Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934, as amended (Amendment No. __)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material underss. 240.14a-12
Everest Re Group, Ltd.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
/ / | Fee paid previously with preliminary materials. |
/ / | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by the registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
EVEREST RE GROUP, LTD.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 25, 200523, 2006
TO THE SHAREHOLDERS OF EVEREST RE GROUP, LTD.:
The Annual General Meeting of Shareholders of Everest Re Group, Ltd. (the “Company”), a Bermuda company, will be held at Wessex House, 45 Reid Street, Hamilton HM 12, Bermuda on May 25, 200523, 2006 at 11:00 a.m., local time, for the following purposes:
1. To elect three Class I directors of the Company, each to serve for a three-year period to expire at the 2009 Annual General Meeting of Shareholders or until such director’s successor shall have been duly elected or appointed or until such director’s office is otherwise vacated. 2. To appoint PricewaterhouseCoopers LLP as the Company’s independent, registered public accounting firm to act as the Company’s auditor for the year ending December 31, 2006 and authorize the Board of Directors of the Company acting by the Audit Committee of the Board of Directors to set the fees for the independent, registered public accounting firm acting as the Company’s auditor. 3. To consider and approve an amendment to the Everest Re Group, Ltd. 2002 Stock Incentive Plan, as described in the accompanying Proxy Statement. 4. To consider and act upon such other business, if any, as may properly come before the meeting and any and all adjournments thereof.
1. To elect two Class III directors of the Company, each to serve for a three-year period to expire at the 2008 Annual General Meeting of Shareholders or until such director’s successor shall have been duly elected or appointed or until such director’s office is otherwise vacated.
2. To appoint PricewaterhouseCoopers LLP as the Company’s independent auditors for the year ending December 31, 2005 and authorize the Board of Directors of the Company acting by the Audit Committee of the Board of Directors to set the fees for the independent auditors.
3. To consider and approve an amendment to the 2003 Everest Re Group, Ltd. Non-Employee Director Equity Compensation Plan, as described in the accompanying Proxy Statement.
4. To consider and approve an amendment to the Everest Re Group, Ltd. Executive Performance Annual Incentive Plan, as described in the accompanying Proxy Statement.
5. To consider and act upon such other business, if any, as may properly come before the meeting and any and all adjournments thereof.
The Company’s financial statements for the year ended December 31, 2004,2005, together with the report of the Company’s auditorsindependent, registered public accounting firm in respect of those financial statements, as approved by the Company’s Board of Directors, will be presented at this Annual General Meeting.
Only shareholders of record, as shown by the transfer books (Register of Members) of the Company, at the close of business on March 29, 200527, 2006 are entitled to notice of, and to vote at, the Annual General Meeting.
You are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting in person, you are urged to sign and date the enclosed proxy and return it promptly in the postage prepaid envelope provided for that purpose.
By Order of the Board of Directors | |
April 15, 200514, 2006
Hamilton, Bermuda
PROXYSTATEMENT
ANNUAL GENERAL MEETING OF SHAREHOLDERS
May 25, 200523, 2006
The enclosed Proxy Card is being solicited on behalf of the Board of Directors (the “Board”) for use at the 20052006 Annual General Meeting of Shareholders of Everest Re Group, Ltd., a Bermuda company (the “Company”), to be held on May 25, 2005,23, 2006, and at any adjournment thereof. It may be revoked at any time before it is exercised by giving a later-dated proxy, notifying the Secretary of the Company in writing at the Company’s registered office at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda, or by voting in person at the Annual General Meeting. All shares represented at the meeting by properly executed proxies will be voted as specified and, unless otherwise specified, will be voted: (1) for the election of Thomas J. GallagherMartin Abrahams, John R. Dunne and William F. Galtney, Jr.John A. Weber as directors; (2) for the appointment of PricewaterhouseCoopers LLP as the Company’s independent, auditorsregistered public accounting firm to act as the Company’s auditor for 2006 and for authorizing the Board of Directors of the Company acting by the Audit Committee of the Board to set the fees for the independent, auditors;registered public accounting firm acting as the Company’s auditor and (3) for the approval of an amendment to the Everest Re Group, Ltd. 2003 Non-Employee Director Equity Compensation Plan; and (4) for the approval of an amendment to the Everest Re Group, Ltd. Executive Performance Annual2002 Stock Incentive Plan.
Only shareholders of record at the close of business on March 29, 200527, 2006 will be entitled to vote at the meeting. On that date, 56,796,43964,910,277 Common Shares, par value $.01 per share (“Common Shares”), were outstanding and entitled to vote, including 452,000 Common Shares owned by Everest Reinsurance Holdings, Inc., a subsidiary of the Company (“Everest Holdings”). The Common Shares owned by Everest Holdings will not be voted at the Annual General Meeting.vote. Except as may be provided in the Company’s Bye-Laws, where voting is by poll, each Common Share is entitled to one vote.
The election of each nominee for director and the approval of all other matters to be voted upon at the Annual General Meeting require the affirmative vote of a majority of the votes cast at the Annual General Meeting, provided there is a quorum (consisting of not less than two persons present in person or by proxy holding in excess of 50% of the issued and outstanding Common Shares entitled to attend and vote at the Annual General Meeting). The Company has appointed inspectors of election to count votes cast in person or by proxy. Common Shares owned by shareholders who are present in person or by proxy at the Annual General Meeting but who elect to abstain from voting will be counted towards the presence of a quorum. However, such Common Shares, and Common Shares owned by shareholders and not voted in person or by proxy at the Annual General Meeting (including “broker non-votes”), will not be counted towards the majority needed to elect a director or approve any other matter before the shareholders and thus will have no effect on the outcome of those votes.
This Proxy Statement, the attached Notice of Annual General Meeting, the Annual Report of the Company for the year ended December 31, 20042005 (including financial statements) and the enclosed Proxy Card are first being mailed to the Company’s shareholders on or about April 15, 2005.14, 2006.
On February 24, 2000, the Company became the holding company for Everest Reinsurance Holdings, Inc. (“Everest Holdings”) and its subsidiaries in connection with a restructuring. As a result, all references in this document to the Company prior to February 24, 2000 refer to Everest Holdings and all references to the Common Shares prior to February 24, 2000 refer to the common stock of Everest Holdings.
