SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
EVEREST REINSURANCE HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Checkbox if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
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(4) Date Filed: N/A
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1998
TO THE STOCKHOLDERS OF EVEREST REINSURANCE HOLDINGS, INC.:
The Annual Meeting of Stockholders of Everest Reinsurance Holdings, Inc.,
a Delaware corporation, will be held at the Company's corporate headquarters at
Westgate Corporate Center, 477 Martinsville Road, Liberty Corner, New Jersey, on
Tuesday, May 19, 1998 at 11:00 a.m., for the following purposes:
1. To elect two Class II Directors of the Company, each for a three-year
period to expire at the 2001 Annual Meeting of Stockholders.
2. To transact such other business as may properly come before the meeting
and any and all adjournments thereof.
Stockholders of record at the close of business on March 23, 1998 will be
entitled to vote at the meeting. A list of such stockholders will be available
at the time and place of the meeting and, during the 10 days prior to the
meeting, at the office of the Secretary of the Company at Westgate Corporate
Center, 477 Martinsville Road, Liberty Corner, New Jersey.
You are cordially invited to attend the meeting in person. Whether or not
you expect to attend the meeting in person, you are urged to sign and date the
enclosed proxy and return it promptly in the postage prepaid envelope provided
for that purpose.
By Order of the Board of Directors
Janet Burak Melchione, Secretary
April 10, 1998
Liberty Corner, New Jersey
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
PROXY STATEMENT
------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1998
The enclosed Proxy is being solicited on behalf of the Board of Directors
(the "Board") for use at the Annual Meeting of Stockholders of Everest
Reinsurance Holdings, Inc., a Delaware corporation (the "Company"), to be held
on May 19, 1998, and at any adjournment thereof. It may be revoked at any time
before it is exercised by giving a later proxy, notifying the Secretary of the
Company in writing, or voting in person at the Annual Meeting. All shares
represented at the meeting by properly executed proxies will be voted as
specified and, unless otherwise specified, will be voted for the election of
directors.
Only stockholders of record at the close of business on March 23, 1998
will be entitled to vote at the meeting. On that date 50,482,326 shares of
common stock, par value $.01 per share, were outstanding and entitled to vote.
Each share of common stock is entitled to one vote.
This Proxy Statement, the attached Notice of Annual Meeting, the Annual
Report of the Company for the year ended December 31, 1997 (including financial
statements) and the enclosed Proxy Card are first being mailed to the Company's
stockholders on or about April 10, 1998.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE FOR THE
NOMINEES FOR THE BOARD OF DIRECTORS DESCRIBED BELOW. PROXIES WILL BE SO VOTED
UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES. NOMINEES FOR DIRECTOR
WILL BE ELECTED BY A PLURALITY OF THE VOTES CAST. ABSTENTIONS AND BROKER
NON-VOTES WILL HAVE NO EFFECT ON THE OUTCOME OF THE VOTE.
The Company's Certificate of Incorporation provides for the division of
the Board into three classes, with the directors in each class serving for a
term of three years. At the Annual Meeting, two nominees for Class II director
positions are to be elected to serve until the 2001 Annual Meeting of
Stockholders and until their successors are elected and qualified. All of the
nominees for election as Class II directors at this meeting, and all directors
whose term of office will continue after the meeting, are currently directors of
the Company. The Class III director positions will be subject to election at the
1999 Annual Meeting of Stockholders and the Class I directors will be subject to
election at the 2000 Annual Meeting of Stockholders. It is not expected that any
of the nominees will become unavailable for election as a director, but if any
nominee should become unavailable prior to the meeting, proxies will be voted
for such persons as the Company's Board of Directors shall recommend, unless the
Board reduces the number of directors accordingly. There are no arrangements or
understandings between any director and any other person pursuant to which such
person was selected as a director or nominee. Messrs. Kenneth J. Duffy and
Joseph V. Taranto, the two nominees for the Class II director positions, have
been serving under interim election by the Board. Robert A. Mulderig, a Class II
director serving under interim election by the Board since August 1, 1996, has
decided not to stand for election to the Board when his term expires at the
close of the 1998 Annual Meeting of Stockholders. The Board has, by resolution,
reduced the number of directors constituting the Board of Directors from eight
to seven effective with the expiration of Mr. Mulderig's term of office.
<PAGE>
INFORMATION CONCERNING NOMINEES
The following information has been furnished by the respective nominees
for election of Class II directors for a term expiring in 2001.
KENNETH J. DUFFY, 68, became a Class II director of the Company on March
12, 1996 and a director of Everest Reinsurance Company, a wholly-owned
subsidiary of the Company ("Everest Re"), on March 13, 1996. Mr. Duffy is
currently the Chairman of the Board of Commercial Union Corporation. Having been
associated with that company for more than forty years, Mr. Duffy became its
Chairman and Chief Executive Officer in 1993. He retired as Chief Executive
Officer in January 1995 while retaining his responsibilities as Chairman. As of
January 1995, he became a consultant to Commercial Union Plc with respect to
United States, Canadian and Bermudian matters. Mr. Duffy is a director of
Commercial Union Corporation, a director of Commercial Union Canada Holdings,
Ltd. and the President and a director of Curepool (Bermuda) Ltd. He is also a
vice president of the Insurance Institute of London, a fellow of the Institute
of Risk Management and member of the advisory committee of the Conning Venture
Capital Funds.
JOSEPH V. TARANTO, 49, a Class II director, became Chairman of the Board
and Chief Executive Officer of the Company and Everest Re on October 17, 1994
and served as President of both companies from December 1994 until Mr.
Gallagher's election as President on February 24, 1997. Mr. Taranto is the
Chairman of Everest Re Ltd. Mr. Taranto was a director and President of
Transatlantic Holdings, Inc. and a director and President of Transatlantic
Reinsurance Company and Putnam Reinsurance Company (both subsidiaries of
Transatlantic Holdings, Inc.) from 1986 to 1994.
INFORMATION CONCERNING CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
The following information has been furnished by those directors whose
terms of office will continue after the 1998 Annual meeting and by the remaining
executive officers.
MARTIN ABRAHAMS, 65, became a Class I director of the Company on March 12,
1996 and a director of Everest Re, on March 13, 1996. Mr. Abrahams, currently
retired, served with the accounting firm of Coopers & Lybrand L.L.P. from 1957
and was a partner in that firm from 1969 to 1995.
JOHN R. DUNNE, 68, became a Class I director of the Company and a director
of Everest Re on June 10, 1996. Mr. Dunne, an attorney and member of the bar of
both New York and the District of Columbia, has since 1994 been counsel to the
law firm of Whiteman, Osterman & Hanna in Albany, New York. Mr. Dunne is a
director of Commercial Union Corporation of which Mr. Duffy is Chairman. Mr.
Dunne was counsel to the Washington DC law firm of Bayh, Connaughton & Malone
from 1993 to 1994. From 1990 to 1993, he served as an Assistant Attorney General
for the United States Government, Department of Justice. From 1966 to 1989 Mr.
