<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration No. 333-87363
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this preliminary prospectus is not complete and may be +
+ changed. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated February 25, 2000.
Prospectus Supplement to Prospectus dated January 12, 2000.
$450,000,000
Everest Reinsurance Holdings, Inc.
% Senior Notes due
-----------
Everest Holdings will pay interest on the notes on and
of each year. The first such payment on the notes will be made on ,
2000. The notes will be issued only in denominations of $1,000 and integral
multiples of $1,000.
Everest Holdings has the option to redeem all or a part of the notes at any
time at the redemption prices set forth in this prospectus supplement.
Everest Holdings will apply to list the notes on the New York Stock Exchange.
See "Risk Factors" beginning on page S-5 to read about factors you should
consider before buying the notes.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Note Total
-------- -----
<S> <C> <C>
Initial public offering price............................. % $
Underwriting discount..................................... % $
Proceeds, before expenses, to Everest Holdings............ % $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the notes will accrue from , 2000 and must
be paid by the purchaser if the notes are delivered after , 2000.
-----------
The underwriters expect to deliver the notes in book-entry form only through
the facilities of The Depository Trust Company against payment in New York, New
York on , 2000.
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette
First Union Securities, Inc.
-----------
Prospectus Supplement dated , 2000.
<PAGE>
EVEREST HOLDINGS
Business Operations
We underwrite property and casualty reinsurance on a treaty and facultative
basis for reinsurance and insurance companies in the United States and selected
international markets through our subsidiary, Everest Reinsurance Company,
referred to in this document as Everest Re. Reinsurance is a form of insurance
purchased by an insurance company to indemnify it for all or part of the loss
that it may sustain under insurance contracts that it has written. Insurance
companies purchasing reinsurance are often referred to as ceding companies or
reinsureds. Underwriting reinsurance on a treaty basis means that Everest Re
reinsures one or more insurance companies pursuant to an agreement called a
treaty, which sets forth the terms and conditions of the reinsurance. Treaties
generally automatically reinsure a specific line or class of business.
Underwriting reinsurance on a facultative basis means that Everest Re reinsures
one specific policy as opposed to the reinsurance of a specific line or class
of business.
Everest Re writes reinsurance both through brokers and directly with ceding
companies, giving it the flexibility to pursue business regardless of the
ceding company's preferred reinsurance purchasing method. Everest Re and its
subsidiaries also write primary property and casualty insurance. Primary
insurance is purchased by insureds to pay amounts to them for economic losses
sustained from unexpected events. Based on industry data at December 31, 1998
published by the Reinsurance Association of America, Everest Re is the sixth
largest reinsurance company in the United States, ranked by statutory surplus.
Statutory surplus is the amount by which the assets of an insurer exceed the
insurer's liabilities, including the amounts required by law to be established
as reserves for the insurer's insurance obligations.
Our principal executive offices are located at 477 Martinsville Road, P.O.
Box 830, Liberty Corner, New Jersey 07938-0830, and our telephone number is
(908) 604-3000.
The Restructuring
On February 23, 2000, our stockholders approved a plan to restructure
Everest Reinsurance Holdings, Inc., referred to in this document as Everest
Holdings, and its subsidiaries as follows:
. Everest Re Group, Ltd., a company organized in Bermuda and with its
principal executive offices in Barbados and referred to in this
document as Everest Group, became the new publicly-owned parent
corporation of Everest Holdings.
. Each outstanding share of common stock of Everest Holdings
automatically converted into one common share of Everest Group.
. Everest Holdings, as a subsidiary of Everest Group, will continue to
act as the holding company for the subsidiaries of Everest Holdings in
the United States and Canada.
. Everest Group will also be the holding corporation for a new Bermuda-
based reinsurance subsidiary, Everest Reinsurance (Bermuda), Ltd.,
referred to in this document as Everest Bermuda.
The restructuring was effective on February 24, 2000. Everest Group expects
that Everest Bermuda will commence operations later this year. Prior to the
restructuring, Everest Group had no significant assets or capitalization and
had not engaged in any business or activities other than in connection with the
restructuring. In connection with the restructuring, Everest Group also intends
to form a new Delaware subsidiary, Everest Global Services, Inc., to perform
administrative functions for Everest Group and its insurance subsidiaries.
S-1
<PAGE>
RECENT DEVELOPMENTS
Recent Financial Results
On February 14, 2000, Everest Holdings announced 1999 fourth quarter after-
tax operating income, excluding realized capital gains and losses and $2.8
million, or $0.03 per share, in non-recurring restructuring charges in the
quarter, of $41.1 million, or $0.87 per diluted share. This was an increase of
3.6% in earnings per share compared to $42.5 million, or $0.84 per diluted
share, in 1998. Including the restructuring charges, fourth quarter after-tax
operating income was $39.3 million, or $0.84 per diluted share. Net income for
the quarter was $39.5 million, or $0.84 per diluted share, a 6.3% increase on a
per share basis compared to $39.7 million, or $0.79 per diluted share, in 1998.
For the year ended December 31, 1999, Everest Holdings' after-tax operating
income excluding the restructuring charges was $170.8 million, or $3.51 per
diluted share, a 7.3% increase in earnings per share compared to $165.7
million, or $3.27 per diluted share, for 1998. Including the restructuring
charges, after-tax operating income for 1999 was $169.0 million, or $3.47 per
diluted share. Net income for the year ended December 31, 1999 was $158.1
million, or $3.25 per diluted share, a 0.3% decrease on a per share basis
compared to $165.2 million, or $3.26 per diluted share, in 1998.
Gross premiums written for the fourth quarter were $305.2 million in 1999,
a 20.6% increase compared to $253 million in 1998. Everest Holdings' GAAP
combined ratio was 104.6% for the fourth quarter compared to 102.6% in 1998.
Net investment income for the fourth quarter was $64.1 million, a 3.9% increase
compared to $61.7 million in 1998. Cash flow from operations was $74.4 million
for the quarter, compared to negative $4.6 million in 1998.
For the year ended December 31, 1999, gross premiums written were $1,141.8
million, a 9.2% increase compared to $1,045.9 million in 1998. The GAAP
combined ratio for 1999 was 103.5%, compared to 103.2% for 1998. Net investment
income for the year ended December 31, 1999 was $253 million, a 3.3% increase
compared to $244.9 million in 1998. Cash flow from operations was $203.4
million for 1999.
Included in the fourth quarter and full-year figures is an estimated net
pre-tax loss of $19.5 million relating to the severe winter storms in Europe
that occurred in late December.
During the fourth quarter, Everest Holdings repurchased 1,699,200 shares of
stock at an average price of $23.95. As of December 31, 1999, 2,830,100 shares
remained in the current repurchase authorization.
At December 31, 1999, Everest Holdings' stockholders' equity was $1,327.5
million, or a book value of $28.57 per share, a decrease from $1,479.2 million
or $29.59 per share at year-end 1998. The statutory surplus of Everest
Holdings' subsidiaries was $1,147.6 million at December 31, 1999, an increase
of 8.3% from the surplus of $1,059.4 million at year-end 1998.
Set forth below are supplemental GAAP balance sheet information and GAAP
operating highlights of Everest Holdings as of and for the periods indicated:
S-2
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
SUPPLEMENTAL GAAP BALANCE SHEET INFORMATION
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
As of December 31,
----------------------
1999 1998
----------- ----------
(unaudited)
<S> <C> <C>
Balance Sheet Highlights
Cash and invested assets................................ $4,139,238 $4,325,757
Total assets............................................ 5,704,302 5,996,728
Reserves for losses and loss adjustment expenses
(gross)................................................ 3,646,992 3,800,041
Revolving credit agreement borrowings................... 59,000 --
Stockholders' equity.................................... 1,327,482 1,479,204
Book value per share (shares outstanding)............... 28.57 29.59
Everest Re Statutory Surplus............................ $1,147,579 $1,059,429
</TABLE>
EVEREST REINSURANCE HOLDINGS, INC.
GAAP OPERATING HIGHLIGHTS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended December Year Ended
31, December 31,
------------------ ----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Production Information
Gross premiums written............. $305,205 $253,019 $1,141,819 $1,045,890
Net premiums written............... 291,276 260,321 1,095,569 1,016,599
After Tax Earnings
Net income(1)...................... 39,545 39,726 158,061 165,197
Per basic share.................. 0.84 0.79 3.26 3.28
Per diluted share................ 0.84 0.79 3.25 3.26
Cash Flow Information
Cash flow provided by operations... 74,433 (4,565) 203,436 183,317
Key Ratios
Loss ratio......................... 73.3% 72.2% 72.0% 72.9%
Commission and brokerage ratio..... 25.9 25.9 26.7 25.7
Other underwriting expense ratio... 5.4 4.5 4.8 4.6
-------- -------- ---------- ----------
Combined ratio..................... 104.6% 102.6% 103.5% 103.2%
======== ======== ========== ==========
- --------
(1)Supplemental information:
<CAPTION>
Three Months
Ended Year Ended
December 31, December 31,
------------------ ----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Operating income, excluding
realized capital gains (losses)
and non-recurring expenses........ $ 41,118 $ 42,495 $ 170,774 $ 165,695
Per basic share.................. 0.88 0.85 3.52 3.29
Per diluted share................ 0.87 0.84 3.51 3.27
</TABLE>
S-3
<PAGE>
Acquisition of Gibraltar
On February 24, 2000, Everest Holdings announced an agreement with The
Prudential Insurance Company of America to acquire all of the issued and
outstanding shares of Gibraltar Casualty Company for approximately $52 million.
Gibraltar, one of the largest run-off property-casualty insurers in the United
States, has a long relationship with Everest Holdings and Everest Re.
Gibraltar was formed in 1978 by Everest Re while Everest Re was a
subsidiary of The Prudential. Gibraltar wrote direct insurance until 1985, when
it was placed in run-off. In 1991, Gibraltar became a subsidiary of The
Prudential. Under a series of transactions commencing in 1986, Gibraltar
reinsured several components of Everest Re's business. In connection with our
initial public offering in 1995, Gibraltar provided stop loss protection of
Everest Re's reserves with a $375 million limit of which approximately $90
million remains available from Gibraltar. The stop loss and other reinsurance
contracts between Gibraltar and Everest Re will remain in effect following the
acquisition.
Gibraltar's insurance reserves have been strengthened by more than $200
million, before adjustment for paid losses, over the past 18 months. As of
December 31, 1999, Gibraltar had insurance reserves of approximately $525
million. With performing assets and accrued income of approximately $499
million and total assets of approximately $697 million supporting its reserves,
Gibraltar had stockholders' equity of approximately $49 million at December 31,
1999.
In connection with the acquisition, The Prudential will provide at closing
reinsurance to Gibraltar covering 80% of the first $200 million of any adverse
development in Gibraltar's reserves.
Closing of the acquisition is subject to the satisfaction of customary
closing conditions and the receipt of regulatory approvals. We expect the
closing to occur in the second quarter of 2000.
S-4
<PAGE>
RISK FACTORS
An investment in the notes involves a high degree of risk. You should
carefully consider the following factors, in addition to the other information
set forth in this prospectus supplement and accompanying prospectus, before you
purchase any notes.
We may not be able to fully realize the potential benefits from our
restructuring.
We recently completed a restructuring whereby we became a wholly-owned
subsidiary of a new Bermuda holding company with its principal offices in
Barbados. We anticipate that several potential benefits will result from the
restructuring. However, these potential benefits are not guaranteed. The new
holding company, Everest Group, may not realize benefits from the Bermuda and
Barbados business, regulatory and tax environments. As a result, Everest Group
may not experience any competitive advantages or enhanced returns for
shareholders from the restructuring. In addition, we currently estimate that
the process of restructuring will result in expenses of approximately $4
million, of which $1.7 million was incurred in 1999. These expenses will be
incurred regardless of whether Everest Group is able to realize any benefits
from the restructuring.
Decreases in rates for property and casualty reinsurance and insurance could
reduce our net income.
We write property and casualty reinsurance and insurance. The property and
casualty industry historically has been highly cyclical. Rates for property and
casualty reinsurance and insurance are influenced primarily by factors that are
outside of our control. Any significant decrease in the rates for property and
casualty insurance or reinsurance could reduce our net income.
Unpredictable catastrophic events could reduce our net income.
We write reinsurance and insurance policies that cover catastrophic events.
Unpredictable natural and other disasters, such as hurricanes, windstorms,
earthquakes, floods, fires and explosions could reduce our net income.
Our loss reserves may be inadequate to cover our ultimate liability for losses.
We are required to maintain adequate monetary reserves to cover our
estimated ultimate liabilities for losses and loss adjustment expenses,
referred to in this prospectus supplement as LAE. These reserves are only
estimates of what we think the settlement and administration of claims will
cost based on facts and circumstances then known to us. Because of the
uncertainties that surround estimating loss reserves, we cannot be certain that
our reserves are adequate. If our reserves are insufficient to cover our actual
losses and LAE, we would have to augment our reserves and incur a charge to our
earnings. These charges could be material. The difficulty in estimating our
reserves is increased because our loss reserves include reserves for potential
asbestos and environmental liabilities. Asbestos and environmental liabilities
are especially hard to estimate for many reasons, including the long waiting
periods between exposure and manifestation of any bodily injury or property
damage, difficulty in identifying the source of the asbestos or environmental
contamination, long reporting delays and difficulty in properly allocating
liability for the asbestos or environmental damage.
The property and casualty reinsurance and insurance industry is highly
competitive and we may not be able to compete effectively in the future.
The property and casualty reinsurance and insurance industry is highly
competitive and has experienced severe price competition over the last several
years. We compete in the United States and international markets with numerous
international and domestic reinsurance and insurance
S-5
<PAGE>
companies. Some of these competitors have greater financial resources than we
do, have been operating for longer than we have and have established long-term
and continuing business relationships throughout the industry, which can be a
significant competitive advantage. In addition, we expect to face further
competition in the future. We may not be able to compete effectively in the
future.
We may not be able to successfully alleviate risk through retrocessional
arrangements.
We attempt to limit our risk of loss through retrocessional arrangements.
The availability and cost of retrocessional protection is subject to market
conditions, which are outside of our control. As a result, we may not be able
to successfully alleviate risk through retrocessional arrangements. In
addition, we are subject to credit risk with respect to our retrocessions
because the ceding of risk to retrocessionaires does not relieve us of our
liability to the ceding companies. We have not experienced any difficulties in
collecting material reinsurance receivables from our retrocessionaires.
However, we may experience difficulties in the future in recovering material
reinsurance receivables under our retrocessional arrangements if one or more of
our retrocessionaires suffer financial deterioration.
We may not maintain a favorable financial strength rating.
We presently hold an A+ financial strength rating from A.M. Best Company,
an AA- financial strength rating from Standard & Poor's and a financial
strength rating of A1 from Moody's Investors Service, Inc. Financial strength
ratings are used by insurers and reinsurance and insurance intermediaries as an
important means of assessing the financial strength and quality of reinsurers.
In addition, the rating of a company purchasing reinsurance may be adversely
affected by an unfavorable rating or the lack of a rating of its reinsurer. We
may not maintain our favorable financial strength ratings from the rating
agencies. A downgrade or withdrawal of any rating could severely limit or
prevent us from writing any new reinsurance or insurance policies.
Our business depends on key employees.
We are substantially dependent on a small number of key executive officers.
Our success has been, and will continue to be, dependent on our ability to
retain the services of our existing key executive officers and to attract and
retain additional qualified personnel in the future. The loss of the services
of any of our key executive officers or the inability to identify, hire and
retain other highly qualified personnel in the future could adversely affect
our ability to conduct business.
Our inability to accurately assess underwriting risk could reduce our net
income.
Our success is dependent on our ability to accurately assess the risks
associated with the businesses that we reinsure or insure. If we fail to
accurately assess the risks we assume, we may fail to establish appropriate
premium rates and our reserves may be inadequate to cover our losses, which
could reduce our net income.
Our investment objectives may not be realized.
The success of our investment objectives is affected by general economic
conditions that are outside of our control. General economic conditions can
adversely affect the markets for interest-rate-sensitive securities, including
the extent and timing of investor participation in such markets, the level and
volatility of interest rates and, consequently, the value of fixed income
securities. We may not be able to realize our investment objectives, which
could reduce our net income.
S-6
<PAGE>
Regulation may restrict our ability to operate.
The reinsurance and insurance industries are subject to extensive
regulation under federal, state and foreign laws. These laws limit the amount
of dividends that can be paid by Everest Re, impose restrictions on the amount
and type of investments that Everest Re may hold, prescribe solvency standards
that must be met and maintained and require Everest Re to maintain reserves. In
addition, state insurance holding company statutes generally require prior
notice or approval of changes of control of an insurer or its holding company.
We may experience exchange losses if we don't manage our foreign currency
exposure properly.
Our functional currency is the United States dollar. However, we write a
portion of our business and receive a portion of our premiums in currencies
other than United States dollars. We also maintain a portion of our investment
portfolio in investments denominated in currencies other than United States
dollars. Consequently, we may experience exchange losses if our foreign
currency exposure is not properly managed or otherwise hedged. If we seek to
hedge our foreign currency exposure by using forward foreign currency exchange
contracts or currency swaps, we will be subject to the risk that the counter
parties to such arrangements will fail to perform.
Our holding company structure could prevent us from making payments on the
notes.
We are a holding company that has no significant operations or assets other
than our ownership of the capital stock of Everest Re. Dividends and other
permitted payments from Everest Re are expected to be our sole source of funds
to meet our financial obligations and to make payments on the notes in the
future. The payment of dividends by Everest Re to us is limited by the Delaware
Insurance Code and the Delaware General Corporation Law. Accordingly, Everest
Re may not be able to pay dividends to us in the future, which would prevent us
from making payments on the notes.
The notes are unsecured obligations.
The notes are unsecured and subordinated to any of our existing and future
secured indebtedness to the extent of the security and rank equal in priority
with all of our other unsecured and unsubordinated indebtedness. Accordingly,
in the event of our bankruptcy, liquidation or any similar proceeding, holders
of the notes will be entitled to payment only after the holders of any of our
secured indebtedness have been paid. As of December 31, 1999, we had no secured
indebtedness and approximately $59 million of senior indebtedness outstanding,
which ranks equal in priority with the notes. In addition, the senior indenture
under which the notes will be issued permits us to incur additional secured
indebtedness.
The notes are effectively subordinated to all liabilities of our subsidiaries.
The notes are effectively subordinated to all existing and future
indebtedness and other liabilities of our subsidiaries. Accordingly, in the
event of our bankruptcy, liquidation or any similar proceeding, holders of the
notes will be entitled to payment only after the holders of any indebtedness
and other liabilities of our subsidiaries have been paid. As of December 31,
1999, the total liabilities of our subsidiaries were approximately $4.3
billion, including insurance reserves. In addition, the senior indenture
permits our subsidiaries to incur additional indebtedness.
There is no prior trading market for the notes.
There is no prior trading market for the notes. An active trading market
for the notes may not develop or be sustained following the offering. In
addition, the notes may trade at a discount from the initial public offering
price of the notes following their original issuance.
S-7
<PAGE>
USE OF PROCEEDS
The net proceeds will be approximately $450,000,000 from the sale of the
notes, less expenses incurred by us in connection with this offering. Everest
Holdings will retain approximately $50,000,000 of the net proceeds for general
corporate purposes, including for the payment of a portion of the amount
outstanding under its credit facility. Approximately $400,000,000 of the net
proceeds will be distributed by Everest Holdings to Everest Group and
approximately $250,000,000 will then be used by Everest Group to capitalize
Everest Bermuda. The remainder of the proceeds that will be distributed to
Everest Group will be used for general corporate purposes, including to
repurchase shares of Everest Group over time, for acquisitions consistent with
our business strategy, for the payment of shareholder dividends and for
additional capitalization of Everest Bermuda.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of our earnings to fixed charges
for each of the periods indicated:
<TABLE>
<CAPTION>
Period Ended Year Ended December 31,
September 30, ---------------------------
1999 1998 1997 1996 1995 1994
------------- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges..... 89.6 121.2 127.9 82.0 (1) (1)
</TABLE>
- --------
(1) Principally as a result of non-recurring charges, Everest Holdings had a
deficiency of earnings in 1995 and 1994 of $26,568,000 and $11,982,000,
respectively, to cover fixed charges.
S-8
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1999 (1) our actual
capitalization and (2) our capitalization as adjusted to give effect to the
sale of the notes. You should read this table together with our consolidated
financial statements, including the notes to the financial statements, which
are incorporated by reference in this prospectus supplement and the
accompanying prospectus.
<TABLE>
<CAPTION>
As of
September 30, 1999
----------------------
As
Actual Adjusted
---------- ----------
(dollars in
thousands, except
per share amounts)
(unaudited)
<S> <C> <C>
Debt
Short-term debt(1)................................... $ 35,000 $ 35,000
Notes offered hereby................................. -- 450,000
---------- ----------
Total debt......................................... 35,000 485,000
---------- ----------
Stockholders' equity
Common stock, par value $0.01; 200 million shares
authorized; 50.9 million shares issued.............. 509 509
Additional paid-in capital........................... 390,902 390,902
Unearned compensation................................ (131) (131)
Accumulated other comprehensive income, net of
deferred income taxes............................... 29,683 29,683
Retained earnings.................................... 1,038,195 1,038,195
Treasury stock....................................... (81,369) (81,369)
---------- ----------
Total stockholders' equity......................... 1,377,789 1,377,789
---------- ----------
Total capitalization................................... $1,412,789 $1,862,789
========== ==========
</TABLE>
- --------
(1) As of December 31, 1999, short-term debt was $59,000,000.
S-9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of
Everest Holdings in accordance with GAAP. The GAAP selected consolidated
financial data of Everest Holdings as of and for the years ended December 31,
1998, 1997, 1996, 1995 and 1994 are derived from the consolidated financial
statements of Everest Holdings, which were audited by PricewaterhouseCoopers
LLP (1998, 1997 and 1996) and by other independent auditors (1995 and 1994).
The GAAP selected consolidated financial data as of and for the nine months
ended September 30, 1999 and 1998 are derived from unaudited financial
statements of Everest Holdings, which, in the opinion of management, reflect
all adjustments, consisting only of normal recurring accruals, necessary for a
fair statement of the data. The results of operations for any interim period
may not be indicative of results of operations for the full year. The following
table also presents selected unconsolidated financial data from the statutory
financial statements filed by Everest Re with the Delaware Insurance Department
and prepared in accordance with statutory accounting principles, which are
referred to in this prospectus supplement as SAP and which differ from GAAP.