All references in this document to “$” or “dollars” are references to the currency of the United States of America.
The Company knows of no specific matter to be brought before the Annual General Meeting that is not referred to in the attached Notice of Annual General Meeting of Shareholders and this Proxy Statement. If any such matter comes before the meeting, including any shareholder proposal properly made, the proxy holders will vote proxies in accordance with their best judgment with respect to such matters. To be properly made, a shareholder proposal must comply with the Company’s Bye-Laws and, in order for any matter to come before the meeting, it must relate to matters referred to in the attached Notice of Annual General Meeting.
PROPOSAL NO. 1—ELECTION OF DIRECTORS
The Board of Directors recommends that you vote FOR the director nominees described below. Proxies will be so voted unless shareholders specify otherwise in their proxies.
The Company’s Bye-Laws provide for the division of the Board into three classes, with the directors in each class serving for a term of three years. At the 20052006 Annual General Meeting, twothree nominees for Class IIII director positions are to be elected to serve until the 20082009 Annual General Meeting of Shareholders or until their qualified successors are elected and qualified or until such director’s office is otherwise vacated. At its regularly scheduled meeting on February 23, 2005,22, 2006, the Nominating and Governance Committee recommended to the Board of Directors the nominations of Mr. GallagherAbrahams, Mr. Dunne and Mr. GaltneyWeber as Class III directors for the shareholders’ consideration at the 2005 Annual General Meeting.I directors. Mr. GallagherAbrahams, Mr. Dunne and Mr. GaltneyWeber are currently Class IIII directors of the Company. Mr. Gallagher is currently an employee of Everest Global Services, Inc., a subsidiary of the Company (“Everest Global”). The Class III director positions will be subject to election at the 2006 Annual General Meeting and the Class II directors will be subject to election at the 2007 Annual General Meeting and the Class III directors will be subject to election at the 2008 Annual General Meeting.
All On February 22, 2006, the Board accepted the Nominating and Governance Committee recommendations, and all nominees have accepted their nominations for the Class IIII director positions. It is not expected that any of the nominees will become unavailable for election as a director, but if any nominee should become unavailable prior to the meeting, proxies will be voted for such persons as the Board shall recommend, unless the Board reduces the number of directors accordingly. There are no arrangements or understandings between any director and any other person pursuant to which such person was selected as a director or nominee.
Information Concerning Nominees
The following information has been furnished by the respective nominees for election of Class IIII directors for terms expiring in 2008.2009.
Thomas J. Gallagher, 56, became a Class III director of the Company on March 13, 1996. Mr. Gallagher also serves as a director of Everest Reinsurance Company (“Everest Re”), having first been elected to that position in 1987. Elected President and Chief Operating Officer of both the Company and Everest Re on February 24, 1997, Mr. Gallagher had been Executive Vice President of both companies since December 1995 and a Senior Vice President of the Company from 1994 to 1995 and of Everest Re from 1989 to 1994. Since joining Everest Re in 1975, he has served as an underwriter in the facultative and treaty departments, as vice president in charge of the facultative department and as vice president in charge of the treaty casualty department. Mr. Gallagher also serves as Deputy Chairman of the Company, as a director and President of Everest Holdings, as a director and Deputy Chairman of Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”), as a director and Chairman of Everest Global, as a director and Chairman of Everest National Insurance Company (“Everest National”), as a director and Chairman of Everest Insurance Company of Canada (“EVCAN”), as a director and Chairman of Mt. McKinley Insurance Company (“Mt. McKinley”), as a director and Chairman and Chief Executive Officer of Everest Indemnity Insurance Company (“Everest Indemnity”), and as a director of WorkCare Southeast, Inc. (“WorkCare Southeast”) and WorkCare Southeast of Georgia, Inc. (“WorkCare Georgia”) and Everest Security Insurance Company (“Everest Security”) (f/k/a Southeastern Security Insurance Company), all of which are subsidiaries of the Company.
William F. Galtney, Jr., 52, became a Class III director of the Company on March 12, 1996 and served as a director of Everest Re from March 1996 to February 2000. Since April 1, 2005, he has been Chairman of Oxford Insurance Services Limited, a managing general and surplus lines agency. Prior thereto, he was President (until December
2
31, 2004) and Chairman (until March 31, 2005) of Gallagher Healthcare Insurance Services, Inc. (“GHIS”), a wholly owned subsidiary of Arthur J. Gallagher & Co. From 1983, Mr. Galtney was the Chairman and Chief Executive Officer of Healthcare Insurance Services, Inc. (predecessor to Gallagher Healthcare Insurance Services, Inc.), a managing general and surplus lines agency previously indirectly owned by The Galtney Group, Inc. Mr. Galtney is also Managing Member, President and Director of Galtney Group, LLC and was a director of Mutual Risk Management Ltd. from 1988 to 2002.
Information Concerning Continuing Directors and Executive Officers
The following information has been furnished by those directors whose terms of office will continue after the Annual General Meeting and by the other executive officers.
Martin Abrahams, 72,73, became a Class I director of the Company on March 12, 1996 and served as a director of Everest ReReinsurance Company (“Everest Re”) from March 1996 to February 2000. Mr. Abrahams, currently retired, served with the accounting firm of Coopers & Lybrand L.L.P. from 1957 and was a partner in that firm from 1969 to 1995.
John R. Dunne, 76, became a Class I director of the Company on June 10, 1996 and served as a director of Everest Re from June 1996 to February 2000. Mr. Dunne is an attorney and member of the bar of New York and the District of Columbia. Since 1994 he has been counsel to the law firm of Whiteman, Osterman & Hanna LLP in Albany, New York. Since 1995, Mr. Dunne has been a director of AVIVA Life Insurance Company of New York, serving on the company’s audit committee. Mr. Dunne was a director of CGU Corporation, an insurance holding company, from 1993 until 2001. Mr. Dunne was counsel to the Washington, D.C. law firm of Bayh, Connaughton & Malone from 1993 to 1994. From 1990 to 1993, he served as an Assistant Attorney General at the United States Department of Justice. From 1966 to 1989, Mr. Dunne served as a New York State Senator while concurrently practicing law as a partner in New York law firms.