Dunne served as a New York State Senator while concurrently practicing law as a
partner in New York law firms.
THOMAS J. GALLAGHER, 49, became a Class III director of the Company on
March 13, 1996. Mr. Gallagher also serves as a director of Everest Re, having
first been elected to that position in 1987. Elected President and Chief
Operating Officer of both the Company and Everest Re on February 24, 1997, Mr.
Gallagher had been Executive Vice President of both companies since December
1995 and a Senior Vice President of the Company since 1994 and of Everest Re
since 1989. Since joining Everest Re in 1975, he has served as an underwriter in
the facultative and treaty departments, as vice president in charge of the
facultative department and as vice president in charge of the treaty casualty
department. Mr. Gallagher currently serves as a director and Chairman of Everest
National Insurance Company ("Everest National") and serves as a director and
Chairman of Everest Insurance Company of Canada ("EVCAN") and as Chairman and
Chief Executive Officer of Everest Indemnity Insurance Company ("Everest
Indemnity").
WILLIAM F. GALTNEY, JR., 45, became a Class III director of the Company on
March 12, 1996 and a director of Everest Re on March 13, 1996. Since 1983, Mr.
Galtney has been the Chairman and Chief Executive Officer of Healthcare
Insurance Services, Inc., a managing general and surplus lines agency indirectly
owned by The Galtney
2
<PAGE>
Group, Inc. ("GGI"), a holding company 90% owned by Mr. Galtney and of which he
is also Chairman and Chief Executive Officer. Mr. Galtney also serves as either
the chairman or a director of various subsidiaries and affiliates of GGI. Mr.
Galtney is also a director of Mutual Risk Management Ltd.
ROBERT P. JACOBSON, 49, became a Class I director of the Company and a
director of Everest Re on March 12, 1996. Mr. Jacobson is Senior Vice President,
Chief Financial Officer and Treasurer of both companies. From January 31, 1994
to September 25, 1997, Mr. Jacobson served as Senior Vice President, Chief
Financial Officer and Comptroller to both companies. He is responsible for the
actuarial and comptrollers departments. Previously, Mr. Jacobson was with the
accounting firm of Coopers & Lybrand L.L.P. until January 31, 1994 where he had
been a partner since 1982 responsible for property and casualty insurance and
reinsurance clients. He is also the Treasurer and a director of Everest National
and Everest Indemnity, both wholly-owned subsidiaries of Everest Re.
STEPHEN L. LIMAURO, 46, is an executive officer of the Company and became
Comptroller of the Company on September 25, 1997. He served as Assistant
Comptroller of Everest Re from June 20, 1988 until September 25, 1997. From May
1995 until September 1997, he was Vice President, Treasurer and Assistant
Comptroller of the Company. Mr. Limauro is also a director and Comptroller of
Everest National and Everest Indemnity. He also serves as director, Assistant
Treasurer and Assistant Controller to EVCAN and he is Comptroller of Mt.
McKinley Managers, L.L.C. ("Mt. McKinley"), whose parent is the Company.
JANET BURAK MELCHIONE, 47, is an executive officer of the Company and
became Vice President, General Counsel and Secretary of the Company upon its
organization on November 11, 1993. She became a Senior Vice President of the
Company and Everest Re on January 31, 1994. Ms. Melchione has served as General
Counsel of Everest Re since 1985 and in 1986 was appointed Secretary. Ms.
Melchione is Secretary of EVCAN and Assistant Secretary of Everest National,
Everest Indemnity, Everest Re Ltd. and Mt. McKinley.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board conducts its business through its meetings and meetings of its
committees. Four meetings of the Board were held in 1997. No director attended
fewer than 75% of the aggregate of the total number of meetings of the Board and
the total number of meetings of all committees of the Board on which the
director served. The Board currently maintains Audit and Compensation
Committees. The Board does not maintain a nominating committee or other
committee performing similar functions.
AUDIT COMMITTEE
The Audit Committee was created by the Board of Directors on March 21,
1996. The principal purpose of the Audit Committee is to oversee the Company's
financial reporting process, its system of internal controls, the audit process
and the Company's ethics guidelines and to report to the full Board of Directors
on the Committee's findings and recommendations. The Audit Committee relies upon
appropriate Company financial and legal personnel and the Company's independent
public accountants to review these internal controls, the Company's financial
statements, audit findings and significant accounting and reporting issues.
The current members of the Audit Committee are Mr. Abrahams, Mr. Duffy and
Mr. Dunne, none of whom are employees or officers of the Company. Mr. Abrahams
served as Chairman in 1997. Mr. Dunne was designated Chairman effective February
26, 1998. The Audit Committee held three meetings in 1997.
COMPENSATION COMMITTEE
The Compensation Committee exercises authority with respect to all
compensation and benefits afforded all officers at the Senior Vice President
level and above, the Designated Executive Officers (as defined herein) and the
Company's Comptroller, Secretary and Treasurer. The Compensation Committee also
has oversight responsibilities for all of the Company's broad-based compensation
and benefit programs, including administration of the Company's Annual Incentive
Plan, the 1995 Stock Incentive Plan and the Chief Executive Officer's Bonus
Plan.
3
<PAGE>
The current members of the Compensation Committee are Mr. Abrahams and Mr.
Duffy, neither of whom are current or former employees or officers of the
Company. Mr. Duffy has been designated to serve as Chairman. The Compensation
Committee held three meetings and acted by unanimous written consent on one
occasion in 1997.
COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of shares of
common stock as of March 23, 1998 by the directors of the Company, by the
designated executive officers listed in the Summary Compensation Table (the
"Designated Executive Officers") and by all directors and the Designated
Executive Officers of the Company as a group. Information in this table was
furnished to the Company by the respective directors and Designated Executive
Officers. Unless otherwise indicated in a footnote, each person listed in the
table possesses sole voting power and sole dispositive power with respect to the
shares shown in the table to be owned by that person.
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class(11)
- ----------------------- -------------------- ---------
Martin Abrahams........................ 4,364(1) *
Kenneth J. Duffy....................... 3,664(2) *
John R. Dunne.......................... 3,484(3) *
Thomas J. Gallagher.................... 32,409(4) *
William F. Galtney, Jr................. 198,553(5) *
Robert P. Jacobson..................... 37,480(6) *
Robert A. Mulderig..................... 16,963(7) *
Joseph V. Taranto...................... 420,142(8) *
Stephen L. Limauro..................... 4,400(9) *
Janet B. Melchione..................... 8,100(10) *
All directors and Designated
Executive Officers
as a group (10 persons).............. 729,559 1.4%
- -----------
* Less than 1%
(1) Includes 2,216 shares which may be purchased upon the exercise of stock
options which are exercisable under the Company's 1995 Stock Option Plan
for Non-Employee Directors.
(2) Includes 2,216 shares which may be purchased upon the exercise of stock
options which are exercisable under the Company's 1995 Stock Option Plan
for Non-Employee Directors.
(3) Includes 2,036 shares which may be purchased upon the exercise of stock
options which are exercisable under the Company's 1995 Stock Option Plan
for Non-Employee Directors.