The statutory financial statements are unconsolidated and reflect the net
assets of Everest Re's insurance company subsidiaries on the equity method. You
should read the following financial data in conjunction with Everest Holdings'
consolidated financial statements and the accompanying notes, which are
incorporated by reference into this document.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------ ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data
Gross premiums written.. $ 836.6 $ 792.9 $1,045.9 $1,075.0 $1,044.0 $ 949.5 $ 953.2
Net premiums written.... 804.3 756.3 1,016.6 1,031.1 1,030.5 783.2 863.2
Net premiums earned..... 795.0 771.3 1,068.0 1,049.8 973.6 753.3 853.3
Net investment income... 188.9 183.2 244.9 228.5 191.9 166.0 143.6
Net realized capital
gains (losses) (1)..... (17.1) 3.5 (0.8) 15.9 5.7 33.8 (10.5)
Total revenue........ 966.3 960.7 1,315.2 1,299.2 1,169.3 948.9 982.8
-------- -------- -------- -------- -------- -------- --------
Losses and loss
adjustment expense
incurred (including
catastrophes).......... 568.9 564.0 778.4 765.4 716.0 674.7 720.8
Total catastrophe losses
(2).................... 25.3 17.1 30.6 8.6 7.1 31.4 81.9
Commission, brokerage,
taxes and fees......... 214.4 197.7 274.6 274.8 254.6 227.4 197.9
Other underwriting
expenses............... 36.1 36.2 49.6 51.7 54.9 60.0 68.3
Compensation related to
public offering........ -- -- -- -- -- 13.3 --
Restructuring and early
retirement costs....... -- -- -- -- -- -- 7.8
Total expenses (3)... 819.4 798.0 1,102.5 1,091.9 1,025.5 975.4 994.8
Income (loss) before
taxes (3).............. 146.9 162.7 212.7 207.3 143.8 (26.6) (12.0)
Income tax (benefit).... 28.4 37.2 47.5 52.3 31.8 (27.3) (22.6)
Net income (3).......... $ 118.5 $ 125.5 $ 165.2 $ 155.0 $ 112.0 $ 0.7 $ 10.7
======== ======== ======== ======== ======== ======== ========
Net income per basic
share (4).............. $ 2.42 $ 2.49 $ 3.28 $ 3.07 $ 2.22 $ 0.01 $ 0.21
======== ======== ======== ======== ======== ======== ========
Net income per diluted
share (5).............. $ 2.41 $ 2.47 $ 3.26 $ 3.05 $ 2.21 $ 0.01 $ 0.21
======== ======== ======== ======== ======== ======== ========
Dividends paid per
share.................. $ 0.18 $ 0.15 $ 0.20 $ 0.16 $ 0.12 $ 0.14 $ 0.15
======== ======== ======== ======== ======== ======== ========
Certain GAAP Financial
Ratios
Loss and LAE ratio (6).. 71.6% 73.1% 72.9% 72.9% 73.5% 89.6% 84.5%
Underwriting expense
ratio (7).............. 31.5 30.4 30.3 31.1 31.8 39.9 31.2
-------- -------- -------- -------- -------- -------- --------
Combined ratio.......... 103.1% 103.5% 103.2% 104.0% 105.3% 129.5% 115.7%
======== ======== ======== ======== ======== ======== ========
Certain SAP Data (8)
Ratio of net premiums
written to
surplus (9)............ 1.0x 1.0x 1.0x 1.4x 1.2x 1.0x 1.2x
Statutory surplus....... $1,128.1 $ 998.7 $1,059.4 $ 908.8 $ 772.7 $ 686.9 $ 600.7
Loss and LAE ratio (10). 71.3% 72.2% 72.2% 75.7% 71.2% 92.2% 85.8%
Underwriting expense
ratio (11)............. 31.5 30.4 31.1 25.6 31.7 38.9 32.6
-------- -------- -------- -------- -------- -------- --------
Combined ratio.......... 102.8% 102.6% 103.3% 101.3% 102.9% 131.1% 118.4%
======== ======== ======== ======== ======== ======== ========
Balance Sheet Data (at
end of period)
Total investments and
cash................... $4,160.7 $4,450.2 $4,325.8 $4,163.3 $3,624.6 $3,238.3 $2,573.2
Total assets............ 5,783.1 5,811.9 5,996.7 5,538.0 5,047.8 4,647.8 4,040.6
Loss and LAE reserves... 3,698.0 3,491.7 3,800.0 3,437.8 3,246.9 2,969.3 2,706.4
Total liabilities....... 4,405.3 4,353.4 4,517.5 4,230.5 3,961.7 3,664.2 3,299.6
Stockholders' equity
(12)................... 1,377.8 1,458.6 1,479.2 1,307.5 1,086.0 983.6 741.0
Book value per share
(13)................... 28.61 29.00 29.59 25.90 21.51 19.36 14.82
</TABLE>
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- --------
(1) After-tax operating income (loss), before after-tax net realized capital
gains or losses, was $129.7 million (or $2.64 per basic share and $2.63 per
diluted share), $123.2 million (or $2.44 per basic share and $2.43 per
diluted share), $165.7 million (or $3.29 per basic share and $3.27 per
diluted share), $144.6 million (or $2.86 per basic and $2.85 per diluted
share), $108.3 million (or $2.14 per basic and diluted share), ($21.2)
million (or ($0.42) per basic and diluted share) and $17.5 million (or
$0.35 per basic and diluted share) for the periods ended September 30, 1999
and 1998 and the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively. Supplemental after-tax operating income, before net realized
gains and excluding initial public offering-related charges, was $78.4
million (or $1.56 per basic and diluted share) for the year ended December
31, 1995.
(2) Catastrophe losses are net of reinsurance. A catastrophe is defined, for
purposes of the selected consolidated financial data, as an event that
causes a pre-tax loss before reinsurance of at least $5.0 million and has
an event date of January 1, 1988 or later.
(3) Some amounts may not reconcile due to rounding.
(4) Based on weighted average basic shares outstanding of 49.0 million, 50.5
million, 50.4 million, 50.5 million, 50.6 million, 50.2 million and 50.0
million for the periods ended September 30, 1999 and 1998 and the years
ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
(5) Based on weighted average diluted shares outstanding of 49.2 million, 50.8
million, 50.7 million, 50.8 million, 50.7 million, 50.2 million and 50.0
million for the periods ended September 30, 1999 and 1998 and the years
ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
(6) GAAP losses and LAE incurred as a percentage of GAAP net premiums earned.
(7) GAAP underwriting expenses as a percentage of GAAP net premiums earned.
Including restructuring and early retirement costs incurred in the fourth
quarter of 1994, Everest Holdings' GAAP underwriting expense ratio in 1994
was 32.1%.
(8) Statutory results are on an Everest Re legal entity basis; consequently,
investments in subsidiary operations are accounted for on an equity basis.
Effective January 1, 1997, the reinsurance operations of Everest Re Ltd.
were transferred to Everest Re on a portfolio basis. Excluding the impact
of the portfolio transaction, the 1997 ratio of net written premiums to
surplus, the 1997 loss and LAE ratio, the 1997 underwriting expense ratio
and the 1997 combined ratio were 1.1 x, 70.5%, 32.2% and 102.7%,
respectively.
(9) Statutory net premiums written as a percentage of period-end surplus.
(10) Statutory losses and LAE incurred as a percentage of SAP net premiums
earned.
(11) Statutory underwriting expenses as a percentage of SAP net premiums
written.
(12) Excluding net unrealized appreciation (depreciation) of investments,
stockholders' equity was $1,339.9 million, $1,254.1 million, $1,281.6
million, $1.147.1 million, $1,008.3 million, $899.9 million and $799.1
million as of September 30, 1999 and 1998 and December 31, 1998, 1997,
1996, 1995 and 1994, respectively.
(13) Based on 48.2 million shares outstanding for September 30, 1999, 50.3
million shares outstanding for September 30, 1998, 50.0 million shares
outstanding for December 31, 1998, 50.5 million shares outstanding for
December 31, 1997 and 1996, 50.8 million shares outstanding for December
31, 1995, and 50.0 million shares outstanding for December 31, 1994.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains only certain sections from "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
full text of which is included in our Annual Report on Form 10-K for the year
ended December 31, 1998 and our Quarterly Report on Form 10-Q for the period
ended September 30, 1999, which are incorporated by reference into this
document. In addition, certain information contained in the following selected
discussion is more current than that contained in the Form 10-K and Form 10-Q.
The following selected discussion should be read in conjunction with the entire
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with our consolidated financial statements and the accompanying
notes, which are also incorporated by reference into this document.
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Premiums
Gross premiums written increased 5.5% to $836.6 million in the nine months
ended September 30, 1999 from $792.9 million in the nine months ended September
30, 1998 as we maintained a cautious approach to extremely competitive market
conditions. Factors contributing to this increase included a 14.0% increase (to
$312.5 million) in U.S. broker treaty operations, attributable to growth in
accident and health, professional liability and workers' compensation business,
and a 9.5% increase (to $145.6 million) in U.S. direct treaty reinsurance and
insurance operations, mainly attributable to a single large accident and health
reinsurance treaty, the impact of which offset declines elsewhere in our
operations, and a 4.3% increase (to $96.4 million) in marine, aviation and
surety operations. These gains were partially offset by a 3.6% decrease (to
$229.1 million) in international premiums and a 4.9% decrease (to $53.0
million) in U.S. facultative operations. The declines in our international and
facultative operations reflect our response to competitive conditions in these
markets.
Ceded premiums decreased to $32.3 million in the nine months ended
September 30, 1999 from $36.6 million in the nine months ended September 30,
1998. This decrease was principally attributable to changes in our catastrophe
retrocessional protections, the impact of which was partially offset by
increases in contract specific retrocessions on insurance operations. Our
corporate retrocession program was restructured as of January 1, 1999 and
resulted in the cancellation of a multi-year property catastrophe treaty as of
December 31, 1998 and the acquisition of an accident year aggregate excess of
loss treaty which management believes provides appropriate coverage on more
effective terms.
Net premiums written increased by 6.3% to $804.3 million in the nine months
ended September 30, 1999 from $756.3 million in the nine months ended September
30, 1998, reflecting the growth in gross premiums written and the decrease in
ceded premiums.
Revenues
Net premiums earned increased by 3.1% to $795.0 million in the nine months
ended September 30, 1999 from $771.3 million in the nine months ended September
30, 1998, which was generally consistent with the growth in net premiums
written and changes in our mix of business during the preceding twelve months.
Net investment income increased 3.1% to $188.9 million in the nine months
ended September 30, 1999 from $183.2 million in the nine months ended September
30, 1998, reflecting the effect of
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investing the $124.4 million of cash flow from operations in the twelve months
ended September 30, 1999. The annualized pre-tax yield on average cash and
invested assets increased to 6.2% in the nine months ended September 30, 1999
from the 6.1% yield in the nine months ended September 30, 1998, reflecting
implementation of our investment strategies in the context of the generally
higher interest rate environment.
Net realized capital losses were $17.1 million in the nine months ended
September 30, 1999, reflecting realized capital losses on our investments of
$28.2 million which were offset by $11.1 million of realized capital gains,
compared to net realized capital gains of $3.5 million in the nine months ended
September 30, 1998. The net realized capital gains in the nine months ended
September 30, 1998 reflected realized capital gains of $8.5 million that were
offset by $5.0 million of realized capital losses. The realized capital losses
in the nine months ended September 30, 1999 arose mainly from activity in our
taxable and tax-exempt domestic fixed maturities portfolios, whereas the
realized capital losses in the nine months ended September 30, 1998 were
attributable to activity in our tax-exempt domestic fixed maturities portfolio.
The realized capital gains in the nine months ended September 30, 1999 mainly
arose from activity in our domestic equity portfolio, whereas the realized
capital gains in the nine months ended September 30, 1998 were attributable to
a combination of the activity in our taxable domestic fixed maturities
portfolio and domestic equity portfolio. The net realized capital losses in the
nine months ended September 30, 1999 generally reflect a specific program,
which has been completed to realize capital losses aimed at recovering taxes on
realized capital gains paid in prior years, with corresponding reinvestment of
proceeds at current reinvestment rates, and enhancing our long-term after-tax
portfolio yield.
Other loss for the nine months ended September 30, 1999 was $0.5 million
compared to other income of $2.7 million for the nine months ended September
30, 1998. Other loss and income for the respective periods were principally
attributable to the impact of fluctuations in foreign currency exchange rates.
In addition, other loss for the nine months ended September 30, 1999 included
$0.8 million in interest expense relating to our revolving credit agreement
with First Union National Bank.
Expenses
Losses and LAE incurred increased by 0.9% to $568.9 million in the nine
months ended September 30, 1999 from $564.0 million in the nine months ended
September 30, 1998. Catastrophe losses in the nine months ended September 30,
1999 were $25.3 million compared with $17.1 million in the nine months ended
September 30, 1998. The catastrophe losses in the nine months ended September
30, 1999 resulted primarily from $13 million for the Rouge steel plant fire
together with lesser losses related to Hurricane Floyd, the Turkish earthquakes
and the Oklahoma tornados. Catastrophe losses include the pre-tax impact of
both current period events and favorable and unfavorable development on prior
period events and are net of reinsurance. Our loss and LAE ratio decreased by
1.5 percentage points to 71.6% for the nine months ended September 30, 1999
from 73.1% in the nine months ended September 30, 1998. The decrease
principally resulted from changes in our mix of business, including the absence
in the nine months ended September 30, 1999 of the impact of some reinsurance
treaties with higher expected losses and lower ceding commissions that were
reflected in the nine months ended September 30, 1998, partially offset by an
increase in catastrophe losses in the nine months ended September 30, 1999. Net
losses and LAE incurred for the nine months ended September 30, 1999 reflected
ceded losses and LAE of $27.1 million, with nothing ceded under the stop loss
agreement with Gibraltar Casualty Company compared to ceded losses and LAE of
$39.6 million in the nine months ended September 30, 1998, including $11.9
million ceded under the stop loss agreement.
Underwriting expenses increased by 7.1% to $250.5 million in the nine
months ended September 30, 1999 from $234.0 million in the nine months ended
September 30, 1998. Commission and brokerage expenses increased by $16.7
million, principally reflecting the increase in premiums
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<PAGE>
written together with changes in our mix of business. Other underwriting
expenses decreased by $0.1 million. Our expense ratio was 31.5% in the nine
months ended September 30, 1999 and 30.4% in the nine months ended September
30, 1998.
Our combined ratio decreased to 103.1% in the nine months ended September
30, 1999 from 103.5% in the nine months ended September 30, 1998.
Income Taxes
We recognized income tax expense of $28.4 million in the nine months ended
September 30, 1999 compared to $37.2 million in the nine months ended September
30, 1998. The principal cause of this change was the increase in net realized
capital losses.
Net Income
Net income was $118.5 million in the nine months ended September 30, 1999
compared to $125.5 million in the nine months ended September 30, 1998. This
generally reflected improved underwriting results and an increase in net
investment income, offset by increased realized capital losses, the result of
which lowered the overall taxes for the period.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Premiums
Gross premiums written decreased 2.7% to $1,045.9 million in 1998 from
$1,075.0 million in 1997 as we maintained a disciplined underwriting approach
in the face of increasingly competitive market conditions. Premium growth areas
included a 10.8% ($35.2 million) increase in U.S. broker treaty premiums,
largely attributable to growth in non-standard auto, accident and health and
workers' compensation lines where our relatively recent entry to these lines
provided growth opportunities and a 6.8% ($10.8 million) increase in U.S.
direct treaty reinsurance and insurance due mainly to portfolio reinsurance
transactions. These increases were offset by a 25.5% ($41.2 million) decrease
in marine, aviation and surety premiums, a 13.2% ($10.9 million) decrease in
facultative premiums and a 6.6% ($23.0 million) decrease in international
premiums, reflecting highly competitive current market conditions. We continued
to decline business that did not meet our objectives regarding underwriting
profitability.
Ceded premiums decreased by 33.2% to $29.3 million in 1998 from $43.8
million in 1997, principally as a result of a $32.3 million return premium in
1998 relating to a restructuring of our catastrophe retrocessional protection.
The impact of this transaction was partially offset by increases in ceded
premiums in 1998 over 1997 attributable to increased utilization of contract
specific retrocessions, including common account protections, and reinstatement
premiums on corporate catastrophe reinsurance protections.
Net premiums written decreased by 1.4% to $1,016.6 million in 1998 from
$1,031.1 million in 1997, reflecting the decreases in international, marine,
aviation and surety and facultative gross written premiums, partially offset by
growth in U.S. broker and U.S. direct treaty reinsurance and insurance premiums
and the decrease in ceded premiums.
Revenues
Net premiums earned increased by 1.7% to $1,068.0 million in 1998 from
$1,049.8 million in 1997, with the increase attributable to premium earnings
patterns coupled with the decrease in premiums written.
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<PAGE>
Pre-tax investment income increased 7.2% to $244.9 million in 1998 from
$228.5 million in 1997, principally reflecting the effect of investing the
$183.3 million of cash flow from operating activities in 1998. Our pre-tax
yield on average cash and invested assets decreased to 5.8% in 1998 from 5.9%
in 1997, reflecting an increase in tax preferenced investments and a lower
interest rate environment. After-tax investment income increased 9.9% to $190.8
million in 1998 from $173.5 million in 1997, reflecting growth in our tax
preferenced investment holdings. Our after-tax yield on average cash and
invested assets was 4.5% in 1998, which was the same yield as in 1997.
Net realized capital losses were $0.8 million in 1998, reflecting normal
portfolio management activity compared to a net realized capital gain of $15.9
million in 1997, mainly arising from a $14.0 million gain on the sale of our
remaining investment in the common stock of Corporacion MAPFRE, a publicly
traded Spanish insurer.
Expenses
Losses and LAE incurred increased by 1.7% to $778.4 million in 1998 from
$765.4 million in 1997. Our loss and LAE ratio was 72.9% for 1998 and 1997.
Excluding the impact of catastrophes and the one-time return premium of $32.3
million, our loss and LAE ratio increased by 0.1 percentage points to 72.2% in
1998 as compared to 72.1% in 1997. Net catastrophe losses for 1998 were $30.6
million, mainly arising from Hurricanes Georges and Mitch, Canadian ice storm
losses and a major fire impacting a facultative coverage, partially offset by
favorable development on prior period catastrophes, compared to net catastrophe
losses of $8.6 million for 1997. Catastrophe losses included the impact of both
current period events and favorable and unfavorable development on prior period
events and are net of reinsurance. The underlying loss ratio increase was
attributable to changes to our business mix consistent with our underwriting
strategy together with the impact of $17.1 million in incurred losses relating
to the coinsurance provisions of the stop loss agreement.
Losses and LAE incurred for 1998 reflected ceded losses and LAE of $357.4
million. Ceded losses and LAE included $153.9 million net ceded under the stop
loss agreement, $33.5 million net ceded to Gibraltar pursuant to a 1986 quota
share reinsurance, referred to in this prospectus supplement as the direct
excess retrocession, through which Gibraltar assumed 100% of the liabilities
related to Everest Re's former direct excess insurance operations that ceased
writing business in 1985, and $102.4 million ceded under our management
underwriting facility, referred to in this prospectus supplement as MUF, a
reinsurance arrangement begun in 1977 pursuant to which Everest Re ceded
certain business written prior to 1992 to a number of reinsurance and insurance
companies which, as the result of commutations, also includes Gibraltar.
The ceded losses and LAE for 1998 principally reflected a $214.9 million
increase in gross reserves with respect to asbestos exposures that we judged to
be necessary based on continuing reported and paid loss emergence, particularly
with respect to secondary defendants, internal and third party statistical
analysis and our assessment of potential ultimate liabilities. The 1998 ceded
losses and LAE reflected $25.7 million of non-asbestos related losses ceded
under the stop loss agreement and $23.1 million ceded under various catastrophe
retrocessions. The 1998 ceded losses and LAE compares to ceded losses and LAE
of $109.6 million in 1997, including $45.0 million ceded under the stop loss
agreement.
Underwriting expenses decreased by 0.7% to $324.1 million in 1998 from
$326.5 million in 1997. Commission, brokerage, taxes and fees decreased by $0.2
million attributable to decreases in written premium and changes in our
business mix. Other underwriting expenses decreased by $2.1 million as our cost
reduction initiatives continued to provide benefits over the course of 1998 and
1997. The benefits more than offset the impact of salary and other expense
increases that were generally in line with inflation. Our expense ratio
decreased by 0.8 percentage points to 30.3% in 1998 from 31.1% in 1997 as a
result of the increase in premiums earned and the decrease in underwriting
expenses.
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<PAGE>
Our combined ratio decreased by 0.8 percentage points to 103.2% in 1998
from 104.0% in 1997, reflecting the lower expense ratio, increased earned
premium and loss ratio factors described above.
Income Taxes
We had income tax expense of $47.5 million in 1998 compared to $52.3
million in 1997, with the decrease resulting from the relationship of tax
exempt income to pre-tax income as we increased the tax preferenced element of
investment income at a rate greater than the increase in pre-tax income as a
result of growth in our tax preferenced investment holdings.
Net Income
Net income was $165.2 million in 1998 compared to $155.0 million in 1997.
This improvement mainly reflected higher earned premium, higher investment
income and lower income taxes partially offset by a decrease in net capital
gains and an increase in net incurred losses.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Premiums
Gross premiums written increased 3.0% to $1,075.0 million in 1997 from
$1,044.0 million in 1996 as we maintained a cautious approach to the
increasingly competitive market conditions. Factors contributing to this
increase included a 5.9% ($18.2 million) increase in U.S. broker treaty
premiums, largely attributable to product line expansion, a 6.6% ($9.8 million)
increase in U.S. direct treaty reinsurance and insurance due to the growth in
primary insurance written through Everest National, a 2.6% ($8.8 million)
increase in international premiums, and a 0.3% ($0.5 million) increase in
marine, aviation and surety premiums. These increases were partially offset by
a 7.2% ($6.4 million) decrease in facultative premiums.
Ceded premiums increased by 224.7% to $43.8 million in 1997 from $13.5
million in 1996, principally as a result of a return premium in 1996 under our
catastrophe retrocessional protection, coupled with increased retrocessional
protections for international catastrophe exposures and increases in our
contract specific retrocessions in 1997.
Net premiums written increased by 0.1% to $1,031.1 million in 1997 from
$1,030.5 million in 1996, reflecting the growth in U.S. broker, U.S. direct
treaty reinsurance and insurance, international and marine, aviation and surety
gross written premiums offset by the decrease in facultative gross premiums
written and the increase in ceded premiums.
Revenues
Net premiums earned increased by 7.8% to $1,049.8 million in 1997 from
$973.6 million in 1996, with the increase attributable to premium earnings
patterns coupled with a decrease in the rate of written premium growth.
Net investment income increased 19.1% to $228.5 million in 1997 from $191.9
million in 1996, reflecting the effect of investing the $376.4 million of cash
flow from operating activities in 1997 and an increase in our pre-tax yield on
average cash and invested assets to 5.9% in 1997 from 5.6% in 1996.
Net realized capital gains increased 179.5% to $15.9 million in 1997 from
$5.7 million in 1996, with the gains in both periods mainly arising from
activity in our portfolio of equity securities, including, in 1997, a $14.0
million gain on the sale of our remaining investment in the common stock of
Corporacion MAPFRE, a publicly traded Spanish insurer.
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<PAGE>
Expenses
Losses and LAE incurred increased by 6.9% to $765.4 million in 1997 from
$716.0 million in 1996. Our loss and LAE ratio decreased by 0.6 percentage
points to 72.9% in 1997 from 73.5% in 1996. This improvement was attributable
principally to changes in our business mix consistent with our underwriting
strategy together with modest and comparable catastrophe losses in both years.
Net losses and LAE incurred for 1997 reflected ceded losses and LAE of $109.6
million, including $45.0 million ceded under the stop loss agreement, compared
to ceded losses and LAE of $206.0 million in 1996, including $116.5 million
ceded under the stop loss agreement.
Underwriting expenses increased by 5.5% to $326.5 million in 1997 from
$309.5 million in 1996. Commissions, brokerage, taxes and fees increased by
$20.2 million attributable primarily to increases in written premium and
changes in our business mix. Other underwriting expenses decreased by $3.2
million, as the impact of the continued reductions in the number of employees
over the course of 1996 and 1997 together with other cost reduction initiatives
more than offset the impact of salary and other expense increases that were
generally in line with inflation. Our expense ratio decreased by 0.7 points to
31.1% in 1997 from 31.8% in 1996 as the increase of premiums earned more than
offset the increases in underwriting expenses.
Our combined ratio decreased by 1.3 points to 104.0% in 1997 from 105.3% in
1996, reflecting the lower loss ratio and increased premiums.
Income Taxes
We had income tax expense of $52.3 million in 1997 compared to $31.8
million in 1996, with the difference substantially attributable to the
improvement in pre-tax income to $207.3 million in 1997 from $143.8 million in
1996.
Net Income
Net income was $155.0 million in 1997 compared to $112.0 million in 1996.
This improvement mainly reflects higher premiums earned, higher investment
income, higher capital gains and a lower combined ratio, offset by higher
income taxes.
Financial Condition
Invested Assets
Aggregate invested assets, including cash and short-term investments, were
$4,160.7 million at September 30, 1999 and $4,325.8 million at December 31,
1998. The decrease in invested assets between December 31, 1998 and September
30, 1999 resulted primarily from a decrease of $228.2 million in net unrealized
appreciation on fixed maturity investments, repurchases of our common stock
totaling $55.8 million and a $17.4 million decrease in net unrealized
appreciation on the equity security portfolio partially offset by cash flow
from operations of $129.0 million generated during the nine months ended
September 30, 1999.
Aggregate invested assets, including cash and short-term investments, were
$4,325.8 million at December 31, 1998, $4,163.3 million at December 31, 1997
and $3,624.6 million at December 31, 1996. The change in invested assets
resulted primarily from cash flows from operations generated during the period
together with net realized and unrealized gains and losses on investments.
Loss and LAE Reserves
Gross loss and LAE reserves totaled $3,800.0 million at December 31, 1998,
$3,437.8 million at December 31, 1997 and $3,246.9 million at December 31,
1996. The increases were mainly due to
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reserve increases on pre-1986 accident years for asbestos and environmental
exposures, most of which were ceded under various retrocessional arrangements
resulting in offsetting increases to reinsurance receivables, together with
continued growth in our book of business. Reinsurance receivables totaled
$982.0 million at December 31, 1998, $692.5 million at December 31, 1997 and
$749.1 million at December 31, 1996. At December 31, 1998, $563.3 million, or
57.4%, of the total was receivable from Gibraltar, including $142.0 million--a
previously disputed amount, as discussed below--which was contractually due in
the first quarter of 1999, $154.8 million which is collateralized by funds held
by us or offsetting liabilities and $266.5 million which is subject to the
terms and conditions of The Prudential's guarantee of Gibraltar's payment
obligations to us. Additionally, $150.0 million, or 15.3%, of our reinsurance
receivables is receivable from Continental Insurance Company, which is secured
by a funds held arrangement whereby we have retained the premium payments due
the retrocessionaire, recognized a liability for such amounts and reduced the
liability as payments are due from the retrocessionaire. No other
retrocessionaire accounted for more than $25.0 million of our reinsurance
receivables.
