SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission File Number:
JUNE 30, 1998 1-13816
- --------------------- ----------------------
EVEREST REINSURANCE HOLDINGS, INC.
----------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3263609
- ------------------------ ----------------------------
(State or other juris- (IRS Employer Identification
diction of incorporation Number)
or organization)
WESTGATE CORPORATE CENTER
LIBERTY CORNER, NEW JERSEY 07938-0830
-------------------------------------
(908) 604-3000
-------------------------------------
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 the filing
requirements for at least the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
CLASS at August 4, 1998
----- ----------------------------
COMMON STOCK, $.01 PAR VALUE 50,503,704
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
INDEX TO FORM 10-Q
PART I
FINANCIAL INFORMATION
---------------------
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
--------------------
Consolidated Balance Sheets at June 30, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Operations for the three months and
six months ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Changes in Stockholders' Equity for
the three months and six months ended June 30, 1998 and 1997
(unaudited) 5
Consolidated Statements of Cash Flows for the three months
and six months ended June 30, 1998 and 1997 (unaudited) 6
Notes to Consolidated Interim Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS 13
-------------------------
PART II
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS 17
-----------------
ITEM 2. CHANGES IN SECURITIES 17
---------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
-------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
---------------------------------------------------
ITEM 5. OTHER INFORMATION None
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
--------------------------------
<PAGE>
Part I - Item 1
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value per share)
<TABLE>
<CAPTION>
June 30, December 31,
--------------- ---------------
ASSETS: 1998 1997
--------------- ---------------
(unaudited)
<S> <C> <C>
Fixed maturities - available
for sale, at market value
(amortized cost: 1998,
$3,798,109; 1997, $3,658,370) $ 4,013,446 $ 3,866,860
Equity securities, at market
value (cost: 1998, $123,324;
1997, $120,510) 177,418 158,784
Short-term investments 99,074 75,244
Other invested assets 5,180 10,848
Cash 48,343 51,578
--------------- ---------------
Total investments and cash 4,343,461 4,163,314
Accrued investment income 61,732 60,424
Premiums receivable 282,431 256,191
Reinsurance receivables 670,601 692,473
Funds held by reinsureds 190,412 186,454
Deferred acquisition costs 78,422 82,332
Prepaid reinsurance premiums 9,410 8,980
Deferred tax asset 76,399 74,434
Other assets 19,542 13,418
--------------- ---------------
TOTAL ASSETS $ 5,732,410 $ 5,538,020
=============== ===============
LIABILITIES:
Reserve for losses and
adjustment expenses $ 3,486,060 $ 3,437,818
Unearned premium reserve 329,643 337,383
Funds held under reinsurance
treaties 202,241 190,639
Losses in the course of payment 62,503 55,969
Contingent commissions 99,612 100,027
Other net payable to reinsurers 11,395 13,231
Current federal income taxes 15,078 13,567
Other liabilities 126,487 81,903
--------------- ---------------
Total liabilities 4,333,019 4,230,537
--------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value:
$0.01; 50 million shares
authorized; no shares issued
and outstanding - -
Common stock, par value:
$0.01; 200 million shares
authorized; 50.8 million
shares issued 508 508
Additional paid-in capital 389,985 389,876
Unearned compensation (335) (514)
Accumulated other
comprehensive income, net of
deferred income taxes 165,726 152,319
Retained earnings 851,677 773,380
Treasury stock, at cost; 0.3
million shares (8,170) (8,086)
--------------- ---------------
Total stockholders' equity 1,399,391 1,307,483
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 5,732,410 $ 5,538,020
=============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Premiums earned $ 264,726 $ 247,515 $ 506,062 $ 477,958
Net investment income 62,525 57,368 122,538 111,410
Net realized capital gain 2,523 13,410 2,506 13,211
Other income 649 773 2,195 4,007
------------ ------------ ------------ ------------
Total revenues 330,423 319,066 633,301 606,586
------------ ------------ ------------ ------------
CLAIMS AND EXPENSES:
Incurred loss and loss
adjustment expenses 195,552 180,191 374,144 347,032
Commission, brokerage,
taxes and fees 65,468 65,875 125,905 127,890
Other underwriting
expenses 12,393 12,362 24,217 25,101
------------ ------------ ------------ ------------
Total claims and expenses 273,413 258,428 524,266 500,023
------------ ------------ ------------ ------------
INCOME BEFORE TAXES 57,010 60,638 109,035 106,563
Income tax 13,466 16,300 25,690 27,761
------------ ------------ ------------ ------------
NET INCOME $ 43,544 $ 44,338 $ 83,345 $ 78,802
============ ============ ============ ============
Other comprehensive
income, net of tax 2,043 50,885 13,407 5,041
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME $ 45,587 $ 95,223 $ 96,752 $ 83,843
============ ============ ============ ============
PER SHARE DATA:
Average shares
outstanding (000's) 50,480 50,469 50,481 50,480
Net income per common
share - basic $ 0.86 $ 0.88 $ 1.65 $ 1.56
============ ============ ============ ============
Average diluted shares
outstanding (000's) 50,799 50,738 50,799 50,731
Net income per common
share - diluted $ 0.86 $ 0.87 $ 1.64 $ 1.55
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
COMMON STOCK (shares
outstanding):
Balance, beginning of
period 50,482,326 50,490,673 50,479,271 50,490,273
Issued during the period 2,000 3,400 4,000 3,800
Treasury stock acquired
during period (8,460) (29,996) (8,460) (29,996)
Treasury stock reissued
during period 1,362 1,475 2,417 1,475
------------ ------------ ------------ ------------
Balance, end of period 50,477,228 50,465,552 50,477,228 50,465,552
============ ============ ============ ============
COMMON STOCK (par value):
Balance, beginning of
period $ 508 $ 508 $ 508 $ 508
Issued during the period - - - -
------------ ------------ ------------ ------------
Balance, end of period 508 508 508 508
------------ ------------ ------------ ------------
ADDITIONAL PAID IN
CAPITAL:
Balance, beginning of
period 389,928 389,202 389,876 389,196
Common stock issued
during the period 34 57 67 63
Treasury stock reissued
during period 23 9 42 9
------------ ------------ ------------ ------------
Balance, end of period 389,985 389,268 389,985 389,268
------------ ------------ ------------ ------------
UNEARNED COMPENSATION:
Balance, beginning of
period (436) (324) (514) (374)
Net increase during the
period 101 50 179 100
------------ ------------ ------------ ------------
Balance, end of period (335) (274) (335) (274)
------------ ------------ ------------ ------------
ACCUMULATED OTHER
COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME
TAXES:
Balance, beginning
of period 163,683 31,568 152,319 77,412
Net increase during the
period 2,043 50,885 13,407 5,041
------------ ------------ ------------ ------------
Balance, end of period 165,726 82,453 165,726 82,453
------------ ------------ ------------ ------------
RETAINED EARNINGS:
Balance, beginning
of period 810,657 658,945 773,380 626,501
Net income 43,544 44,338 83,345 78,802
Dividends declared
($0.05 and $0.10 per
share in 1998 and
$0.04 and $0.08 per
share in 1997) (2,524) (2,018) (5,048) (4,038)
------------ ------------ ------------ ------------
Balance, end of period 851,677 701,265 851,677 701,265
------------ ------------ ------------ ------------
TREASURY STOCK AT COST:
Balance, beginning of
period (8,061) (7,220) (8,086) (7,220)
Treasury stock acquired
during period (141) (808) (141) (808)
Treasury stock reissued
during period 32 35 57 35
------------ ------------ ------------ ------------
Balance, end of period (8,170) (7,993) (8,170) (7,993)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS'
EQUITY, END OF PERIOD $ 1,399,391 $ 1,165,227 $ 1,399,391 $ 1,165,227
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 43,544 $ 44,338 $ 83,345 $ 78,802
Adjustments to
reconcile net income
to net cash provided
by operating activities:
(Increase) decrease in
premiums receivable (17,637) 7,758 (26,309) (20,791)
(Increase) decrease in
funds held by
reinsureds, net 2,442 (3,558) 7,673 13,218
Decrease in reinsurance
receivables 17,259 56,398 21,745 75,502
(Increase) in deferred
tax asset (7,230) (3,988) (9,185) (7,893)
Increase in reserve for
losses and loss
adjustment expenses 8,467 25,872 49,488 60,684
Increase (decrease) in
unearned premiums (8,392) (5,557) (7,356) 1,173
Decrease in other assets
and liabilities 16,929 13,800 6,116 20,560
Non cash compensation
expense 101 50 179 100
Accrual of bond
discount/amortization
of bond premium (219) (368) (292) (715)
Realized capital gains (2,523) (13,410) (2,506) (13,211)
------------ ----------- ------------ ------------
Net cash provided by
operating activities 52,741 121,335 122,898 207,429
------------ ------------ ------------ ------------
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 40,643 142,757 70,626 203,151
Proceeds from fixed
maturities sold -
available for sale 264,512 453,502 317,671 587,064
Proceeds from equity
securities sold 4,327 37,246 6,987 47,625
Proceeds from other
invested assets sold 5,357 - 6,671 -
Cost of fixed maturities
acquired - available
for sale (338,539) (738,788) (531,099) (1,024,462)
Cost of equity securities
acquired (6,778) (9,915) (8,187) (23,241)
Cost of other invested
assets acquired (150) (31,708) (445) (33,203)
Net (purchases) sales of
short-term securities 8,482 1,611 (23,588) -
Net increase (decrease)
in unsettled securities
transactions (21,619) 16,364 7,273 27,743
------------ ------------ ------------ ------------
Net cash used in
investing activities (43,765) (128,931) (154,091) (213,168)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Purchase of treasury stock (86) (764) (42) (764)
Common stock issued during
the period 34 57 67 63
Dividends paid to
stockholders (2,524) (2,018) (5,048) (4,038)
Net increase in collateral
for loaned securities 3,855 - 31,753 -
------------ ------------ ------------ ------------
Net cash provided by (used
in) financing activities 1,279 (2,725) 26,730 (4,739)
------------ ------------ ------------ ------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (596) 3,018 1,228 (4,137)
------------ ------------ ------------ ------------
Net increase (decrease)
in cash 9,659 (7,303) (3,235) (14,615)
Cash, beginning of period 38,684 45,283 51,578 52,595
------------ ------------ ------------ ------------
Cash, end of period $ 48,343 $ 37,980 $ 48,343 $ 37,980
============ ============ ============ ============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash transactions:
Income taxes paid, net $ 25,950 $ 18,198 $ 33,694 $ 37,409
Non-cash financing
transaction:
Issuance of common stock
in connection with public
offering $ 101 $ 50 $ 179 $ 100
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
1. GENERAL
The consolidated financial statements of Everest Reinsurance Holdings Inc. (the
"Company") for the three months and six months ended June 30, 1998 and 1997
include all adjustments, consisting of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of results on an
interim basis. Certain financial information which is normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles has been omitted since it is not required for interim
reporting purposes. The year end condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. The results for the three months and
six months ended June 30, 1998 and 1997 are not necessarily indicative of the
results for a full year. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the years ended December 31, 1997, 1996 and 1995.