John A. Weber, 61, he became a Class I director on May 22, 2003. Since December 2002, he has been the Managing Partner of Copley Square Capital Management, LLC, a private partnership and SEC-registered investment adviser which provides investment management and strategic advisory services to institutions. From 1990 through 2002, Mr. Weber was affiliated with One Beacon Insurance Group LLC (formerly known as CGU Corporation) and its predecessor companies. During that affiliation, he became the Managing Director and Chief Investment Officer of One Beacon Insurance Companies and the President of One Beacon Asset Management, Inc. (formerly known as CGU Asset Management, Inc.). From 1988 through 1990, Mr. Weber was the Chief Investment Officer for Provident
Life Accident Insurance Company and from 1972 through 1988 was associated with Connecticut Mutual Life Insurance Company (“Connecticut Mutual”) and its affiliate, State House Capital Management Company (“State House”), eventually serving as Senior Vice President of Connecticut Mutual and President of State House.
Information Concerning Continuing Directors and Executive Officers
The following information has been furnished by those directors whose terms of office will continue after the Annual General Meeting and by the other executive officers.
Kenneth J. Duffy, 75,76, became a Class II director of the Company on March 12, 1996 and served as a director of Everest Re from March 1996 to February 2000. Mr. Duffy is a retired insurance executive. He served with the insurance holding company, Commercial Union Corporation, and its parent company, CGU plc, from 1948 until his retirement in 1999. He was President and Chief Executive Officer of Commercial Union Corporation from January 1985 to January 1995, Chairman and Chief Executive Officer from January 1993 to January 1995, Chairman from January 1995 to October 1998 and Senior Advisor to CGU plc from October 1998 to December 1999. Until December 1999, he was also a director of Commercial Union Canada Holdings, Ltd. and the President and a director of Curepool (Bermuda) Ltd. He is also a vice president of the Insurance Institute of London and a fellow of the Institute of Risk Management.
John R. DunneThomas J. Gallagher, 75,57, became a Class IIII director of the Company on June 10,March 13, 1996. Mr. Gallagher also serves as a director of Everest Re, having first been elected to that position in 1987. Elected President and Chief Operating Officer of both the Company and Everest Re on February 24, 1997, Mr. Gallagher had been Executive Vice President of both companies since December 1995. He was Senior Vice President of the Company from 1994 to 1995 and of Everest Re from 1989 to 1994. Since joining Everest Re in 1975, he has served as an underwriter in the facultative and treaty departments, as vice president in charge of the facultative department and as vice president in charge of the treaty casualty department. Mr. Gallagher also serves as Deputy Chairman of the Company, as a director and President of Everest Holdings, as a director and Deputy Chairman of Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”), as a director and Chairman of Everest Global Services, Inc. (“Everest Global”), as a director and Chairman of Everest National Insurance Company (“Everest National”), as a director and Chairman of Everest Insurance Company of Canada (“EVCAN”), as a director and Chairman of Mt. McKinley Insurance Company (“Mt. McKinley”), as a director and Chairman and Chief Executive Officer of Everest Indemnity Insurance Company (“Everest Indemnity”), and as a director of WorkCare Southeast, Inc. (“WorkCare Southeast”), WorkCare Southeast of Georgia, Inc. (“WorkCare Georgia”) and Everest Security Insurance Company (“Everest Security”) (f/k/a Southeastern Security Insurance Company), all of which are subsidiaries of the Company.
William F. Galtney, Jr., 53, became a Class III director of the Company on March 12, 1996 and served as a director of Everest Re from JuneMarch 1996 to February 2000. Mr. Dunne, an attorney and member of the bar of both New York and the District of Columbia, has since 1994 been counsel to the law firm of Whiteman, Osterman & Hanna LLP in Albany, New York. Mr. DunneSince April 1, 2005, he has been Chairman of Oxford Insurance Services Limited, a directormanaging general and surplus lines agency. Prior thereto, he was President (from June of AVIVA Life2001 until December 31, 2004) and Chairman (until March 31, 2005) of Gallagher Healthcare Insurance CompanyServices, Inc. (“GHIS”), a wholly-owned subsidiary of New York since 1995, serving onArthur J. Gallagher & Co. (“Gallagher”). From 1983 until its acquisition by Gallagher in June of 2001, Mr. Galtney was the Audit Committee.Chairman and Chief Executive Officer of Healthcare Insurance Services, Inc. (predecessor to GHIS), a managing general and surplus lines agency previously indirectly owned by The Galtney Group, Inc. Mr. DunneGaltney is also Managing Member, President and Director of Galtney Group, LLC and was a director of CGU Corporation, an insurance holding company,Mutual Risk Management Ltd. from 1993 until 2001. Mr. Dunne was counsel1988 to the Washington, D.C. law firm of Bayh, Connaughton & Malone from 1993 to 1994. From 1990 to 1993, he served as an Assistant Attorney General at the United States Department of Justice. From 1966 to 1989, Mr. Dunne served as a New York State Senator while concurrently practicing law as a partner in New York law firms.2002.
Joseph V. Taranto, 56,57, a Class II director, became Chairman of the Board and Chief Executive Officer of the Company and Everest Re on October 17, 1994 and served as President of both companies from December 1994 until Mr. Gallagher’s election as President on February 24, 1997. Mr. Taranto also serves as Chairman and Chief Executive Officer of Everest Holdings and as Chairman of Bermuda Re. Between 1986 and 1994, Mr. Taranto was a director and President of Transatlantic Holdings, Inc. and a director and President of Transatlantic Reinsurance Company and Putnam Reinsurance Company (both subsidiaries of Transatlantic Holdings, Inc.) from 1986 to 1994..