(4) Includes 7,200 shares of restricted stock issued to Mr. Gallagher under
the Company's 1995 Stock Incentive Plan. Such stock may not be sold or
transferred until the vesting requirements have been satisfied. Also
includes 21,200 shares which may be purchased upon the exercise of stock
options which are exercisable under the Company's 1995 Stock Incentive
Plan.
(5) Includes 191,600 shares owned by The Galtney Group, Inc., a corporation in
which Mr. Galtney maintains an 90% ownership position. Also includes 2,216
shares which may be purchased upon the exercise of stock options which are
exercisable under the Company's 1995 Stock Option Plan for Non-Employee
Directors.
(6) Includes 8,460 shares of restricted stock issued to Mr. Jacobson under the
Company's 1995 Stock Incentive Plan. Such stock may not be sold or
transferred until the vesting requirements have been satisfied. Also
includes 23,280 shares which may be purchased upon the exercise of stock
options which are exercisable under the Company's 1995 Stock Incentive
Plan.
(7) Includes 1,015 shares which may be purchased upon the exercise of stock
options which are exercisable under the Company's 1995 Stock Option Plan
for Non-Employee Directors.
(8) Includes 10,000 shares which may be purchased upon the exercise of stock
options which are exercisable under the Company's 1995 Stock Incentive
Plan.
4
<PAGE>
(9) Includes 4,000 shares which may be purchased upon the exercise of stock
options which are exercisable under the Company's 1995 Stock Incentive
Plan.
(10) Includes 2,500 shares of restricted stock issued to Ms. Melchione under
the Company's 1995 Stock Incentive Plan. Such stock may not be sold or
transferred until the vesting requirements have been satisfied. Also
includes 5,500 shares which may be purchased upon the exercise of stock
options which are exercisable under the Company's 1995 Stock Incentive
Plan.
(11) Based on 50,482,326 total shares of common stock outstanding and entitled
to vote as of March 23, 1998.
PRINCIPAL HOLDERS OF COMMON STOCK
To the best of the Company's knowledge, the only beneficial owners of more
than 5% of the outstanding shares of common stock of the Company as of December
31, 1997 are set forth below. This table is based on information provided in
Schedule 13Gs filed with the Securities and Exchange Commission by each of the
parties listed in the table.
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ---------------------------------- ----------------- ---------
Mellon Bank Corporation....................... 5,091,210(1) 10.08%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Morgan Stanley, Dean Witter, Discover & Co.... 3,351,923(2) 6.64
1585 Broadway, 38th Floor
New York, New York 10036
Loomis, Sayles & Company, L.P................. 3,825,576(3) 7.57
One Financial Center
Boston, Massachusetts 02111
Amvescap...................................... 2,775,700(4) 5.5
11 Devonshire Square
London EC2M 4 YR
England
- --------
(1) Mellon Bank Corporation reports in its Schedule 13G that it has sole
voting power with respect to 4,216,723 shares of common stock, shared
voting power with respect to 84,800 shares of common stock, sole
dispositive power with respect to 4,878,393 shares of common stock and
shared dispositive power with respect to 195,817 shares of common stock.
(2) Morgan Stanley, Dean Witter, Discover & Co. reports in its Schedule 13G
that it has shared voting power with respect to 3,064,830 shares of common
stock and has shared dispositive power with respect to 3,351,923 shares of
common stock.
(3) Loomis, Sayles & Company, L.P. reports in its Schedule 13G that it has
sole voting power with respect to 1,765,210 shares of common stock, shared
voting power with respect to 800 shares of common stock and shared
dispositive power with respect to 3,825,576 shares of common stock.
(4) Amvescap reports in its Schedule 13G that it has shared voting power with
respect to 2,775,700 shares of common stock and shared dispositive power
with respect to 2,775,700 shares of common stock.
5
<PAGE>
DIRECTORS' COMPENSATION
Each member of the Board of Directors who is not otherwise affiliated with
the Company as an employee and/or officer ("Non-Employee Director") was
compensated in 1997 for services as a director and was also reimbursed for
out-of-pocket expenses associated with each meeting attended. The annual
compensation for 1997 of the Non-Employee Directors was fixed at $35,000 per
year. Compensation was paid quarterly in arrears by the issuance of shares of
common stock. By compensating the Non-Employee Directors with stock, it is
intended to align their interests with those of the stockholders. The value of
shares issued are calculated based upon the average of the highest and lowest
sale prices of the Company's common stock on the last day of the calendar
quarter. If no sale is reported for such date, the average prices on the next
preceding day for which there is a reported sale will be used (the "Market
Price"). The number of shares to be paid each quarter is equal to one-quarter of
$35,000 divided by the applicable Market Price of the common stock for each
quarter. If the number of shares so calculated includes a fractional share, such
number is rounded down to the nearest whole number. For 1997 each of the
Non-Employee Directors was issued a total of 948 shares as compensation for
their services as a director in accordance with this procedure. As of January 1,
1998, the value of these shares for each Non-Employee director was $39,105 based
upon the $41.25 closing price of the common stock on December 31, 1997. On
February 26, 1998 the Board of Directors raised the annual compensation of
Non-Employee Directors to $40,000 effective January 1, 1998.
In addition to the payments described herein, the Company has adopted the
1995 Stock Option Plan for Non-Employee Directors (the "Directors' Plan") which
is designed to maintain the Company's ability to attract and retain the services
of experienced and highly qualified outside directors and to create a
proprietary interest in the Company's continued success. Each of the
Non-Employee Directors on the Company's Board is awarded options to purchase
that number of shares of common stock equal to $50,000 divided by the fair
market value of such stock as of the date they are initially appointed to the
Board, with an exercise price equal to that fair market value. As defined in the
Directors' Plan, the fair market value is determined by averaging the high and
low trading prices of the stock on the date of the option award.
Upon their initial appointment to the Board on March 12, 1996, Mr.
Abrahams, Mr. Duffy, and Mr. Galtney were each granted options to purchase 2,216
shares of common stock at an exercise price of $22.5625. Upon his initial
appointment to the Board on June 10, 1996, Mr. Dunne was granted options to
purchase 2,036 shares of common stock at an exercise price of $24.5625. Upon his
initial appointment to the Board on August 1, 1996, Mr. Mulderig was granted
options to purchase 2,030 shares of common stock at an exercise price of
$24.625.