We maintain reserves to cover our estimated ultimate liability for losses
and LAE with respect to reported and unreported claims. Because reserves are
estimates of ultimate losses and LAE, management monitors reserve adequacy over
time, evaluating new information as it becomes known and adjusting reserves, as
necessary. We consider many factors when setting reserves, including: (1)
current legal interpretations of coverage and liability; (2) economic
conditions; (3) internal actuarial methodologies that analyze our experience
with similar cases, information from ceding companies and historical trends,
such as reserving patterns, loss payments, pending levels of unpaid claims and
product mix; and (4) the uncertainties discussed below regarding reserve
requirements for asbestos and environmental claims. Based on these
considerations, management believes that adequate provision has been made for
our loss and LAE reserves. Actual losses and LAE ultimately paid may deviate,
perhaps substantially, from established reserves.
Asbestos and Environmental Exposures
Our asbestos claims typically involve liability or potential liability for
bodily injury from exposure to asbestos or liability for property damage
resulting from asbestos or asbestos containing materials. Our environmental
claims typically involve potential liability for the mitigation or remediation
of environmental contamination or bodily injury or property damage caused by
the release of hazardous substances into the land, air or water. In addition to
the previously described general uncertainties inherent in estimating reserves,
there are significant additional uncertainties in estimating the amount of our
potential losses from asbestos and environmental claims. Among the
complications impacting the estimation of such losses are: (1) potentially long
waiting periods between exposure and manifestation of any bodily injury or
property damage; (2) difficulty in identifying sources of asbestos or
environmental contamination; (3) difficulty in properly allocating
responsibility and/or liability for asbestos or environmental damage; (4)
changes in applicable laws and judicial interpretation of those laws; (5)
potential for an asbestos or environmental claim to involve many insurance
providers over many policy periods; (6) long reporting delays, both from
insureds to insurance companies and ceding companies to reinsurers; (7)
historical data concerning asbestos and environmental losses, which is more
limited than historical information on other types of casualty claims; (8)
questions concerning interpretation and application of reinsurance and
insurance coverage; and (9) uncertainty regarding the number and identity of
insureds with potential asbestos or environmental exposure. Although these
complications have become less severe in recent years, we believe that these
factors continue to render reserves for asbestos and environmental losses
significantly less subject to traditional actuarial methods than are reserves
for other types of losses. Given these uncertainties, we believe that no
meaningful range for the ultimate losses can be established. We establish
reserves to the extent that, in our judgment, the facts and prevailing law
reflect an exposure for us or our ceding company. Due to the uncertainties
discussed above, the ultimate losses may vary
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materially from current loss reserves. See "Risk Factors--Our loss reserves may
be inadequate to cover our ultimate liability for losses".
Stop Loss Agreement and Prudential Guarantees
Under the stop loss agreement, Everest Re is entitled to payments from
Gibraltar at any time that any reserves as of June 30, 1995 (December 31, 1994
for catastrophe losses) for losses, allocated LAE and uncollectible reinsurance
experience adverse development and are increased, subject to the limit and
other terms of the stop loss agreement. Gibraltar's obligations to make
payments to Everest Re under the stop loss agreement are guaranteed by The
Prudential. The general effect of the stop loss agreement will be to protect
our consolidated earnings against up to $375.0 million of the first $400.0
million of such adverse developments. There can be no assurance, however, that
our net liability for such adverse developments will be limited to $25.0
million. The incurred loss reimbursement features of the stop loss agreement
provide us with cash on or prior to the time it is required to make payment on
account of such adverse developments. Through December 31, 1998, adverse
development ceded under the stop loss agreement was $339.2 million with
remaining limits available of $35.8 million, net of coinsurance, with respect
to the next $39.8 million of adverse developments. We do not currently intend
to enter into any new stop loss agreement with respect to exposures arising
from periods prior to July 1, 1995 if the limits under the Gibraltar stop loss
agreement are exhausted or when the agreement terminates.
The Prudential has guaranteed all of Gibraltar's payment obligations under
the stop loss agreement and up to $400.0 million of Gibraltar's net obligations
under all other reinsurance agreements between Gibraltar and Everest Re, $128.3
million of which has been discharged as of December 31, 1998 by loss payments
made to us subsequent to June 30, 1995. The Prudential guarantee will terminate
upon consummation of the Gibraltar acquisition. At December 31, 1998,
Gibraltar's net obligations under such other reinsurance agreements consisted
of the following balances:
<TABLE>
<S> <C>
Reinsurance receivables from Gibraltar.......................... $421.3
Reserve for losses and loss adjustment expenses assumed from
Gibraltar...................................................... (164.2)
Losses in the course of payment assumed from Gibraltar.......... (5.4)
Funds held by Everest Re under reinsurance treaties with
Gibraltar...................................................... (127.2)
------
Net obligations of Gibraltar.................................. $124.5
======
</TABLE>
During the first quarter of 1999, Gibraltar disputed $63.0 million ceded
under the stop loss agreement in the fourth quarter of 1998 and, pursuant to
the terms of the stop loss agreement, Gibraltar placed the disputed amount in a
trust. Gibraltar also disputed our level of reserves previously ceded to and
paid by Gibraltar under the stop loss agreement and claimed a refund of $91.7
million. These disputes were based on Gibraltar's belief that there were
redundancies in that portion of the Company's reserves for incurred but not
reported losses, referred to in this prospectus supplement as IBNR, which are
subject to the stop loss agreement. Pursuant to the terms of the stop loss
agreement, we and Gibraltar appointed an independent examiner to review our
reserves underlying the disputed amounts to determine the appropriate amount of
cessions to Gibraltar, and we placed the $91.7 million in a trust.
Everest Re settled this dispute with Gibraltar in December 1999. With the
assistance of the independent examination and the normal year-end reserve
review, we reduced the disputed gross reserves for 1995 and prior years by
$67.6 million and reduced the disputed claim to the stop loss agreement by
$60.8 million. The impact of this settlement is as follows (all amounts are
approximate):
. We received $2.3 million in additional cash from Gibraltar in January
2000, which represents the amount that remained due under the revised
billing.
S-19
<PAGE>
. The reversal of the $67.6 million in gross reserves previously ceded to
the stop loss agreement caused the reversal of a 10% coinsurance
requirement previously recorded by us as an underwriting loss; by
itself, the settlement transaction resulted in a pre-tax underwriting
gain of $6.8 million in the fourth quarter of 1999.
. The gross coverage limits, before the 10% coinsurance, remaining under
the stop loss agreement increased to $107.4 million. Pursuant to the
contract, Everest Re will continue to evaluate its reserves each quarter
to determine if additional cessions to the stop loss agreement are
appropriate.
During the first quarter of 1999, Gibraltar disputed $39.7 million ceded
under a 1986 quota share reinsurance through which Gibraltar assumed 100% of
the liabilities related to Everest Re's former direct excess insurance
operations, which ceased writing business in 1985. Gibraltar then commenced an
arbitration proceeding in accordance with the retrocession. Gibraltar is
disputing the level of reserves established by Everest Re primarily reflecting
reserves for asbestos losses and Everest Re's right to determine these
reserves. Gibraltar is not disputing its responsibility to pay the ultimate
losses in accordance with the terms of the retrocession. As a result of the
dispute, Gibraltar initially failed to provide funds or security to Everest Re
in order to secure Gibraltar's payment obligations to Everest Re in accordance
with the terms of the retrocession. However, throughout the remainder of 1999,
Gibraltar provided substantially all of the required funding to Everest Re.
Everest Re and Gibraltar have agreed to halt the arbitration proceedings and
postpone the resolution of the remaining disputed issues. We do not expect that
this dispute will have a material adverse effect on our future financial
condition, results of operations or cash flows.
Stockholders' Equity
Our stockholders' equity decreased to $1,377.8 million as of September 30,
1999 from $1,479.2 million as of December 31, 1998, principally reflecting a
decrease of $159.7 million in unrealized appreciation on investments, net of
deferred taxes, and $55.8 million in treasury stock acquired in the nine months
ended September 30, 1999, offset by net income of $118.5 million for the nine
months ended September 30, 1999. We paid dividends of $8.8 million in the nine
months ended September 30, 1999.
Our stockholders' equity increased to $1,479.2 million as of December 31,
1998 from $1,307.5 million as of December 31, 1997, principally reflecting a
$155.1 million increase in retained earnings for the year and an increase of
$37.2 million in unrealized appreciation of investments. Stockholders' equity
as of December 31, 1997 increased to $1,307.5 million from $1,086.0 million as
of December 31, 1996, principally reflecting an increase of $146.9 million in
retained earnings and an increase of $82.6 million in unrealized appreciation
of investments. We paid dividends of $10.1 million, $8.1 million and $6.1
million in 1998, 1997 and 1996, respectively.
Our stockholders' equity of $1,377.8 million exceeded Everest Re's
statutory-basis surplus of $1,128.1 million by $249.7 million at September 30,
1999. Our stockholders' equity of $1,479.2 million exceeded Everest Re's
statutory-basis surplus of $1,059.4 million by $419.8 million at December 31,
1998. The primary differences between GAAP and SAP as they relate to us are:
(1) the deferral of acquisition costs under GAAP, which are immediately
expensed under SAP; (2) the provision for deferred taxes on temporary tax
differences under GAAP, which are excluded under SAP; and (3) the carrying at
market value of fixed maturities available for sale under GAAP, as compared to
at amortized cost under SAP.
S-20
<PAGE>
Liquidity and Capital Resources
Liquidity
Our liquidity requirements are met on both a short- and long-term basis by
funds provided by premiums collected, investment income, collected reinsurance
receivables balances and from the sale and maturity of investments together
with the availability of funds under our revolving credit facility. Our net
cash flows from operating activities were $129.0 million and $187.9 million in
the nine months ended September 30, 1999 and 1998, respectively. Recoveries
under the stop loss agreement contributed $79.0 million and $40.0 million of
such net cash flows in the nine months ended September 30, 1999 and 1998,
respectively. Through September 30, 1999, cessions under the stop loss
agreement have aggregated $339.2 million with available remaining limits net of
coinsurance of $35.8 million. Excluding the stop loss recoveries, we believe
that the decrease in net cash flows from operating activities reflects changes
in our mix of business and variability in the payout of loss reserves.
Proceeds and applications from sales and acquisitions of investment assets
were $858.1 million and $954.9 million, respectively, in the nine months ended
September 30, 1999, compared to $483.0 million and $684.7 million,
respectively, in the nine months ended September 30, 1998, reflecting normal
portfolio management activity aimed at enhancing our portfolio yield. Our
current investment strategy seeks to maximize after-tax income through a high-
quality, diversified, duration sensitive, taxable bond and tax-exempt municipal
bond portfolio, while maintaining an adequate level of liquidity.
On December 21, 1999, we entered into a three-year senior revolving credit
facility with a syndicate of lenders, which replaced our prior credit facility
which had been extended in June 1999 and increased from $50 million to $75
million on November 9, 1999. First Union National Bank is the administrative
agent for the credit facility. The credit facility provides for borrowings of
up to $150 million and bears interest at either the higher of the prime rate
established by First Union National Bank from time to time or the federal funds
rate plus 0.5% per annum. Alternatively, we may elect to have the borrowings
bear interest at an adjusted London InterBank Offered Rate plus a margin. The
amount of the margin and fees payable for the credit facility depend upon the
senior unsecured debt rating or, if that is not available, the financial
strength rating of Everest Re. The credit facility requires us to maintain
specified debt to capital and interest coverage ratios and to maintain
statutory surplus of Everest Re at $850 million plus 25% of future aggregate
net income and 25% of future aggregate capital contributions. Upon completion
of the restructuring, Everest Group guaranteed our obligations under the credit
facility.
On March 21, 1996, our board of directors approved a stock repurchase plan
authorizing the repurchase of an aggregate amount of 2.5 million shares of
common stock from time to time in open market transactions. During 1999,
Everest Holdings' Board of Directors extended this authorization by an
additional 4.4 million shares, bringing the total authorization to 6.9 million
shares. During 1998, the first year in which purchases were made under this
authorization, 516,900 shares were repurchased at an average price of $33.68
per share. During the nine months ended September 30, 1999, we repurchased
1.854 million shares of our common stock at an average price of $30.07 per
share, raising the total repurchases under our authorized repurchase program to
2.371 million shares at an average price of $30.86 per share. The total
repurchase expenditures to date is $73.2 million.
Exposure to Catastrophes
As with other reinsurers, our operating results and financial condition can
be adversely affected by unpredictable natural and other disasters, such as
hurricanes, windstorms, earthquakes, floods, fires and explosions. Although we
attempt to limit our exposure to acceptable levels, it is possible that an
actual catastrophic event or multiple catastrophic events could have a material
adverse effect
S-21
<PAGE>
on our financial condition, results of operations and cash flows. See "Risk
Factors -- Unpredictable catastrophic events may reduce our net income".
We employ various techniques, including licensed software modeling, to
assess our accumulated exposure to property catastrophe losses and summarize
that exposure in terms of the probable maximum loss, referred to in this
prospectus supplement as PML. We define PML as our anticipated maximum loss,
taking into account contract limits, caused by a single catastrophe affecting a
broad contiguous geographic area, such as that caused by a hurricane or
earthquake of a magnitude that it is expected to occur once in every 100 years.
We estimate that our greatest catastrophe exposure worldwide from any single
event is to hurricanes and earthquakes in the coastal regions of the United
States, where we estimate that we have a PML exposure, before reinsurance, of
approximately $170.0 million in each region based on our current book of
business. Similarly, we estimate that the largest current PML exposure, before
reinsurance, outside the United States is approximately $86.0 million. We may
experience losses from one or more catastrophic events that exceed, perhaps by
a substantial amount, our estimated PML.
We maintain a corporate-level retrocessional protection program, above and
beyond retrocessions purchased with respect to specific assumed coverage, to
mitigate the potential impact of catastrophe losses. Prior to the December 31,
1998 cancellation of significant elements of this program, the attachment point
of this program was $25.0 million per catastrophe in the United States and
$10.0 million per catastrophe outside the United States. During 1998, $23.1
million was ceded under the corporate level retrocession program as a result of
catastrophes occurring outside the United States. Effective January 1, 1999, we
have purchased an accident year aggregate excess of loss protection that
provides up to $175.0 million of coverage if Everest Re's statutory basis
accident year loss ratio exceeds a loss ratio attachment point provided in the
contract and responds on an aggregate basis with respect to both property and
casualty losses, including those arising from catastrophes. The attachment
point is net of inuring retrocessions and includes adjustable premium
provisions that effectively cause us to offset, on a pre-tax income basis, up
to 52.5% of our ceded losses, depending upon the character of the underlying
losses, through additional premiums. The maximum recovery is $175.0 million
before giving effect to a maximum adjustable premium of $86.3 million.
Retrocessions inuring to the benefit of this program, for the period from May
15, 1998 through May 15, 1999, include a catastrophe retrocession that provides
coverage of 70.0% of $20.0 million per occurrence in excess of $10.0 million in
losses incurred by us outside of the United States, and for the period from May
23, 1998 through May 23, 1999, include a catastrophe retrocession which
provides coverage of 87.5% of $20.0 million per occurrence in excess of $30.0
million in losses incurred by us outside of the United States. All aspects of
the retrocession program have been structured to permit the program to be
accounted for as reinsurance under SFAS No. 113.
If a single catastrophe were to occur in the United States that resulted in
$170.0 million of gross losses and allocated loss adjustment expenses, referred
to in this prospectus supplement as ALAE, in 1999, an amount equivalent to
Everest Re's PML, we estimate that the effect, including additional premiums
and retained losses and ALAE, on our income before taxes would be $93.0
million. This pre-tax net loss estimate assumes that Everest Re's aggregate
losses and ALAE for 1999 would exceed the threshold loss ratio requirement in
the aggregate excess of loss cover by $170.0 million.
S-22
<PAGE>
BUSINESS
Business Operations
We are the parent holding company of Everest Re, a property and casualty
reinsurer. Until October 6, 1995, we were an indirect, wholly-owned subsidiary
of The Prudential. Through Everest Re, we underwrite property and casualty
reinsurance on a treaty and facultative basis for reinsurance and insurance
companies in the United States and selected international markets. Everest Re
writes reinsurance both through brokers and directly with ceding insurance
companies. Everest Re and its subsidiaries also write primary insurance. Based
on industry data at December 31, 1998 published by the Reinsurance Association
of America, Everest Re is the sixth largest reinsurance company in the United
States, ranked by statutory surplus.
Following is a summary of our operating subsidiaries:
. Everest National Insurance Company, referred to in this prospectus
supplement as Everest National, an Arizona insurance company, is
licensed in 42 states and the District of Columbia and is authorized to
write primary insurance in the states in which it is licensed to write
insurance, often called writing insurance on an admitted basis.
. Everest Insurance Company of Canada, a Canadian insurance company, is
licensed in all Canadian provinces and territories and is federally
licensed in Canada to write primary insurance under the Insurance
Companies Act of Canada.
. Everest Indemnity Insurance Company, referred to in this prospectus
supplement as Everest Indemnity, a Delaware insurance company, engages
in the excess and surplus lines insurance business in the United States.
Excess and surplus lines insurance is specialty property and liability
coverage that an insurer not licensed to write insurance in a particular
state is permitted to provide when the specific specialty coverage is
unavailable from admitted insurers. This is often called writing
insurance on a non-admitted basis. Everest Indemnity is licensed in
Delaware and is eligible to write business in 37 states, the District of
Columbia and the Commonwealth of Puerto Rico on a non-admitted basis.
. Mt. McKinley Managers, L.L.C., a New Jersey limited liability company,
is licensed in New Jersey as an insurance producer, which is any
intermediary, such as an agent or broker, which acts as the conduit
between an insurance company and an insured. Mt. McKinley holds licenses
to allow it to act in New Jersey as an insurance producer in connection
with policies written on both an admitted and a surplus lines basis.
After a 1998 acquisition of the assets of insurance agency operations in
Alabama and Georgia, the continuing insurance agency operations are now
carried on by subsidiaries of Mt. McKinley. These subsidiaries are
WorkCare Southeast, Inc., an Alabama insurance agency, and WorkCare
Southeast of Georgia, Inc., a Georgia insurance agency.
. Everest Re Holdings, Ltd., a Bermuda company formed in 1998 and referred
to in this prospectus supplement as Everest Ltd., owns Everest Re Ltd.,
a United Kingdom company that is in the process of being dissolved
because its reinsurance operations have been converted into branch
operations of Everest Re. Everest Ltd. also holds approximately $91
million of investments, the management of which constitutes its
principal operations.
. Southeastern Security Insurance Company, a Georgia insurance company,
licensed in Georgia and acquired by Everest Re in January 2000, writes
primary insurance on an admitted basis.
Our products include a full range of property and casualty coverages,
including marine, aviation, surety, errors and omissions, directors' and
officers', medical malpractice, other specialty liability lines, accident and
health, workers' compensation, non-standard auto and loss portfolios. Our
distribution channels include both the direct and broker reinsurance markets,
international and domestic markets, reinsurance, both treaty and facultative,
and insurance, both admitted and non-admitted.
S-23
<PAGE>
Our business strategies include effective management of the underwriting
cycle, which refers to the tendency of insurance premiums, profits and the
demand for and availability of coverage to rise and fall over time. We also
seek to manage catastrophe exposures and control expenses and retrocessional
costs, which are incurred when reinsurers purchase reinsurance. Our
underwriting strategies seek to capitalize on our staff's expertise and our
flexibility to offer multiple products by underwriting reinsurance through
brokers and directly with ceding companies and by writing primary insurance on
an admitted and non-admitted basis in a cost-efficient manner. Efforts to
control expenses and to operate in a cost-efficient manner are a continuing
focus for us.
Our underwriting strategy emphasizes underwriting profitability rather than
premium volume, the writing of specialized risks and the integration of
underwriting expertise across all underwriting units. Key elements of this
strategy are prudent risk selection, appropriate pricing through strict
underwriting discipline and adjustment of our business mix to respond to
changing market conditions. We focus on reinsuring companies that effectively
manage the underwriting cycle through proper analysis and pricing of underlying
risks and whose underwriting guidelines and performance are compatible with our
objectives.
Our underwriting strategy also emphasizes flexibility and responsiveness to
changing market conditions, such as increased demand or favorable pricing
trends. We believe that our existing strengths, including our broad
underwriting expertise, international presence, diverse distribution
capabilities and substantial capital, facilitate adjustments to our mix of
business geographically, by line of business and by type of coverage. We
believe that this allows us to capitalize on those market opportunities that
provide the greatest potential for underwriting profitability. Our primary
insurance infrastructure further facilitates this strategy by permitting us to
develop business that requires us to issue primary insurance policies. We
carefully monitor our mix of business to avoid inappropriate concentrations of
geographic or other risk.
Our underwriting guidelines seek to limit the accumulation of known risks
in exposed areas, to require that business which is exposed to catastrophe
losses be written with appropriate geographic spread and to maintain a cost-
effective retrocession program. Our underwriting guidelines also seek to better
reflect the relationship between premiums and risk assumed while maintaining
our probable maximum loss at appropriate levels.
Marketing
We write business on a worldwide basis for many different customers and for
many lines of property and casualty business providing a broad array of
coverages. We are not materially dependent on any single customer, small group
of customers, line of business or geographical area. For the 1998 calendar
year, no single customer generated more than 4.6% of our gross premiums
written.
Approximately 68.5% and 31.5% of our 1998 gross premiums written were
written in the broker and direct markets, respectively. Our ability to write
reinsurance both through brokers and directly with ceding companies gives us
the flexibility to pursue business regardless of the ceding company's preferred
reinsurance purchasing method.
The reinsurance broker market consists of several substantial national and
international brokers and a number of smaller specialized brokers. Brokers do
not have the authority to bind us with respect to reinsurance agreements, nor
do we commit in advance to accept any portion of the business that brokers
submit to us. Reinsurance business from any ceding company, whether new or
renewal, is subject to acceptance by us. Brokerage fees are generally paid by
reinsurers. Our largest ten brokers accounted for an aggregate of approximately
51.8% of gross premiums written in 1998, with the two largest brokers
accounting for approximately 17.0% and 8.3%, respectively, of gross premiums
written.
S-24
<PAGE>
The direct market remains an important distribution system for reinsurance
business written by Everest Re and primary insurance written through Everest
National and Everest Indemnity in the United States and Everest Canada in
Canada. Direct placement of reinsurance enables us to access clients who prefer
to place their reinsurance directly with their reinsurers based upon the
reinsurer's in-depth understanding of the ceding company's needs. Our primary
insurance business is written principally through general agency relationships.
We evaluate each business relationship, including the underwriting expertise
and experience of each distribution channel selected, perform an analysis to
evaluate financial security and monitor performance.
Underwriting Operations
The following table presents the distribution of our gross premiums written
by each of our underwriting units for the periods indicated, classified
according to whether such premium is derived from property or casualty business
and whether it represents pro rata or excess of loss business:
S-25
<PAGE>
Gross Premiums Written by Underwriting Unit
<TABLE>
<CAPTION>
Nine Months
Ended Years Ended December 31,
September 30, ---------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- ------------- ------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Broker Treaty
Property
Pro Rata (1).......... $ 67.0 8.0% $ 59.0 5.6% $ 62.8 5.8% $ 45.4 4.4% $ 51.7 5.4% $ 59.7 6.3%
Excess................ 37.5 4.5 41.3 3.9 53.3 5.0 60.4 5.8 59.0 6.2 53.9 5.7
Casualty
Pro Rata (1).......... 91.2 10.9 110.9 10.6 84.6 7.9 63.4 6.1 18.5 1.9 29.6 3.1
Excess................ 116.9 14.0 149.0 14.2 124.3 11.6 137.5 13.2 122.6 12.9 113.5 11.9
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
Total (2) 312.6 37.4 360.2 34.4 325.0 30.2 306.8 29.4 251.8 26.5 256.6 26.9
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
U.S. Direct Treaty
Reinsurance and
Insurance
Property
Pro Rata (1).......... 68.2 8.2 4.6 0.4 11.7 1.1 12.6 1.2 3.3 0.3 5.4 0.6
Excess................ 0.7 0.1 1.4 0.1 4.4 0.4 8.9 0.9 9.1 1.0 12.5 1.3
Casualty
Pro Rata (1).......... 72.7 8.7 148.6 14.2 128.0 11.9 114.5 11.0 99.8 10.5 83.2 8.7
Excess................ 3.9 0.5 14.6 1.4 14.3 1.3 12.5 1.2 10.0 1.1 38.6 4.0
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
Total (2)............. 145.5 17.5 169.2 16.2 158.4 14.7 148.6 14.2 122.2 12.9 139.7 14.7
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
Marine, Aviation and
Surety
Property
Pro Rata (1).......... 55.4 6.6 62.5 6.0 92.9 8.6 94.6 9.1 89.2 9.4 74.1 7.8
Excess................ 14.5 1.7 15.6 1.5 16.9 1.6 17.8 1.7 18.7 2.0 16.8 1.8
Casualty
Pro Rata (1).......... 24.0 2.9 39.3 3.8 45.4 4.2 43.1 4.1 53.0 5.6 66.0 6.9
Excess................ 2.6 0.3 3.0 0.3 6.4 0.6 5.6 0.5 6.0 0.6 4.8 0.5
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
Total (2)............. 96.5 11.5 120.4 11.5 161.6 15.0 161.1 15.4 166.9 17.6 161.7 17.0
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
U.S. Facultative
Property
Pro Rata (1).......... -- -- -- -- -- -- -- -- -- -- -- -- --
Excess................ 17.6 2.1 22.5 2.2 29.0 2.7 26.9 2.6 22.3 2.3 27.4 2.9
Casualty
Pro Rata (1).......... -- -- -- -- -- -- -- -- -- -- -- --
Excess................ 35.4 4.2 49.0 4.7 53.4 5.0 61.8 5.9 46.6 4.9 39.3 4.1
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
Total (2)............. 53.0 6.3 71.5 6.8 82.4 7.7 88.7 8.5 68.8 7.2 66.7 7.0
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
Total U.S.