John A. Weber, 60, became a Class I director on May 22, 2003. Since December 2002, he has been the Managing Partner of Copley Square Capital Management, LLC, a private partnership and SEC-registered investment adviser which provides investment management and strategic advisory services to institutions. From 1990 through 2002, Mr. Weber was affiliated with One Beacon Insurance Group LLC (formerly known as CGU Corporation) and its predecessor companies. During that affiliation, he became the Managing Director and Chief Investment Officer of One Beacon Insurance Companies and the President of One Beacon Asset Management, Inc. (formerly known as CGU Asset Management, Inc.). From 1988 through 1990, Mr. Weber was the Chief Investment Officer for Provident Life Accident Insurance Company and from 1972 through 1988 was associated with Connecticut Mutual Life Insurance Company (“Connecticut Mutual”) and its affiliate, State House Capital Management Company (“State House”), eventually serving as Senior Vice President of Connecticut Mutual and President of State House.
3
Stephen L. Limauro, 53,54, is an Executive Vice President and the Chief Financial Officer of the Company. He served as Comptroller of the Company from September 25, 1997 until November 6, 2001. He served as Comptroller of Everest
Re from September 25, 1997 until August 29, 2001. He served as Treasurer of the Company from November 17, 1999 until November 6, 2001 and Treasurer of Everest Re from November 17, 1999 until August 6, 2001. He became Executive Vice President of the Company and Everest Re on September 21, 2000. He became a Senior Vice President of the Company and Everest Re on February 23, 1999. He served as Assistant Comptroller of Everest Re from June 20, 1988 until September 25, 1997. From May 1995 until September 1997, he was Vice President, Treasurer and Assistant Comptroller of the Company. Mr. Limauro is also a director, Executive Vice President, and Chief Financial Officer of Everest Holdings, a director of Everest Re, Everest National and Everest Indemnity, a director and Chairman of Everest Re Advisors, Ltd. (“Everest Re Advisors”), a Bermuda subsidiary of the Company, and a director and chairman of Everest Advisors (Ireland) Limited (“Everest Ireland”), an Irish subsidiary of Everest Re Advisors.Advisors and a director of Everest Advisors (U.K.) Ltd., (“Advisors U.K.”), a subsidiary of Everest Ireland. He also serves as a director and Treasurer of EVCAN. He servesserved as a director and Chairman of Everest Re Holdings, Ltd. (“ERHL”), a subsidiary of Everest Re,until its dissolution on January 27, 2006, and is director and President of Everest Global and is Chief Financial Officer of WorkCare Southeast and WorkCare Georgia. He is also a director of Bermuda Re and director and Chairman of Everest International Reinsurance, Ltd. (“Everest International”) (f/k/a AFC Re Ltd.), which are subsidiaries of the Company. Mr. Limauro serves as a director of Mt. McKinley and Everest Security, which are subsidiaries of the Company. He also serves as a trustee of Everest Re Capital Trust, Everest Re Capital Trust II and Everest Re Capital Trust III, which are Delaware statutory trusts. Prior to the restructuring, he was a director and Chairman of Everest Re Group, Ltd.
Mark S. de Saram, 49,50, is an executive officer of the Company and became Senior Vice President on October 13, 2004. He serves as Managing Director and Chief Executive Officer of Bermuda Re and as a director and Deputy Chairman of ERHL, Everest Re Advisors and Everest International. He serves as a director of Everest Ireland.Ireland and Advisors U.K. and was director and Deputy Chairman of ERHL until its dissolution. Mr. de Saram joined Everest in 1995 as Vice President of Everest Re responsible for United Kingdom and European Operations. Prior to his joining Everest, Mr. de Saram accumulated 21 years of reinsurance industry experience working in various underwriting capacities in the United Kingdom and Canada.
Keith T. Shoemaker, 49,50, became Comptroller of the Company on November 6, 2001 and became the Principal Accounting Officer on July 30, 2002. He also serves as Vice President and Comptroller of Everest Holdings, ERHL, Everest Re, Everest Global and Mt. McKinley as well as Assistant Comptroller of Everest National, Everest Indemnity, Everest Security, WorkCare Southeast, WorkCare Georgia and Mt. McKinley Managers, L.L.C. (“Mt. McKinley Managers”) and Assistant Controller of EVCAN. He served as Vice President and Comptroller of ERHL until its dissolution. He also serves as a trustee of Everest Re Capital Trust and Everest Re Capital Trust II, which are Delaware statutory trusts. Mr. Shoemaker was Vice President and Controller of Selective Insurance Company from 1999 to 2001 and served as Vice President of the National Council on Compensation Insurance from 1992 to 1999.
The Board of Directors and Its Committees
The Board conducts its business through its meetings and meetings of its committees. Four meetings of the Board were held in 2004.2005. No director, either in person or through an alternate director appointment as permitted under Bermuda law, attended fewer than 75% of the aggregate of the total number of meetings of the Board and the total number of meetings of all committees of the Board on which the director served. All of the directors personally attended last year’s Annual General Meeting of Shareholders. The directors are expected to attend the Annual General Meeting pursuant to the Company’s Corporate Governance Guidelines.
The Board has affirmatively determined that the following directors, who constitute a majority of the Board and who serve as members of the Audit, Compensation and Nominating and Governance Committees, are independent: Mr. Abrahams, Mr. Duffy, Mr. Dunne and Mr. Weber. To determine independence, the Board applied the categorical standards contained in the Company’s Corporate Governance Guidelines. A copy of those standards, which meet and in some respects exceed the corporate governance listing standards of the New York Stock Exchange (“NYSE”), is set forth as Appendix A to this Proxy Statement. The Board also considered whether these four directors had any other material relationships with the Company, its affiliates or the Company’s external auditor and concluded that none of
4
them had a relationship that impaired his independence. The Board based its determination on personal discussions
with the directors and a review of each director’s responses to questions regarding employment, compensation history, affiliations and family and other relationships. Additionally, as well as making the disclosures required under Bye-lawBye-Law 21(b) of the Company’s Bye-lawsBye-Laws (which in turn requires compliance with the Companies Act 1981 of Bermuda, as amended), pursuant to the Corporate Governance Guidelines, directors must disclose to the other directors any potential conflicts of interest they may have with respect to any matter under discussion and, if disqualified by the Chairman of the meeting, refrain from voting on a matter in which they may have a material interest.
