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data were as follows:
<TABLE>
<CAPTION>
(Dollar values in thousands
except per share amounts) 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
----------------------------------------------------
1999 OPERATING DATA:
<S> <C> <C> <C> <C>
Gross written premium $ 253,896 $ 283,183 $ 299,535 $ 305,205
Net written premium 242,504 271,430 290,359 291,276
Earned premium 234,135 275,419 285,480 276,417
Net investment income 62,080 64,570 62,232 64,117
Net realized capital gain
(loss) (2,186) (7,267) (7,686) 379
Total claims and underwriting
expenses (1) 242,047 283,899 293,431 289,211
Net income (loss) $ 41,242 $ 38,065 $ 39,209 $ 39,545
====================================================
Net income per common share
- basic $ 0.83 $ 0.78 $ 0.81 $ 0.84
Net income per common share
- diluted $ 0.82 $ 0.78 $ 0.80 $ 0.84
1998 OPERATING DATA:
Gross written premium $ 253,011 $ 267,452 $ 272,408 $ 253,019
Net written premium 242,694 255,599 257,985 260,321
Earned premium 241,336 264,726 265,242 296,707
Net investment income 60,013 62,525 60,667 61,704
Net realized capital gain
(loss) (17) 2,523 989 (4,260)
Total claims and underwriting
expenses 250,853 273,413 273,735 304,523
Net income (loss) $ 39,801 $ 43,544 $ 42,125 $ 39,728
====================================================
Net income per common share
- basic $ 0.79 $ 0.86 $ 0.83 $ 0.79
Net income per common share
- diluted $ 0.78 $ 0.86 $ 0.83 $ 0.79
</TABLE>
- ----------------------
(1) Fourth Quarter 1999 includes $2,798 of non-recurring restructure expenses.
F-24
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
SCHEDULE I - SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- ------------------------------------------------------------------------------------
Amount
Shown in
Market Balance
(Dollars in thousands) Cost Value Sheet
----------------------------------------------
<S> <C> <C> <C>
Fixed maturities-available
for sale
Bonds:
U.S. government and
government agencies $ 135,461 $ 134,457 $ 134,457
State, municipalities and
political subdivisions 2,066,456 2,028,003 2,028,003
Foreign government securities 250,644 262,132 262,132
Foreign corporate securities 272,874 273,847 273,847
Public utilities 96,134 94,764 94,764
All other corporate bonds 761,036 734,323 734,323
Mortgage pass-through
securities 337,387 337,784 337,784
Redeemable preferred stock 20,633 19,968 19,968
----------------------------------------------
Total fixed maturities-
available for sale 3,940,625 3,885,278 3,885,278
Equity securities 50,224 90,693 90,693
Short-term investments 73,558 73,558 73,558
Other invested assets 27,524 27,482 27,482
Cash 62,227 62,227 62,227
----------------------------------------------
Total investments and cash $ 4,154,158 $ 4,139,238 $ 4,139,238
==============================================
</TABLE>
S-1
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
---------------------------------------
(Dollars in thousands, except
par value per share) 1999 1998
---------------------------------------
<S> <C> <C>
ASSETS
Cash $ 4,231 $ -
Investment in subsidiaries,
at equity in the underlying
net assets 1,385,054 1,460,084
Receivable from affliate (1,920) 18,884
Deferred tax asset 1,944 1,904
Other assets 435 -
---------------------------------------
Total assets $ 1,389,744 $ 1,480,872
=======================================
LIABILITIES
Revolving credit facility $ 59,000 $ -
Other liabilities 3,262 1,668
---------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, par value:
$0.01; 50 million shares
authorized; no shares
issued and outstanding
(includes 0.2 million shares
of Series A Junior Preferred
Stock) - -
Common stock, par value:
$0.01; 200 million shares
authorized; 50.9 million
shares issued in 1999 and
1998 509 509
Paid-in capital 390,912 390,559
Unearned compensation (109) (240)
Accumulated other comprehensive
income, net of deferred taxes
benefit of $9.1 million in
1999 and deferred income taxes
of $99.8 million in 1998 (16,701) 185,518
Treasury stock, at cost; 4.4
million shares in 1999 and
0.9 million shares in 1998 (122,070) (25,642)
Retained earnings 1,074,941 928,500
---------------------------------------
Total stockholders' equity 1,327,482 1,479,204
---------------------------------------
Total liabilities and
stockholders' equity $ 1,389,744 $ 1,480,872
=======================================
</TABLE>
See notes to consolidated financial statements.
S-2
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For Years Ended December 31,
-------------------------------------------------
(Dollars in thousands) 1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
REVENUES
Dividends received
from subsidiary $ - $ 43,125 $ 9,270
Net investment income 612 521 241
Equity in undistributed
net income of subsidiary 161,388 122,197 146,970
-------------------------------------------------
Total revenues 162,000 165,843 156,481
-------------------------------------------------
EXPENSES
Interest expense 1,490 - -
Other expenses 2,489 862 1,184
-------------------------------------------------
Income before taxes 158,021 164,981 155,297
Income tax (benefit) expense (40) (216) 342
-------------------------------------------------
Net income $ 158,061 $ 165,197 $ 154,955
=================================================
</TABLE>
See notes to consolidated financial statements.
S-3
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENT OF CASHFLOWS
<TABLE>
<CAPTION>
For Years Ended December 31,
----------------------------------------------
(Dollars in thousands) 1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 158,061 $ 165,197 $ 154,955
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed
(earnings) loss of
subsidiaries (161,388) (122,197) (146,970)
Increase (decrease) in
other liabilities 1,594 (181) (296)
Decrease in current tax
receivable - - 2,918
(Increase) in deferred
tax asset (40) (216) -
(Increase) in other assets (435) - -
Decrease (increase) in
receivable from affliates 20,754 (13,154) (2,300)
Non-cash compensation 131 273 203
----------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 18,677 29,722 8,510
CASH FLOWS FROM INVESTING
ACTIVITIES
Additional investment in
subsidiaries 50 (2,772) (248)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net borrowing on revolving
credit line 59,000 - -
Acquisition of treasury stock
net of reissuances (62,106) (17,483) (822)
Common stock issued during
the period 317 610 636
Dividends paid to
stockholders (11,707) (10,077) (8,076)
----------------------------------------------
Net cash (used in) financing
activities (14,496) (26,950) (8,262)
Net increase in cash 4,231 - -
Cash, begining of period - - -
----------------------------------------------
Cash, end of period $ 4,231 $ - $ -
==============================================
SUPPLEMENTAL CASH FLOW
INFORMATION
NON-CASH OPERATING TRANSACTION:
Dividends received from
subsidiary in the form
of forgiveness of
liabilities $ 836 $ 967 $ 1,536
</TABLE>
See notes to consolidated financial statements.
S-4
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
- -----------------------------------------------------------------------------------------------------------------------
RESERVE INCURRED
FOR LOSSES LOSS AND AMORTIZATION
DEFERRED AND LOSS UNEARNED NET LOSS OF DEFERRED OTHER
ACQUISITION ADJUSTMENT PREMIUM EARNED INVESTMENT ADJUSTMENT ACQUISITION OPERATING WRITTEN
GEOGRAPHIC AREA COSTS EXPENSES RESERVES PREMIUM INCOME EXPENSES COSTS EXPENSES PREMIUM
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Domestic $ 63,324 $3,083,151 $ 239,488 $ 779,706 $ 209,617 $ 543,192 $ 198,323 $ 41,857 $ 799,265
International 19,389 563,841 69,075 291,745 43,382 228,378 81,946 14,892 296,304
----------------------------------------------------------------------------------------------------
Total $ 82,713 $3,646,992 $ 308,563 $1,071,451 $ 252,999 $ 771,570 $ 280,269 $ 56,749 $1,095,569
====================================================================================================
DECEMBER 31, 1998 (1)
Domestic $ 50,476 $3,242,579 $ 217,982 $ 726,489 $ 194,607 $ 507,478 $ 182,800 $ 38,538 $ 713,022
International 20,277 557,462 66,658 341,521 50,302 270,926 86,360 16,422 303,577
----------------------------------------------------------------------------------------------------
Total $ 70,753 $3,800,041 $ 284,640 $1,068,010 $ 244,909 $ 778,404 $ 269,160 $ 54,960 $1,016,599
====================================================================================================
DECEMBER 31, 1997 (1)
Domestic $ 698,471 $ 175,053 $ 518,113 $ 186,387 $ 38,294 $ 695,211
International 351,376 53,493 247,308 84,218 17,569 335,931
-------------------------------------------------------------------
Total $1,049,847 $ 228,546 $ 765,421 $ 270,605 $ 55,863 $1,031,142
===================================================================
</TABLE>
(1) The 1998 and 1997 amounts have been restated to conform to the 1999 segment
presentation.
S-5
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
SCHEDULE IV - REINSURANCE
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ---------------------------------------------------------------------------------------------------------
GROSS CEDED TO ASSUMED FROM NET ASSUMED TO
(Dollars in thousands) AMOUNT OTHER COMPANIES OTHER COMPANIES AMOUNT NET
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Total property and liability
insurance earned premium $ 73,822 $ 45,292 $ 1,042,921 $ 1,071,451 97.3%
DECEMBER 31, 1998
Total property and liability
insurance earned premium $ 75,017 $ 29,618 $ 1,022,611 $ 1,068,010 95.7%
DECEMBER 31, 1997
Total property and liability
insurance earned premium $ 77,784 $ 40,105 $ 1,012,168 $ 1,049,847 96.4%
</TABLE>
S-6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.
- -----------
2.1 Agreement and Plan of Merger among Everest Reinsurance Holdings,
Inc., Everest Re Group, Ltd. And Everest Re Merger Corporation,
incorporated herein by reference to Exhibit 2.1 to the Registration
Statement on Form S-4 (No. 333-87361)
3.1 Memorandum of Association of Everest Re Group, Ltd., incorporated
herein by reference to Exhibit 3.1 to the Registration Statement
on Form S-4 (No. 333-87361)
3.2 Bye-Laws of Everest Re Group, Ltd., filed herewith
4.1 Specimen Everest Re Group, Ltd. Common share certificate,
incorporated by reference to Exhibit 4.1 of the Registration
Statement on form S-4 (No. 333-87361)
4.2 Indenture, dated March 14, 2000, between Everest Reinsurance
Holdings, Inc. and The Chase Manhattan Bank, as Trustee,
incorporated herein by reference to Exhibit 4.1 to the Form 8-K
filed on March 15, 2000
4.3 First Supplemental Indenture relating to the 8.5% Senior Notes due
March 15, 2005, dated March 14, 2000, between Everest Reinsurance
Holding, Inc. and The Chase Manhattan Bank, as Trustee, incorporated
herein by reference to Exhibit 4.2 to the Form 8-K filed on March
15, 2000
4.4 Second Supplemental Indenture relating to the 8.75% Senior Notes due
March 15, 2010, dated March 14, 2000, between Everest Reinsurance
Holdings, Inc. and The Chase Manhattan Bank, as Trustee,
incorporated herein by reference to Exhibit 4.3 to the Form 8-K
filed on March 15, 2000
* 10.1 Everest Reinsurance Holdings, Inc. Annual Incentive Plan effective
January 1, 1999, incorporated herein by reference to Exhibit 10.1
to the Annual Report on Form 10-K for the year ended December 31,
1998 (the "1998 10-K")
10.2 Stop Loss Agreement entered into between Everest Reinsurance Company
and Gibraltar Casualty Company, incorporated herein by reference to
Exhibit 10.6 to the Registration Statement on Form S-1
(No. 33-71652)
* 10.3 Everest Reinsurance Holdings, Inc. Amended 1995 Stock Incentive
Plan, incorporated herein by reference to Exhibit 10.3 to the Annual
Report on Form 10-K for the year ended December 31, 1995 (the
"1995 10-K")
10.4 Sublease, effective as of February 1, 1997 between The Prudential
Insurance Company of America and Everest Reinsurance Company,
incorporated herein by reference to Exhibit 10.5 to the Annual
Report on Form 10-K for the year ended December 31, 1996 (the "1996
10-K")
* 10.5 Everest Reinsurance Holdings, Inc. 1995 Stock Option Plan for Non-
Employee Directors, incorporated herein by reference to Exhibit
4.3 to the Registration Statement on Form S-8 (No. 333-05771)
* 10.6 Amended and Restated Employment Agreement between Everest
Reinsurance Company and Joseph V. Taranto, incorporated herein by
reference to Exhibit 10.50 to the Registration Statement on Form S-1
(No. 33-71652)
* 10.7 Resolution adopted by Board of Directors of Everest Reinsurance
Holdings, Inc. on April 1, 1999 awarding stock options to outside
directors, incorporated herein by reference to Exhibit 10.25 to the
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(the "second quarter 1999 10-Q")
* 10.8 Resolution adopted by the Board of Directors of Everest Reinsurance
Holdings, Inc. on February 23, 2000 awarding stock options to
outside Directors, filed herewith
10.9 Standby Capital Contribution Agreement between Everest Reinsurance
Holdings, Inc. and Everest Reinsurance Company, incorporated herein
by reference to Exhibit 10.69 to the Registration Statement on
Form S-1 (No. 33-71652)
10.10 Indemnification Agreement between PRUCO, Inc. and Everest
Reinsurance Holdings, Inc., incorporated herein by reference to
Exhibit 10.70 to the Registration Statement on Form S-1
(No. 33-71652)
10.11 Guarantee made by The Prudential Insurance Company of America in
favor of Everest Reinsurance Company, incorporated herein by
reference to Exhibit 10.71 to the Registration Statement on Form S-1
(No. 33-71652)
10.12 Guarantee made by The Prudential Insurance Company of America in
favor of Everest Reinsurance Holdings, Inc., incorporated herein by
reference to Exhibit 10.72 to the Registration Statement on Form S-1
(No. 33-71652)
10.13 1995 Service Contract between Everest Reinsurance Company and
Gibraltar Casualty Company, incorporated herein by reference to
Exhibit 10.73 to the Registration Statement on Form S-1
(No. 33-71652)
10.14 Separation Agreement among The Prudential Insurance Company of
America, Gibraltar Casualty Company, Everest Reinsurance Company,
PRUCO, Inc., and Everest Reinsurance Holdings, Inc., incorporated
herein by reference to Exhibit 10.2 to the Registration Statment on
Form S-1 (No. 33-71652)
* 10.15 Form of Non-Qualified Stock Option Award Agreement to be entered
into between Everest Reinsurance Holdings, Inc. and participants in
the 1995 Stock Incentive Plan, incorporated herein by reference to
Exhibit 10.15 to the 1995 10-K
E-1
<PAGE>
* 10.16 Form of Restricted Stock Agreement to be entered into between
Everest Reinsurance Holdings, Inc. and participants in the 1995
Stock Incentive Plan, incorporated herein by reference to Exhibit
10.16 to the 1995 10-K
* 10.17 Form of Stock Option Agreement (Version 1) to be entered into
between Everest Reinsurance Holdings, Inc. and participants in the
1995 Stock Option Plan for Non-Employee Directors, incorporated
herein by reference to Exhibit 10.17 to the 1995 10-K
* 10.18 Form of Stock Option Agreement (Version 2) to be entered into
between Everest Reinsurance Holdings, Inc. and participants in the
1995 Stock Option Plan for Non-Employee Directors, incorporated
herein by reference to Exhibit 10.18 to the 1995 10-K
10.19 Credit agreement between Everest Reinsurance Holdings, Inc. and
First Union National Bank dated June 16, 1997 providing for a $50
million revolving credit facility, incorporated herein by reference
to Exhibit 10.19 to the Form 8-K filed on June 24, 1997
* 10.20 Deferred Compensation Plan, as amended, for certain United States
employees of Everest Reinsurance Holdings, Inc. and its
participating subsidiaries incorporated herein by reference to
Exhibit 10.20 to the 1998 10-K
* 10.21 Employment Agreement with Joseph V. Taranto executed on July 15,
1998, incorporated herein by reference to Exhibit 10.21 to the
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(the "second quarter 1998 10-Q")
* 10.22 Change of Control Agreement with Joseph V. Taranto effective July
15, 1998, incorporated herein by reference to Exhibit 10.22 to the
second quarter 1998 10-Q
* 10.23 Senior Executive Change of Control Plan, incorporated herein by
reference to Exhibit 10.24 to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998
10.24 Credit Line Extension dated May 20, 1998 between Everest
Reinsurance Holdings, Inc. and First Union National Bank,
incorporated herein by reference to Exhibit 10.23 to the second
quarter 1998 10-Q
10.25 First Amendment to Credit Agreement and Extension dated June 10,
1999 between Everest Reinsurance Holdings, Inc. and First Union
National Bank, incorporated herein by reference to Exhibit 10.27 to
the second quarter 1999 10-Q
* 10.26 Executive Performance Annual Incentive Plan adopted by stockholders
on May 20, 1999, incorporated herein by reference to Exhibit 10.26
to the second quarter 1999 10-Q
10.27 Second Amendment to Credit Agreement, Consent and Waiver, dated
November 9, 1999, between Everest Reinsurance Holdings, Inc. and
First Union National Bank, incorporated herein by reference to
Exhibit 10.29 to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 (the "third quarter 1999 10-Q")
* 10.28 Amendment to Amended and Restated Employment Agreement between
Everest Reinsurance Company, Everest Reinsurance Holdings, Inc. and
Joseph V. Taranto dated September 21, 1999 incorporated herein by
reference to Exhibit 10.28 to the third quarter 1999 10-Q
* 10.29 Amendment of Employment Agreement by and among Everest Reinsurance
Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd.
and Joseph V. Taranto dated February 15, 2000, filed herewith
* 10.30 Amendment of Change of Control Agreement by and among Everest
Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re
Group, Ltd. and Joseph V. Taranto dated February 15, 2000, filed
herewith
10.31 Credit Agreement Between Everest Reinsurance Holdings, Inc., the
Lenders Named Therein and First Union National Bank dated December
21, 1999 providing for a $150 million Senior Revolving Credit
Facility, incorporated herein by reference to Exhibit 10.30 to the
Form 8-K, filed on December 28, 1999
10.32 Stock Purchase Agreement between the Prudential Insurance Company
of America and Everest Reinsurance Holdings, Inc. for the sale of
common stock of Gibraltar Casualty Company dated February 24, 2000,
filed herewith
10.33 Parent Guaranty dated February 24, 2000 made by Everest Re Group,
Ltd. in favor of the Lenders under Everest Reinsurance Holdings,
Inc.'s Credit Facility, filed herewith
10.34 Form of Stock Option Agreement for Non-Employee Directors, filed
herewith
11.1 Statement regarding computation of per share earnings, filed
herewith
21.1 Subsidiaries of the registrant, filed herewith
23.1 Consent of PricewaterhouseCoopers LLP, filed herewith
27.1 Financial Data Schedule, filed herewith
- --------------------------
* Management contract or compensatory plan or arrangement.
E-2
Exhibit 3.2
B Y E - L A W S
of
EVEREST RE GROUP, LTD.
(as adopted with effect on February 22, 2000,
as amended February 18, 2000)
<PAGE>
TABLE OF CONTENTS
INTERPRETATION...............................................................1
1. INTERPRETATION.........................................................1
BOARD OF DIRECTORS...........................................................5
2. BOARD OF DIRECTORS.....................................................5
3. MANAGEMENT OF THE COMPANY..............................................5
4. POWER TO APPOINT MANAGING DIRECTOR OR CHIEF EXECUTIVE OFFICER..........6
5. POWER TO APPOINT MANAGER...............................................6
6. POWER TO AUTHORISE SPECIFIC ACTIONS....................................6
7. POWER TO APPOINT ATTORNEY..............................................6
8. POWER TO DELEGATE TO A COMMITTEE.......................................7
9. POWER TO APPOINT AND DISMISS EMPLOYEES.................................8
10 POWER TO BORROW AND CHARGE PROPERTY....................................8
DIRECTORS....................................................................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....................................................................17
32. NOTICE OF ANNUAL GENERAL MEETING......................................17
33. NOTICE OF SPECIAL GENERAL MEETING.....................................17
34. ACCIDENTAL OMISSION OF NOTICE OF GENERAL MEETING......................17
35. MEETING CALLED ON REQUISITION OF MEMBERS..............................17
36. SHORT NOTICE..........................................................17
37. POSTPONEMENT OF MEETINGS..............................................18
38. QUORUM FOR GENERAL MEETING............................................18
i
<PAGE>
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...............................................19
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 HARE CAPITAL....................26
55. PURCHASE OF SHARES BY COMPANY.........................................27
56. REGISTERED HOLDER OF SHARES...........................................29
57. DEATH OF A JOINT HOLDER...............................................29
58. SHARE CERTIFICATES....................................................29
REGISTER OF MEMBERS.........................................................30
59. CONTENTS OF REGISTER OF MEMBERS.......................................30
60. INSPECTION OF REGISTER OF MEMBERS.....................................30
61. SETTING OF RECORD DATE................................................30
TRANSFER OF SHARES..........................................................30
62. INSTRUMENT OF TRANSFER................................................30
63. RESTRICTIONS ON TRANSFER..............................................31
64. TRANSFERS BY JOINT HOLDERS............................................32
TRANSMISSION OF SHARES......................................................32
65. REPRESENTATIVE OF DECEASED MEMBER.....................................32
66. REGISTRATION ON DEATH OR BANKRUPTCY...................................33
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...............................34
72. UNCLAIMED DIVIDENDS...................................................34
73. INTEREST ON DIVIDEND..................................................34
CAPITALIZATION..............................................................34
74. CAPITALIZATION........................................................34
ACCOUNTS AND FINANCIAL STATEMENTS...........................................34
75. RECORDS OF ACCOUNT....................................................34
76. FINANCIAL YEAR END....................................................35
77. FINANCIAL STATEMENTS..................................................35
ii
<PAGE>
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..................................................................39
96. DETERMINATION TO LIQUIDATE............................................39
97. WINDING-UP/DISTRIBUTION BY LIQUIDATOR.................................40
ALTERATION OF BYE-LAWS......................................................40
98. ALTERATION OF BYE-LAWS................................................40
iii
<PAGE>
BYE-LAWS
OF
EVEREST RE GROUP, LTD.
(as adopted with effect on February 22, 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 in
such market, in each case for the last
2
<PAGE>
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;
3
<PAGE>
(xix) "Person" means an individual, trust, estate,
partnership, association, company, corporation, firm
or other legal entity or enterprise;
(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; and
(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
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to exercise primary supervision over the
administration of the trust and (B) one or more U.S.
Persons have the authority to control all
substantial decisions of the trust.
(b) In these Bye-laws, where not inconsistent with the context:
(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.
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
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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 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.
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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 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
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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
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expiration of such Director's term or until such Director's successor shall have
been duly elected or appointed or until such Director's office is otherwise
vacated.
(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 th e 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.
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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 fifty percent
(50 %) 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
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until such Director's successor is elected or appointed or such Director's
office is otherwise vacated.
16. VACANCIES ON THE BOARD
(a) The Board shall have the power from time to time and at any time
to appoint any individual as a Director to fill a vacancy on the Board occurring
as the result of the death, disability, disqualification, resignation or removal
of any Director or if such Director's office is otherwise vacated and to appoint
an Alternate Director to any Director so appointed. A Director so appointed
shall hold office for the balance of the term of such vacant Board position or
until such Director's successor is elected or appointed or such Director's
office is otherwise vacated.
(b) The Board may act notwithstanding any vacancy in its number but,
if and so long as its number is reduced below the number fixed by these Bye-laws
as the minimum number necessary for the transaction of business at meetings
of the Board, the continuing Directors or Director may, notwithstanding that the
number of Directors is below the number fixed by or in accordance with these
Bye-laws as the quorum or that there is only one continuing Director, act for
the purpose of (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
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been given the Business Day following the sending thereof and, if by
registered mail, three Business Days following the sending thereof.
(c) Meetings of the Board may be held within or outside of Bermuda and
shall be held outside of the United States.
18. QUORUM AT MEETINGS OF THE BOARD
The quorum necessary for the transaction of business at a meeting of
the Board shall be a majority of the Directors then in office, present in person
or represented by 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.
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(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 and benefits (if any) of the Directors, including
without limitation, participation in any share option or incentive plan and
loans (with the general or specific consent required by Section 96 of the
Act) in connection therewith, 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 and benefits 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.
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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.
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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 authorised in the specific
case upon a determination that indemnification of such Person is proper in the
circumstances because such Person has met the applicable standard of conduct
set forth in paragraph (a) of this Bye-law 30. Such determination shall be made
(i) by the Board by a majority vote of disinterested Directors or (ii) if a
majority of the disinterested Directors so directs, by independent legal
counsel in a written opinion or (iii) by the Members.
(c) Expenses (including, without limitation, attorneys' fees) actually
and reasonably incurred by any Director, Secretary, other Officer or employee
of the Company in defending any civil, criminal, administrative or investigative
action, suit or proceeding or threat thereof for which indemnification is
sought pursuant to paragraph (a) of this Bye-law 30 shall be paid by the
Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
15
Person to repay such amount if it shall be ultimately determined that such
Person is not entitled to be indemnified by the Company as authorised in these
Bye-laws or otherwise pursuant to applicable law; provided, that if it is
determined by either (i) a majority vote of Directors who were not parties to
such action, suit or proceeding or (ii) if a majority of the disinterested
Directors so directs, by independent legal counsel in a written opinion, that
there is no reasonable basis to believe that such Person is entitled to be
indemnified by the Company as authorised in these Bye-laws or otherwise pursuant
to applicable law, then no expense shall be advanced in accordance with this
paragraph (c) of this Bye-law 30. 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.
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MEETINGS
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32. NOTICE OF ANNUAL GENERAL MEETING
The annual general meeting of the Company shall be held in each year at
such time and place as the Chairman, the Deputy Chairman or any two Directors or
any Director and the Secretary or the Board shall appoint. At least five days
written notice of such meeting shall be given to each Member 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.
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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.
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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.
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.
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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.
(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
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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.
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(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 purposes 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
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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 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
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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
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 meeting 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
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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;
"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
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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.
(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
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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 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
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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 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 Member 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.
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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 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
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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 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
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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 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:
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(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 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
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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.
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.
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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.
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.
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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.
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.
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(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.
GRATUITIES, PENSIONS AND INSURANCE
----------------------------------
83. BENEFITS
The Board may (by establishment of or maintenance of schemes or
otherwise) provide benefits, whether by share options and incentive plans and
loans to acquire shares (subject to obtaining any general or specific consent
under the provision of Section 96 of the Act), 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-
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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.
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 any time after the expiration of two years from the date of
recording thereof and all share certificates which have been canceled at
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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 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;
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(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.
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.
39
<PAGE>
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.
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.
******
***
*
40
Exhibit 10.8
AWARD OF STOCK OPTIONS TO OUTSIDE DIRECTORS
WHEREAS, the Board of Directors believes that it is advisable and
in the best interests of the Company and its stockholders to award
non-employee directors options to purchase common stock of the Company in
order to increase the ownership interest in the Company of non-employee
directors whose services are considered essential to the Company's
continued progress, to align such interests with those of the stockholders
of the Company and to provide a further incentive to serve as a director
of the Company; and
NOW THEREFORE, BE IT RESOLVED, that effective February 23, 2000,
Martin Abrahams, Kenneth J. Duffy, John R. Dunne and William F. Galtney,
Jr. are each hereby awarded non-qualified stock options to purchase 7,500
shares of Common Stock at the average of the highest and lowest sale price
of the Common Stock as reported on the Composite Transaction Tape of the
New York Stock Exchange on February 23, 2000, or if no sale of the Common
Stock is reported for such date, the next preceding day for which there is
a reported sale; and
FURTHER RESOLVED, that each award of options as set forth in the
preceding resolution shall be evidenced by an award agreement setting
forth the number of shares of Common Stock subject to the award and other
terms and conditions applicable to the award and that no person shall have
any rights under any award unless and until the person to whom such award
shall have been granted shall have executed and delivered to the Company
an award agreement, provided, however that the execution and delivery of
such an award agreement shall not be a pre-condition to the granting of
such award; and
FURTHER RESOLVED, that the form of Stock Option Agreement for
Non-Employee Directors dated March 31, 1999 (copy attached hereto and
ordered filed in the minute book) is hereby approved for each of the
awards set forth in the preceding resolutions; and
FURTHER RESOLVED, that the officers of the Company are hereby
authorized to execute and deliver Stock Option Agreements for Non-Employee
Directors in the form approved in the next preceding resolution on
February 23, 2000 evidencing the awards approved herein, and to do or
cause to be done all acts and things necessary and appropriate to
effectuate the intent and purposes of this and the immediately preceding
resolutions.
Exhibit 10.29
AMENDMENT OF EMPLOYMENT AGREEMENT
WHEREAS, Everest Reinsurance Company (the "Company"), Everest Reinsurance
Holdings, Inc. ("Holdings") and Joseph V. Taranto ("Taranto") are parties to an
employment agreemen which is effective as of January 1, 2000 (the "Employment
Agreement");
WHEREAS, a restructuring of Holdings is proposed pursuant to which
Holdings will become a wholly-owned subsidiary of Everest Re Group, Ltd.
("Everest Group");
WHEREAS, in connection with the restructuring, it is contemplated that
Everest Group will establish a subsidiary, Everest Global Services, Inc.
("Everest Services"); and
WHEREAS, in connection with the restructuring and in anticipation of
the establishment of Everest Services, certain amendments to the Employment
Agreement are desirable;
NOW, THEREFORE, the Employment Agreement is hereby amended in the
following particulars, all effective as of and conditioned upon the consummation
of the restructuring transaction described in the Registration Statement on Form
S-4 (File Number 333-87361) filed with the Securities Exchange Commission by
Everest Group:
1. By adding the following new Section 1.1A to the Employment Agreement
immediately preceding Section 1.1 thereof:
"1.1A. For periods on and after the effective date of the
restructuring transaction described in the Registration Statement on Form S-4
(File Number 333-87361) filed with the Securities Exchange Commission by Everest
Re Group, Ltd. (`Everest Group') pursuant to which Holdings shall become a
wholly-owned subsidiary of Everest Group (the `Restructuring'), Everest Group
shall be a party to this Agreement. For periods on and after the Restructuring,
Holdings and Everest Group shall have co-extensive rights, duties, powers and
responsibilities to or with respect to Taranto hereunder, except as applied to
Sections 1.5, 4 and 5 hereof, and Taranto shall have rights, duties, powers and
responsibilities to or with respect to Holdings and Everest Group which are the
same as those that he had to or with respect to Holdings immediately prior to
the Restructuring."
2. By substituting the following for the second and third paragraphs,
respectively, of Section 1.1 of the Employment Agreement:
"Holdings hereby employs Taranto and Taranto hereby agrees to serve
during the term of this Agreement without additional compensation, on similar
terms and conditions as set forth in the preceding paragraph, as Chairman and
Chief Executive Officer of each of Holdings and Everest Group and, subject to
his election, as a director of Everest Reinsurance Company and as a director and
officer of any corporation which is a subsidiary or affiliate of Everest
Reinsurance Company, if elected by the stockholders or the board of directors of
such corporation.
<PAGE>
- 2 -
It is the intention of Holdings and Everest Reinsurance Company to
cause Taranto to continue to be a member of the Board and to continue his
appointment as a member of the Executive Committee of the Board. It is the
intention of Everest Group to cause Taranto to be a member of the Board of
Directors of Everest Group (the "Group Board") following the Restructuring and
to cause his appointment as a member of the Executive Committee of the Group
Board."
3. By adding the following new Sections 1.4 and 1.5 to the Employment
Agreement immediately after Section 1.3 thereof:
"1.4 Notwithstanding the foregoing provisions of this Section
1, in the event that Everest Group establishes a subsidiary or affiliate
(referred to herein as `Everest Services') that employs individuals who perform
services for more than one member of the group of companies consisting of
Everest Group and its subsidiaries, Taranto agrees that he will, at the request
of the Group Board, transfer to employment with Everest Services. For periods
after Taranto becomes an employee of Everest Services, he shall, as an employee
of Everest Services, provide services for Everest Reinsurance Company, Everest
Group and Holdings as described in the foregoing provisions of this Section 1.
In the event that Taranto transfers to employment with Everest Services pursuant
to the preceding sentence, (i) Everest Services shall be substituted for the
Company hereunder without any further action of the parties being required, (ii)
neither Taranto's transfer of employment to Everest Services nor the
substitution of Everest Services for the Company hereunder shall constitute a
`Termination for Good Reason' within the meaning of Section 8.6 hereof or a
termination of employment with the Company for any other purpose hereunder,
(iii) Taranto agrees to continue to serve during the term of this Agreement,
without additional compensation, as the Chairman and Chief Executive Officer of
Everest Reinsurance Company, and (iv) Everest Group will cause Everest Services
to become a party to this Agreement.
1.5 Taranto understands that, in connection with the
restructuring, Everest Group will assume all of the rights and obligations of
Holdings under the Everest Reinsurance Holdings, Inc. 1995 Stock Incentive Plan,
Everest Reinsurance Holdings, Inc. Executive Performance Annual Incentive Plan
and Everest Reinsurance Holdings, Inc. Annual Incentive Plan. Taranto agrees
that, following the Restructuring, all references in this Agreement to such
plans or arrangements (or benefits thereunder) shall be to the plans or
arrangements as assumed by Everest Group."
4. By adding the following new Section 6.4 to the Employment Agreement
immediately after Section 6.3 thereof:
"6.4 In the event that Everest Group establishes Everest
Services and in the event that Taranto transfers to employment with Everest
Services, Everest Group shall cause Everest Services to provide Taranto with
employee benefit plans, policies, programs and arrangements (including
perquisites) which are substantially similar to those provided to similarly
situated employees of Everest Reinsurance Company from time to time."
<PAGE>
- 3 -
5. By substituting the following for Section 8.8 of the Employment
Agreement:
"8.8 GENERAL; GUARANTY. The obligations of the Everest
Reinsurance Company, Holdings, Everest Group and, to the extent applicable,
Everest Services to pay Taranto the compensation and other benefits specified
herein shall be absolute and unconditional and shall not be affected by any
circumstances, including without limitation, any set off, counterclaim,
recoupment, defense or other right which any of them may have against Taranto or
anyone else. In no event shall Taranto be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to him under
this Agreement. To the extent that Everest Services fails, for any reason, to
meet its financial obligations under this Agreement, the Everest Reinsurance
Company shall have full responsibility and liability for all such obligations."
6. By substituting the following for Section 9.1 of the Employment
Agreement:
"9.1 Taranto acknowledges that as a result of the services to
be rendered to the Company, Everest Reinsurance Company and their affiliated
entities hereunder, Taranto will be brought into close contact with many
confidential affairs of the Company, its subsidiaries and affiliates not readily
made available to the public. Taranto further acknowledges that the services to
be performed under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character; that the business of the Company, its
subsidiaries and its affiliates is international in scope; that their goods and
services are marketed through the United States and other countries; and that
Everest Reinsurance Company competes with other organizations that are could be
located in any part of the United States or the world."
7. By substituting the phrase "the Company, its subsidiaries and
affiliated entities either" for the phrase "the Company either" where the latter
phrase appears in the first sentence of Section 9.2 of the Employment Agreement;
and by substituting the phrase "the Company, its subsidiaries and affiliated
entities means" for the phrase "the Company means" where the latter phrase
appears in the second sentence of Section 9.2 of the Employment Agreement.
8. By substituting the phrase "while employed by the Company, its
subsidiaries and affiliated entities" for the phrase "while employed by the
Company" where the latter phrase appears in Section 9.3 of the Employment
Agreement.
9. By substituting the phrase "termination of employment with the
Company, its subsidiaries and affiliated entities" for the phrase "termination
of employment with the Company" where the latter phrase occurs in Section 9.4 of
the Employment Agreement.
10. By substituting the following for Section 9.5 of the Employment
Agreement:
<PAGE>
- 4 -
"Taranto will promptly disclose to the Company all inventions, processes,
original works of authorship, trademarks, patents, improvements and discoveries
related to the business of the Company, its subsidiaries and affiliated entities
(collectively `Developments'), conceived or developed during Taranto's
employment with the Company, its subsidiaries or affiliated entities and based
upon information to which he had access during such employment, whether or not
conceived during regular working hours, through the use of Company time,
material or facilities (or those of the Company's subsidiaries or affiliated
entities) or otherwise. All such Developments shall be the sole and exclusive
property of the Company, its subsidiaries and its affiliated entities, and upon
request, Taranto shall deliver to the Company, its subsidiaries or its
affiliated entities, as applicable, all outlines, descriptions and other data
and records relating to such Developments, and shall execute any documents
deemed necessary by the Company, its subsidiaries or its affiliated entities to
protect their rights hereunder. Taranto agrees, upon request, to assist the
Company, its subsidiaries and its affiliated entities to obtain United States or
foreign letters patent and copyright registrations covering inventions and
original works of authorship belonging to the Company, its subsidiaries or its
affiliated entities hereunder. If the Company, its subsidiaries or its
affiliated entities are unable because of Taranto's mental or physical
incapacity to secure Taranto's signature or apply for or to pursue any
application for any United States or foreign letters patent or copyright
registrations covering inventions and original works of authorship belonging to
the Company, its subsidiaries or its affiliated entities hereunder, then Taranto
hereby irrevocably designates and appoints the Company, its subsidiaries and
affiliated entities, and their duly authorized officers and agents, or any of
them, as his agent and attorney in fact, to act for and on his behalf and in his
stead to execute and file any such applications and to do all other lawfully
permitted actions to further the prosection and issuance of letters patent or
copyright registrations thereon with the same legal force and effect as if
executed by him. Taranto hereby waives and quitclaims to the Company, its
subsidiaries and its affiliated entities any and all claims, of any nature
whatsoever, that he may hereafter have for infringement of any patents or
copyright resulting from any such application for letters patent or copyright
registrations belonging to the Company, its subsidiaries or its affiliated
entities hereunder."
11. By substituting the phrase "the Company, its subsidiaries and its
affiliated entities, in addition to any other remedies that as may be available
to any of them," for the phrase "the Company, in addition to any other remedies
as may be available to it," where the latter phrase appears in Section 9.6 of
the Plan.
12. By substituting the following for Section 14 of the Employment
Agreement:
"14. Amendment or Modification; Waiver.
No provision of this Agreement may be amended or modified
unless such amendment or modification is agreed to in writing, signed by Taranto
and by a duly authorized officer of each of the other parties. Except as
otherwise specifically provided in this Agreement, no waiver by either party
hereto of any breach by any other party of any condition or provision of the
Agreement to be performed by such other party shall be deemed a waiver of a
similar or dissimilar provision or condition at the same or any prior or
subsequent time."
<PAGE>
- 5 -
IN WITNESS WHEREOF, the parties have executed this amendment to the
Employment Agreement on the 15th day of February, 2000.
Everest Reinsurance Company
By: /S/ Janet J. Burak
------------------------
Janet J. Burak
Senior Vice President
Everest Reinsurance Holdings, Inc.
By: : /S/ Janet J. Burak
------------------------
Janet J. Burak
Senior Vice President
Everest Re Group, Ltd.
By: : /S/ Janet J. Burak
------------------------
Janet J. Burak
Deputy Chairman
/S/ Joseph V. Taranto
------------------------
Joseph V. Taranto
Exhibit 10.30
AMENDMENT OF CHANGE OF CONTROL AGREEMENT
WHEREAS, Everest Reinsurance Company (the "Company"), Everest Reinsurance
Holdings, Inc. ("Holdings") and Joseph V. Taranto ("Taranto") are parties to a
Change of Control Agreement effective as of July 15, 1998 (the "Change of
Control Agreement");
WHEREAS, a restructuring of Holdings is proposed pursuant to which
Holdings will become a wholly-owned subsidiary of Everest Re Group, Ltd.