Property
Pro Rata (1).......... 190.6 22.8 126.1 12.1 167.4 15.6 152.6 14.6 144.2 15.2 139.2 14.6
Excess................ 70.3 8.4 80.8 7.7 103.6 9.6 114.0 10.9 109.1 11.5 110.6 11.6
Casualty
Pro Rata (1).......... 187.9 22.5 298.8 28.6 258.0 24.0 221.1 21.2 171.3 18.0 178.8 18.8
Excess................ 158.8 19.0 215.6 20.6 198.4 18.5 217.6 20.8 185.2 19.5 196.1 20.6
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
Total (2)............. 607.6 72.7 721.3 69.0 727.4 67.7 705.2 67.5 609.7 64.2 624.7 65.5
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
International
Property
Pro Rata (1).......... 93.9 11.2 141.9 13.6 144.2 13.4 124.2 11.9 136.2 14.3 147.0 15.4
Excess................ 41.4 4.9 45.7 4.4 62.9 5.9 79.8 7.6 84.9 8.9 89.2 9.4
Casualty
Pro Rata (1).......... 55.5 6.6 93.4 8.9 99.2 9.2 90.5 8.7 66.4 7.0 49.6 5.2
Excess................ 38.3 4.6 43.6 4.2 41.3 3.8 44.4 4.3 52.3 5.5 42.7 4.5
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
Total (2)............. 229.1 27.3 324.6 31.1 347.6 32.4 338.8 32.5 339.8 35.8 328.5 34.5
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
Total Company
Property
Pro Rata (1).......... 284.5 34.0 268.0 25.6 311.6 29.0 276.7 26.5 280.4 29.5 286.2 30.0
Excess................ 111.7 13.3 126.5 12.1 166.5 15.5 193.8 18.6 194.0 20.4 199.8 21.0
Casualty
Pro Rata (1).......... 243.4 29.1 392.2 37.5 357.2 33.2 311.6 29.8 237.6 25.0 228.4 24.0
Excess................ 197.1 23.6 259.2 24.8 239.7 22.3 261.9 25.1 237.5 25.0 238.8 25.1
------- ------ -------- ----- -------- ----- -------- ----- ------ ------ ------ -----
Total (2)............. $ 836.7 100.0% $1,045.9 100.0% $1,075.0 100.0% $1,044.0 100.0% $949.5 100.0% $953.2 100.0%
======= ====== ======== ===== ======== ===== ======== ===== ====== ====== ====== =====
</TABLE>
- -------
(1) For purposes of the presentation above, pro rata reinsurance means
reinsurance attaching to the first dollar of loss incurred by the ceding
company.
(2) Certain totals and subtotals may not reconcile due to rounding.
S-26
<PAGE>
U.S. Broker Treaty Operations
Our U.S. broker treaty unit writes property, accident and health and
casualty reinsurance through reinsurance brokers. We generally target specific
brokers and, through the broker market, specialty companies and small- to
medium-sized standard lines companies. The U.S. broker treaty operations also
write portions of reinsurance programs for larger, national insurance
companies.
In 1998, $100.3 million of our gross premiums written were attributable to
domestic property business which in 1998 and 1997 included accident and health
business, of which 41.2% was written on an excess of loss basis and 58.8% was
written on a pro rata basis. This unit utilizes sophisticated underwriting
methods that we believe are necessary to analyze and price property business,
particularly the segment of the property market that has catastrophe exposure.
Accident and health underwriting utilizes both third party and proprietary
actuarial pricing techniques.
Domestic casualty business accounted for $259.9 million of our gross
premiums written in 1998, of which 57.3% was written on an excess of loss basis
and 42.7% was written on a pro rata basis. The treaty casualty portfolio
consists principally of professional liability, directors' & officers'
liability, workers' compensation, excess and surplus lines and other liability
coverages. As a result of the complex technical nature of most of these risks,
our casualty underwriters tend to specialize by line of business and work
closely with our pricing actuaries.
U.S. Direct Treaty Reinsurance and Insurance Operations
Our U.S. direct treaty reinsurance and insurance unit writes a full line of
property and casualty business. In 1998, U.S. direct treaty reinsurance
business accounted for $90.6 million of our gross premiums written, of which
17.7% was written on an excess of loss basis and 82.3% was written on a pro
rata basis. The U.S. direct treaty underwriters target companies that place
their business predominantly in the direct market, including small- to medium-
sized regional ceding companies, and seek to develop long-term relationships
with these companies.
In 1998, our direct treaty domestic insurance operations accounted for
$78.6 million of gross premiums written primarily through Everest National.
Everest National targets commercial property and casualty business written
through agency relationships with program administrators. The initial
underwriting process for business written through agents is supplemented with
periodic claims and underwriting reviews.
Marine, Aviation and Surety Operations
Our marine and aviation unit focuses on ceding companies with a particular
expertise in the marine and aviation business. The marine and aviation business
is written primarily through brokers and contains a significant international
component written primarily in the London market. The surety business that we
underwrite consists mainly of reinsurance of contract surety bonds.
Gross premiums written by the marine and aviation unit in 1998 totaled
$68.6 million, substantially all of which was written on a treaty basis and
66.7% of which was sourced through reinsurance brokers. Marine treaties
represented 38.3% of the marine and aviation gross premiums written in 1998 and
consisted of hull and liability coverage. Approximately 82.5% of the marine
unit premiums in 1998 were written on a pro rata basis and 17.5% as excess of
loss. Aviation premiums accounted for 61.7% of the marine and aviation gross
premiums written in 1998 and included reinsurance for airlines, general
aviation and satellites. Approximately 92.9% of the aviation unit's premiums in
1998 were written on a pro rata basis and 7.1% as excess of loss.
In 1998, gross premiums written by the surety unit totaled $51.8 million.
Approximately 78.9% of the surety unit premiums in 1998 were written on a pro
rata basis and 21.1% on an excess of loss basis. Most of the portfolio is
reinsurance of contract surety bonds written directly with ceding
S-27
<PAGE>
companies, with the remainder being credit reinsurance, mostly in international
markets. The unit's strategy is to maintain long-term relationships with major
surety and fidelity writers and to continue to expand its international
business.
U.S. Facultative Operations
Our U.S. facultative unit conducts business both through brokers and
directly with ceding companies. The U.S. facultative operations consist of
three underwriting units representing property, casualty and specialty lines of
business. Business is written from a facultative headquarters office in New
York and satellite offices in Chicago and San Francisco. In 1998, $22.0
million, $25.2 million and $24.3 million of gross premiums written were
attributable to property, general casualty and specialty lines of business,
respectively.
International
Our international operations are designed to enable us to capitalize on
growth opportunities in the international reinsurance market. We target several
international markets, including: Europe and the London market, which are
serviced by branch operations in London and Brussels and a representative
office in Moscow; Canada, with branch operations in Toronto; Asia and
Australia, with branch operations in Hong Kong and Singapore; and Latin
America, Africa and the Middle East, which business is serviced from our New
Jersey headquarters and Miami office. We also write "home-foreign" business,
which provides reinsurance on the international portfolios of U.S. insurers,
from our headquarters in New Jersey. Approximately 57.8% of the gross premiums
written by our international underwriters in 1998 represented property
business, while the balance represented casualty business. As with our U.S.
operations, our international operations focus on financially sound companies
that have strong management and underwriting discipline and expertise.
Approximately 67.0% of our international business was written through brokers,
with the remainder written directly with ceding companies.
In 1998, gross premiums written by our London and Brussels operations
totaled $148.5 million and consisted of pro rata property (31.0%), excess
property (21.1%), pro rata casualty (35.9%) and excess casualty (12.0%).
Substantially all of the London and Brussels premiums consisted of treaty
reinsurance. The Brussels office focuses on the continental European
reinsurance markets, while the London office covers international business
written through the London market. Gross premiums written in 1998 from the
Brussels and London offices totaled $69.3 million and $79.2 million,
respectively.
Gross premiums written by our Canadian operation totaled $53.9 million in
1998 and consisted of pro rata property (5.0%), excess property (2.7%), pro
rata multi-line (47.1%), excess casualty (35.7%) and primary insurance written
by Everest Canada (9.5%). Approximately 67.6% of the Canadian premiums
consisted of treaty reinsurance, while 22.9% was facultative reinsurance and
9.5% was primary insurance.
Our Hong Kong and Singapore offices cover the Asian and Australian markets
and accounted for $33.0 million of gross written premiums in 1998. This
business consisted of pro rata property (86.1%), excess property (8.7%) and pro
rata and excess casualty (5.2%).
International business written out of Everest Re's New Jersey and Miami
offices accounted for $89.2 million of our 1998 gross premiums written and
consisted of pro rata treaty property (68.2%), pro rata treaty casualty
(13.3%), excess treaty property (10.4%), excess treaty casualty (2.0%) and
excess facultative property and casualty (6.1%). Of this international
business, 52.9% was sourced from Latin America, 23.7% was sourced from the
Middle East, 2.3% was sourced from Europe, 5.6% was sourced from Africa, 1.0%
was sourced from Asia and 14.5% was "home-foreign" business.
S-28
<PAGE>
Competition
The worldwide property and casualty reinsurance and insurance businesses
are highly competitive and have experienced severe price competition over the
last several years. Competition is based on many factors, including the
perceived overall financial strength of the reinsurer, A.M. Best's and/or
Standard & Poor's rating of the reinsurer, underwriting expertise, the
jurisdictions where the reinsurer or insurer is licensed or otherwise
authorized, premiums charged, other terms and conditions of the product
offered, services offered, speed of claims payment and reputation and
experience in lines written.
We compete in the United States and international reinsurance and insurance
markets with numerous international and domestic reinsurance and insurance
companies. Our competitors include independent reinsurance companies,
subsidiaries or affiliates of established worldwide insurance companies,
reinsurance departments of primary insurance companies and domestic and
international underwriting operations, including underwriting syndicates in
Lloyd's of London. Some of these competitors have greater financial resources
than we do, have been operating for longer than we have and have established
long-term and continuing business relationships throughout the industry, which
can be a significant competitive advantage. In addition, we expect to face
further competition in the future.
Since 1987, the worldwide reinsurance and insurance industries have
experienced increased global competition. Competition has increased as a result
of the consolidation of reinsurance companies, the formation of new reinsurance
companies, including several well-capitalized Bermuda-based companies which
operate within a tax-advantaged jurisdiction, and generally greater capital
levels maintained by reinsurance companies resulting from earnings growth,
investment gains, mergers and other factors. Lloyd's of London also has made
several operational changes that have increased the reinsurance capacity at
Lloyd's and enhanced its competitive position. In addition, the potential for
securitization of reinsurance and insurance risks through the capital markets
provide an additional source of reinsurance and insurance capacity. During this
same period, the demand for reinsurance by primary insurers has been adversely
affected by several factors, including consolidation of primary insurers,
increased primary insurer capital levels and continued access to capital
markets and increases in primary insurer's net retention levels.
We believe that the factors noted above that affect the supply of and
demand for reinsurance and insurance have resulted in increasingly competitive
market conditions and have influenced the continuing downward pressure on
reinsurance and insurance rates and the expansion of contract terms in the
current marketplace. We also believe that the reinsurance and insurance
markets, including reinsurance brokers, will continue to undergo further
consolidation and that reinsurers will need significant size, financial
strength and service capabilities to compete effectively.
S-29
<PAGE>
DESCRIPTION OF THE NOTES
The following description of the particular terms of the notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of senior notes set forth in
the prospectus.
General
The notes will be issued as a series of debt securities under the senior
indenture, dated as of March , 2000, between Everest Holdings and The Chase
Manhattan Bank, as senior indenture trustee. For a description of the rights
attaching to different series of senior notes under the senior indenture, see
"Description of the Senior Notes" in the prospectus.
The notes will be issued as unsecured obligations of Everest Holdings in an
aggregate principal amount of $ and will be issued only in book-entry form
through the facilities of The Depository Trust Company, and will be in
denominations of $1,000 and integral multiples thereof. Transfers or exchanges
of beneficial interests in the notes in book-entry form may be effected only
through a participating member of the depositary. See "Global Securities"
below. The notes will mature on .
The notes will bear interest from 2000, payable in arrears on
each and , commencing , 2000 at the rate set forth on the cover
page of this prospectus supplement, to the persons in whose names the notes are
registered on the preceding and , respectively.
Optional Redemption
The notes will be redeemable, in whole or in part, at the option of Everest
Holdings at any time at a redemption price equal to the greater of:
. 100% of the principal amount of the notes; or
. the sum of the present values of the remaining scheduled payments of
principal and interest on the notes, not including any portion of the
payments of interest accrued as of the date of redemption, discounted to
the redemption date on a semiannual basis at the treasury rate, plus
basis points;
plus, in each case, accrued and unpaid interest on the notes to the date of
redemption.
"Comparable treasury issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable
to the remaining term of the notes that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of the notes.
"Comparable treasury price" means, with respect to any redemption date, (1)
the average of the reference treasury dealer quotations for the redemption
date, after excluding the highest and lowest reference treasury dealer
quotations, or (2) if the trustee obtains fewer than three reference treasury
dealer quotations, the average of all of the quotations.
"Independent investment banker" means and any
successor firm or, if the firm is unwilling or unable to select the comparable
treasury issue, an independent investment banking institution of national
standing appointed by the senior indenture trustee after consultation with
Everest Holdings.
S-30
<PAGE>
"Reference treasury dealer" means each of Goldman, Sachs & Co. and any
three of the following: Donaldson, Lufkin & Jenrette Securities Corporation,
First Union Securities, Inc., Morgan Stanley & Co. Incorporated and ABN AMRO
Incorporated; provided, that (i) if any of the foregoing shall cease to be a
primary treasury dealer in U.S. Government securities, we will substitute
another primary treasury dealer in its place and (ii) if we fail to select a
substitute within a reasonable period of time, then the substitute will be any
other primary treasury dealer selected by the senior indenture trustee after
consultation with us.
"Reference treasury dealer quotations" means, with respect to each
reference treasury dealer and any redemption date, the average, as determined
by the senior indenture trustee, of the bid and asked prices for the comparable
treasury issue, expressed in each case as a percentage of its principal amount,
quoted in writing to the senior indenture trustee by the reference treasury
dealer at 5:00 p.m. on the third business day preceding the redemption date.
"Treasury rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the comparable
treasury issue, assuming a price for the comparable treasury issue, expressed
as a percentage of its principal amount, equal to the comparable treasury price
for the redemption date.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of the notes to be redeemed.
Unless Everest Holdings defaults in payment of the redemption price, on or
after the redemption date, interest will cease to accrue on the notes or
portions of the notes called for redemption.
The notes will not be entitled to any sinking fund.
Global Securities
The notes will be represented by one or more global securities registered
in the name of the nominee of the depositary, and will be available for
purchase in denominations of $1,000 and any integral multiple of $1,000. Each
global security will be deposited with the depositary, its nominee or custodian
and will bear a legend regarding the restrictions on exchanges and registration
of transfer of the notes referred to below and any other matters as may be
provided for pursuant to the senior indenture.
Ownership of beneficial interests in a global security will be limited to
institutions that have accounts with the depositary or its nominee, often
called participants, or persons that may hold beneficial interests through
participants. In addition, ownership of beneficial interests by participants in
a global security will be evidenced only by, and the transfer of that ownership
interest will be effected only through, records maintained by the depositary or
its nominee. Ownership of beneficial interests in the global security by
persons that hold through participants will be evidenced only by, and the
transfer of that ownership interest within the participant will be effected
only through, records maintained by the participant. Some insurance companies
and other institutions are required by law to hold their investment securities
in definitive form, so an investor may not be able to sell its senior notes to
those entities.
Payment of principal of and any premium and interest on the notes
represented by any global security will be made to the depositary's nominee as
the registered owner and holder of the global security. None of Everest
Holdings, the senior indenture trustee or any agent of Everest Holdings or the
senior indenture trustee will have any responsibility or liability for any
aspect of the depositary's or its nominee's records or any participant's
records relating to or payments made on account of the beneficial ownership
interests in a global security or for maintaining, supervising or reviewing any
of the depositary's or its nominee's records or any participant's records
relating to the beneficial ownership interests.
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<PAGE>
A global security is exchangeable for definitive notes registered in the
name of, and a transfer of a global security may be registered to, any person
other than the depositary or its nominee, only if:
. the depositary notifies us and the senior indenture trustee that it is
unwilling or unable to continue as depositary for the global security
and a successor depositary is not appointed by us within 90 days;
. if, at any time, the depositary ceases to be a clearing agency
registered under the Securities Exchange Act of 1934 and a successor
depositary is not appointed by us within 90 days;
. if an event of default has occurred and is continuing; or
. we determine, in our sole discretion, that the global security shall be
exchangeable for definitive notes in registered form.
The depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The depositary was created to hold securities of its participants and to
facilitate the clearance and settlement of securities transactions, such as
transfers and pledges, among its participants in securities through electronic
computerized book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates.
Participants include brokers, dealers, banks, trust companies, clearing
corporations and other organizations, some of whom own the depositary. Access
to the depositary's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Persons who are not participants may beneficially own securities held by the
depositary only through participants.
Certain Covenants in the Supplemental Indenture
Limitations On Sales Of Restricted Subsidiaries' Capital Stock
We will not sell, transfer or otherwise dispose of any shares of capital
stock of a restricted subsidiary, and we will not permit any restricted
subsidiary to sell, transfer or otherwise dispose of any shares of capital
stock of any other restricted subsidiary, unless the entire capital stock of
the restricted subsidiary at the time owned by us and our restricted
subsidiaries is disposed of at the same time for a consideration consisting of
cash or other property, which, in the opinion of our board of directors, is at
least equal to the fair value of the restricted subsidiary. These restrictions
do not apply to the sale, transfer or disposition of directors' qualifying
shares or sales or transfers to us or to other restricted subsidiaries.
For purposes of the supplemental indenture, "restricted subsidiary" means a
subsidiary that is a regulated insurance company principally engaged in one or
more of the life, annuity, property and casualty insurance or reinsurance
businesses and whose total assets and total revenues are 10% or more of the
total assets and total revenues, respectively, of Everest Holdings and its
consolidated subsidiaries, including the restricted subsidiary, unless our
board of directors determines that the subsidiary is not material to the
financial condition of Everest Holdings and its subsidiaries taken as a whole.
As of the date of this prospectus supplement, our only restricted subsidiary is
Everest Re. Everest Re accounted for approximately 98.3% of our consolidated
revenues during 1999 and approximately 99.7% of our consolidated assets at
December 31, 1999.
Limitations On Liens On Restricted Subsidiaries' Capital Stock
We will not, and will not permit any restricted subsidiary at any time
directly or indirectly to, create, assume, incur or permit to exist any
indebtedness secured by a pledge, lien or other encumbrance on the capital
stock of any restricted subsidiary without making effective provision
S-32
<PAGE>
whereby the notes then outstanding, and, if we elect, any other indebtedness
ranking on a parity with the notes, will be equally and ratably secured with
that other indebtedness so long as that other indebtedness is secured.
Defeasance
The indenture provisions relating to satisfaction and discharge and legal
and covenant defeasance that are described in the accompanying prospectus under
the caption "Description of the Senior Notes--Defeasance and Covenant
Defeasance" will apply to the notes.
Concerning the Trustee
Everest Holdings and certain of its affiliates maintain banking
relationships in the ordinary course of business with The Chase Manhattan Bank.
Paying Agent and Registrar
The Chase Manhattan Bank will act as paying agent and registrar for the
notes.
S-33
<PAGE>
UNDERWRITING
Everest Holdings and the underwriters for the offering named below have
entered into an underwriting agreement and a pricing agreement with respect to
the notes. Subject to certain conditions, each underwriter has severally agreed
to purchase the principal amount of notes indicated in the following table:
<TABLE>
<CAPTION>
Principal
Amount
Underwriters of Notes
------------ ---------
<S> <C>
Goldman, Sachs & Co............................................ $
Donaldson, Lufkin & Jenrette Securities Corporation............
First Union Securities, Inc....................................
------------
Total...................................................... $450,000,000
============
</TABLE>
Notes sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus
supplement. Any notes sold by the underwriters to securities dealers may be
sold at a discount from the initial public offering price of up to % of the
principal amount of the notes. Any such securities dealers may resell any notes
purchased from the underwriters to certain other brokers or dealers at a
discount from the initial public offering price of up to % of the principal
amount of the notes. If all the notes are not sold at the initial offering
price, the underwriters may change the offering price and the other selling
terms.
The notes are a new issue of securities with no established trading market.
Everest Holdings has been advised by the underwriters that the underwriters
intend to make a market in the notes but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity or existence of the trading market for the notes.
In connection with the offering, the underwriters may purchase and sell
notes in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater aggregate
principal amount of notes than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the notes
while the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the underwriters have repurchased notes sold by
or for the account of the underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the notes. As a result, the price of the notes may
be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected in the over-the-counter market or
otherwise.
Everest Holdings will apply to list the notes on the New York Stock
Exchange.
Everest Holdings estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $600,000.
Everest Holdings has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
In the ordinary course of their respective businesses, the underwriters and
their affiliates have engaged, and may in the future engage, in investment
banking or general financing and banking transactions with Everest Holdings
and/or its affiliates and may receive customary fees for providing the
services.
S-34
<PAGE>
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for Everest Holdings by
Mayer, Brown & Platt, Chicago, Illinois and for the underwriters by Sullivan &
Cromwell, New York, New York.
S-35
<PAGE>
Prospectus
$450,000,000
Everest Reinsurance Holdings, Inc.
Senior Notes, Junior Subordinated Notes and Guarantee
Everest Re Capital Trust
Preferred Securities Guaranteed by
Everest Reinsurance Holdings, Inc.
----------------
We may offer and sell the securities from time to time in one or more
offerings. This prospectus provides you with a general description of the
securities that we may offer.
Each time we sell securities we will provide a supplement to this prospectus
that contains specific information about the offering and the terms of the
securities. You should carefully read this prospectus and any supplement before
you invest in any of our securities.
Everest Reinsurance Holdings, Inc. may offer and sell the following
securities:
. senior notes
. junior subordinated notes
Everest Re Capital Trust may offer and sell preferred securities guaranteed
by Everest Holdings.
----------------
If we decide to list any of these securities on a national securities
exchange upon issuance, the supplements to this prospectus will identify the
exchange and state when we expect trading to begin.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
We may offer these securities through underwriters or agents or directly to
institutional investors. The supplements to this prospectus will provide the
specific terms of the plan of distribution.
----------------
Prospectus dated January 12, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ABOUT THIS PROSPECTUS..................................................... 1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS...................... 1
WHERE YOU CAN FIND MORE INFORMATION....................................... 2
EVEREST HOLDINGS.......................................................... 3
RECENT DEVELOPMENTS....................................................... 5
THE PROPOSED RESTRUCTURING................................................ 5
THE TRUST................................................................. 8
USE OF PROCEEDS........................................................... 9
RATIO OF EARNINGS TO FIXED CHARGES........................................ 9
ACCOUNTING TREATMENT...................................................... 9
DESCRIPTION OF THE SENIOR NOTES........................................... 10
DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES.............................. 19
DESCRIPTION OF THE PREFERRED SECURITIES................................... 29
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE......................... 36
DESCRIPTION OF THE EXPENSE AGREEMENT...................................... 38
RELATIONSHIP AMONG THE PREFERRED SECURITIES, PREFERRED SECURITIES
GUARANTEE AND JUNIOR SUBORDINATED NOTES HELD BY THE TRUST................ 38
PLAN OF DISTRIBUTION...................................................... 39
EXPERTS................................................................... 40
VALIDITY OF THE SECURITIES................................................ 40
</TABLE>
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a "shelf" registration statement that we filed
with the SEC. By using a shelf registration statement, we may sell up to
$450,000,000 offering price of any combination of the securities described in
this prospectus from time to time and in one or more offerings. This prospectus
only provides you with a general description of the securities that we may
offer. Each time we sell securities, we will provide a supplement to this
prospectus that contains specific information about the terms of the
securities. Before purchasing any securities, you should carefully read both
this prospectus and any supplement, together with the additional information
described under the heading "Where You Can Find More Information".