Prior to each scheduled meeting of the Board of Directors, the directors who are not officers of the Company meet in executive session outside the presence of management. The executive sessions are chaired by alternating directors who rotate on an alphabetical basis. In addition, the independent directors meet in executive session outside the presence of management on a regular basis.
The Board currently maintains Audit, Nominating and Governance and Compensation Committees, all of whose members are independent directors. The Charters for each of these committees, the Corporate Governance Guidelines and the Company’s Ethics Guidelines and Index to Compliance Policies as well as the Code of Ethics for Chief Executive Officer and Senior Financial Officers are posted on the Company’s website athttp://www.everestre.com. These documents are also available in print to any shareholder who requests a copy from the Corporate Secretary. InSecretary at the event the Company makes any amendment to or grants any waiver from the provisions of its Code of Ethics, the Company intends to disclose such amendment or waiver on its website within five business days.
address below. The Board also maintains an Executive Committee, the purpose of which is to take any emergency actions until the Board can meet. The members of the Executive Committee are Mr. Taranto, Mr. Gallagher and Mr. Galtney. There was one meeting of theThe Executive Committee did not meet in 2004 and one action was taken by unanimous consent. All actions taken by the Executive Committee were ratified and approved by the Board of Directors at the next following meeting.2005.
Audit Committee
The principal purposepurposes of the Company’s Audit Committee isare to oversee the integrity of the Company’s financial statements and the Company’s compliance with legal and regulatory requirements, to oversee the independent, auditors,registered public accounting firm, to evaluate the independent, auditors’registered public accounting firms’ qualifications and independence and to oversee the performance of the Company’s internal audit function. The Audit Committee meets separately and together with the Company’s management, director of internal audit and the independent, auditorsregistered public accounting firm to review the Company’s internal controls and financial statements, audit findings and significant accounting and reporting issues. The Board has adopted a Charter for the Audit Committee which is revised as necessary to comply with all applicable laws, rules and regulations. The Charter is available on the Company’s website athttp://www.everestre.com.
The members of the Audit Committee are Mr. Abrahams, Mr. Duffy, Mr. Dunne, and Mr. Weber, all of whom meet the independence standards of the NYSE and the Securities and Exchange Commission (“SEC”). Mr. Abrahams qualifies also as an “audit committee financial expert” as defined by the SEC in Item 401(h) of Regulation S-K. No member of the Audit Committee may serve on the Audit Committee of more than two other public companies unless the Board has determined that such service will not affect the ability of the Committee member to serve on the Company’s Audit Committee. Mr. Dunne serves as Chairman of the Audit Committee. The Audit Committee held threefour meetings in 2004.2005.
Compensation Committee
The Compensation Committee exercises authority with respect to all compensation and benefits afforded all officers at the Senior Vice President level and above, the DesignatedNamed Executive Officers (as defined herein), and the Company’s Chief Financial Officer, Comptroller, Treasurer and Secretary. The Compensation Committee also has oversight responsibilities for all of the Company’s broad-based compensation and benefit programs, including administration of the Company’s Annual Incentive Plan, the 1995 Stock Incentive Plan, the 2002 Stock Incentive Plan and the Executive Performance Annual Incentive Plan. The Compensation Committee adopted a Charter on November 21, 2002, which is available on the Company’s website athttp://www.everestre.com.
5
The current members of the Compensation Committee areis comprised of Mr. Abrahams, Mr. Duffy, Mr. Dunne and Mr. Weber, none of whom are current or former employees or officers of the Company and all of whom meet the independence standards
of the NYSE. Mr. Duffy serves as Chairman of the Compensation Committee. The Compensation Committee held foursix meetings in 2004.2005.
Nominating and Governance Committee
The Nominating and Governance Committee was established by the Board on November 21, 2002, with authority and responsibility to identify and recommend qualified individuals to be nominated as directors of the Company and to develop and recommend to the Board the Corporate Governance Guidelines applicable to the Company. The current members of the Nominating and Governance Committee are Mr. Abrahams, Mr. Duffy, Mr. Dunne and Mr. Weber, all of whom meet the independence standards of the NYSE. Mr. Abrahams currently serves as Chairman of the Nominating and Governance Committee.
The Nominating and Governance Committee will consider a shareholder’s nominee for director who is proposed in accordance with the procedures set forth in Bye-Law 12 of the Company’s Bye-laws,Bye-Laws, which is available on the Company’s website or by mail from the Corporate Secretary’s office. This Bye-Law requires written notice of a shareholder’s intent to make such a nomination at the 20062007 Annual General Meeting of Shareholders to be received by the Secretary of the Company at the address listed below underShareholder Communications with Directors, between November 16, 200515, 2006 and December 16, 2005.15, 2006. Such notice shall set forth the name and address, as it appears on the Register of Members, of the shareholder who intends to make the nomination; a representation that the shareholder is a holder of record of shares of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make such nomination; the class and number of shares of the Company which are held by the shareholder; the name and address of each individual to be nominated; a description of all arrangements or understandings between the shareholder and any such nominee and any other person or persons (naming such person or persons) pursuant to which such nomination is to be made by the shareholder; such other information regarding any such nominee required to be included in a proxy statement filed pursuant to Regulation 14A under the Securities Exchange Act of 1934; and the consent of any such nominee to serve as a director, if so elected.
Shareholder candidates nominated in accordance with the procedures of Bye-Law 12 will, like any other director-candidate, be considered based solely on their character, judgment, education, training, business experience and expertise. In addition to complying with independence standards of the NYSE, the SEC and the Company, candidates for director must possess the highest levels of personal and professional ethics, integrity and values and be willing to devote sufficient time to perform their board and committee duties. It is in the Company’s best interests that the board be composed of individuals whose skills, experience, diversity and expertise complement those of the other board members. The objective is to have a board which, taken as a whole, is knowledgeable in the areas of insurance/reinsurance, accounting (using generally accepted accounting practices and/or statutory accounting practices for insurance companies), financial management and investment, and any other areas which the board and committee deem appropriate in light of the continuing operations of the Company and its subsidiaries. Financial services-related experience, other relevant prior service, a familiarity with national and international issues affecting the Company’s operations and a diversity of background, experience, race and gender are also among the relevant criteria to be considered. Following interviews, meetings and such inquiries and investigations determined to be appropriate under the circumstances, the Committee makes its director recommendations to the Board.