("Everest Group");
WHEREAS, in connection with the restructuring, certain amendments to the
Change of Control Agreement are desirable;
NOW, THEREFORE, the Change of Control Agreement is hereby amended,
effective as of and conditioned upon the consummation of the restructuring
transaction described in the Registration Statement on Form S-4 (File Number
333-87361) filed with the Securities Exchange Commission by Everest Group, by
adding the following new paragraph 1.J to the Change of Control Agreement
immediately after paragraph 1.I thereof:
"1.J. For periods on and after the effective date of the restructuring
transaction described in the Registration Statement on Form S-4 (File Number
333-87361) filed with the Securities Exchange Commission by Everest Re Group,
Ltd. (`Everest Group') pursuant to which Holdings shall become a wholly-owned
subsidiary of Everest Group (the `Restructuring'), Everest Group shall be
substituted for Holdings hereunder and all references to Holdings hereunder
shall be changed to references to Everest Group. In addition, in the event that,
pursuant to the terms of Taranto's employment agreement among the Company,
Holdings and Everest Group effective as of January 1, 2000, as amended in
connection with the Restructuring (the `Employment Agreement'), Taranto is
transferred to employment with Everest Services (as defined in the Employment
Agreement), all references herein to the Company (other than in paragraph 1.C
hereof) shall be changed to references to Everest Services and Everest Group
will cause Everest Services to become a party to this Agreement; PROVIDED,
HOWEVER, that (i) Taranto's transfer of employment from the Company to Everest
Services shall not be treated as a termination of employment for purposes of
this Agreement, and (ii) to the extent that Everest Services fails, for any
reason, to meet its financial obligations hereunder, the Everest Reinsurance
Company shall have full responsibility and liability for all such obligations."
<PAGE>
- 2 -
IN WITNESS WHEREOF, the parties have executed this amendment to the
Employment Agreement on the 15th day of February, 2000.
Everest Reinsurance Company
By: /S/ Janet J. Burak
-------------------------
Janet J. Burak
Senior Vice President
Everest Reinsurance Holdings, Inc.
By: /S/ Janet J. Burak
-------------------------
Janet J. Burak
Senior Vice President
Everest Re Group, Ltd.
By: : /S/ Janet J. Burak
-------------------------
Janet J. Burak
Deputy Chairman
/S/ Joseph V. Taranto
-------------------------
Joseph V. Taranto
EXHIBIT 10.32
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BETWEEN
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND
EVEREST REINSURANCE HOLDINGS, INC.
--------------------------------
DATED AS OF FEBRUARY 24, 2000
------------------------------
SALE OF COMMON STOCK
OF
GIBRALTAR CASUALTY COMPANY
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
DEFINITION OF TERMS
1.1 Definitions .........................................................1
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1 Purchase of Shares ..................................................5
2.2 Purchase Consideration ..............................................5
2.3 Time and Place of Closing ...........................................5
2.4 Transactions to Be Effected at Closing ..............................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
3.1 Due Incorporation and Authority .....................................6
3.2 Outstanding Capital Stock, Options and Other Rights .................7
3.3 Transfer of the Shares ..............................................7
3.4 Organization and Qualification of Gibraltar .........................7
3.5 No Violation; Consents ..............................................7
3.6 Financial Statements ................................................8
3.7 Statutory Statements ................................................8
3.8 Assets ..............................................................9
3.9 Investments .........................................................9
3.10 Absence of Certain Changes and Events Since December 31, 1999 .......9
3.11 Liabilities ........................................................10
3.12 Insurance Reserves .................................................11
3.13 Judgments, Decrees and Orders in Restraint of Business .............11
3.14 Litigation and Proceedings .........................................11
3.15 Permits, Licenses and Franchises ...................................12
3.16 Relationships With Affiliates, Officers and Directors ..............12
3.17 Compliance with Applicable Law .....................................12
3.18 Employee Benefit Plans .............................................12
3.19 Intellectual Property ..............................................13
3.20 Governmental Consents ..............................................14
3.21 Contracts and Binding Commitments ..................................14
-i-
<PAGE>
Section Page
- ------- ----
3.22 Insurance and Reinsurance ..........................................15
3.23 Operations Insurance ...............................................16
3.24 Taxes ..............................................................16
3.25 Accounts with Financial Institutions ...............................18
3.26 Broker's, Finder's or Similar Fees .................................19
3.27 Employees ..........................................................19
3.28 Actions Taken Prior to December 31, 1999 ...........................19
3.29 Dispute Resolution .................................................19
3.30 GAAP Book Value ....................................................19
3.31 Information Supplied ...............................................19
3.32 Accuracy of Statements .............................................19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 Due Incorporation and Authority ....................................20
4.2 No Violation .......................................................20
4.3 Consents ...........................................................21
4.4 Financing ..........................................................21
4.5 Broker's, Finder's or Similar Fees .................................21
4.6 Purchase for Investment ............................................21
4.7 Information Supplied ...............................................21
4.8 Indemnification ....................................................21
ARTICLE V
COVENANTS OF THE SELLER PENDING THE CLOSING
5.1 Operations in the Ordinary Course ..................................22
5.2 Intentionally Omitted ..............................................22
5.3 Restrictions .......................................................22
5.4 Investment Portfolio ...............................................24
5.5 Investigation by the Purchaser .....................................24
5.6 Financial Statements ...............................................25
5.7 Regulatory Filings and Compliance ..................................25
5.8 Intercompany Accounts; Surplus Notes ...............................26
5.9 Tax Matters ........................................................26
5.10 Investment Income ..................................................26
5.11 Purchase of Shares .................................................26
5.12 Gibraltar Marks License ............................................26
-ii-
<PAGE>
Section Page
- ------- ----
ARTICLE VI
COVENANTS OF THE PURCHASER PENDING THE CLOSING
6.1 Regulatory and Other Consents ......................................27
6.2 Confidential Information Memorandum ................................27
6.3 Release from Certain Obligations ...................................27
ARTICLE VII
COVENANTS AND AGREEMENTS
7.1 Confidentiality; Return of Documents ...............................28
7.2 Employee Benefit Plans .............................................28
7.3 The Seller's Access to Records .....................................29
7.4 Taxes ..............................................................29
7.5 Commercial Reasonableness ..........................................34
7.6 Termination of Agreements ..........................................35
7.7 Use of Gibraltar Marks .............................................35
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1 Survival of Covenants, Agreements, Representations
or Warranties .....................................................35
ARTICLE IX
JOINT CONDITIONS TO THE OBLIGATIONS OF THE PARTIES TO CLOSE
9.1 Insurance Regulatory Approvals .....................................36
9.2 Regulatory Consents ................................................36
9.3 No Proceedings .....................................................36
9.4 MUF Agreement ......................................................36
9.5 Additional Stop-Loss Coverage ......................................36
ARTICLE X
CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO CLOSE
10.1 Covenants ..........................................................37
10.2 Representations and Warranties of the Seller .......................37
10.3 Certificates .......................................................37
10.4 Other Approvals ....................................................37
10.5 Other Consents .....................................................37
-iii-
<PAGE>
Section Page
- ------- ----
10.6 Resignation of Directors and Officers ..............................37
10.7 No Material Adverse Change .........................................37
ARTICLE XI
CONDITIONS TO THE OBLIGATIONS OF THE SELLER TO CLOSE
11.1 Covenants ..........................................................38
11.2 Representations and Warranties of the Purchaser ....................38
11.3 Certificates .......................................................38
ARTICLE XII
INDEMNIFICATION
12.1 Indemnification by the Seller ......................................38
ARTICLE XIII
TERMINATION, AMENDMENT AND WAIVER
13.1 Termination ........................................................42
13.2 Effect of Termination ..............................................42
ARTICLE XIV
MISCELLANEOUS
14.1 Amendment ..........................................................43
14.2 Extension; Waiver ..................................................43
14.3 Notices ............................................................43
14.4 Interpretation .....................................................44
14.5 Governing Law ......................................................44
14.6 Assignment; Binding Effect .........................................44
14.7 Counterparts .......................................................44
14.8 Entire Agreement; Third Party Beneficiaries ........................45
14.9 No Waiver ..........................................................45
14.10 Construction .......................................................45
14.11 Fees and Expenses ..................................................45
-iv-
<PAGE>
EXHIBITS
Exhibit A Form of Opinion of Counsel to the Seller
Exhibit B Form of Opinion of Counsel to the Purchaser
Exhibit C Form of MUF Agreement
Exhibit D Form of Additional Stop-Loss Coverage Agreement
SCHEDULES
Schedule 3.5 Consents
Schedule 3.7 Statutory Statements
Schedule 3.9 Liens on the Investments of Gibraltar
Schedule 3.10 Changes and Events since December 31, 1999
Schedule 3.11 Liabilities of Gibraltar which under GAAP are required to be
disclosed
Schedule 3.12 Pending or Threatened Insurance Claims or Assessments
Schedule 3.13 Judgments, Decrees and Orders in Restraint of Business
Schedule 3.14 Material Actions, Suits, Arbitrations or Legal,
Administrative or Other Proceedings
Schedule 3.15 Jurisdiction of Incorporation and Jurisdictions of
Qualification of Gibraltar
Schedule 3.16 Material Contracts with Affiliates, Officers, Directors and
Interested Parties
Schedule 3.17 Compliance with Applicable Law
Schedule 3.20 Governmental Consents
Schedule 3.21 Contracts, Agreements or Arrangements to which Gibraltar is
a party or by which Gibraltar's Assets or Property are
bound
Schedule 3.22 Contractual Reinsurance, Insurance and Commutation
Agreements
Schedule 3.23 Liability, Property and Casualty, Workers Compensation,
Directors and Officers Liability, Surety Bonds, Key Man
Life Insurance and Other Insurance Contracts of Gibraltar
Schedule 3.24 Taxes
Schedule 3.25 Safe Deposit Boxes, Bank Accounts and Other Deposits of
Gibraltar
Schedule 3.27 Employee Titles; Aggregate Annual Compensation and Bonuses
Schedule 5.1 Exceptions to Operations in the Ordinary Course
Schedule 5.3 Restrictions on Gibraltar
Schedule 6.3 Indemnification and Guarantee Obligations
Schedule 7.6 Agreements and Arrangements to be Terminated
-v-
<PAGE>
STOCK PURCHASE AGREEMENT dated as of February 24, 2000 (the
"AGREEMENT"), among THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a mutual
insurance company domiciled in the State of New Jersey (the "Seller"), and
EVEREST REINSURANCE HOLDINGS, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Purchaser").
W I T N E S S E T H
WHEREAS the Seller is the sole owner of the Shares (as defined in
Section 1) of Gibraltar Casualty Company ("GIBRALTAR"), which Shares constitute
all the issued and outstanding shares of Gibraltar's capital stock; and
WHEREAS the Purchaser desires to purchase the Shares from the Seller,
and the Seller desires to sell the Shares to the Purchaser, upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereto agree as
follows:
ARTICLE I
DEFINITION OF TERMS
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
"ADDITIONAL STOP-LOSS AGREEMENT" shall have the meaning specified in
Section 9.5.
"AFFILIATE" shall have the meaning specified in Rule 12b-2 under the
Exchange Act.
"ANNUAL STATEMENTS" shall have the meaning specified in Section 3.7.
"BUSINESS" of any Person means all the assets, property, business,
business operations, goodwill, practices, contract rights and privileges of such
Person.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
on which commercial banks in New York City or New Jersey are authorized or
required by law to close.
"CLOSING" shall have the meaning specified in Section 2.3.
"CLOSING DATE" shall have the meaning specified in Section 2.3.
"CODE" means the Internal Revenue Code of 1986, as amended.
<PAGE>
"COMMON STOCK" shall have the meaning specified in Section 3.2.
"CONFIDENTIALITY AGREEMENTS" means, collectively, (i) the
Confidentiality Agreement dated September 15, 1998 between the Seller and the
Purchaser and (ii) the Confidentiality Agreement dated May 26, 1999 between the
Seller and Everest Re.
"CONSOLIDATED GROUP" means the affiliated group (within the meaning of
the Code) of Persons of which the Seller and Gibraltar are members.
"CONTRACTS" shall have the meaning specified in Section 3.21.
"DECEMBER 31 BALANCE SHEET" means the unaudited balance sheet of
Gibraltar as of December 31, 1999, prepared in conformity with GAAP.
"EMPLOYEE," means, as Gibraltar has no common law employees, all
individuals who are employed by the Seller and who are set forth in Schedule
3.27.
"EMPLOYEE BENEFIT PLANS" shall have the meaning specified in Section
3.18(a)(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any corporation which is a member of
Gibraltar's controlled group of corporations, or any trade or business (whether
or not incorporated) which is under common control with Gibraltar or would be
considered a single employer with Gibraltar pursuant to Section 414 (b), (c) or
(m) of the Code and the regulations thereunder.
"ERISA AFFILIATE PLAN" shall have the meaning specified in Section
3.18(b)(1).
"EVEREST RE" means Everest Reinsurance Company, a corporation organized
and existing under the laws of the State of Delaware and a wholly-owned
subsidiary of the Purchaser.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED TAXES" shall have the meaning specified in Section 7.4(a).
"FORMER EMPLOYEE" means all Employees who are not Transferred
Employees.
"GAAP" means the accounting principles generally used and recognized
from time to time within the United States which have substantial support from
authoritative agencies or bodies, including the Securities and Exchange
Commission, the American Institute of Certified Public Accountants, the
Financial Accounting Standards Board and general industry practice, which
principles have been applied in a consistent manner throughout the periods
involved.
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"GAAP BOOK VALUE" on any date means the amount of the total
stockholders' equity of Gibraltar as shown on a balance sheet as of such date
prepared in accordance with GAAP consistently applied.
"GAAP FINANCIALS" shall have the meaning specified in Section 3.6.
"GIBRALTAR" shall have the meaning specified in the recitals.
"GIBRALTAR MARKS" shall have the meaning specified in Section 3.19.
"GIBRALTAR MARKS LICENSE" shall have the meaning specified in Section
3.19.
"GOVERNING INSTRUMENTS" means the memorandum, articles or certificate
of incorporation or association and by-laws, if applicable, in the case of a
corporation, the limited liability issuer agreement, in the case of a limited
liability issuer, the partnership agreement, in the case of a partnership or the
comparable document or documents in the case of another kind of entity.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"INDEMNIFIED PERSON" means the Person or Persons entitled to
indemnification under Article XII.
"INDEMNIFYING PERSON" means the Person or Persons obligated to provide
to an Indemnified Person the indemnification under Article XII.
"INVESTMENT PORTFOLIO" means the list provided by the Seller to the
Purchaser setting forth all investments, including stocks, bonds and limited
partnership interests, owned by Gibraltar as of a particular date, the issuer of
the investments, and the amount owned.
"LIEN" means any lien, pledge, mortgage, security interest, lease,
charge, option, right of first refusal, easement, transfer restriction under any
shareholder or similar agreement or any other similar encumbrance.
"LOSS RESERVES" means all reserves customarily established by property
and casualty insurance companies under Statutory Accounting Principles for
incurred losses, including case reserves, reserves for incurred but not reported
losses and reserves for loss adjustment expenses, both allocated and
unallocated.
"LOSSES" shall have the meaning specified in Section 12.1(a).
"MATERIAL ADVERSE EFFECT" with respect to any Person hereto means a
material adverse effect on (a) the financial condition, results of operations,
cash flows or Business of such Person and its subsidiaries, if any, taken as a
whole, or (b) the ability of such Person to perform its obligations under this
Agreement.
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"MEMORANDUM" shall have the meaning specified in Section 6.2.
"MUF" means Everest Re's management underwriting facility which began
in 1977 and was a reinsurance arrangement pursuant to which Everest Re ceded
business to a number of insurance and reinsurance companies.
"MUF AGREEMENT" shall have the meaning specified in Section 9.4.
"OCCUPANCY AGREEMENT" means the Occupancy Agreement between Gibraltar
and The Prudential Service Company dated July 1, 1995.
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"PERMITTED LIENS" shall have the meaning specified in Section 3.8(a).
"PERSON" means an individual, corporation, partnership, firm, joint
venture, association, limited liability company, joint stock company, trust,
unincorporated organization, governmental or regulatory authority or other
entity.
"PROPERTY" means the real property and personal property of Gibraltar.
"PURCHASE PRICE" shall have the meaning specified in Section 2.2.
"PURCHASER" shall have the meaning specified in the recitals.
"QUARTERLY STATEMENTS" shall have the meaning specified in Section
3.7(a).
"REQUIRED RESERVE INCREASES" means the aggregate increase in the Loss
Reserves of Gibraltar required under Section 5.10 and the $80,000,000 increase
in the Loss Reserves described in Section 3.28.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" shall have the meaning specified in the recitals.
"SERVICE CONTRACT" means the Service Contract between Gibraltar and the
Seller dated May 10, 1990.
"SHARES" means all the issued and outstanding shares of Common Stock of
Gibraltar.
"STATE INSURANCE COMMISSIONER" means the Insurance Commissioner of the
State of Delaware.
"STATE INSURANCE COMMISSION" means the Office of the Insurance
Commissioner of the State of Delaware.
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"STATUTORY ACCOUNTING PRINCIPLES" means the accounting procedures and
practices prescribed or permitted from time to time by the National Association
of Insurance Commissioners and adopted or promulgated by the State of Delaware
or the State Insurance Commissioner and employed in a consistent manner
throughout the periods involved.
"STRADDLE PERIOD" means any taxable year or period beginning before and
ending after the Closing Date.
"SURPLUS NOTES" means the surplus notes issued by Gibraltar and held by
the Seller or one of its subsidiaries (other than Gibraltar).
"TAX OR TAXES" means any federal, state, local, foreign or other
income, premium, profits, franchise, license, sales, use, payroll, withholding,
employment, wage, occupation, value added, property (real or personal), excise
or other similar taxes, fees, duties, assessments or withholdings (including
interest or penalties on such items), imposed by any governmental authority.
"TAX CLAIM" shall have the meaning specified in Section 12.1(f).
"TAX PACKAGE" shall have the meaning specified in Section 7.4(c).
"TAX RETURN" means any return, report or similar statement required to
be filed with respect to any Tax (including any attached schedules), including
any information return, amended return or declaration of estimated Tax.
"THIRD PARTY CLAIM" shall have the meaning specified in Section
12.1(e).
"TRANSFERRED EMPLOYEE" shall have the meaning specified in Section
7.2(a).
"UNAUDITED STATUTORY STATEMENTS" shall have meaning specified in
Section 3.7(a).
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1 PURCHASE OF SHARES. Upon the terms and subject to the conditions
contained in this Agreement, the Seller agrees to sell, assign, transfer and
deliver to the Purchaser, and the Purchaser agrees to purchase and accept from
the Seller, on the Closing Date, the Shares for the consideration specified
herein.
2.2 PURCHASE CONSIDERATION. The purchase price for the Shares shall
be an amount in cash equal to $51.8 million (the "Purchase Price"). At the
Closing (as defined in Section 2.3 below), the Purchaser shall pay to the
Seller by wire transfer (to the bank account of the Seller specified by the
Seller in writing to the Purchaser at least one Business Day prior to the
Closing), immediately available funds in an amount equal to the Purchase Price.
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2.3 TIME AND PLACE OF CLOSING. The consummation of the purchase and
sale of the Shares and the other transactions contemplated by this Agreement to
occur simultaneously therewith (the "Closing") shall take place at the offices
of Sidley & Austin, 875 Third Avenue, New York, New York, or at such other place
as may be mutually agreed upon by the parties. The Closing will occur at 10:00
a.m. New York City time on or before the tenth Business Day following the date
on which all the conditions set forth in Articles IX, X and XI shall have been
satisfied or waived, as may be agreed upon by the parties hereto, or at such
other time as may be agreed upon by the parties hereto. The time and date of the
Closing are referred to herein as the "Closing Date".
2.4 TRANSACTIONS TO BE EFFECTED AT CLOSING. At the Closing:
(a) The Seller shall deliver to the Purchaser free and clear of all
Liens (i) the certificates representing the Shares, properly endorsed in
blank or accompanied by stock powers or other instruments of transfer duly
executed in blank, and accompanied by all requisite stock transfer stamps, if
any, (ii) an opinion of counsel, substantially to the effect provided in Exhibit
A, (iii) good standing certificates, incumbency certificates and all such other
documents as the Purchaser and its counsel may reasonably request; and (iv)
all other documents and instruments required by this Agreement to be delivered
by the Seller at the Closing.
(b) The Purchaser shall pay to the Seller the Purchase Price and shall
deliver to the Seller (i) good standing certificates, incumbency certificates
and all such other documents as the Seller and its counsel may reasonably
request; (ii) an opinion of counsel substantially to the effect provided in
Exhibit B; and (iii) all other documents and instruments required by this
Agreement to be delivered by the Purchaser at the Closing.
(c) The Gibraltar Marks License shall be terminated and the Seller
and the Purchaser shall cause Gibraltar to file with the Secretary of State of
the State of Delaware, on the Closing Date, a certificate of amendment to
Gibraltar's Governing Instruments that changes the name of Gibraltar to any name
designated by the Purchaser, as long as such name is not confusingly similar
to the word "Gibraltar", "Prudential" or any other "Pru" formative mark.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and
warrants to the Purchaser as follows:
3.1 DUE INCORPORATION AND AUTHORITY. The Seller is a mutual insurance
company domiciled, validly existing and in good standing under the laws of the
State of New Jersey and has all requisite corporate power and authority
to execute and deliver this Agreement and each other agreement required
to be executed and delivered by the Seller pursuant hereto, to perform
its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution, delivery
and performance by the Seller of this Agreement and each other
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agreement required to be executed and delivered by the Seller pursuant hereto,
and the consummation by the Seller of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate
action, and no other corporate proceedings on the part of the Seller are
necessary to authorize the execution, delivery and performance by the Seller of
this Agreement and each of the other agreements contemplated by this Agreement,
or the consummation of the transactions contemplated hereby and thereby. This
Agreement has been duly and validly executed and delivered by the Seller and
constitutes a legal, valid and binding obligation of the Seller, enforceable
against the Seller in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights generally and except as rights to specific enforcement may be
limited by the application of equitable principles (whether such equitable
principles are applied in a proceeding at law or in equity).
(b) Gibraltar is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
power and authority to own, lease and operate its Business and to carry on its
Business as now conducted. Gibraltar is duly licensed or qualified to do
business in each jurisdiction in which the nature of the Business conducted by
it or the character of the assets owned by it makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Material Adverse Effect.
3.2 OUTSTANDING CAPITAL STOCK, OPTIONS AND OTHER RIGHTS. The
authorized capital stock of Gibraltar consists solely of 2,000 shares of common
stock, $5,000 par value per share, all of which are issued and outstanding (the
"COMMON STOCK"). The Shares constitute all the issued and outstanding capital
stock of Gibraltar. All the outstanding Shares are owned of record and
beneficially by the Seller free and clear of all Liens. All the Shares are duly
authorized, validly issued, fully paid and nonassessable. Gibraltar does not
beneficially own any interest in any Person except through its Investment
Portfolio made in the ordinary course of business. There is no outstanding
right, subscription, warrant, call, preemptive right, option or other similar
agreement to purchase or otherwise to receive from the Seller or Gibraltar any
of the outstanding, authorized but unissued, unauthorized or treasury shares
of the capital stock of Gibraltar, and there is no outstanding security of any
kind convertible into such capital stock.
3.3 TRANSFER OF THE SHARES. The Seller has and on the Closing Date
shall have full power and authority to convey, transfer and sell the Shares to
the Purchaser as contemplated hereby. Upon the Closing as contemplated hereby,
the Purchaser shall have good and valid title to the Shares, free and clear of
all Liens (except as may be or have been created or permitted by the Purchaser).
3.4 ORGANIZATION AND QUALIFICATION OF GIBRALTAR. The Seller has
delivered to the Purchaser true and complete copies of Gibraltar's Governing
Instruments as in effect on the date hereof and such instruments will be in
full force and effect on the Closing Date.
3.5 NO VIOLATION; CONSENTS. Except as set forth in Schedule 3.5,
neither the execution, delivery and performance of this Agreement by the Seller
or of each other agreement required to be executed and delivered by the
Seller pursuant hereto, nor the sale of the Shares pursuant to this
Agreement nor the consummation by the Seller of the transactions contemplated
hereby or thereby, will, with or without the giving of notice or
the passage of time, or both, (i) violate any provision of
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the Governing Instruments of the Seller; (ii) violate or result in any breach of
or constitute a default under, or give rise to a right of termination or
cancellation of, or accelerate the performance required by any terms of, as the
case may be, any contract, agreement, lease, license, mortgage, note,
reinsurance agreement, franchise, permit or instrument to which Gibraltar is a
party or by which any of its assets are bound, or result in the creation of any
Lien upon any of the Property owned by Gibraltar; (iii) violate any law,
regulation, judgment, order, writ, injunction or decree of any court,
governmental body (domestic or foreign), or administrative agency of any
jurisdiction applicable to the Seller or Gibraltar; or (iv) require the consent
or approval of any third parties; other than, in the case of (ii), (iii) and
(iv), such violations, breaches, defaults, terminations, cancellations,
accelerations, consents, approvals and Liens, the failure to obtain which or the
creation of which would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect on Gibraltar.
3.6 FINANCIAL STATEMENTS. The Seller has delivered to the Purchaser
the unaudited balance sheets as of December 31, 1999 and December 31, 1998 of
Gibraltar, and the related statements of income, stockholders' equity and cash
flows for the two years then ended, including the related notes thereon, each of
which presents fairly in all material respects the financial position of
Gibraltar, as of December 31, 1999 and December 31, 1998 and its results of
operations and cash flows for the years then ended, in conformity with GAAP
(except as may be indicated therein or in the notes thereto) (the "GAAP
FINANCIALS"), except that no representation or warranty is made with respect to
any Loss Reserves in this Section 3.6.
3.7 STATUTORY STATEMENTS. (a) The Seller has delivered to the Purchaser
complete and correct copies of (i) the Annual Statements of Gibraltar to
the State Insurance Commissioner for the years ended December 31, 1999 and
December 31, 1998, together with all exhibits and schedules thereto
(the "ANNUAL STATEMENTS"), and (ii) the unaudited statutory financial statements
of Gibraltar for the years ended December 31, 1999 and December 31, 1998 (the
"UNAUDITED STATUTORY STATEMENTS"). The Seller has furnished, or will furnish
to the Purchaser, as soon as practicable after their preparation, complete and
correct copies of the Quarterly Statements of Gibraltar to the State
Insurance Commissioner for periods subsequent to December 31, 1999 and all
exhibits and schedules thereto (the "QUARTERLY STATEMENTS"). The Annual
Statements, Unaudited Statutory Statements and the Quarterly Statements of
Gibraltar have been prepared in accordance with Statutory Accounting
Principles throughout the periods involved and in accordance with the books
and records of Gibraltar, except as expressly set forth or disclosed in the
notes, exhibits or schedules thereto. Except as set forth in Schedule 3.7 and
except that no representation or warranty is made with respect to any Loss
Reserves in this Section 3.7, each of the statutory financial statements
contained in the Annual Statements, the Unaudited Statutory Statements and
the Quarterly Statements fairly and accurately presents or will fairly and
accurately present, as the case may be, in all material respects, the assets,
liabilities and capital and surplus of Gibraltar as of the dates thereof in
accordance with Statutory Accounting Principles, subject, in the case of the
Quarterly Statements, to normal year-end adjustments and any other adjustments
described therein.
(b) The Seller has delivered to the Purchaser complete and correct
copies of all reports of examination and market conduct examinations issued by
any insurance regulatory commissions, agencies or authorities with respect to
Gibraltar since January 1, 1996 and all written responses made by the Seller or
Gibraltar with respect to any written comments since January 1, 1998, from any
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insurance regulatory commissions, agencies or authorities concerning the Annual
Statements, the Unaudited Statutory Statements, Quarterly Statements, reports of
examination and market conduct examinations.
(c) Except as set forth in Schedule 3.7, as of December 31, 1999,
Gibraltar had no material liability, whether accrued, absolute, fixed,
contingent or otherwise, of a nature required to be reflected on its balance
sheet prepared in accordance with Statutory Accounting Principles which is not
fully and correctly reflected or reserved against in the balance sheet forming
a part of the Annual Statement of Gibraltar for the year ended December 31,
1999.
3.8 ASSETS. (a) Gibraltar owns all personal property which it purports
to own, as reflected on the December 31 Balance Sheet and that it acquired in
the normal and ordinary course of business since December 31, 1999 (in either
case other than that disposed of in the ordinary course of business), free and
clear of all Liens except for (i) Liens on the portfolio investments of
Gibraltar set forth in Schedule 3.9; (ii) the claims of materialmen, carriers,
landlords and like Persons not yet due, all of which are not delinquent or are
being contested in good faith; (iii) Liens securing Taxes, assessments,
governmental charges or levies not yet due, all of which are not yet delinquent
or are being contested in good faith; and (iv) statutory liens on special
deposit funds held by state regulatory authorities (collectively, the "PERMITTED
LIENS").
(b) Gibraltar owns no real property. Gibraltar is not a party to any
lease for real property except for the Occupancy Agreement.
3.9 INVESTMENTS. Except as set forth in Schedule 3.9, Gibraltar has
legal and valid title, free and clear of all Liens, to all its portfolio
investments. The Seller has delivered an Investment Portfolio to the Purchaser
as of December 31, 1999. Such Investment Portfolio is, and each other
Investment Portfolio delivered by the Seller to the Purchaser shall be, as of
their respective dates, complete and correct in all material respects.
3.10 ABSENCE OF CERTAIN CHANGES AND EVENTS SINCE DECEMBER 31, 1999.
Except as set forth in Schedule 3.10, from December 31, 1999 through the date
hereof, Gibraltar has operated in the ordinary course consistent with past
practice and there has not been:
(a) Any change in the business policies of Gibraltar, including the
establishment or adjustment of Loss Reserves or investment or claims adjustment
policies and practices, or any change in any activity that (i) has had the
effect of materially accelerating the recording of accounts receivable or
materially retarding the payment of expenses or establishing or adjusting Loss
Reserves in connection with any accounts or Business of Gibraltar or (ii) has
had the effect of materially altering, modifying or changing the historic
financial or accounting practices or policies of Gibraltar, including accruals
of and reserves for Tax liabilities;
(b) Any damage, destruction or loss (whether or not covered by
insurance) to any Property of Gibraltar which could reasonably be expected to
have a Material Adverse Effect on Gibraltar or its Business;
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(c) Any declaration, setting aside or payment of any dividend or
other distribution in respect of any class of capital stock of Gibraltar;
(d) Any employment, bonus, incentive or deferred compensation
agreement or arrangement between Gibraltar or the Seller and an Affiliate,
director, officer or other employee or consultant of Gibraltar or the Seller
principally with respect to Gibraltar and/or the Business of Gibraltar;
(e) Any indebtedness incurred by Gibraltar for borrowed money or
any commitment to borrow money entered into or any guarantee given by Gibraltar;
(f) Any amendment to any Governing Instrument of Gibraltar;
(g) Any Material Adverse Effect on Gibraltar or its Business;
(h) Any change in the employment terms or conditions or terminations
of any Employee or any increase in the compensation payable or to become payable
by the Seller to any Employee, other than in the ordinary course consistent with
past practice;
(i) The creation of any Lien, except for Permitted Liens, on any
portion of the assets, properties or rights of Gibraltar;
(j) Any amounts paid in settlement or compromise of any suits or
claims against Gibraltar, other than insurance claims paid or settled in the
ordinary course of business;
(k) Any loans, advances or capital contributions made by Gibraltar to
any other Person;
(l) Any acquisition or lease of any assets other than in the ordinary
course of business;
(m) Any sale, transfer or other disposition of any assets, properties
or business of Gibraltar other than portfolio investments in the ordinary
course of business;
(n) Any new material contract, agreement or license to which Gibraltar
is a party, other than in the ordinary course of business;
(o) Any amendment, modification, alteration or termination of any
material contract, agreement or license to which Gibraltar is a party; or
(p) Any waiver of any rights of material value or any cancellation
of any claims, debts or accounts receivable owing to Gibraltar other than
in the ordinary course of business.
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3.11 LIABILITIES. (a) As of the date of this Agreement, Gibraltar has
no liabilities, whether accrued, absolute, fixed, contingent or otherwise (but
excluding liabilities of a type for which Gibraltar carries Loss Reserves and
excluding liabilities for Taxes), of a nature required to be reflected on its
balance sheet prepared in accordance with GAAP other than:
(i) liabilities disclosed or provided for in the December 31 Balance
Sheet;
(ii) liabilities incurred by Gibraltar in the ordinary course of its
Business since December 31, 1999; and
(iii) liabilities set forth in Schedule 3.11.
(b) To the knowledge of Gibraltar, as of the date of this Agreement
Gibraltar has no material liabilities, whether accrued, absolute, fixed,
contingent or otherwise (but excluding liabilities of a type for which Gibraltar
carries Loss Reserves and excluding liabilities for Taxes), other than:
(i) liabilities disclosed or provided for in the December 31 Balance
Sheet;
(ii) liabilities incurred by Gibraltar in the ordinary course of its
Business since December 31, 1999; and
(iii) liabilities set forth in Schedule 3.11.
3.12 INSURANCE RESERVES. Notwithstanding anything to the contrary,
expressly or implicitly, contained in this Agreement, this Section 3.12 and
Section 3.22 set forth the only representations or warranties by the Seller
relating to Gibraltar's Loss Reserves.
(a) Gibraltar's aggregate Loss Reserves as recorded in its Annual
Statements, Unaudited Statutory Statements and Quarterly Statements were
determined in accordance with generally accepted actuarial standards
consistently applied (except as otherwise noted therein), were fairly stated in
accordance with sound actuarial principles and met the requirements of the
insurance laws of the State of Delaware.
(b) Gibraltar's aggregate Loss Reserves as recorded in its GAAP
Financials were determined in accordance with generally accepted actuarial
standards consistently applied (except as noted therein) and were fairly
stated in accordance with GAAP.
(c) Except for regular periodic assessments in the ordinary course
of business and except as set forth in Schedule 3.12, no claim or assessment is
pending nor, to the knowledge of Gibraltar, threatened against Gibraltar by any
state insurance guaranty association in connection with that association's
fund relating to insolvent insurers.
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3.13 JUDGMENTS, DECREES AND ORDERS IN RESTRAINT OF BUSINESS. Except as
set forth in Schedule 3.13, Gibraltar is not a party to or subject to any
judgment or decree or order entered in any suit or arbitration or any proceeding
(other than any market conduct examinations commenced after the date hereof)
brought by a governmental agency or by any other Person enjoining it in respect
of (a) any business practice, (b) the acquisition of any property or (c) the
conduct of business in any area.
3.14 LITIGATION AND PROCEEDINGS. Except as set forth in Schedule 3.14,
as of the date hereof there are no actions, suits, arbitrations or legal,
administrative or other proceedings pending or (other than those relating to
insurance claims) threatened against or affecting Gibraltar, at law or in
equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or before any arbitrator
of any kind. Gibraltar is not subject to any material judgment, order, writ,
injunction, decree or award of any court, arbitration, governmental department,
commission, bureau, board, agency or instrumentality.
3.15 PERMITS, LICENSES AND FRANCHISES. Schedule 3.15 contains a true
and complete list, as of the date hereof, of all jurisdictions in which
Gibraltar is licensed as an insurer or reinsurer and all jurisdictions in which
Gibraltar is operating as an insurer or reinsurer, whether on a licensed or
unlicensed basis, and all jurisdictions in which Gibraltar is qualified as an
eligible surplus lines insurer. Gibraltar has all material permits, licenses,
franchises and other authorizations necessary to, and has complied in all
material respects with all laws applicable to, the conduct of its Business in
the manner and in the areas in which such Business is presently being conducted,
all such permits, licenses, franchises and authorizations are valid and in
full force and effect and Gibraltar is in compliance in all material respects
with all its obligations under such permits, licenses, franchises and
authorizations. Gibraltar has not engaged in any activity which would cause
revocation or suspension of any such material permit, license, franchise or
authorization. No action or proceeding seeking the revocation or suspension
of any thereof is pending or, to the knowledge of Gibraltar, threatened. Except
for compliance with periodic renewal procedures and as set forth in Section 9.1,
no approvals or authorizations are required to permit Gibraltar to continue its
Business, as presently conducted, after the consummation of the transactions
contemplated hereby.
3.16 RELATIONSHIPS WITH AFFILIATES, OFFICERS AND DIRECTORS. Except as
set forth in Schedule 3.16, the Seller has not, and no officer, director or
Affiliate of the Seller has, entered into any written contract or agreement
with Gibraltar that is binding upon Gibraltar following the Closing, except for
agreements or contracts that are cancelable at will by Gibraltar without
penalty.
3.17 COMPLIANCE WITH APPLICABLE LAW. Gibraltar is in compliance in all
material respects with all applicable laws, rules, regulations, orders,
ordinances, judgments, decrees, orders, writs and injunctions of all
governmental authorities (Federal, state, local, or foreign) except as disclosed
in Schedule 3.17. Gibraltar has not received notification from any governmental
authority of any asserted failure to so comply or material deficiency which has
not been resolved or otherwise settled. Except for the stop-loss agreement
between Gibraltar and Everest Re, Gibraltar has not written any insurance or
reinsurance since 1991. Gibraltar was an authorized insurer, whether on a
licensed or unlicensed basis, in each state in which it previously wrote
insurance for the type of insurance it wrote in such states and met all
statutory and regulatory requirements of all governmental authorities which
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had jurisdiction over it to be an authorized insurer. To the knowledge of
Gibraltar, all policy form and rate filings required to be made by Gibraltar
have been made and are up to date, and all material policies which have been
written are on forms approved by the insurance regulatory authority of the
jurisdiction where issued or are on forms which comply with applicable laws and
regulations.
3.18 EMPLOYEE BENEFIT PLANS. (1) Gibraltar does not sponsor or
maintain any separate or "stand alone" employee benefit plan within the
meaning of Section 3(3) of ERISA, or any separate or stand alone retirement or
deferred compensation plan, incentive compensation plan, stock plan,
unemployment compensation plan, vacation pay, severance pay, bonus or benefit
arrangement, insurance or hospitalization program or any other fringe benefit
arrangements for any Transferred Employee or Former Employee, whether pursuant
to contract, arrangement, custom or informal understanding, which does not
constitute an employee benefit plan (collectively, "EMPLOYEE BENEFIT PLANS")
and does not contribute to or have any obligation to contribute to any ERISA
Affiliate Plan (as defined below). Gibraltar has no common law employees.
(2) Since January 1, 1995, neither Gibraltar nor any ERISA Affiliate
has incurred any withdrawal liability with respect to a multiemployer plan
within the meaning of Section 3(37) of ERISA.
(b) (1) To the extent applicable to any Employee Benefit Plan
sponsored or maintained by the Seller or any other ERISA Affiliate ("ERISA
AFFILIATE PLAN"), as of the Closing Date there will not exist any accumulated
funding deficiency or unpaid required installment within the meaning of Section
412 of the Code or Section 302 of ERISA, nor has there been issued a waiver
or variance of the minimum funding standards imposed by the Code with respect to
any such plan, nor has any lien been created under Section 302(f) of ERISA or
412(n) of the Code or security been required under Section 307 of ERISA, nor
are there any excise Taxes due or hereafter to become due under Section 4971,
4972 or 4980B of the Code with respect to any fiscal period ending on or before
the Closing Date for which Gibraltar has or may have any liability.
(2) With respect to each ERISA Affiliate Plan subject to Title
IV of ERISA, (A) there has not occurred any "reportable event" within the
meaning of Section 4043(b) of ERISA or the regulations thereunder with respect
to which the 30 day notice requirement has not been waived under applicable
regulations, and (B) there exists no ground upon which the PBGC under ERISA
Section 4042 could demand termination of the ERISA Affiliate Plan or appointment
of itself or its nominee as trustee thereunder. The PBGC has not instituted or
threatened a proceeding to terminate an ERISA Affiliate Plan subject to Title IV
of ERISA. All PBGC premiums due on or before the Closing Date with respect to
each ERISA Affiliate Plan subject to Title IV of ERISA have been paid in full or
appropriately accrued on the balance sheet of the Seller or any ERISA Affiliate,
including late fees, interest and penalties, if and to the extent applicable.
Neither Gibraltar or any ERISA Affiliate has any liability under Section 4062,
4063, 4064 or 4069 of ERISA. None of the ERISA Affiliate Plans is a
multiemployer plan.
(c) Each ERISA Affiliate Plan complies in form and has been
administered in operation in all material respects with all applicable
requirements of law.