Everest Re Capital Trust, referred to in this prospectus as the trust, has
no independent function other than to issue securities and to purchase junior
subordinated notes from Everest Reinsurance Holdings, Inc., referred to in this
prospectus as Everest Holdings. This prospectus does not contain separate
financial statements for the trust. Everest Holdings files consolidated
financial information with the SEC that includes the trust. This prospectus
also does not contain separate additional information about the trust because
it is a wholly owned subsidiary of Everest Holdings and the trust is issuing
non-convertible, investment grade securities, which are fully and
unconditionally guaranteed by Everest Holdings. We do not believe that
additional financial or other information regarding the trust would be useful
to you.
You should rely only on the information contained or incorporated by
reference in this prospectus and in any supplement. "Incorporate by reference"
means that we can disclose important information to you by referring you to
another document filed separately with the SEC. We have not authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We will
not make an offer to sell these securities in any jurisdiction where the offer
or sale is not permitted. You should assume that the information appearing in
this prospectus and any supplement to this prospectus is accurate as of the
dates on their covers. Our business, financial condition, results of operations
and prospects may have changed since that date.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement and the information incorporated
by reference in them may contain forward-looking statements within the meaning
of the federal securities laws. Everest Holdings intends these forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements in these sections. In some cases, you can identify these statements
by our use of forward-looking words such as "may", "will", "should",
"anticipate", "estimate", "expect", "plan", "believe", "predict", "potential"
or "intend". You should be aware that these statements and any other forward-
looking statements in these documents only reflect our expectations and are not
guarantees of performance. These statements involve risks, uncertainties and
assumptions. Actual events or results may differ materially from our
expectations. Important factors that could cause our actual results to be
materially different from our expectations include those discussed in any of
these documents under the caption "Risk Factors". The safe harbor provisions
for forward-looking statements only apply to companies who have previously
offered securities to the public. Because the trust's offer of the preferred
securities constitutes its initial public offering of securities, the safe
harbor provisions of the federal securities laws do not apply to it. We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
1
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Available Information
This prospectus is part of a registration statement that we filed with the
SEC. The registration statement, including the attached exhibits, contains
additional relevant information about Everest Holdings and the trust. The rules
and regulations of the SEC allow us to omit some of the information included in
the registration statement from this prospectus. In addition, Everest Holdings
files reports, proxy statements and other information with the SEC under the
Exchange Act. You can read and copy any of this information at the following
locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois
60661-2551
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the SEC's Public Reference Room in Washington, D.C. by calling the SEC at 1-
800-SEC-0330.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information about issuers, like Everest Holdings, that
file electronically with the SEC. The address of that site is
http://www.sec.gov. The SEC file number for documents filed by Everest Holdings
under the Exchange Act is 1-13816.
Everest Holdings' common stock is listed on the New York Stock Exchange and
its stock symbol is "RE". You can inspect reports, proxy statements and other
information concerning Everest Holdings at the offices of the New York Stock
Exchange at 20 Broad Street, New York, New York 10005.
Incorporation by Reference
The rules of the SEC allow us to incorporate by reference information into
this prospectus. The information incorporated by reference is deemed to be part
of this prospectus, except for any information that is superseded by
information included directly in this prospectus or in any prospectus
supplement, and later information that we file with the SEC will automatically
update and supersede that information. This prospectus incorporates by
reference the documents set forth below that we have previously filed or will
file with the SEC. These documents contain important information about Everest
Holdings.
. Annual Report on Form 10-K of Everest Holdings for the year ended
December 31, 1998;
. Quarterly Reports on Form 10-Q of Everest Holdings for quarters ended
March 31, 1999, June 30, 1999 and September 30, 1999; and
. All additional documents that we file with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act between the date of this
prospectus and the termination of the offering of securities described in
any prospectus supplement.
Upon request, Everest Holdings will provide without charge to each person to
whom a copy of this prospectus has been delivered a copy of any and all of
these filings. You may request a copy of these filings by writing or
telephoning us at:
Everest Reinsurance Holdings, Inc.
477 Martinsville Road
P.O. Box 830
Liberty Corner, New Jersey 07938-0830
Attention: Janet J. Burak
Telephone: (908) 604-3000
2
<PAGE>
EVEREST HOLDINGS
Business Operations
Everest Holdings was established in 1993 in Delaware to serve as the parent
holding company of Everest Reinsurance Company, referred to in this prospectus
as Everest Re, a property and casualty reinsurer formed in 1973. Until October
6, 1995, Everest Holdings was an indirect, wholly-owned subsidiary of The
Prudential Insurance Company of America. On October 6, 1995, The Prudential
sold its entire interest in Everest Holdings' shares of common stock in an
initial public offering.
Everest Holdings, through Everest Re, underwrites property and casualty
reinsurance on a treaty and facultative basis for insurance and reinsurance
companies in the United States and selected international markets. Reinsurance
is a form of insurance purchased by an insurance company to indemnify it for
all or part of the loss that it may sustain under insurance contracts that it
has written. Insurance companies purchasing reinsurance are often referred to
as ceding companies or reinsureds. Underwriting reinsurance on a treaty basis
means that Everest Re reinsures one or more insurance companies pursuant to an
agreement called a treaty, which sets forth the terms and conditions of the
reinsurance. Treaties generally automatically reinsure a specific line or class
of business. Underwriting reinsurance on a facultative basis means that Everest
Re reinsures one specific policy as opposed to the reinsurance of a specific
line or class of business.
Everest Re writes reinsurance both through brokers and directly with ceding
companies, giving it the flexibility to pursue business regardless of the
ceding company's preferred reinsurance purchasing method. Everest Re and its
subsidiaries also write primary property and casualty insurance. Primary
insurance is purchased by insureds to pay amounts to them for economic losses
sustained from unexpected events. Based on industry data at December 31, 1998
published by the Reinsurance Association of America, Everest Re is the sixth
largest reinsurance company in the United States, ranked by statutory surplus.
Statutory surplus is the amount by which the assets of an insurer exceed the
insurer's liabilities, including the amounts required by law to be established
as reserves for the insurer's insurance obligations.
Following is a summary of Everest Holdings' and Everest Re's operating
subsidiaries:
. Everest National Insurance Company, an Arizona insurance company, is
licensed in 42 states and the District of Columbia and is authorized to
write primary insurance in the states in which it is licensed to write
insurance, often called writing insurance on an admitted basis.
. Everest Insurance Company of Canada, a Canadian insurance company, is
licensed in all Canadian provinces and territories and is federally
licensed to write primary insurance under the Insurance Companies Act of
Canada.
. Everest Indemnity Insurance Company, a Delaware insurance company,
engages in the excess and surplus lines insurance business in the United
States. Excess and surplus lines insurance is specialty property and
liability coverage that an insurer not licensed to write insurance in a
particular state is permitted to provide when the specific specialty
coverage is unavailable from admitted insurers. This is often called
writing insurance on a non-admitted basis. Everest Indemnity is licensed
in Delaware and is eligible to write business in 39 states, the District
of Columbia and the Commonwealth of Puerto Rico on a non-admitted basis.
. Mt. McKinley Managers, L.L.C., a New Jersey limited liability company, is
licensed in New Jersey as an insurance producer, which is any
intermediary, such as an agency or broker, which acts as the conduit
between an insurance company and an insured. Mt. McKinley holds licenses
to allow it to act in New Jersey as an insurance producer in connection
with policies written on both an admitted and a surplus lines basis.
After a 1998 acquisition of the assets of insurance agency operations in
Alabama and Georgia, the continuing insurance agency operations are now
carried on by subsidiaries of Mt. McKinley. These subsidiaries are
WorkCare Southeast, Inc., an Alabama insurance agency, and WorkCare
Southeast of Georgia, Inc., a Georgia insurance agency.
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. Everest Re Holdings, Ltd., a Bermuda company formed in 1998, owns Everest
Re Ltd., a United Kingdom company that is in the process of being
dissolved because its reinsurance operations have been converted into
branch operations of Everest Re. Everest Ltd. also holds approximately
$100 million of investments.
Our products include a full range of property and casualty coverages,
including marine, aviation, surety, errors and omissions, directors' and
officers', medical malpractice, other specialty liability lines, accident and
health, workers compensation, non-standard auto and loss portfolios. Our
distribution channels include both the direct and broker reinsurance markets,
international and domestic markets, reinsurance, both treaty and facultative,
and insurance, both admitted and non-admitted.
Our business strategies include effective management of the underwriting
cycle, which refers to the tendency of insurance premiums, profits and the
demand for and availability of coverage to rise and fall over time. We also
seek to manage catastrophe exposures and control expenses and retrocessional
costs, which are incurred when reinsurers purchase reinsurance. Our
underwriting strategies seek to capitalize on our staff's expertise and our
flexibility to offer multiple products by underwriting reinsurance through
brokers and directly with ceding companies and by writing primary insurance on
an admitted and non-admitted basis in a cost efficient manner. Efforts to
control expenses and to operate in a cost efficient manner are a continuing
focus for us.
Our underwriting strategy emphasizes underwriting profitability rather than
premium volume, the writing of specialized risks and the integration of
underwriting expertise across all underwriting units. Key elements of this
strategy are prudent risk selection, appropriate pricing through strict
underwriting discipline and adjustment of our business mix to respond to
changing market conditions. We focus on reinsuring companies that effectively
manage the underwriting cycle through proper analysis and pricing of underlying
risks and whose underwriting guidelines and performance are compatible with our
objectives.
Our underwriting strategy also emphasizes flexibility and responsiveness to
changing market conditions, such as increased demand or favorable pricing
trends. We believe that our existing strengths, including our broad
underwriting expertise, international presence, diverse distribution
capabilities and substantial capital, facilitate adjustments to our mix of
business geographically, by line of business and by type of coverage. We
believe that this allows us to capitalize on those market opportunities that
provide the greatest potential for underwriting profitability. Our primary
insurance infrastructure further facilitates this strategy by permitting us to
develop business that requires us to issue primary insurance policies. We
carefully monitor our mix of business to avoid inappropriate concentrations of
geographic or other risk.
Our underwriting guidelines seek to limit the accumulation of known risks in
exposed areas, to require that business that is exposed to catastrophe losses
be written with appropriate geographic spread and to maintain a cost-effective
retrocession program. Our underwriting guidelines also seek to better reflect
the relationship between premiums and risk assumed while maintaining our
probable maximum loss at appropriate levels.
Our principal executive offices are located at 477 Martinsville Road, P.O.
Box 830, Liberty Corner, New Jersey 07938-0830, and our telephone number is
(908) 604-3000.
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RECENT DEVELOPMENTS
On December 21, 1999, Everest Holdings entered into a three year senior
revolving credit facility with a syndicate of lenders, which replaces its $75
million facility. First Union National Bank is the administrative agent for the
credit facility. The credit facility provides for borrowings of up to $150
million and bears interest at either the higher of the prime rate established
by First Union National Bank from time to time or the federal funds rate plus
0.5% per annum. Alternatively, Everest Holdings may elect to have the
borrowings bear interest at an adjusted London InterBank Offered Rate plus a
margin. The amount of the margin and fees payable for the credit facility
depend upon the senior unsecured debt rating or, if that is not available, the
financial strength rating of Everest Re. The credit facility requires Everest
Holdings to maintain specified debt to capital and interest coverage ratios and
to maintain statutory surplus of its major operating subsidiary at $850 million
plus 25% of future aggregate net income and 25% of future aggregate capital
contributions. If the restructuring is completed, the new parent company of
Everest Holdings must guarantee the obligations of Everest Holdings under the
credit facility.
THE PROPOSED RESTRUCTURING
On September 16, 1999, the board of directors of Everest Holdings approved a
plan under which Everest Holdings and its subsidiaries would be restructured as
follows:
. Everest Re Group, Ltd., a company organized in Bermuda and with its
principal office in Barbados, referred to in this prospectus as Everest
Group, will become the new publicly-owned parent corporation of Everest
Holdings
. Everest Holdings, as a subsidiary of Everest Group, will continue to act
as the holding company for the subsidiaries of Everest Holdings in the
United States and Canada.
. Everest Group will also be the holding corporation for a new Bermuda-
based reinsurance subsidiary, Everest Reinsurance (Bermuda) Ltd.,
referred to in this prospectus as Everest Bermuda.
The restructuring will be accomplished in the following steps:
. Everest Holdings has organized a subsidiary, Everest Group, under the
laws of Bermuda and established its principal executive offices in
Barbados.
. Everest Group has organized a Delaware subsidiary, Everest Re Merger
Corporation, referred to in this prospectus as Everest Merger.
. Everest Merger will be merged into Everest Holdings, with Everest
Holdings as the surviving corporation. When the merger is completed,
Everest Holdings will become a subsidiary of Everest Group and each
outstanding share of common stock of Everest Holdings will be converted
into one common share of Everest Group.
. After the merger is completed, Everest Group will capitalize Everest
Bermuda, its Bermuda-based reinsurance subsidiary.
In connection with the restructuring, Everest Group also intends to form a
new Delaware subsidiary, Everest Global Services, Inc., to perform
administrative and back office functions for Everest Group and its insurance
subsidiaries.
We intend to call a special meeting of our stockholders to consider and vote
on the proposed restructuring. If our stockholders approve the proposed
restructuring at the special meeting, we anticipate that the proposed
restructuring will be completed immediately thereafter.
The offerings of the securities described in this prospectus are not
contingent on the restructuring being approved or completed. We intend to offer
securities when market conditions are favorable.
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The present corporate structure of Everest Holdings and its subsidiaries and
the corporate structure that would result from the proposed restructuring can
be illustrated as follows:
[ORGANIZATION CHART APPEARS HERE]
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[AFTER THE RESTRUCTURING CHART]
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THE TRUST
Everest Holdings created the trust as a statutory Delaware business trust
pursuant to a trust agreement. Everest Holdings will enter into an amended and
restated trust agreement for the trust, which will state the terms and
conditions for the trust to issue and sell its preferred securities and common
securities.
The trust exists solely to:
. issue and sell to the public preferred securities, representing undivided
beneficial interests in the assets of the trust;
. issue and sell to Everest Holdings common securities, representing
undivided beneficial interests in the assets of the trust;
. use the proceeds from the sale of its preferred and common securities to
purchase a series of our junior subordinated notes;
. distribute the cash payments it receives from the junior subordinated
notes it owns to the holders of the preferred and common securities; and
. engage in other activities that are necessary or incidental to these
purposes.
Everest Holdings will purchase all of the common securities of the trust.
The common securities will represent an aggregate liquidation amount equal to
at least 3% of the trust's total capitalization. The preferred securities will
represent the remaining approximately 97% of the trust's total capitalization.
The common securities will have terms substantially identical to, and will rank
equal in priority of payment with, the preferred securities. Payment will be
made on both the common securities and the preferred securities when payments
of interest are made on the junior subordinated notes, upon redemption of the
junior subordinated notes or in some circumstances upon liquidation of the
trust. However, if we default on the payments on the related junior
subordinated notes, then cash distributions and redemption, liquidation and
other amounts payable on the common securities will be subordinate in priority
of payment to the amounts payable on the preferred securities.
The preferred securities will be guaranteed by Everest Holdings as described
later in this prospectus.
We have appointed five trustees to conduct the trust's business and affairs:
. The Chase Manhattan Bank, which will act as the property trustee;
. Chase Manhattan Bank Delaware, which will act as the Delaware trustee;
and
. Three Everest Holdings officers, who will act as the regular trustees.
We will pay all fees and expenses related to the trust and the offering of
the preferred securities and will pay all ongoing costs and expenses of the
trust, except the trust's obligations under the preferred and common
securities.
The trust will not have separate financial statements. The statements would
not be material to holders of the preferred securities because the trust will
not have any independent operations and exists solely for the reasons
summarized above.
The principal offices of the trust will be located at 477 Martinsville Road,
P.O. Box 830, Liberty Corner, New Jersey 09738-0830, and the telephone number
of the trust will be (908) 604-3000.
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USE OF PROCEEDS
We may sell all or a portion of the $450 million of securities described in
this prospectus. Unless stated otherwise in the applicable prospectus
supplement, the net proceeds from the sale of the securities offered by the
trust will be used by the trust to purchase a series of our junior
subordinated notes.
Unless stated otherwise in the applicable prospectus supplement, if
securities are issued under this prospectus prior to the restructuring or if
the restructuring is not completed, Everest Holdings will use the net proceeds
to repurchase shares of Everest Holdings over time and for acquisitions
consistent with our business strategy, the payment of shareholder dividends
and general corporate purposes.
Unless stated otherwise in the applicable prospectus supplement, if the
restructuring is completed, substantially all of the remaining net proceeds
will be distributed by us to Everest Group and Everest Group will use the net
proceeds for the following purposes:
. approximately $250 million will be used to capitalize Everest Bermuda;
. any remaining proceeds may be used to repurchase shares of Everest Group
over time and for acquisitions consistent with our business strategy,
additional capitalization of Everest Bermuda, the payment of shareholder
dividends and general corporate purposes.
We do not anticipate needing to raise additional proceeds for the
capitalization of Everest Bermuda or the repurchase of shares.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of our earnings to fixed charges
for each of the periods indicated:
<TABLE>
<CAPTION>
Period Ended Year Ended December 31,
September 30, --------------------------
1999 1998 1997 1996 1995 1994
------------- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges..... 89.6 121.2 127.9 82.0 (1) (1)
</TABLE>
- --------
(1) Principally as a result of non-recurring charges, Everest Holdings had a
deficiency of earnings in 1995 and 1994 of $26,568,000 and $11,982,000,
respectively, to cover fixed charges.
ACCOUNTING TREATMENT
The trust will be treated as a subsidiary of Everest Holdings for financial
reporting purposes. Accordingly, the trust's financial statements will be
included in the consolidated financial statements of Everest Holdings. The
preferred securities will be presented as a separate line item in the
consolidated statements of financial condition of Everest Holdings under the
caption "Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated Notes of the Company" and
appropriate disclosures about the preferred securities will be included in the
notes to the consolidated financial statements. For financial reporting
purposes, Everest Holdings will record distributions payable on the preferred
securities as a component of interest expense in the consolidated statements
of operations of Everest Holdings.
In its future financial reports, Everest Holdings will: (1) present the
preferred securities on its consolidated statements of financial condition as
a separate line item entitled "Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated
Notes of the Company" and (2) include in a footnote to the financial
statements disclosure that the sole assets of the trust are the junior
subordinated notes specifying the principal amount, interest rate and maturity
date of the junior subordinated notes held.
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DESCRIPTION OF THE SENIOR NOTES
The senior notes will be issued pursuant to a senior indenture, dated as of
, 2000, as supplemented from time to time, between us and The Chase
Manhattan Bank, as the senior indenture trustee. We have filed the base senior
indenture as an exhibit to the registration statement of which this prospectus
is a part. You also may request a copy of the senior indenture from the senior
indenture trustee at its corporate trust office in Edison, New Jersey. The
senior indenture will be qualified under the Trust Indenture Act of 1939. The
terms of each series of senior notes will include those stated in the senior
indenture for that series and those made part of the senior indenture by
reference to the Trust Indenture Act. This section summarizes all of the
material provisions of the senior notes and the senior indenture. You should
refer to these documents for more detailed information.
We may issue series of senior notes from time to time by entering into
supplemental indentures with the senior indenture trustee or pursuant to
resolutions of our board of directors or a duly authorized committee of our
board. Any supplemental indenture or resolutions of either our board of
directors or a duly authorized committee of the board will be executed at the
time we issue any senior notes and will be filed with the SEC on Form 8-K or by
a post-effective amendment to the registration statement of which this
prospectus is a part.
General
The base senior indenture does not limit the aggregate principal amount of
senior notes that we may issue. The senior notes of a series need not be issued
at the same time, bear interest at the same rate or mature on the same date.
We conduct our business through subsidiaries. Accordingly, our ability to
meet our obligations under the senior notes will be dependent on the earnings
and cash flows of our subsidiaries and the ability of our subsidiaries to pay
dividends or to advance or repay funds to us.
We will issue senior notes under the senior indenture as one or more series
of unsecured senior debt securities. The senior notes are unsecured and
subordinated in right of payment to all of our existing and future secured
indebtedness and will rank equal in priority with all of our other unsecured
and unsubordinated indebtedness. As of September 30, 1999, we had no secured
indebtedness outstanding and approximately $35 million of senior indebtedness
outstanding, which ranks equal in priority with the senior notes. The senior
notes also will be effectively subordinated to any indebtedness and other
liabilities of our subsidiaries. As of September 30, 1999, our subsidiaries had
approximately $ 4.4 billion of indebtedness and other liabilities, including
insurance reserves. We anticipate that from time to time we will incur
additional indebtedness. We will disclose any material changes in these amounts
that may occur in any applicable prospectus supplement.
The prospectus supplement and the supplemental indenture or resolutions for
a particular series of senior notes will set forth the following terms of that
series:
. the title of the series;
. any limit on the aggregate principal amount of the senior notes of the
series;
. the date or dates on which the principal of any of the senior notes of
the series will be payable or the method for determining the date or
dates;
. whether we may shorten or extend the date on which the principal of any
senior notes of the series is payable and, if so, the terms and
conditions of any extension;
. the rate or rates at which any of the senior notes of the series will
bear interest, if any, or the method for determining the rate or rates,
and the date or dates from which any interest will accrue;
. the interest payment dates on which any interest will be payable and the
regular record date, if any, for any interest payable on any interest
payment date;
. whether we may extend the interest payment periods and, if so, the terms
of any extension;
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. the place or places where principal and any premium and interest on any
of the senior notes of the series will be payable, if other than the
principal corporate trust office of the senior indenture trustee;
. our obligation, if any, to redeem or purchase the senior notes of the
series pursuant to any sinking fund, amortization or analogous provision
and the terms and conditions on which any of the senior notes may be
redeemed or purchased pursuant to any obligation;
. the terms and conditions, if any, on which the senior notes of the series
may be redeemed at our option or at the option of the holder;
. any index or formula for determining the amount of principal or any
premium or interest on any of the senior notes of the series and the
manner of determining those amounts;
. the currency, currencies or currency units in which principal and any
premium and interest on any of the senior notes of the series will be
payable, if other than U.S. dollars, and the manner of determining the
equivalent of those amounts in U.S. dollars for any purpose;
. if the principal of or any premium or interest on the senior notes of the
series is payable, at our option or the option of the holder of the
senior notes, in one or more currencies or currency units other than
those in which the senior notes are stated to be payable, the currency,
currencies or currency units in which the principal and any premium and
interest on the senior notes may be payable and the terms and conditions
of the option;
. the portion of the principal amount of any of the senior notes of the
series that will be payable upon declaration of acceleration of maturity,
if other than the entire principal amount;
. whether any of the terms of the senior indenture described below under
"--Defeasance and Covenant Defeasance" will apply to any of the senior
notes of the series;
. whether any of the senior notes of the series will be issuable as global
securities and, if so, the depositary and any provisions for the transfer
or exchange of any such global securities, if different from those
described below under "--Global Securities";
. any addition to, deletion from or change in events of default or
covenants with respect to any of the senior notes of the series and any
change in the right of the senior indenture trustee or the holders of the
senior notes to accelerate the maturity of the senior notes;
. if the principal amount payable on the maturity date of any of the senior
notes of the series will not be determinable on any one or more dates
prior to the maturity date, the amount which will be deemed to be the
principal amount as of any date for any purpose, including the principal
amount which will be due and payable upon any maturity other than the
maturity date, or the manner of determining that amount; and
. any other terms of the senior notes of the series.
Unless the applicable prospectus supplement states otherwise, we will issue
the senior notes only in fully registered form, without coupons, and there will
be no service charge for any registration of transfer or exchange of the senior
notes. We may, however, require payment to cover any tax or other governmental
charge payable in connection with the registration of transfer or exchange.
We may offer and sell the senior notes at a substantial discount below their
principal amount and the senior indenture does not provide any limit on the
amount by which we may discount the senior notes. The applicable prospectus
supplement will describe the special United States federal income tax and other
considerations, if any, applicable to the discounted senior notes. In addition,
the applicable prospectus supplement may describe certain special United States
federal income tax or other considerations, if any, applicable to any senior
notes that are denominated in a currency or currency unit other than U.S.
dollars.