2. CONTINGENCIES
The Company 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. The Company's asbestos
claims typically involve potential liability for bodily injury from exposure to
asbestos or for property damage resulting from asbestos or products containing
asbestos. The Company'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.
The Company's reserves include an estimate of the Company'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 the Company'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)
limited historical data concerning asbestos and environmental losses; (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.
7
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
Management believes that these issues are not likely to be resolved in the near
future. The Company establishes reserves to the extent that, in the judgment of
management, the facts and prevailing law reflect an exposure for the Company or
its ceding company. In connection with its initial public offering in October
1995, the Company purchased an aggregate stop loss retrocession agreement (the
"Stop Loss Agreement") from Gibraltar Casualty Company ("Gibraltar"), an
affiliate of the Company's former parent, The Prudential Insurance Company of
America ("The Prudential"). This coverage protects the Company's consolidated
earnings against up to $375,000 of the first $400,000 of adverse development, if
any, on the Company's consolidated reserves for losses, allocated loss
adjustment expenses and uncollectible reinsurance at June 30, 1995 (December 31,
1994 for catastrophe losses). 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.
The following table shows the development of prior year asbestos and
environmental reserves on both a gross and net of retrocessional basis for the
three months and six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Gross Basis:
Beginning of
period reserves $ 469,666 $ 428,685 $ 446,132 $ 423,336
Incurred losses 8,825 17,463 36,720 28,662
Paid losses (11,923) (19,554) (16,284) (25,404)
----------- ----------- ----------- -----------
End of period
reserves $ 466,568 $ 426,594 $ 466,568 $ 426,594
=========== =========== =========== ===========
Net Basis:
Beginning of
period reserves $ 232,377 $ 201,885 $ 212,376 $ 199,557
Incurred losses - 461 2,222 461
Paid losses 20,515 1,074 38,294 3,402
----------- ----------- ----------- -----------
End of period
reserves $ 252,892 $ 203,420 $ 252,892 $ 203,420
=========== =========== =========== ===========
</TABLE>
8
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
At June 30, 1998, the gross reserves for asbestos and environmental losses were
comprised of $131,823 representing case reserves reported by ceding companies,
$60,596 representing additional case reserves established by the Company on
assumed reinsurance claims, $43,366 representing case reserves established by
the Company on direct excess insurance claims and $230,783 representing incurred
but not reported ("IBNR") reserves. To the extent loss reserves on assumed
reinsurance need to be increased and were not ceded to unaffiliated reinsurers
under existing reinsurance agreements, the Company would be entitled to certain
reimbursements under the Stop Loss Agreement. 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, the Company would
be entitled to 100% protection from Gibraltar under a retrocessional agreement
in place since 1986. While there can be no assurance that reserves for and
losses from these claims would not increase in the future, management believes
that the Company's existing reserves and ceded reinsurance arrangements,
including reimbursements available under the Stop Loss Agreement, lessen the
probability that such increases, if any, would have a material adverse effect on
the Company's financial condition, results of operations or cash flows.
The Company is also named in various legal proceedings incidental to its normal
business activities. In the opinion of management, none of these proceedings is
likely to have a material adverse effect upon the financial condition, results
of operations or cash flows of the Company.
The Prudential sells annuities which are purchased by property and casualty
insurance companies to settle certain types of claim liabilities. In 1993 and
prior, the Company, 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, the Company
would be liable if The Prudential were unable to make the annuity payments. The
estimated cost to replace all such annuities for which the Company was
contingently liable at June 30, 1998 was $141,941.
The Company has purchased annuities from an unaffiliated life insurance company
to settle certain claim liabilities of the Company. Should the life insurance
company become unable to make the annuity payments, the Company would be liable.
The estimated cost to replace such annuities at June 30, 1998 was $10,369.
9
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
3. EARNINGS PER SHARE
Net income per common share has been computed as follows (Shares in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------------- -------------------
<S> <C> <C> <C> <C>
Net income (numerator) $ 43,544 $ 44,338 $ 83,345 $ 78,802
======== ======== ======== ========
Weighted average common
and effect of dilutive
shares used in the
computation of net
income per share:
Average shares
outstanding
-basic (denominator) 50,480 50,469 50,481 50,480
Effect of dilutive
shares 319 269 318 251
-------- -------- -------- --------
Average shares
outstanding
-diluted (denominator) 50,799 50,738 50,799 50,731
Net income per common share:
Basic $ 0.86 $ 0.88 $ 1.65 $ 1.56
Diluted 0.86 0.87 1.64 1.55
</TABLE>
As of June 30, 1998 and 1997 options to purchase 337,750 and 1,500 shares of
common stock, respectively, were outstanding but were not included in the
computation of diluted earnings per share for the three month and six month
periods ended on such dates, because the options' exercise price was greater
than the average market price of the common shares during the period.
4. CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". This statement
requires an enterprise to present items of other comprehensive income in a
financial statement and to disclose accumulated balances of other comprehensive
income in the equity section of a financial statement. The additional
required presentation has been provided in the interim consolidated
10
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
financial statements for the current period as well as earlier periods. The
Company's components of other comprehensive income include unrealized gains and
losses on investments and foreign currency translation adjustments. As those
items were previously presented as direct charges or credits to the Company's
stockholders' equity, the only impact of adopting this standard is to reflect an
additional presentation of those items.
The Company's other comprehensive income is comprised as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
Net unrealized appreciation
(depreciation) of
investments, net of
deferred income taxes $ 4,392 $ 51,115 $ 14,734 $ 9,583
Cumulative translation
adjustments, net of
deferred income taxes (2,349) (230) (1,327) (4,542)
--------- --------- --------- ---------
Other comprehensive
income/(loss), net of
deferred income taxes $ 2,043 $ 50,885 $ 13,407 $ 5,041
========= ========= ========= =========
</TABLE>
5. NEW ACCOUNTING STANDARDS
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits". This
statement revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
The statement standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair value of plan assets
that will facilitate financial analysis and eliminates certain disclosures. This
statement is effective for fiscal years beginning after December 15, 1997. When
adopted, the additional required disclosures will be provided for earlier
periods.
In June 1998, the Financial Accounting Standards Board issued 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
is effective for all fiscal quarters and fiscal years beginning after June 15,
1999. The Company's management is currently analyzing the impact of this
statement.
11
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
6. INCOME TAXES
On April 21, 1998, the Supreme Court issued its decision in ATLANTIC MUTUAL V.