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3.19 INTELLECTUAL PROPERTY. Gibraltar owns or has licenses to use all
intellectual property necessary to carry on the Business as presently conducted,
and to its knowledge the use of any such intellectual property licensed from a
third party does not infringe upon or otherwise violate any intellectual
property rights of any third party. Neither the Seller nor Gibraltar has
received any written notice alleging that the use of such intellectual property
infringes upon or otherwise violates any intellectual property rights of any
third party. Gibraltar owns no copyright or trademark registrations or patents.
The only servicemarks and logos used by Gibraltar in connection with its
Business are GIBRALTAR and the Rock of Gibraltar logo (collectively, the
"GIBRALTAR MARKS"). The use of the Gibraltar Marks by Gibraltar does not
infringe upon or otherwise violate any intellectual property rights of any third
party. Neither the Seller nor Gibraltar has received any written notice alleging
that its use of the Gibraltar Marks infringes the intellectual property rights
of any third party. Gibraltar uses the Gibraltar Marks pursuant to a license
from the Seller (the "GIBRALTAR MARKS LICENSE").
3.20 GOVERNMENTAL CONSENTS. Except as set forth in Schedule 3.20, no
consent, authorization, order or approval of, or filing or registration with,
any governmental authority, board or other regulatory body is required for or in
connection with the execution and delivery of this Agreement by the Seller and
each other agreement required to be executed and delivered by the Seller
pursuant hereto or the consummation by the Seller of the transactions
contemplated hereby and thereby, except for (i) the notifications to be given
to, and the approval to be obtained from, the State Insurance Commissioner, (ii)
notifications and filings under the HSR Act; and (iii) those as may be necessary
as a result of any facts or circumstances relating solely to the Purchaser.
3.21 CONTRACTS AND BINDING COMMITMENTS. (a) Schedule 3.21 contains a
true and complete list, as of the date hereof, of all contracts, agreements or
arrangements (but, with respect to the contracts, agreements or arrangements
entered into prior to November 16, 1994, only to the extent available or known
to Gibraltar after conducting a reasonable investigation of its records) of the
following types to which Gibraltar is a party or by which Gibraltar's assets or
Property are or may be bound ("CONTRACTS"), as such Contracts may have been
amended, modified or supplemented:
(i) All Contracts out of the ordinary course of business;
(ii) All Contracts or similarly binding arrangements with any
Person containing any provision or covenant limiting the ability of
Gibraltar to engage in any line of business or compete with any Person;
(iii) All partnership, joint venture or profit-sharing Contracts
with any Person (other than participations in reinsurance arrangements
and underwriting agreements entered into in the ordinary course of
business);
(iv) Except with respect to the agreements and arrangements to
be terminated as set forth on Schedule 7.6, all Contracts relating to
the borrowing of money, or the direct or indirect guarantee of any
obligation for, or Contract to service the repayment of, borrowed money
or any other liability in respect of indebtedness for borrowed
money of any other Person, including any Contract relating
to (A) the maintenance of compensating balances that
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are not terminable by Gibraltar without penalty upon not more than 30
days' notice, (B) any lines of credit, (C) the payment for property,
products or services which are not conveyed, delivered or rendered, (D)
any obligation to keep-well, make-whole or maintain working capital or
earnings levels or perform similar requirements or (E) the guarantee of
any lease or other similar periodic payments to be made by any other
Person;
(v) All leases, subleases or rental or use Contracts to which
Gibraltar is a party with respect to personal property used by
Gibraltar in the conduct of its business operations or affairs;
(vi) All Contracts relating to the future disposition or
acquisition of any investment in any Person or of any interest in any
business enterprise (other than the disposition or acquisition of
portfolio investments in the ordinary course of business), and all
Contracts requiring Gibraltar to purchase any security (other than
such purchases of portfolio investments in the ordinary course of
business);
(vii) All Contracts between or among (x) Gibraltar and (y) the
Seller or any of the Seller's Affiliates or any director, officer or
employee of the Seller;
(viii) All reinsurance pools pursuant to which Gibraltar has
assumed reinsurance risks and all assigned risk pools in which
Gibraltar is participating;
(ix) All Contracts relating to computer software licensing or
data processing services utilized in its Business;
(x) All Contracts relating to licenses of trademarks, trade
names, service marks or other similar property rights;
(xi) Each Contract (other than Contracts cancelable at will)
involving payments of more than, or a series of payments which in the
aggregate are more than, $100,000 during its term for the purchase of
materials, supplies or services or which has a term of or requires the
performance of obligations in excess of, six months; and
(xii) Any power of attorney which is presently effective and
outstanding other than powers of attorney which exist as a matter of
law or which have been granted pursuant to requirements of applicable
state insurance or securities regulatory authorities;
(b) All the Contracts are valid and binding in all material respects
in accordance with their terms and are in full force and effect. Gibraltar has
not breached any provision of, and is not in material default under the terms
of, any Contract. No condition exists or event has occurred which, with or
without notice or the passage of time or both, would constitute a breach
of, or a default under, any Contract by Gibraltar. To the knowledge of
Gibraltar, no other party to any Contract has breached any provision of, or
is in default under the terms of, any Contract, other than in connection with
insurance or reinsurance agreements where Gibraltar is in good faith disputing
coverage.
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3.22 INSURANCE AND REINSURANCE. Except with respect to information
relating to outstanding facultative certificates, Schedule 3.22 contains a true
and complete list, as of the date hereof, of all the contractual reinsurance,
insurance and commutation agreements entered into since January 1, 1995 to which
Gibraltar is a party. Except as set forth in Schedule 3.22, (i) the reserves
recorded for potential liabilities that Gibraltar may incur pursuant to the
contractual reinsurance, insurance and commutation agreements listed in Schedule
3.22 are properly determined in accordance with the applicable statutory
and GAAP requirements; (ii) receivables due to Gibraltar pursuant to such
reinsurance, insurance and commutation agreements have been properly recorded in
the books of account of Gibraltar and reflected in its Annual Statements and
GAAP Financials for the year ended December 31, 1999 and its Quarterly
Statements for periods subsequent to December 31, 1999 and to the knowledge of
Gibraltar are collectible (less any reserves for uncollectability) in due
course; and (iii) no notice of intended cancellation has been received by
Gibraltar in connection with the contractual reinsurance, insurance and
commutation agreements listed on Schedule 3.22. Any letters of credit held by
Gibraltar that support receivable balances from unauthorized reinsurers comply
in all material respects with the applicable insurance laws or regulations.
3.23 OPERATIONS INSURANCE. Schedule 3.23 contains a summary
description of all liability, property and casualty, workers compensation,
directors and officers liability, surety bonds, key man life insurance and
other similar insurance contracts that insure Gibraltar or its Business
specifying the insurer (including whether the insurer is an Affiliate of the
Seller or Gibraltar), the amount of coverage, the type of insurance under each
such policy and whether such insurance will continue to be applicable to
Gibraltar following the Closing. All such insurance is in full force and effect
as of the date hereof and will be in full force and effect on the Closing
Date. No notice of cancellation or termination has been received by the Seller
or Gibraltar with respect to any such policy. To the knowledge of Gibraltar,
such insurance is in accordance with normal industry practice including self
insurance and, in light of the Business of Gibraltar, is in amounts and
provides coverage that is reasonable, adequate and customary for Persons in
similar Businesses.
3.24 TAXES. Except as set forth on Schedule 3.24,
(i) The amount accrued on the December 31 Balance Sheet
for all Taxes imposed by any taxing authority are adequate to
cover all material unpaid Tax liabilities, whether or not
disputed, that have accrued with respect to or are applicable
to all years or periods ending on or prior to December 31, 1999
and for which Gibraltar may be directly or contingently liable
in its own right or as a transferee of the assets of, or
successor to, any Person.
(ii) Gibraltar has not incurred any material Tax
liabilities other than in the ordinary course of business for
any taxable yearfor which the applicable statute of limitations
has not expired; there are no Tax liens (other than liens for
current Taxes not yet due and payable) upon the properties or
assets of Gibraltar.
(iii) Gibraltar has not granted or been requested in
writing to grant waivers of any statute of limitations applicable
to any claim for Taxes which requests are pending or waivers
are currently in effect.
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(iv) No member of the Consolidated Group has waived or
been requested in writing to waive any statute of limitations in
respect of Taxes for which Gibraltar may be liable which
requests are pending or waivers are currently in effect.
(v) All Tax Returns for Gibraltar required by
applicable law to have been filed for Gibraltar prior to the
Closing Date (taking into account extensions) have been filed.
All Taxes shown as due on all such Tax Returns have been paid.
Each such Tax Return is true and correct in all material
respects.
(vi) Either all of the income Tax Returns that include
the operations of Gibraltar have been audited by the Internal
Revenue Service or the appropriate taxing authority and all
liabilities therefor have been paid in full, or the statute of
limitations with respect to assessment of Taxes for the period
for which such Tax Returns were required to be filed has
expired. No material issues have been raised in writing in any
examination by any taxing authority with respect to the
business and operations of Gibraltar for any taxable period
for which the statute of limitations with respect to
assessment of Taxes for such taxable period has not expired.
(vii) No federal, state, local or foreign audits or
other administrative proceeding or court proceeding exist with
regard to any Taxes or Tax Returns of Gibraltar. Gibraltar has
not received any written notice that an audit or other
administrative proceeding is pending or threatened with
respect to any Taxes due from or with respect to Gibraltar or
any Tax Return filed by or with respect to Gibraltar.
(viii) No written position has been taken on any Tax
Return with respect to the business or operations of Gibraltar
for a taxable year for which the statute of limitations for the
assessment of any Taxes with respect thereto has not expired
that is directly in violation of the Code, final or temporary
Treasury regulations promulgated under the Code, or published
Internal Revenue Service revenue rulings promulgated under the
Code and not superseded.
(ix) All material Taxes which Gibraltar is required by
law to withhold or collect, including without limitation, sales
and use taxes, and amounts required to be withheld for Taxes of
employees, have been duly withheld or collected and , to the
extent required, have been paid over to the proper
governmental authorities or are held in separate bank accounts
for such purpose.
(x) The Seller is not a "foreign person" as defined in
Section 1445(f)(3) of the Code.
(xi) Gibraltar is not a party to any joint venture,
partnership or other arrangement or contract which is treated
as a partnership for Federal income tax purposes other
than any joint venture, partnership or other arrangement
or contract that is held as a portfolio investment in
the ordinary course of business. Gibraltar is
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not a party to any tax sharing agreement, other than the tax
sharing agreement currently in effect among the members of the
Consolidated Group, a true, complete and correct copy of which
is attached hereto in Schedule 3.24.
(xii) None of the assets of Gibraltar constitutes tax-
exempt bond financed property or tax-exempt use property within
the meaning of Section 168 of the Code, and none of the assets
reflected on the December 31 Balance Sheet is subject to a
lease, safe harbor lease or other arrangement as a result of
which Gibraltar is not treated as the owner for Federal income
tax purposes.
(xiii) Gibraltar has not made or become obligated to
make, and will not as a direct result of the sale contemplated
herein become obligated to make, any "excess parachute payment"
as defined in Section 280G of the Code (without regard to
subsection (b)(4) thereof).
(xiv) The basis of all depreciable or amortizable
assets, and the methods used in determining allowable
depreciation or amortization (including cost recovery) deductions
of Gibraltar, are correct and in compliance with the Code and the
Treasury regulations thereunder in each case, in all material
respects.
(xv) All Surplus Notes will be canceled on or before
the Closing in transactions that did not create cancellation of
indebtedness income to Gibraltar.
(xvi) Gibraltar is not required to include in income any
adjustment pursuant to Section 481(a) of the Code for any Tax
period after the Closing Date by reason of any voluntary or
involuntary change in accounting method for a Tax period
ending on or before the Closing Date (nor has any taxing
authority proposed in writing any such adjustment or change of
accounting method).
(xvii) None of the assets of Gibraltar are subject to a
consent pursuant to Section 341(f) of the Code (or any
predecessor provision).
(xviii) No excess loss account exists with respect to the
stock of a member of the Consolidated Group that is a direct or
indirect subsidiary of Gibraltar under Treasury regulation
Section 1.1502-19 (or similar provision under state, local or
foreign law).
(xix) Gibraltar has not executed, entered into nor is
subject to any closing agreement pursuant to Section 7121 of the
Code, or any predecessor provisions thereof or any comparable
provisions of state, local or foreign law with respect to any
period for which the statute of limitations has not expired.
(xx) No power of attorney has been granted by or with
respect to Gibraltar with respect to any matter relating to
Taxes, which is currently effective.
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(xxi) Gibraltar has filed its Federal income tax returns
as an insurance company subject to subchapter L of the Code.
Notwithstanding anything to the contrary in this Agreement, nothing in this
Section 3.24 shall cause the Seller to be liable for any Taxes for which the
Seller is not expressly liable pursuant to Section 7.4.
3.25 ACCOUNTS WITH FINANCIAL INSTITUTIONS. Schedule 3.25 sets forth
a true and correct list, as of the date hereof, of all safe deposit boxes, bank
accounts, custody accounts and other time, demand, statutory or regulatory
deposits of Gibraltar, together with the names and address of the applicable
financial institution or other depository, the account number and the names of
all persons authorized to draw thereon or who have access thereto.
3.26 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement
or understanding with the Seller, or any action taken by the Seller, except for
a fee payable by the Seller to Goldman, Sachs & Co. or except as otherwise
disclosed to the Purchaser in writing. Neither the Purchaser nor Gibraltar shall
have any obligation or responsibility for the payment of said fee.
3.27 EMPLOYEES. There are no employees of Gibraltar. Schedule 3.27
sets forth a true and correct list as of the date hereof of the titles or job
descriptions and the hourly rate schedule or aggregate annual compensation
and bonuses payable for the current fiscal year of the Employees. The Seller's
relationship with the Employees is good and no labor dispute or disturbance
exists and, to the knowledge of Gibraltar, none is threatened. None of the
Employees is covered by any collective bargaining agreement.
3.28 ACTIONS TAKEN PRIOR TO DECEMBER 31, 1999. Prior to December 31,
1999 and in connection with the transactions contemplated by this Agreement,
Gibraltar (i) received a capital contribution from the Seller in the amount of
$64,168,131; and (ii) increased the total amount of its Loss Reserves by (1)
$80,000,000 above the level carried at December 31, 1998, less (2) Gibraltar's
net incurred losses (excluding the $80,000,0000 increase in its Loss Reserves),
for the period January 1, 1999 through June 30, 1999.
3.29 DISPUTE RESOLUTION. Pursuant to the Report of the Independent
Examiner issued on December 20, 1999 to Gibraltar and Everest Re, the aggregate
claim of Everest Re against Gibraltar was reduced by the amount of $60,800,000
and the amount of such reduction has not been used by Gibraltar to reduce
its Loss Reserves.
3.30 GAAP BOOK VALUE. The GAAP Book Value on the Closing Date will be
at least $55,800,000.
3.31 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Seller in writing specifically for any document to be filed
with any regulatory agency by the Seller, Gibraltar or the Purchaser in
connection with the transactions contemplated by this Agreement will, at the
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respective times filed with such regulatory agency, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
3.32 ACCURACY OF STATEMENTS. Neither this Agreement nor any schedule,
certificate or other agreement furnished or to be furnished by or on behalf of
the Seller to the Purchaser or any representative or Affiliate of the Purchaser
in connection with this Agreement contains or will contain any untrue statement
of a material fact.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Seller as follows:
4.1 DUE INCORPORATION AND AUTHORITY. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to
execute and deliver this Agreement and each other agreement required to be
executed and delivered by the Purchaser pursuant hereto, to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance
by the Purchaser of this Agreement and each other agreement required to be
executed and delivered by the Purchaser pursuant hereto, and the consummation by
the Purchaser of the transactions contemplated hereby and thereby, have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Purchaser are necessary to authorize
the execution, delivery and performance by the Purchaser of this Agreement
and each of the other agreements contemplated by this Agreement, or the
consummation of the transactions contemplated hereby and thereby. This Agreement
has been duly and validly executed and delivered by the Purchaser and
constitutes a legal, valid and binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally and except as rights to specific
enforcement may be limited by the application of equitable principles (whether
such equitable principles are applied in a proceeding at law or in equity).
4.2 NO VIOLATION . Neither the execution, delivery nor performance
of this Agreement by the Purchaser, nor the purchase of the Shares pursuant
to this Agreement or the consummation by the Purchaser of the transactions
contemplated hereby, will, with or without the giving of notice or the passage
of time, or both, (i) violate any provision of the Governing Instruments of the
Purchaser; (ii) violate or result in any breach of or constitute a default
under, or give rise to a right of termination or cancellation of, or accelerate
the performance required by any terms of, as the case may be, any contract,
agreement, lease, license, mortgage, note, reinsurance agreement, franchise,
permit or instrument to which the Purchaser is a party or by which any of its
assets is bound, or result in the creation of any material Lien upon any of the
property owned by it; (iii) violate any law, regulation, judgment, order, writ,
injunction or decree of any court, governmental body (domestic or foreign)
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or administrative agency of any jurisdiction; or (iv) require the consent or
approval of any third parties; other than, in the case of (ii), (iii) and (iv),
such violations, breaches, defaults, terminations, cancellations, accelerations,
consents, approvals and Liens, the failure to obtain or the creation of which
would not in the aggregate reasonably be expected to have a Material Adverse
Effect on the Purchaser.
4.3 CONSENTS. No consent, authorization, order or approval of, or
filing or registration with, any governmental authority, board or other
regulatory body is required for or in connection with the execution and delivery
of this Agreement by the Purchaser or the consummation by the Purchaser of
the transactions contemplated hereby, except for (i) the notifications to be
given to, and the approvals to be obtained from, the State Insurance
Commissioner; (ii) notifications and filings under the HSR Act; and (iii) as may
be necessary as a result of any facts or circumstances relating solely to the
Seller.
4.4 FINANCING. As of the date of this Agreement, the Purchaser has no
reason to believe that it will not be able timely to perform its obligations
under this Agreement. The Purchaser or any permitted assignee of the Purchaser
has sufficient financial resources to consummate the transactions contemplated
hereby and to pay all of the Purchaser's, or such permitted assignee's, fees and
expenses.
4.5 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement
or understanding with the Purchaser, or any action taken by the Purchaser.
4.6 PURCHASE FOR INVESTMENT. The Purchaser represents that it is
acquiring the Shares for its own account for investment and not with a
view to or in connection with their distribution and will not sell or transfer
such Shares in violation of the Securities Act and the rules and regulations
promulgated thereunder. The Purchaser is a sophisticated institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act. The Purchaser acknowledges that the Shares are
not registered under the Securities Act and constitute "restricted securities"
under Rule 144 thereunder.
4.7 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Purchaser in writing specifically for any document to be filed
with any regulatory agency by the Purchaser, Gibraltar or the Seller in
connection with the transactions contemplated by this Agreement will, at the
respective times filed with such regulatory agency, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
4.8 INDEMNIFICATION. To the knowledge of the Purchaser there are no
other indemnification or guarantee obligations of Gibraltar or any Third
Party in respect of the Business of Gibraltar other than those listed on
Schedule 6.3.
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ARTICLE V
COVENANTS OF THE SELLER PENDING THE CLOSING
5.1 OPERATIONS IN THE ORDINARY COURSE. Prior to the Closing Date, the
Seller agrees to cause the Business of Gibraltar to be operated only in the
ordinary course consistent with past practice, except as otherwise contemplated
by this Agreement or except as provided in Schedule 5.1. Prior to and including
the Closing Date and except as otherwise contemplated by this Agreement, the
Seller shall cause Gibraltar to (a) maintain insurance coverages and its
books, accounts and records in the usual manner on a basis consistent with past
practice; (b) comply in all material respects with all laws, ordinances and
regulations of governmental authorities applicable to Gibraltar; (c) maintain
and keep its properties and equipment in good repair, working order and
condition, subject to normal wear and tear; (d) perform in all material respects
its obligations under all Contracts to which it is a party and (e) use its
commercially reasonable efforts to maintain and preserve its Business.
5.2 INTENTIONALLY OMITTED.
5.3 RESTRICTIONS. Except as otherwise set forth in Schedule 5.3 or
contemplated by this Agreement, subsequent to the date of this Agreement and
prior to the Closing Date without the prior written consent of the Purchaser,
the Seller agrees to cause Gibraltar not to or (where and only to the extent
noted below) Seller agrees not to:
(a) incur any indebtedness or encumber or grant any Lien (other
than Permitted Liens) on any asset of Gibraltar;
(b) Seller agrees not to grant or promise to grant to any of the
Employees, any new or increased salary, commission, fee or other
benefit, other than those that are consistent with the Seller's current
compensation plan or as may be required by law and excluding any stay
or transaction bonuses paid or payable to Employees by the Seller in
connection with this transaction or, make any commitment to any
Employee regarding such Employee's employment by Gibraltar subsequent
to the Closing provided, however, for purposes of this Section 5.3(b),
the term "commitment" shall not include any discussion by the Seller
with any Employee with respect to the Seller's Employee Benefit Plans;
(c) hire any new employees or agents or enter into any written
employment agreements except to the extent necessary to replace an
Employee who has been terminated or has resigned;
(d) issue or sell any security issued by Gibraltar, grant any
option, warrant or any other right to purchase or convert any
obligation into any security issued by Gibraltar;
(e) declare or pay any dividend on, or make any other
distribution in respect of the Shares;
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(f) amend any of its Governing Instruments, except as required to
change the name of Gibraltar;
(g) merge or consolidate with any other Person, acquire all or
substantially all the assets of any other Person or sell, transfer or
otherwise dispose of any part of its assets other than sales of
portfolio investments in the ordinary course of business;
(h) enter into any leases for real property or personal property;
(i) Seller agrees not to terminate the employment of any Employee
except in the ordinary course consistent with past practice; provided
that the Seller shall have no liability to the Purchaser for the
failure to keep the services of any Employee who voluntarily resigns;
(j) except as provided in Section 7.6, forfeit, abandon, modify,
waive, terminate or otherwise change Gibraltar's rights, duties or
obligations under any of the Contracts other than in the ordinary
course consistent with past practice;
(k) forfeit, abandon, modify, waive, terminate or otherwise
change Gibraltar's licenses, operating rights or registrations;
(l) pay any amounts in settlement or compromise of any suits or
claims against Gibraltar, other than insurance or reinsurance claims
paid in the ordinary course of business;
(m) make any loans, advances or capital contributions to any
other Person;
(n) acquire any assets other than in the ordinary course of
business;
(o) enter into any contract, agreement or license that is
material or is not in the ordinary course of business;
(p) change any of its accounting or investment policies;
(q) enter into any transaction with or pay any amount to the
Seller or its Affiliates involving an amount in excess of or a series
of related amounts that in the aggregate are in excess of $100,000,
including the transfer of investments or other assets of Gibraltar,
but excluding amounts payable to the Seller or any of its Affiliates
pursuant to the Service Contract that in the aggregate are less than
$1,500,000 per quarter;
(r) after the applicable waiting period under the HSR Act shall
have expired or early termination shall have been granted in connection
with this Agreement, pay or settle any insurance or reinsurance claims
(other than pursuant to agreements in existence prior to the date
hereof) (i) in excess of two hundred fifty thousand dollars ($250,000)
but equal to or less than two million five hundred thousand
dollars ($2,500,000), without notifying the Purchaser on a monthly
basis of the payment or settlement of such claims; (ii) in
excess of two million dollars five hundred thousand ($2,500,000),
but equal to or less than five million dollars
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($5,000,000), without providing notice to the Purchaser in advance of
the payment or settlement of such claims and consulting with the
Purchaser with respect thereto; or (iii) in excess of five million
dollars ($5,000,000), without the prior written consent of the
Purchaser, which consent shall not be unreasonably withheld;
(s) reduce the amount of any of its Loss Reserves except on
account of payments in the ordinary course of business consistent with
past practice; or
(t) enter into any Contract to do any of the foregoing.
5.4 INVESTMENT PORTFOLIO. Prior to the Closing Date, the Seller shall
cause Gibraltar to update the Investment Portfolio as of the end of each month
and shall deliver the updated Investment Portfolio to the Purchaser as promptly
as practicable, but in no event later than thirty days after the end of such
month.
5.5 INVESTIGATION BY THE PURCHASER. (a) Prior to the Closing Date,
upon reasonable notice, the Seller will cause Gibraltar to give the Purchaser
and its agents access at all reasonable times and upon reasonable prior
notice to the properties and non-privileged, non-proprietary portions of
its books and records, employees, accountants and actuaries of Gibraltar and
furnish to the Purchaser and its agents such non-privileged, non-proprietary
portions of its documents, financial, operating data and other information
(including information concerning Loss Reserves) with respect to the Business
and Property of Gibraltar as the Purchaser or its agents shall from time to time
reasonably request.
(b) The Purchaser acknowledges and agrees that it (i) has made
its own inquiry and investigation into, and, based thereon, has formed an
independent judgment concerning, Gibraltar and its Business, (ii) has been
furnished with or given adequate access to such information about Gibraltar and
its Business as it has requested, and (iii) will not assert (except pursuant
to the terms of Section 12) any claim against the Seller or any of its
directors, officers, employees, agents, stockholders, affiliates, consultants,
investment bankers or representatives, or hold the Seller or any such persons
liable, for any inaccuracies, misstatements or omissions with respect to
information furnished by the Seller or such persons concerning the Seller,
Gibraltar or the Business of Gibraltar in connection with the transactions
contemplated by this Agreement.
(c) In connection with the Purchaser's investigation of Gibraltar
and its Business, the Purchaser received from the Seller certain estimates,
projections and other forecasts for Gibraltar, and certain plan and budget
information. The Purchaser acknowledges that there are uncertainties inherent
in attempting to make such estimates, projections, forecasts, plans and budgets,
that the Purchaser is familiar with such uncertainties, that the Purchaser is
taking full responsibility for making its own evaluation of the adequacy and
accuracy of all estimates, projections, forecasts, plans and budgets so
furnished to it, and that the Purchaser will not assert any claim against the
Seller or any of its affiliates or any of its directors, officers, employees,
agents, stockholders, affiliates, consultants, investment bankers or
representatives, or hold the Seller or any such persons liable with respect
thereto. Accordingly, the Seller makes no representation or warranty, either
express or implied, with respect to any such estimates, projections, forecasts,
plans or budgets.
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5.6 FINANCIAL STATEMENTS. (a) The Seller shall provide to the
Purchaser as promptly as practicable, but in any event, prior to the Closing
Date, the audited balance sheets of Gibraltar as of December 31, 1999 and
December 31, 1998 and the related statements of income, stockholders' equity
and cash flow for the two years then ended, including the related notes thereon,
prepared in accordance with GAAP and the audited statutory statements of
Gibraltar for the years ended December 31, 1999 and December 31, 1998 prepared
in accordance with Statutory Accounting Principles.
(b) Through the Closing Date the Seller shall provide to the
Purchaser as promptly as practicable, but in no event later than thirty (30)
days after the end of each fiscal quarter, (a) the unaudited quarterly balance
sheets of Gibraltar and related statements of income and cash flows for the
period then ended, each of which shall present fairly the financial position of
Gibraltar as of the balance sheet date and its results of operations and cash
flows for the period then ended in conformity with GAAP, and will include all
adjustments, consisting of normal recurring accruals, which in the opinion of
the Seller are consistent for a fair presentation of results on an interim
basis; and (b) copies of the Quarterly Statements filed by Gibraltar which shall
be prepared in accordance with Statutory Accounting Principles.
(c) The Seller shall provide to the Purchaser as promptly as
practicable, not in no event later than thirty days after the Closing Date, an
unaudited balance sheet of Gibraltar as of the Closing Date and the related
statement of income, stockholders' equity and cash flow for the period then
ended prepared in accordance with GAAP.
5.7 REGULATORY FILINGS AND COMPLIANCE. (a) The Seller will furnish the
Purchaser with such information as the Purchaser may reasonably request in
connection with any application or notification the Purchaser may make to
applicable Federal, State, local or foreign law authorities in connection with
the transactions contemplated hereby.
(b) The Seller shall promptly prepare and file and prosecute
diligently (including responding promptly to all reasonable requests for
supplemental information) with the appropriate regulatory agency or body all
documentation and information required by law or requested by such agency or
body to be filed by the Seller or Gibraltar to permit consummation of the
transactions contemplated hereby. The Seller shall prepare and file or cause to
be prepared and filed promptly, and in any event within twenty Business Days of
the date of this Agreement, the notifications and filings required to be made
under the HSR Act in connection with the transactions contemplated hereby. The
Seller shall use all commercially reasonable efforts to obtain prompt favorable
action from any such agency or body.
(c) The Seller shall timely deliver to the Purchaser copies of
all documents filed after the date hereof with regulatory authorities by
the Seller with respect to the transactions contemplated hereby or by Gibraltar,
and copies of all correspondence after the date hereof to and from such
regulatory authorities in connection therewith. The Seller shall timely deliver
to the Purchaser copies of all regulatory reports that may be filed after the
date hereof with respect to Gibraltar.
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5.8 INTERCOMPANY ACCOUNTS; SURPLUS NOTES. (a) All receivables, if any,
of Gibraltar from the Seller or its Affiliates and all payables, if any, of
Gibraltar to the Seller or any of its Affiliates shall be cancelled prior to the
Closing without any payment by any Person in respect of such cancellation (or,
at the option of the Seller in the case of the Gibraltar payables, paid in
accordance with their terms prior to the Closing).
(b) Prior to the Closing, the Seller shall or shall cause its
Affiliates to (i) cancel the Surplus Notes and deliver such notes to Gibraltar
without any payment by Gibraltar in respect of such cancellation.
5.9 TAX MATTERS. All current Federal income Tax receivables or
payables of Gibraltar as of the Closing Date shall be determined in accordance
with GAAP (calculated assuming full current use of net operating losses and/or
capital losses), shall be paid in full in cash by the Seller or Gibraltar, as
the case may be, on or prior to the Closing Date, and shall be redetermined
and paid accordingly within thirty days after the tax returns of Gibraltar
for the taxable year ending on December 31, 1999 and for the taxable year ending
on the Closing Date are filed.
5.10 INVESTMENT INCOME. (a) The Seller shall cause Gibraltar to take
an amount equal to its investment income from July 1, 1999 until the later of
April 30, 2000 and twenty days after the later of (i) the receipt of all
consents, approvals and waivers of the State Insurance Commission contemplated
by Section 9.1 and (ii) the satisfaction of the condition set forth in Section
9.2, less investment and operating expenses of Gibraltar incurred in the
ordinary course of business consistent with past practice during such period and
less unrealized and realized depreciation on any bonds (after Taxes) less
$4 million of after-tax net investment income, plus unrealized and realized
appreciation on any bonds (after Taxes) during such period, collectively, and
use such amount to increase its Loss Reserves. Any such increase in the Loss
Reserves of Gibraltar pursuant to this Section 5.10 shall be made in conformity
with GAAP.
(b) No more than ten Business Days prior to the Closing Date,
the Seller shall cause Gibraltar to liquidate its portfolio investments in a
commercially reasonable manner and invest the proceeds in short-term investments
reasonably satisfactory to the Purchaser.
5.11 PURCHASE OF SHARES. Prior to the end of the three-month period
commencing three trading days after the public announcement by the Purchaser and
the Seller of the transactions contemplated by this Agreement, the Seller shall
purchase or cause one of its Affiliates (or a trustee or other third party on
its behalf) to purchase on The New York Stock Exchange shares of common stock
of Everest Re Group, Ltd. in an amount equal to $25,000,000 in the aggregate;
provided, however, that the Seller shall be obligated to purchase such
securities pursuant to this Section 5.11 only if the average daily closing
prices for such securities on such exchange during such three-month period
is $25 per share or less (such price to be adjusted to equitably reflect any
stock splits, stock dividends, recapitalizations or other similar transactions
occurring during such three-month period).
5.12 GIBRALTAR MARKS LICENSE. The Gibraltar Marks License shall be
terminated upon the Closing of this Agreement and thereafter neither the
Purchaser nor Gibraltar shall have any rights to use the Gibraltar Marks in any
manner.
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ARTICLE VI
COVENANTS OF THE PURCHASER PENDING THE CLOSING
6.1 REGULATORY AND OTHER CONSENTS. The Purchaser shall prepare and
file or cause to be prepared and filed promptly, and in any event within twenty
Business Days of the date of this Agreement, the notification and filings
required to be made under the HSR Act in connection with the transactions
contemplated hereby, and shall file or cause to be filed within ten Business
Days of the date of this Agreement the filings with the State Insurance
Commissioner contemplated by Section 9.1. The Purchaser will promptly file or
cause to be filed, and prosecute diligently (including responding promptly to
all reasonable requests for supplemental information), all other applications
and documents required to be filed with applicable authorities, including all
amendments thereto, in order to effect as soon as practicable the transactions
contemplated hereby, including filings with the appropriate authorities of the
states, countries and other jurisdictions where such filings are required
for the consummation of the transactions contemplated hereby. The Purchaser
will use all commercially reasonable efforts promptly to obtain the consent
or approval of the State Insurance Commissioner and other appropriate
authorities whose consent or approval will be required to be obtained as a
condition to consummation of the transactions herein contemplated. Promptly
following the execution hereof, the Purchaser will notify the State Insurance
Commissioner and other appropriate authorities of the states, countries
and other jurisdictions where such notification is necessary for the
consummation of the transactions contemplated hereby.
6.2 CONFIDENTIAL INFORMATION MEMORANDUM. The Purchaser acknowledges
receipt of the Confidential Information Memorandum related to Gibraltar (the
"Memorandum"). The Purchaser acknowledges that neither the Seller nor Gibraltar
makes any representation or warranty, express or implied, with respect to the
Memorandum and that the Purchaser has not relied on the Memorandum in its
decision to execute this Agreement but rather has relied solely on the
Purchaser's independent investigation of Gibraltar and its Business and on the
terms and provisions hereof including the representations and warranties of the
Seller and Gibraltar set forth in Article III.
6.3 RELEASE FROM CERTAIN OBLIGATIONS. The Purchaser will use all
commercially reasonable efforts to assist the Seller in arranging for the
complete release and discharge of the Seller at or prior to the Closing from its
indemnification and guarantee obligations to Gibraltar or any third party in
respect of the Business of Gibraltar listed on Schedule 6.3. The form of such
release shall be evidenced by one or more duly executed instruments in form
satisfactory to the Seller and its counsel.
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ARTICLE VII
COVENANTS AND AGREEMENTS
7.1 CONFIDENTIALITY; RETURN OF DOCUMENTS. (a) All information
provided to the Purchaser or its Affiliates pursuant hereto shall be
subject to the Confidentiality Agreements and all documents (and copies thereof)
provided to the Purchaser or its Affiliates shall be promptly returned upon
termination of this Agreement.
(b) Except as provided in Section 7.1(c), neither the Seller nor
the Purchaser shall, and each shall cause their respective Affiliates not to,
publicly disclose the execution, delivery or contents of this Agreement, other
than with the prior written consent of the other party hereto, or other than as
required by law or any securities exchange upon prior notice to the other party
hereto.
(c) The Seller and the Purchaser shall agree with each other as
to the form and substance of any press release related to this Agreement or the
transactions contemplated hereby, and shall consult each other as to the form
and substance of other public disclosures related thereto; provided, however,
that nothing contained herein shall prohibit either party, following
notification to the other party if practicable, from making any disclosure
which its counsel determines to be required by law or any securities exchange.
7.2 EMPLOYEE BENEFIT PLANS. (a) TRANSFERRED EMPLOYEES. Effective as of
the Closing Date, the Purchaser shall make offers of employment to those
Employees as the Purchaser shall determine in its sole discretion, on such terms
and conditions as determined in the sole discretion of Purchaser. Each Employee
who accepts the Purchaser's offer of employment and becomes an employee of
the Purchaser, Gibraltar or an Affiliate of the Purchaser as of the Closing
Date shall be referred to herein as a "Transferred Employee". Transferred
Employees shall be eligible to participate in such employee benefit plans,
programs, policies or arrangements as are determined from time to time
by the Purchaser on substantially the same terms and conditions as apply to
similarly situated employees of the Purchaser. The Purchaser shall notify the
Seller at the time any Transferred Employee terminates employment with the
Purchaser. In addition, the Purchaser shall provide to the Seller such
additional information as the Seller may reasonably request relating to the
payment of benefits to the Transferred Employees from any ERISA Affiliate
Plan which is intended to be subject to Code Section 401(k).
(b) SERVICE CREDIT. With respect to any Transferred Employee,
the Purchaser shall cause service with the Seller, Gibraltar or any of their
Affiliates (or their respective predecessors) prior to the Closing Date to
be treated as service for all benefit plans and arrangements described in
Section 7.2(a) for all purposes of eligibility and vesting under such
benefit plans and arrangements (but not benefit accrual), including for purposes
of pre-existing conditions limitations and waiting periods; PROVIDED, HOWEVER,
that this Section 7.2(b) shall not require that credit for any prior service
be given to the extent it would result in a duplication of benefits.
(c) ROLLOVER DISTRIBUTION. With respect to any Transferred
Employee who (i) as a result of the sale of Gibraltar, becomes eligible to
receive an "eligible rollover distribution" (as such term is defined under
Code Section 402(f)(2)(A) and Code Section 402(c)(4)) from any defined
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contribution plan sponsored by the Seller or an ERISA Affiliate of the Seller,
and (ii) elects to transfer such eligible rollover contribution from such plans
in accordance with the provisions of Code Section 401(a)(31), Purchaser agrees
to take all necessary and appropriate action to permit the transfer of such
amounts to an "eligible retirement plan" (as such term is used under Code
Section 401(a)(31)) sponsored by the Purchaser or any ERISA Affiliate of the
Purchaser on or after the Closing Date; provided, however, that nothing in this
paragraph (c) shall require any plan of the Purchaser or any ERISA Affiliate of
the Purchaser to accept a rollover contribution consisting of assets other than
cash and promissory notes or other evidence of outstanding loans.
7.3 THE SELLER'S ACCESS TO RECORDS. The Purchaser agrees that after
the Closing Date it shall, preserve and keep all books and records of Gibraltar
relating to periods prior to the Closing in the Purchaser's possession for a
period of at least six years from the Closing Date and the Purchaser shall and
shall cause Gibraltar to, allow the Seller to examine and make copies of the
books and records pertaining to the Business conducted by Gibraltar pertinent to
this Agreement and the transactions contemplated hereby, for reasonable business
purposes, including the preparation and examination of Tax Returns and financial
statements and conduct of any litigation or regulatory dispute resolution,
whether pending or threatened, concerning the Business of Gibraltar pertinent to
this Agreement and the transactions contemplated hereby. Access to and copying
of such books and records shall be restricted to normal business hours, shall be
at the Seller's expense and shall not unreasonably interfere with the Business
or operations of the Purchaser or Gibraltar and shall be subject to the Seller
agreeing to reasonable restrictions regarding the use and disclosure of
confidential information. Before the Purchaser shall dispose of any of such
books and records, at least 90 calendar days' prior written notice to such
effect shall be given by the Purchaser to the Seller, and the Seller shall be
given an opportunity, at its cost and expense, to remove and retain all or any
part of such books and records as the Seller may select.