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid or accrued for the last
three fiscal years, or as otherwise indicated, with respect to the Company's
Chief Executive Officer and the four other most highly compensated executive
officers who were serving as executive officers as of December 31, 1997 (the
"Designated Executive Officers"), for services rendered by them to the Company
and to its subsidiaries.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- -------------------------- -----------
RESTRICTED SECURITIES ALL OTHER
STOCK UNDERLYING LTIP COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($)(1) AWARD(S)($)(2) OPTIONS (#) PAYOUT($)(3) ($)(4)
- ------------------------- ----- ----------- ----------- -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Joseph V. Taranto 1997 $887,532 $717,000 -- 75,000 -- $ 21,971
Chairman of the Board 1996 851,775 689,600 -- 50,000 -- 16,918
and Chief Executive 1995 815,350 300,000 -- -- -- 13,343,318
Officer
Thomas J. Gallagher 1997 304,231 200,000 -- 27,500 -- 12,627
President and Chief 1996 261,250 150,000 -- 20,000 $85,239 9,013
Operating Officer 1995 215,539 120,000 $238,500 43,000 69,741 7,060
Robert P. Jacobson 1997 300,577 120,000 -- 17,500 -- 9,656
Senior Vice President 1996 290,500 120,000 -- 14,000 -- 9,672
Chief Financial Officer 1995 276,298 100,000 280,238 51,200 -- 163,967
& Treasurer
Janet Burak Melchione 1997 161,654 60,000 97,500 7,500 -- 5,538
Senior Vice President 1996 156,125 55,000 -- 7,500 59,870 5,644
General Counsel & 1995 143,250 53,000 -- 10,000 48,985 5,358
Secretary
Stephen L. Limauro 1997 151,523 45,000 -- 5,000 -- 5,185
Vice President & 1996 144,115 40,000 -- 4,000 -- 5,250
Comptroller 1995 133,519 35,000 -- 8,000 -- 4,840
</TABLE>
- --------
(1) Represents compensation earned by the Designated Executive Officers for
the years ended December 31, 1997, December 31, 1996, and December 31,
1995 pursuant to the Company's Annual Incentive Plan. In addition, the
amounts shown for Mr. Taranto for 1997 and 1996 include $448,000 and
$269,000, respectively, pursuant to the Chief Executive Officer's Bonus
Plan.
(2) The amounts reported represent the value of the common stock underlying
the restricted stock at the date of grant, without taking into account any
diminution in value attributable to the restrictions on such stock. The
awards of restricted stock to Messrs. Gallagher and Jacobson were made on
October 6, 1995; the closing price of the common stock on that date was
$19.875 per share. The award of restricted stock to Ms. Melchione was made
on September 26, 1997; the closing price of the common stock on that date
was $39.00 per share.
Forty percent of the restricted shares awarded in 1995 are unrestricted
two years after the date of the award in accordance with the terms of the
1995 Stock Incentive Plan. As of December 31, 1997, the aggregate number
of restricted stock units remaining outstanding under the 1995 awards and
the fair market value of those units based on $41.3125 as the average of
the high and low trading prices on the New York Stock Exchange on that
7
<PAGE>
date are as follows: Mr. Gallagher held 7,200 restricted shares valued at
$297,450 and Mr. Jacobson held 8,460 restricted shares valued at $349,504.
Dividends are paid quarterly on these restricted shares at the same rate
as dividends paid on common stock held by public stockholders. A
restricted stock award vests at the rate of 20% per year for a five year
period.
Ms. Melchione was awarded 2,500 shares of restricted stock on September
26, 1997. No portion of this award was vested as of December 31, 1997. The
fair market value of this award on that date was $41.3125 per share and
the value of the restricted shares held by Ms. Melchione as of December
31, 1997 was $103,281.25.
(3) All amounts represent payments under The Prudential's Long-Term
Compensation Plan reflecting performance over the four-year performance
cycles ending on December 31, 1998, 1997 and 1996 respectively. See
"Long-Term Incentive Plan--Awards in Last Fiscal Year." The payments
reported for Mr. Gallagher and Ms. Melchione for 1996 were made to them in
April 1997 and were reported in the 1997 Proxy Statement as 1996
compensation.
(4) For 1997, represents: (i) the following term life insurance premiums paid
by the Company on behalf of the Designated Executive Officers: (a) Mr.
Taranto--$639, (b) Mr. Gallagher--$639, (c) Mr. Jacobson--$639, (d) Ms.
Melchione--$639 and (e) Mr. Limauro--$639; and (ii) the following employer
contributions to qualified and non-qualified employee savings plans: (a)
Mr. Taranto--$21,332 (b) Mr. Gallagher--$11,988 (c) Mr. Jacobson-- $9,017
(d) Ms. Melchione--$4,899 and (e) Mr. Limauro--$4,546.
STOCK OPTION GRANTS
The following table sets forth certain information concerning stock
options granted under the Company's 1995 Stock Incentive Plan during 1997 to the
Designated Executive Officers.
OPTION /SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#)(1) FISCAL YEAR(2) ($/SH) DATE(3) ($)(4)
---- -------------- -------------- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph V. Taranto.............. 75,000 22.11% $39.1563 9/26/07 $1,378,845
Thomas J. Gallagher............ 27,500 8.11 $39.1563 9/26/07 505,577
Robert P. Jacobson............. 17,500 5.16 $39.1563 9/26/07 321,731
Janet Burak Melchione.......... 7,500 2.21 $39.1563 9/26/07 137,885
Stephen L. Limauro............. 5,000 1.47 $39.1563 9/26/07 91,923
</TABLE>
- -----------
(1) Represents non-qualified stock options granted on September 26, 1997 which
become exercisable in 20% installments each year commencing with the first
anniversary of the grant date, as long as employment with the Company or
its subsidiaries continues. These stock options were granted with an
exercise price equal to 100% of the fair market value of a share of common
stock on the date of grant. No SARs were granted in 1997.
(2) Based upon 339,250 non-qualified stock options granted to all employees in
1997.
(3) Exercisable options expire unless exercised within three years following
termination of employment due to retirement, disability or death or within
three months following termination of employment due to resignation or
dismissal. As a general rule, if employment terminates because of death,
retirement upon attaining age 65 or because of disability, unexercisable
options become immediately exercisable until the earlier of: (a) three
years after death or such termination; or (b) ten years from the date of
grant.
(4) The grant date present value of each option grant is estimated as of the
date of grant using the Black-Scholes option pricing model, modified to
include dividends, with the following assumptions:
8
<PAGE>
(a) Expected Volatility -- The annualized standard deviation of the
continuously compounded rate of return on the underlying stock, based on
the closing price observations for the twelve-month period ended December
31, 1997, which was 32.86%.
(b) Risk Free Rate of Return -- The rate available, on the date of grant,
on zero-coupon U.S. government issues with a remaining term comparable to
the expected life of the options as reported over the Bloomberg wire
service, which was 6.10%.
(c) Dividend Yield -- The yield calculated by dividing the estimated
annualized dividend rate of the Company's common stock in the amount of
$.20 per share by the weighted average fair market value of the stock on
the date of grant, which resulted in an assumed dividend yield of 0.5%.
(d) Expected Life -- The average length of time before assumed exercise
reflecting vesting provisions and maximum exercise period, which was 7.5
years.