COMMISSIONER, upholding the Internal Revenue Service's position regarding the
computation of the fresh start benefit relating to 1986 reserve strengthening.
Pursuant to the Separation Agreement with The Prudential, the Company has paid
The Prudential $10,445 representing tax and interest in resolution of the
matter. The Company had adequate provisions for this tax contingency and, as a
result, this item has not materially impacted the Company's financial
position.
7. CREDIT LINE
In May 1998, First Union National Bank granted a 364 day extension to the
Company's $50,000 revolving line of credit. All of the terms and conditions of
the original credit facility remain in full force and effect without amendment
except that the maturity date as extended is now June 12, 1999.
12
<PAGE>
PART I - ITEM 2
EVEREST REINSURANCE HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
PREMIUMS. Gross premiums written increased 5.6% to $267.5 million in the
three months ended June 30, 1998 from $253.2 million in the three months ended
June 30, 1997 as the Company continued to maintain a cautious approach to
increasingly competitive market conditions. Factors contributing to this
increase include a 55.0% increase (to $98.2 million) in U.S. broker treaty
operations, attributable to growth in accident and health business, non-
standard auto and workers compensation business, and incoming portfolio
reinsurance transactions, a 12.4% increase (to $47.7 million) in U.S. direct
treaty reinsurance and insurance operations, attributable to incoming portfolio
reinsurance transactions, and a 5.7% increase (to $19.6 million) in U.S.
facultative operations, partially offset by a 26.2% decrease (to $30.2 million)
in marine, aviation and surety operations and a 18.4% decrease (to $71.8
million) in international operations reflecting the highly competitive
conditions in these markets.
Ceded premiums increased to $11.9 million in the three months ended June 30,
1998 from $7.2 million in the three months ended June 30, 1997. This increase
was principally attributable to an increase in the Company's contract specific
retrocessions.
Net premiums written increased by 3.9% to $255.6 million in the three months
ended June, 1998 from $246.1 million in the three months ended June 30, 1997
consistent with the growth in gross premiums written partially offset by the
increase in ceded premiums.
REVENUES. Net premiums earned increased by 7.0% to $264.7 million in the
three months ended June 30, 1998 from $247.5 million in the three months ended
June 30, 1997, generally consistent with the growth in net premiums written and
changes in the Company's mix of business during the preceding twelve months.
Net investment income increased 9.0% to $62.5 million in the three months
ended June 30, 1998 from $57.4 million in the three months ended June 30, 1997,
principally reflecting the effect of investing the $291.9 million of cash flow
from operations in the twelve months ended June 30, 1998. The annualized pre-tax
yield on average cash and invested assets decreased to 6.2% in the three months
ended June 30, 1998, from the 6.3% yield in the three months ended June 30,
1997, reflecting an increasing orientation to tax preferenced fixed maturity
investments and the lower interest rate environment.
Net realized capital gains were $2.5 million in the three months ended June
30, 1998, reflecting realized capital gains on the Company's investments of $5.1
million which were offset by $2.6 million of realized capital losses, compared
to net realized capital gains of $13.4 million in the three months ended June
30, 1997. The net realized capital gains in the three months ended June
13
<PAGE>
30, 1997 reflected realized capital gains of $18.0 million which were offset by
$4.6 million of realized capital losses. The realized capital gains in both
periods mainly arose from activity in the Company's portfolio of equity
securities, including, in 1997, a $14.0 million realized capital gain on the
sale of the Company's investment in the common stock of Corporacion MAPFRE S.A.
("MAPFRE"), an insurance group in Spain, whereas the realized capital losses for
both periods mainly arose from activity in the Company's fixed maturities
portfolio.
EXPENSES. Incurred losses and loss adjustment expenses ("LAE") increased by
8.5% to $195.6 million in the three months ended June 30, 1998 from $180.2
million in the three months ended June 30, 1997. The Company's loss and LAE
ratio increased by 1.1 percentage points to 73.9% in the three months ended June
30, 1998 from 72.8% in the three months ended June 30, 1997, principally as a
result of changes in the Company's mix of business. Net incurred losses and LAE
for the three months ended June 30, 1998 reflected ceded losses and LAE of $1.4
million, including $0.0 million ceded under the Stop Loss Agreement, compared to
ceded losses and LAE of $20.0 million in the three months ended June 30, 1997,
including $8.6 million ceded under the Stop Loss Agreement.
Underwriting expenses decreased by 0.5% to $77.9 million in the three months
ended June 30, 1998 from $78.2 million in the three months ended June 30, 1997.
Commission and brokerage expenses decreased by $0.4 million, principally
relating to changes in the Company's business mix. Other underwriting expenses
were unchanged at $12.4 million. The Company had 379 employees at June 30, 1998
including 27 employees in the agency operations acquired on June 30, 1998,
compared to 396 employees at June 30, 1997. The Company's expense ratio was
29.4% in the three months ended June 30, 1998 compared to 31.6% in the three
months ended June 30, 1997.
The Company's combined ratio decreased to 103.3% in the three months ended
June 30, 1998 compared to 104.4% in the three months ended June 30, 1997.
INCOME TAXES. The Company recognized income tax expense of $13.5 million in
the three months ended June 30, 1998 compared to $16.3 million in the three
months ended June 30, 1997. The principal cause of this change was the decrease
in net realized capital gains.
NET INCOME. Net income was $43.5 million in the three months ended June 30,
1998 compared to $44.3 million in the three months ended June 30, 1997. This
mainly reflected the improvement in underwriting results and an increase in net
investment income offset by a decrease in net realized capital gains.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
PREMIUMS. Gross premiums written increased 4.3% to $520.5 million in
the six months ended June 30, 1998 from $499.2 million in the six months
ended June 30, 1997 as the Company continued to maintain a cautious
approach to increasingly competitive market conditions. Factors contributing
to this increase included a 48.1% increase (to $178.7 million) in
U.S. broker treaty operations, principally attributable to growth in
accident and health, non-standard auto and workers compensation
business and incoming portfolio reinsurance transactions and a 14.8%
14
<PAGE>
increase (to $100.8 million) in U.S. direct treaty reinsurance and insurance
operations, attributable to incoming portfolio reinsurance transactions. These
gains were partially offset by a 23.3% decrease (to $59.5 million) in marine,
aviation and surety operations, a 15.7% decrease (to $146.1 million) in
international operations and a 11.4% decrease (to $35.3 million) in U.S.
facultative operations reflecting the highly competitive conditions in these
markets.
Ceded premiums increased to $22.2 million in the six months ended June 30,
1998 from $19.4 million in the six months ended June 30, 1997. This increase was
principally attributable to an increase in the Company's contract specific
retrocessions.
Net premiums written increased by 3.8% to $498.3 million in the six months
ended June 30, 1998 from $479.9 million in the six months ended June 30, 1997
reflecting the growth in gross premiums written and partially offset by the
increases in ceded premiums.
REVENUES. Net premiums earned increased by 5.9% to $506.1 million in the six
months ended June 30, 1998 from $478.0 million in the six months ended June 30,
1997, generally consistent with the growth in net premiums written and changes
in the Company's mix of business during the preceding twelve months.
Net investment income increased 10.0% to $122.5 million in the six months
ended June 30, 1998 from $111.4 million in the six months ended June 30, 1997,
reflecting the effect of investing the $291.9 million of cash flow from
operations in the twelve months ended June 30, 1998. The annualized pre-tax
yield on average cash and invested assets was stable at 6.1% for the six
months ended both June 30, 1998 and June 30, 1997.
Net realized capital gains were $2.5 million in the six months ended June 30,
1998, reflecting realized capital gains on the Company's investments of $6.7
million which were offset by $4.2 million of realized capital losses, compared
to net realized capital gains of $13.2 million in the six months ended June
30, 1997. The net realized capital gains in the six months ended June 30, 1997
reflected realized capital gains of $20.8 million which were offset by $7.6
million of realized capital losses. The realized capital gains in both periods
mainly arose from activity in the Company's portfolio of equity securities,
including, in 1997, a $14.0 million realized capital gain on the sale of the
Company's investment in the common stock of MAPFRE, whereas the realized capital
losses in both periods mainly arose from activity in the Company's fixed
maturities portfolio.
EXPENSES. Incurred losses and LAE increased by 7.8% to $374.1 million in the
six months ended June 30, 1998 from $347.0 million in the six months ended June
30, 1997. Catastrophe losses in the six months ended June 30, 1998 were $7.0
million compared with $0.0 million in the six months ended June 30, 1997. The
Company's loss and LAE ratio increased by 1.3 percentage points to 73.9% for the
six months ended June 30, 1998 from 72.6% in the six months ended June 30, 1997,
principally as a result of higher catastrophe losses and changes in the
Company's mix of business towards certain reinsurance treaties with higher
expected losses and lower ceding commissions. Net incurred losses and LAE for
the six months ended June 30, 1998 reflected ceded losses and LAE of $35.2
million, including $20.0 million ceded under the Stop Loss Agreement, a
significant amount of which was not settled until July 1998, compared to ceded
losses and LAE of $32.3 million in the six months ended June 30, 1997,
including $13.9 million ceded under the Stop Loss Agreement.