7.4 TAXES.(a) LIABILITY FOR TAXES; INDEMNIFICATION.(i) The Seller shall
be liable for and pay, and indemnify the Purchaser against any and all liability
for Taxes, but net of any tax benefits that would be realized by the Purchaser
or any of its Affiliates, including Gibraltar, assuming that the payment or
accrual of the Taxes with respect to which indemnification is being made would
give rise to a currently utilizable tax benefit calculated using the maximum
applicable tax rate then in effect, (A) imposed on the Purchaser or Gibraltar
as a result of the Seller's breach of any representation made in Section 3.24;
(B) imposed on the Purchaser or Gibraltar as a result of the Seller's breach
of any covenant requiring performance after the Closing Date contained in this
Section 7.4; (C) imposed on Gibraltar pursuant to Treasury regulation Section
1.1502-6 or similar provision of state or local law solely as a result of
Gibraltar having been a member of the Consolidated Group or, for state or local
tax purposes, any other combined filing for Tax purposes; and (D) imposed on
Gibraltar, or for which Gibraltar may otherwise be liable, in either case, that
relate to any taxable year or period that ends on or before the Closing Date
and, with respect to any Straddle Period, the portion of such Straddle Period
ending on and including the Closing Date, PROVIDED, HOWEVER, that the Seller
shall not have any liability under this Section 7.4 for any breach of a
representation made in Section 3.24 or contained in the exhibit thereto or
in any document delivered pursuant thereto if the Seller sustains the burden
of proof that the chief executive officer, the chief operating officer, the
chief financial officer, and/or the tax director of the Purchaser had actual
knowledge of such breach on or prior to the date of this Agreement; and
PROVIDED FURTHER, HOWEVER, that the Seller shall not indemnify or hold
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harmless the Purchaser and Gibraltar against, (I) any Taxes shown as a liability
or reserve on the December 31 Balance Sheet, (II) any Taxes that result from any
actual or deemed election under Section 338 of the Code or any similar
provisions of state, local or foreign law as a result of the purchase of the
Shares or that result from the Purchaser, any Affiliate of the Purchaser or
Gibraltar engaging in any activity or transaction that would cause the
transactions contemplated by this Agreement to be treated as a purchase or sale
of assets of Gibraltar for federal, state or local Tax purposes, and (III) any
Taxes imposed on Gibraltar or for which Gibraltar may otherwise be liable as a
result of transactions occurring on the Closing Date that are properly allocable
(based on, among other relevant factors, factors set forth in Treas. Reg. ss.
1.1502-76(b)(1)(ii)(B)) to the portion of the Closing Date after the Closing
(Taxes described in this proviso, hereinafter "EXCLUDED TAXES"). The Purchaser
and the Seller agree that, with respect to any transaction described in clause
(III) of the preceding sentence, Gibraltar and all persons related to Gibraltar
under Section 267(b) of the Code immediately after the Closing shall treat the
transaction for all federal income tax purposes in accordance with Treas. Reg.
ss.1.1502-76(b)(1)(ii)(B), and (to the extent permitted) for other income Tax
purposes, as occurring at the beginning of the day following the Closing Date.
The Seller shall be entitled to any refund of (or credit for) Taxes allocable to
any taxable year or period that ends on or before the Closing Date and, with
respect to any Straddle Period, the portion of such Straddle Period ending on
and including the Closing Date.
(ii) The Purchaser shall be liable for and pay, and indemnify
the Seller against any and all liability, for (A) all Taxes imposed on
Gibraltar, or for which Gibraltar may otherwise be liable, for any
taxable year or period that begins after the Closing Date and, with
respect to any Straddle Period, the portion of such Straddle Period
beginning after the Closing Date and (B) Excluded Taxes. Except as
otherwise provided herein, the Purchaser shall be entitled to any
refund of (or credit for) Taxes allocable to any taxable year or period
that begins after the Closing Date and, with respect to any Straddle
Period, the portion of such Straddle period beginning after the Closing
Date.
(iii) For purposes of paragraphs (a)(i) and (a)(ii) of this
Section 7.4, whenever it is necessary to determine the liability for
Taxes of Gibraltar for a Straddle Period, the determination of the
Taxes of Gibraltar for the portion of the Straddle Period ending on and
including, and the portion of the Straddle Period beginning after, the
Closing Date shall be determined by assuming that the Straddle Period
consisted of two taxable years or periods, one which ended at the close
of the Closing Date and the other which began at the beginning of the
day following the Closing Date, and items of income, gain, deduction,
loss or credit of Gibraltar for the Straddle Period shall be allocated
between such two taxable years or periods on a "closing of the books
basis" by assuming that the books of Gibraltar were closed at the close
of the Closing Date, provided, however, that (A) transactions occurring
on the Closing Date that are properly allocable (based on, among other
relevant factors, factors set forth in Treas. Reg.ss.1.1502-76(b)
(1)(ii)(B)) to the portion of the Closing Date after the Closing shall
be allocated to the taxable year or period that is deemed to begin at
the beginning of the day following the Closing Date, and for this
purpose the cancellation of Surplus Notes and the transaction
contemplated by Section 9.5 shall be presumed to be pre-Closing Date
transactions, (B) exemptions, allowances or deductions that are
calculated on an annual basis, such as the deduction for
depreciation, shall be apportioned between such two taxable years
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or periods on a daily basis, and (C) in the case of a franchise or
similar Tax not based on income, Tax allocable to the portion of the
Straddle Period ending on and including the Closing Date shall be equal
to the amount of franchise Tax for the taxable year which would have
been imposed if such Tax were determined based on the assets and
liabilities of Gibraltar as of the Closing, or the amount of franchise
Tax for the taxable year based on the number of Shares outstanding as
of the Closing, whichever amount is applicable, in each case multiplied
by a fraction, the numerator of which shall be the number of days from
the beginning of the taxable year to the Closing Date and the
denominator of which shall be the number of days in the taxable year.
(iv) If, as a result of any action, suit, investigation,
audit, claim, assessment or amended Tax Return, there is any change
after the Closing Date in an item of income, gain, loss, deduction,
credit or amount of Tax that results in an increase in a Tax liability
for which the Seller would otherwise be liable pursuant to paragraph
(a)(i) of this Section 7.4, and such change would result in a decrease
in the Tax liability of Gibraltar, the Purchaser or any Affiliate or
successor of any thereof for any taxable year or period beginning after
the Closing Date or for the portion of any Straddle Period beginning
after the Closing Date assuming that Gibraltar, the Purchaser or any
Affiliate or successor of any thereof were to claim any loss,
deduction, credit or refund which it was eligible to claim as a result
of such change and such claim resulted in a currently fully utilizable
tax benefit, including any utilizable Tax benefit attributable to an
increase in the adjusted Tax basis of the assets of Gibraltar, the
Seller shall not be liable pursuant to such paragraph (a)(i) with
respect to such increase to the extent of such decrease (and, to the
extent such increase in Tax liability is paid to a taxing authority by
the Seller or any Affiliate thereof, the Purchaser shall pay the Seller
an amount equal to such decrease); provided, however, that if such
claim does not result in a currently fully utilizable tax benefit but
does result in a utilizable tax benefit in one or more subsequent
periods, then Purchaser shall pay the Seller an amount equal to such
decrease in a post-Closing Date Tax period no later than the time the
statute of limitation expires for adjustments to the Purchaser's or
Gibraltar's tax return for the post-Closing Date Taxable year in which
Gibraltar claimed the benefit.
(v) The Seller shall promptly notify Purchaser and Gibraltar
of any proposed adjustment of any item on any tax return of the
Consolidated Group for any period, if such proposed adjustment would
materially affect the tax liability of Gibraltar or the Purchaser for
the Straddle Period or any period beginning after or including the
Closing Date. The Seller shall advise the Purchaser of the status of
any conferences, meetings and proceedings with tax authorities or
appearances before any court pertaining to such adjustment or
adjustments, and shall advise the Purchaser of the outcome of such
proceedings. However, nothing herein shall entitle the Purchaser to
interfere with the Seller's right to make any judgments or to take any
actions it deems appropriate in connection with the disposition of any
such proposed adjustments.
(b) TAX RETURNS AND PAYMENTS. (i) The Purchaser shall cause
Gibraltar to consent to join, for all taxable periods of Gibraltar
ending on or before the Closing Date for which Gibraltar is
eligible to do so, in any consolidated, combined or unitary
federal, state, local or foreign income and franchise
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Tax Returns which the Seller shall request it to join. The Seller shall cause to
be prepared and filed all such consolidated, combined or unitary Tax Returns.
The Purchaser agrees to take no position inconsistent, and to cause its
Affiliates to take no position inconsistent, with Gibraltar's being a member of
the consolidated, combined or unitary group of which the Seller is a member for
such periods. The Seller shall cause to be timely paid all Taxes to which such
Tax Returns relate for all periods covered by such Tax Returns. Within fifteen
(15) days of the Seller's written request therefor, but in no event earlier than
five days prior to the date on which the Seller is required to cause to be paid
the related Tax liability, whichever is later, the Purchaser shall pay to the
Seller an amount equal to the Taxes for which the Purchaser is liable pursuant
to paragraph (a)(ii) of this Section 7.4 but which are payable with a Tax Return
to be filed by the Seller pursuant to this paragraph (b).
(ii) The Seller shall cause to be prepared and the Purchaser
shall cause to be timely filed all required federal, state, local and
foreign Tax Returns of Gibraltar (other than those to be prepared by
the Seller pursuant to Section 7.4(b)(i)) for any period which ends on
or before the Closing Date, for which Tax Returns have not been filed
as of the Closing Date. The Seller shall provide a copy of all such Tax
Returns to the Purchaser within thirty (30) days of their completion.
The Purchaser shall cause to be prepared and timely filed all required
federal, state, local and foreign Tax Returns of Gibraltar (other than
those to be prepared by the Seller pursuant to Section 7.4(b)(i)) for
any Straddle Period. The Purchaser shall submit all such Tax Returns
to the Seller no later than 30 days prior to the due date for filing
such Tax Returns for review and approval in writing by the Seller,
which approval may not be unreasonably withheld.
(iii) The Purchaser shall timely cause to be paid all Taxes for
the periods to which the Tax Returns to be caused to be filed by the
Purchaser pursuant to clause (ii) of this paragraph (b) relate. The
Seller shall pay to the Purchaser an amount equal to the Taxes for
which the Seller is liable pursuant to paragraph (a)(i) of this Section
7.4 but which are payable with any Tax Return to be filed by the
Purchaser pursuant to this paragraph upon the written request of the
Purchaser, which request shall set forth in detail the computation of
the amount owed by the Seller, within fifteen days of the Purchaser's
written request therefor but in no event earlier than five days prior
to the date on which the Purchaser is required to cause to be paid
the related Tax liability, whichever is later.
(iv) If the Seller's liability pursuant to Section 7.4(a)(i)
with respect to Taxes of Gibraltar for the portion of a Straddle Period
ending on and including the Closing Date is less than the payments
previously made by or credited to Gibraltar with respect to such
Straddle Period, the Purchaser shall cause Gibraltar to pay to the
Seller the excess of such previous payments over such Tax liability of
the Seller within fifteen days of Gibraltar's receiving the benefit
of such excess payments through a reduction in any Tax payment required
to be made by Gibraltar after the Closing.
(v) Neither the Purchaser nor any Affiliate of
the Purchaser shall (or shall cause or permit Gibraltar
to) amend, refile or otherwise modify (or grant an
extension of any statute of limitation with
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respect to) any Tax Return relating in whole or in part to Gibraltar
with respect to any taxable year or period ending on or before the
Closing Date (or with respect to any Straddle Period) without the prior
written consent of the Seller.
(c) ASSISTANCE AND COOPERATION. After the Closing Date, each of
the Seller and the Purchaser shall (and shall cause their respective Affiliates
to) assist the other party in (i) preparing any Tax Return which such other
party is responsible for preparing in accordance with paragraph (b) of this
Section 7.4, and (ii) contesting any proposed adjustment in an audit examination
or otherwise by any government taxing authority of any Tax Return referred to in
clause (i), which assistance shall include (x) making available to the other, as
reasonably requested, and to any taxing authority all information, records or
documents relating to Tax liabilities or potential Tax liabilities of Gibraltar
for all periods prior to or including the Closing Date and (y) preserving all
such information, records and documents until the expiration of any applicable
statute of limitations or extensions thereof. After the expiration of any
applicable statute of limitations or extensions thereof, before any such
information, records and documents are disposed of, at least ninety calendar
days prior written notice to such effect shall be given to the other party and
such other party shall be given an opportunity at its cost and expense to remove
and retain all or any part of such information, records and documents as it may
select. The Purchaser shall cause Gibraltar to prepare and provide to the Seller
a package of Tax information materials, including, without limitation, schedules
and work papers (the "Tax Package") required by the Seller to enable the Seller
to prepare Tax Returns required to be prepared by it pursuant to paragraph (b)
of this Section 7.4. The Tax Package shall be completed in accordance with past
practice, including past practice as to providing such information and as to the
method of computation of separate taxable income or other relevant measure of
income of Gibraltar. Such tax information packages shall be provided to the
Seller within 45 days after the Seller's request therefor. Notwithstanding any
other provisions hereof, each party shall bear its own expenses in complying
with the foregoing provisions.
(d) TAX ELECTIONS GENERALLY. Without the prior written consent of
the Purchaser, Gibraltar shall not make or change any Tax election, change an
annual Tax accounting period, adopt or change any method of Tax accounting,
enter into any closing agreement, settle or compromise any Tax claim or
assessment, surrender any right to claim a Tax refund, consent to any extension
or waiver of the limitations period applicable to any Tax claim or assessment or
take or omit to take any other action except, in each case, in the ordinary
course of business consistent with past practice, if any action or omission
referred to above would (i) have a legally binding effect upon Gibraltar with
respect to items in any taxable year ending on or before the Closing Date
or any Straddle Period (including without limitation, under a closing agreement
pursuant to Section 7121 of the Code or comparable provision under state, local
or foreign law) and (ii) have the effect of materially increasing the Tax
liability of Gibraltar with respect to any taxable year that ends after the
Closing Date or any Straddle Period
(e) TREATMENT OF REQUIRED RESERVE INCREASES. (i) The Purchaser
and the Seller agree that the Federal income tax deduction for the Required
Reserve Increases, after appropriate discounting as required by Sections 832
and 846 of the Code, shall be claimed by Gibraltar in a taxable year ending
on or prior to the Closing Date, and that except as provided in this Section
7.4(e), Gibraltar shall not increase its discounted unpaid losses for an
amount attributable to the Required Reserve Increases in any taxable year
commencing after the Closing Date.
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(ii) In the event that the Internal Revenue Service ultimately
determines that Gibraltar may not appropriately claim a deduction in a
pre-Closing Date Tax period for all or any portion of the Required Reserve
Increases, then:
(A) Gibraltar shall have no obligation to repay to
the Seller the payment the Seller made to Gibraltar pursuant to the Tax
Sharing Agreement in accordance with Section 5.9 except as provided in
this Section 7.4(e);
(B) At the Seller's request, Gibraltar shall file its
federal income tax returns for one or more post-Closing Periods (or to
amend a previously filed return) to claim a deduction or Tax benefit
(including any Tax benefit attributable to an increase in the adjusted
Tax basis of the assets of Gibraltar) for all or part of the Required
Reserve Increase in the applicable Tax year; provided that such
deduction or tax benefit is either (a) consistent with the rationale
given by the Internal Revenue Service in writing for the disallowance
of the deduction for the Required Reserve Increase in the pre-Closing
Date Tax year in which it was initially claimed by Gibraltar, or (b) in
accordance with some rationale for which the Seller delivers to the
Purchaser an opinion of nationally known tax counsel familiar with
insurance company taxation to the effect that it is more likely than
not that Gibraltar would be entitled to the deduction or Tax benefit
for all or part of the Required Reserve Increase in a particular
post-Closing Date Taxable year;
(C) The Purchaser shall cause Gibraltar to pay to the
Seller the amount of actual federal income tax savings obtained by
Gibraltar or the Purchaser by complying with Seller's request for
Gibraltar to claim a deduction or Tax benefit (including any Tax
benefit attributable to an increase in the adjusted Tax basis of the
assets of Gibraltar) for all or part of the Required Reserve Increase
in a post-Closing Date Tax period no later than the time the statute of
limitations expires for adjustments to the Purchaser's or Gibraltar's
tax return for the post-Closing Date Taxable year in which Gibraltar
claimed the deduction; and
(D) If Gibraltar receives cash due to a refund of
federal income taxes or a deduction in actual taxes paid as a result of
complying with the Seller's request in clause B above, then, in
addition to the payment to the Seller described in clause C above, the
Purchaser shall cause Gibraltar to pay interest to the Seller at a rate
equal to the applicable Federal short term rate as defined in Section
1274(d)(1) of the Code.
7.5 COMMERCIAL REASONABLENESS. Subject to the terms and conditions of
this Agreement, each party will use all commercially reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective in the most expeditious manner
practicable, the Closing and the other transactions contemplated by this
Agreement, including (a) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from governmental entities and the making of all
necessary registrations and filings and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any governmental entity, (b) the obtaining of all
necessary consents, approvals or waivers from third parties, (c) the
defending of any lawsuits or other legal proceedings, whether judicial or
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administrative, brought against such party challenging this Agreement or the
consummation of the transactions contemplated hereby, including seeking to have
any stay or temporary restraining order entered by any court or other
governmental entity vacated or reversed and (d) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by this Agreement.
7.6 TERMIATION OF AGREEMENTS. The Seller shall (i) terminate, or cause
the termination of, in writing, as of the Closing Date, the agreements and
arrangements listed on Schedule 7.6, without requiring additional payments or
other consideration and without any further liability or obligation on or after
the Closing Date of any party to any other party pursuant to those agreements or
arrangements, and (ii) cause all Tax allocation agreements, Tax sharing
agreements or agreements between the Seller and its Affiliates on the one hand,
and Gibraltar on the other, to be extinguished and terminated with respect to
Gibraltar and any rights or obligations existing under such agreement or
arrangement to be no longer enforceable. The Seller further agrees that it and
its Affiliate, Prudential Property and Casualty Insurance Company will release
Gibraltar from all liabilities under the Service Contract dated May 1, 1997
between Gibraltar and Prudential Property and Casualty Insurance Company.
7.7 USE OF GIBRALTAR MARKS. The Purchaser shall cause Gibraltar to
cease all use whatsoever of the Gibraltar Marks effective immediately after
the Closing Date. The Purchaser may continue to use the Gibraltar name for a
sixty-day period commencing on the Closing Date for the purpose of preparing and
filing with the Secretary of State and/or Office of the Insurance Commissioner
in each State where Gibraltar is licensed or qualified to conduct business, the
regulatory or other filings necessary to effect the transactions contemplated by
this Agreement. The Purchaser shall provide the Seller with representative
samples of its use of the Gibraltar name pursuant to this Section 7.7 at the
conclusion of each calendar month during such sixty-day period. The Purchaser
acknowledges that any use of the Gibraltar name pursuant to this Section 7.7
shall inure to the benefit of the Seller. The Purchaser further acknowledges the
Seller's rights in the Gibraltar name and the Gibraltar Marks and the goodwill
pertaining thereto. The Purchaser agrees that neither it nor its Affiliates
shall challenge the validity of the Seller's ownership of the Gibraltar name and
the Gibraltar Marks or contest the validity of the Gibraltar Marks.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1 SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS OR WARRANTIES.
The representations and warranties in this Agreement and in any other document
delivered in connection herewith shall survive the Closing solely for purposes
of Sections 12.1(a) and (b) of this Agreement and shall terminate at the close
of business 15 months following the Closing Date (except those representations
and warranties contained in Sections 3.1, 3.2 and 3.3, which representations
and warranties shall survive forever and except those representations and
warranties with respect to Taxes provided in Section 3.24, which
representations and warranties shall terminate 90 days after the
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expiration of any statute of limitations in respect of Taxes). The covenants
contained in this Agreement shall survive the Closing.
ARTICLE IX
JOINT CONDITIONS TO THE OBLIGATIONS OF THE PARTIES TO CLOSE
The obligations of the Purchaser and the Seller to consummate the sale
of the Shares and the other transactions contemplated by this Agreement are
subject to the satisfaction or waiver by each party on or prior to the Closing
Date of the following conditions:
9.1 INSURANCE REGULATORY APPROVALS. All consents, approvals and
waivers of the State Insurance Commission required to consummate the
transactions contemplated hereby shall have been obtained without any material
conditions, restrictions or limitations (it being understood that any
conditions, restrictions or limitations relating to risk based capital shall be
deemed not to be material) and such consents, approvals and waivers shall remain
in full force and effect and all statutory waiting periods in respect thereof
shall have expired (it is expressly understood that nothing in this Agreement
shall be construed as granting to the Purchaser any power, right or authority to
control, directly or indirectly, the management, policies, business, operations
or affairs of Gibraltar until the conditions precedent to the closing of the
transactions contemplated hereby have been satisfied, including obtaining the
approval of the State Insurance Commissioner described in this Section).
9.2 REGULATORY CONSENTS. The applicable waiting period under the HSR
Act shall have expired or early termination shall have been granted.
9.3 NO PROCEEDINGS. No order of any court or administrative agency
shall be in effect which restrains or prohibits the transactions contemplated
hereby and no suit, action or legal or administrative proceeding shall be
pending which (i) has been brought by a governmental entity and challenges
consummation of the transactions contemplated hereby or (ii) has a reasonable
probability of having a Material Adverse Effect on the Business of Gibraltar or
(iii) has a reasonable probability of having a Material Adverse Effect on the
ability of the Purchaser to own and control such Business or the Shares.
9.4 MUF AGREEMENT. The Seller and Gibraltar shall have entered into an
indemnification agreement (the "MUF AGREEMENT") substantially in the form of
Exhibit C to this Agreement, relating to certain uncollectible MUF reinsurance
recoveries and the Purchaser shall or shall cause Everest Re to provide to the
Seller Schedule A to the MUF Agreement on or before the first Business Day
following the date on which all of the conditions set forth in Articles IX, X
and XI shall have been satisfied or waived.
9.5 ADDITIONAL STOP-LOSS COVERAGE. The Seller (or one of its Affiliates
so long as the Seller provides a guarantee (in a form acceptable to the
Purchaser) of such Affiliate's obligations) and Gibraltar shall have
entered into an indemnification agreement (the "ADDITIONAL STOP-LOSS
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AGREEMENT") substantially in the form of Exhibit D to this Agreement, relating
to the provision by the Seller (or one of its Affiliates) of additional
stop-loss coverage.
ARTICLE X
CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to consummate the purchase of the
Shares and the other transactions contemplated by this Agreement is subject to
the satisfaction or waiver by the Purchaser on or prior to the Closing Date of
the following conditions:
10.1 COVENANTS. The Seller shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
and each other document required hereby to be delivered to the Purchaser to be
performed or complied with by it on or prior to the Closing Date.
10.2 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The representations
and warranties of the Seller contained in this Agreement and in each other
document required hereby to be delivered by the Seller shall be true and correct
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (except to
the extent an earlier date is specified in such representations and warranties),
except where the failure to be true and correct would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect on Gibraltar.
10.3 CERTIFICATES. The Purchaser shall have received a certificate,
dated the Closing Date and executed by the President or any Vice President of
the Seller, certifying that, to the best knowledge of such officer, the
conditions set forth in Sections 10.1 and 10.2 and have been satisfied.
10.4 OTHER APPROVALS. Gibraltar shall be authorized as an eligible
surplus lines insurer in the State of New Jersey and shall hold all approvals
and licenses necessary to enable it to continue to carry on its Business as
presently conducted after consummation of the sale of the Shares and the other
transactions contemplated hereby, other than approvals or licenses the failure
to obtain which would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect on Gibraltar.
10.5 OTHER CONSENTS. Gibraltar shall have received all consents of
other parties to the Contracts of Gibraltar necessary to permit the consummation
of the transactions contemplated hereby other than consents the failure to
obtain which would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect on Gibraltar.
10.6 RESIGNATION OF DIRECTORS AND OFFICERS. Written resignations from
each of the directors and officers of Gibraltar shall have been delivered to
the Purchaser.
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10.7 NO MATERIAL ADVERSE CHANGE. Since December 31, 1999, there shall
have been no material adverse change in the financial condition, results of
operations, cash flows or Business of Gibraltar.
ARTICLE XI
CONDITIONS TO THE OBLIGATIONS OF THE SELLER TO CLOSE
The obligations of the Seller to consummate the sale of the Shares and
the other transactions contemplated by this Agreement is subject to the
satisfaction or waiver by the Seller on or prior to the Closing Date of the
following conditions:
11.1 COVENANTS. The Purchaser shall have performed and complied in all
material respects with all covenants, agreements and conditions required by
this Agreement and each other document required hereby to be delivered to the
Seller to be performed or complied with by it on or prior to the Closing Date.
11.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
representations and warranties of the Purchaser contained in this Agreement and
each other document required hereby to be delivered by the Purchaser shall be
true and correct in all material respects on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date (except to the extent an earlier date is specified in such
representations and warranties).
11.3 CERTIFICATES. The Seller shall have received a certificate, dated
the Closing Date and executed by the President or any Vice President of the
Purchaser, certifying that, to the best knowledge of such officer, the
conditions set forth in Sections 11.1 and 11.2 have been satisfied.
ARTICLE XII
INDEMNIFICATION
12.1 INDEMNIFICATION BY THE SELLER. (a) The Seller shall indemnify the
Purchaser and its directors, officers, employees and Affiliates against, and
hold each of them harmless from, any loss, liability, claim, damage or expense
(including reasonable legal fees and expenses, but excluding any consequential
or special damages) (collectively, for purposes of this Article 12, "Losses")
suffered or incurred by any such Indemnified Person (other than any Losses
relating to Taxes, for which indemnification provisions are set forth in Section
7.4(a)) to the extent arising from (i) any breach of any representation or
warranty of the Seller contained in this Agreement (other than in Section
3.24) or in any certificate, instrument or other document delivered pursuant
hereto or thereto (all of which representations and warranties shall be deemed
to have been remade on and as of the Closing Date (except to the extent an
earlier date is specified in such representations and warranties)) or
(ii) any breach of any covenant of the Seller contained in this Agreement
which breach continues for ten Business Days after notice thereof
has been furnished by the Purchaser to the Seller; PROVIDED,
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HOWEVER, that the Seller shall not have any liability under clause (i) above
unless the sum of the aggregate of all Losses relating thereto for which the
Seller would, but for this proviso, be liable, exceeds on a cumulative basis an
amount equal to $499,000, and then only to the extent of any such excess;
PROVIDED FURTHER, HOWEVER, that the Seller shall not have any liability under
clause (i) above to the extent that the sum of the aggregate of all Losses
relating thereto exceeds $20,000,000; and PROVIDED FURTHER, HOWEVER, that the
Seller shall not have any liability under this Section 12.1(a) to the extent the
liability or obligation arises as a result of any action taken or omitted to be
taken by the Purchaser or any of its Affiliates other than those actions or
omissions arising out of the operation of Gibraltar in the ordinary course of
business; and PROVIDED, FURTHER, HOWEVER, that the limitations set forth in this
Section 12.1(a) shall not apply to any Losses caused by fraud on the part of the
Seller.
The Purchaser acknowledges and agrees that, from and after the Closing,
its sole and exclusive remedy with respect to any and all claims relating to the
subject matter of this Agreement (other than claims under the MUF Agreement and
the Additional Stop-Loss Agreement or claims of fraud) shall be pursuant to the
indemnification provisions set forth in this Section 12.1(a) and Section 7.4(a)
(solely with respect to Taxes). In furtherance of the foregoing, the Purchaser
hereby waives, and releases and discharges the Seller and its affiliates in
respect of, from and after the Closing, to the fullest extent permitted under
applicable law, any and all rights, claims and causes of action (other than
claims of, or causes of action arising from, fraud) it, may have against the
Seller, its Affiliates, directors, officers, employees, agents or assigns
relating to the subject matter of this Agreement except under the MUF Agreement
and the Additional Stop-Loss Agreement or the ownership prior to the Closing of
Gibraltar by the Seller or its Affiliates or Gibraltar's Business, and arising
under or based upon any federal, state, local or foreign statute, law,
ordinance, rule or regulation.
(b) INDEMNIFICATION BY THE PURCHASER. The Purchaser shall indemnify
the Seller and its directors, officers, employees and Affiliates against, and
hold each of them harmless from, any Losses suffered or incurred by any such
Indemnified Person (other than any relating to Taxes, for which indemnification
provisions are set forth in Section 7.4(a)) to the extent arising from (i) any
breach of any representation or warranty of the Purchaser contained in this
Agreement or in any certificate, instrument or other document delivered pursuant
hereto or thereto (all of which representations and warranties shall be deemed
to have been remade on and as of the Closing Date (except to the extent an
earlier date is specified in such representations and warranties)), (ii) any
breach of any covenant of the Purchaser contained in this Agreement, which
breach continues for ten Business Days after notice thereof has been furnished
by the Seller to the Purchaser, (iii) from and after the Closing Date, any
guarantee or obligation to assure performance given or made by the Seller or an
Affiliate of the Seller with respect to any obligation of Gibraltar, that is
specified on Schedule 6.3 and is required to be performed after the Closing
Date; PROVIDED, HOWEVER, that the Purchaser shall not have any liability under
clause (i) above unless the aggregate of all Losses relating thereto for which
the Purchaser would, but for this proviso, be liable exceeds on a cumulative
basis an amount equal to $499,000, and then only to the extent of any such
excess; PROVIDED FURTHER, HOWEVER, that the Purchaser shall not have any
liability under clause (i) above to the extent Losses relating thereto in
aggregate exceed $20,000,000; PROVIDED FURTHER, HOWEVER, that the limitations
set forth in this Section 12.1(b) shall not apply to any Losses caused
by fraud on the part of the Purchaser.
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The Seller acknowledges and agrees that, from and after the Closing,
its sole and exclusive remedy with respect to any and all claims relating to the
subject matter of this Agreement (other than claims of fraud) shall be pursuant
to the indemnification provisions set forth in this Section 12.1(b) and Section
7.4(b) (solely with respect to Taxes). In furtherance of the foregoing, the
Seller hereby waives, and releases and discharges the Purchaser and its
Affiliates in respect of, from and after the Closing, to the fullest extent
permitted under applicable law, any and all rights, claims and causes of action
(other than claims of, or causes of action arising from, fraud) it may have
against the Purchaser, its Affiliates, directors, officers, employees, agents or
assigns relating to the subject matter of this Agreement, and arising under or
based upon any federal, state, local or foreign statute, law, ordinance, rule or
regulation.
(c) LOSSES NET OF INSURANCE, ETC. The amount of any Loss for which
indemnification is provided under this Section 12.1 shall be net of any amounts
recovered or recoverable by the Indemnified Person under insurance policies with
respect to such Loss and shall be reduced to take account of any Tax benefits
that would be realized by the Indemnified Person arising from the incurrence or
payment of any such Loss assuming that the incurrence or payment of any such
Loss would give rise to a currently utilizable Tax benefit calculated using the
maximum applicable tax rate then in effect. Any indemnity payment under this
Article XII or Section 7.4 of this Agreement shall be treated as an adjustment
to the Purchase Price for Tax purposes, unless a final determination (which
shall include the execution of a Form 870 or successor form) with respect to the
Indemnified Person or any of its affiliates causes any such payment not to be
treated as an adjustment to the Purchase Price for United States federal income
Tax purposes.
(d) TERMINATION OF INDEMNIFICATION. The obligations to indemnify and
hold harmless a party hereto (i) pursuant to Sections 12.1(a)(i) or 12.1(b)(i)
(other than Tax liabilities), shall terminate when the applicable representation
or warranty terminates pursuant to Section 8.1, (ii) solely with respect to
Taxes pursuant to Section 7.4, shall terminate 90 days after the time the
applicable statutes of limitations with respect to the Tax liabilities in
question expire (giving effect to any extension thereof), and (iii) pursuant
to the other clauses of Sections 12.1(a) and 12.1(b) shall not terminate;
PROVIDED, HOWEVER, that as to clauses (i) and (ii) above such obligations to
indemnify and hold harmless shall not terminate with respect to any item as to
which the person to be indemnified or the related party hereto shall have,
before the expiration of the applicable period, previously made a claim by
delivering a notice (stating in reasonable detail the basis of such claim) to
the indemnifying party.
(e) PROCEDURES RELATING TO INDEMNIFICATION. In order for an Indemnified
Person to be entitled to any indemnification provided for under this Agreement
in respect of, arising out of or involving a claim or demand made by any Person
against the Indemnified Person (a "THIRD PARTY CLAIM"), such Indemnified Person
must notify the Indemnifying Person in writing, and in reasonable detail, of the
Third Party Claim within ten Business Days after receipt by such Indemnified
Person of written notice of the Third Party Claim; PROVIDED, HOWEVER, that
failure to give such notification shall not affect the indemnification provided
hereunder except to the extent the Indemnifying Person shall have been actually
prejudiced as a result of such failure (except that the Indemnifying Person
shall not be liable for any expenses incurred during the period in which the
Indemnified Person failed to give such notice). Thereafter, the Indemnified
Person shall deliver to the Indemnifying Person, within five Business Days
after the Indemnified Person's receipt thereof, copies of all notices and
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documents (including court papers) received by the Indemnified Person relating
to the Third Party Claim.
If a Third Party Claim is made against an Indemnified Person (except as
provided in Section 12.1(f)), the Indemnifying Person will be entitled to
participate in the defense thereof and, if it so chooses, to assume the defense
thereof with counsel selected by the Indemnifying Person and reasonably
satisfactory to the Indemnified Person. Should the Indemnifying Person so elect
to assume the defense of a Third Party Claim, the Indemnifying Person will not
be liable to the Indemnified Person for legal and other professional adviser
expenses subsequently incurred by the Indemnified Person in connection with the
defense thereof. If the Indemnifying Person assumes such defense, the
Indemnified Person shall have the right to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel employed by
the Indemnifying Person, it being understood that the Indemnifying Person shall
control such defense. The Indemnifying Person shall be liable for the fees and
expenses of counsel employed by the Indemnified Person for any period during
which the Indemnifying Person has not assumed the defense thereof (other than
during any period in which the Indemnified Person shall have failed to give
notice of the Third Party Claim as provided above). If the Indemnifying Person
chooses to defend or prosecute any Third Party Claim, all the parties hereto
shall cooperate in the defense or prosecution thereof. Such cooperation shall
include the retention and (upon the Indemnifying Person's request) the provision
to the Indemnifying Person of records and information which are reasonably
relevant to such Third Party Claim, and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Whether or not the Indemnifying Person shall have
assumed the defense of a Third Party Claim, (i) the Indemnified Person shall not
admit any liability with respect to, or settle, compromise or discharge, such
Third Party Claim without the Indemnifying Person's prior written consent (which
consent shall not be unreasonably withheld) and (ii) the Indemnifying Person
shall not, without the Indemnified Party's consent, settle, compromise or
discharge (A) any Third Party Claim if such settlement, compromise or discharge
imposes any equitable obligations on the Indemnified Party or (B) any Third
Party Claim for an amount that together with all other amounts therefore paid by
the Indemnifying Party under Section 12.1 (a) or (b), as the case may be, would
exceed $20,000,000 in the aggregate. All Tax Claims shall be governed by Section
7.4.
(f) PROCEDURES RELATING TO INDEMNIFICATION OF TAX CLAIMS. If a claim
shall be made by any Taxing authority, which, if successful, might result in an
indemnity payment to the Purchaser or one of its affiliates pursuant to Section
7.4, the Purchaser shall promptly notify the Seller in writing of such claim
(a "TAX CLAIM"). If notice of a Tax Claim is not given to the Seller within a
sufficient period of time to allow the Seller to effectively contest such Tax
Claim, or in reasonable detail to apprise the Seller of the nature of the Tax
Claim, in each case taking into account the facts and circumstances with respect
to such Tax Claim, the Seller shall not be liable to the Purchaser or any of its
Affiliates to the extent that the Seller's position is actually prejudiced as a
result thereof.
With respect to any Tax Claim (other than a Tax Claim relating
solely to Taxes of Gibraltar for any taxable period that includes (but
does not end on) the Closing Date), the Seller shall control all
proceedings taken in connection with such Tax Claim (including, without
limitation, selection of counsel) and, without limiting the foregoing,
may in its sole discretion pursue or forego any and all
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administrative appeals, proceedings, hearings and conferences with any Taxing
authority with respect thereto, and may, in its sole discretion, either pay the
Tax claimed and sue for a refund where applicable law permits such refund suits
or contest the Tax Claim in any permissible manner. The Seller and the Purchaser
shall jointly control all proceedings taken in connection with any Tax Claim
relating solely to Taxes of Gibraltar for a Straddle Period. The Purchaser and
the Seller and each of their respective Affiliates shall fully cooperate with
one another in contesting any Tax Claim, which cooperation shall include,
without limitation, the retention and (upon the other party's request) the
provision to such other party of records and information which are reasonably
relevant to such Tax Claim, and making employees available on a mutually
convenient basis to provide additional information or explanation of any
material provided hereunder or to testify at proceedings relating to such Tax
Claim.
In no case shall the Purchaser settle or otherwise compromise any
Tax Claim without the Seller's prior written consent. Nothing contained herein
shall require the Purchaser to contest a Tax Claim if the Purchaser shall waive
in writing the payment by the Seller of any amount that might otherwise be
payable by the Seller pursuant to this Agreement in respect of such Tax Claim.
ARTICLE XIII
TERMINATION, AMENDMENT AND WAIVER
13.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing as follows:
(a) By mutual written consent of the Purchaser and the Seller;
(b) By the Purchaser if there has been a material breach of any
covenant or agreement on the part of the Seller set forth in this
Agreement which has not been cured within 30 days after notice thereof;
or
(c) By the Seller if there has been a material breach of any
covenant or agreement on the part of the Purchaser set forth in this
Agreement and such material breach has not been cured within 30 days
after notice thereof; or
(d) By either the Purchaser or the Seller if the Closing shall
not have occurred by June 30, 2000; PROVIDED, HOWEVER, that the
right to terminate this Agreement under this Section 13.1 shall not be
available to the party whose failure to fulfill any obligation
under this Agreement has been the cause or shall result in the failure
of the Closing to occur prior to such date.
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13.2 EFFECT OF TERMINATION. In the event that this Agreement
terminates, the obligations set forth herein shall terminate except that the
obligations of each party under Section 7.1 and 14.11 shall survive the
termination of the Agreement; PROVIDED, HOWEVER, that termination shall not
defeat or impair the right of any party to pursue such relief as may otherwise
be available to it on account of any breach of this Agreement or of any of the
covenants or agreements contained herein.
ARTICLE XIV
MISCELLANEOUS
14.1 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
14.2 EXTENSION; WAIVER. At any time prior to the Closing, the parties
may, in the manner and to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto and (ii) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party. The waiver by any party hereto at or before the
Closing Date of any condition to its obligations hereunder which is not
fulfilled shall not preclude such party from seeking redress under Article XII
from the other party hereto for any misrepresentation or breach of any
warranty, covenant or agreement contained in this Agreement. The waiver by
any party hereto of a breach of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
14.3 NOTICES. All notices or other communications hereunder shall be
in writing and shall be deemed given (i) upon delivery if delivered personally,
(ii) upon receipt if sent by facsimile transmission, (iii) if mailed, three
days after mailing by registered or certified mail (return receipt requested)
or (iv) if sent by a nationally recognized overnight delivery service, one
day after sending by such service 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 the Purchaser, to:
c/o Everest Reinsurance Company
477 Martinsville Road
P.O. Box 830
Liberty Corner, New Jersey 07938
Fax: (908) 604-3450
Attention: Janet J. Burak
-43-
<PAGE>
with copies to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Fax: (312) 701-7711
Attention: Richard W. Shepro
(b) If to the Seller to:
The Prudential Insurance Company of America
751 Broad Street
Newark, NJ 07102
Fax: (973) 367-8105
Attention: Douglas A. Gregory
with a copy to:
Sidley & Austin
875 Third Avenue
New York, NY 10022
Fax: (212) 906-2021
Attention: Scott M. Freeman
14.4 INTERPRETATION. When a reference is made in this Agreement to a
section, schedule or exhibit, such reference shall be to a section, schedule or
exhibit of this Agreement unless otherwise indicated or unless the context shall
otherwise require. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The phrase "to the knowledge of
Gibraltar" shall refer to the actual knowledge of John Mottola, Andrew Corselli,
Doreen Faga, Adam Kenney, Christine Knight, Michael Rant, Colleen Badum and
Joanne Poles. The terms "hereof," "herein" and similar terms shall refer to this
entire Agreement and the date of this Agreement shall be the date first written
herein.
14.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
14.6 ASSIGNMENT; BINDING EFFECT. Except as otherwise permitted in
this Agreement, neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of the other parties, except that the Purchaser may
assign this Agreement to an Affiliate of the Purchaser so long as such
Affiliate executes this Agreement and the Purchaser continues as a signatory
hereto (in which case the term "the Purchaser" as used herein shall be deemed
to include such Affiliate). This Agreement will be binding upon, inure
-44-
<PAGE>
to the benefit of and be enforceable by the parties and their respective
successors and permitted assigns.
14.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
the parties need not sign the same counterpart.