STOCK OPTION EXERCISES AND OPTION VALUES
The following table sets forth certain information concerning the number
and value of unexercised stock options at the end of 1997 held by the Designated
Executive Officers. The Designated Executive Officers did not exercise any stock
options during 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SHARES OPTIONS/SARS AT FY-END (#) AT FY-END ($)(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph V. Taranto.............. 0 0 10,000 115,000 $173,750 $ 856,715
Thomas J. Gallagher............ 0 0 21,200 69,300 491,975 971,008
Robert P. Jacobson............. 0 0 23,280 59,420 551,690 986,893
Janet Burak Melchione......... 0 0 5,500 19,500 124,312 267,796
Stephen L. Limauro ............ 0 0 4,000 13,000 92,500 184,281
</TABLE>
- ----------
(1) Based on the year-end fair market value of common stock of $41.3125 which
is calculated by averaging the high and low trading prices on December 31,
1997 on the New York Stock Exchange. The value of the options is computed
by subtracting the exercise prices of the options from their fair market
values and multiplying the difference by the number of shares underlying
the options at the applicable exercise prices.
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
Prior to the initial public offering of the Company in October 1995 (the
"Offering") by its ultimate parent, The Prudential Insurance Company of America
("The Prudential"), the Company's operating subsidiary, Everest Re, had
participated in The Prudential's Long-Term Compensation Plan ("LTCP"). Awards
were made pursuant to the LTCP, based on the performance of The Prudential over
a four-year performance cycle. During the last year of each four-year cycle, a
target value was assigned to each participant, based on the personal
compensation limits of each participant. At the end of that four-year cycle, the
target value was adjusted, and payment was made to the employee based on an
evaluation of The Prudential's performance over those four years.
As of December 31, 1993, The Prudential changed the basis of its long-term
compensation awards to a Performance Share Appreciation Plan and began to run
off the LTCP. Everest Re chose to remain with the LTCP. Upon consummation of the
Offering, employees of Everest Re no longer participated in the LTCP as to
future performance, but payouts with respect to the four-year LTCP cycles that
would have otherwise ended on each of
9
<PAGE>
December 31, 1995, 1996, 1997 and 1998 were to be made to each participant on
the following basis: target values for each four-year cycle were frozen at 1995
levels and payouts will be equal to a percentage of the target amount multiplied
by the portion of the four-year LTCP cycle completed as of the date of the
consummation of the Offering and a performance factor. A total of 45% of such
amount was paid on April 1, 1996 and 55% of such amount was paid on April
11,1997. Payments made under the LTCP to the Designated Executive Officers in
1996 and 1997 are set forth in the Summary Compensation Table above. These were
the final payments made under the LTCP and no future payments will be made.
COMPENSATION COMMITTEE REPORT
This report was prepared by the Compensation Committee of the Company's
Board of Directors (the "Compensation Committee"). The Compensation Committee
advises management and exercises authority with respect to compensation and
benefits afforded officers at or above the Senior Vice President level, the
Company's Comptroller, Treasurer and Secretary and the Designated Executive
Officers, including the CEO. The Committee oversees all of the Company's
broad-based compensation and benefit programs. The current members of the
Compensation Committee are Mr. Abrahams and Mr. Duffy.
I. EXECUTIVE COMPENSATION POLICY
OVERVIEW. The Company's executive compensation program in 1997 was
designed to attract, retain, and motivate highly talented individuals whose
abilities are critical to the success of the Company. Compensation policies that
attract personnel of this caliber are particularly important for a relatively
new public entity like the Company. The Company's compensation program is guided
by the following fundamental principles:
o Compensation of executive officers is based on the level of job
responsibility, the performance of the Company, and the performance of
the individual.
o Total compensation levels are designed to be competitive with
compensation paid by organizations of similar stature.
o Compensation should align the interests of the executive officers with
those of the Company's stockholders by basing a significant part of
total compensation on the long-term performance of the Company's common
stock.
The Company's executive compensation program in 1997 achieved the
objectives described above and was a significant factor in attaining a high
level of corporate performance and increased shareholder value throughout the
year. In establishing executive compensation, the various components of
compensation are considered collectively in order to properly assess the
appropriateness of the Company's program relative to the attainment of its
objectives. The Company's executive compensation program consists of two key
elements: (i) an annual component, i.e., base salary and annual bonus and (ii) a
long-term component, i.e., stock options, stock appreciation rights, restricted
stock and stock awards.
The Compensation Committee reviewed a variety of factors of historical and
projected Company performance in determining executive compensation. In the
course of this review, the Compensation Committee considered the Company's
long-term compensation goals, the Company's financial performance, and the
compensation practices of other reinsurers through a review of
publicly-available information. In reviewing these factors, the Compensation
Committee was able to assess the overall performance of the Company and its
prospects for the future to establish an acceptable range for executive
compensation.
10
<PAGE>
II. COMPONENTS OF EXECUTIVE COMPENSATION
A. ANNUAL COMPENSATION
In 1997, annual compensation for executive officers of the Company
consisted of two components - base salary and a cash payment under the Company's
Annual Incentive Plan. For Mr. Taranto it also included a third component - the
Chief Executive Officer's Bonus Plan. The base salary for Mr. Taranto was
subject to the terms of his employment agreement (See "Employment Agreement"
below). The base salaries for the other Designated Executive Officers were
determined by the Compensation Committee based on each executive officer's
performance and, as previously discussed, the Company's performance and the
range of compensation of executive officers with similar responsibilities in
comparable companies.
Annual bonuses paid to executive officers under the Annual Incentive Plan
are a significant element of the executive compensation program. Since January
1, 1994, eligible employees of the Company have participated in the Annual
Incentive Plan. Under the Annual Incentive Plan, the Company may make a cash
payment to participants each year, based on the performance of the Company, the
performance of participant's subsidiary or department and/or the participant's
individual performance in the preceding year. The Annual Incentive Plan is
designed to reward participants for the achievement and success of general
corporate goals and to recognize and reward their individual performances in
achieving such goals, as well as to compensate them on the basis of the
Company's financial results.
Under the Annual Incentive Plan, each executive officer is assigned an
award ("Par Award") based on the executive officer's responsibilities, position,
performance, potential contribution and other relevant criteria. The Par Award
is a percentage of the executive officer's salary. Yearly goals ("Performance
Goals") are set to measure the performance of the Company, business units,
subsidiaries, departments and/or individuals and, to the extent Performance
Goals are met, cash bonus payments are made to executive officers ranging from 0
to 200 percent of the executive officer's Par Award. The determination of
individual Performance Goals and the extent to which such Performance Goals are
met is subjective in nature and is influenced by the Compensation Committee's
perception of the importance of the various corporate and individual goals to
the overall success of the Company.
The Compensation Committee is responsible for determinations regarding
Performance Goals and Par Awards for officers at the Senior Vice President level
and above, except to the extent a Par Award may be based on the terms of an
individual employment agreement. (See "Employment Agreement" below). All other
determinations for employees below the Senior Vice President level are made by
the appropriate officers and employees of Everest Re, subject to the approval of
the Compensation Committee. Payments made in 1998 for the 1997 bonus year were
based on corporate performance above par, and on the significance of the
individual executive officer's contribution toward attaining that result. To
evaluate corporate performance, the Compensation Committee considered the
following factors related to the Company's 1997 financial results: after-tax
operating income, return on equity and earnings growth. The Committee then
reviewed the publicly available information on the compensation of executive
officers of competitors to arrive at total compensation for each of the
Designated Executive Officers that it believes is appropriate to the Company's
performance and their individual contributions.