15
<PAGE>
Underwriting expenses decreased by 1.9% to $150.1 million in the six months
ended June 30, 1998 from $153.0 million in the six months ended June 30, 1997.
Commission and brokerage expenses decreased by $2.0 million, principally
reflecting changes in the Company's business mix. Other underwriting expenses
decreased by $0.9 million, reflecting the impact of the Company's continuing
expense reduction initiatives. The Company's expense ratio was 29.7% in the six
months ended June 30, 1998 compared to 32.0% in the six months ended June 30,
1997.
The Company's combined ratio decreased to 103.6% in the six months ended
June 30, 1998 from 104.6% in the six months ended June 30, 1997.
INCOME TAXES. The Company recognized income tax expense of $25.7 million in
the six months ended June 30, 1998 compared to $27.8 million in the six months
ended June 30, 1997. The principal cause of this change was the decrease in
capital gains.
NET INCOME. Net income was $83.3 million in the six months ended June 30,
1998 compared to $78.8 million in the six months ended June 30, 1997. This
improvement mainly reflected improved underwriting results and an increase in
investment income partially offset by a decrease in realized capital gains.
FINANCIAL CONDITION
INVESTED ASSETS. Aggregate invested assets, including cash and short-term
investments, were $4,343.5 million at June 30, 1998 and $4,163.3 million at
December 31, 1997. The increase in invested assets between December 31, 1997 and
June 30, 1998 resulted primarily from cash flow from operations of $122.9
million generated during the six months ended June 30, 1998, a $31.8 million
increase in collateral for loaned securities and an increase of $25.2 million in
net appreciation on investments.
STOCKHOLDERS' EQUITY. Holdings' stockholders' equity increased to $1,399.4
million as of June 30, 1998, from $1,307.5 million as of December 31, 1997
principally reflecting net income of $83.3 million for the six months ended June
30, 1998 and an increase of $14.7 million in unrealized appreciation on
investments, net of deferred taxes. Dividends of $5.0 million were declared and
paid by Holdings in the six months ended June 30, 1998.
16
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
OTHER INFORMATION
Part II - ITEM 1. LEGAL PROCEEDINGS
The Company is subject to litigation and arbitration in the normal course of its
business. Management does not believe that any such pending litigation or
arbitration will have a material adverse effect on the Company's results of
operations, financial condition and cash flows.
Part II - ITEM 2. CHANGES IN SECURITIES
c) Information required by Item 701 of Regulation S-K:
(a) On April 1, 1998, 1,225 common shares of the Company
(previously held as treasury shares) were distributed. On May
20, 1998, 137 common shares of the Company (previously held as
treasury shares) were distributed.
(b) The securities were distributed to the Company's five non-
employee directors and one former non-employee director.
(c) The securities were issued as compensation to the non-employee
directors for services rendered to the Company during the
first quarter of 1998 and for one such director for services
rendered to the Company through May 19, 1998.
(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 the
Company and its non-employee directors.
(e) Not applicable.
Part II - ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting was held on May 19, 1998.
b) Kenneth J. Duffy and Joseph V. Taranto were elected at the Annual
Meeting as Directors of the Company for a term expiring in 2001. The
term of office of the following Directors continued after the meeting:
Martin Abrahams, John R. Dunne, Thomas J. Gallagher and William F.
Galtney, Jr.
17
<PAGE>
c) The following matter was voted on at the Annual Meeting:
(1) The following Directors were elected:
Votes Votes
For Withheld
----- ---------
Kenneth J. Duffy 45,621,536 473,087
Joseph V. Taranto 44,948,748 1,145,875
Part II - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit Index:
Exhibit No. Description Location
----------- ----------- --------
*10.21 Employment Agreement Filed herewith
with Joseph V. Taranto
executed on July 15, 1998.
*10.22 Change of Control Agreement Filed herewith
with Joseph V. Taranto
effective July 15, 1998.
10.23 Credit Line Extension dated Filed herewith
May 20, 1998 between
Everest Reinsurance Holdings,
Inc. and First Union National
Bank.
11.1 Statement regarding
computation of per-share
earnings Filed herewith
27 Financial Data Schedule Filed herewith
- ----------------------
*Management contract or compensatory plan or arrangement.
b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three month period
ending June 30, 1998.
18
<PAGE>
Omitted from this Part II are items which are inapplicable or to which the
answer is negative for the period covered.
19
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
SIGNATURES
Pursuant to the requirements 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.
Everest Reinsurance Holdings, Inc.
(Registrant)
- By: /s/ STEPHEN L. LIMAURO
----------------------
Stephen L. Limauro
Duly Authorized Officer, Vice
President and Comptroller
Dated: August 6, 1998
<PAGE>
Exhibit 10.21
EMPLOYMENT AGREEMENT
--------------------
Employment Agreement (the "Agreement") first effective as of
the 1st day of January, 2000, between EVEREST REINSURANCE COMPANY a Delaware
corporation (the "Company"), EVEREST REINSURANCE HOLDINGS, INC. ("Holdings") and
JOSEPH V. TARANTO ("Taranto").
W I T N E S S E T H :
---------------------
WHEREAS, the Company and Holdings wish to continue to secure
the services of Taranto pursuant to the terms and conditions hereof; and
WHEREAS, Taranto is willing to accept such employment with the
Company and Holdings and to enter into the Agreement;
NOW, THEREFORE, in consideration of the promises and mutual
covenants contained herein and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Position; Duties; Responsibilities.
-----------------------------------
1.1 The Company hereby employs Taranto and Taranto hereby
agrees to serve as Chairman and Chief Executive Officer of Company and in such
other executive positions as designated by the Board of Directors of the
<PAGE>
Company ("Board"). Taranto shall report to and be subject to the supervision,
control and direction of the Board. He shall be the senior executive of the
Company. Taranto shall have such other responsibilities and authority consistent
with the status, titles and reporting requirements set forth herein as are
appropriate to said positions, subject to change from time to time by the Board,
provided that Taranto shall not be required to accept any position or reporting
requirements or perform any duties that are inconsistent with his status
as the Chief Executive Officer of the Company. Taranto's office shall be
principally located at the Company's headquarters, currently in Liberty Corner,
New Jersey. During the term of the Agreement, the Company will not relocate its
headquarters more than one and one-half hours' travel time by automobile
from the Company's headquarters in Liberty Corner, New Jersey.
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 Holdings and, subject to his
election, as a director of the Company, and as a director and officer
of any corporation which is a subsidiary or affiliate of the
2
<PAGE>
Company, if elected by the stockholders or the board of directors of such
corporation.
It is the intention of Holdings and the 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.
1.2 During the course of his employment, Taranto agrees to
devote his full working time and attention and give his best efforts and skill
to furthering the business and interests of the Company and Holdings. Consistent
with the foregoing, Taranto may volunteer a reasonable portion of his
non-working time to charitable, civic and professional organizations.
1.3 Notwithstanding the provisions of Section 1.2 above,
during the course of his employment Taranto may serve as a director or officer
of one or more companies affiliated with the Company. Taranto may also, with the
written consent of the Company and Holdings, serve as a director of any public
or private corporation, as a member of the governing board or as an officer
of any charitable, civic, educational or professional organization,
provided, however, that Taranto shall comply with the procedures
established by the Company and Holdings to prevent conflicts of interest by
3
<PAGE>
its officers and employees with respect to the business of the Company
and Holdings, their subsidiaries and affiliates.
2. Term.
-----
The term of employment under this Agreement shall commence as
of January 1, 2000 (the "Appointment Date"), and shall continue through December
31, 2001, unless sooner terminated in accordance with this Agreement.
3. Salary.
-------
The Company shall pay Taranto a base salary during the term of
employment at the annual rate of One Million Dollars ($1,000,000) ("Base
Salary"), payable in accordance with the standard payroll practices for senior
executives of the Company.
4. Bonus.
------
4.1 During the course of his employment, Taranto shall be
eligible to participate in a bonus program or plan to be established by
Holdings, subject to the approval of Holdings' stockholders. If Holdings'
stockholders do not approve the bonus plan or program described in this Section
4.1, Taranto shall have the right to re-open this Agreement to negotiate an
alternative bonus arrangement, provided, however, that Taranto must exercise his
right to re-open by providing Holdings with written notice of his intent to re-
4
<PAGE>
open within thirty days of Taranto's becoming aware that the stockholders of
Holdings did not approve the bonus plan or program described in this Section
4.1.