14.8 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. The Confidentiality
Agreements together with this Agreement (including other agreements, documents
and instruments referred to herein) constitute the entire agreement between the
parties relating to the subject matter hereof and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof and are not intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder.
14.9 NO WAIVER. No forbearance to enforce any provision or right
hereunder shall be deemed a waiver thereof, and no waiver of any breach of any
term or covenant herein shall be construed as a waiver of any other breach of
the same, or any other term or covenant herein.
14.10 CONSTRUCTION. This Agreement is the result of arms-length
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Agreement, there
shall be no presumption that the Agreement was prepared by any one party
or that the Agreement shall be construed in favor of or against any one party.
14.11 FEES AND EXPENSES. Each party hereto shall bear its own fees and
expenses with respect to the transactions contemplated hereby and Gibraltar
shall bear none of such expenses. The Seller and the Purchaser shall each bear
one-half the cost of all sales, use, stamp, transfer, services recording and
like transfer Taxes, if any, imposed by any governmental authority in connection
with the transfer and assignment of the Shares.
-45-
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Seller have executed this
Agreement on the date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /S/ Douglas Gregory
---------------------------------
Name: Douglas Gregory
Title: Vice President
EVEREST REINSURANCE HOLDINGS, INC.
By: /S/ Stephen L. Limauro
---------------------------------
Name: Stephen L. Limauro
Title: Senior Vice President and
Chief Fiancial Officer
<PAGE>
Exhibit A
Form of Opinion of Counsel to the Seller
----------------------------------------
1. The Seller is a mutual insurance company domiciled in the
State of New Jersey. The Seller has all necessary corporate power and authority
to execute and deliver the Agreement, the MUF Agreement and the Additional
Stop-Loss Agreement, to perform its obligations thereunder and to consummate the
transactions contemplated thereby.
2. The execution and delivery by the Seller of the Agreement,
the MUF Agreement and the Additional Stop-Loss Agreement, the performance by the
Seller of its obligations thereunder and the consummation by the Seller of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action on the part of the Seller. The Agreement, the MUF
Agreement and the Additional Stop-Loss Agreement has been duly executed and
delivered by a duly authorized officer of the Seller and constitutes a legal,
valid and binding obligations of the Seller enforceable against the Seller in
accordance with its terms (subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and other laws affecting
creditors' rights generally from time to time in effect). The enforceability of
the Seller's obligations is also subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3. All necessary filings or registrations with any
governmental or regulatory authority required for the consummation by the Seller
of the transactions contemplated by the Agreement, the MUF Agreement and the
Additional Stop-Loss Agreement have been duly made, and all permits,
authorizations, consents or approvals of any governmental or regulatory
authority required in connection with such transactions have been duly obtained.
4. The Shares constitute all the issued and outstanding
capital stock of Gibraltar, all such Shares are, to our knowledge, owned
directly by the Seller free and clear of any liens, encumbrances and other
charges and all such Shares have been duly and validly authorized and issued by
Gibraltar and are fully paid and nonassessable. To our knowledge there are no
agreements, arrangements or understandings restricting the right of the Seller
to sell, assign, transfer and deliver the Shares and, assuming the Purchaser has
the requisite power and authority to be the lawful owner of the Shares, upon
delivery to the Purchaser at the Closing of certificates representing the
Shares, duly endorsed by the Seller for transfer to the Purchaser and upon the
Seller's receipt of the Purchase Price, good and valid title to the Shares will
pass to the Purchaser, free and clear of any liens, encumbrances and other
charges (other than those arising from acts of the Purchaser or its Affiliates).
<PAGE>
Exhibit B
Form of Opinion of Counsel to the Purchaser
-------------------------------------------
1. The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all necessary corporate power and authority to execute and deliver the
Agreement, to perform its obligations thereunder and to consummate the
transactions contemplated thereby.
2. The execution and delivery by the Purchaser of the
Agreement, the performance by the Purchaser of its obligations thereunder and
the consummation by the Purchaser of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action on the part
of the Purchaser. The Agreement has been duly executed and delivered by a duly
authorized officer of the Purchaser and constitutes a legal, valid and binding
obligation of the Purchaser enforceable against the Purchaser in accordance with
its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws affecting creditors' rights generally
from time to time in effect). The enforceability of the Purchaser's obligations
is also subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3. All necessary filings or registrations with any
governmental or regulatory authority required for the consummation by the
Purchaser of the transactions contemplated by the Agreement have been duly made,
and all permits, authorizations, consents or approvals of any governmental or
regulatory authority required in connection with such transactions have been
duly obtained.
4. The execution, delivery and performance of the Agreement
does not conflict with or result in a violation of the General Corporation Law
of the State of Delaware or the Certificate of Incorporation or By-Laws of the
Purchaser.
<PAGE>
Exhibit C
Form of MUF Agreement
---------------------
See Attached Agreement
<PAGE>
QUOTA SHARE INDEMNITY AGREEMENT
between
GIBRALTAR CASUALTY COMPANY, a Delaware Corporation
(hereinafter referred to as the "Company")
and
PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey Corporation
(hereinafter referred to as the "Indemnitor")
(Both the Company and the Indemnitor collectively are referred to as the
"Parties" and individually as "Party")
WHEREAS, the Indemnitor and Everest Reinsurance Holdings, Inc., a Delaware
corporation ("Holdings"), have executed a Stock Purchase Agreement dated
________ ("Sale Agreement") wherein Holdings will purchase from the Indemnitor
all issued and outstanding shares of the Company, a wholly owned subsidiary of
the Indemnitor, effective as of the "Closing Date" set forth in the Sale
Agreement.
WHEREAS, Holdings is the parent of Everest Reinsurance Company, formerly known
as Prudential Reinsurance Company ("Everest Re").
WHEREAS, the Company has, and in the future may have, Uncollectible Reinsurance
Recoverables, as defined herein, with regard to business reinsured by or through
the Management Underwriting Facility ("MUF"), as defined in the Sale Agreement.
WHEREAS, the Company desires to procure indemnity coverage for its Uncollectible
Reinsurance Recoverables.
NOW, THEREFORE, in consideration of mutual covenants, representations,
warranties, and agreements contained herein and in the Sale Agreement, the
Parties agree as follows:
ARTICLE I - CLASSES OF BUSINESS COVERED
A. By this Agreement and subject to the terms and conditions set forth
below, the Indemnitor agrees to indemnify the Company for the Company's
Uncollectible Reinsurance Recoverables, as defined herein, with regard
to business reinsured by or through MUF respecting Direct Excess
Business and Gibraltar-Sourced Business, as defined herein.
<PAGE>
B. "Uncollectible Reinsurance Recoverables", with respect to Reinsurance
Coverage, is defined as including (i) Uncollected Reinsurance and (ii)
Settlement Concessions.
C. "Reinsurance Coverage" is defined as any amount of paid and unpaid
losses and loss adjustment expenses ceded by Everest Re to MUF
reinsurers with respect to Direct Excess Business or Gibraltar-Sourced
Business, whether such amounts were ceded prior to or during the term
of this Agreement.
D. "Uncollected Reinsurance" is defined as Reinsurance Coverage for paid
loss and loss adjustment cessions relating to Direct Excess Business,
with respect to each company on Schedule A hereto, that is unpaid by
the reinsurer after one-hundred-and-eighty (180) days from the date
that such paid loss and loss adjustment cessions were due to be paid by
the reinsurer.
E. "Settlement Concessions" is defined as the difference, with respect to
each company on Schedule A hereto, between the Reinsurance Coverage for
Direct Excess Business or Gibraltar-Sourced Business reinsured by MUF
and ceded to such company and the amount received from such company.
F. "Direct Excess Business" is defined as policies, contracts, and binders
of insurance or reinsurance ("Policies") that were issued by Everest Re
prior to January 1, 1986.
G. "Gibraltar-Sourced Business" is defined as Policies that were issued by
the Company prior to January 1, 1986.
H. Although Everest Re rather than the Company has the direct ceding
relationship with MUF, solely for purposes of this Agreement and only
up to the amounts scheduled in Schedule A hereto, the Parties hereby
deem any Uncollectible Reinsurance Recoverables to belong to the
Company and not to Everest Re.
ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Agreement shall become effective on the Closing Date. This
Agreement will terminate, with respect to the Indemnitor's Per-Company
Sub-Limit of Liability under Article V, on the earlier of (i) two years
following the Indemnitor's payment of the sub-limit or (ii) the tenth
anniversary of Closing Date. This Agreement shall terminate, with
respect to the Indemnitor's Aggregate Limit of Liability under Article
V, on the earlier of (i) two years following the Indemnitor's payment
of the limit or (ii) the tenth anniversary of the Closing Date.
B. Neither Party may terminate this Agreement.
<PAGE>
ARTICLE III - TERRITORY
The territorial scope of this Agreement shall be identical to that of the
Policies.
ARTICLE IV - CONSIDERATION
The consideration for this indemnity coverage is included in the consideration
for the Sale Agreement and is deemed paid as of the Closing Date. No further
consideration shall be due to the Indemnitor.
ARTICLE V - SCHEDULE OF UNCOLLECTIBLE REINSURANCE RECOVERABLES AND INDEMNITOR'S
LIMIT OF LIABILITY
Pursuant to the Sale Agreement, on or before the first Business Day following
the date on which all of the conditions set forth in Articles IX, X, and XI of
the Sale Agreement have been satisfied or waived, Holdings will cause Everest Re
to provide to the Indemnitor a schedule setting forth all expected Uncollectible
Reinsurance Recoverables ("Schedule A"), which shall be incorporated herein by
reference. Schedule A shall identify, by reinsurer name, (1) the expected
amounts of Uncollected Reinsurance attributable to each reinsurer with respect
to Direct Excess Business and (2) the expected amounts of Settlement Concessions
with respect to Direct Excess Business and Gibraltar-Sourced Business. If the
Company identifies a given reinsurer on Schedule A with respect to both
Uncollected Reinsurance and for Settlement Concessions, then the amount
scheduled for Uncollected Reinsurance shall represent only paid loss and loss
adjustment expense amounts and the amount scheduled for Settlement Concessions
shall include only unpaid loss and loss adjustment expense amounts.
The Indemnitor shall pay to the Company one hundred percent (100.0%) of up to
the scheduled amount of the Company's Uncollectible Reinsurance Recoverables
with respect to each company listed on Schedule A ("Per Company Sub-Limit of
Liability"), provided that the Indemnitor's total liability under this Agreement
shall in no event be greater than $8,500,000 ("Aggregate Limit of Liability").
ARTICLE VI - PAYMENT OF ADVANCES BY INDEMNITOR AND REFUNDS BY COMPANY
Subject to the limits set forth in Article V, pursuant to Article IX the
Indemnitor shall make payments ("Advances") to the Company in the amount of the
Uncollected Reinsurance and Settlement Concessions shown on the Company's
statements.
If after receiving an Advance from the Indemnitor with respect to an Uncollected
Reinsurance amount, the Company actually collects all or a portion of the amount
due from the reinsurer identified on Schedule A, then the Company shall pay to
the Indemnitor a sum equal to the amount so collected ("Refund"), up to the
amount of the corresponding Advance paid by the Indemnitor. Refunds shall not
bear interest except as set forth in Article IX (G), and in no event shall the
Indemnitor be entitled to a Refund in an amount greater than the corresponding
Advance. In the event that a Refund is made to the Indemnitor, the Per
Company Sub-Limit of Liability and the Aggregate Limit of Liability shall
<PAGE>
each be replenished by the amount of such Refund. No Refunds shall be due for
Advances paid by the Indemnitor with respect to Settlement Concessions.
ARTICLE VII - OTHER REINSURANCE
On or after the Closing Date, the Company shall be permitted to obtain other
reinsurance, recoveries under which shall inure solely to the benefit of the
Company, and all recoveries under such other reinsurance shall be entirely
disregarded in applying all of the provisions of this Agreement.
ARTICLE VIII - ORIGINAL CONDITIONS
A. The Indemnitor shall follow the fortunes of the Company with respect
to settlements of any Reinsurance Coverage and with respect to
Uncollectible Reinsurance Recoverables.
B. The indemnity coverage provided under this Agreement shall be subject
to all interpretations, modifications, waivers, and alterations of
the Policies and Reinsurance Coverage.
C. Nothing herein shall in any manner create any obligations or establish
any rights against the Indemnitor in favor of any third party or any
person not a Party to this Agreement.
ARTICLE IX - REPORTS AND REMITTANCES
A. The first statement of account shall be due to the Indemnitor from the
Company on the anniversary of the Closing Date. The first statement
only shall include a charge for interest on any Uncollectible
Reinsurance Recoverables due from the Indemnitor as of the statement
date. Such interest charge shall be equal to the rate of interest
announced by Citibank, N.A. as its prime or base rate as of the
statement date, calculated on the basis of the actual number of days
elapsed since the Uncollectible Reinsurance Recoverables accrued or the
Closing Date, whichever is less, divided by
three-hundred-and-sixty-five (365) days. Such interest charge shall be
included in the Per Company Sub-Limit of Liability set forth on
Schedule A.
B. Thereafter, the Company shall submit quarterly statements of account
("quarterly reports") within forty-five (45) days after the end of each
calendar quarter.
C. Such quarterly reports shall be sent by both facsimile transmission and
United States Postal Service or any other delivery service used by the
Company.
D. Such quarterly reports shall include information showing, as applicable
with respect to each company listed on Schedule A, Uncollected
Reinsurance, Settlement Concessions, Advances received, Advances due,
Refunds due, and unpaid amounts outstanding.
E. Remittances shall be on a "Net Basis," defined as amounts owed between
the Parties under this Agreement.
<PAGE>
F. Remittances, whether due to the Company from the Indemnitor or to the
Indemnitor from the Company, shall be due within forty-five (45) days
from the date of receipt of the facsimile transmission of each
quarterly report.
G. Failure by the Indemnitor or the Company to pay amounts owed when due
under this Agreement shall result in imposition of an interest penalty
equal to the rate of interest announced by Citibank, N.A. as its prime
or base rate as of the due date of any remittance, calculated on the
basis of the actual number of days elapsed past the due date of any
remittance divided by three-hundred-and-sixty-five (365) days and
payment of other losses, costs, and expenses accrued or incurred by the
Company or Indemnitor as a result of the other Party's late payment.
ARTICLE X - OFFSET
The Company and the Indemnitor shall have the right to offset any balance or
amounts due from one party to the other under this Agreement.
ARTICLE XI - ACCESS TO RECORDS
A. The Company shall place at the disposal of the Indemnitor at all
reasonable times, and the Indemnitor will have the right to inspect,
all books, records, and papers of the Company in connection with any
indemnity coverage hereunder or any claims in connection herewith.
B. All records reviewed by the Indemnitor are deemed proprietary and
confidential property of the Company. Further, unless pursuant to the
express, written permission of the Company, the Indemnitor shall not
disclose the contents of such information to any other person, persons,
entity, or entities; provided, that the Indemnitor may disclose such
information or portions thereof in connection with any arbitration
hereunder or any legal or regulatory process, or to its directors,
officers and employees and the directors, officers and employees of its
affiliates and to its agents, representative, attorneys, accountants,
auditors, reinsurers (collectively, "the Indemnitor's
Representatives"), in each case, who have a legitimate need to know
such information (which would include, but not be limited to the right
to dispute and/or assess in furtherance of a dispute) and who are
informed of and agree to be bound by the confidentiality terms of this
Agreement. The Indemnitor shall indemnify and hold harmless the Company
for all damages resulting from any unauthorized disclosure by the
Indemnitor or the Indemnitor's Representatives of records obtained
pursuant to this Article.
ARTICLE XII - ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions in connection with this Agreement or any
transaction hereunder shall not relieve either Party of any liability which
would have attached had such delay, error or omission not occurred, provided
always that such error or omission is rectified as soon as possible after
discovery.
<PAGE>
ARTICLE XIII - INSOLVENCY
In the event of the insolvency of the Company, the indemnity coverage hereunder
shall be payable directly to the Company or to its liquidator, receiver,
conservator or statutory successor on the basis of the amount of claim allowed
in the insolvency proceeding without diminution by reason of the inability of
the Company to pay all or any part of the claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of the Company shall
give written notice to the Indemnitor of the pendency of a claim against the
Company, indicating the Policy or bond covered hereunder which claim would
involve a possible liability on the part of the Indemnitor, within a reasonable
time after such claim is filed in the conservation or liquidation proceeding or
in the receivership, and that during the pendency of such claim, the Indemnitor
may investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or statutory
successor. The expense thus incurred by the Indemnitor shall be chargeable,
subject to the approval of the Court, against the Company as part of the expense
of conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Indemnitor.
ARTICLE XIV - ARBITRATION
A. Except with respect to disputes arising out of or in connection with
Article XI above (Access to Records), as a condition precedent to any
right of action hereunder, in the event of any dispute or difference of
opinion hereafter arising with respect to this Agreement, including its
formation and validity, it is hereby mutually agreed that such dispute
or difference of opinion shall be submitted to arbitration.
B. Except as provided in subsections A. and D. of this Article or with
respect to judicial proceedings instituted in aid of arbitration, this
Article shall constitute a waiver of the Parties' rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a
transfer of a case to another court as might otherwise be permitted by
the laws of the United States or of any State or other jurisdiction in
the United States.
C. One Arbiter shall be chosen by the Company, the other by the
Indemnitor, and an Umpire shall be chosen by the two Arbiters before
they enter upon arbitration, all of whom shall be active or retired
disinterested executive officers of United States domiciled insurance
or reinsurance companies. In the event that either Party should fail to
choose an Arbiter within 30 days following a written request by the
other Party to do so, the requesting Party may choose two Arbiters who
shall in turn choose an Umpire before entering upon arbitration. If the
two Arbiters fail to agree upon the selection of an Umpire within 30
days following their appointment, each Arbiter shall nominate three
candidates within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
<PAGE>
D. The Arbiters and the Umpire ("the Arbitration Panel") shall consider
this Agreement as an honorable engagement rather than merely as a legal
obligation, and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The majority decision
of the Arbitration Panel shall be final and binding on both Parties.
Judgment upon the final decision of the Arbitration Panel may be
entered in any court of competent jurisdiction.
E. Except as provided in sub-section G. of this Article, each Party shall
bear the expense of its own Arbiter, and shall jointly and equally bear
with the other the expense of the Umpire and of the arbitration. In the
event that the two Arbiters are chosen by one Party, as above provided,
the expense of the Arbiters, the Umpire and the arbitration shall be
equally divided between the two Parties.
F. Any arbitration proceedings shall take place in New York, New York.
G. The Arbitration Panel shall have the power to award costs, expenses,
and interest to the prevailing Party in an arbitration.
ARTICLE XV - ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties regarding
the subject matter hereof and supercedes all prior agreements and
understandings, both written and oral and does not confer any rights or remedies
to any other party or any other person.
ARTICLE XVI - AMENDMENTS AND ALTERATIONS
This Agreement shall not be changed, supplemented, modified, or amended except
by an endorsement/addendum signed by the Parties and attached hereto.
ARTICLE XVII - NO WAIVER
No forbearance to enforce any provision or right hereunder shall be deemed a
waiver thereof, and no waiver of any breach of any terms or covenant herein
shall be construed as a waiver of any other breach of the same, or any other
term or covenant herein.
<PAGE>
ARTICLE XVIII - CONSTRUCTION
This Agreement is the result of arms-length negotiations between the Parties and
has been prepared jointly by the Parties. In applying and interpreting the
provisions of the Agreement, there shall be no presumption that either the
Company or the Indemnitor prepared this Agreement, or that this Agreement shall
be construed in favor of or against either the Company or the Indemnitor.
ARTICLE XIX - NOTICES
Any notice or other communication required or permitted hereunder shall be in
writing and shall be delivered personally, telegraphed, telexed, sent by
facsimile transmission, or sent by certified, registered or express mail,
postage prepaid, to:
If to the Indemnitor, to:
Doreen Faga
President, Gibraltar Operations
Prudential Insurance Company of America
Eisenhower Corporate Center, Building 3
290 West Mt. Pleasant Avenue
Livingston, NJ 07039
Phone: 973-548-5980
Fax: 973-548-5950
If to the Company, to:
Janet J. Burak
Senior Vice President and General Counsel
Everest Reinsurance Holdings
477 Martinsville Road
P.O. Box 830
Liberty Corner, NJ 07938
Phone: 908-604-3170
Fax: 908-604-3450
ARTICLE XX - GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Company, by its duly authorized representative, has
executed this Agreement as of the date undermentioned at:
____________, ____________, this ____________ day of _____________________ 2000.
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the Indemnitor, by its duly authorized representative, has
executed this Agreement as of the date undermentioned at:
____________, ____________, this ____________ day of _____________________ 2000.
- -------------------------------------------------------
<PAGE>
Exhibit D
Form of Additional Stop-Loss Agreement
--------------------------------------
See Attached Agreement
<PAGE>
INDEMNITY AGREEMENT
between
GIBRALTAR CASUALTY COMPANY, a Delaware Corporation
(hereinafter referred to as the "Company")
and
PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey Corporation
(hereinafter referred to as the "Indemnitor")
(Both the Company and the Indemnitor collectively are referred to as the
"Parties" and individually as "Party")
WHEREAS, the Indemnitor and Everest Reinsurance Holdings, Inc., a Delaware
corporation ("Holdings"), have executed a Stock Purchase Agreement dated
________ ("Sale Agreement") wherein Holdings will purchase from the Indemnitor
all issued and outstanding shares of the Company, a wholly-owned subsidiary of
the Indemnitor.
WHEREAS, as of the "Closing Date," as this term is defined in the Sale
Agreement, the Company has outstanding "Loss Reserves," as defined in the Sale
Agreement, relating to all Policies, as defined herein, in the amount stated in
the "Closing Date Financial Statement," as defined in the Sale Agreement.
WHEREAS, the Company also has potential adverse Loss Reserves development
("Adverse Loss Development"), as defined herein, and the Company desires
indemnity coverage for such Adverse Loss Development.
NOW, THEREFORE, in consideration of mutual covenants, representations,
warranties, and agreements contained herein and in the Sale Agreement, the
Parties agree as follows:
ARTICLE I - CLASSES OF BUSINESS COVERED
A. By this Agreement and subject to the terms and conditions set
forth below, the Indemnitor agrees to indemnify the Company for
the Adverse Loss Development that may accrue to the Company under
all policies, contracts, and binders of insurance or reinsurance
(hereinafter "Policies") issued or renewed by the Company prior to
the Closing Date.
B. Adverse Loss Development is defined as the Company's Ultimate
Net Loss that is in excess of the Loss Reserves carried
by the Company at the Closing Date. Subject to the
<PAGE>
Indemnitor's Limit of Liability set forth in Article V hereof,
the Indemnitor shall pay the Company for the Adverse Loss
Development paid by the Company, provided that the Company has
paid an amount equal to the Loss Reserves carried by the Company
at the Closing Date. Provided, however, that this Agreement shall
not apply to the first four million dollars ($4,000,000) of
any Settlement Concessions on Gibraltar-Sourced Business, as those
terms are defined in the Quota Share Indemnification Agreement
between the Parties ("Quota Share Indemnification Agreement"), in
excess of Settlement Concessions listed on Schedule A to the Quota
Share Indemnification Agreement.
C. "Ultimate Net Loss" is defined as the Company's determination of
the sum or sums (including Loss Adjustment Expenses, as defined
herein) incurred by the Company in settlement of claims and in
satisfaction of judgments rendered on account of such claims under
all Policies, after deduction of all reinsurance and insurance
recoveries and subrogation and salvage recoveries collected and
received by the Company and losses paid prior to the Closing Date.
Nothing herein shall be construed to mean that losses under this
Agreement are not recoverable until the Company's Ultimate Net
Loss has been ascertained. Ultimate Net Loss shall not include
Loss in Excess of Policy Limits or Extra Contractual Obligations
(as defined herein) incurred by the Company.
ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Agreement shall become effective on the Closing Date and shall
continue in force thereafter until two (2) years after the earlier of
when (i) the Company settles all claims under all Policies, or (ii) the
Indemnitor exhausts its Limits of Liability as set forth in Article V.
B. Neither Party may terminate this Agreement.
ARTICLE III - TERRITORY
The territorial scope of this Agreement shall be identical to that of the
Policies covered hereunder.
ARTICLE IV - CONSIDERATION
The consideration for the indemnity coverage is included in the consideration
for the Sale Agreement and is deemed paid as of the Closing Date. No further
consideration shall be due to the Indemnitor.
<PAGE>
ARTICLE V - INDEMNITOR'S LIMIT OF LIABILITY AND COMPANY'S RETENTION
The Indemnitor shall pay to the Company an 80% quota share interest of the first
two hundred million dollars ($200,000,000) of Adverse Loss Development paid by
the Company, with the Indemnitor's maximum liability under this Agreement
limited to one hundred and sixty million dollars ($160,000,000). The Company may
reinsure its 20% quota share retention in the first two hundred million dollars
($200,000,000) of Adverse Loss Development only with an affiliate within its
insurance holding company system, with `affiliate' and `insurance holding
company system' having the meanings set forth under Section 5001 of the Delaware
Insurance Code. Such reinsurance by the Company of any share of its 20% quota
share retention with an affiliate is permissible only if the assuming affiliate
fully retains and does not further cede or retrocede any share of its assumption
of the 20% quota share retention, except to another affiliate of the Company;
and any affiliate of the Company which assumes some share of the Company's 20%
quota share retention under this provision shall be subject to the same
prohibition on ceding or retroceding any share of the Company's 20% quota share
retention to any person or entity that is not an affiliate of the Company.
ARTICLE VI - LOSS IN EXCESS OF POLICY LIMITS/EXTRA CONTRACTUAL OBLIGATIONS
Ultimate Net Loss shall not include any amounts that the Company pays or is held
liable to pay in excess of its Policy limit, but otherwise within the terms of
its Policy ("Loss in Excess of Policy Limits"), or any punitive, exemplary,
compensatory or consequential damages ("Extra Contractual Obligations"), because
of alleged or actual bad faith or negligence on its part in rejecting a
settlement within Policy limits, or in discharging its duty to defend or prepare
the defense in the trial of an action against its policyholder, or in
discharging its duty to prepare or prosecute an appeal consequent upon such an
action, or in otherwise handling a claim under a Policy.
ARTICLE VII - OTHER REINSURANCE
Subject always to the retention provision set forth in Article V above, on or
after the Closing Date, the Company shall be permitted to obtain other
reinsurance, recoveries under which shall inure solely to the benefit of the
Company and all recoveries under such other reinsurance shall be entirely
disregarded in applying all of the provisions of this Agreement; provided,
however, that the Quota Share Indemnification Agreement shall inure to the
benefit of this Agreement.
ARTICLE VIII - LOSS ADJUSTMENT EXPENSES
Loss Adjustment Expenses shall include both allocated and unallocated loss
expenses and shall be included in the Ultimate Net Loss, and are defined as all
expenses of the Company, including expenses for declaratory judgment actions,
monitoring of underlying litigation or claims, and coverage opinions, incurred
by the Company in the settlement, investigation, defense, or adjustment of all
claims under all Policies.
<PAGE>
ARTICLE IX - SUBROGATION AND SALVAGE
The Indemnitor shall be credited with subrogation and salvage collected and
received by the Company, less the actual cost, excluding salaries and expenses
of officials and employees of the Company respecting their time spent on
subrogation and salvage recoveries and also excluding sums paid to any attorney
as a retainer in obtaining such reimbursement or making such recovery, on
account of claims and settlements involving the indemnity coverage hereunder.
Enforcement of subrogation and salvage rights shall be determined solely by the
Company.
ARTICLE X - ORIGINAL CONDITIONS
A. The Indemnitor shall follow the fortunes of the Company for it Ultimate
Net Loss for all loss settlements and shall pay as paid by the Company.
B. The indemnity coverage provided under this Agreement shall be subject
to all interpretations, modifications, waivers, and alterations of the
Policies; provided, however, that the agreements set forth on Exhibit A
hereto that are in force as of the Closing Date shall remain in force
during the term of this Agreement and shall not be modified or altered
during the term of this Agreement, unless otherwise mutually agreed by
the Parties.
C. Nothing herein shall in any manner create any obligations or establish
any rights against the Indemnitor in favor of any third party or any
person not a Party to this Agreement.
ARTICLE XI - REPORTS AND REMITTANCES
A. The first statement of account shall be due to the Indemnitor from the
Company forty-five (45) days after the close of the first fiscal
quarter that includes the Closing Date.
B. Thereafter, the Company shall submit quarterly statements of account
("quarterly reports") within forty-five (45) days after the end of each
calendar quarter.
C. Such quarterly reports shall be sent by both facsimile transmission and
United States Postal Service or any other delivery service used by the
Company.
D. Such quarterly reports shall be in the form attached hereto as
Exhibit A, or in any other form mutually agreed by the Parties.
E. Remittances shall be on a "Net Basis," defined as amounts owed between
the Parties under this Agreement.
F. Remittances shall be due to the Company from the Indemnitor within
forty-five (45) days from the date of receipt of the facsimile
transmission of each quarterly report.
<PAGE>
G. Failure of a Party to pay amounts owed when due under this Agreement
shall result in imposition on that Party of an interest penalty equal
to the rate of interest announced by Citibank, N.A. as its prime or
base rate as of the due date of any remittance, calculated on the basis
of the actual number of days elapsed past the due date of any
remittance divided by three-hundred-and-sixty-five (365) days and
payment of other losses, costs, and expenses accrued or incurred by the
other Party as a result of the late payment.
ARTICLE XII - OFFSET
The Company and the Indemnitor shall have the right to offset any balance or
amounts due from one Party to the other under this Agreement.
ARTICLE XIII - ACCESS TO RECORDS
A. The Company shall place at the disposal of the Indemnitor at all
reasonable times, and the Indemnitor will have the right to inspect,
all books, records, and papers of the Company in connection with any
indemnity coverage hereunder or any claims in connection herewith.
B. All records reviewed by the Indemnitor are deemed proprietary and
confidential property of the Company. Further, unless pursuant to the
express, written permission of the Company, the Indemnitor shall not
disclose the contents of such information to any other person, persons,
entity, or entities; provided, that the Indemnitor may disclose such
information or portions thereof in connection with any arbitration
hereunder or any legal or regulatory process, or to its directors,
officers and employees and the directors, officers and employees of its
affiliates and to its agents, representative, attorneys, accountants,
auditors, reinsurers (collectively, "the Indemnitor's
Representatives"), in each case, who have a legitimate need to know
such information (which would include, but not be limited to the right
to dispute and/or assess in furtherance of a dispute) and who are
informed of and agree to be bound by the confidentiality terms of this
Agreement. The Indemnitor shall indemnify and hold harmless the Company
for all damages resulting from any unauthorized disclosure by the
Indemnitor or the Indemnitor's Representatives of records obtained
pursuant to this Article.
ARTICLE XIV - ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions in connection with this Agreement or any
transaction hereunder shall not relieve either Party of any liability which
would have attached had such delay, error or omission not occurred, provided
always that such error or omission is rectified as soon as possible after
discovery.
<PAGE>
ARTICLE XV - SECURITY
A. If the Company determines that it is unable to take credit in any
financial statement filed with its domiciliary insurance regulator for
the indemnity coverage provided hereunder, or if the Indemnitor's
Financial Strength Rating published by A.M. Best becomes less than
"A-," the Indemnitor agrees to fund its share of Adverse Loss
Development (and to replenish such funding from time to time as
necessary) by:
15. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a qualified United States financial institution as
provided in Delaware Insurance Code Title 18, Chapter 9 and Delaware
Department of Insurance Regulation 79 and acceptable to said insurance
regulatory authorities;
16. cash; and/or
17. a Trust in compliance with Delaware Insurance Code Title 18, Chapter 9 and
Delaware Department of Insurance Regulation 79.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form that would be
acceptable to the Company's domiciliary insurance regulatory authority,
will be issued for a term of at least one year and will include an
"evergreen clause," that automatically extends the term for at least
one additional year at each expiration date unless written notice of
non-renewal is given to the Company not less than 30 days prior to said
expiration date. The Company and the Indemnitor further agree that said
letters of credit may be drawn upon by the Company or its successors in
interest at any time, without diminution because of the insolvency of
the Company or the Indemnitor, but only for one or more of the
following purposes:
1. To reimburse itself for the Indemnitor's share of paid Adverse Loss
Development, unless paid in cash by the Indemnitor;
2. To reimburse itself for the Indemnitor's share of any other amounts claimed
to be due hereunder, unless paid in cash by the Indemnitor;
3. To fund a cash account in an amount equal to the Indemnitor's share of
Adverse Loss Development funded by means of a letter of credit that is
under non-renewal notice, if said letter of credit has not been renewed or
replaced by the Indemnitor 10 days prior to its expiration date;
4. To refund to the Indemnitor any sum in excess of the actual amount required
to fund the Indemnitor's share of Adverse Loss Development and other
amounts claimed to be due hereunder, if so requested by the Indemnitor.
C. In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for B(1),
B(3) or B(4), or in the case of B(2), the actual amount
<PAGE>
determined to be due, the Company shall promptly return to the
Indemnitor the excess amount so drawn.
D. In the event of funding through a Trust:
1. The Indemnitor shall establish a Trust
Account for the benefit of the Company to
fund the amounts receivable under the
Agreement.
2. The assets deposited into the Trust Account
shall be valued according to their current
fair market value and shall consist only of
cash (United States legal tender),
certificates of deposit (issued by a United
States bank and payable in United States
legal tender) and investments of the type
permitted by the Delaware Insurance Code or
any combination of the above, provided that
such investments are issued by an
institution that is not the parent,
subsidiary or affiliate of either the
Indemnitor or the Company;
3. The Indemnitor, prior to depositing assets
with the trustee, shall execute assignments,
endorsements in blank, or transfer legal
title to the trustee of all shares,
obligations or any other assets requiring
assignments, in order that the Company, or
the trustee upon the Company's direction,
may whenever necessary negotiate any such
assets without consent or signature from the
Indemnitor or any other entity;
4. All settlements of account between the
Indemnitor and the Company shall be in cash
or its equivalent;
5. The assets in the trust account may be
withdrawn by the Company at any time,
notwithstanding any other provisions in this
Agreement, and shall be utilized by the
Company or any successor by operation of
law, including without limitation any
liquidator, rehabilitator, receiver or
conservator of the Company, for the purposes
set forth in paragraphs B(1) -B(4) above.
<PAGE>
ARTICLE XVI - INSOLVENCY
In the event of the insolvency of the Company, the indemnity coverage hereunder
shall be payable directly to the Company or to its liquidator, receiver,
conservator or statutory successor on the basis of the amount of claim allowed
in the insolvency proceeding without diminution by reason of the inability of
the Company to pay all or any part of the claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of the Company shall
give written notice to the Indemnitor of the pendency of a claim against the
Company, indicating the Policy or bond covered hereunder which claim would
involve a possible liability on the part of the Indemnitor, within a reasonable
time after such claim is filed in the conservation or liquidation proceeding or
in the receivership, and that during the pendency of such claim, the Indemnitor
may investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or statutory
successor. The expense thus incurred by the Indemnitor shall be chargeable,
subject to the approval of the Court, against the Company as part of the expense
of conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Indemnitor.
ARTICLE XVII - ARBITRATION
A. Except with respect to disputes arising out of or in connection with
Article XIII above (Access to Records), as a condition precedent to any
right of action hereunder, in the event of any dispute or difference of
opinion hereafter arising with respect to this Agreement, including its
formation and validity, it is hereby mutually agreed that such dispute
or difference of opinion shall be submitted to arbitration.
B. Except as provided in subsections A. and D. of this Article or with
respect to judicial proceedings instituted in aid of arbitration, this
Article shall constitute a waiver of the Parties' rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a
transfer of a case to another court as might otherwise be permitted by
the laws of the United States or of any State or other jurisdiction in
the United States.
C. One Arbiter shall be chosen by the Company, the other by the
Indemnitor, and an Umpire shall be chosen by the two Arbiters before
they enter upon arbitration, all of whom shall be active or retired
disinterested executive officers of United States domiciled insurance
or reinsurance companies. In the event that either Party should fail to
choose an Arbiter within 30 days following a written request by the
other Party to do so, the requesting Party may choose two Arbiters who
shall in turn choose an Umpire before entering upon arbitration. If the
two Arbiters fail to agree upon the selection of an Umpire within 30
days following their appointment, each Arbiter shall nominate three
candidates within 10 days thereafter, two of whom the other shall
decline, and the decision shall be made by drawing lots.
<PAGE>
D. The Arbiters and the Umpire ("the Arbitration Panel") shall consider
this Agreement as an honorable engagement rather than merely as a legal
obligation, and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The majority decision
of the Arbitration Panel shall be final and binding on both Parties.
Judgment upon the final decision of the Arbitration Panel may be
entered in any court of competent jurisdiction.
E. Except as provided in sub-section G. of this Article, each Party shall
bear the expense of its own Arbiter, and shall jointly and equally bear
with the other the expense of the Umpire and of the arbitration. In the
event that the two Arbiters are chosen by one Party, as above provided,
the expense of the Arbiters, the Umpire and the arbitration shall be
equally divided between the two Parties.
F. Any arbitration proceedings shall take place in New York, New York.
G. The Arbitration Panel shall have the power to award costs, expenses,
and interest to the prevailing Party in an arbitration.
ARTICLE XVIII - ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties regarding
the subject matter hereof and supercedes all prior agreements and
understandings, both written and oral and does not confer any rights or remedies
to any other party or any other person.
ARTICLE XIX - AMENDMENTS AND ALTERATIONS
This Agreement shall not be changed, supplemented, modified, or amended except
by an endorsement/addendum signed by the Parties and attached hereto.
ARTICLE XX - NO WAIVER
No forebearance to enforce any provision or right hereunder shall be deemed a
waiver thereof, and no waiver of any breach of any term or covenant herein shall
be construed as a waiver of any other breach of the same, or any other covenant
herein.
<PAGE>
ARTICLE XXI - CONSTRUCTION
This Agreement is the result of arms-length negotiations between the Parties and
has been prepared jointly by the Parties. In applying and interpreting the
provisions of this Agreement, there shall be no presumption that either the
Company or the Indemnitor prepared this Agreement, or that this Agreement shall
be construed in favor of or against either the Company or the Indemnitor.
ARTICLE XXII - NOTICES
Any notice or other communication required or permitted hereunder shall be in
writing and shall be delivered personally, telegraphed, telexed, sent by
facsimile transmission, or sent by certified, registered or express mail,
postage prepaid, to :
If to the Indemnitor, to:
Doreen Faga
President, Gibraltar Operations
Prudential Insurance Company of America
Eisenhower Corporate Center, Building 3
290 West Mt. Pleasant Avenue
Livingston, NJ 07039
Phone: 973-548-5980
Fax: 973-548-5950
If to the Company, to:
Janet J. Burak
Senior Vice President and General Counsel
Everest Reinsurance Holdings
477 Martinsville Road
P.O. Box 830
Liberty Corner, NJ 07938
Phone: 908-604-3170
Fax: 908-604-3450
ARTICLE XXIII - GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Company, by its duly authorized representative, has
executed this Agreement as of the date undermentioned at:
____________, ____________, this ____________ day of __________________ 2000.
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the Indemnitor, by its duly authorized representative, has
executed this Agreement as of the date undermentioned at:
____________, ____________, this ____________ day of ___________________ 2000.
- -------------------------------------------------------
<PAGE>
The following constitutes the Disclosure Schedule as called
for and referred to in the Stock Purchase Agreement (the "AGREEMENT") dated as
of February 24, 2000 between The Prudential Insurance Company of America (the
"SELLER") and Everest Reinsurance Holdings, Inc. (the "PURCHASER"). This
Disclosure Schedule constitutes a part of the Agreement.
Capitalized terms used in this Disclosure Schedule shall have
the same meanings as in the Agreement.
Inclusion of any item under any paragraph hereof shall not be
deemed to be an admission that disclosure of such item is in fact required
pursuant to the Agreement or that the Seller or Gibraltar failed to perform any
obligation in fact required to be performed by either of them.
Headings included herein are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Disclosure
Schedule.