B. LONG-TERM COMPENSATION
In 1997, two forms of long-term incentives were used for executive
officers--awards under the 1995 Stock Incentive Plan and awards under the LTCP.
These incentives are to reinforce management's long-term perspective on
corporate performance and provide an incentive for key executives to remain with
the Company for the long-term.
1995 STOCK INCENTIVE PLAN. Awards under the 1995 Stock Incentive Plan are
a significant element of the Company's executive compensation program.
Compensation derived from stock ownership provides a strong incentive to
increase shareholder value, since the value of this compensation is determined
by changes in the price of the Company's common stock over the term of each
award. Awards under the 1995 Stock Incentive Plan may take the
11
<PAGE>
form of stock options, stock appreciation rights, restricted stock or stock
awards. Stock options, the principal form of long-term incentive compensation
under the 1995 Stock Incentive Plan, encourage retention because they carry a
five-year vesting period and, if not exercised, are generally forfeited if the
employee leaves the Company before retirement. In addition, stock options,
granted at the fair market value on the date of grant and with terms not to
exceed 10 years, are designed to keep management and professional employees
oriented to growth over the long-term and not simply to short-term profits.
Awards are granted subjectively at the discretion of the Compensation Committee
based on a variety of factors, including a recipient's demonstrated past and
expected future performances, as well as a recipient's level of responsibility
with the Company and his or her ability to affect shareholder value.
Since the institution of the 1995 Stock Incentive Plan, the Committee has
granted employees 1,072,350 options to purchase shares of the Company's common
stock. Awards granted to the Company's Designated Executive Officers during 1997
are summarized under the captions "Options/SARs Grants in Last Fiscal Year" and
"Summary Compensation Table" above. When granting these awards, the Compensation
Committee took into account prior grants to these individuals under the 1995
Stock Incentive Plan and determined that the 1997 grants were appropriate and in
the best interests of the Company.
LONG-TERM COMPENSATION PLAN. Prior to the Offering, Everest Re
participated in The Prudential's LTCP whereby awards were made to employees
pursuant to the LTCP based on the performance of The Prudential over a four-year
performance cycle. Upon the consummation of the Offering, employees of Everest
Re no longer participated in the LTCP but participants continue to remain
eligible for payouts from the Company with respect to the four-year performance
cycles ending on each of December 31, 1995, 1996, 1997, 1998. (See "Long-Term
Incentive Plan--Awards in Last Fiscal Year" for a more detailed discussion of
the LTCP.) The payouts to the Company's Designated Executive Officers were
completed with payments made in April 1997 as reported in the 1997 Proxy
Statement and are summarized under the caption "Summary Compensation Table"
above.
The Company does not have a new long-term cash bonus plan in effect. The
Company currently intends to rely on the 1995 Stock Incentive Plan as the sole
means of long-term compensation believing compensation in the form of stock
ownership increases long-term value for the stockholders while compensating
individual employees for superior performance.
III. DEDUCTIBILITY CAP ON EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code ("Section 162(m)") disallows,
subject to limited exceptions, a corporate tax deduction for certain
compensation paid in excess of $1 million annually to each of the chief
executive officer and the four other most highly paid executive officers of
publicly-held companies. The Treasury Regulations under Section 162(m) provide,
for a limited period of time following a Company's initial public offering, an
exception to the $1 million cap for any plan which is in existence during a
period when a corporation was not publicly-held if the terms of such plan are
disclosed in the offering materials issued in connection with the initial public
offering of such corporation. The Company believes that its incentive
compensation plans and employment agreements which were disclosed in the
Company's prospectus in connection with the Offering, qualify for this exception
to the rules governing the $1 million cap so that the plans and agreements will
not be subject to limitation under such rules. The Company believes that, for
1997, the Company will not be denied a deduction with respect to any amount of
compensation paid to any executive officer.
IV. CHIEF EXECUTIVE OFFICER COMPENSATION
In 1997, Mr. Taranto's compensation was based on the terms of his
Employment Agreement with the Company and Everest Re (see "Employment Agreement"
below) and consisted of base salary and awards under the 1995
12
<PAGE>
Stock Incentive Plan. The Compensation Committee also approved a $448,000 cash
payment under the Annual Incentive Plan for fiscal 1997 based upon the
Compensation Committee's subjective determination of Mr. Taranto's significant
contribution to the Company's performance. (See "Summary Compensation Table"
above). In addition, it awarded him a cash payment of $269,000 under the Chief
Executive Officer's Bonus Plan ("CEO Bonus Plan"). The CEO Bonus Plan was
established by the Compensation Committee on February 24, 1997 in order to
retain and motivate the Chief Executive Officer, whose contributions are
critical to the success of the Company.
Factors considered by the Committee when determining whether an award
under this Plan is appropriate include the effect on the Company and the
stockholders of changes in share price, changes in ratings by rating agencies,
acquisitions, Company restructurings and other significant corporate events. In
making this award under the CEO Bonus Plan for 1997, the Committee noted that
during 1997, the Company's share price had risen by over 43% and that Everest
Re's A.M. Best rating had been upgraded.
In accordance with Mr. Taranto's Employment Agreement and the 1995 Stock
Incentive Plan, in 1997 Mr. Taranto was awarded 75,000 options for the purchase
of common stock under the 1995 Stock Incentive Plan. (See "Summary Compensation
Table" and "Options/SARs Grants in Last Fiscal Year" above). When considering
the size of this grant, the Compensation Committee took into account prior
awards made to Mr. Taranto under the Employment Agreement and the 1995 Stock
Incentive Plan and determined the 1997 award to be appropriate and in the best
interests of the Company. Through ownership of the options, the CEO's interests
will be aligned with the interests of the stockholders because the value of this
award will be dependent upon the value of the Company's common stock.
Kenneth J. Duffy Martin Abrahams
13
<PAGE>
PERFORMANCE GRAPH
The following Performance Graph compares cumulative total shareholder
returns on the Company's common stock (assuming reinvestment of dividends) from
October 3, 1995 (when the Company's stock was first listed on the New York Stock
Exchange) through December 31, 1997, with the cumulative total return of the
Standard & Poor's 500 Index and a peer group consisting of Chartwell Re
Corporation, General Re Corporation, NacRe Corp., Risk Capital Holdings, Inc.,
Transatlantic Holdings, Inc. and Trenwick Group, Inc. (the "Peer Group"). The
peer group compiled for the Performance Graph in last year's Proxy Statement
included Zurich Reinsurance Centre Holdings which ceased public trading during
1997.
COMPARISON OF 15 MONTH CUMULATIVE TOTAL RETURN*
AMONG EVEREST REINSURANCE HOLDINGS, INC., THE S & P INDEX
AND A PEER GROUP
[The following table represents a line graph in the printed report.]