4.2 All bonuses pursuant to this Section 4 shall be paid to
Taranto in conformance with Company's and/or Holdings' normal bonus pay policies
following the end of the respective fiscal year. Any bonus payable to Taranto
with respect to the fiscal year ending December 2001 shall survive the
termination of this Agreement.
5. Sign-On Bonus.
--------------
5.1 Holdings shall grant to Taranto as a sign-on bonus
("Sign-On Bonus") One Hundred Fifty Thousand (150,000) non-qualified options for
the purchase of Holdings' stock under, and subject to the terms of, Holdings'
1995 Stock Incentive Plan, upon execution by Taranto. The options granted
pursuant to this Section 5.1 shall be subject to the general terms and
conditions of the Holdings 1995 Stock Incentive Plan and applicable award
agreements issued thereunder and shall vest at the rate of 20% per year over
five years, such vesting to occur on each of the first five anniversary dates of
the grant.
5
<PAGE>
6. Employee Benefit Plans.
-----------------------
6.1 During the term of Taranto's employment hereunder, Taranto
shall be eligible to participate in the Company's employee benefit plans on the
same basis as the Company's other senior executives.
6.2 In addition to benefits described in Section 6.1, Taranto
shall also receive or participate, at a level consistent with Taranto's
position, in, to the extent permitted by law, the various perquisites and plans
which the Board determines to make available to officers of the Company from
time to time in accordance with the provisions thereof. Taranto shall be
entitled to not less than four weeks vacation per year.
6.3 Nothing contained in this Agreement shall prevent the
Board or the Board of Directors of Holdings ("Holdings Board") from adopting
additional compensation arrangements for Taranto or providing additional
benefits under any of the existing compensation arrangements.
7. Expense Reimbursements.
-----------------------
7.1 During Taranto's employment with Company and
Holdings, Taranto will be entitled to receive reimbursement
by the Company and Holdings for all reasonable, out-of-pocket
expenses incurred by him (in accordance with policies
6
<PAGE>
and procedures established by the Company and Holdings), in connection with his
performing services hereunder.
8. Consequences of Termination of Employment.
------------------------------------------
8.1 DEATH. In the event of the death of Taranto during the
term of employment under this Agreement or during the period when payments are
being made pursuant to Section 8.2, this Agreement shall terminate and all
obligations to Taranto shall cease as of the date of death except that Company
will (1) pay the Base Salary until the end of the month in which Taranto dies,
(2) Taranto's beneficiaries or estate, as appropriate, shall be entitled to all
rights and benefits accrued up to the date of termination under the stock option
plans and benefit plans and programs of the Company in which Taranto is a
participant, as determined in accordance with the terms and provisions of such
plans and programs, provided, however, that Taranto shall cease to be an active
participant in such plans and programs as of the date of termination. Any bonus
(or amounts in lieu thereof) pursuant to Section 4.1, payable with respect to
the year in which Taranto's death occurs, shall be annualized and promptly paid
to Taranto's estate pro rata to the date of death.
8.2 DISABILITY. If Taranto shall become
incapacitated by reason of sickness, accident or other
7
<PAGE>
physical or mental disability, as such incapacitation is certified in
writing by a physician chosen by Company and reasonably acceptable to Taranto
(or his spouse or representative if in the Company's reasonable determination
Taranto is not then able to exercise sound judgment), and shall therefore be
unable to perform his duties hereunder for a period of either (i) one hundred
twenty consecutive days, or (ii) more than six months in any twelve month
period, with reasonable accommodation as required by law, then to the extent
consistent with applicable law, Taranto shall be considered "disabled" and
the employment of Taranto hereunder and this Agreement may be terminated by
Taranto or the Company upon thirty (30) days' written notice to the other
party following such certification. Should Taranto not acquiesce in the
Company's selection of the certifying doctor, Taranto (or his spouse or
representative if in the Company's reasonable determination Taranto is not
then able to exercise sound judgment) may choose a doctor to determine
whether he is disabled. If the two doctors are unable to concur on whether
Taranto is disabled, the two doctors shall designate a third doctor
whose decision shall be determinative. Upon termination of employment
pursuant to this Section 8.2, the Company shall thereafter pay
to Taranto, (1) Base Salary through the date of termination,
8
<PAGE>
and (2) Taranto shall be entitled to all rights and benefits accrued
up to the date of termination under the stock option plans and benefit
plans and programs of the Company in which Taranto is a participant,
as determined in accordance with the terms and provisions of such plans and
programs, provided, however, that Taranto shall cease to be an active
participant in such plans and programs as of the date of termination. Any bonus
(or amounts in lieu thereof) pursuant to Section 4.1 of this Agreement, payable
with respect to the year in which Taranto's termination pursuant to Section 8.2
occurs, shall be annualized and promptly paid to Taranto pro rata to the date of
termination.
8.3 DUE CAUSE. The Company may terminate Taranto and this
Agreement at any time for Due Cause. In the event of such termination for Due
Cause, Taranto shall only continue to receive Base Salary through the date of
such termination for Due Cause, and Taranto shall be entitled to no further
benefits or compensation under this Agreement, except that Taranto shall be
entitled to all rights and benefits accrued up to the date of termination under
the stock option plans and benefit plans and programs of the Company in which
Taranto is a participant, as determined in accordance with the terms and
provisions of such plans and programs, provided, however, that Taranto shall
cease to be an active participant in such plans or programs as of the
9
<PAGE>
date of termination. The term "Due Cause" shall mean (a) repeated and gross
negligence in fulfillment of, or repeated failure of Taranto to fulfill, his
material obligations under this Agreement, in either event after written notice
thereof, (b) material willful misconduct by Taranto in respect of his
obligations hereunder, (c) conviction of any felony, or any crime of moral
turpitude or, (d) a material breach in trust committed in willful or reckless
disregard of the interests of the Company or Holdings or undertaken for personal
gain.
8.4 TERMINATION BY THE COMPANY WITHOUT DUE CAUSE. The other
provisions of this Agreement notwithstanding, the Company may terminate
Taranto's employment and this Agreement at any time for whatever reason it deems
appropriate, without Due Cause and with or without prior notice. In the event of
such a termination of Taranto's employment and this Agreement, Taranto shall
have no further obligations of any kind under or arising out of the Agreement
and Company shall be obligated only to pay Taranto as severance as soon after
such termination as reasonably possible the following: (a) the aggregate amount
of Base Salary at the rate then in effect for the period from the date of
termination through December 31, 2001, (b) the aggregate bonus amounts due under
the appropriate bonus plans or programs for the period from the date of
10
<PAGE>
termination through December 31, 2001, payable in accordance with, and at the
time provided for under, the appropriate bonus plan or program. As a condition
precedent to Taranto's receipt of the payments described in this Section 8.4,
Taranto shall execute a general release and waiver on behalf of the Company and
Holdings in a form acceptable to the Company and Holdings. Taranto shall be
entitled to all rights and benefits accrued up to the date of termination under
the stock option plans and benefit plans and programs of the Company in which
Taranto is a participant, as determined in accordance with the terms and
provisions of such plans and programs, provided, however, that Taranto shall
cease to be an active participant in such plans and programs as of the date of
termination.
8.5 EMPLOYEE VOLUNTARY TERMINATION. In the event Taranto
terminates his employment of his own volition, and not pursuant to Section 8.6
of this Agreement, prior to the end of the term specified in Section 2 of this
Agreement, such termination shall constitute a voluntary termination and in such
event Company's only obligation to Taranto shall be to make Base Salary
payments provided for in this Agreement through the period ending with
the date of such voluntary termination. Taranto shall be entitled
to all rights and benefits accrued up to the date of termination
under the stock option plans and benefit plans and programs
11
<PAGE>
of the Company in which Taranto is a participant, as determined in
accordance with the terms and provisions of such plans and
programs, provided, however, that Taranto shall cease to be an active
participant in such plans and programs as of the date of termination. Taranto
understands and agrees that in the event of the termination of employment
pursuant to this Section 8.5 the Company shall have no obligation to make any
payments under this Agreement other than as set forth in this Section 8.5.
Taranto specifically understands and agrees that in the event of the termination
of employment pursuant to this Section 8.5 the Company shall have no further
obligation to pay any bonus to Taranto pursuant to Section 4 of this Agreement.
8.6 EMPLOYEE VOLUNTARY TERMINATION FOR GOOD REASON. If at the
time Taranto terminates his employment any of the following circumstances shall
have occurred without Taranto's express consent and shall have remained
uncorrected for more than thirty (30) days following Taranto's giving written
notice of such occurrence to the Company, then Taranto's termination of his
employment shall be deemed a "Termination for Good Reason": (a) a materially
adverse change in the nature or status of his position or responsibilities; (b)
a reduction by the Company in the Base Salary set forth in Section 3 hereof; or
(c) a material breach of this Agreement by Company or Holdings, provided,
12
<PAGE>
for purposes of clarification, that the failure of Taranto and the Company to
reach agreement on an alternative bonus arrangement pursuant to Section 4.1
of this Agreement shall not constitute a material breach. If Taranto's
termination of employment is deemed a Termination for Good Reason, the Company
shall pay to Taranto and afford to him the compensation and benefits
Taranto would be entitled to receive in the event of a Termination by the
Company without Due Cause pursuant to Section 8.4 hereof.