The senior notes are unsecured and subordinated in right of payment to all
of our existing and future secured indebtedness. As a result, in the event of
our bankruptcy, liquidation or reorganization or upon
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acceleration of the senior notes due to an event of default, our assets will be
available to pay our obligations on the senior notes only after all secured
indebtedness has been paid in full in cash or other payment satisfactory to the
holders of the secured indebtedness has been made. There may not be sufficient
assets remaining to pay amounts due on any or all of the senior notes then
outstanding. The senior notes are also effectively subordinated to the
indebtedness and other liabilities of our subsidiaries. The senior indenture
does not prohibit or limit the incurrence of secured or senior indebtedness or
the incurrence of other indebtedness and liabilities by us or our subsidiaries.
The incurrence of additional senior indebtedness and other liabilities by us or
our subsidiaries could adversely affect our ability to pay the obligations on
the senior notes.
Global Securities
Some or all of the senior notes of a series may be represented in whole or
in part by one or more global securities deposited with or on behalf of one or
more depositaries.
The applicable prospectus supplement will describe the terms of any
depositary arrangement. We anticipate that the following provisions will apply
to all depositary arrangements for any senior notes represented by global
securities.
Unless the applicable prospectus supplement states otherwise, senior notes
represented by a global security deposited with or on behalf of a depositary
will be registered in the name of that depositary or its nominee. Upon the
issuance of a global security in registered form, the depositary for the global
security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the senior notes represented by the global
security to the accounts of institutions that have accounts with the depositary
or its nominee. These institutions are generally brokers, dealers, banks and
other financial institutions and are often referred to as participants. The
accounts to be credited will be designated by the underwriters or agents of the
senior notes or by Everest Holdings, if the senior notes are offered and sold
directly by Everest Holdings. Ownership of beneficial interests in the global
securities will be limited to participants or persons that may hold interests
through participants. Any person who holds a brokerage account with a
participant may purchase the senior notes through the participant. Ownership of
beneficial interests by participants in the global securities will be shown on,
and the transfer of any ownership interest will be effected only through,
records maintained by the depositary or its nominee for the global security.
Ownership of beneficial interests in global securities by persons that hold
through participants will be effected only through records maintained by the
applicable participant. Some insurance companies and other institutions are
required by law to hold their investment securities in definitive form, so an
investor may not be able to sell its senior notes to those insurance companies
or other institutions.
So long as the depositary for a global security or its nominee is the
registered owner of the global security, the depositary or the nominee, as the
case may be, will be considered the sole owner or holder of the senior notes
represented by the global security for all purposes under the senior indenture.
Except as set forth below, owners of beneficial interests in the global
security will not be entitled to have the senior notes represented by the
global security registered in their names, will not receive or be entitled to
receive physical delivery of the senior notes in definitive form and will not
be considered the owners or holders of the senior notes under the senior
indenture.
Payment of principal of and any premium and interest on senior notes
registered in the name of or held by a depositary or its nominee will be made
in immediately available funds to the depositary or its nominee, as the case
may be, as the registered owner or the holder of the global security
representing the senior notes. None of Everest Holdings, the senior indenture
trustee, any paying agent or the registrar and transfer agent for the senior
notes will have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
a global security for the senior notes or for maintaining, supervising or
reviewing any records relating to the beneficial ownership interests.
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We expect that a depositary for senior notes of a series, upon receipt of
any payment of principal or any premium or interest in respect of a global
security, will immediately credit participants' accounts with payment in
amounts proportionate to their respective beneficial interests in the principal
amount of the global security as shown on the records of the depositary. We
also expect that payments by participants to owners of beneficial interests in
the global security held through the participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name", and will be the
responsibility of each participant.
So long as the depositary for a global security or its nominee is the
registered owner of the global security, the depositary or its nominee, as the
case may be, will be entitled to direct the actions of the senior indenture
trustee upon an event of default. However, we expect that a depositary for the
senior notes of a series, upon receiving notice of an event of default, will
immediately solicit the participants regarding any action to be taken. We also
expect that the participants will act in accordance with standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in "street name", and will, in turn, solicit
the owners of the beneficial interests regarding any action to be taken upon
any event of default.
A global security may not be transferred in whole or in part except by the
depositary for the global security to a nominee of the depositary or by a
nominee of the depositary to the depositary or another nominee of the
depositary or by the depositary or any nominee to a successor depositary or a
nominee of the successor depositary. If a depositary for the senior notes of a
series is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by us within 90 days or if at any time
the depositary ceases to be a clearing agency registered under the Exchange Act
when the depositary is required to be registered to act as the depositary and
no successor is appointed by us within 90 days or if an event of default has
occurred and is continuing, then we will issue the senior notes in definitive
registered form in exchange for the global security or global securities
representing the senior notes. In addition, we may at any time determine not to
have any senior notes represented by one or more global securities and, in that
event, will issue senior notes in definitive registered form in exchange for
the global securities representing the senior notes. In any of these instances,
an owner of a beneficial interest in a global security will be entitled to
physical delivery in definitive form of the senior notes represented by the
global security equal in principal amount to its beneficial interest and to
have the senior notes registered in its name.
Events of Default
The following will be events of default under the senior indenture with
respect to the senior notes of any series unless the particular event of
default is not applicable to the particular series or unless the particular
event of default is modified or deleted in a supplemental indenture as stated
in the applicable prospectus supplement:
. we fail to pay principal of or any premium on any senior note of that
series on its due date;
. we fail to pay any interest on any senior note of that series within 30
days from its due date; provided, however, that the date on which the
payment is due will be the date on which we are required to make payment
following any deferral of interest payments by us under the terms of the
senior notes;
. we fail to make any sinking fund payment on its due date;
. we fail to perform any of our covenants in the senior indenture,
excluding a covenant not applicable to the affected series, for 60 days
after the senior indenture trustee or the holders of at least 33% in
principal amount of the outstanding senior notes of that series give us
written notice of the default and require that we remedy the breach.
However, the 60-day period may be extended by either the senior indenture
trustee or the senior indenture trustee and the holders of at least the
same principal amount of the outstanding senior notes of that series that
had given notice of the default, and the senior indenture trustee, or the
senior indenture trustee and such holders, as the case may be, will be
deemed to have agreed to an extension if we have initiated and are
diligently pursuing corrective action;
. we default under any (1) debt for any money borrowed, including any other
series of debt securities, (2) mortgage, indenture or other instrument
under which there may be issued or may be secured or
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evidenced any indebtedness for money borrowed or (3) guarantee of payment
for money borrowed, and any default shall result in the indebtedness
becoming due prior to its stated maturity; provided, however, a default
shall exist under this clause only if the aggregate principal amount
outstanding under all of the indebtedness that has become due prior to its
stated maturity exceeds $25,000,000 and the accelerated indebtedness has
not been discharged or the acceleration of the indebtedness has not been
rescinded or annulled within 10 days after the senior indenture trustee or
the holders of at least 33% in principal amount of the senior notes give
us written notice of the default and require that we remedy the breach;
. we file for bankruptcy or other events of bankruptcy, insolvency or
reorganization occur; or
. any other event of default specified in the applicable prospectus
supplement occurs.
If an event of default with respect to the senior notes of a series occurs
and is continuing, then the senior indenture trustee or the holders of not
less than 33% in principal amount of the outstanding senior notes of that
series may, by notice to us, and to the senior indenture trustee if given by
the holders, declare to be immediately due and payable all unpaid principal
and accrued interest on all senior notes of that series. At any time after a
declaration of acceleration has been made with respect to the senior notes of
a series and before a judgment or decree for payment of the money due has been
obtained, the holders of a majority in principal amount of the outstanding
senior notes may rescind any declaration of acceleration with respect to the
senior notes and its consequences if:
. we deposit with the senior indenture trustee funds sufficient to pay all
overdue principal of and premium and interest on the senior notes and
other amounts due to the senior note trustee and, to the extent that
payment of the interest is lawful, interest on the overdue interest; and
. all existing events of default with respect to the senior notes have been
cured or waived except non-payment of principal or interest on the senior
notes that has become due solely because of the acceleration.
The holders of a majority in principal amount of the outstanding senior
notes of any series have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the senior indenture
trustee or to direct the exercise of any trust or power conferred on the
senior indenture trustee with respect to the senior notes of that series.
No holder of a senior note of any series will have any right to institute a
proceeding with respect to the senior indenture for the appointment of a
receiver or for any remedy under the senior indenture unless:
. that holder has previously given the senior indenture trustee written
notice that an event of default with respect to the senior notes of that
series has occurred and is continuing;
. the holders of a majority in principal amount of the outstanding senior
notes of that series have made written request to institute the
proceeding;
. the holder or holders have offered reasonable indemnity to the senior
indenture trustee;
. the senior indenture trustee has failed to institute the proceeding for
60 days after receipt of the notice and offer of indemnity; and
. the senior indenture trustee has not received from the holders of a
majority in principal amount of the outstanding senior notes of that
series a direction inconsistent with the written request.
Notwithstanding the foregoing, the holder of any senior note will have an
absolute and unconditional right to receive payment of the principal of and
any premium and interest on that senior note on its maturity date, or, in the
case of redemption, the date of redemption, and to institute suit for the
enforcement of any payment.
Notice of Default
If an event occurs which is or would become an event of default with
respect to any series of the senior notes, and the senior indenture trustee
knows of the event, the senior indenture trustee shall mail to the holders of
the affected senior notes a notice of the default within 90 days, unless the
default has been cured or waived by the holders of the affected senior notes.
However, except in the case of a default in the payment of any
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amounts due on senior notes of any series, the senior indenture trustee may
withhold the notice if and so long as the directors and/or responsible officers
of the senior indenture trustee determine in good faith that withholding the
notice is in the interest of the holders of the affected senior notes. In
addition, if Everest Holdings defaults on any series of the senior notes by
failing to comply with or perform any of its agreements, covenants or
warranties applicable to those senior notes, no notice will be given until at
least 30 days after the occurrence of the default.
We are required to furnish annually to the senior indenture trustee an
officers' certificate to the effect that, to the best knowledge of the officers
providing the certificate, we are not in default under the senior indenture or,
if there has been a default, specifying the default and its status.
Consolidation, Merger, Conveyance or Transfer
The senior indenture provides that we may consolidate or merge with or into
another entity, or convey, transfer or lease our properties and assets
substantially as an entirety to any entity or permit an entity to convey,
transfer or lease its properties and assets substantially as an entirety to us;
provided, however, that:
. the successor, if any, is a corporation, partnership or trust organized
and existing under the laws of the United States of America, any State of
the United States, the District of Columbia, Bermuda or the Cayman
Islands and expressly assumes by supplemental indenture all of our
obligations under the senior indenture and the senior notes;
. immediately after giving effect to the transaction, no event or default,
or event which after notice or lapse of time or both would become an
event of default, will have occurred and be continuing; and
. we deliver an officers' certificate and an opinion of counsel to the
senior indenture trustee, each stating that the transaction complies with
the senior indenture and all conditions precedent in the senior indenture
relating to the consolidation, merger, conveyance or transfer have been
complied with.
Upon the assumption by the successor of our obligations under the senior
indenture and the senior notes, the successor will succeed to and be
substituted for Everest Holdings under the senior indenture, and we will be
relieved of all of our obligations under the senior indenture and the senior
notes.
Registration and Transfer
If the senior notes of a series are to be redeemed, we will not be required
to:
. issue, register the transfer of or exchange any senior notes of that
series during the 15 days immediately preceding the date notice is mailed
identifying the senior notes that are called for redemption; or
. register the transfer of or exchange any senior note selected for
redemption, in whole or in part, except for the unredeemed portion of a
senior note being redeemed in part.
Denominations
The senior notes will be issuable in denominations of $1,000 and any
integral multiples of $1,000, without coupons, unless the applicable prospectus
supplement states otherwise.
Payment and Paying Agent
Principal of the senior notes will be paid only against surrender of the
senior notes as specified in the senior indenture. Unless the applicable
prospectus supplement states otherwise, interest on the senior notes will be
payable, at our option, (1) by wire transfer to an account at a banking
institution in the United States that the person entitled to the interest
designates in writing to the senior indenture trustee at least 16 days prior to
the date of payment or (2) by check mailed to the address of the person
entitled to the interest as the address appears in the security register for
the senior notes.
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Unless the applicable prospectus supplement states otherwise, the senior
indenture trustee will act as paying agent for the senior notes, and the
principal corporate trust office of the senior indenture trustee will serve as
the office through which the paying agent acts. We may designate additional
paying agents, rescind the designation of any paying agents or approve a change
in the office through which any paying agent acts.
All moneys that we have paid to a paying agent for payment of principal of
or interest on the senior notes that remain unclaimed at the end of two years
after the principal or interest has become due and payable will be repaid to us
at our request. Holders will thereafter look only to us for any payments.
Modification of the Senior Indenture
Everest Holdings and the senior indenture trustee may amend or modify the
senior indenture with the consent of the holders of a majority in aggregate
principal amount of the outstanding senior notes of each series of the senior
notes affected by the amendment or modification voting as a class. No amendment
or modification may, however, without the consent of the holder of each
outstanding senior note affected by the amendment or modification:
. change the stated maturity of the principal of, or any installment of
principal of or interest on, any senior note;
. reduce the principal amount of, the rate of interest on or any premium
payable upon the redemption of any senior note;
. reduce the amount of principal of any senior note due and payable upon
acceleration of the maturity of the senior note;
. change the place of payment or currency of payment of principal of or any
premium or interest on any senior note;
. impair the right to institute suit for the enforcement of any payment on
any senior note on or after the stated maturity or date of redemption; or
. reduce the percentage in principal amount of the senior notes of any
series, the consent of whose holders is required to amend or modify the
senior indenture, to waive compliance with specific provisions of the
senior indenture or to waive specific defaults.
In addition, Everest Holdings and the senior indenture trustee may, without
the consent of any of the holders of the senior notes, execute supplemental
indentures to:
. create new series of senior notes;
. cure any ambiguity, defect or inconsistency in the senior indenture; and
. make other changes that do not adversely affect the interests of the
holders of the senior notes in any material respect;
as well as for various other purposes.
Waiver of Covenants and Defaults
The holders of a majority in aggregate principal amount of the outstanding
senior notes of any series may waive, for that series, our compliance with any
restrictive covenants described in any prospectus supplement or included in any
supplemental indenture. The holders of a majority in aggregate principal amount
of the outstanding senior notes of any series with respect to which a default
has occurred and is continuing may waive that default for that series, other
than a default in the payment of principal of, or any premium or interest on,
any senior note of that series or a default with respect to a covenant or
provision that cannot be amended or modified without the consent of the holder
of each outstanding senior note affected.
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Defeasance and Covenant Defeasance
The senior indenture provides, unless the terms of the particular series of
senior notes provides otherwise, that we may cause ourselves to be:
. discharged from our obligations with respect to any senior notes or
series of senior notes, which we refer to as "defeasance"; and
. released from our obligations under any restrictive covenants described
in any prospectus supplement or included in any supplemental indenture
with respect to any senior notes or series of senior notes, which we
refer to as "covenant defeasance".
The senior indenture permits defeasance with respect to any senior notes of
a series even if a prior covenant defeasance has occurred with respect to the
senior notes of that series. Following a defeasance, payment of the senior
notes defeased may not be accelerated because of an event of default.
Following a covenant defeasance, payment of the senior notes may not be
accelerated by reference to the covenants affected by the covenant defeasance.
However, if an acceleration were to occur, the realizable value at the
acceleration date of the money and government obligations in the defeasance
trust could be less than the principal and interest then due on the senior
notes, since the required deposit in the defeasance trust would be based upon
scheduled cash flows rather than market value, which would vary depending upon
interest rates and other factors.
Upon a defeasance, the following rights and obligations will continue: (1)
the rights of the holders of the senior notes of any series to receive from
the trust established in connection with the defeasance payments of the
principal of and any premium and interest on the senior notes when payments
are due; (2) our obligations regarding the registration, transfer and exchange
of the senior notes of any series; (3) our obligation to maintain an office or
agency in each place of payment; and (4) the survival of the senior indenture
trustee's rights, powers, trusts, duties and immunities under the senior
indenture.
In connection with any defeasance or covenant defeasance, we must
irrevocably deposit with the senior indenture trustee, in trust, money and/or
government obligations which, through the scheduled payment of principal and
interest on those obligations, would provide sufficient moneys to pay the
principal of and any premium and interest on the senior notes on the maturity
dates or upon redemption.
In connection with a defeasance or covenant defeasance, we must deliver to
the senior indenture trustee:
. an opinion of counsel to the effect that the holders of the senior notes
will not recognize income, gain or loss for United States federal income
tax purposes as a result of such defeasance or covenant defeasance and
will be subject to United States federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such defeasance or covenant defeasance had not occurred. This opinion, in
the case of a defeasance, must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable federal income tax law
occurring after the date of the senior indenture;
. an officers' certificate confirming that any senior notes then listed on
any securities exchange will not be delisted; and
. an officers' certificate and an opinion of counsel, each stating that all
conditions precedent have been complied with.
In addition, the following conditions must be true:
. no event will have occurred and be continuing which is or would become an
event of default;
. the defeasance or covenant defeasance will not cause the senior indenture
trustee to have a conflicting interest under the Trust Indenture Act;
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. the defeasance or covenant defeasance will not cause the trust to become
an investment company under the Investment Company Act unless it is
properly registered under that Act or exempt from registration; and
. proper notice of the redemption date, if applicable, will have been
given.
Information Concerning the Senior Indenture Trustee
In case an event of default shall occur and be continuing, the senior
indenture trustee shall exercise its rights and powers under the senior
indenture in the same manner and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the same circumstances
in the conduct of his or her own affairs. Before proceeding to exercise any
right or power under the senior indenture at the direction of the holders, the
senior indenture trustee will be entitled to receive from the holders
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in complying with any direction of the holders.
The Chase Manhattan Bank, which is the senior indenture trustee, also serves
as the subordinated note trustee under the subordinated indenture described
below and as property trustee and guarantee trustee with respect to the
preferred securities issued by the trust. Everest Holdings and certain of its
affiliates maintain banking relationships with The Chase Manhattan Bank.
Governing Law
The senior indenture and the senior notes will be governed by the laws of
the State of New York, without regard to the conflict of law provisions
thereof.
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DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES
The junior subordinated notes will be issued pursuant to a subordinated
indenture, dated as of , 2000, as supplemented from time to time,
between us and The Chase Manhattan Bank, as the subordinated indenture trustee.
We have filed the base subordinated indenture as an exhibit to the registration
statement of which this prospectus is a part. You also may request a copy of
the subordinated indenture from the subordinated indenture trustee at its
corporate trust office in Edison, New Jersey. The subordinated indenture will
be qualified under the Trust Indenture Act of 1939. The terms of each series of
junior subordinated notes will include those stated in the subordinated
indenture and those made part of the subordinated indenture by reference to the
Trust Indenture Act. This section summarizes all of the material provisions of
the junior subordinated notes and the subordinated indenture. You should refer
to these documents for more detailed information.
We may issue series of junior subordinated notes from time to time by
entering into supplemental indentures with the subordinated indenture trustee
or pursuant to resolutions of our board of directors or a duly authorized
committee of our board. Any supplemental indenture or resolutions of either our
board of directors or a duly authorized committee of our board will be executed
at the time we issue any junior subordinated notes and will be filed with the
SEC on Form 8-K or by a post-effective amendment to the registration statement
of which this prospectus is a part.
General
The base subordinated indenture does not limit the aggregate principal
amount of junior subordinated notes that we may issue. The junior subordinated
notes of a series need not be issued at the same time, bear interest at the
same rate or mature on the same date.
We conduct our business through subsidiaries. Accordingly, our ability to
meet our obligations under the junior subordinated notes will be dependent on
the earnings and cash flows of our subsidiaries and the ability of our
subsidiaries to pay dividends or to advance or repay funds to us.
We will issue the junior subordinated notes under the subordinated indenture
as one or more series of unsecured junior debt securities. The junior
subordinated notes are unsecured and subordinated in right of payment to all of
our existing and future senior indebtedness and will rank equal in priority
with all of our other unsecured and subordinated indebtedness. As of September
30, 1999, we had no secured indebtedness outstanding and approximately $35
million of senior indebtedness outstanding, which would be senior to the junior
subordinated notes. The junior subordinated notes also will be effectively
subordinated to any indebtedness and other liabilities of our subsidiaries. As
of September 30, 1999, our subsidiaries had approximately $4.4 billion of
indebtedness and other liabilities, including insurance reserves. We anticipate
that from time to time we will incur additional indebtedness, including
indebtedness senior to the junior subordinated notes. We will disclose any
material changes in these amounts that may occur in any applicable prospectus
supplement.
The prospectus supplement and the supplemental indenture for a particular
series of junior subordinated notes will set forth the following terms of that
series:
. the title of the series;
. any limit on the aggregate principal amount of the junior subordinated
notes of the series;
. the date or dates on which the principal of the junior subordinated notes
of the series will be payable or the method for determining the date or
dates;
. whether we may shorten or extend the date on which the principal of any
junior subordinated notes of the series is payable and, if so, the terms
and conditions of any extension;
. the rate or rates at which the junior subordinated notes of the series
will bear interest, if any, or the method for determining the rate or
rates, and the date or dates from which any interest will accrue;
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. the interest payment dates on which any interest will be payable and the
regular record date, if any, for any interest payable on any interest
payment date;
. whether we may extend the interest payment periods and, if so, the terms
of any extension;
. the place or places where principal and any premium and interest on the
junior subordinated notes of the series will be payable, if other than
the principal corporate trust office of the subordinated indenture
trustee;
. our obligation, if any, to redeem or purchase the junior subordinated
notes of the series pursuant to any sinking fund, amortization or
analogous provision and the terms and conditions on which the junior
subordinated notes may be redeemed or purchased pursuant to any
obligation;
. the terms and conditions, if any, on which the junior subordinated notes
of the series may be redeemed at our option or at the option of the
holder;
. any index or formula for determining the amount of principal or any
premium or interest on the junior subordinated notes of the series and
the manner of determining those amounts;
. the currency, currencies or currency units in which principal and any
premium and interest on the junior subordinated notes of the series will
be payable, if other than U.S. dollars, and the manner of determining the
equivalent of those amounts in U.S. dollars for any purpose;
. if the principal of or any premium or interest on the junior subordinated
notes of the series is payable, at our option or the option of the holder
of the junior subordinated notes, in one or more currencies or currency
units other than those in which the junior subordinated notes are stated
to be payable, the currency, currencies or currency units in which the
principal and any premium and interest on the junior subordinated notes
may be payable and the terms and conditions of the option;
. the portion of the principal amount of the junior subordinated notes of
the series that will be payable upon declaration of acceleration of
maturity, if other than the entire principal amount;
. whether any of the terms of the subordinated indenture described below
under "--Defeasance and Covenant Defeasance" will not apply to the junior
subordinated notes of the series;
. whether any of the junior subordinated notes of the series will be
issuable as global securities and, if so, the depositary and any
provisions for the transfer or exchange of the global securities, if
different from those described below under "--Global Securities";
. any addition to, deletion from or change in events of default or
covenants with respect to the junior subordinated notes of the series and
any change in the right of the subordinated indenture trustee or the
holders of the junior subordinated notes to accelerate the maturity of
the junior subordinated notes;
. if the principal amount payable on the maturity date of the junior
subordinated notes of the series will not be determinable on any one or
more dates prior to the maturity date, the amount which will be deemed to
be the principal amount as of any date for any purpose, including the
principal amount which will be due and payable upon any maturity other
than the maturity date, or the manner of determining that amount; and
. any other terms of the junior subordinated notes of the series.
Unless the applicable prospectus supplement states otherwise, the junior
subordinated notes will be issued only in fully registered form, without
coupons, and there will be no service charge for any registration of transfer
or exchange of the junior subordinated notes. We may, however, require payment
to cover any tax or other governmental charge payable in connection with the
registration of transfer or exchange.
The interest rate and interest and other payment dates of each series of
junior subordinated notes issued to the trust will correspond to those of the
preferred securities of the trust.
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Subordination
The junior subordinated notes are unsecured and subordinated in right of
payment to all of our existing and future secured and senior indebtedness. As a
result, in the event of our bankruptcy, liquidation or reorganization or upon
acceleration of the junior subordinated notes due to an event of default, our
assets will be available to pay our obligations on the junior subordinated
notes only after all secured and senior indebtedness has been paid in full in
cash or other payment satisfactory to the holders of the secured and senior
indebtedness has been made. There may not be sufficient assets remaining to pay
amounts due on any or all of the junior subordinated notes then outstanding.