<PAGE>
Schedule 3.5
Consents
--------
1. Service Contract dated May 1, 1997 between Gibraltar Casualty
Company and Prudential Property and Casualty Company, as amended.
2. Service Agreement between IRISC, Inc. (n/k/a Cambridge Integrated
Services Group) and Gibraltar Casualty Company, as amended.
3. Technology Service Agreement between IRISC, Inc. (n/k/a Cambridge
Integrated Services Group) and Gibraltar Casualty Company.
4. Letter Agreement between Datasure International Limited, IRISC,
Inc. (n/k/a Cambridge Integrated Services Group), and Gibraltar Casualty Company
relating to the Program License and Support Services Agreement between Datasure
International Limited and RHH Group.
5. Software License Agreement dated April 19, 1995 between The Freedom
Group, Inc. ("TFG") and Gibraltar Casualty Company as amended.
6. Software License Agreement between Datalight Software and The
Prudential Insurance Company of America for the Use of the Concordance
Information Retrieval System by Gibraltar Casualty Company.
<PAGE>
Schedule 3.7
Statutory Statements
--------------------
NONE
<PAGE>
Schedule 3.9
Liens on the Investments of Gibraltar
-------------------------------------
NONE
<PAGE>
Schedule 3.10
Changes and Events since December 31, 1999
------------------------------------------
1 Adjustments to Loss Reserves required pursuant to Section 5.10.
2 Retirement and removal of Andrew Corselli as General Counsel of
Gibraltar Casualty Company and Assistant General Counsel of The Prudential
Insurance Company of America.
3 In connection with the retirement and removal of Andrew Corselli, the
following changes to the directors and officers of Gibraltar Casualty Company
are effective as of February 16, 2000:
o Appointment of Doreen Faga to the Board of Directors;
o Appointment of Doreen Faga as Senior Vice President;
o Appointment of Joanne Poles as General Counsel;
o Resignation of Joanne Poles as Corporate Secretary;
o Appointment of Michael Rant as Corporate Secretary;
o Resignation of Michael Rant as Assistant Corporate Secretary; and
o Appointment of Erika Kill as Assistant Corporate Secretary.
4 Retirement of John Mottola, President of Gibraltar Casualty Company on
February 28, 2000.
5 In connection with the retirement of John Mottola, the following
changes will occur to the directors and officers of Gibraltar Casualty Company,
effective as of February 28, 2000.
o Resignation of John Mottola from the Board of Directors and as
President;
o Resignation of Doreen Faga as Senior Vice President; and
o Appointment of Doreen Faga as President.
<PAGE>
Schedule 3.11
Liabilities of Gibraltar which under GAAP are required to be disclosed
----------------------------------------------------------------------
NONE
<PAGE>
Schedule 3.12
Pending or Threatened Insurance Claims or Assessments
-----------------------------------------------------
NONE
<PAGE>
Schedule 3.13
Judgments, Decrees and Orders in Restraint of Business
------------------------------------------------------
1. Order by Judge Alfred M. Wolin, U.S.D.J., dated September 15, 1995.
2. Order by Judge Alfred M. Wolin, U.S.D.J., dated February 11, 1997.
3. Order by Judge Alfred M. Wolin, U.S.D.J., dated March 23, 1999.
<PAGE>
Schedule 3.14
Material Actions, Suits, Arbitrations or Legal,
-----------------------------------------------
Administrative or Other Proceedings
-----------------------------------
- --------------------------------------------------------------------------------
CAPTION POLICYHOLDER COURT
- --------------------------------------------------------------------------------
Aerojet General Corp. v. Certain Aerojet General Corp. CA Appellate Court
Underwriters of Lloyds, et al.,
CA State Ct. Case No. 98A 500358
- --------------------------------------------------------------------------------
Certain Underwriters at Lloyd's v. Amax Minerals NM Judicial Court
Cypress Amax, Second, Judicial
District, N.M., Docket No. CV
98-11897
- --------------------------------------------------------------------------------
Cyprus Amax Minerals Co., et al. v. Amax Minerals CA Superior Court
Allianz Insurance Co., et al, CA
State Ct., Docket No. BC 198946
- --------------------------------------------------------------------------------
MRC Holdings, Inc. v. Employers American Can NJ Superior Court
Insurance of Wausau, NJ Superior
Ct., Docket No L-12342-90
- --------------------------------------------------------------------------------
INA v. Asarco, NJ Superior Court, Asarco, Inc. NJ Superior Court
Docket No. L-6164-93
- --------------------------------------------------------------------------------
Newmont Mining Corp., et al. v. Asarco, Inc. CO State Court
Casualty & Surety Co., Colorado
State Ct., Docket No 93-CV-4774
- --------------------------------------------------------------------------------
Asarco, Inc. v. American Home Asarco, Inc. CO District Court,
Assurance Co., et al, District Denver
Court, City and County of Denver,
CO
- --------------------------------------------------------------------------------
Zurick Ins. Co. v. Baxter Baxter (HIV) IL Circuit Court
International, Inc., et al. Cir.
Ct. IL, Docket No. 94MR46
- --------------------------------------------------------------------------------
Beckton Dickinson and Company v. Becton Dickinson NJ Superior Court
Adriatic Ins. Co. et al., NJ
Superior Ct., Docket No. C 35-99
- --------------------------------------------------------------------------------
Smithkline Beecham Corp. v. Aetna Beecham, Inc. NJ Superior Court
et al., NJ Superior Ct., Docket
No. L-007799-94
- --------------------------------------------------------------------------------
Nosroc Corporation v. Allianz CCR Member; U.S. District
Underwriters Ins. Co., et al., IU International Court, E.D. PA
US District Court, E.D. PA Civil
Action No. 93-CV-0215
- --------------------------------------------------------------------------------
-79-
<PAGE>
- --------------------------------------------------------------------------------
CAPTION POLICYHOLDER COURT
- --------------------------------------------------------------------------------
Commercial Union Ins. Co. and CCR Member: NY Supreme Court
Continental Casualty Co. v. Pfizer, Inc.
Pfizer, Inc., et al., NY State
Sup. Ct., Index No. 28936/91
- --------------------------------------------------------------------------------
Pfizer, Inc. and Quigley CCR Member: U.S. District Ct.,
Company, Inc. v. Affiliated FM Pfizer, Inc. E.D. PA
Insurance Co., et al., U.S.
District Court, E.D. PA, Case
No. 93-CV-0215
- --------------------------------------------------------------------------------
Continental Casualty Company v. CCR Member: IL Circuit Court
Maremont Corp; Ferodo America Maremont Corp.
Inc., as successor to Nuturn
Corp., Cir. Ct. IL Docket No.
97 CH 8476
- --------------------------------------------------------------------------------
American Motorist et al v. Celanese Corporation Court of Common
Hoechst Celanese Corp., Pleas, SC
SC State Ct., Docket No.,
97-CP-23
- --------------------------------------------------------------------------------
American Motorist et al v. Celanese Corporation TX District Court
Hoechst Celanese Corp., Dist.
Ct. of Dallas, Texas, Cause
No. 9700133-1
- --------------------------------------------------------------------------------
The Coastal Corp., et al v. Coastal Corp. CA Superior Court
The Aetna Casualty and Surety
Co., CA State Ct., Case No.
BC154152
- --------------------------------------------------------------------------------
Commonwealth Oil Refining Co. v. Commonwealth Oil NJ Superior Court
Commercial Ins. Co., et al., NJ Refining Company
Superior Court MID-L8792-94
- --------------------------------------------------------------------------------
Consolidated Rail Corporation v. Consolidated Rail Court of Common
Certain Domestic Insurance Corp. Pleas, PA
Companies, Pennsylvania Court of
Common Pleas, Philadelphia County,
Civil Action No. July, 1998,
001370
- --------------------------------------------------------------------------------
Eljer Industries, Inc., et al, v. Dyson-Kissner Corp. U.S. District
Aetna Casualty & Surety Co., U.S. Court, IL, E.D.
D.C. Northern District of Illinois,
Eastern Division, Docket No.
93 C 4320
- --------------------------------------------------------------------------------
New England Ins. v. Dyson-Kissner Dyson-Kissner Corp. NY Supreme Court
Moran, et al., NY Sup. Ct., Docket
No. 97-119830
- --------------------------------------------------------------------------------
E.I. du Pont de Nemours & Company v. E.I. du Pont DE Superior Court
Allstate Insurance Company, et al.,
DE Superior Court, New Castle Cty.,
Docket No. 99C-12-253 HLA
- --------------------------------------------------------------------------------
-80-
<PAGE>
- --------------------------------------------------------------------------------
CAPTION POLICYHOLDER COURT
- --------------------------------------------------------------------------------
Eli Lilly & Co. v. The Aetna Eli Lilly & Company IN State Court
Casualty & Surety Co. et al.,
State Court of Indiana, Marion
County, Cause No. 49D059703CP0422
- --------------------------------------------------------------------------------
Home Insurance Co. v. Cornell Federal Pacific NJ Superior Court
Dubilier, et al., NJ Superior Ct., Electric Co &
Docket No. MER-L-5192-96
- --------------------------------------------------------------------------------
GenCorp Inc., v. AIU Insurance Gencorp, Inc. U.S. District
Company, et al., U.S. District Court, OH, N.D.
Northern District of Ohio, Docket
5:95-CV-2464
- --------------------------------------------------------------------------------
Allstate Ins. Co., et al. v. General Electric NY Supreme Court
General Electric, et al., NY
State Sup. Ct., Docket
601883-97
- --------------------------------------------------------------------------------
General Electric Company v. General Electric TX State Court
Adriatic Ins. Co. et al., 136th
District Ct. of Jefferson
County, TX
- --------------------------------------------------------------------------------
Aetna v. Goodyear Tire & Rubber Goodyear Tire & Court of Common
Company, Ohio Court of Common Rubber Co. Pleas, OH
Pleas, Summit County, Ohio Case
No. CV93-093226
- --------------------------------------------------------------------------------
Viacom International Inc. v. Gulf & Western NJ Superior Court
Admiral Insurance Company, et al.,
NJ Superior Court, Docket No.
SOM L-1739-99
- --------------------------------------------------------------------------------
Hercules, Inc. v. Aetna et al., Hercules, Inc. DE Superior Court
Superior Courr of the State of
Delaware, New Castle County,
Docket No. CA Nos. 92C-10-105
and 90C-FE-195-1-CV
- --------------------------------------------------------------------------------
Lonza, Inc. v. Hartford Accident Lonza, Inc. NJ Superior Court
and Indemnity Co., et al., NJ
Superior Ct., Docket No. BER-
11037-97
- --------------------------------------------------------------------------------
The Mead Corporation v. Aetna Mead Corp. AL Circuit Court
Casualty and Surety Company,
Circuit Court of Jefferson
County, Alabama, Civil Action
No. CV-97-5117
- --------------------------------------------------------------------------------
Merck & Co., Inc. v. Federal Merck & Co., Inc. NJ Superior Court
Ins. Co., et al., NJ Superior
Court, Docket No. C-340-96
- --------------------------------------------------------------------------------
First State Ins. Co. v. Minnesota Minnesota Mining & MN State Court
Mining & Minerals, Minn. State, Minerals Corp.
County of Ramsey, No. C3 94-12780
- --------------------------------------------------------------------------------
-81-
<PAGE>
- --------------------------------------------------------------------------------
CAPTION POLICYHOLDER COURT
- --------------------------------------------------------------------------------
Minnesota Mining and Manufacturing Minnesota Mining & US District Court,
Co. v. Abeille Reassurances, et al., Minerals Corp. Eastern District,
Eastern District Court of Eastern TX
TX, Docket No. 29SCV0005
- --------------------------------------------------------------------------------
Exxon Mobil Corporation, et al. v. Mobile Oil/Bluefield TX State Court
Certain Underwriters at Lloyd's Oil/Superior Oil
London, et al., Harris, County, TX,
Docket No. 2000-02117
- --------------------------------------------------------------------------------
Certain Underwriters at Lloyd's, Mobile Oil/Bluefield NY Supreme Court
London, v. Mobil Corporation, The Oil/Superior Oil
Superior Oil Company, Certain
London Market Insurance Companies,
et al., NY Supreme Court, Index No.
600006/00 (Justice Gammerman)
- --------------------------------------------------------------------------------
Murphy Oil USA, Inc. v. United Murphy Oil, USA Inc. AK Circuit Court
States Fidelity Guaranty Company,
et al., Circuit Court of Union
County, Arkansas, Docket No.
91-439-2
- --------------------------------------------------------------------------------
American Premier Underwriters, Penn Central Marathan Court of Common
Inc. v. Certain Underwriters at Manufacturing Co. Pleas, OH
Lloyd's , et al., Ct. of Common
Pleas, Hamilton Cty., Ohio State
Court, Docket No. A97703088
- --------------------------------------------------------------------------------
Elf Atochem NA, Inc. v. The Aetna Pennwalt Corp. TX District Court
Casualty & Surety Co., et al.,
Harrison County, TX Docket No.
94-1018
- --------------------------------------------------------------------------------
American Employer's Insurance Pennwalt Corp. NJ Superior Court
Company, et al., v. Elf Atochem NA,
Inc. et al., NJ Superior Court
Docket No. L-533394
- --------------------------------------------------------------------------------
Pfizer Inc. v. Employers Inc. Pfizer, Inc. NJ Superior Court
Company of Wausau et al., NJ
Superior Court Docket No.
C108-92
- --------------------------------------------------------------------------------
PPG Industries, Inc. v. Accident PPG Industries, Inc. NJ Superior Court
and Casualty Insurance Company of
Winterhur, et al., NJ Superior
Ct. Docket No. HUD-L-1845-95
- --------------------------------------------------------------------------------
Rohm & Haas v. United States Rohm & Haas Company NJ Superior Court
Liability Insurance Company,
et al., NJ Superior Ct.,
Docket No. MERL-004664-95
- --------------------------------------------------------------------------------
Rohm & Haas Texas Inc. v. AIU Rohm & Haas Company TX State Court
Ins. Co. et al., Texas St. Ct.,
Jefferson TX, Docket No.
A157626
- --------------------------------------------------------------------------------
-82-
<PAGE>
- --------------------------------------------------------------------------------
CAPTION POLICYHOLDER COURT
- --------------------------------------------------------------------------------
RSR Corp et al., v. AIU Ins. RSR Corp. TX District Court
Co., et al., Harrison County
Texas, Case No. 930127
- --------------------------------------------------------------------------------
The Sherwin-Williams Company v. Sherwin Williams Court of Common
Travelers Casualty and Surety Pleas, OH
Company et al., Docket No. 99-
399320-CV D13 CM, Ohio Court of
Common Pleas, Cuyahoga County
- --------------------------------------------------------------------------------
Inland Paperboard and Packaging, Temple-Inland, Inc. IN Superior Court
Inc. v. Affiliated FM Insurance Time Inc.
Company, Indiana, Marion Superior
Court, Cause 49D05-9708-CP-1142
- --------------------------------------------------------------------------------
Fidelity & Casualty Co. of NY v. Texas Eastern PA District Court
Texas Eastern Transmission Transmission Corp.
Corporation v. Associated Electric
Gas Insurance Services, Ltd., et
al., Docket No. 92-4804,
Pennsylvania District Court,
Eastern District
- --------------------------------------------------------------------------------
Texas Eastern Transmission Corp. v. Texas Eastern TX District Court
Fidelity & Casualty Co., TX District Transmission Corp.
Court, Harris County, 133rd District
Ct., Docket No. 92-31827
- --------------------------------------------------------------------------------
The Boeing Company v. Certain Boeing Company WA Superior Court
Underwriters at Lloyds, Washington
Superior Court
- --------------------------------------------------------------------------------
Certain Underwriters of Lloyds v. Boeing Company Oregon Circuit
The Boeing Company Docket No. Court
9902-01729, Oregon Circuit Court
- --------------------------------------------------------------------------------
Crown Cork & Seal Co. Inc. v. Continental Group, NJ Superior Court
Travelers, et al., NJ Superior Inc.
Ct. MID-L-5965-95
- --------------------------------------------------------------------------------
Continental Holdings, Inc. v. Continental Group, NJ Superior Court
AIU Ins. co., NJ Superior Ct. Inc.
MID-L-12453-91
- --------------------------------------------------------------------------------
Sonoco Products v. American Continental Group, NJ Superior Court
Motorist Ins. Co., et al., NJ Inc.
Superior Court, Docket No.
MID-L601795
- --------------------------------------------------------------------------------
Uniroyal Inc. v. American Uniroyal Inc. NJ Superior Court
Reinsurance Company, et al.,
NJ Superior Ct., Docket No.
L-8172-94
- --------------------------------------------------------------------------------
Warner Lambert Co. et al. v. Warner Lambert NJ Superior Court
The Admiral Ins. Co., et al., Company
NJ Superior Ct. Docket No.
3307-92
- --------------------------------------------------------------------------------
-83-
<PAGE>
- --------------------------------------------------------------------------------
CAPTION POLICYHOLDER COURT
- --------------------------------------------------------------------------------
Nepera, Inc. (plaintiff- Warner Lambert NJ Superior Court
intervenor) v. Admiral Insurance Company
Company, et al., NJ Superior
Court, Docket No. MIDLX-L-
10456-94
- --------------------------------------------------------------------------------
Wheeling Pittsburgh Corp. and Wheeling Pittsburgh W VA Circuit Court
Wheeling Pittsburgh Steel Steel Corp.
Corporation v. American Insurance
Company, Virginia St. Ct. Civil
Action No. 93C-340
- --------------------------------------------------------------------------------
Witco Corporation v. Adriatic Witco Corporation DE Superior Court
Insurance Company, et al.,
Docket No. 95C-06-30, Delaware
Superior Court, New Castle County
- --------------------------------------------------------------------------------
BHP Copper Inc. (f/k/a Magma Copper City Services Arizona St. Ct.
Co.) v. Aetna Casualty & Surety
Co., et al. Docket No. cv.
2000-000808
- --------------------------------------------------------------------------------
ARBITRATIONS OR LEGAL, ADMINISTRATIVE OR OTHER PROCEEDINGS
- ----------------------------------------------------------
1. Request for Information dated September 3, 1998 from the Attorney General of
the State of Minnesota to Gibraltar Casualty Company pursuant to the Landfill
Cleanup Act and letter dated January 19, 1999 from Gibraltar Casualty Company to
the Attorney General of the State of Minnesota.
2. Arbitration pending between Gibraltar Casualty Company and QBE Insurance &
Reinsurance (Europe) Limited pursuant to the Casualty Quota Share Reinsurance
Agreement.
-84-
<PAGE>
Schedule 3.15
Jurisdiction of Incorporation and
---------------------------------
Jurisdictions of Qualification of Gibraltar
-------------------------------------------
JURISDICTION OF INCORPORATION
Delaware
LICENSED IN
Delaware
California
JURISDICTIONS OF QUALIFICATION
Alabama
Arkansas
California
Connecticut
District of Columbia
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Maine
Maryland
Massachusetts
Minnesota
Missouri
Montana
Nebraska
Nevada
New Jersey
North Dakota
Oregon
South Dakota
Tennessee
Vermont
Washington
West Virginia
Wisconsin
-85-
<PAGE>
Wyoming
-86-
<PAGE>
Schedule 3.16
Material Contracts with Affiliates, Officers, Directors and Interested Parties
------------------------------------------------------------------------------
1. Tax Allocation Agreement dated January 17, 1995 between The Prudential
Insurance Company of America and its Affiliates, including Gibraltar Casualty
Company.
2. Service Agreement dated May 10, 1990 between The Prudential Insurance
Company of America and Gibraltar Casualty Company.
3. Separation Agreement dated October 6, 1995 among The Prudential
Insurance Company of America, PRUCO, Inc., Gibraltar Casualty Company,
Prudential Reinsurance Holdings, Inc. and Prudential Reinsurance Company.
4. Surplus Maintenance Agreement dated December 18, 1991 between PRUCO,
Inc. and Gibraltar Casualty Company.
5. Investment Advisory Contract effective as of 1984 between Prudential
Investment Company and Gibraltar Casualty Company.
6. Loan Agreement dated November 21, 1996 between Gibraltar Casualty
Company and Prudential Funding Corporation.
7. Service Contract dated May 1, 1997 between Gibraltar Casualty Company
and Prudential Property and Casualty Company.
8. Occupancy Agreement dated July 1, 1995 between Gibraltar Casualty
Company and The Prudential Service Company.
-87-
<PAGE>
Schedule 3.17
Compliance with Applicable Law
------------------------------
1. Notification dated May 7, 1999 from North Carolina Insurance Department
to Gibraltar Casualty Company advising that the Department is unable to
approve Gibraltar Casualty Company as an authorized reinsurer.
-88-
<PAGE>
Schedule 3.20
Governmental Consents
---------------------
NONE
-89
<PAGE>
Schedule 3.21
Contracts, Agreements or Arrangements
-------------------------------------
to which Gibraltar is a Party or by which
-----------------------------------------
Gibraltar's Assets or Property are bound
----------------------------------------
1. Separation Agreement dated October 6, 1995 among The Prudential
Insurance Company of America, PRUCO, Inc., Gibraltar Casualty Company,
Prudential Reinsurance Holdings, Inc. and Prudential Reinsurance Company.
2. Guarantee dated October 6, 1995 of The Prudential Insurance Company
of America in favor of Prudential Reinsurance Holdings, Inc. (n/k/a Everest
Reinsurance Holdings, Inc.).
3. Guarantee dated October 6, 1995 of The Prudential Insurance Company
of America in favor of Prudential Reinsurance Company (n/k/a Everest Reinsurance
Company).
4. Indemnification Agreement dated October 6, 1995 between PRUCO, Inc.
and Prudential Reinsurance Holdings, Inc. (n/k/a Everest Reinsurance Holdings,
Inc.).
5. Surplus Maintenance Agreement dated December 18, 1991 between PRUCO,
Inc. and Gibraltar Casualty Company.
6. Aggregate Stop Loss Retrocession Agreement dated October 6, 1995
between Gibraltar Casualty Company and Prudential Reinsurance Company.
7. Reinsurance Trust Agreement dated March 11, 1999 among Gibraltar
Casualty Company, Everest Reinsurance Company, and The Bank of New York.
8. Trust Agreement dated April 23, 1999 among Everest Reinsurance
Company, Gibraltar Casualty Company, and Bankers Trust Company.
9. Engagement Letter Agreement dated May 3, 1999 among Deloitte &
Touche LLP, Gibraltar Casualty Company and Everest Reinsurance Company as
suspended by Notice letter dated May 26, 1999 from Gibraltar Casualty Company
and Everest Reinsurance Company to Deloitte & Touche LLP suspending the
Engagement Letter Agreement.
10. Service Contract dated January 1, 1995 between Gibraltar Casualty
Company and Prudential Reinsurance Company.
11. Service Agreement dated May 10, 1990 between Gibraltar Casualty
Company and The Prudential Insurance Company of America.
12. Service Contract dated May 1, 1997 between Gibraltar Casualty Company
and Prudential Property and Casualty Company, as amended.
-90-
<PAGE>
13. Service Agreement between IRISC, Inc. (n/k/a Cambridge Integrated
Services Group) and Gibraltar Casualty Company, as amended.
14. Technology Service Agreement between IRISC, Inc. (n/k/a Cambridge
Integrated Services Group) and Gibraltar Casualty Company.
15. Letter Agreement between Datasure International Limited, IRISC, Inc.
(n/k/a Cambridge Integrated Services Group) and Gibraltar Casualty Company
relating to the Program License and Support Services Agreement between Datasure
International Limited and RHH Group.
16. Software License Agreement dated April 14, 1995 between Gibraltar
Casualty Company and The Freedom Group, Inc.
17. Software License Agreement between Gibraltar Casualty Company and
Prudential Reinsurance Company.
18. Software License Agreement between Datalight Software and The
Prudential Insurance Company of America for the Use of the Concordance
Information Retrieval System by Gibraltar Casualty Company.
19. Investment Advisory Contract effective as of 1984 between Prudential
Investment Company and Gibraltar Casualty Company.
20. Tax Allocation Agreement executed on January 17, 1995 between The
Prudential Insurance Company of America and its Affiliates, including Gibraltar
Casualty Company, as amended.
21. Loan Agreement dated November 21, 1996 between Gibraltar Casualty
Company and Prudential Funding Corporation.
22. Letter Agreement dated May 26, 1999 between The Prudential Insurance
Company of America and Everest Reinsurance Company.
23. Confidentiality and Non-Disclosure Agreement dated May 6, 1998
between Everest Reinsurance Company, Gibraltar Casualty Company and Tillinghast-
Towers Perrin.
24. Letter Agreement dated September 16, 1998 between Tillinghast-Towers
Perrin and Everest Reinsurance Company.
25. Letter Agreement dated February 24, 1999 between Milliman &
Robertson, Inc. and The Prudential Insurance Company of America.
-91-
<PAGE>
26. Letter Agreement dated April 8, 1999 between Tillinghast-Towers
Perrin and The Prudential Insurance Company of America.
27. Letter Agreement dated July 14, 1999 between Tillinghast-Towers
Perrin and Gibraltar Casualty Company.
28. Occupancy Agreement dated July 1, 1995 between Gibraltar Casualty
Company and The Prudential Service Company.
29. Assignment Agreement dated September 17, 1998 among Prudential
Reinsurance Company (n/k/a Everest Reinsurance Company), Gibraltar Casualty
Company, and NationBank N.A.
30. Uniform Qualified Assignment Agreement effective May 1996 between
Gibraltar Casualty Company and Transamerica Annuity Service Corporation.
31. Tolling Agreement dated January 3, 2000, between Gibraltar Casualty
Company and Everest Reinsurance Company.
32. Letter Agreement dated January 4, 2000 between Gibraltar Casualty
Company and Everest Reinsurance Company.
Claim Agreements With Guaranteed Scheduled Payments
- ---------------------------------------------------
1. Settlement Agreement dated February 1997 with Bristol Myers Squibb
(Includes Medical Engineering).
2. Settlement Agreement dated January 1996 with Revlon.
3. Agreement dated January 2000 with Pfizer.
Claim Handling Agreements
- -------------------------
Gibraltar has claim handling agreements with the following policyholders:
Pfizer CBS/Westinghouse
Union Carbide Colt Industries
Flintkote Revlon/Rhone Poulenc
Jim Walter/Celotex Pittsburgh Corning Corp.
RPM/Proko/Bondex Baxter Travenol International
Hoechst Celanese
-92-
<PAGE>
Bayer/Rhinechem
American Hospital Supply Co.
Schedule 3.22
Contractual Reinsurance, Insurance and Commutation Agreements
-------------------------------------------------------------
1. Settlement and Commutation Agreement effective February 22, 1999 and
Release by and between Gibraltar Casualty Company and Hamburger Internationale
Ruckversicherung Aktiengesellschaft.
2. Reinsurance Settlement and Commutation Agreement and Release
effective April 14, 1999 between Gibraltar Casualty Company and U.S.
International Reinsurance Company and The Home Insurance Company and its
subsidiaries.
3. Commutation and Settlement Agreement effective May 30, 1997 between
Gibraltar Casualty Company and Imperial Casualty and Indemnity Company.
4. Settlement Agreement and Mutual Release effective May 15, 1997
between Underwriters Reinsurance Company, formerly known as Buffalo Reinsurance
Company, and Gibraltar Casualty Company.
5. Commutation Agreement effective June 20, 1996 between Gibraltar
Casualty Company and The Central National Insurance Company of Omaha.
6. Settlement Agreement and Release between Midstates Reinsurance
Corporation (f/k/a Mead Reinsurance Corporation), and Gibraltar Casualty
Company.
7. Settlement Agreement and Release dated July 1997 between CIGNA
Reinsurance Company, for and on behalf of Century Reinsurance Company, and
Gibraltar Casualty Company.
8. Commutation of two Aggregate Excess of Loss Reinsurance Agreements
effective May 27, 1998 between Gibraltar Casualty Company and Citadel
Reinsurance Company Limited.
9. Aggregate Stop Loss Retrocession Agreement dated October 6, 1995
between Gibraltar Casualty Company and Prudential Reinsurance Company.
10. Commutation Agreement between Gibraltar Casualty Company and ICA
(formerly Ormond Reinsurance Co.).
-93-
<PAGE>
11. Certificate of Liability Insurance dated July 30, 1999 for Gibraltar
Casualty Company by Aon.
12. Settlement and Commutation Agreement and Release dated August, 1999
by and between Gibraltar Casualty Company and Unione Italiana Reinsurance
Company of America, Inc.
<PAGE>
Schedule 3.23
Liability, Property and Casualty, Workers Compensation,
-------------------------------------------------------
Directors and Officers Liability, Surety Bonds, Key Man Life
------------------------------------------------------------
Insurance and Other Insurance Contracts of Gibraltar
----------------------------------------------------
1. See Attached Insurance Summary.
2. There are no Key Man Life Insurance policies.
-95-
<PAGE>
GIBRALTAR INSURANCE COVERAGES
-----------------------------
TABLE OF CONTENTS
-----------------
COVERAGE PAGE NUMBER
- -------- -----------
INTRODUCTION 2
MASTER PROPERTY PROGRAM 3
BOILER AND MACHINERY INSURANCE 7
CORPORATE PUBLIC LIABILITY PROGRAM 9
UMBRELLA & EXCESS LIABILITY POLICIES 11
WORKERS COMPENSATION & EMPLOYERS LIABILITY 12
MASTER HOME OFFICE GARAGE KEEPER'S LIABILITY 13
MASTER HOME OFFICE AUTOMOBILE LIABILITY 14
DIRECTORS & OFFICERS LIABILITY INSURANCE 16
COMPREHENSIVE CRIME PROGRAM 18
FIDUCIARY LIABILITY INSURANCE 20
ERRORS & OMISSIONS - PROFESSIONAL LIABILITY INSURANCE 21
EMPLOYMENT PRACTICES LIABILITY INSURANCE 22
SURETY BONDS 23
ENTERPRISE RISK MANAGEMENT: FEBRUARY 16, 2000
-96-
<PAGE>
ENTERPRISE RISK MANAGEMENT
--------------------------
CORPORATE INSURANCE PROGRAMS
----------------------------
INTRODUCTION
------------
ISSUED: FEBRUARY 16, 2000
-------------------------
INTERNAL USE ONLY
-----------------
This package summarizes the major insurance programs maintained by Enterprise
Risk Management to protect the interests of Prudential. Coverage under these
programs is extended (except where specifically noted) to The Prudential and any
subsidiary or associated companies. If you require a CERTIFICATE OF INSURANCE to
provide evidence of coverage, please click on the certificate request for icon
located on the main page of the database. Questions regarding terms and
conditions, coverage limits, etc. should be referred to Corporate Risk
Management at 973-802-5751.
NOTE: This Insurance Program Summary Manual is prepared for the information and
convince of Prudential's business groups and subsidiaries. It SUMMARIZES the
listed programs and it is not intended to document ALL of the terms and
conditions or exclusions of such programs. The information contained in the
summary reflects coverage as of the effective date noted in the manual.
Subsequent changes and programs modifications are not included. This Insurance
Summary Manual is not an insurance policy. The insurance programs listed in the
summary are subject to the terms, exclusions, and conditions of the actual
policies. For more detailed information please consult the Enterprise Risk
Management at 973-802-5751.
COPIES OF INSURANCE CONTRACTS (POLICIES):
Many of our insurance policies are customized manuscript contracts that contain
proprietary information. Therefore, The Prudential DOES NOT provide copies of
its insurance policies to third parties. In addition, many of our programs are
the blanket type which means that, in most instances, individual locations are
not listed in the policy. Like most large programs, we maintain and file with
the underwriters separate rosters of covered entities.
Under our program we provide our business associates with a certificate of
insurance as evidence of adequate coverage. The issuance of a certificate is an
accepted practice within the industry for programs that are the size of
Prudential's.
In some instances, additional clarification or evidence of coverage may be
requested. For these cases the appropriate Insurance Broker and/or Enterprise
Risk Management will provide a letter that confirms coverage and responds to
specific coverage questions.
ENTERPRISE RISK MANAGEMENT LOCATION:
Enterprise Risk Management
213 Washington Street, 7th Floor
Newark, NJ 07102-2992
-97-
<PAGE>
Phone # (973) 802-5751 Fax # (973) 802-5846
-98-
<PAGE>
MASTER PROPERTY PROGRAM
-----------------------
INTERNAL USE ONLY
- -----------------
NAMED INSURED
- -------------
The Prudential Insurance Company of America including all divisions, affiliated,
associated and subsidiary companies and/or corporations and/or Joint Ventures
that are specifically enrolled for this insurance.
INSURANCE CARRIERS
- ------------------
Primary Layer $20,000,000
COMPANY PARTICIPATION POLICY NUMBER
- ------- ------------- -------------
AIG-NATIONAL UNION $ 16,500,000 4547857
CNA-CONTINENTAL CASUALTY $ 3,500,000 RMP189472013
Excess Program-Various Carriers
POLICY TERM
- -----------
December 31, 2001
TERRITORY
- ---------
The United States of America, its territories and possessions, The District of
Columbia, Canada, Puerto Rico, and the U.S. Virgin Islands including coastal
waterways.
COVERAGES
- ---------
All real and personal property, owned, used, leased (or otherwise acquired) by
the assured or in its care, custody and control including but not limited to:
I. PROPERTY COVERAGE
-----------------
- - Improvements and Betterments - Fine Arts
- - Accounts Receivable - Valuable Papers & Records
- - EDP Equipment, Media & Extra Expense - Builders Risk and
Installation
- - Demolition & Increased Cost of
Construction - Consequential Damage
- - Contractors & Subcontractors Interest - Property in Transit
- - Unnamed Locations - Newly Acquired Locations
- - Contingent Property Coverage - Fiduciary Capacity &
Foreclosure
-99-
<PAGE>
- - Professional Fees
II. TIME ELEMENT COVERAGE
---------------------
- - Business Interruption - Extra Expense
- - Contingent Bus. Interruption & Extra Expense - Rental Income & Expense
- - Off Premises Service Interruption - Contingent Liability from
Building Laws
- - Demolition & Increased Time to Rebuild - Rental Value
- - Ingress/Egress - Civil/Military Authority
PERILS INSURED
- --------------
"All Risk" of physical loss or damage including flood and earthquake subject to
policy exclusions.
EXCLUSIONS
- ----------
Loss of market, inherent vice, gradual deterioration, suspension of lapse of
lease, wear and tear, war, nuclear reaction, employee infidelity, asbestos
removal, faulty workmanship, pollution or contamination as defined in the policy
terms and conditions.
PROGRAM LIMITS
- --------------
$5,200,000,000 All-Risk, Total Insurable Value (TIV) per occurrence limit with
the following Program Sub-limits:
PROGRAM SUB-LIMITS
- ------------------
$ 650,000,000 per occurrence for Flood and Non-California Earthquake,
Annual aggregate applies separately for each peril.
$ 100,000,000 any one occurrence and in the annual aggregate in
respect of California Earthquake.
$ 5,000,000 any one occurrence as respects pollution clean-up and
removal from land and water.
MASTER PROGRAM DEDUCTIBLE
- -------------------------
CORPORATE
- ---------
$250,000 per occurrence
-100-
<PAGE>
OTHER PROGRAM DEDUCTIBLES
- -------------------------
o 5% at time of loss applied separately to real property, personal
property and time element, for earthquake in the state of California,
subject to a minimum of $100,000 in any one occurrence, and a maximum
of $ 10,000,000 per occurrence.
o 2% of value at time of loss for Named Storms (greater than 74 mph) for
locations involved in loss, subject to a minimum of $100,000 and a
maximum of $10,000,000 per occurrence, as respects windstorm in the
states of Florida and Texas.
o $ 5,000 per occurrence as respects to Fine Arts
In the event of an occurrence involving more than one of the above deductibles,
only the highest single deductible shall apply.
Earthquake means loss or damage caused by, resulting from, or aggravated by
earth movement including but not limited to landslide, mud flow, earth sinking
or shifting.
VALUATION
- ---------
o On finished goods, the regular cash selling price less discounts;
o As respects all other real and personal property, the replacement cost;
o On valuable papers and records and EDP Media, the actual cost of
reconstruction;
o As respects EDP equipment, the upgrade value or functional replacement
cost whichever is greater;
o As respects fine arts, the appraised valued or in absence of such
appraisal, market value at time of loss plus Insured's costs;
o As respects mortgage impairment and time element, the actual loss
sustained by the insured as defined in the policy form;
o As respects leased equipment, as per lease conditions;
o Landmark properties, tailored valuation.
BROKER:
- -------
Aon Risk Services, Inc
Two World Trade Center
New York, NY 10048
-101-
<PAGE>
BOILER & MACHINERY INSURANCE
----------------------------
INTERNAL USE ONLY
- -----------------
INSURED
- -------
Prudential and/or its affiliated, subsidiary, and associated companies and/or
corporations and/or joint ventures and/or any owned (wholly or partially) or
controlled company(ies) where the Insured maintains an interest or is required
to provide insurance as now exists or may hereafter be constituted or acquired
including their interests as may appear in partnerships or joint ventures
POLICY TERM
- -----------
December 31, 2001
COVERAGE
- --------
o Broad comprehensive form,( including production machines) covering:
property damage, business interruption (direct & contingent), extra expense
(direct & contingent), consequential damage, service interruption,
mechanical breakdown, and explosion.
LIMITS OF LIABILITY
- -------------------
$75,000,000 per each accident subject to the following sublimits:
$10,000,000 each for water damage, ammonia contamination
$ 1,000,000 for Hazardous Substance
VALUATION
- ---------
Property: Repair or Replacement
Time Element: Actual loss sustained
DEDUCTIBLES
- -----------
As per property program deductibles
-102-
<PAGE>
TERRITORY
- ---------
As per property
INSURER
- -------
Chubb Insurance Company as reinsurance of AIG/National Union
ADDITIONAL CONDITIONS
- ---------------------
Joint Loss Agreement clause
Ninety (90) day notice of cancellation
Blanket waiver of subrogation
Omnibus Location Wording
Automatic coverage for newly acquired locations is 365 days.
Demolition, Increased Cost of Construction and Additional Time to Rebuild due to
the operation Building Laws.
Notice of Loss - Notification by Assured as soon as practicable after Risk
Management Dept. of Prudential becomes aware of a reported accident.
Commencement of Liability as respects Time Element losses starts at the time of
the accident.
BROKER
- ------
Aon Risk Services, Inc
Two World Trade Center
New York, NY 10048
-103-
<PAGE>
CORPORATE PUBLIC LIABILITY PROGRAM
----------------------------------
GENERAL LIABILITY
-----------------
INTERNAL USE ONLY
- -----------------
NAMED INSURED
- -------------
The Prudential and all of its subsidiaries, excluding Joint Ventures, Prudential
Real Estate Investors and Prudential Realty Group.
INSURANCE CARRIER
- -----------------
The Travelers Insurance Company $ 3,000,000 general aggregate
$ 1,000,000 Combined Single Limit for
Bodily Injury and Property Damage
Policy Number TC2JGLSA-120D399-3-TIL-00
POLICY TERM
- -----------
January 1, 2000 - January 1, 2001
TERRITORY
- ---------
United States., Canada, Puerto Rico and the Virgin Islands.
ADDITIONAL INSUREDS
- -------------------
Directors, officers and employees (only at our option before or after a loss)
while acting within the scope of their duties as such and, other persons or
organizations to whom we are obligated under written contract prior to loss to
include as additional insureds.
COVERAGE
- --------
All operations, properties (owned and leased), products, etc. However, coverage
does not apply to certain exposures which are the subject of other specific
insurance, such as motor vehicles, aircraft, etc. Separate primary liability
coverage is maintained on properties with outside ownership interests and on
certain small subsidiaries, and on foreign-based subsidiaries.
-104-
<PAGE>
The carrier will investigate and defend all claims that occur within the policy
territory, even if they are groundless, and will settle all claims that we
become legally obligated to pay as damages because of:
A. Bodily Injury and Property Damage Liability
-------------------------------------------
Including such tort liability assumed under contract prior to
loss.
B. Personal Injury and Advertising Injury Liability
------------------------------------------------
Including libel, slander, false arrest, invasion of privacy,
infringement of copyright, title, or slogan
The actual policy contains certain other coverage extensions, such as
professional liability coverage on (only) GIB Labs, Incidental Medical
Malpractice (Company Doctors and Nurses only), etc.