The Nominating and Governance Committee held two meetingsone meeting in 2004.2005. The Committee’s Charter, which was adopted by the Board on February 25, 2004, and the Corporate Governance Guidelines which contain the director qualifications, are available on the Company’s website athttp://www.everestre.com.
Code of Ethics for CEO and Senior Financial Officers
The Company has adopted a code of ethics that applies to the Chief Executive Officer, Chief Financial Officer and senior financial officers. The text of the Code of Ethics for Chief Executive Officer and Senior Financial Officers is posted on the Company’s website athttp://www.everestre.com. This document is also available in print to any shareholder who requests a copy from the Corporate Secretary at the address below. In the event the Company makes
any amendment to or grants any waiver from the provisions of its Code of Ethics, the Company intends to disclose such amendment or waiver on its website within five business days.
6
Shareholder Communications with Directors
Shareholders may communicate directly with the Board of Directors or with individual directors. All communications should be directed to the Company’s Secretary at the following address and in the following manner:
Everest Re Group, Ltd. Corporate Secretary
c/o Everest Global Services, Inc.
Westgate Corporate Center
477 Martinsville Road
P.O. Box 830
Liberty Corner, New Jersey 07938-0830
Any such communication should prominently indicate on the outside of the envelope that it is intended for the Board of Directors, for the Non-Management Directors or for any individual director. Each communication addressed to an individual director and received by the Company’s Secretary from investors or security holders, which is related to the operation of the Company and is not solely commercial in nature, will promptly be forwarded to the specified party. Communications addressed to the “Board of Directors” or to the “Non-Management Directors” will be forwarded to the Chairman of the Nominating and Governance Committee.
Common Share Ownership By Directors And Executive Officers
The following table sets forth the beneficial ownership of Common Shares as of March 29, 200527, 2006 by the directors of the Company, by the DesignatedNamed Executive Officers listed in the Summary Compensation Table and by all directors and executive officers of the Company as a group. Information in this table was furnished to the Company by the respective directors and DesignatedNamed Executive Officers. Unless otherwise indicated in a footnote, each person listed in the table possesses sole voting power and sole dispositive power with respect to the shares shown in the table as owned by that person.
Name of Beneficial Owner Amount and Nature of
Beneficial Ownership
Class (12)Martin Abrahams 35,195 (1) * Kenneth J. Duffy 34,622 (2) * John R. Dunne 33,840 (3) * Thomas J. Gallagher 168,427 (4) * William F. Galtney, Jr. 124,726 (5) * Joseph V. Taranto 702,772 (6) 1.24 John A. Weber 7,587 (7) * Stephen L. Limauro 49,275 (8) * Keith T. Shoemaker 6,100 (9) * Mark S. de Saram 44,260 (10) * All directors and executive officers
as a group (10 persons) 1,206,804 (11) 2.12
Amount and Nature of | Percent of | ||||||||
Name of Beneficial Owner | Beneficial Ownership | ||||||||
Martin Abrahams | 37,692 | (1) | * | ||||||
Kenneth J. Duffy | 37,984 | (2) | * | ||||||
John R. Dunne | 34,629 | (3) | * | ||||||
Thomas J. Gallagher | 186,988 | (4) | * | ||||||
William F. Galtney, Jr. | 101,232 | (5) | * | ||||||
Joseph V. Taranto | 606,336 | (6) | * | ||||||
John A. Weber | 9,049 | (7) | * | ||||||
Stephen L. Limauro | 63,725 | (8) | * | ||||||
Keith T. Shoemaker | 4,200 | (9) | * | ||||||
Mark S. de Saram | 34,022 | (10) | * | ||||||
All directors and executive officers | |||||||||
as a group (10 persons) | 1,115,857 | (11) | 1.72 |
* | Less than 1% | ||
(1) | Includes | Also includes 2,000 shares of restricted stock issued to Mr. Abrahams under the Company’s 2003 Non-Employee Director Equity Compensation Plan (“2003 Director Plan”) which may not be sold or transferred until the vesting requirements are satisfied. |
(2) | Includes Also includes 2,000 shares of restricted stock issued to Mr. Duffy under the 2003 Director Plan which may not be sold or transferred until the vesting requirements are satisfied. | |
(3) | Includes 27, 2006. Also includes 2,000 shares of restricted stock issued to Mr. Dunne under the Company’s 2003 Director Plan which may not be sold or transferred until the vesting requirements are satisfied. | |
(4) | Includes | |
7
(5) | Includes 27, 2006. Also includes 2,000 shares of restricted stock issued to Mr. Galtney under the Company’s 2003 Director Plan which may not be sold or transferred until the vesting requirements are satisfied. | ||
(6) | Includes | ||
(7) | Includes | ||
(8) | Includes 11,200 restricted shares issued to | ||
(9) | Includes 27, 2006. | ||
(10) | Includes | ||
(11) | Includes 27, 2006. | ||
(12) | Based on | ||
To the best of the Company’s knowledge, the only beneficial owners of more than 5% of the outstanding Common Shares as of December 31, 20042005 are set forth below. This table is based on information provided in Schedule 13G Information Statements filed with the SEC by the parties listed in the table.