The junior subordinated notes are also effectively subordinated to the
indebtedness and other liabilities of our subsidiaries. The subordinated
indenture does not prohibit or limit the incurrence of secured or senior
indebtedness or the incurrence of other indebtedness and liabilities by us or
our subsidiaries. The incurrence of additional secured and senior indebtedness
and other liabilities by us or our subsidiaries could adversely affect our
ability to pay the obligations on the junior subordinated notes.
The term "senior indebtedness" is defined in the subordinated indenture to
mean, with respect to any series of junior subordinated notes, the principal
of, and any premium and interest on and any other payment in respect of,
indebtedness due pursuant to any of the following, whether outstanding at the
date of execution of the subordinated indenture or incurred after the date of
execution:
. all indebtedness of Everest Holdings for money borrowed or evidenced by
notes, debentures, bonds or other instruments;
. all indebtedness of others of the kinds described in the preceding clause
assumed by or guaranteed in any manner by us; and
. all renewals, extensions or refundings of indebtedness of the kinds
described in either of the preceding clauses;
unless the instrument creating or evidencing the same or pursuant to which the
same is outstanding provides that the indebtedness, renewal, extension or
refunding is not superior in right of payment to or is equal in right of
payment with or subordinated to the junior subordinated notes. Any senior
indebtedness will continue to be senior indebtedness and be entitled to the
benefits of the subordination provisions in the subordinated indenture
irrespective of any amendment, modification or waiver of any term of the senior
indebtedness.
Global Securities
Some or all of the junior subordinated notes of a series may be represented
in whole or in part by one or more global securities deposited with or on
behalf of one or more depositaries.
The applicable prospectus supplement will describe the terms of any
depositary arrangement. We anticipate that the following provisions will apply
to all depositary arrangements for any junior subordinated notes represented by
global securities.
Unless the applicable prospectus supplement states otherwise, junior
subordinated notes that are to be represented by a global security deposited
with or on behalf of a depositary will be represented by a global security
registered in the name of that depositary or its nominee. Upon the issuance of
a global security in registered form, the depositary for the global security
will credit, on its book-entry registration and transfer system, the respective
principal amount of the junior subordinated notes represented by the global
security to the accounts of institutions that have accounts with the depositary
or its nominee. These institutions are generally brokers, dealers, banks and
other financial institutions, and are referred to as participants. The accounts
to be credited will be designated by the underwriters or agents of the junior
subordinated notes or by Everest Holdings, if the junior subordinated notes are
offered and sold directly by Everest Holdings. Ownership of beneficial
interests in the global securities will be limited to participants or persons
that may hold interests through participants. Any person who holds a brokerage
account with a participant may purchase the junior subordinated notes through
the participant. Ownership of beneficial interests by participants in the
global
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securities will be shown on, and the transfer of any ownership interest will be
effected only through, records maintained by the depositary or its nominee for
the global security. Ownership of beneficial interests in global securities by
persons that hold through participants will be effected only through records
maintained by the applicable participant. Some insurance companies and other
institutions are required by law to hold their investment securities in
definitive form, so an investor may not be able to sell its junior subordinated
notes to those insurance companies or other institutions.
So long as the depositary for a global security or its nominee is the
registered owner of the global security, the depositary or nominee, as the case
may be, will be considered the sole owner or holder of the junior subordinated
notes represented by the global security for all purposes under the
subordinated indenture. Except as set forth below, owners of beneficial
interests in the global security will not be entitled to have the junior
subordinated notes represented by the global security registered in their
names, will not receive or be entitled to receive physical delivery of the
junior subordinated notes in definitive form and will not be considered the
owners or holders of the junior subordinated notes under the subordinated
indenture.
Payment of principal of and any premium and interest on junior subordinated
notes registered in the name of or held by a depositary or its nominee will be
made in immediately available funds to the depositary or its nominee, as the
case may be, as the registered owner or the holder of the global security
representing the junior subordinated notes. None of Everest Holdings, the
subordinated indenture trustee, any paying agent or the registrar and transfer
agent for the junior subordinated notes will have any responsibility or
liability for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in a global security for the junior
subordinated notes or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests.
We expect that a depositary for junior subordinated notes of a series, upon
receipt of any payment of principal or any premium or interest in respect of a
global security, will immediately credit participants' accounts with payment in
amounts proportionate to their respective beneficial interests in the principal
amount of the global security as shown on the records of the depositary. We
also expect that payments by participants to owners of beneficial interests in
the global security held through the participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name", and will be the
responsibility of each participant.
So long as the depositary for a global security or its nominee is the
registered owner of the global security, the depositary or its nominee, as the
case may be, will be entitled to direct the actions of the subordinated
indenture trustee upon an event of default. However, we expect that a
depositary for the junior subordinated notes of a series, upon receiving notice
of an event of default, will immediately solicit the participants regarding any
action to be taken. We also expect that the participants will act in accordance
with standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in "street name", and
will, in turn, solicit the owners of the beneficial interests regarding any
action to be taken upon any event of default.
A global security may not be transferred in whole or in part except by the
depositary for the global security to a nominee of the depositary or by a
nominee of the depositary to the depositary or another nominee of the
depositary or by the depositary or any nominee to a successor depositary or a
nominee of the successor depositary. If a depositary for the junior
subordinated notes of a series is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by us within 90 days
or if at any time the depositary ceases to be a clearing agency registered
under the Exchange Act when the depositary is required to be registered to act
as the depositary and no successor is appointed by us within 90 days or an
event of default has occurred and is continuing, then we will issue the junior
subordinated notes in definitive registered form in exchange for the global
security or global securities representing the junior subordinated notes. In
addition, we may at any time determine not to have any junior subordinated
notes represented by one or more global securities and, in that event, will
issue junior subordinated notes in definitive registered form in exchange for
the global securities representing the junior subordinated notes. In any of
these instances, an owner of a
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beneficial interest in a global security will be entitled to physical delivery
in definitive form of the junior subordinated notes represented by the global
security equal in principal amount to its beneficial interest and to have the
junior subordinated notes registered in its name.
Events of Default
The following will be events of default under the junior subordinated
indenture with respect to each series of junior subordinated notes unless the
particular event of default is not applicable to the particular series of
junior subordinated notes or unless the particular event of default is deleted
or modified in a supplemental indenture as stated in the applicable prospectus
supplement:
. we fail to pay principal of or any premium on any junior subordinated
note of that series on its due date;
. we fail to pay any interest on any junior subordinated note of that
series within 30 days from its due date; provided, however, that the date
on which any payment is due will be the date on which we are required to
make payment following any deferral of interest payments by us under the
terms of the junior subordinated notes;
. we fail to make any sinking fund payment on its due date;
. we fail to perform any of our covenants in the subordinated indenture,
excluding a covenant not applicable to the affected series, for 60 days
after the subordinated indenture trustee or the holders of at least 33%
in principal amount of the outstanding junior subordinated notes of that
series give us written notice of the default and require that we remedy
the breach. However, the 60-day period may be extended by either the
subordinated indenture trustee or the subordinated indenture trustee and
the holders of at least the same principal amount of junior subordinated
notes of that series that had given notice of default, and the
subordinated indenture trustee, or the subordinated indenture trustee and
such holders, as the case may be, will be deemed to have agreed to an
extension if we have initiated and are diligently pursuing corrective
action;
. we file for bankruptcy or other events of bankruptcy, insolvency or
reorganization occur; and
. any other event of default specified in the applicable prospectus
supplement occurs.
If an event of default with respect to the junior subordinated notes of a
series occurs and is continuing, then the subordinated indenture trustee or the
holders of not less than 33% in principal amount of the outstanding junior
subordinated notes of that series may, by notice to us, and to the subordinated
indenture trustee if given by the holders, declare to be immediately due and
payable the principal amount of all junior subordinated notes of that series.
At any time after a declaration of acceleration has been made with respect to
the junior subordinated notes of a series and before a judgment or decree for
payment of the money due has been obtained, the holders of a majority in
principal amount of the outstanding junior subordinated notes may rescind any
declaration of acceleration with respect to the junior subordinated notes and
its consequences if:
. we deposit with the junior indenture trustee funds sufficient to pay all
overdue principal of and premium and interest on the junior subordinated
notes and other amounts due to the subordinated indenture trustee and, to
the extent that payment of the interest is lawful, interest on the
overdue interest; and
. all existing events of default with respect to the junior subordinated
notes have been cured or waived except non-payment of principal on the
junior subordinated notes that has become due solely because of the
acceleration.
The holders of a majority in principal amount of the outstanding junior
subordinated notes of any series have the right to direct the time, method and
place of conducting any proceedings for any remedy available to the
subordinated indenture trustee or to direct the exercise of any trust or power
conferred on the subordinated indenture trustee with respect to the junior
subordinated notes of that series.
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No holder of a junior subordinated note of any series will have any right to
institute a proceeding with respect to the subordinated indenture or for any
remedy under the subordinated indenture unless:
. that holder has previously given the subordinated indenture trustee
written notice that an event of default with respect to the junior
subordinated notes of that series has occurred and is continuing;
. the holders of a majority in principal amount of the outstanding junior
subordinated notes of that series have made written request to institute
the proceeding;
. the holder or holders have offered reasonable indemnity to the
subordinated indenture trustee;
. the subordinated indenture trustee has failed to institute the proceeding
for 60 days after receipt of the notice and offer of indemnity; and
. the subordinated indenture trustee has not received from the holders of a
majority in principal amount of the outstanding junior subordinated notes
of that series a direction inconsistent with the written request.
Notwithstanding the foregoing, the holder of any junior subordinated note
will have an absolute and unconditional right to receive payment of the
principal of and any premium and interest on that junior subordinated note on
its maturity date, or, in the case of redemption, the date of redemption, and
to institute suit for the enforcement of any payment.
Notice of Default
If an event occurs which is or would become an event of default with respect
to any series of the junior subordinated notes, and the subordinated indenture
trustee knows of the event, the subordinated indenture trustee shall mail to
the holders of the affected junior subordinated notes a notice of the default
within 90 days, unless the default has been cured or waived by the holders of
the affected junior subordinated notes. However, except in the case of a
default in the payment of any amounts due on junior subordinated notes of any
series, the subordinated indenture trustee may withhold the notice if and so
long as the directors and/or responsible officers of the subordinated indenture
trustee determine in good faith that withholding the notice is in the interest
of the holders of the affected junior subordinated notes. In addition, if
Everest Holding defaults on any series of the senior notes by failing to comply
with or perform any of its agreements, covenants or warranties applicable to
those junior subordinated notes, no notice will be given until at least 30 days
after the occurrence of the default.
We are required to furnish annually to the subordinated indenture trustee an
officers' certificate to the effect that, to the best knowledge of the officers
providing the certificate, we are not in default under the subordinated
indenture or, if there has been a default, specifying the default and its
status.
Consolidation, Merger, Conveyance or Transfer
The subordinated indenture provides that we may consolidate or merge with or
into another entity, or convey, transfer or lease our properties and assets
substantially as an entirety to any entity or permit an entity to convey,
transfer or lease its properties and assets substantially as an entirety to us;
provided, however, that
. the successor, if any, is a corporation, partnership or trust organized
and existing under the laws of the United States of America, any State of
the United States, the District of Columbia, Bermuda or the Cayman
Islands and expressly assumes by supplemental indenture all of our
obligations under the subordinated indenture and the junior subordinated
notes;
. immediately after giving effect to the transaction, no event of default,
or event which after notice or lapse of time or both would become an
event of default, will have occurred and be continuing; and
. we deliver an officers' certificate and an opinion of counsel to the
subordinated indenture trustee, each stating that the transaction
complies with the subordinated indenture and all conditions precedent in
the subordinated indenture relating to the consolidation, merger,
conveyance or transfer have been complied with.
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Upon the assumption by the successor of our obligations under the
subordinated indenture and the junior subordinated notes, the successor will
succeed to and be substituted for Everest Holdings under the subordinated
indenture, and we will be relieved of all of our obligations under the
subordinated indenture and the junior subordinated notes.
Registration and Transfer
If the junior subordinated notes of a series are to be redeemed, we will not
be required to:
. issue, register the transfer of or exchange any junior subordinated notes
of that series during the 15 days immediately preceding the date notice
is mailed identifying the junior subordinated notes that are called for
redemption; or
. register the transfer of or exchange any junior subordinated note
selected for redemption, in whole or in part, except for the unredeemed
portion of any junior subordinated note being redeemed in part.
Denominations
The junior subordinated notes will be issuable in denominations of $1,000
and any integral multiples of $1,000, without coupons, unless the applicable
prospectus supplement states otherwise.
Payment and Paying Agent
Principal of the junior subordinated notes will be paid only against
surrender of the junior subordinated notes as specified in the subordinated
indenture. Unless the applicable prospectus supplement states otherwise,
interest on the junior subordinated notes will be payable, at our option, (1)
by wire transfer to an account at a banking institution in the United States
that the person entitled to the interest designates in writing to the
subordinated indenture trustee at least 16 days prior to the date of payment or
(2) by check mailed to the address of the person entitled to the interest as
the address appears in the security register for the junior subordinated notes.
Unless the applicable prospectus supplement states otherwise, the
subordinated indenture trustee will act as paying agent for the junior
subordinated notes, and the principal corporate trust office of the
subordinated indenture trustee will serve as the office through which the
paying agent acts. We may designate additional paying agents, rescind the
designation of any paying agents or approve a change in the office through
which any paying agent acts.
All moneys that we have paid to a paying agent for payment of principal of
or interest on the junior subordinated notes that remain unclaimed at the end
of two years after the principal or interest has become due and payable will be
repaid to us at our request. Holders will thereafter look only to us for any
payments.
Modification of the Subordinated Indenture
Everest Holdings and the subordinated indenture trustee may amend or modify
the subordinated indenture with the consent of the holders of a majority in
aggregate principal amount of the outstanding junior subordinated notes of each
series of the junior subordinated notes affected by the amendment or
modification voting as a class. No amendment or modification may, however,
without the consent of the holder of each outstanding junior subordinated note
affected by the amendment or modification:
. change the stated maturity of the principal of, or any installment of
principal of or interest on, any junior subordinated note;
. reduce the principal amount of, the rate of interest on or any premium
payable upon the redemption of any junior subordinated note;
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. reduce the amount of principal of any junior subordinated note due and
payable upon acceleration of the maturity of the junior subordinated
note;
. change the place of payment or currency of payment of principal of, or
any premium or interest on, any junior subordinated note;
. impair the right to institute suit for the enforcement of any payment on
any junior subordinated note on or after the stated maturity or date of
redemption; or
. reduce the percentage in principal amount of the junior subordinated
notes of any series, the consent of whose holders is required to amend or
modify the subordinated indenture, to waive compliance with specific
provisions of the subordinated indenture or to waive specific defaults.
In addition, Everest Holdings and the subordinated indenture trustee may
execute supplemental indentures to:
. create new series of junior subordinated notes;
. cure any ambiguity, defect or inconsistency in the subordinated
indenture; and
. make other changes that do not adversely affect the interests of the
holders of the junior subordinated notes in any material respect;
as well as for various other purposes.
Waiver of Covenants and Defaults
The holders of a majority in aggregate principal amount of the outstanding
junior subordinated notes of any series may waive, for that series, our
compliance with any restrictive covenants described in any prospectus
supplement or included in any supplemental indenture. The holders of a majority
in aggregate principal amount of the outstanding junior subordinated notes of
any series with respect to which a default has occurred and is continuing, may
waive that default for that series, other than a default in the payment of
principal of, or any premium or interest on, any junior subordinated note of
that series or a default with respect to a covenant or provision under the
subordinated indenture that cannot be amended or modified without the consent
of the holder of each outstanding junior subordinated note affected.
The subordinated indenture may not be amended to alter the subordination of
any junior subordinated notes without the written consent of each holder of
senior indebtedness then outstanding that would be adversely affected by the
alteration.
Defeasance and Covenant Defeasance
The subordinated indenture provides, unless the terms of the particular
series of junior subordinated notes provides otherwise, that we may cause
ourselves to be:
. discharged from our obligations with respect to any junior subordinated
notes or series of junior subordinated notes, which we refer to as
"defeasance"; and
. released from our obligations under any restrictive covenants described
in any prospectus supplement or included in any supplemental indenture
with respect to any junior subordinated notes or series of junior
subordinated notes, which we refer to as "covenant defeasance".
The subordinated indenture permits defeasance with respect to any junior
subordinated notes of a series even if a prior covenant defeasance has occurred
with respect to the junior subordinated notes of that series. Following a
defeasance, payment of the junior subordinated notes defeased may not be
accelerated because of an event of default. Following a covenant defeasance,
payment of the junior subordinated notes defeased may not be accelerated by
reference to the covenants affected by the covenant defeasance. However, if an
acceleration were to occur, the realizable value at the acceleration date of
the money and government
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obligations in the defeasance trust could be less than the principal and
interest then due on the junior subordinated notes since the required deposit
in the defeasance trust would be based upon scheduled cash flows rather than
market value, which would vary depending upon interest rates and other factors.
Upon a defeasance, the following rights and obligations will continue: (1)
the rights of the holders of the junior subordinated notes of any series to
receive from the trust established in connection with the defeasance payments
of the principal of and any premium and interest on the junior subordinated
notes when payments are due, (2) our obligations regarding the registration,
transfer and exchange of the junior subordinated notes of any series, (3) our
obligation to maintain an office or agency in each place of payment and (4) the
survival of the subordinated indenture trustee's rights, powers, trusts, duties
and immunities under the subordinated indenture.
In connection with any defeasance or covenant defeasance, we must
irrevocably deposit with the subordinated indenture trustee, in trust, money
and/or government obligations which, through the scheduled payment of principal
and interest on those obligations, would provide sufficient moneys to pay the
principal of and any premium and interest on the junior subordinated notes on
the maturity dates or upon redemption.
In connection with a defeasance or covenant defeasance, we must deliver to
the subordinated indenture trustee:
. an opinion of counsel to the effect that the holders of the junior
subordinated notes will not recognize income, gain or loss for United
States federal income tax purposes as a result of the defeasance or
covenant defeasance and will be subject to United States federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if the defeasance or covenant defeasance had not
occurred. This opinion, in the case of a defeasance, must refer to and be
based upon a ruling of the Internal Revenue Service or a change in
applicable federal income tax law occurring after the date of the
subordinated indenture;
. an officers' certificate confirming that any junior subordinated notes
then listed on any securities exchange will not be delisted; and
. an officers' certificate and an opinion of counsel, each stating that all
conditions precedent have been complied with.
In addition, the following conditions must be true:
. no event will have occurred and be continuing which is or would become an
event of default;
. any defeasance or covenant defeasance will not cause the subordinated
indenture trustee to have a conflicting interest under the Trust
Indenture Act;
. any defeasance or covenant defeasance will not cause the trust to become
an investment company under the Investment Company Act unless it is
properly registered under that Act or exempt from registration; and
. proper notice of the redemption date, if applicable, will have been
given.
Information Concerning the Subordinated Indenture Trustee
In case an event of default shall occur and be continuing, the subordinated
indenture trustee shall exercise its rights and powers under the subordinated
indenture in the same manner and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the same circumstances
in the conduct of his or her own affairs. Before proceeding to exercise any
right or power under the subordinated indenture at the direction of the
holders, the subordinated indenture trustee will be entitled to receive from
the holders reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in complying with any direction of the
holders.
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The Chase Manhattan Bank, which is the subordinated indenture trustee, also
serves as the senior indenture trustee and as property trustee and guarantee
trustee with respect to the preferred securities issued by the trust. Everest
Holdings and certain of its affiliates maintain banking relationships with The
Chase Manhattan Bank.
Governing Law
The subordinated indenture and the junior subordinated notes will be
governed by the laws of the State of New York, without regard to the conflict
of laws provisions thereof.
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DESCRIPTION OF THE PREFERRED SECURITIES
The preferred securities will be issued pursuant to a trust agreement, dated
as of September 17, 1999, as subsequently amended and restated, between us and
The Chase Manhattan Bank, as the property trustee, Chase Manhattan Bank
Delaware, as the Delaware trustee, the three regular trustees and the holders
from time to of the trust's preferred and common securities. We have filed a
copy of the trust agreement and the form of the amended and restated trust
agreement as an exhibit to the registration statement of which this prospectus
is a part. You also may request a copy of the trust agreement from the property
trustee at its corporate trust office in Edison, New Jersey. The trust
agreement will be qualified under the Trust Indenture Act of 1939. The terms of
the preferred securities will include those stated in the trust agreement and
those made part of the trust agreement by reference to the Trust Indenture Act.
This section summarizes all of the material provisions of the preferred
securities and the trust agreement. You should refer to these documents for
more detailed information. The amended and restated trust agreement will be
executed at the time we issue any preferred securities and will be filed with
the SEC on Form 8-K or by a post-effective amendment to the registration
statement of which this prospectus is a part.
General
The trust agreement authorizes the regular trustees to issue on behalf of
the trust one series of preferred securities that have the terms described in a
prospectus supplement. The proceeds from the sale of the trust's preferred and
common securities will be used by the trust to purchase a series of our junior
subordinated notes. The junior subordinated notes will be held in trust by the
property trustee for the benefit of the holders of the preferred and common
securities.
The terms of the preferred securities will mirror the terms of the junior
subordinated notes held by the trust. The assets of the trust available for
distribution to the holders of its preferred securities generally will be
limited to payments from us under the series of junior subordinated notes held
by the trust. If we fail to make a payment on the junior subordinated notes,
the trust will not have sufficient funds to make related payments, including
distributions, on its preferred securities.
Under the preferred securities guarantee, we will agree to make payments of
distributions and payments on redemption or liquidation with respect to the
trust's preferred securities, but only to the extent the trust has funds
available to make those payments and has not made the payments. See
"Description of the Preferred Securities Guarantee". The preferred securities
guarantee, when taken together with our obligations under the junior
subordinated notes, the subordinated indenture, the trust agreement and the
expense agreement described below, will provide a full and unconditional
guarantee by us of amounts due on the preferred securities issued by the trust.
The prospectus supplement relating to the preferred securities of the trust
will describe the specific terms of the preferred securities, including:
. the name of the preferred securities;
. the dollar amount and number of securities issued;
. the annual distribution rate, or method of determining the rate, of
distributions on the preferred securities, and date or dates from which
any distributions will accrue;
. the payment date and the record date used to determine the holders who
are to receive distributions;
. the right, if any, to defer distributions on the preferred securities
upon extension of the interest payment periods of the related junior
subordinated notes;
. our obligation, if any, to redeem or purchase the preferred securities
and the terms and conditions on which the preferred securities may be
redeemed or purchased pursuant to any obligation;
. the terms and conditions, if any, on which the preferred securities may
be redeemed at our option or at the option of the holder;
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. the terms and conditions, if any, upon which the applicable series of
junior subordinated notes may be distributed to holders of the preferred
securities;
. the voting rights, if any, of the holders of the preferred securities;
. whether the preferred securities are to be issued in book-entry form and
represented by one or more global certificates and, if so, the depository
for the global certificates and the specific terms of the depositary
arrangements; and
. any other relevant rights, preferences, privileges, limitations or
restrictions of the preferred securities.
The prospectus supplement will describe various United States federal income
tax considerations applicable to the purchase, holding and disposition of the
series of preferred securities.
Liquidation Distribution Upon Dissolution
Unless otherwise specified in an applicable prospectus supplement, the trust
agreement states that the trust will be dissolved:
. on the expiration of the term of the trust;
. upon our bankruptcy, dissolution or liquidation;
. upon our direction to the property trustee to dissolve the trust and
distribute the related junior subordinated notes directly to the holders
of the preferred and common securities of the trust;
. upon the redemption of all of the common and preferred securities of the
trust in connection with the redemption of all of the related junior
subordinated notes; or
. upon entry of a court order for the dissolution of the trust.
Unless otherwise specified in an applicable prospectus supplement, in the
event of a dissolution as described above other than in connection with
redemption, after the trust satisfies all liabilities to its creditors as
provided by applicable law, each holder of the preferred or common securities
will be entitled to receive:
. the related junior subordinated notes in an aggregate principal amount
equal to the aggregate liquidation amount of the preferred or common
securities held by the holder; or
. if any distribution of the related junior subordinated notes is
determined by the property trustee not to be practical, cash equal to the
aggregate liquidation amount of the preferred or common securities held
by the holder, plus accumulated and unpaid distributions to the date of
payment.
If the trust cannot pay the full amount due on its preferred and common
securities because insufficient assets are available for payment, then the
amounts payable by the trust on its preferred and common securities will be
paid on a pro rata basis. However, if an event of default under the
subordinated indenture has occurred and is continuing with respect to any
series of related junior subordinated notes, the total amounts due on the
preferred securities will be paid before any distribution on the common
securities.