8.7 CHANGE OF CONTROL. In lieu of any other provision of this
Agreement, if within one year of a Material Change (as defined in the Change of
Control Agreement between the parties hereto effective as of July 15, 1998),
Taranto terminates his employment with the Company for any reason or the Company
terminates Taranto's employment for any reason other than for Due Cause, Taranto
shall continue to receive Base Salary through the date of such termination and
the Company and Holdings shall pay to Taranto and afford to him the compensation
and benefits provided for in the Change of Control Agreement.
8.8 GENERAL. The Company's and Holdings' obligations 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,
13
<PAGE>
counterclaim, recoupment, defense or other right which the Company or Holdings
may have against him 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.
9. Covenants of Employee.
----------------------
9.1 Taranto acknowledges that as a result of the services to
be rendered to the Company hereunder, Taranto will be brought into close contact
with many confidential affairs of the Company, its subsidiaries and affiliates,
not readily 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 is
international in scope; that its goods and services are marketed throughout the
United States and other countries; and that the Company competes with other
organizations that are or could be located in any part of the United States or
the world.
9.2 In recognition of the foregoing, Taranto covenants and
agrees that, except as is necessary in providing services under this
Agreement, Taranto will not knowingly use for his own benefit nor knowingly
divulge any Confidential Information and Trade Secrets of the Company,
14
<PAGE>
its subsidiaries and affiliated entities, which are not otherwise in the
public domain and, so long as they remain Confidential Information and Trade
Secrets not in the public domain, will not disclose them to anyone outside of
the Company either during or after his employment. For the purposes of
this Agreement, "Confidential Information and Trade Secrets" of the Company
means information which is secret to the Company, its subsidiaries and
affiliated entities. It may include, but is not limited to, information relating
to present future concepts and business of Company, its subsidiaries and
affiliates, in the form of memoranda, reports, computer software and data
banks, customer lists, employee lists, books, records, financial statements,
manuals, papers, contracts and strategic plans. As a guide, Taranto is to
consider information originated, owned, controlled or possessed by the Company,
its subsidiaries or affiliated entities which is not disclosed in printed
publications stated to be available for distribution outside the Company, its
subsidiaries and affiliated entities as being secret and confidential. In
instances where doubt does or should reasonably be understood to exist in
Taranto's mind as to whether information is secret and confidential to
the Company, its subsidiaries and affiliated entities, Taranto agrees to
15
<PAGE>
request an opinion, in writing, from the Company as to whether information
is secret and confidential.
9.3 Taranto will deliver promptly to the Company on the
termination of his employment with the Company, or at any other time the Company
may so request, all memoranda, notes, records, reports and other documents
relating to the Company, its subsidiaries and affiliated entities, and all
property owned by the Company, its subsidiaries and affiliated entities, which
Taranto obtained while employed by the Company, and which Taranto may then
possess or have under his control.
9.4 During and for a period of one (1) year after the
termination of employment with the Company (except that the time period of such
restrictions shall be extended by any period during which Taranto is in
violation of this Section 9.4), Taranto will not: (a) knowingly interfere with,
disrupt or attempt to disrupt, any then existing relationship, contractual or
otherwise between the Company, its subsidiaries or affiliated entities, and any
customer, client, supplier, or agent; (b) solicit, or assist any other entity in
soliciting for employment, any person known to Taranto to be an agent or
executive employee of the Company, its subsidiaries or affiliated
entities; or (c) except where the termination of employment occurs as
a result of the expiration of the term of this Agreement, accept any
16
<PAGE>
position of employment as an executive officer of any other company engaged in
the property and casualty insurance or reinsurance business.
9.5 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 and based upon
information to which he had access during the term of employment, whether or not
conceived during regular working hours, through the use of Company time,
material or facilities or otherwise. All such Developments shall be the sole and
exclusive property of the Company, and upon request Taranto shall deliver to the
Company all outlines, descriptions and other data and records relating to such
Developments, and shall execute any documents deemed necessary by the Company to
protect the Company's rights hereunder. Taranto agrees upon request to assist
the Company to obtain United States or foreign letters patent and copyright
registrations covering inventions and original works of authorship belonging
to the Company hereunder. If the Company is unable because of
Taranto's mental or physical incapacity to secure Taranto's signature
to apply for or to pursue any application for any United States or
17
<PAGE>
foreign letters patent or copyright registrations covering inventions and
original works of authorship belonging to the Company hereunder, then Taranto
hereby irrevocably designates and appoints the Company and its duly
authorized officers and agents as his agent and attorney in fact, to act for
and in his behalf and stead to execute and file any such applications and to do
all other lawfully permitted acts to further the prosecution 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 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 hereunder.
9.6 Taranto agrees that the remedy at law for any breach or
threatened breach of any covenant contained in this Section 9 will be inadequate
and that the Company, in addition to such other remedies as may be available to
it, in law or in equity, shall be entitled to injunctive relief without bond or
other security.
9.7 Although the restrictions contained in Sections 9.1, 9.2,
9.3 and 9.4 above are considered by the parties hereto to be fair and
reasonable in the circumstances, it is recognized that restrictions of such
18
<PAGE>
nature may fail for technical reasons, and accordingly it is hereby agreed that
if any of such restrictions shall be determined, by a court in a final
determination not subject to appeal to be void or unenforceable for whatever
reason, but would be valid if part of the wording thereof were deleted, or the
period thereof reduced or the area dealt with thereby reduced in scope, the
restrictions contained in Sections 9.1, 9.2, 9.3 and 9.4 shall be enforced to
the maximum extent permitted by law, and the parties consent and agree that
such scope or wording may be accordingly judicially modified in any
proceeding brought to enforce such restrictions.
9.8 Notwithstanding that Taranto's employment hereunder may
expire or be terminated as provided in Section 2 or Section 8 above, this
Agreement shall continue in full force and effect insofar as is necessary to
enforce the covenants and agreements of Taranto contained in this Section 9.
10. Arbitration.
------------
The parties shall use their best efforts and good will to
settle all disputes by amicable negotiations. The Company and Taranto agree
that, with the express exception of any dispute or controversy arising under
Section 9 of this Agreement, any controversy or claim arising out of or
19
<PAGE>
in any way relating to Taranto's employment with the Company, including, without
limitation, any and all disputes concerning this Agreement and the termination
of this Agreement that are not amicably resolved by negotiation, shall be
settled by arbitration in New Jersey, or such other place agreed to by the
parties, as follows:
(a) Any such arbitration shall be heard by a single
arbitrator. Except as the parties may otherwise agree, the arbitration,
including the procedures for the selection of an arbitrator, shall be
conducted in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association ("AAA").
(b) All attorneys' fees and costs of the arbitration shall in
the first instance be borne by the respective party incurring such
costs and fees, but the arbitrator shall have the discretion to award
costs and/or attorneys' fees as he or she deems appropriate under the
circumstances. The parties hereby expressly waive punitive damages, and
under no circumstances shall an award contain any amounts that are in
any way punitive in nature.
(c) Judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.
20
<PAGE>
(d) It is intended that controversies or claims submitted to
arbitration under this Section 10 shall remain confidential, and to
that end it is agreed by the parties that neither the facts disclosed
in the arbitration, the issues arbitrated, nor the view or opinions of
any persons concerning them, shall be disclosed to third persons at any
time, except to the extent necessary to enforce an award or judgment or
as required by law or in response to legal process or in connection
with such arbitration.
11. Successors and Assigns.
-----------------------
11.1 ASSIGNMENT BY THE COMPANY AND HOLDINGS. This Agreement
shall inure to the benefit of and shall be binding upon the successors and
assigns of the Company and Holdings, respectively. It is assignable by Company
and Holdings to the purchaser or assignee of all or substantially all of the
Company's or Holdings' assets.
11.2 ASSIGNMENT BY TARANTO. Taranto may not assign this
Agreement or any part thereof; provided, however, that nothing herein
shall preclude one or more beneficiaries of Taranto from receiving any
amount that may be payable following occurrence of his legal
incompetency or his death and shall not preclude the legal representative
of his estate from receiving such amount or from assigning any
21
<PAGE>
right hereunder to the person or persons entitled thereto under his will
or, in the case of intestacy, to the person or persons entitled thereto under
the laws of the intestacy applicable to his estate.
12. Governing Law.
--------------
This Agreement shall be deemed a contract made under, and for
all purposes shall be construed in accordance with, the laws of the State of New
Jersey without reference to the principles of conflict of laws.