EXCLUSIONS
- ----------
Nuclear reaction or nuclear radiation or radioactive contamination.
Pollution and environmental contamination.
Hostile or warlike action in the time of peace or war.
Property losses covered by the property policy.
Any obligation of the insured under a workers' compensation, disability benefits
or unemployment compensation law or any similar law.
Bodily injury or property damage arising out or caused by asbestos or asbestos
fibers, including any supervision instructions, recommendations warnings or
advice given or which should have been given in connection.
Incidental medical malpractice for HMOs and medical cost containment operations.
Errors and omissions arising from insurance company operations.
Employment Related Practices
UMBRELLA & EXCESS LIABILITY POLICIES
------------------------------------
COVERAGE
- --------
This insurance provides coverage in excess of the
primary (underlying) insurance (i.e., Commercial General
Liability, Auto Liability, Foreign General and Automobile
-105-
<PAGE>
Liability, Employer's Liability, Aircraft Liability, and Prudential Securities
Auto Liability).
The Umbrella insurance is the first layer of coverage above our primary
insurance. It will follow the terms and conditions of the Primary policies and
will sometimes fill coverage gaps which may exist under the Primary policies.
CARRIER LIMITS*
- ------- ------
Primary
- -------
Travelers $ 1,000,000
First Layer
- -----------
American Alternative Insurance Co. $49,000,000 excess Primary per occurrence
$49,000,000 excess Primary general aggregate
Policy Number 01A2UM0000147-02
Second Layer
- ------------
National Union $50,000,000 quota share excess of $50,000,000
Policy Number 346-39-21
American Zurich Insurance Co. $50,000,000 quota share excess of $50,000,000
Policy Number EU08356048-05
*Call Enterprise Risk Management, 973-802-5751 if there are any questions
regarding coverage or limits of insurance.
BROKER
- ------
Marsh, Inc
44 Whippany Road
Morristown, NJ 07960
WORKERS' COMPENSATION & EMPLOYERS LIABILITY
-------------------------------------------
INTERNAL USE ONLY
- -----------------
NAMED INSURED
- -------------
The Prudential and all of its subsidiaries.
INSURANCE CARRIER
- -----------------
-106-
<PAGE>
THE TRAVELERS TC2JUB203T102-2-00 (All other than Prudential Foundation)
TC2JUB229T425-2-00 (Prudential Foundation)
Limit* Statutory
POLICY ANNIVERSARY
- ------------------
July 1, 1997 to July 1, 1998
TERRITORY
- ---------
United States., Canada, Puerto Rico and Virgin Islands
COVERAGE
- --------
All Employees of the Named Insured. The Prudential considers special agents who
are working under the Training Allowance Plan and the Incentive Compensation
Program as "employees". All other special agents are considered "independent
contractors" and are not covered.
Workers' Compensation insurance protects the Named Insured against claims of its
employees for losses due to accidents or occupational diseases arising out of
and in the course of their employment.
As most states have their own Workers' Compensation and Occupational Disease
Laws, The Travelers, in protecting the Named Insured, is governed by such laws.
The Named Insured does not carry Workers' Compensation insurance in Canada. CDNO
will authorize payment, over and above any payments due under our regular group
coverage insurance, as though the Canadian employees were covered in accordance
with Provincial Workers' Compensation. Approval of such disbursements should be
made by the Vice President, Administration, in CDNO or by an individual he/she
specifically designates. b
*Call Integrated Disability Management, (800) 778-3279 if there are any
questions regarding coverage or limits of insurance.
-107-
<PAGE>
MASTER HOME OFFICE GARAGE KEEPER'S LIABILITY
--------------------------------------------
INTERNAL USE ONLY
- -----------------
NAMED INSURED
- -------------
The Prudential and its subsidiaries.
INSURANCE CARRIER
- -----------------
The Travelers Insurance Company
Policy Number TC2JGAR-120D397-A-TIL - 00 (All States Garage)
TC2E-GAR-120D398-1-TCT- 00 (TX Garage)
Limit* $5,000,000 per occurrence Combined Single Limit (CSL)
subject to a $250,000 deductible
Excess Carriers See General Liability & Umbrella/Excess Liability Program
POLICY TERM
- -----------
January 1, 2000 - January 1, 2001
TERRITORY
- ---------
United States, Canada, Puerto Rico and the Virgin Islands
COVERAGE
- --------
Parking garages or lots in (or at) wholly-owned investment and home office
properties.
"Bailee" liability coverage is provided for loss to any non-owned auto which is
left in the care or custody of The Prudential or its parking garage operator for
the purpose of attending, servicing, repairing, parking or storing it in (or at)
our garage facilities.
Coverage is also provided for damages because of bodily injury, or property
damage caused by an accident and resulting from garage operations.
*Call Enterprise Management, 973-802-5751, if there are any questions regarding
coverage or limits of insurance.
BROKER
- ------
Marsh, Inc
44 Whippany Road
Morristown, NJ 07960
-108-
<PAGE>
MASTER HOME OFFICE AUTOMOBILE LIABILITY
---------------------------------------
INTERNAL USE ONLY
- -----------------
NAMED INSURED
- -------------
The Prudential and all of its subsidiaries.
INSURANCE CARRIER
- -----------------
THE TRAVELERS INSURANCE COMPANY
Policy Number TC2JCAP-120D394-4-TIL-00 (All states)
TC2E-CAP-120D395-6-TCT-00 (Texas)
TJEAP-120D396-8-TIL-00 (Mass.)
Limit $5,000,000 per occurrence Combined Single Limit (CSL),
subject to a $250,000 deductible
Excess Carriers See General Liability Coverage / Excess Umbrella
Liability Policy
POLICY TERM
- -----------
January 1, 2000 - January 1, 2001
TERRITORY
- ---------
United States, its territories and possessions. (Foreign exposures are insured
separately).
COVERAGE
- --------
All Company-owned or leased motor vehicles.
The carrier will investigate and defend all claims relating to automobile
accidents that occur within the policy territory, even if they are groundless,
and will settle all claims that we become legally obligated to pay as damages
because of:
BODILY INJURY AND/OR PROPERTY DAMAGE LIABILITY to others ("third parties").
Coverage is also provided for "No-Fault" benefits required in various states.
For rental vehicles, primary liability coverage of $100,000 per person/$300,000
per occurrence is afforded through the Corporate Travel agreement with both Avis
and Alamo.
-109-
<PAGE>
EXCLUSIONS
- ----------
No coverage is provided for physical damage (i.e., collision or comprehensive)
to Company vehicles, rental cars or personal cars used on Company business.
*Call Enterprise Risk Management 973-802-5751, if there are any questions
regarding coverage or limits of insurance.
BROKER
- ------
Marsh, Inc
44 Whippany Road
Morristown, NJ 07960
-110-
<PAGE>
DIRECTORS & OFFICERS (D&O)
--------------------------
LIABILITY INSURANCE
-------------------
INTERNAL USE ONLY
- -----------------
Our D&O insurance program* has two components:
A. The Broad Form Directors & Officers Liability Insurance Policy provides
coverage to Insured Persons (subject to policy terms, conditions and
limitations) for loss from claims not paid by other insurance or as
indemnification.
B. The Executive Indemnification Policy provides coverage to the Company
(subject to policy terms, conditions and limitations) for loss from claims for
which indemnification is provided to Insured Persons.
PARENT ORGANIZATION
- -------------------
The Prudential Insurance Company of America and all subsidiaries which are more
than 50 percent owned.
POLICY ANNIVERSARY
- ------------------
August 31, 2002
INSURED PERSONS
- ---------------
A. BROAD FORM DIRECTORS LIABILITY POLICY: Any past, present or future
independent director who is not otherwise employed by the Company.
B. Executive Liability Indemnification: Any past, present or future duly
elected or appointed Directors or Officers of the Prudential. This
definition is further amended to include the positions of Managing
Director, Trustee, Committee Member and employees at level 78 or its
investment equivalent, level 54 and those employees with functionally
equivalent responsibilities. Coverage is also extended (on an excess basis)
for certain individuals serving as directors of an outside organization at
Prudential's request. Contact Risk Management for details concerning
coverage applicability for outside directorships.
-111-
<PAGE>
TERRITORY
- ---------
Worldwide
COVERAGE DESCRIPTION
- --------------------
Covers insureds against claims arising from actual or alleged "Wrongful Acts" -
(i.e., any act, error, misstatement, misleading statement, breach of duty,
neglect, etc.) committed or attempted by an Insured Person while acting in his
or her Insured Capacity. D&O Insurance is written on a "claims made" policy form
with aggregate limits for the policy period.
-112-
<PAGE>
INSURANCE CARRIERS*
- -------------------
A. BROAD FORM DIRECTORS LIABILITY INSURANCE POLICY
Primary Layer Insurers Participation Policy No.
- ------------- -------- ------------- ---------
$50,000,000 a) ERMA $25 million 75207739897
b) Reliance $25 million ND0117757-97
Excess Layers Various
Program Deductible: $0 for non-indemnifiable actions
B. EXECUTIVE LIABILITY INDEMNIFICATION POLICY
Primary Layer Insurers Participation Policy No.
- ------------- -------- ------------- ----------
$50,000,000 a) Federal Insurance Company $12.5 million 70229415
b) Lloyds of London $10 million FB9700243
c) ERMA $10 million 75107741597
d) Reliance $10 million NDA0117756-97
e) ACE $7.5 million PRUA-8601D
Excess Layers Various
Program Deductible: $25,000,000 per loss Corporate Reimbursement and Entity
NOTE: Questions regarding the D&O insurance program should be referred to
Enterprise Risk Management at (973)802-5751.
BROKER
- ------
Aon Risk Services, Inc
Two World Trade Center
New York, NY 10048
-113-
<PAGE>
COMPREHENSIVE CRIME PROGRAM
---------------------------
INTERNAL USE ONLY
- -----------------
NAMED INSURED
- -------------
The Prudential Insurance Company of America and all subsidiaries, including
Prudential Securities.
INSURANCE CARRIERS
- ------------------
Primary Carrier Participation Policy No.
- ------- ------- ------------- ----------
$50,000,000 a) Federal Insurance Company $12.5 million 70229415
b) Lloyds of London $10 million FB9700243
c) Executive Risk $10 million 75107741597
d) Reliance $10 million NDA0117756-97
e) ACE $7.5 million PRUA-8601D
Excess Layers Various
Program Deductible: $25,000,000
POLICY ANNIVERSARY
- ------------------
August 31, 2002
PERSONS/PROPERTY COVERED
- ------------------------
All employees of the named insured. Money, Certificated Securities,
Uncertificated Securities of any Federal Reserve Bank of the United States,
Negotiable Instruments, Certificates of Deposit, Acceptance, Evidence of
Debt, Security Agreements, Withdrawal Orders, Letter of Credit, Abstract
of Title, Deeds and Mortgages on real estate, Revenue and other stamps,
Tokens, Unsold State Lottery tickets, Bonds of Account and other
records whether recorded in writing or electronically, Gems,
-114-
<PAGE>
Jewelry, Precious metals in bars or ingots and Tangible Items of personal
property not enumerated.
AGENTS: PIFS and PPFS, mortgage servicing agents and agents in the sale of Real
Estate products.
COVERAGE
- --------
EMPLOYEE AND AGENT DISHONESTY (FIDELITY)
- ----------------------------------------
LOSS RESULTING FROM DISHONEST OR FRAUDULENT ACTS COMMITTED BY AN EMPLOYEE OR
AGENT ACTING ALONE OR IN COLLUSION WITH OTHERS.
ON PREMISES
- -----------
LOSS OF PROPERTY RESULTING DIRECTLY FROM ROBBERY, BURGLARY, COMMON-LAW OR
STATUTORY LARCENY (COMMITTED BY A PERSON AT ONE OF PRUDENTIAL'S OFFICER),
MISPLACEMENT, MYSTERIOUS, UNEXPLAINABLE DISAPPEARANCE OR DESTRUCTION.
PREMISES COVERED ARE ALL OF THE NAMED INSURED'S OFFICES AND OFFICES OF FINANCIAL
INSTITUTIONS AND CLEARING HOUSES.
IN TRANSIT
- ----------
LOSS OF PROPERTY RESULTING FROM ROBBERY, COMMON-LAW OR STATUTORY LARCENY, THEFT,
MISPLACEMENT, MYSTERIOUS, UNEXPLAINABLE DISAPPEARANCE OR DESTRUCTION WHILE SUCH
PROPERTY IS IN TRANSIT IN THE CARE OF A NATURAL PERSON ACTING AS A MESSENGER.
FORGERY OR ALTERATION
- ---------------------
LOSS RESULTING FROM FORGERY OR ALTERATION OF, ON OR IN ANY CHANGE OF BENEFICIARY
REQUEST, POLICY LOAN AGREEMENT, ASSIGNMENT OF A POLICY, NEGOTIABLE INSTRUMENT
OTHER THAN SECURITIES MADE OR DRAWN BY OR ON NAMED INSURED. DOES NOT COVER
PROPERTY BY THE MAIL OR EXPRESS CARRIERS. COVERAGE FOR ARMORED CAR
TRANSPORTATION IS IN EXCESS OF INSURANCE CARRIED BY THE VENDOR.
SECURITIES
- ----------
LOSS RESULTING DIRECTLY FROM HAVING IN GOOD FAITH ACQUIRED SOLD OR DELIVERED, OR
GIVEN VALUE, EXTENDED CREDIT OR ASSUMED LIABILITY ON THE FAITH OF, ANY ORIGINAL
SECURITY, DEED, EVIDENCE OF DEBT, SECURITY AGREEMENT, LETTER OF CREDIT WHICH
BEARS A SIGNATURE WHICH IS FORGERY OR IS ALTERED LOST OR STOLEN.
-115-
<PAGE>
COMPUTER FRAUD
- --------------
LOSS RESULTING DIRECTLY FROM A FRAUDULENT ENTRY OF DATA INTO, OR CHANGE OF DATA
ELEMENTS OR PROGRAMS WITHIN YOUR PROPRIETARY OR PURCHASED COMPUTER SYSTEM,
PROVIDED THE FRAUDULENT ENTRY OR CHANGE CAUSES: (A) PROPERTY TO BE TRANSFERRED,
PAID OR DELIVERED, (B) AN ACCOUNT OF THE NAMED INSURED OR ONE OF ITS CUSTOMERS,
TO BE ADDED, DELETED, DEBITED, OR CREDITED, OR (C) AN UNAUTHORIZED OR A
FICTITIOUS ACCOUNT TO BE DEBITED OR CREDITED.
NOTE: QUESTION REGARDING POLICY TERMS AND COVERAGE FOR SPECIFIC INDIVIDUALS
SHOULD BE REFERRED DIRECTLY TO ENTERPRISE RISK MANAGEMENT GENERAL
INFORMATION AT (973) 802-5751.
BROKER
- ------
Aon Risk Services, Inc
Two World Trade Center
New York, NY 10048
-116-
<PAGE>
FIDUCIARY LIABILITY INSURANCE
-----------------------------
INTERNAL USE ONLY
- -----------------
NAMED INSURED
- -------------
The Prudential Insurance Company of America and all subsidiaries, as well as the
individual employee benefit plans sponsored by those entities.
INSURANCE CARRIERS
- ------------------
Executive Liability and Indemnification Policy:
Primary Carrier Participation Policy No.
- ------- ------- ------------- ----------
$50,000,000 a) Federal Insurance Company $12.5 million 70229415
b) Lloyds of London $10 million FB9700243
c) Executive Risk $10 million 75107741597
d) Reliance $10 million NDA0117756-97
e) ACE $7.5 million PRUA-8601D
Excess Layers Various
Program Deductible: $25,000,000
POLICY ANNIVERSARY
- ------------------
August 31, 2002
PERSONS COVERED
- ---------------
Any natural persons serving as a past, present or future trustee, director,
officer or employee of Prudential or of any of its sponsored employee benefit
plans.
-117-
<PAGE>
COVERAGE
- --------
This policy covers claims against Prudential and the fiduciaries of its company
sponsored employee benefit plans against suits arising from any actual or
alleged breaches of the Employee Retirement Income Security Act (ERISA) or any
other similar law as well as negligent act, error or omission in the
administration of these plans.
NOTE: QUESTION REGARDING POLICY TERMS AND COVERAGE FOR SPECIFIC INDIVIDUALS
SHOULD BE REFERRED DIRECTLY TO CORPORATE RISK MANAGEMENT GENERAL INFORMATION AT
(973) 802-5751.
BROKER
- ------
Aon Risk Services, Inc
Two World Trade Center
New York, NY 10048
ERRORS & OMISSIONS (PROFESSIONAL LIABILITY) INSURANCE
-----------------------------------------------------
INTERNAL USE ONLY
- -----------------
NAMED INSURED
- -------------
The Prudential Insurance Company of America and all subsidiaries.
INSURANCE CARRIERS
- ------------------
Primary Carrier Participation Policy No.
- ------- ------- ------------- ----------
$50,000,000 a) Federal Insurance Company $12.5 million 70229415
b) Lloyds of London $10 million FB9700243
c) Executive Risk $10 million 75107741597
d) Reliance $10 million NDA0117756-97
e) ACE $7.5 million PRUA-8601D
Excess Layers Various
-118-
<PAGE>
Program Deductible: $25,000,000
POLICY ANNIVERSARY
- ------------------
August 31,2002
PERSONS/PROPERTY COVERED
- ------------------------
The Prudential Insurance Company of America and all subsidiaries and any past,
present or future director, officer or employee of Prudential in his/her
capacity as a director, officer or employee of Prudential.
COVERAGE
- --------
Covers Prudential and its employees for loss which they become legally obligated
to pay as a result of a Claim against them arising out of a Wrongful Act
committed, attempted or allegedly committed or attempted by the Insureds or
someone for whose acts the Insureds are legally responsible, while performing or
while allegedly failing to perform professional services.
NOTE: QUESTION REGARDING POLICY TERMS AND COVERAGE FOR SPECIFIC INDIVIDUALS
SHOULD BE REFERRED DIRECTLY TO CORPORATE RISK MANAGEMENT GENERAL INFORMATION AT
(973) 802-5751.
BROKER
- ------
Aon Risk Services, Inc
Two World Trade Center
New York, NY 10048
-119-
<PAGE>
EMPLOYMENT PRACTICES LIABILITY INSURANCE
----------------------------------------
INTERNAL USE ONLY
- -----------------
NAMED INSURED
- -------------
The Prudential Insurance Company of America and all subsidiaries, including
Prudential Securities
INSURANCE CARRIERS
- ------------------
Primary Carrier Participation Policy No.
- ------- ------- ------------- ----------
$50,000,000 a) Federal Insurance Company $12.5 million 70229415
b) Lloyds of London $10 million FB9700243
c) Executive Risk $10 million 75107741597
d) Reliance $10 million NDA0117756-97
e) ACE $7.5 million PRUA-8601D
Excess Layers Various
Program Deductible: $25,000,000
POLICY ANNIVERSARY
- ------------------
August 31
PERSONS COVERED
- ---------------
Any past, present or future directors, officers or employee of Prudential.
COVERAGE DESCRIPTION
- --------------------
Covers insureds against suits brought by past, present or prospective Prudential
employees with respect to employment practices related matters.
NOTE: QUESTION REGARDING POLICY TERMS AND COVERAGE FOR SPECIFIC INDIVIDUALS
SHOULD BE REFERRED DIRECTLY TO CORPORATE RISK MANAGEMENT GENERAL INFORMATION AT
(973) 802-5751.
-120-
<PAGE>
BROKER
- ------
Aon Risk Services, Inc
Two World Trade Center
New York, NY 10048
SURETY BONDS
------------
INTERNAL USE ONLY
- -----------------
Surety Bonds are often required by governmental agencies on the Federal, State,
and Municipal levels, Courts, Corporations and private individuals. This type of
bond guarantees that the Principal, such as Prudential or one of its
subsidiaries, will complete a service or other obligation prescribed by a
contract. Also included under the surety ship are license bonds required to
perform a certain job or profession. It must be emphasized that surety ship is
not insurance. Surety Companies writing these types of bonds do not anticipate
paying any claims, therefore, the cost of these bonds is a service charge and
not a premium. When a Surety Bond is issued, the principal indemnifies and holds
the Surety Company writing the bond harmless against any and all loss presented
in connection with the bond.
1. COMMON TYPES OF SURETY BONDS ISSUED FOR COMPANY OPERATIONS
----------------------------------------------------------
A. BROKER/DEALER Bonds required by certain States in order for a firm to
sell securities.
B. COURT BONDS consist of appeal bonds, release of mechanic lien bonds,
injunction bonds, receiver bonds and attachment bonds.
C. LICENSE AND PERMIT BONDS - consist of bonds required to obtain a
license for a mortgage lender, insurance adjuster, notary public,
surplus lines broker, surplus lines agent, and the selling of liquor.
We have procured for certain Municipalities permit bonds for
canopies, dumpsters, and signs.
D. CONTRACT BONDS, for our purpose, have consisted of performance,
subdivision, and bid bonds.
E. FINANCIAL GUARANTEE BONDS have been written for us or our
subsidiaries running to States and others providing that the obligee on
-121-
<PAGE>
the bond will receive a specified amount of money if we fail to fulfill
our obligations under a contract.
F. MISCELLANEOUS BONDS - Consist of various types of instruments including
toll tax, cigarette tax, workers compensation, lost security and
general term (custom) bonds.
2. COVERAGE AND LIMITS
-------------------
Numerous Bonds are maintained for Prudential operations. Questions
regarding Surety Bonds coverage, limits and request forms should be
referred to Corporate Risk Management at (973) 802-5751.
BROKER
- ------
Aon Risk Services, Inc
Two World Trade Center
New York, NY 10048
-122-
<PAGE>
Schedule 3.24
Taxes
-----
(1) Gibraltar is a member of Seller's consolidated federal income tax
group. Seller has extended until June 30, 2000 the statute of limitations
applicable to its consolidated federal income tax returns for the tax years 1990
through 1996.
(2) Gibraltar is a party to an Illinois unitary tax audit for tax years
1993 through 1995 that is focused primarily on certain other of Seller's
property and casualty insurance affiliates. The statute of limitations for these
tax years has been extended until April 15, 2000- however, the Illinois auditor
has orally indicated that he intends to drop the audit entirely.
(3) Seller has granted a power of attorney to McDermott, Will & Emery
in connection with the audit of Seller's consolidated federal income tax returns
for tax years 1990 through 1996.
(4) See copy of Tax Sharing Agreement attached hereto.
-123-
<PAGE>
Schedule 3.25
Safe Deposit Boxes, Bank Accounts
---------------------------------
and Other Deposits of Gibraltar
-------------------------------
See Attached List of Safe Deposit Boxes, Bank Accounts and Other Deposits.
-124-
<PAGE>
Schedule 3.27
Employee Titles; Aggregate Annual Compensation
----------------------------------------------
and Bonuses
-----------
EMPLOYEE TITLE
Abdelsayed, Marco Level 11
Badum, Colleen Director
Bontempo, Lori Associate Manager
DiBenedetto, Robert Director
Faga, Doreen Departmental Vice President
Kenney, Adam Functional Vice President
Knight, Christine Functional Vice President
Mottola, John 1 Departmental Vice President
Pinto, Cecilia Executive Assistant
Pittman, Felicia Executive Assistant
Stewart, Robin Level 08
Kill, Erika Assistant General Counsel
Poles, Joanne Assistant General Counsel
Rant, Michael Assistant General Counsel
Weisshap, Rosemarie Executive Assistant
- ------------------------
1. John Mottola is retiring on February 28, 2000.
ESTIMATED AGGREGATE COMPENSATION & BONUSES* $1,815,021
* Does not include retention bonuses, outplacement services or ARB's
-127-
<PAGE>
Schedule 5.1
Exceptions to Operations in the Ordinary Course
-----------------------------------------------
NONE
-128-
<PAGE>
Schedule 5.3
Restrictions on Gibraltar
-------------------------
1. Termination of the Contracts listed on Schedule 7.6.
2. Changes in accounting or investment practice as may be required pursuant
to Section 5.10.
-129-
<PAGE>
Schedule 6.3
Indemnification and Guarantee Obligations
-----------------------------------------
1. Guarantee dated October 6, 1995 of The Prudential Insurance Company
of America in favor of Prudential Reinsurance Holdings, Inc. (n/k/a Everest
Reinsurance Holdings, Inc.).
2. Guarantee dated October 6, 1995 of The Prudential Insurance Company
of America in favor of Prudential Reinsurance Company (n/k/a Everest Reinsurance
Company).
3. Indemnification Agreement dated October 6, 1995 between PRUCO, Inc.
and Prudential Reinsurance Holdings, Inc. (n/k/a Everest Reinsurance Holdings,
Inc.).
4. Surplus Maintenance Agreement dated December 18, 1991 between
PRUCO, Inc. and Gibraltar Casualty Company.
-130-
<PAGE>
Schedule 7.6
Agreements and Arrangements to be Terminated
--------------------------------------------
1. Surplus Maintenance Agreement dated December 18, 1991 between
PRUCO, Inc. and Gibraltar Casualty Company.
2. Guarantee of The Prudential Insurance Company of America dated
October 6, 1995 in favor of Prudential Reinsurance Holdings, Inc.
3. Guarantee of The Prudential Insurance Company of America dated
October 6, 1995 in favor of Prudential Reinsurance Company.
4. Indemnification Agreement dated October 6, 1995 between PRUCO, Inc.
and Prudential Reinsurance Company.
5. Investment Advisory Contract effective as of 1984 between Gibraltar
and The Prudential Insurance Company of America.
6. Occupancy Agreement dated July 1, 1995 between Gibraltar and The
Prudential Service Company.
7. Letter of Credit with Chase Manhattan Bank.
8. Software License Agreement between Datalight Software and The
Prudential Insurance Company of America for the Use of the Concordance
Information Retrieval System by Gibraltar Casualty Company*.
9. Service Agreement dated May 1, 1997 between Gibraltar and
Prudential Property and Casualty Insurance Company.
10. Termination of Tax Allocation Agreement dated January 17, 1995 for
The Prudential Insurance Company of America and its Affiliates, solely as it
relates to Gibraltar Casualty Company.
11. Loan Agreement dated November 21, 1996 between Prudential Funding
Corporation and Gibraltar Casualty Company.
12. License from The Prudential Insurance Company of America to
Gibraltar Casualty Company for the use of the Gibraltar Marks.
13. Service Agreement dated May 10, 1990 between The Prudential
Insurance Company of America and Gibraltar Casualty Company.
- -------------------------------
* If the contract permits, such contract will be assigned or transferred to the
Purchaser at Closing.
-131-
Exhibit 10.33
FORM OF
PARENT GUARANTY
THIS PARENT GUARANTY, dated as of the 24th day of February, 2000
(this "Guaranty"), is made by EVEREST RE GROUP, LTD., a Bermuda corporation (the
"Guarantor"), in favor of the Guaranteed Parties (as hereinafter defined).
Capitalized terms used herein without definition shall have the meanings given
to them in the Credit Agreement referred to below.
RECITALS
A. Everest Reinsurance Holdings, Inc., a Delaware corporation (the
"Borrower"), certain banks and other financial institutions (collectively, the
"Lenders"), and First Union National Bank, as administrative agent for the
Lenders (in such capacity, the "Administrative Agent"), are parties to a Credit
Agreement, dated as of December 21, 1999 (as amended, modified or supplemented
from time to time, the "Credit Agreement"), providing for the availability of
certain credit facilities to the Borrower upon the terms and conditions set
forth therein. The Guarantor owns all of the issued and outstanding capital
stock of the Borrower. Unless otherwise defined herein, capitalized terms used
herein without definition shall have the meaning given to them in the Credit
Agreement.
B. It is a condition to the approval by the Lenders of the Restructuring,
and the application of certain exceptions to restrictive covenants applicable to
the Borrower and its Subsidiaries set forth in the Credit Agreement, that the
Guarantor shall have agreed, by executing and delivering this Guaranty, to
guarantee to the Guaranteed Parties the payment in full of the Guaranteed
Obligations (as hereinafter defined). The Guaranteed Parties are relying on this
Guaranty in their decision to approve the Restructuring, permit the
aforementioned exceptions, and thereby continue the extension of credit to the
Borrower under the terms of the Credit Agreement, and would not continue and
maintain the credit facility under the terms of the Credit Agreement upon the
terms as presented without this Guaranty.
C. The Guarantor will obtain benefits as a result of the extension of
credit to the Borrower under the Credit Agreement, which benefits are hereby
acknowledged, and, accordingly, desires to execute and deliver this Guaranty.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, to induce the
<PAGE>
Guaranteed Parties to continue the extension of credit to the Borrower under the
terms of the Credit Agreement, the Guarantor hereby agrees as follows:
1. GUARANTY. (a) The Guarantor hereby irrevocably, absolutely and
unconditionally:
(i) guarantees (a) to the Lenders and the Administrative Agent
(collectively, the "Guaranteed Parties") the full and prompt payment, at
any time and from time to time as and when due (whether at the stated
maturity, by acceleration or otherwise), of all Obligations of the Borrower
under the Credit Agreement and the other Credit Documents, including,
without limitation, all principal of and interest on the Loans, all fees,
expenses, indemnities and other amounts payable by the Borrower under the
Credit Agreement or any other Credit Document (including interest accruing
after the filing of a petition or commencement of a case by or with respect
to the Borrower seeking relief under any applicable federal and state laws
pertaining to bankruptcy, reorganization, arrangement, moratorium,
readjustment of debts, dissolution, liquidation or other debtor relief,
specifically including, without limitation, the Bankruptcy Code and any
fraudulent transfer and fraudulent conveyance laws (collectively,
"Insolvency Laws"), whether or not the claim for such interest is allowed
in such proceeding), and all Obligations that, but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, would become
due, and (b) to each applicable Lender in its capacity as a counterparty to
any Hedge Agreement with the Borrower required or permitted under the
Credit Agreement, all obligations of the Borrower under such Hedge
Agreement, in each case under (a) and (b) whether now existing or hereafter
created or arising and whether direct or indirect, absolute or contingent,
due or to become due (all liabilities and obligations described in this
clause (i), collectively, the "Guaranteed Obligations"); and
(ii) agrees to pay or reimburse upon demand all reasonable and
documented costs and expenses (including, without limitation, reasonable
and documented attorneys' fees and expenses) incurred or paid by (y) any
Guaranteed Party in connection with any suit, action or proceeding to
enforce or protect any rights of the Guaranteed Parties hereunder and (z)
the Administrative Agent in connection with any amendment, modification or
waiver hereof or consent pursuant hereto, and to indemnify and hold each
Guaranteed Party and its directors, officers, employees, agents and
Affiliates harmless from and against any and all claims, losses, damages,
obligations, liabilities, penalties, costs and expenses (including, without
limitation, reasonable and documented attorneys' fees and expenses) of any
kind or nature whatsoever, whether direct, indirect or consequential, that
may at any time be imposed on, incurred by or asserted against any such
indemnified party as a result of, arising from or in any way relating to
this Guaranty or the collection or enforcement of the Guaranteed
Obligations; PROVIDED, HOWEVER, that no indemnified party shall have the
right to be indemnified hereunder for any such claims, losses, costs and
expenses to the extent resulting from the gross negligence or willful
misconduct of such indemnified party (all liabilities and obligations
described in this clause (ii), collectively, the "Other Obligations"; and
the Other Obligations, together with the Guaranteed Obligations, the "Total
Obligations").
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(b) The guaranty of the Guarantor set forth in this Section is a guaranty
of payment as a primary obligor, and not a guaranty of collection.
2. GUARANTY ABSOLUTE. The Guarantor agrees that its obligations hereunder
are irrevocable, absolute and unconditional, are independent of the Guaranteed
Obligations and other security therefor or other guaranty or liability in
respect thereof, whether given by the Guarantor or any other Person, and shall
not be discharged, limited or otherwise affected by reason of any of the
following, whether or not the Guarantor has notice or knowledge thereof:
(i) any change in the time, manner or place of payment of, or in any
other term of, any Guaranteed Obligations or any guaranty or other
liability in respect thereof, or any amendment, modification or supplement
to, restatement of, or consent to any rescission or waiver of or departure
from, any provisions of the Credit Agreement, any other Credit Document
or any agreement or instrument delivered pursuant to any of the
foregoing;
(ii) the invalidity or unenforceability of any Guaranteed Obligations,
any guaranty or other liability in respect thereof or any provisions of the
Credit Agreement, any other Credit Document or any agreement or
instrument delivered pursuant to any of the foregoing;
(iii) the taking, acceptance or release of other guarantees of any
Guaranteed Obligations or other security for any Guaranteed Obligations or
for any guaranty or other liability in respect thereof;
(iv) any discharge, modification, settlement, compromise or other
action in respect of any Guaranteed Obligations or any guaranty or
other liability in respect thereof, including any acceptance or refusal
of any offer or performance with respect to the same or the subordination
of the same to the payment of any other obligations;
(v) any agreement not to pursue or enforce or any failure to pursue
or enforce (whether voluntarily or involuntarily as a result of operation
of law, court order or otherwise) any right or remedy in respect of any
Guaranteed Obligations, any guaranty or other liability in respect
thereof or any other security for any of the foregoing; or any sale,
exchange, release, substitution, compromise or other action in respect of
any other security;
(vi) any bankruptcy, reorganization, arrangement, liquidation,
insolvency, dissolution, termination, reorganization or like change
in the corporate structure or existence of the Borrower or any other
Person directly or indirectly liable for any Guaranteed Obligations;
vii) any manner of application of any payments by or amounts
received or collected from any Person, by whomsoever paid and
howsoever realized, whether in reduction of any Guaranteed
Obligations or any other obligations of the Borrower or any
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other Person directly or indirectly liable for any Guaranteed Obligations,
regardless of what Guaranteed Obligations may remain unpaid after any such
application; or
(viii) any other circumstance that might otherwise constitute a legal
or equitable discharge of, or a defense, set-off or counterclaim available
to, the Borrower, the Guarantor or a surety or guarantor generally,
other than the occurrence of all of the following: (x) the payment in
full of the Total Obligations, (y) the termination of the Commitments
under the Credit Agreement, and (z) the termination of, and settlement
of all obligations of the Borrower under, each Hedge Agreement to which
the Borrower and any Lender are parties (the events in clauses (x), (y)
and (z) above, collectively, the "Termination Requirements").
3. CERTAIN WAIVERS. The Guarantor hereby knowingly, voluntarily and
expressly waives:
(i) presentment, demand for payment, demand for performance, protest
and notice of any other kind, including, without limitation, notice of
nonpayment or other nonperformance (including notice of default under
any Credit Document with respect to any Guaranteed Obligations),
protest, dishonor, acceptance hereof, extension of additional credit to
the Borrower and of any of the matters referred to in Section 2 and of
any rights to consent thereto;
(ii) any right to require the Guaranteed Parties or any of them, as a
condition of payment or performance by the Guarantor hereunder, to proceed
against, or to exhaust or have resort to any security from or any deposit
balance or other credit in favor of, the Borrower or any other Person
directly or indirectly liable for any Guaranteed Obligations, or to pursue
any other remedy or enforce any other right; and any other defense based on
an election of remedies with respect to any security for any Guaranteed
Obligations or for any guaranty or other liability in respect thereof,
notwithstanding that any such election (including any failure to pursue or
enforce any rights or remedies) may impair or extinguish any right of
indemnification, contribution, reimbursement or subrogation or other right
or remedy of the Guarantor against the Borrower or any other Person
directly or indirectly liable for any Guaranteed Obligations or any such
Collateral or other security; and, without limiting the generality of the
foregoing, the Guarantor hereby specifically waives the benefits of
Sections 26-7 through 26-9, inclusive, of the General Statutes of North
Carolina, as amended from time to time, and any similar statute or law of
any other jurisdiction, as the same may be amended from time to time;
(iii) any right or defense based on or arising by reason of any right
or defense of the Borrower or any other Person, including, without
limitation, any defense based on or arising from a lack of authority or
other disability of the Borrower or any other Person, the invalidity or
unenforceability of any Guaranteed Obligations, or any Credit Document
or other agreement or instrument delivered pursuant thereto, or the
cessation of the liability of the Borrower for any reason other than
the satisfaction of the Termination Requirements;
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(iv) any defense based on any Guaranteed Party's acts or omissions in
the administration of the Guaranteed Obligations, and any guaranty or other
liability in respect thereof;
(v) any right to assert against any Guaranteed Party, as a defense,
counterclaim, crossclaim or set-off, any defense, counterclaim, claim,
right of recoupment or set-off that it may at any time have against any
Guaranteed Party (including, without limitation, failure of consideration,
statute of limitations, payment, accord and satisfaction and usury), other
than compulsory counterclaims; and
(vi) any defense based on or afforded by any applicable law that limits
the liability of or exonerates guarantors or sureties or that may in any
other way conflict with the terms of this Guaranty.
4. STANDSTILL ON SUBROGATION; SUBORDINATION. Notwithstanding any payment or
payments made by the Guarantor hereunder, or any set-off or application of funds
of the Guarantor by the Administrative Agent or any Lender, the Guarantor shall
not be entitled to be subrogated to any of the rights of the Administrative
Agent or any Lender against the Borrower or against any collateral or other
security or guarantee or right of offset held by the Administrative Agent or any
Lender for the payment of the Guaranteed Obligations, nor shall the Guarantor
seek or be entitled to seek any contribution or reimbursement from the Borrower
in respect of payments made by the Guarantor hereunder, until all amounts owing
to the Administrative Agent and the Lenders by the Borrower on account of the
Guaranteed Obligations are paid in full and the Commitments have been
terminated. The Guarantor agrees that all indebtedness and other obligations,
whether now or hereafter existing, of the Borrower or any Subsidiary of the
Borrower to the Guarantor, including, without limitation, any such indebtedness
in any proceeding under the Bankruptcy Code and any intercompany receivables,
together with any interest thereon, shall be, and hereby are, subordinated and
made junior in right of payment to the Total Obligations. The Guarantor further
agrees that if any amount shall be paid to or any distribution received by the
Guarantor (i) on account of any such indebtedness at any time after the
occurrence and during the continuance of an Event of Default, or (ii) on account
of any such rights of subrogation, indemnity, contribution or reimbursement at
any time prior to the satisfaction of the Termination Requirements, such amount
or distribution shall be deemed to have been received and to be held in trust
for the benefit of the Guaranteed Parties, and shall forthwith be delivered to
the Administrative Agent in the form received (with any necessary endorsements
in the case of written instruments), to be applied against the Guaranteed
Obligations, whether or not matured, in accordance with the terms of the
applicable Credit Documents and without in any way discharging, limiting or
otherwise affecting the liability of the Guarantor under any other provision of
this Guaranty.