Everest Reinsurance Holdings, Inc. Peer Group S&P 500
---------------------------------- ---------- -------
10/3/95 100 100 100
12/95 119 104 106
12/96 147 107 131
12/97 213 143 174
* $100 INVESTED ON 10/03/95 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
14
<PAGE>
RETIREMENT PLAN
The executive officers of the Company participate in the Everest
Reinsurance Company Retirement Plan (the "Retirement Plan") and will participate
in the future Supplemental Retirement Plan (the "Supplemental Plan"), both of
which are defined benefit pension plans. The Retirement Plan is a tax-qualified
plan that determines benefits under a formula that takes into account a
participant's years of continuous service and final average earnings with
Everest Re and certain affiliates, including during the period of affiliation
with The Prudential. The Supplemental Plan, which is in the process of being
established, will be a non-qualified plan that provides benefits that would
otherwise be provided under the Retirement Plan formula but for the application
of certain limitations on tax-qualified benefits under the Internal Revenue
Code. The Retirement Plan is, and the Supplemental Plan will be, similar to the
tax-qualified and supplemental pension plans of The Prudential in which the
executive officers and other employees of the Company and Everest Re
participated prior to the Offering. The following table shows the estimated
annual pension benefits payable at normal retirement age to a participant under
the Retirement Plan and the Supplemental Plan who attains the earnings and
service classifications indicated under the plans:
<TABLE>
<CAPTION>
YEARS OF CONTINUOUS SERVICE
----------------------------------------------------------------------------
FINAL AVERAGE EARNINGS 5 10 15 20 25 35
- ---------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$150,000................. $ 13,988 $ 27,977 $ 41,965 $ 55,953 $ 69,942 $ 84,164
200,000................. 18,988 37,977 56,965 75,953 94,942 114,164
250,000................. 23,988 47,977 71,965 95,953 119,942 144,164
300,000................. 28,988 57,977 86,965 115,953 144,942 174,164
350,000................. 33,988 67,977 101,965 135,953 169,942 204,164
400,000................. 38,988 77,977 116,965 155,953 194,942 234,164
450,000................. 43,988 87,977 131,965 175,953 219,942 264,164
500,000................. 48,988 97,977 146,965 195,953 244,942 294,164
750,000................. 73,988 147,977 221,965 295,953 369,942 444,164
1,000,000................. 98,988 197,977 296,965 395,953 494,942 594,164
1,250,000................. 123,988 247,977 371,965 495,953 619,942 744,164
</TABLE>
Benefits shown in the table above are computed as a single-life annuity
and reflect a reduction to recognize in part Everest Re's cost of social
security benefits. A participant's "final average earnings" under the Retirement
Plan will be his or her average annual "earnings" under the plan during the 72
consecutive months of continuous service in which the participant received the
greatest amount of earnings out of the final 120 months of continuous service.
For this purpose, "earnings" generally includes the participant's base salary,
cash bonus payments under the Chief Executive Officer's Bonus Plan and, for
participants who held positions equivalent to or senior to that of department
vice president, when that position existed, cash payments under the Company's
Annual Incentive Plan up to a maximum of 50% of salary or $275,000, whichever is
greater. However, "earnings" does not include any other compensation set forth
in the Summary Compensation Table. Final average earnings and earnings will be
determined under the Supplemental Plan in the same manner as under the
Retirement Plan, except that a participant's earnings are not subject to the
limitations under the Internal Revenue Code. "Continuous service" under the
Retirement Plan and Supplemental Plan will be the number of years and months
worked for Everest Re and certain affiliates, including during the period of
affiliation with The Prudential.
The years of continuous service for Mr. Taranto, Mr. Jacobson, Mr.
Gallagher, Ms. Melchione and Mr. Limauro to be taken into account under the
Retirement Plan and Supplemental Plan (rounded to the nearest year), as of April
1, 1998, are 3, 4, 23, 18, and 25, respectively. Final average earnings for Mr.
Taranto, Mr. Gallagher, Mr. Jacobson, Ms. Melchione and Mr. Limauro to be taken
into account as of April 1, 1998 are $958,313, $349,015, $385,630, $203,063 and
$133,483, respectively. Final average earnings for Mr. Taranto do not include
the "Additional Compensation" amounts payable under the terms of his Employment
Agreement with the Company (see "Employment Agreement" below).
15
<PAGE>
EMPLOYMENT AGREEMENT
The Company entered into an Employment Agreement with Mr. Taranto, dated
as of October 11, 1994 (the "Hiring Date"). The Employment Agreement expires on
December 31, 1999, unless sooner terminated in accordance with its terms. The
Employment Agreement provides for an annual base salary (the "Base Salary") of
$500,000, plus additional cash compensation (the "Additional Compensation") of
$25,000 per month (which is not included in Mr. Taranto's salary for purposes of
computing Mr. Taranto's bonus under the Annual Incentive Plan established by the
Company). Each of the Base Salary and the Additional Compensation shall be
subject to annual increases of no less than four percent nor greater than eight
percent. Effective March 30, 1998, Mr. Taranto's Base Salary was increased to
$582,600 and his Additional Compensation was increased to $29,151 per month. Mr.
Taranto is eligible to participate in the Annual Incentive Plan with a maximum
bonus equal to 80% of his Base Salary. In addition, Mr. Taranto is eligible for
an award under the Chief Executive Officer's Bonus Plan upon consideration by
the Compensation Committee of certain factors related to Company performance.
(See "Compensation Committee Report--Chief Executive Officer Compensation").
If the Company terminates Mr. Taranto's employment for "due cause" or Mr.
Taranto voluntarily terminates his employment other than for "good reason" (as
defined in the Employment Agreement), Mr. Taranto will be entitled to his Base
Salary and any Additional Compensation due him through the date of termination.
If the Company terminates Mr. Taranto's employment other than for due cause, or
if Mr. Taranto voluntarily terminates his employment for good reason, the
Company will be obligated to pay Mr. Taranto, in addition to all Base Salary and
Additional Compensation accrued through the date of termination, (i) the
aggregate amount of Base Salary and Additional Compensation, at the rate then in
effect, from the date of termination through December 31, 1999, and (ii)
aggregate bonus amounts for the period from the date of termination to December
31, 1999, calculated as 40% of Base Salary at the date of termination.
For purposes of the Employment Agreement, "due cause" means repeated gross
negligence in the performance of, or failure to perform, Mr. Taranto's
obligations under the Employment Agreement, serious willful misconduct,
continued abuse of alcohol or drugs after counseling, conviction of any felony
or crime of moral turpitude or a material breach in trust committed in willful
or reckless disregard of the interests of the Company or for personal gain. As
defined in the Employment Agreement "good reason" shall mean the assignment to
Mr. Taranto of duties materially inconsistent with his position as Chief
Executive Officer of the Company, a material adverse change in the nature or
status of Mr. Taranto's position or responsibilities, a reduction by the Company
of Mr. Taranto's Base Salary or Additional Compensation or a material breach of
the Employment Agreement by the Company.