13. Entire Agreement.
-----------------
This Agreement contains all the understandings and
representations between the parties hereto pertaining to the subject matter
hereof and supersedes all undertakings and agreements, whether oral or in
writing, if any there be, previously entered into by them with respect thereto.
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 the Company. Except as
otherwise specifically provided in this Agreement, no waiver by either
party hereto of any breach by the other party of any condition
or provision of the Agreement to be performed by such other
22
<PAGE>
party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or any prior or subsequent time.
15. Notices.
--------
Any notice to be given hereunder shall be in writing and
delivered personally or sent by overnight mail, such as Federal Express,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:
If to Company or Holdings:
EVEREST REINSURANCE HOLDINGS, INC.
Westgate Corporate Center
477 Martinsville Road
P.O. Box 830
Liberty Corner, New Jersey 07938-0830
Attention: General Counsel
If to Taranto:
160 Henry Street
Brooklyn, New York 11201
16. Severability.
-------------
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions or portions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
23
<PAGE>
17. Withholding.
------------
Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Taranto or his beneficiaries,
including his estate, shall be subject to withholding and deductions as the
Company may reasonably determine it should withhold or deduct pursuant to any
applicable law or regulation. In lieu of withholding or deducting, such amounts
in whole or in part, the Company may, in its sole discretion, accept other
provision for payment as permitted by law, provided it is satisfied in its sole
discretion that all requirements of law affecting its responsibilities to
withhold such taxes have been satisfied.
18. Survivorship.
-------------
The respective rights and obligations of the parties hereunder
shall survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
19. Headings.
---------
Headings of the sections of this Agreement are intended solely
for convenience and no provision of this Agreement is to be construed by
reference to the title of any section.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the dates set forth below.
EVEREST REINSURANCE HOLDINGS, INC.
_____________________ By____________________________
Joseph V. Taranto
Dated: July 15, 1998 Dated: July 15, 1998
EVEREST REINSURANCE COMPANY
By____________________________
Dated: July 15, 1998
25
<PAGE>
Exhibit 10.22
CHANGE OF CONTROL AGREEMENT
---------------------------
This Agreement between and among EVEREST REINSURANCE COMPANY
("Company") and EVEREST REINSURANCE HOLDINGS, INC. ("Holdings") and Joseph V.
Taranto ("Taranto") ("Agreement") is effective as of July 15, 1998.
WHEREAS, the Board of Directors of the Company (the "Board") and
Holdings ("Holdings Board") have determined it to be in the best interests of
the Company, Holdings and their respective shareholders to enter into an
agreement with Taranto that will provide Taranto with certain benefits in the
event that there is a change in control of the Company or Holdings; and
WHEREAS, Taranto is willing to enter into an agreement that will
provide him with certain benefits in the event there is a change in control of
the Company or Holdings;
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Change of Control
-----------------
<PAGE>
A. If within one year of a Material Change (as defined herein) Taranto
terminates his employment with the Company for any reason or the Company
terminates Taranto's employment for any reason other than for Due Cause (as
defined herein): (a) all of Taranto's outstanding stock options granted under
Holdings' stock option plans shall vest immediately, be automatically
exercisable and remain exercisable for three months following the termination of
his employment, notwithstanding any provision to the contrary in the applicable
award agreement(s) between Taranto and Holdings; (b)Taranto shall receive within
sixty (60) days of the termination of his employment with the Company a lump sum
payment (the "Cash Payment") equal to the lesser of (i) 2.99 multiplied by
Taranto's annual compensation for the most recent taxable year ending prior to
the date of the Material Change less the value of Taranto's gross income in the
most recent taxable year ending prior to the date of a Material Change
attributable to Taranto's exercise of stock options, stock appreciation rights
and other stock-based awards granted to Taranto by Holdings (or its
predecessor), and (ii) 2.99 multiplied by Taranto's "annualized includible
compensation for the base period" as that phrase is defined in Section 28OG(d)
of the Internal Revenue Code of 1986, as amended ("Code"); (c) Taranto shall
continue to be covered under the Company's medical and dental insurance plans
for a period of three years from the date of termination to the same extent and
under the same terms and conditions as active employees of the Company; and (d)
Taranto shall receive "Special Retirement Benefits" as provided herein.
2
<PAGE>
B. In the event that the value of benefits Taranto receives pursuant to
this Agreement causes Taranto to receive a "Parachute Payment" within the
meaning of Section 280G of the Code, the Company shall provide Taranto with
written notice that his receipt of benefits hereunder would result in Taranto
receiving a Parachute Payment. Upon receipt of such notice, Taranto shall,
within ten (10) days, advise the Company in writing of the specific benefits he
elects to have reduced by an amount necessary to reduce the value of such
benefits to an amount that is one dollar less than the amount that would cause
the value of the benefits to constitute a "Parachute Payment", and the benefits
shall be reduced accordingly. If the Company does not receive notice from
Taranto within this ten (10) day period, the Company shall automatically reduce
the Cash Payment portion of the benefits provided hereunder.
3
<PAGE>
C. For purposes of this Agreement, a Material Change means the
occurrence of any of the following events:
(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 or
Holdings, and such offer is consummated for the ownership of securities of the
Company or Holdings representing twenty-five percent (25%) or more of the
combined voting power of the Company's or Holdings' then outstanding voting
securities.
(ii) The Company or Holdings 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 or Holdings other than affiliates within the meaning
of the Securities Exchange Act of 1934 ("Exchange Act").
(iii) The Company or Holdings transfers substantially all of
its assets to another corporation or entity that is not a wholly owned
subsidiary of the Company or Holdings.
(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 or Holdings representing twenty-five
4
<PAGE>
percent (25%) or more of the combined voting power of the Company's or Holdings'
then outstanding securities, and the effect of such ownership is to take over
and control the affairs of the Company or Holdings.
(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 or the Holdings Board immediately
before this transaction, cease to constitute at least a majority thereof.
D. For purposes of this Agreement, Special Retirement Benefits means
the additional retirement benefits necessary (if any) so that the total
retirement benefits Taranto receives will equal the retirement benefits he would
have received had he continued in the employ of the Company for three years
following his termination (or until his normal retirement date, whichever is
earlier). Special Retirement Benefits will include all ancillary benefits, such
as early retirement and survivor rights and benefits available at retirement, as
well as benefits (if any) under the Everest Reinsurance Retirement Plan and any
supplemental retirement plans adopted by the Company, or any successor or
substitute plan or plans ("the Plans"). If Taranto's credited service with the
Company plus three (3) years would result in vested benefits and/or eligibility
for ancillary benefits or additional benefits under the Plans, the amount
payable to Taranto or his beneficiaries shall equal the excess of the amount
specified in paragraph (i) over that in paragraph (ii) below:
5
<PAGE>
(i) the total retirement benefits that would be paid to
Taranto or his beneficiaries, if the three (3) years (or the period to his
normal retirement date, if less) following his termination are added to his
credited service under the Plans and his final average compensation is the same
as his actual average compensation, including the Cash Payment as compensation
for services rendered to the Company in the year of his termination;
(ii) the total retirement benefits payable to Taranto or his
beneficiaries under the Plans.
All Special Retirement Benefits are provided on an unfunded basis and
are not intended to meet the qualification requirements of Section 401 of the
Code. All Special Retirement Benefits shall be payable solely from the general
assets of the Company and shall be paid at the same times as retirement benefits
under the Plans are payable, in accordance with the payment terms of such Plans.
E. For purposes of this Agreement, Due Cause means (a) repeated and
gross negligence in fulfillment of, or repeated failure of Taranto to fulfill
his material obligations as an employee of the Company, in either event
after written notice thereof; (b) material willful misconduct by Taranto
in respect of his obligations as an employee of the Company; (c)
conviction of any felony or any crime of moral turpitude by Taranto;
or (d) a material breach in trust committed in willful or
6
<PAGE>
reckless disregard of the interests of the Company or Holdings or undertaken
for personal gain by Taranto.
2. Special Reimbursement
---------------------
In the event that Taranto's employment terminates after a Material
Change and he is assessed a tax pursuant to Section 4999 of the Code (the
"Parachute Tax"), the Company shall immediately pay Taranto that additional
amount of money (the "Gross-Up Payment") which will put Taranto in the same net
after tax position had no Parachute Tax been incurred. The Gross-Up Payment
shall be sufficient in amount to cover any income or excise tax on the Gross-Up
Payment itself. In the event that the Parachute Tax is ultimately determined to
exceed the amount taken into account in computing the Gross-Up Payment at the
time of the termination of Taranto's employment (including by reason of any
payment the existence or amount of which could not be determined at the time of
the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess at the time that the amount of such excess is finally
determined. Taranto and the Company shall each reasonably cooperate with the
other in connection with any administrative or judicial proceedings concerning
the existence or amount of any such subsequent liability for the Parachute Tax.