Percent of | ||||||
Name and Address of Beneficial Owner | Class | |||||
FMR Corp. | 6,238,525 | (1) | 9.723 | |||
82 Devonshire Street | ||||||
Boston, Massachusetts 02109 | ||||||
Putnam, LLC d/b/a Putnam Investments on behalf | 4,654,220 | (2) | 7.5 | |||
of itself and Marsh & McLennan Companies, Inc.; | ||||||
Putnam Investment Management, LLC; and | ||||||
The Putnam Advisory Company, LLC | ||||||
One Post Office Square | ||||||
Boston, Massachusetts 02109 | ||||||
Barclays Global Investors, NA | 4,632,693 | (3) | 7.48 | |||
45 Fremont Street | ||||||
San Francisco, California 94105 | ||||||
Wellington Management Company, LLP. | 3,597,024 | (4) | 5.81 | |||
75 State Street | ||||||
Boston, Massachusetts 02109 | ||||||
Southeastern Asset Management Inc. | 3,548,100 | (5) | 5.7 | |||
6410 Poplar Avenue, Suite 900 | ||||||
Memphis, Tennessee 38119 |
(1) |
8
FMR Corp. reports in its Schedule 13G that it has sole | ||
(2) | Putnam, LLC on behalf of itself, | |
(4) | Wellington Management Company, LLP reports in its Schedule 13G that it has shared power to vote or direct the vote with respect to 2,561,420 Common Shares and shared power to dispose or direct the disposition with respect to 3,597,024 Common Shares. | |
(5) | Southeastern Asset Management, Inc. reports in its Schedule 13G that it has sole power to vote or direct the vote of 1,890,300 Common Shares, shared power to vote 1,421,800 Common Shares, no power to vote 236,000 Common Shares, sole dispositive power with respect to 2,126,300 Common Shares and shared or no dispositive power with respect to 1,421,800 Common Shares. | |
Each member of the Board who is not otherwise affiliated with the Company as an employee and/or officer (each, a “Non-Employee Director” or “Non-Management Director”) was compensated in 20042005 for services as a director and was also reimbursed for out-of-pocket expenses associated with each meeting attended. The annual compensation for 20042005 of each Non-Employee Director consisted of stock and/or cash having an aggregate value of $60,000. This amount has been increased to $75,000 for 2006. The compensation for 20042005 was paid in four installments of cash or, at the director’s election, by issuances of Common Shares under the 2003 Non-Employee Director Equity Compensation Plan, (the “2003 Directors’ Plan”), which was approved by shareholders on May 22, 2003. An amendment to2003, and amended with the 2003 Directors’ Plan is being submitted to theapproval of shareholders for their approval at the 2005 Annual General Meeting. (See Proposal Number 3 below, “Approval of Amendment to the Everest Re Group, Ltd. 2003 Non-Employee Director Equity Compensation Plan.”)on May 25, 2005. Following the issuance by the NYSE on August 16, 2002 of its proposed new Corporate Governance Listing Standards relating to shareholder approval of equity compensation plans, the Company ceased making equity-based compensation payments to the Non-Employee Directors and made all subsequent compensation payments to Non-Employee Directors in cash until the 2003 Directors’ Plan was approved by the shareholders at the 2003 Annual General Meeting. The Non-Employee Directors may each now elect to receive their compensation in cash or in the form of stock in the amount as determined under the Plan.
Giving Non-Employee Directors an opportunity to receive their compensation in the form of Common Shares is intended to align their interests with those of the Company’s shareholders. The value of Common Shares issued is calculated based on the average of the highest and lowest sale prices of the Common Shares on each installment date or, if no sale is reported for that day, the next preceding day for which there is a reported sale. In 2004,2005, each of the Non-Employee Directors who elected to be so compensated was issued a total of 712637 shares as compensation for his services as a director in accordance with this procedure. As of January 1, 2005,2006, the value of those shares for each Non-Employee Director was $63,767$63,923 based upon the NYSE closing price of a Common Share on December 31, 200430, 2005 of $89.56.$100.35.
On May 23, 1996, the shareholders approved the Company’s adoption of the 1995 Stock Option Plan for Non-Employee Directors (the “1995 Directors’ Plan”), which is designed to maintain the Company’s ability to attract and retain the services of experienced and highly qualified Non-Employee Directors and to create in those directors a proprietary interest in the Company’s continued success. At the time of his or her appointment to the Board, each Non-Employee Director is awarded options to purchase that number of Common Shares equal to $50,000 divided by the fair market value of such shares as of the date of appointment, with an exercise price equal to that fair market value. As defined in the 1995 Directors’ Plan, the fair market value is determined by averaging the highest and lowest trading prices of the Common Shares on the date of the option award.
Upon their initial appointment to the Board on March 12, 1996, Mr. Abrahams, Mr. Duffy and Mr. Galtney were each granted options to purchase 2,216 Common Shares at an exercise price of $22.5625 per share. Upon his initial appointment to the Board on June 10, 1996, Mr. Dunne was granted options to purchase 2,036 Common Shares at an exercise price of $24.5625 per share. Upon his election as a director on May 22, 2003, in accordance with the 1995 Directors’ Plan, Mr. Weber was granted options to purchase 706 Common Shares at an exercise price of $70.82. No options were issued toOn May 25, 2005, each of the Non-Employee Directors in 2004.was granted 2,000 shares of restricted stock under the 2003 Director Plan which will vest at the rate of 680 shares on the first anniversary of the grant and 660 shares on each of the two subsequent anniversaries.
9
Compensation of Executive Officers
Summary Compensation Table
The following table sets forth compensation paid or accrued for the last three fiscal years with respect to the Company’s Chief Executive Officer and the four other most highly compensated executive officers who were serving as executive officers as of December 31, 2004 (the “Designated2005 (collectively, the “Named Executive Officers”) and Mr. Bennett, who ceased to serve as an executive officer on October 13, 2004,, for services rendered by them to the Company and to its subsidiaries.