SECTION 16 COMPLIANCE MATTERS
All the directors and executive officers of the Company subject to Section
16 of the Securities Exchange Act of 1934 filed all required reports during or
in respect of 1997 in a timely manner except that the Form 5 for Mr. Gallagher
in respect of 1997 was filed after the due date for that Form. That Form was
subsequently filed and reports an exempt disposition of stock to the Company for
the payment of withholding taxes incurred by Mr. Gallagher as a result of the
vesting of a restricted stock award under the 1995 Stock Incentive Plan.
CERTAIN TRANSACTIONS WITH DIRECTORS
Two of the Company's operating subsidiaries, Everest Re and Everest
National, have entered into a number of business transactions with Healthcare
Risk Management Services, Inc. ("Healthcare"), Western Litigation Specialists,
Inc. ("WLS"), Workcare, Inc., ("Workcare") and Workcare Southeast, Inc.
("Workcare Southeast"). These are companies in which Mr. Galtney, a member of
the Company's Board of Directors, maintains an ultimate ownership and
controlling position. Everest Re also entered into a number of reinsurance
agreements with Western Indemnity Insurance Company ("Western Indemnity"), in
which Mr. Galtney maintained a controlling interest until December 1, 1997. In
1997, as a result of these transactions, Everest Re paid to these companies (or
incurred during 1997) a total of $301,794 for various reinsurance intermediary
brokerage commissions and ceding commissions and for claims services associated
with the run off of certain Everest Re medical malpractice liabilities. In
addition, a $75,000 brokerage fee was paid
16
<PAGE>
to Healthcare in January 1998. In 1997, Everest Re received a total of
$1,996,125 in premiums paid or payable from Western Indemnity under six
facultative reinsurance certificates. In 1997, Everest Re also received $683,191
from Western Indemnity for paid losses under a reinsurance agreement and
pursuant to which there are $70,030 of incurred losses that are payable in 1998.
In 1997, Everest National paid or incurred commissions to Workcare of $985,383
for services provided by Workcare as a program administrator under Everest
National's Texas, Illinois and Indiana Workers Compensation Program (the "Texas
Program"). Payments made to Workcare in 1997 totaled $1,083,284 (which includes
amounts that were incurred in 1996). It is expected that payments of $546,175
under the Texas Program will be made in 1998. It is expected that in 1998 the
Texas Program will result in commission payments to Workcare of approximately
$2,500,000. In 1997, Workcare Southeast served as the program administrator of
Everest Re's Alabama Workers Compensation Program (the "Alabama Program"). In
1997, Everest Re incurred commissions to Workers Southeast of $910,243 under
that program of which $288,366 was paid in 1997 and of which $621,877 is
expected to be paid in 1998 . It is anticipated that the commissions incurred by
Everest Re to Workcare Southeast under the Alabama Program will be approximately
$3,200,000 in 1998.
MISCELLANEOUS--GENERAL MATTERS
OTHER MATTERS
It is not anticipated that there will be presented to the meeting any
business other than as set forth in the accompanying Notice of Annual Meeting of
Stockholders. However, if other matters properly come before the meeting, it is
the intention of the persons named in the enclosed form of proxy to vote any
proxies in accordance with their best judgment.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
To be considered for inclusion in the Company's Proxy Statement relating
to the 1999 Annual Meeting of Stockholders, a stockholder proposal must be
received by the Company Secretary in proper form at the Company's principal
executive office no later than December 11, 1998.
PROXY SOLICITATIONS
The expense of proxy solicitation will be borne by the Company. In
addition to solicitation by mail, proxies may be solicited in person or by
telephone, telegraph or facsimile by directors or officers who are employees of
the Company and its subsidiaries without additional compensation. In addition,
Corporate Investor Communications, Inc. will provide solicitation services to
the Company for a fee of approximately $3,500 plus out-of-pocket expenses. The
firm will solicit proxies by personal interview, telephone, telegraph and mail.
The Company will, on request, reimburse stockholders of record who are brokers,
dealers, banks or voting trustees, or their nominees, for their reasonable
expenses in sending proxy materials and annual reports to the beneficial owners
of the shares they hold of record.
TRANSFER AGENT AND REGISTRAR
The Company has appointed First Chicago Trust Company of New York to serve
as transfer agent, registrar and dividend paying agent for the Company's common
stock. Correspondence relating to any stock accounts or dividends should be
addressed to:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
(201) 324-0498
All transfers of certificates of the Company's common stock should also be
mailed to the above address.
17
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Deloitte & Touche LLP were the Company's auditors
until August 6, 1996 at which time, with the approval of the Audit Committee,
they were dismissed by the Company and replaced by the accounting firm of
Coopers & Lybrand L.L.P. As described in a Form 8-K filed with the Securities
and Exchange Commission on August 8, 1996, the reports on the Company's
financial statements for the fiscal years ended December 31, 1995 and December
31, 1994 did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. The dismissal of Deloitte & Touche LLP did not result from any
disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which disagreements, if not
resolved to the satisfaction of Deloitte & Touche LLP, would have caused them to
make reference to the subject matter of the disagreement in their reports. Also,
there were no reportable events of the nature described in Regulation S-K, Item
304 (a)(1)(v) during the Company's two most recent fiscal years through August
6, 1996.
Representatives of Coopers & Lybrand L.L.P. will be present at the 1998
Annual Meeting, will have the opportunity to make a statement if they so desire,
and will be available to respond to appropriate questions of stockholders.
By Order of the Board of Directors
Janet Burak Melchione
Secretary
April 10, 1998
18
<PAGE>
- --------------------------------------------------------------------------------
6287
/X/ Please mark your
votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING ITEMS:
1. Election of FOR all nominees WITHHOLD
Directors listed (except as AUTHORITY to vote
marked to the for all nominees
contrary) listed
/ / / /
K.J. Duffy, J.V. Taranto
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.
- --------------------------------------------------------------------------------
In their discretion, upon such other matters as may properly come before the
meeting, all in accordance with the accompanying Notice and Proxy Statement,
receipt of which is acknowledged.
IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES REPRESENTED THEREBY
WILL BE VOTED. IF A CHOICE IS SPECIFIED BY THE STOCKHOLDER, THE SHARES WILL BE
VOTED ACCORDINGLY. IF NOT OTHERWISE SPECIFIED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR ITEM 1.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SIGNATURE(S)____________________________________________DATE____________________
Sign exactly as name appears hereon. When signing in a representative capacity,
please give full title.
- --------------------------------------------------------------------------------
EVEREST REINSURANCE HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J.V. Taranto, R.P. Jacobson, and J.B. Melchione,
and each of them, as proxies of the undersigned, each with full power to act
without the others and with full power of substitution, to vote all the shares
of Common Stock of EVEREST REINSURANCE HOLDINGS, INC. held in the name of the
undersigned at the close of business on March 23, 1998, at the Annual Meeting of
Stockholders to be held on May 19, 1998, at 11:00 a.m. (local time), and at any
adjournment thereof, with all the powers the undersigned would have if
personally present, as follows:
(Continued on other side)