3. General
-------
7
<PAGE>
A. The Company's and Holdings' obligations 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 setoff, counterclaim, recoupment, defense or other right which
the Company or Holdings may have against him 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. All amounts
payable and benefits provided by the Company and Holdings hereunder shall be
paid or provided without notice or demand. Each and every payment made hereunder
by the Company and Holdings shall be final and the Company and Holdings will not
seek to recover all or any part of any such payment from Taranto or from whoever
may be entitled thereto, for any reason whatsoever.
B. This Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Company and Holdings, respectively. This
Agreement shall inure to the benefit of and shall be binding upon Taranto and
his estate, but neither this Agreement nor any rights arising hereunder may be
assigned by Taranto.
C. In the event that any provision or portion of
this Agreement shall shall be determined to be invalid
or unenforceable for any reason, the remaining provisions
8
<PAGE>
or portions of this Agreement shall be unaffected thereby and shall remain in
full force and effect to the fullest extent permitted by law.
D. Anything to the contrary notwithstanding, all payments required to
be made by the Company and Holdings hereunder to Taranto or his beneficiaries,
including his estate, shall be subject to withholding and deductions as the
Company and Holdings may reasonable determine should be withheld or deducted
pursuant to any applicable law or regulations.
E. This Agreement shall in all respects be governed by and construed in
accordance with the laws of the State of New Jersey.
F. This Agreement shall terminate on the earliest of: (i) one year
following a Material Change; (ii) termination by Taranto of his employment with
the Company under circumstances not following a Material Change; (iii)
the Company's termination of Taranto's employment for Due Cause; or (iv)
December 31, 2001, or any date thereafter, provided that sixty days prior
written notice of termination of this Agreement is given to Taranto by
the Company and Holdings, and further provided that such written notice
of termination shall not be effective during any period of time when
the Board or Holdings' Board is aware of any circumstance which could
reasonably be expected to result in a Material Change. Termination
of this Agreement shall not relieve the Company and Holdings from
9
<PAGE>
their respective obligations to Taranto under this Agreement relating to a
Material Change which occurs prior to such termination.
G. In the event Taranto institutes litigation to obtain or enforce any
right or benefit to which he is entitled under this Agreement, the Company and
Holdings agree to pay as incurred all legal fees and expenses reasonably
incurred by Taranto; provided, however, that Taranto agrees to repay all legal
fees and expenses paid to him by the Company and Holdings in the event that it
is determined by a judgment of a court of competent jurisdiction that the
Company has established that, under all the facts and circumstances, there was
no reasonable basis for Taranto's litigation. The Company and Holdings agree to
pay as incurred, to the fullest extent permitted by law, all legal fees and
expenses which Taranto may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, Holdings or third parties of
the validity or enforceability of, or liability under, any provision of this
Agreement. In addition, the Company and Holdings agree to pay pre-judgment
interest on any money judgment obtained by Taranto and to pay interest on any
delayed payment calculated at the prime rate of interest as published in the
Wall Street Journal in effect from time to time, from the date that payment to
him should have been made in accordance with the provisions of this Agreement.
10
<PAGE>
H. Any notice to be given under this Agreement shall be in writing and
delivered personally or sent by over-night mail (such as Federal Express),
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently provide in writing:
If to the Company or Holdings: Everest Reinsurance Company
477 Martinsville Road
P.O. Box 830
Liberty Corner, NJ 07938-0830
(908) 604-3170
Attn: General Counsel
If to Taranto: 160 Henry Street
Brooklyn, New York 11201
I. Nothing contained herein shall give Taranto any right to any
employee benefit upon termination of employment with the Company, except as
specifically provided herein, required by law or provided by the terms of
another employee benefit plan document relating to the treatment of former
employees generally. Pursuant to the terms of the Everest Reinsurance Company
Severance Plan for United States Employees Taranto shall not be eligible for
benefits under such Severance Plan.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the dates set forth below.
EVEREST REINSURANCE HOLDINGS, INC.
______________________ By:___________________________
Joseph V. Taranto
Dated: Dated:
11
<PAGE>
EVEREST REINSURANCE COMPANY
By:___________________________
Dated:
12
<PAGE>
EXHIBIT 10.23
FIRST UNION NATIONAL BANK
NC0735
Capital Markets Group
301 South College Street
Charlotte, North Carolina 28288-0735
May 20, 1998
Everest Reinsurance Company
477 Martinsville Road
P.O. Box 830
Liberty Comer, New Jersey 07938-0830
Attention: Stephen Limauro, Vice President and Comptroller
Re: Request for Extension of Maturity Date
Dear Steve:
Pursuant to that certain Credit Agreement between Everest Reinsurance Holdings,
Inc. ("Everest") and First Union National Bank ("Bank") dated as of June 16,
1997 (the "Credit Agreement"), the Bank extends Everest a $50,000,000.00
Revolving Credit Facility which matures on the Maturity Date (as defined in the
Credit Agreement), i.e., June 15, 1998. Pursuant to Section 2.16 of the
Agreement, Everest has requested that the Bank extend the initial Maturity Date
by 364 calendar days to June 12, 1999. The Bank is willing to extend the
Maturity Date to June 14, 1999, provided, however, that Everest and the Bank
agree to the following:
1. All of the terms and conditions of the Credit Agreement remain in
full force and effect without amendment except that the Maturity Date
as extended is now June 12, 1999;
2. Everest certifies (a) that each of the representations and
warranties of Everest contained in ARTICLE IV of the Credit Agreement
and in the other Credit Documents are true and correct, on the date
hereof with the same effect, as though made on and as of such date
(except where such representation or warranty speaks as of specified
date) and (b) that no default or Event of Default has occurred and is
continuing on the date hereof, and
3. In the event, pursuant to Section 2.16, Everest requests a further
extension of the Maturity Date, the Bank shall, in addition to all
other conditions which the Credit Agreement may provide, condition such
extension upon Everest Re (as defined in the Credit Agreement)
maintaining for the period requested a larger Statutory Surplus (as
defined in the Credit Agreement), and shall require that the Credit
Agreement's Section 6.2 be amended accordingly. Presently the Bank is
considering a Statutory Surplus which would be the greater of
$575,000,000 or seventy-five (75%) percent of the Statutory Surplus
shown on Everest Re's latest Annual Statement (as defined in the Credit
Agreement) available for consideration at the time the Maturity Date is
requested to be extended.
<PAGE>
Please indicate Everest's acknowledgment of and agreement herewith by executing
and dating the enclosed copy of this letter as indicated below and returning it
to me not later than June 30, 1998.
Sincerely,
FIRST UNION NATIONAL BANK
By: /S/ GAIL GOLIGHTLY
------------------
Gail Golightly
Senior Vice President
Acknowledged and Agreed this 27TH day of MAY, 1998
EVEREST REINSURANCE HOLDINGS, INC.
By:/S/ STEPHEN L. LIMAURO
----------------------
Stephen L. Limauro
Vice President and Comptroller
<PAGE>
Exhibit 11.1
EVEREST REINSURANCE HOLDINGS, INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income (Numerator) $ 43,544 $ 44,338 $ 83,345 $ 78,802
============ ============ ============ ============
Weighted average common
and effect of dilutive
shares used in the
computation of net
income per share:
Average shares
outstanding - basic
(denominator) 50,479,901 50,469,367 50,480,627 50,479,879
Effect of dilutive
shares:
Options outstanding 310,130 267,545 313,928 249,480
Options exercised 27 330 283 495
Options cancelled 9,210 1,138 4,605 1,284
------------ ------------ ------------ ------------
Average share
outstanding - diluted
(denominator) 50,799,268 50,738,380 50,799,443 50,731,138
Net Income per common share:
Basic $ 0.86 $ 0.88 $ 1.65 $ 1.56
Diluted 0.86 0.87 1.64 1.55
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 4,013,446
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 177,418
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,295,118
<CASH> 48,343
<RECOVER-REINSURE> 670,601
<DEFERRED-ACQUISITION> 78,422
<TOTAL-ASSETS> 5,732,410
<POLICY-LOSSES> 3,486,060
<UNEARNED-PREMIUMS> 329,643
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 508
<OTHER-SE> 1,398,883
<TOTAL-LIABILITY-AND-EQUITY> 5,732,410
506,062
<INVESTMENT-INCOME> 122,538
<INVESTMENT-GAINS> 2,506
<OTHER-INCOME> 2,195
<BENEFITS> 374,144
<UNDERWRITING-AMORTIZATION> 3,753
<UNDERWRITING-OTHER> 146,369
<INCOME-PRETAX> 109,035
<INCOME-TAX> 25,690
<INCOME-CONTINUING> 83,345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,345
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.64
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