Events of Default
The following will be events of default under the trust agreement:
. an event of default under the subordinated indenture occurs with respect
to any series of related junior subordinated notes; or
. any other event of default specified in the applicable prospectus
supplement occurs.
If an event of default with respect to a series of related junior
subordinated notes occurs and is continuing under the subordinated indenture,
and the subordinated indenture trustee or the holders of not less than 33% in
principal amount of the related junior subordinated notes outstanding fail to
declare the principal amount of all
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of such junior subordinated notes to be immediately due and payable, the
holders of at least 33% in aggregate liquidation amount of the outstanding
preferred securities will have the right to declare such principal amount
immediately due and payable by providing notice to us, the property trustee and
the subordinated indenture trustee.
At any time after a declaration of acceleration has been made with respect
to a series of related junior subordinated notes and before a judgment or
decree for payment of the money due has been obtained, the holders of a
majority in liquidation amount of the preferred securities may rescind any
declaration of acceleration with respect to the related junior subordinated
notes and its consequences:
. if we deposit with the trustee funds sufficient to pay all overdue
principal of and premium and interest on the related junior subordinated
notes and other amounts due to the subordinated indenture trustee and the
property trustee; and
. if all existing events of default with respect to the related junior
subordinated notes have been cured or waived except non-payment of
principal on the related junior subordinated notes that has become due
solely because of the acceleration.
The holders of a majority in liquidation amount of the preferred securities
may waive any past default under the subordinated note indenture with respect
to related junior subordinated notes, other than a default in the payment of
principal of, or any premium or interest on, any related junior subordinated
note or a default with respect to a covenant or provision that cannot be
amended or modified without the consent of the holder of each outstanding
related junior subordinated note affected. In addition, the holders of at least
a majority in liquidation amount of the preferred securities may waive any past
default under the trust agreement.
The holders of a majority in liquidation amount of the preferred securities
shall have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the property trustee or to direct the
exercise of any trust or power conferred on the property trustee under the
trust agreement.
A holder of preferred securities may institute a legal proceeding directly
against us, without first instituting a legal proceeding against the property
trustee or any other person or entity, for enforcement of payment to the holder
of principal and any premium or interest on the junior subordinated notes of
the related series having a principal amount equal to the aggregate liquidation
amount of the preferred securities of the holder if we fail to pay principal
and any premium or interest on the related series of junior subordinated notes
when payable.
Everest Holdings and the regular trustees are required to furnish annually
to the property trustee for the trust certificates to the effect that, to the
best knowledge of the individuals providing the certificates, Everest Holdings
and the trust are not in default under the trust agreement, or if there has
been a default, specifying the default and its status.
Consolidation, Merger or Amalgamation of the Trust
The trust may not consolidate or merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to any entity, except as described below. The trust may, without the
consent of the holders of the outstanding preferred securities, consolidate or
merge with or into, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized under
the laws of any State if:
. the successor entity either:
. expressly assumes all of the obligations of the trust relating to its
preferred securities; or
. substitutes for the trust's preferred securities other securities
having substantially the same terms as the preferred securities, so
long as the substituted successor securities rank the same as the
preferred securities for distributions and payments upon liquidation,
redemption and otherwise;
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. we appoint a trustee of the successor entity who has substantially the
same powers and duties as the property trustee of the trust;
. the preferred securities are listed or traded, or any substituted
successor securities will be listed upon notice of issuance, on the same
national securities exchange or other organization on which the preferred
securities are then listed or traded;
. the merger event does not cause the preferred securities or any
substituted successor securities to be downgraded by any national rating
agency;
. the merger event does not adversely affect the rights, preferences and
privileges of the holders of the preferred securities or any substituted
successor securities in any material respect;
. the successor entity has a purpose substantially identical to that of the
trust;
. prior to the merger event, we have received an opinion of counsel from a
nationally recognized law firm stating that:
. the merger event does not adversely affect the rights, preferences and
privileges of the holders of the trust's preferred securities or any
successor securities in any material respect; and
. following the merger event, neither the trust nor the successor entity
will be required to register as an investment company under the
Investment Company Act of 1940; and
. we or our permitted transferee own all of the common securities of the
successor entity and guarantee the obligations of the successor entity
under the substituted successor securities at least to the extent
provided under the preferred securities guarantee.
In addition, unless all of the holders of the preferred securities approve
otherwise, the trust may not consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into or replace it if the transaction
would cause the trust or the successor entity to be taxable as a corporation or
classified other than as a grantor trust for United States federal income tax
purposes.
Voting Rights
Unless otherwise specified in the prospectus supplement, the holders of the
preferred securities will have no voting rights except as discussed below and
under "--Amendment of Trust Agreement" and "Description of the Preferred
Securities Guarantee--Amendments and Assignment", and as otherwise required by
law.
If any proposed amendment to the trust agreement provides for, or the
regular trustees of the trust otherwise propose to effect:
. any action that would adversely affect the powers, preferences or special
rights of the preferred securities in any material respect, whether by
way of amendment to the trust agreement or otherwise; or
. the dissolution, winding-up or termination of the trust other than
pursuant to the terms of the trust agreement,
then the holders of the preferred securities as a class will be entitled to
vote on the amendment or proposal. In that case, the amendment or proposal will
be effective only if approved by the holders of at least a majority in
aggregate liquidation amount of the preferred securities.
Without obtaining the prior approval of the holders of a majority in
aggregate liquidation amount of the preferred securities, the trustees of the
trust may not:
. direct the time, method and place of conducting any proceeding for any
remedy available to the subordinated indenture trustee for any related
junior subordinated notes or direct the exercise of any trust or power
conferred on the property trustee with respect to the preferred
securities;
. waive any default that is waivable under the subordinated indenture with
respect to any related junior subordinated notes;
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. cancel an acceleration of the principal of any related junior
subordinated notes; or
. consent to any amendment, modification or termination of the subordinated
indenture or any related junior subordinated notes where consent is
required.
However, if a consent under the subordinated indenture requires the consent of
each affected holder of the related junior subordinated notes, then the
property trustee must obtain the prior consent of each holder of the preferred
securities. In addition, before taking any of the foregoing actions, the
property trustee shall obtain an opinion of counsel experienced in such matters
to the effect that, as a result of such actions, the trust will not be taxable
as a corporation or classified as other than a grantor trust for United States
federal income tax purposes.
The property trustee will notify all preferred securities holders of the
trust of any notice of default received from the subordinated indenture trustee
with respect to the junior subordinated notes held by the trust.
Any required approval of the holders of the preferred securities may be
given at a meeting of the holders of the preferred securities convened for the
purpose or pursuant to written consent. The property trustee will cause a
notice of any meeting at which holders of securities are entitled to vote to be
given to each holder of record of the preferred securities at the holder's
registered address, or to any other address which has been specified in
writing, at least 15 days and not more than 90 days before the meeting.
No vote or consent of the holders of securities will be required for the
trust to redeem and cancel the securities in accordance with the trust
agreement.
Notwithstanding that the holders of the preferred securities are entitled to
vote or consent under any of the circumstances described above, any of the
preferred securities that are owned by Everest Holdings, the trustees of the
trust or any affiliate of Everest Holdings or any trustees of the trust, shall,
for purposes of any vote or consent, be treated as if they were not
outstanding. Preferred securities held by Everest Holdings or any of its
affiliates may be exchanged for related junior subordinated notes at the
election of the holder.
Amendment of the Trust Agreement
The trust agreement may be amended from time to time by Everest Holdings and
the property trustee and the regular trustees of the trust without the consent
of the holders of the preferred securities of the trust to:
. cure any ambiguity, correct or supplement any provision which may be
inconsistent with any other provision or make provisions not inconsistent
with any other provisions with respect to matters or questions arising
under the trust agreement, in each case to the extent that the amendment
does not adversely affect the interests of any holder of the preferred
securities in any material respect; or
. modify, eliminate or add to any provisions to the extent necessary to
ensure that the trust will not be taxable as a corporation or classified
as other than a grantor trust for United States federal income tax
purposes, to ensure that the junior subordinated notes held by the trust
are treated as indebtedness for United States federal income tax purposes
or to ensure that the trust will not be required to register as an
investment company under the Investment Company Act.
Other amendments to the trust agreement of the trust may be made by Everest
Holdings and the trustees of the trust upon approval of the holders of a
majority in aggregate liquidation amount of the outstanding preferred
securities and receipt by the trustees of an opinion of counsel to the effect
that the amendment will not cause the trust to be taxable as a corporation or
classified as other than a grantor trust for United States federal income tax
purposes, affect the treatment of the junior subordinated notes held by the
trust as indebtedness for United States federal income tax purposes or affect
the trust's exemption from the Investment Company Act.
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Notwithstanding the foregoing, without the consent of each affected holder
of common or preferred securities of the trust, the trust agreement may not be
amended to:
. change the amount or timing of any distribution on the common or
preferred securities of the trust or otherwise adversely affect the
amount of any distribution required to be made in respect of the
securities as of a specified date; or
. restrict the right of a holder of any securities to institute suit for
the enforcement of any payment on or after the distribution date.
In addition, no amendment may be made to a trust agreement if the amendment
would:
. cause the trust to be taxable as a corporation or characterized as other
than a grantor trust for United States federal income tax purposes;
. cause the junior subordinated notes held by the trust to not be treated
as indebtedness for United States federal income tax purposes;
. cause the trust to be deemed to be an investment company required to be
registered under the Investment Company Act; or
. impose any additional obligation on Everest Holdings or any trustee of
the trust without its consent.
Removal and Replacement of Trustees
The holder of the trust's common securities may remove or replace any of the
regular trustees and, unless an event of default has occurred and is continuing
under the subordinated indenture, the property and Delaware trustees of the
trust. If an event of default has occurred and is continuing under the
subordinated indenture, only the holders of the trust's preferred securities
may remove or replace the property and Delaware trustees. The resignation or
removal of any trustee will be effective only upon the acceptance of
appointment by the successor trustee in accordance with the provisions of the
trust agreement.
Merger or Consolidation of Trustees
Any entity into which the property trustee or the Delaware trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which the trustee
shall be a party, or any entity succeeding to all or substantially all of the
corporate trust business of the trustee, shall be the successor of the trustee
under the trust agreement; provided, however, that the entity shall be
otherwise qualified and eligible.
Information Concerning the Property Trustee
For matters relating to compliance with the Trust Indenture Act, the
property trustee will have all of the duties and responsibilities of an
indenture trustee under the Trust Indenture Act. The property trustee, other
than during the occurrence and continuance of a default under the trust
agreement, undertakes to perform only the duties as are specifically set forth
in the trust agreement and, after a default, must use the same degree of care
and skill as a prudent person would exercise or use in the conduct of his or
her own affairs. Subject to this provision, the property trustee is under no
obligation to exercise any of the powers given it by the trust agreement at the
request of any holder of the preferred securities unless it is offered
reasonable security or indemnity against the costs, expenses and liabilities
that it might incur. If the property trustee is required to decide between
alternative courses of action, construe ambiguous provisions in the trust
agreement or is unsure of the application of any provision of the trust
agreement, and the matter is not one on which the holders of the preferred
securities are entitled to vote, then the property trustee will take such
action as it deems advisable and in the best interests of the holders of the
preferred and common securities. In this event, the property trustee will have
no liability except for its own bad faith, negligence or willful misconduct.
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The Chase Manhattan Bank, which is the property trustee for the trust, also
serves as the senior indenture trustee, the subordinated indenture trustee and
the guarantee trustee under the preferred securities guarantee described below.
Everest Holdings and certain of its affiliates maintain banking relationships
with The Chase Manhattan Bank.
Miscellaneous
The regular trustees of the trust are authorized and directed to conduct the
affairs of and to operate the trust in such a way that:
. it will not be taxable as a corporation or classified as other than a
grantor trust for United States federal income tax purposes;
. the junior subordinated notes held by it will be treated as indebtedness
of Everest Holdings for United States federal income tax purposes; and
. it will not be deemed to be an investment company required to be
registered under the Investment Company Act.
Everest Holdings and the trustees of the trust are authorized to take any
action, so long as it is consistent with applicable law, the certificate of
trust or trust agreement, that Everest Holdings and the trustees of the trust
determine to be necessary or desirable for the above purposes.
Registered holders of the preferred securities have no preemptive or similar
rights.
The trust may not incur indebtedness or place a lien on any of its assets.
Governing Law
The trust agreement and the preferred securities will be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the conflict of laws provisions thereof.
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DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
The preferred securities guarantee will be issued pursuant to a guarantee
agreement, dated as of , 2000, between us and The Chase Manhattan
Bank, as the guarantee trustee. We have filed a form of the guarantee
agreement as an exhibit to the registration statement of which this prospectus
is a part. You also may request a copy of the guarantee agreement from the
guarantee trustee at its corporate trust office in Edison, New Jersey. The
guarantee agreement will be qualified under the Trust Indenture Act of 1939.
The terms of the preferred securities guarantee will include those stated in
the guarantee agreement and those made part of the guarantee agreement by
reference to the Trust Indenture Act. This section summarizes all of the
material provisions of the preferred securities guarantee. You should refer to
the guarantee agreement for more detailed information. The guarantee agreement
will be executed at the time we issue any preferred securities and will be
filed with the SEC on a Form 8-K or by a post-effective amendment to the
registration statement of which this prospectus is a part.
The guarantee agreement will be held by the guarantee trustee for the
benefit of the holders of preferred securities of the trust.
General
We will irrevocably agree to pay in full, to the holders of the preferred
securities, the guarantee payments described below, except to the extent
previously paid. We will pay the guarantee payments when and as due,
regardless of any defense, right of set-off or counterclaim that the trust may
have or assert. The following payments, to the extent not paid by the trust,
will be covered by the preferred securities guarantee:
. any accumulated and unpaid distributions required to be paid on the
preferred securities, to the extent that the trust has funds available to
make the payment;
. the redemption price, to the extent that the trust has funds available to
make the payment; and
. upon a voluntary or involuntary dissolution, termination, winding-up or
liquidation of the trust, other than in connection with a distribution of
related junior subordinated notes to holders of the preferred securities,
the lesser of:
. the aggregate of the liquidation amounts specified in the prospectus
supplement for each preferred security plus all accumulated and unpaid
distributions on the preferred security to the date of payment, to the
extent the trust has funds available to make the payment; and
. the amount of assets of the trust remaining available for distribution
to holders of its preferred securities upon liquidation of the trust.
Our obligation to make a guarantee payment may be satisfied by directly
paying the required amounts to the holders of the preferred securities or by
causing the trust to pay the amounts to the holders.
The preferred securities guarantee will be subject to the subordination
provisions described below and will not apply to the payment of distributions
and other payments on the preferred securities when the trust does not have
sufficient funds legally and immediately available to make the distributions
or other payments.
Status of the Preferred Securities Guarantee
The preferred securities guarantee will constitute an unsecured obligation
of Everest Holdings and will rank:
. subordinate and junior in right of payment to all of our other
liabilities except those that rank equally or are subordinate by their
terms; and
. equal with any other preferred securities guarantee now or hereafter
issued by Everest Holdings on behalf of the holders of the preferred
securities issued by any other trust.
As of September 30, 1999, we had approximately $35 million of indebtedness
outstanding that will rank senior to the preferred securities guarantee and no
liabilities that rank equally with the preferred securities
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guarantee. The preferred securities guarantee also will be effectively
subordinated to any indebtedness and other liabilities of our subsidiaries. As
of September 30, 1999, our subsidiaries had approximately $4.4 billion of
indebtedness and other liabilities, including insurance reserves. We anticipate
that from time to time we will incur additional indebtedness, including
indebtedness senior to the preferred securities guarantee. We will disclose any
material changes in these amounts that may occur in any applicable prospectus
supplement.
The preferred securities guarantee will constitute a guarantee of payment
and not of collection. This means that the holder of the guaranteed security
may sue us to enforce its rights under the preferred securities guarantee
without first suing any other person or entity.
Amendments and Assignment
No consent of the holders of the preferred securities will be required with
respect to any changes to the preferred securities guarantee that do not
adversely affect the rights of the holders of the preferred securities in any
material respect. Other amendments to the preferred securities guarantee may be
made only with the prior approval of the holders of at least a majority in
aggregate liquidation amount of the preferred securities. All guarantees and
agreements contained in the preferred securities guarantee will be binding on
our successors, assigns, receivers, trustees and representatives and are for
the benefit of the holders of the preferred securities.
Events of Default
An event of default under the preferred securities guarantee occurs if we
fail to make any of our required payments or fail to perform any of our other
obligations, and such failure continues for 30 days, under the preferred
securities guarantee.
The holders of at least a majority in aggregate liquidation amount of the
preferred securities will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the guarantee trustee
relating to the preferred securities guarantee or to direct the exercise of any
trust or power given to the guarantee trustee under the preferred securities
guarantee.
The holders of a majority in liquidation amount of preferred securities may
waive any past event of default and its consequences.
Information Concerning Guarantee Trustee
The guarantee trustee under the preferred securities guarantee, other than
during the occurrence and continuance of a default under the preferred
securities guarantee, will perform only the duties that are specifically
described in the preferred securities guarantee. After any default, the
guarantee trustee will exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, a guarantee trustee is under no obligation to exercise any
of its powers as described in the preferred securities guarantee at the request
of any holder of preferred securities unless it is offered reasonable security
and indemnity against the costs, expenses and liabilities that it might incur.
The Chase Manhattan Bank, which is the guarantee trustee, also serves as the
senior indenture trustee, the subordinated indenture trustee and the property
trustee for the trust. Everest Holdings and certain of its affiliates maintain
banking relationships with The Chase Manhattan Bank.
Termination of the Preferred Securities Guarantees
The preferred securities guarantee will terminate once the preferred
securities are paid in full or redeemed in full or upon distribution of the
related junior subordinated notes to the holders of the preferred securities in
accordance with the trust agreement. The preferred securities guarantee will
continue to be effective or will be reinstated if at any time any holder of
preferred securities must restore payment of any sums paid under the preferred
securities or the preferred securities guarantee.
Governing Law
The preferred securities guarantee will be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of laws provisions thereof.
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DESCRIPTION OF THE EXPENSE AGREEMENT
We will execute an expense agreement at the same time that the trust issues
the preferred securities. Under the expense agreement, we will irrevocably and
unconditionally guarantee to each creditor of the trust the full amount of the
trust's costs, expenses and liabilities, other than the amounts owed to holders
of its preferred and common securities pursuant to the terms of those
securities. Third parties will be entitled to enforce the expense agreement.
The expense agreement, once executed, will be filed with the SEC on Form 8-K or
by a post-effective amendment to the registration statement of which this
prospectus is a part.
Our obligations under the expense agreement will be subordinated in right of
payment to the same extent as the preferred securities guarantee. The expense
agreement will contain provisions regarding amendment, termination, assignment,
succession and governing law similar to those contained in the preferred
securities guarantee.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
PREFERRED SECURITIES GUARANTEE, EXPENSE AGREEMENT
AND JUNIOR SUBORDINATED NOTES HELD BY THE TRUST
Payments of distributions and redemption and liquidation payments due on the
preferred securities, to the extent the trust has funds available for the
payments, will be guaranteed by us to the extent described under "Description
of the Preferred Securities Guarantee". No single document executed by us in
connection with the issuance of the preferred securities will provide for a
full, irrevocable and unconditional guarantee of the preferred securities. It
is only the combined operation of our obligations under the preferred
securities guarantee, the trust agreement, the subordinated indenture, the
related junior subordinated notes and the expense agreement that has the effect
of providing a full, irrevocable and unconditional guarantee of the trust's
obligations under the preferred securities.
As long as we make payments of interest and other payments when due on the
junior subordinated notes held by the trust, the payments will be sufficient to
cover the payment of distributions and redemption and liquidation payments due
on the preferred securities, primarily because:
. the aggregate principal amount of the junior subordinated notes will be
equal to the sum of the aggregate liquidation amounts of the preferred
and common securities;
. the interest rate and interest and other payment dates on the junior
subordinated notes will match the distribution rate and distribution and
other payment dates for the preferred securities;
. we have agreed to pay for any and all costs, expenses and liabilities of
the trust except the trust's obligations under its preferred securities;
and
. the trust agreement provides that the trust will not engage in any
activity that is inconsistent with the limited purposes of the trust.
If and to the extent that we do not make payments on the junior subordinated
notes held by the trust, the trust will not have funds available to make
payments of distributions or other amounts due on the preferred securities. In
those circumstances, a holder of the preferred securities will not be able to
rely upon the preferred securities guarantee for payment of these amounts.
Instead, the holder may directly sue us to collect its pro rata share of
payments owed. If a holder sues us to collect payment, then we will assume the
holder's rights as a holder of preferred securities under the trust agreement
to the extent we make a payment to the holder in any legal action.
A holder of any preferred security may sue us to enforce its rights under
the preferred securities guarantee without first suing the guarantee trustee,
the trust or any other person or entity.
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PLAN OF DISTRIBUTION
We may sell the senior notes and the junior subordinated notes and the trust
may sell the preferred securities in one or more of the following ways from
time to time:
. to underwriters for resale to the public or to institutional investors;
. through agents to the public or to institutional investors; or
. directly to institutional investors.
The prospectus supplement for each series of senior notes, junior
subordinated notes or preferred securities will set forth the terms of the
offering of those senior notes, junior subordinated notes or preferred
securities, including the name or names of any underwriters or agents. The
prospectus supplement for each series of senior notes, junior subordinated
notes or preferred securities will also set forth the purchase price of the
senior notes, junior subordinated notes or preferred securities, the proceeds
to us or the trust from the sale, any underwriting discounts or agency fees and
other items constituting underwriters' or agents' compensation, the initial
public offering price, any discounts or concession allowed or reallowed or paid
to dealers and the securities exchange, if any, on which the senior notes,
junior subordinated notes or preferred securities may be listed.
If underwriters participate in the sale, the senior notes, junior
subordinated notes or preferred securities will be acquired by the underwriters
for their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale.
Unless the applicable prospectus supplement states otherwise, the
obligations of the underwriters to purchase any series of senior notes, junior
subordinated notes or preferred securities will be subject to conditions
precedent and the underwriters will be obligated to purchase all of the series
of senior notes, junior subordinated notes or preferred securities if any are
purchased.
Underwriters and agents may be entitled under agreements entered into with
us and/or the trust to indemnification against specific civil liabilities,
including liabilities under the Securities Act. Underwriters and agents may
engage in transactions with, or perform services for, us in the ordinary course
of business.
Each series of senior notes, junior subordinated notes or preferred
securities will be a new issue of securities and will have no established
trading market. Any underwriters to whom the senior notes, junior subordinated
notes or preferred securities are sold for public offering and sale may make a
market in those senior notes, junior subordinated notes or preferred
securities. However, those underwriters will not be obligated to do so and may
discontinue any market making at any time without notice.
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EXPERTS
The consolidated financial statements of Everest Holdings incorporated in
this registration statement by reference to Everest Holdings' Annual Report on
Form 10-K for the year ended December 31, 1998 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
VALIDITY OF THE SECURITIES
Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware
counsel to Everest Holdings and the trust, will pass upon the validity of the
preferred securities for the trust. Mayer, Brown & Platt, Chicago, Illinois,
will pass upon the validity of the senior notes and the junior subordinated
notes for Everest Holdings and the preferred securities guarantee for the
trust.
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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the Notes offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
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TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Everest Holdings.......................................................... S-1
Recent Developments....................................................... S-2
Risk Factors.............................................................. S-5
Use of Proceeds........................................................... S-8
Ratio of Earnings to Fixed Charges........................................ S-8
Capitalization............................................................ S-9
Selected Consolidated Financial Data...................................... S-10
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-12
Business.................................................................. S-23
Description of the Notes.................................................. S-30
Underwriting.............................................................. S-34
Validity of the Notes..................................................... S-35
Prospectus
About this Prospectus..................................................... 1
Cautionary note regarding forward-looking statements...................... 1
Where you can find more information ...................................... 2
Everest Holdings ......................................................... 3
Recent Developments ...................................................... 5
The Proposed Restructuring ............................................... 5
The Trust ................................................................ 8
Use of Proceeds .......................................................... 9
Ratio of Earnings to Fixed Charges........................................ 9
Accounting Treatment ..................................................... 9
Description of the Senior Notes .......................................... 10
Description of the Junior Subordinated Notes ............................. 19
Description of the Preferred Securities .................................. 29
Description of the Preferred Securities Guarantee ........................ 36
Description of the Expense Agreement ..................................... 38
Relationship among the Preferred Securities, Preferred Securities
Guarantee and Junior Subordinated Notes held by the Trust ............... 38
Plan of Distribution ..................................................... 39
Experts .................................................................. 40
Validity of the Securities ............................................... 40
</TABLE>
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$450,000,000
Everest Reinsurance Holdings, Inc.
% Senior Notes due
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PROSPECTUS SUPPLEMENT
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Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette
First Union Securities, Inc.
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