5. COVENANTS. The Guarantor covenants and agrees that, until the
termination of the Commitments, and the payment in full of all principal and
interest with respect to the Loans together with all other amounts then due and
owing under the Credit Agreement:
(a) The Guarantor will deliver (or will cause to be delivered) to each
Lender:
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(i) As soon as available and in any event within fifty-five (55) days
after the end of each of the first three fiscal quarters of each fiscal
year, beginning with the fiscal quarter ending March 31, 2000, unaudited
consolidated and, to the extent otherwise prepared for external
distribution, consolidating balance sheets of the Guarantor and its
Subsidiaries as of the end of such fiscal quarter and unaudited
consolidated and, to the extent otherwise prepared for external
distribution, consolidating statements of income, stockholders' equity and
cash flows for the Guarantor and its Subsidiaries for the fiscal quarter
then ended and for that portion of the fiscal year then ended, in each case
setting forth comparative consolidated or consolidating figures as of the
end of and for the corresponding period in the preceding fiscal year, all
prepared in accordance with GAAP (subject to the absence of notes
required by GAAP and subject to normal year-end audit adjustments) applied
on a basis consistent with that of the preceding quarter or containing
disclosure of the effect on the financial condition or results of
operations of any change in the application of accounting principles and
practices during such quarter;
(ii) As soon as available and in any event within 120 days after the
end of each fiscal year, beginning with the fiscal year ending December 31,
2000, (i) an audited consolidated balance sheet of the Guarantor and its
Subsidiaries as of the end of such fiscal year and audited consolidated
statements of income, stockholders' equity and cash flows for the Guarantor
and its Subsidiaries for the fiscal year then ended, including the
applicable notes, in each case setting forth comparative figures as of the
end of and for the preceding fiscal year, certified by the independent
certified public accounting firm regularly retained by the Guarantor or
another independent certified public accounting firm of recognized national
standing, together with (y) a report thereon by such accountants that is
not qualified as to going concern or scope of audit and to the effect that
such financial statements present fairly the consolidated financial
condition and results of operations of the Guarantor and its Subsidiaries
as of the dates and for the periods indicated in accordance with GAAP
applied on a basis consistent with that of the preceding year or containing
disclosure of the effect on the financial condition or results of
operations of any change in the application of accounting principles and
practices during such year, and (z) a report by such accountants to the
effect that, based on and in connection with their examination of the
financial statements of the Guarantor and its Subsidiaries, they obtained
no knowledge of the occurrence or existence of any Default or Event of
Default relating to accounting or financial reporting matters, or a
statement specifying the nature and period of existence of any such Default
or Event of Default disclosed by their audit; provided, however, that such
accountants shall not be liable by reason of the failure to obtain
knowledge of any Default or Event of Default that would not be disclosed or
revealed in the course of their audit examination, and (ii) to the extent
otherwise prepared, an unaudited consolidating balance sheet of the
Guarantor and its Subsidiaries as of the end of such fiscal year and
unaudited consolidating statements of income, stockholders' equity and cash
flows for the Guarantor and its Subsidiaries for the fiscal year then
ended, all in reasonable detail;
(iii) As soon as available and in any event within fifty-
five (55) days after the end of each of the first three
fiscal quarters of each fiscal year (or, in the case of Everest
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Insurance Company of Canada and Everest Bermuda, within fifteen (15) days
after the required filing date), beginning with the fiscal quarter ending
March 31, 2000, a Quarterly Statement of each of its Insurance Subsidiaries
as of the end of such fiscal quarter and for that portion of the fiscal
year then ended, in the form filed with the relevant Insurance Regulatory
Authority, prepared in accordance with SAP applied on a basis consistent
with that of the preceding quarter or containing disclosure of the effect
on the financial condition or results of operations of any change in the
application of accounting principles and practices during such quarter;
(iv) As soon as available and in any event within seventy-five (75)
days after the end of each fiscal year (or, in the case of Everest
Insurance Company of Canada and Everest Bermuda, within fifteen (15) days
after the required filing date), beginning with the fiscal year ending
December 31, 2000, an Annual Statement of each of its Insurance
Subsidiaries as of the end of such fiscal year and for the fiscal year then
ended, in the form filed with the relevant Insurance Regulatory Authority,
prepared in accordance with SAP applied on a basis consistent with that of
the preceding year or containing disclosure of the effect on the financial
condition or results of operations of any change in the application of
accounting principles and practices during such year;
(v) As soon as available and in any event within 135 days after the
end of each fiscal year, beginning with the fiscal year ending December 31,
2000, an unaudited consolidated balance sheet of the Guarantor and its
Insurance Subsidiaries (excluding Everest Insurance Company of Canada and
Everest Bermuda) as of the end of such fiscal year and unaudited
consolidated statements of income, stockholders' equity and cash flows for
the Guarantor and its Insurance Subsidiaries for the fiscal year then
ended, in each case setting forth comparative consolidated figures as of
the end of and for the preceding fiscal year, all prepared in accordance
with SAP applied on a basis consistent with that of the preceding year or
containing disclosure of the effect on the financial condition or results
of operations of any change in the application of accounting principles and
practices during such year;
(vi) As soon as available and in any event within 165 days after the
end of each fiscal year, beginning with the fiscal year ending December 31,
2000 (but only if and to the extent required by the applicable Insurance
Regulatory Authority with regard to any Insurance Subsidiary), a
certification by the independent certified public accounting firm referred
to in clause (ii) as to the Annual Statement of each such Insurance
Subsidiary as of the end of such fiscal year and for the fiscal year then
ended, together with a report thereon by such accountants that is not
qualified as to going concern or scope of audit and to the effect that such
financial statements present fairly the consolidated financial condition
and results of operations of such Insurance Subsidiary as of the date and
for the period indicated in accordance with SAP applied on a basis
consistent with that of the preceding year or containing disclosure of the
effect on the financial position or results of operations of any change in
the application of accounting principles and practices during such year;
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(vii) Concurrently with each delivery of the financial statements
described in clauses (i) through (iv), a Compliance Certificate in the
form of Exhibit C-1 to the Credit Agreement with respect to the period
covered by the financial statements then being delivered, executed by the
chief financial officer, comptroller or treasurer of the Guarantor,
together with a Covenant Compliance Worksheet reflecting the computation
of the financial covenants set forth in such Covenant Compliance Worksheet
as of the last day of the period covered by such financial statements;
(viii) As soon as available and in any event prior to the end of each
fiscal year, beginning with the fiscal year ending December 31, 2000, a
complete set of projections for Guarantor and its Subsidiaries for each
of the succeeding fiscal years remaining through the Maturity Date,
consisting of consolidated balance sheets and income statements
prepared based on GAAP principles, and
(ix) Promptly upon the sending, filing or receipt thereof, copies of
(i) all financial statements, reports, notices and proxy statements that
the Guarantor or any of its Subsidiaries shall send or make available
generally to its shareholders, (ii) all reports (other than earnings press
releases) on Form 10-Q, Form 10-K or Form 8-K (or their successor forms) or
registration statements and prospectuses (other than on Form S-8 or its
successor form) that the Guarantor or any of its Subsidiaries shall render
to or file with the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc. or any national securities
exchange, (iii) all reports on Form A (or any successor form) that any
Insurance Subsidiary shall file with any Insurance Regulatory Authority,
(iv) all material reports on examination or similar material reports,
financial examination reports or market conduct examination reports by the
NAIC or any Insurance Regulatory Authority or other Governmental Authority
with respect to any Insurance Subsidiary's insurance business, and (v) all
material filings made under applicable state insurance holding company acts
by the Guarantor or any of its Subsidiaries, including, without limitation,
filings seeking approval of transactions with Affiliates.
(b) The Guarantor will (i) maintain and preserve in full force and effect
its corporate existence and (ii) obtain, maintain and preserve in full force and
effect all other rights, franchises, licenses, permits, certifications,
approvals and authorizations required by Governmental Authorities and necessary
to the ownership, occupation or use of its properties or the conduct of its
business, except to the extent the failure to do so would not be reasonably
likely to have a Material Adverse Effect.
(c) The Guarantor will comply in all respects with all Requirements of Law
applicable in respect of the conduct of its business and the ownership and
operation of its properties, except to the extent the failure so to comply would
not have, or be reasonably likely to have, a Material Adverse Effect.
(d) The Guarantor will pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it, upon its income or profits
or upon any of its properties, prior to the date on which penalties
would attach thereto, and all lawful claims that, if unpaid, might
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become a Lien upon any of the properties of the Guarantor; provided, however,
that the Guarantor shall not be required to pay any such tax, assessment,
charge, levy or claim that is being contested in good faith and by proper
proceedings and as to which the Guarantor is maintaining adequate reserves with
respect thereto in accordance with GAAP.
(e) The Guarantor will (i) maintain adequate books, accounts and records,
in which full, true and correct entries shall be made of all financial
transactions in relation to its business and properties, and prepare all
financial statements required under this Guaranty, in each case in accordance
with GAAP or SAP, as applicable, and in compliance with the requirements of any
Governmental Authority having jurisdiction over it, and (ii) permit employees or
agents of the Administrative Agent or any Lender to inspect its properties and
examine or audit its books, records, working papers and accounts and make copies
and memoranda of them, and to discuss its affairs, finances and accounts with
its officers and employees and, upon notice to the Guarantor, the independent
public accountants of the Guarantor (and by this provision the Guarantor
authorizes such accountants to discuss the finances and affairs of the Guarantor
and its Subsidiaries), all at such times and from time to time, upon reasonable
notice and during business hours, as may be reasonably requested.
(f) The Guarantor will not liquidate, wind up or dissolve, or enter into
any consolidation, merger or other combination, or agree to do any of the
foregoing (other than the Restructuring provided that the conditions of Section
3.3. of the Credit Agreement are satisfied); provided, however, that the
Guarantor may merge into or consolidate with any other Person so long as (y) the
surviving corporation shall be the Guarantor unless the surviving corporation
expressly assumes the obligations of this Guaranty, and (z) immediately after
giving effect thereto, no Default or Event of Default would exist.
(g) The Guarantor will not create, incur, assume or suffer to exist any
Indebtedness other than:
(i) Indebtedness incurred by the Guarantor, provided that any such
Indebtedness shall rank either pari passu in right of payment to the
Guaranteed Obligations or be subordinated in right and time of payment
to the Guaranteed Obligations;
(ii) indorsements of negotiable instruments in the ordinary course of
business;
(iii) accrued expenses (including salaries, accrued vacation and
other compensation), current trade or other accounts payable and other
current liabilities arising in the ordinary course of business and not
incurred through the borrowing of money, provided that the same shall
be paid when due except to the extent being contested in good faith and
by appropriate proceedings;
(iv) loans and advances by the Guarantor to any Subsidiary of the
Guarantor; and
(v) Indebtedness in connection with Permitted Liens.
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(h) The Guarantor will not directly or indirectly, make, create, incur,
assume or suffer to exist, or enter into or suffer to exist any agreement (other
than the Credit Documents) or restriction that prohibits or conditions the
creation, incurrence or assumption of, any Lien upon or with respect to any part
of its property or assets, whether now owned or hereafter acquired, or agree to
do any of the foregoing, other than the following:
(i) Liens imposed by law, such as Liens of carriers, warehousemen,
mechanics, materialmen and landlords, and other similar Liens incurred
in the ordinary course of business for sums not constituting borrowed
money that are not overdue for a period of more than thirty (30) days
or that are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance
with GAAP;
(ii) Liens (other than any Lien imposed by ERISA, the creation or
incurrence of which would result in an Event of Default under the
Credit Agreement) incurred in the ordinary course of business in connection
with workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure the performance of
letters of credit, bids, tenders, statutory obligations, surety and
appeal bonds, leases, government contracts and other similar
obligations (other than obligations for borrowed money) entered into in
the ordinary course of business;
(iii) Liens for taxes, assessments or other governmental charges or
statutory obligations that are not delinquent or remain payable without
any penalty or that are being contested in good faith by appropriate
proceedings and for which adequate reserves have been established in
accordance with GAAP;
(iv) Liens in connection with pledges and deposits made pursuant to
statutory and regulatory requirements of Insurance Regulatory Authorities
by an Insurance Subsidiary in the ordinary course of its business, for the
purpose of securing regulatory capital or satisfying other financial
responsibility requirements;
(v) Liens upon cash and United States government and agency securities
of the Guarantor and its Subsidiaries, securing obligations incurred in
connection with reverse repurchase transactions and other similar
investment management transactions of such types and in such amounts as
are customary for companies similar to the Guarantor in size and lines
of business and that are entered into by the Guarantor and its
Subsidiaries in the ordinary course of business;
(vi) Purchase money Liens upon real or personal property used by the
Guarantor in the ordinary course of its business, securing Indebtedness
incurred solely to pay all or a portion of the purchase price thereof
(including in connection with capital leases, and including mortgages or
deeds of trust upon real property and improvements thereon), PROVIDED that
the aggregate principal amount at any time outstanding of all indebtedness
secured by such Liens does not exceed an amount equal to 5% of the
value of the total assets of the Guarantor and its Subsidiaries at
such time, determined on a consolidated basis in accordance with
GAAP as of the date of the financial statements of
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the Guarantor and its Subsidiaries most recently delivered under SECTION
5(A)(I) or (II) prior to such time, and PROVIDED FURTHER that any such Lien
(i) shall attach to such property concurrently with or within ten (10) days
after the acquisition thereof by the Guarantor, (ii) shall not exceed the
lesser of (y) the fair market value of such property or (z) the cost
thereof to the Guarantor, and (iii) shall not encumber any other property
of the Guarantor;
(vii) Any attachment or judgment Lien not constituting an Event of
Default under the Credit Agreement that is being contested in good faith by
appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP;
(viii) With respect to any real property occupied by the Guarantor or
any of its Subsidiaries, all easements, rights of way, licenses and
similar encumbrances on title that do not materially impair the use of
such property for its intended purposes;
(ix) Liens on Borrower Margin Stock, to the extent the fair market
value thereof exceeds 25% of the fair market value of the assets of the
Borrower and its Subsidiaries (including Borrower Margin Stock); and
(x) Liens in favor of the trustee or agent under any agreement or
indenture relating to Indebtedness of the Guarantor and its Subsidiaries
permitted under this Agreement, covering sums required to be deposited
with such trustee or agent thereunder.
(i) The Guarantor will not, and will not permit or cause any of its
Subsidiaries to, make or permit any material change in its accounting policies
or reporting practices, except as may be required or permitted by GAAP or SAP,
as applicable;
(j) The Guarantor will not cease to own directly 100% of the issued and
outstanding capital stock of the Borrower.
6. PAYMENTS; APPLICATION; SET-OFF.
(a) The Guarantor agrees that, upon the failure of the Borrower to pay any
Guaranteed Obligations when and as the same shall become due (whether at the
stated maturity, by acceleration or otherwise), and without limitation of any
other right or remedy that any Guaranteed Party may have at law, in equity or
otherwise against the Guarantor, the Guarantor will forthwith pay or cause to be
paid to the Administrative Agent, for the benefit of the Guaranteed Parties, an
amount equal to the amount of the Guaranteed Obligations then due and owing as
aforesaid.
(b) All payments made by the Guarantor hereunder will be made in Dollars to
the Administrative Agent, without set-off, counterclaim or other defense and, in
accordance with and to the extent provided in Section 2.16 of the Credit
Agreement, free and clear of and without deduction for any Taxes, the
Guarantor hereby agreeing to comply with and be bound by the provisions of
Section 2.16 of the Credit Agreement in respect of all payments made by it
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hereunder and the provisions of which Section are hereby incorporated into and
made a part of this Guaranty by this reference as if set forth herein at length.
(c) All payments made hereunder shall be applied upon receipt as follows:
(i) first, to the payment of all Other Obligations owing to the
Administrative Agent;
(ii) second, after payment in full of the amounts specified in clause
(i) above, to the ratable payment of all other Total Obligations owing to
the Guaranteed Parties; and
(iii) third, after payment in full of the amounts specified in clauses
(i) and (ii) above, and following the termination of this Guaranty, to the
Guarantor or any other Person lawfully entitled to receive such
surplus.
(d) For purposes of applying amounts in accordance with this Section, the
Administrative Agent shall be entitled to rely upon any Guaranteed Party that
has entered into a Hedge Agreement with the Borrower for a determination (which
such Guaranteed Party agrees to provide or cause to be provided upon request of
the Administrative Agent) of the outstanding Guaranteed Obligations owed to such
Guaranteed Party under any such Hedge Agreement. Unless it has actual knowledge
(including by way of written notice from any such Guaranteed Party) to the
contrary, the Administrative Agent, in acting hereunder, shall be entitled to
assume that no Hedge Agreements or Obligations in respect thereof are in
existence between any Guaranteed Party and the Borrower.
(e) The Guarantor shall remain liable to the extent of any deficiency
between the amount of all payments made hereunder and the aggregate amount of
the sums referred to in clauses (i) and (ii) of subsection (c) above.
(f) In addition to all other rights and remedies available under the Credit
Documents or applicable law or otherwise, upon and at any time after the
occurrence and during the continuance of any Event of Default, each Guaranteed
Party may, and is hereby authorized by the Guarantor, at any such time and from
time to time, to the fullest extent permitted by applicable law, without
presentment, demand, protest or other notice of any kind, all of which are
hereby knowingly and expressly waived by the Guarantor, to set off and to apply
any and all deposits (general or special, time or demand, provisional or final)
and any other property at any time held (including at any branches or agencies,
wherever located), and any other indebtedness at any time owing, by such
Guaranteed Party to or for the credit or the account of the Guarantor against
any or all of the obligations of the Guarantor to such Guaranteed Party
hereunder now or hereafter existing, whether or not such obligations may be
contingent or unmatured, the Guarantor hereby granting to each Guaranteed Party
a continuing security interest in and Lien upon all such deposits and other
property as security for such obligations. Each Guaranteed Party agrees to
notify the Guarantor promptly after any such set-off and application; provided,
HOWEVER, that the failure to give such notice shall not affect the validity of
such set-off and application.
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7. NO WAIVER. The rights and remedies of the Guaranteed Parties expressly
set forth in this Guaranty and the other Credit Documents are cumulative and in
addition to, and not exclusive of, all other rights and remedies available at
law, in equity or otherwise. No failure or delay on the part of any Guaranteed
Party in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege or be construed to be a waiver of any Default or
Event of Default. No course of dealing between any of the Guarantor and the
Guaranteed Parties or their agents or employees shall be effective to amend,
modify or discharge any provision of this Guaranty or any other Credit Document
or to constitute a waiver of any Default or Event of Default. No notice to or
demand upon the Guarantor in any case shall entitle the Guarantor to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the right of any Guaranteed Party to exercise any right or remedy or
take any other or further action in any circumstances without notice or demand.
8. ENFORCEMENT. The Guaranteed Parties agree that, except as provided in
SECTION 6(F), this Guaranty may be enforced only by the Administrative Agent,
acting upon the instructions or with the consent of the Required Lenders as
provided for in the Credit Agreement, and that no Guaranteed Party shall have
any right individually to enforce or seek to enforce this Guaranty or to realize
upon any collateral or other security given to secure the payment and
performance of the Guarantor's obligations hereunder. The obligations of the
Guarantor hereunder are independent of the Guaranteed Obligations, and a
separate action or actions may be brought against the Guarantor whether or not
action is brought against the Borrower and whether or not the Borrower is joined
in any such action. The Guarantor agrees that to the extent all or part of any
payment of the Guaranteed Obligations made by any Person is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid by or on behalf of any Guaranteed Party to a trustee, receiver or any
other party under any Insolvency Laws (the amount of any such payment, a
"Reclaimed Amount"), then, to the extent of such Reclaimed Amount, this Guaranty
shall continue in full force and effect or be revived and reinstated, as the
case may be, as to the Guaranteed Obligations intended to be satisfied as if
such payment had not been received; and the Guarantor acknowledges that the term
"Guaranteed Obligations" includes all Reclaimed Amounts that may arise from time
to time.
9. AMENDMENTS, WAIVERS, ETC. No amendment, modification, waiver, discharge
or termination of, or consent to any departure by the Guarantor from, any
provision of this Guaranty, shall be effective unless in a writing signed by the
Administrative Agent and such of the Lenders as may be required under the
provisions of the Credit Agreement to concur in the action then being taken, and
then the same shall be effective only in the specific instance and for the
specific purpose for which given.
10. CONTINUING GUARANTY; TERM; SUCCESSORS AND ASSIGNS; ASSIGNMENT;
SURVIVAL. This Guaranty is a continuing guaranty and covers all of the
Guaranteed Obligations as the same may arise and be outstanding at any
time and from time to time from and after the date hereof, and shall
(i) remain in full force and effect until satisfaction of all of the
Termination Requirements (provided that the provisions of clause (ii)
of SECTION 1(A) shall survive any termination of this
13
<PAGE>
Guaranty), (ii) be binding upon and enforceable against the Guarantor and its
successors and assigns (provided, however, that the Guarantor may not sell,
assign or transfer any of its rights, interests, duties or obligations hereunder
without the prior written consent of the Lenders) and (iii) inure to the benefit
of and be enforceable to the extent provided in SECTION 8 by each Guaranteed
Party and its successors and assigns. Without limiting the generality of clause
(iii) above, any Guaranteed Party may, in accordance with the provisions of the
Credit Agreement, assign all or a portion of the Guaranteed Obligations held by
it (including by the sale of participations), whereupon each Person that becomes
the holder of any such Guaranteed Obligations shall (except as may be otherwise
agreed between such Guaranteed Party and such Person) have and may exercise all
of the rights and benefits in respect thereof granted to such Guaranteed Party
under this Guaranty or otherwise. The Guarantor hereby irrevocably waives notice
of and consents in advance to the assignment as provided above from time to time
by any Guaranteed Party of all or any portion of the Guaranteed Obligations held
by it and of the corresponding rights and interests of such Guaranteed Party
hereunder in connection therewith. All representations, warranties, covenants
and agreements herein shall survive the execution and delivery of this Guaranty.
11. GOVERNING LAW; CONSENT TO JURISDICTION. THIS GUARANTY SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS (EXCLUDING NEW YORK GENERAL OBLIGATIONS
LAW SS.5-1401). THE PARTIES HERETO HEREBY DECLARE THAT IT IS THEIR INTENTION
THAT THIS GUARANTY SHALL BE REGARDED AS MADE UNDER THE LAWS OF THE STATE OF NEW
YORK AND THAT THE LAWS OF SAID STATE SHALL BE APPLIED IN INTERPRETING ITS
PROVISIONS IN ALL CASES WHERE LEGAL INTERPRETATION SHALL BE REQUIRED. EACH OF
THE PARTIES HERETO AGREES (A) THAT THIS GUARANTY INVOLVES AT LEAST $250,000; AND
(B) THAT THIS GUARANTY HAS BEEN ENTERED INTO BY THE PARTIES HERETO IN EXPRESS
RELIANCE UPON NEW YORK GENERAL OBLIGATIONS LAW SS. 5-1401. NOTWITHSTANDING THE
FOREGOING CHOICE OF LAW, THE GUARANTOR HEREBY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF ANY STATE COURT WITHIN NEW YORK COUNTY, NEW YORK OR MECKLENBURG
COUNTY, NORTH CAROLINA OR ANY FEDERAL COURT LOCATED WITHIN THE WESTERN DISTRICT
OF THE STATE OF NORTH CAROLINA OR THE SOUTHERN DISTRICT OF THE STATE OF NEW YORK
FOR ANY PROCEEDING INSTITUTED HEREUNDER OR UNDER ANY OF THE OTHER CREDIT
DOCUMENTS, INCLUDING ANY ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION
WITH ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF ANY GUARANTEED PARTY OR THE GUARANTOR. THE GUARANTOR
IRREVOCABLY AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE RIGHT OF APPEAL) BY ANY
JUDGMENT RENDERED OR RELIEF GRANTED THEREBY AND FURTHER WAIVES ANY OBJECTION
THAT IT MAY HAVE BASED ON LACK OF JURISDICTION OR IMPROPER VENUE OR FORUM NON
CONVENIENS TO THE CONDUCT OF ANY SUCH PROCEEDING. NOTHING IN THIS SECTION
14
<PAGE>
SHALL AFFECT THE RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR AFFECT THE RIGHT OF ANY GUARANTEED PARTY TO BRING ANY ACTION OR
PROCEEDING AGAINST THE GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.
12. WAIVER OF JURY TRIAL. THE GUARANTOR AND, BY ITS ACCEPTANCE OF THE
BENEFITS HEREOF, EACH GUARANTEED PARTY, HEREBY WAIVES, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, ITS RESPECTIVE RIGHTS TO TRIAL BY JURY OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OF THE OTHER
CREDIT DOCUMENTS, OR ANY RELATED PROCEEDING TO WHICH ANY GUARANTEED PARTY OR THE
GUARANTOR IS A PARTY, INCLUDING ANY ACTIONS BASED UPON, ARISING OUT OF, OR IN
CONNECTION WITH ANY RELATED COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY GUARANTEED PARTY OR THE GUARANTOR.
The scope of this waiver is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter of
this transaction, including, without limitation, contract claims, tort claims,
breach of duty claims and all other common law and statutory claims. The
Guarantor and, by its acceptance of the benefits hereof, each Guaranteed Party,
(i) acknowledges that this waiver is a material inducement to enter into a
business relationship, that it has relied on this waiver in entering into this
Guaranty or accepting the benefits hereof, as the case may be, and that it will
continue to rely on this waiver in its related future dealings with the other
parties hereto, and (ii) further warrants and represents that it has reviewed
this waiver with its legal counsel and that, based upon such review, it
knowingly and voluntarily waives its jury trial rights to the extent permitted
by applicable law. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, MODIFICATIONS OR SUPPLEMENTS TO OR RESTATEMENTS OF THIS
GUARANTY OR ANY OF THE OTHER CREDIT DOCUMENTS. IN THE EVENT OF LITIGATION, THIS
GUARANTY MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
13. NOTICES. All notices and other communications provided for hereunder
shall be in writing (including telegraphic, telex, facsimile transmission or
cable communication) and mailed, telegraphed, telexed, telecopied, cabled or
delivered (a) if to the Guarantor, at c/o ABG Financial and Management Services
Inc., Parker House, Wildey Road, St. Michael, Barbados, Attention: [NEED NAME],
Telecopy No. [NEED NUMBER], and (b) if to any Guaranteed Party, at its address
for notices set forth in the Credit Agreement; or to such other address as any
of the Persons listed above may designate for itself by like notice to the other
Persons listed above; and in each case, with copies to such other Persons as may
be specified under the provisions of the Credit Agreement. All such notices and
communications shall be deemed to have been given (i) if mailed as provided
above by any method other than overnight delivery service, on the third
Business Day after deposit in the mails, (ii) if mailed by overnight
delivery service, telegraphed, telexed, telecopied or cabled, when delivered
for overnight delivery, delivered to the telegraph company, confirmed by
telex answerback, transmitted by telecopier or delivered to the cable
15
<PAGE>
company, respectively, or (iii) if delivered by hand, upon delivery; provided
that notices and communications to the Administrative Agent shall not be
effective until received by the Administrative Agent.
14. SEVERABILITY. To the extent any provision of this Guaranty is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in such jurisdiction, without prohibiting or invalidating
such provision in any other jurisdiction or the remaining provisions of this
Guaranty in any jurisdiction.
15. CONSTRUCTION. The headings of the various sections and subsections of
this Guaranty have been inserted for convenience only and shall not in any way
affect the meaning or construction of any of the provisions hereof. Unless the
context otherwise requires, words in the singular include the plural and words
in the plural include the singular.
16. COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
16
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed by its duly authorized officers as of the date first above written.
EVEREST RE GROUP, LTD.
By: /S/ Stephen L. Limauro
--------------------------
Title: Chief Financial Officer, Senior
Vice President and Comptroller
Accepted and agreed to:
FIRST UNION NATIONAL BANK, as
Administrative Agent
By: /S/ Thomas L. Stichberry
---------------------------
Title: Senior Vice President
17
EXHIBIT 10.34
FORM OF
STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
THIS AGREEMENT made as of the _____ day of _________ (the "Grant Date")
by and between Everest Reinsurance Holdings, Inc. (the "Company") and
("Optionee").
WHEREAS, the Optionee is a non-employee member of the Board of
Directors of the Company (the "Board") who has been granted certain options, as
set forth herein;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
hereinafter set forth and for other good and valuable consideration, the parties
hereto agree as follows:
1. DEFINITION OF TERMS
a. Change in control of the Company shall be deemed to have occurred if:
(i) A tender offer or exchange offer is made whereby the
effect of such offer is to take over and control the
affairs of the Company, and such offer is consummated for
the ownership of securities of the Company representing
twenty-five percent (25%) or more of the combined voting
power of the Company's then outstanding voting securities.
(ii) The Company is merged or consolidated with another
corporation and, as a result of such merger or
consolidation, less than seventy-five percent (75%) of the
outstanding voting securities of the surviving or
resulting corporation shall then be owned in the aggregate
by the former stockholders of the Company, other than
affiliates within the meaning of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or any party
to such merger or consolidation.
(iii) The Company transfers substantially all of its assets to
another corporation or entity that is not a wholly owned
subsidiary of the Company.
<PAGE>
(iv) Any person (as such term is used in Sections 3 (a) (9) and
13 (d) (3) of the Exchange Act) is or becomes the
beneficial owner, directly or indirectly, of securities of
the Company representing twenty-five percent (25%) or more
of the combined voting power of the Company's then
outstanding securities, and the effect of such ownership
is to take over and control the affairs of the Company.
(v) As the result of a tender offer, merger, consolidation,
sale of assets, or contested election, or any combination
of such transactions, the persons who were members of the
Board immediately before the transaction, cease to
constitute at least a majority thereof.
b. Disability shall mean an inability as determined by the Board to
perform duties and services as a director of the Company by
reason of a medically determinable physical or mental impairment,
supported by medical evidence, which can be expected to last for
a continuous period of not less than six (6) months.
c. Fair Market Value shall mean, unless otherwise provided in this
Agreement, the average of the highest and lowest sale price of
the Company's Common Stock as reported on the Composite
Transaction Tape of the New York Stock Exchange (or on such other
exchange, if any, on which the Stock is traded) on the relevant
date, or if no sale of the Company's Common Stock is reported for
such date, the next preceding day for which there is a reported
sale.
2. GRANT OF OPTION. The Company hereby grants to the Optionee the
option to purchase ___________ shares of Common Stock of the Company
(the "Option") at __________ per share (the "Option Price"). The
term of such grant shall be ten (10) years commencing on the Grant
Date (the "Term"). These options are subject to the conditions
hereinafter provided. The Option is a nonstatutory stock option
not intended to qualify as an incentive stock option under Section
422 of the Internal Revenue Code of 1986, as amended.
3. EXERCISE OF OPTION. The Option may be exercised only in accordance
with this Agreement, and not otherwise.
a. TIME OF EXERCISE OF OPTION. During its Term and prior to its
earlier termination in accordance with Section 4 of this
Agreement, the Option shall be exercisable, in whole or in
part, provided that the Optionee remains a member of the
Board, in accordance with the following schedule:
<PAGE>
Percent of Award Exercisable as of
---------------- -----------------
33.4% Date of First Anniversary
Of the Grant Date
33.3% Date of Second Anniversary
Of the Grant Date
33.3% Date of Third Anniversary
Of the Grant Date
Notwithstanding the foregoing, the Option shall become immediately and
fully vested and exercisable upon (i) the death or disability (as defined
herein) of the Optionee or (ii) upon a change in control of the Company (as
defined herein); provided, however, in no event, may the Option be exercised
after the expiration of the Term.
Except as provided in Section 4 hereof, the Option shall not be
exercisable in whole or in part unless the Optionee, as of the time the Optionee
exercises the Option, is, and has been at all times since the date of the
Option, a member of the Board. The Option is exercisable during the lifetime
of the Optionee only by the Optionee or the Optionee's guardian or legal
representative. In the event of the Optionee's death, the Option is exercisable
by the executors, administrators, heirs or distributees of the estate of the
deceased Optionee.
The Option shall not be exercisable with respect to a fractional share
or with respect to the lesser of fifty (50) shares or the full number of shares
then subject to the Option. If a fraction share shall become subject to the
Option by reason of a stock dividend or otherwise, the Optionee shall not be
entitled to exercise the Option with respect to such fractional shares.
b. METHOD OF EXERCISE. To the extent then exercisable, the Option
may only be exercised by delivery of written notice of the
exercise to the Company specifying the number of shares to be
purchased and by making payment in full for the shares of
Common Stock being acquired thereunder at the time of
exercise; such payment shall be made either:
(i) in United States dollars by check or bank draft, or
(ii) by tendering to the Company Common Stock shares already owned
for at least six (6) months by the Optionee, which may include
shares received as the result of a prior exercise of an option,
and having a fair market value (as defined herein) equal to the
cash exercise price applicable to the Option, or
<PAGE>
(iii) by a combination of United States dollars and Common Stock
shares as aforesaid.
If at any time the Board shall determine, in its discretion, that the
listing, registration or qualification of shares upon any national securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the sale or purchase of shares hereunder, the Option may not be
exercised in whole or in part unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained, or
otherwise provided for, free of any conditions not acceptable to the Board in
the exercise of its reasonable judgment.
The Optionee shall, upon the exercise of the Option, execute and deliver to the
Company, a written statement, in form satisfactory to the Company, in which the
Optionee represents and warrants that the Optionee is purchasing or acquiring
the shares acquired pursuant to the Option for the Optionee's own account, for
investment only and not with a view to the resale or distribution thereof, and
represents and agrees that any subsequent offer for sale or distribution of any
of such shares shall be made only pursuant to either (i) a registration
statement on an appropriate form under the Securities Act of 1933, as amended
(the "Act"), which registration statement has become effective and is current
with regard to the shares being offered or sold, or (ii) a specific exemption
from the registration requirements of the Act, but in claiming such exemption
the Optionee shall, prior to any offer for sale or sale of such shares, obtain a
prior favorable written opinion, in form and substance satisfactory to the
Company, from counsel for or approved by the Company, as to the applicability of
such exemption thereto.
The Company may endorse such legend or legends upon the certificates for
shares upon exercise of the Option and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as, in its
discretion, it determines to be necessary or appropriate to prevent a violation
of, or to perfect an exemption from, the registration requirements of the Act.
In the event the Option is exercised by the executors, administrators,
heirs or distributees of the estate of the deceased Optionee, the Company shall
be under no obligation to issue Common Stock unless and until the Company is
satisfied that the person or persons exercising the Option are the duly
appointed legal representative of the deceased Optionee's estate or the proper
legatees or distributees thereof.
4. TERMINATION OF OPTION. Except as herein otherwise stated, the Option,
to the extent not theretofore exercised, shall terminate upon the
first to occur of the following:
a. the expiration of the term of the Option;
<PAGE>
b. the expiration of three years after the date on which the Optionee's
service on the Board is terminated, or
c. the expiration of three years after the date on which the Optionee's
service on the Board is terminated, if termination is because of the
Optionee's death or disability (as defined herein).
5. RECLASSIFICATION, CONSOLIDATION OR MERGER. In the event that
during the Term of the Option there shall be any change in the
Company's outstanding Common Stock by reason of stock dividend,
reverse split, subdivision, recapitalization, merger (whether or
not the Company is the surviving corporation), consolidation,
split-up, combination or exchange of shares, reorganization, or
liquidation, extraordinary dividend payable in cash or property,
and the like, the number, class and the price of shares of Common
Stock subject to the Option shall be appropriately adjusted by the
Board, whose determination shall be conclusive.
6. NONTRANSFERABILITY. The Optionee's rights and interest under this
Agreement may not be assigned or transferred in whole or in part
either directly or by operation of law or otherwise (except in the
event of the Optionee's death, by will or the laws of descent and
distribution), including, but not by way of limitation, execution,
levy, garnishment, attachment, pledge, bankruptcy or in any other
manner, and no such right or interest of any Optionee shall be
subject to any obligation or liability of such Optionee.
7. RIGHTS AS A STOCKHOLDER. The Optionee shall have no voting rights
or other rights of stockholders with respect to shares which are
subject to the Option, nor shall cash dividends, if any, accrue or
be payable with respect to any such shares, until, after proper
exercise of the Option, such shares shall have been recorded on
the Company's official stockholder records as having been issued
or transferred.
8. NO RIGHT TO BE RETAINED AS A DIRECTOR. Nothing contained herein
shall be construed as giving the Optionee any right to be retained in
the service of the Company as a director or otherwise.
9. EXECUTION. The Optionee shall have no rights under the Option unless
and until the Optionee shall have executed and delivered to the
Company this Agreement.
10. LIMIT OF LIABILITY. Any liability of the Company to the Optionee
or the Optionee's executors, administrators, heirs, or distributees,
as the case may be, with respect to an Option shall be based
solely on the contractual obligations created by this Option
Agreement. Neither the Company nor any member of the Board,
nor any other person participating in any determination
of any question under this Agreement, or in the
<PAGE>
interpretation, administration or application of this Agreement,
shall have any liability to any party for any action taken or
not taken in connection with this Agreement.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
12. BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
13. MODIFICATIONS. No change or modification of this Agreement shall be
valid unless it is in writing and signed by the parties hereto.
14. ENTIRE AGREEMENT. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and
representations, oral or written, express or implied, between the
parties hereto with respect to the Option.
15. NOTICES. Any and all notices required herein shall be addressed:
(i) if to the Company, to the principal executive office of the
Company; and (ii) if to the Optionee, to the Optionee's address as
reflected in the records of the Company.
16. INVALID OR UNENFORCEABLE PROVISIONS. The invalidity or
unenforceability of any particular provision of this Agreement shall
not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if the invalid or unenforceable
provisions were omitted.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed as of the day and year first above written.
EVEREST REINSURANCE HOLDINGS, INC.
BY: ____________________________________
Joseph V. Taranto
____________________________________
(Participant)
Exhibit 11.1
EVEREST REINSURANCE HOLDINGS, INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
(Dollars in thousands) 1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Income (Numerator) $ 158,061 $ 165,197 $ 154,955
Weighted average common and effect
of dilutive shares used in the
computation of net income per share:
Average shares outstanding
- basic (denominator) 48,508,815 50,374,329 50,476,330
Effect of dilutive shares:
Options outstanding 176,542 287,298 285,685
Options exercised 253 739 676
Options cancelled 135 2,632 2,476
------------ ------------ ------------
Average share outstanding
- diluted (denominator) 48,685,745 50,664,998 50,765,167
Net Income per common share:
Basic $ 3.26 $ 3.28 $ 3.07
Diluted 3.25 3.26 3.05
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF EVEREST RE GROUP, LTD.
The following is a list of Everest Re Group, Ltd. subsidiaries:
Name of Subsidiary Jurisdiction of Incorporation
- ------------------------------------ -----------------------------
Everest Reinsurance Holdings, Inc. Delaware
Everest Reinsurance Company Delaware
Everest Indemnity Insurance Company Delaware
Everest Insurance Company of Canada Canada
Everest National Insurance Company Arizona
WorkCare, Inc. Texas
Everest Re Holdings, Ltd. Bermuda
Everest Re Ltd. United Kingdom
Cra-Co Holdings, Ltd. Georgia
Southeastern Security Insurance Company Georgia
Adjusters Unlimited, Inc. Georgia
Mt. McKinley Managers, L.L.C. New Jersey
WorkCare Southeast, Inc. Alabama
WorkCare Southeast of Georgia, Inc. Georgia
Everest Reinsurance (Bermuda), Ltd. Bermuda
Everest Global Services, Inc. Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the Registration Statements on
Forms S-8 (File No. 333-1972 and File No. 333-05771) of Everest Reinsurance
Holdings, Inc. of our report dated February 9, 2000 except for Notes 1 and 15,
as to which the date is March 14, 2000 relating to the financial statements and
financial statement schedules, which appears in this Form 10-K. We also consent
to the reference to us under the heading "Selected Financial Data" in this Form
10-K.
PricewaterhouseCoopers LLP
New York, New York
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
EVEREST RE GROUP, LTD.'S 10-K INCLUDES THE FINANCIAL STATEMENTS OF EVEREST
REINSURANCE HOLDINGS, INC.
THIS SCHEDULE CONTAINS EVEREST REINSURANCE HOLDINGS, INC.'S SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM EVEREST RE GROUP, LTD.'S FORM 10-K FOR THE PERIOD
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS. (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 3,885,278
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 90,693
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,077,011
<CASH> 62,227
<RECOVER-REINSURE> 742,513
<DEFERRED-ACQUISITION> 82,713
<TOTAL-ASSETS> 5,704,302
<POLICY-LOSSES> 3,646,992
<UNEARNED-PREMIUMS> 308,563
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 509
<OTHER-SE> 1,326,973
<TOTAL-LIABILITY-AND-EQUITY> 5,704,302
1,071,451
<INVESTMENT-INCOME> 252,999
<INVESTMENT-GAINS> (16,760)
<OTHER-INCOME> (1,030)
<BENEFITS> 771,570
<UNDERWRITING-AMORTIZATION> (12,391)
<UNDERWRITING-OTHER> 349,409
<INCOME-PRETAX> 196,582
<INCOME-TAX> 38,521
<INCOME-CONTINUING> 158,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,061
<EPS-BASIC> 3.26
<EPS-DILUTED> 3.25
<RESERVE-OPEN> 2,884,300
<PROVISION-CURRENT> 806,930
<PROVISION-PRIOR> (35,360)
<PAYMENTS-CURRENT> 252,407
<PAYMENTS-PRIOR> 484,251
<RESERVE-CLOSE> 2,919,212
<CUMULATIVE-DEFICIENCY> (35,360)
</TABLE>