Summary Compensation Table
Long-Term Compensation | |||||||||||||||||||||||||||||||
Annual Compensation | Awards | ||||||||||||||||||||||||||||||
Restricted | Securities | All Other | |||||||||||||||||||||||||||||
Other Annual | Stock | Underlying | Compensation | ||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary($) | Bonus ($)(3) | Compensation (4) | Award(s) ($)(5) | Options(#) | ($)(6) | Compensation (2) | |||||||||||||||||||||||
Joseph V. Taranto | 2004 | $1,000,000 | $2,000,000 | — | $2,617,650 | — | $31,158 | $1,000,000 | $ | 800,000 | — | $5,601,400 | — | $30,188 | |||||||||||||||||
Chairman of the Board | 2003 | 1,000,000 | 1,800,000 | — | 2,231,100 | — | 30,466 | 1,000,000 | 2,000,000 | — | 2,617,650 | — | 31,158 | ||||||||||||||||||
and Chief Executive | 2002 | 1,000,000 | 1,600,000 | — | — | 100,000 | 31,158 | 1,000,000 | 1,800,000 | — | 2,231,100 | — | 30,466 | ||||||||||||||||||
Officer | |||||||||||||||||||||||||||||||
Thomas J. Gallagher | 2004 | 469,231 | 550,000 | — | 628,236 | — | 15,235 | 494,231 | 200,000 | — | 948,900 | — | 16,015 | ||||||||||||||||||
President and Chief | 2003 | 446,538 | 500,000 | — | 446,220 | — | 14,539 | 469,231 | 550,000 | — | 628,236 | — | 15,235 | ||||||||||||||||||
Operating Officer | 2002 | 423,012 | 400,000 | — | — | 16,500 | 13,848 | 446,538 | 500,000 | — | 446,220 | — | 14,539 | ||||||||||||||||||
Stephen L. Limauro | 2004 | 294,231 | 400,000 | — | — | 25,000 | 9,985 | 331,731 | 300,000 | — | 806,565 | — | 10,842 | ||||||||||||||||||
Executive Vice President | 2003 | 270,915 | 350,000 | — | 334,665 | — | 9,285 | 294,231 | 400,000 | — | — | 25,000 | 9,985 | ||||||||||||||||||
and Chief | 2002 | 254,462 | 250,000 | — | — | 25,000 | 8,686 | 270,915 | 350,000 | — | 334,665 | — | 9,285 | ||||||||||||||||||
Financial Officer | |||||||||||||||||||||||||||||||
Keith T. Shoemaker | 2004 | 186,923 | 55,000 | — | — | 5,500 | 6,474 | 193,385 | 40,000 | — | — | 5,500 | 6,720 | ||||||||||||||||||
Comptroller and | 2003 | 177,231 | 65,000 | — | — | 5,500 | 6,138 | 186,923 | 55,000 | — | — | 5,500 | 6,474 | ||||||||||||||||||
Principal Accounting | 2002 | 166,154 | 50,000 | — | — | 5,000 | 2,514 | 177,231 | 65,000 | — | — | 5,500 | 6,138 | ||||||||||||||||||
Officer | |||||||||||||||||||||||||||||||
Mark S. de Saram (1) | 2004 | 305,148 | 225,000 | 23,850 | — | 12,000 | 34,282 | ||||||||||||||||||||||||
Mark S. de Saram | 317,331 | — | 197,096 | 427,005 | — | 36,020 | |||||||||||||||||||||||||
Senior Vice President of | 2003 | 264,334 | 183,154 | — | 223,110 | — | 28,908 | 305,148 | 225,000 | 23,850 | — | 12,000 | 34,282 | ||||||||||||||||||
Everest Re Group, Ltd. | 2002 | 223,628 | 121,540 | — | — | 10,000 | 23,955 | 264,334 | 183,154 | — | 223,110 | — | 28,908 | ||||||||||||||||||
and Managing Director | |||||||||||||||||||||||||||||||
and Chief Executive | |||||||||||||||||||||||||||||||
Officer of Bermuda Re | |||||||||||||||||||||||||||||||
Peter J. Bennett (2) | 2004 | 287,369 | — | 126,400 | — | — | 13,050 | ||||||||||||||||||||||||
Former Senior Vice | 2003 | 276,708 | 150,000 | 99,931 | 74,370 | __ | 15,978 | ||||||||||||||||||||||||
President of Everest | 2002 | 268,577 | 100,000 | 78,120 | — | — | 15,021 | ||||||||||||||||||||||||
Re Group, Ltd.and | |||||||||||||||||||||||||||||||
Managing Director | |||||||||||||||||||||||||||||||
and Chief Executive | |||||||||||||||||||||||||||||||
Officer of Bermuda Re |
(1) | |||
10
Represents compensation earned by the | ||
(2) | The amounts reported for | |
(3) | The amounts reported represent the value of the Common Shares underlying the restricted stock at the respective dates of grant, August 31, 2005 ($92.59 per share), September 21, 2005 ($94.89 per share), September 21, 2004 ($74.79 per share) and September 18, 2003 ($74.37 | |
attributable to the restrictions on such stock. The restricted stock vests at the rate of 20% per year over a 5-year | |||
(4) | The amount reported for |
Stock Option Grants
The following table sets forth certain information concerning stock options granted under the Company’s 2002 Stock Incentive Plan during 20042005 to the DesignatedNamed Executive Officers.
Options/SAR Grants in Last Fiscal Year
Individual Grants | ||||||||||||||||||||||||
Number of | % of Total | Number of | % of Total | |||||||||||||||||||||
Securities | Options/SARs | Securities | Options/SARs | |||||||||||||||||||||
Underlying | Granted to | Exercise or | Grant Date | Underlying | Granted to | Exercise or | Grant Date | |||||||||||||||||
Options/SARs | Employees in | Base Price | Expiration | Present Value | Options/SARs | Employees in | Base Price | Expiration | Present Value | |||||||||||||||
Granted (#)(1) | Fiscal Year(2) | ($/Sh) | Date (3) | ($)(4) | Granted (#)(1) | Fiscal Year(2) | ($/Sh) | |||||||||||||||||
�� | ||||||||||||||||||||||||
Joseph V. Taranto | — | — | — | — | — | — | — | — | ||||||||||||||||
Thomas J. Gallagher | — | — | — | — | — | — | — | — | ||||||||||||||||
Stephen L. Limauro | 25,000 | 5.74 | 74.33 | 09/21/14 | 636,393 | — | — | — | ||||||||||||||||
Keith T. Shoemaker | 5,500 | 1.26 | 74.33 | 09/21/14 | 140,006 | 5,500 | 1.7 | 95.485 | ||||||||||||||||
Mark S. de Saram | 12,000 | 2.76 | 74.33 | 09/21/14 | 305,468 | — | — | — | ||||||||||||||||
Peter J. Bennett | — | — | — | — | — | — | — |
(1) | Represents non-qualified stock options granted to Mr. 2005. | |
(2) | Based upon | |
11
(3) | Exercisable options expire unless exercised within three years following termination of employment due to retirement, disability or death or within three months following termination of employment due to resignation or dismissal. Generally, if employment terminates because of death, retirement upon attaining age 65 or because of disability, unexercisable options become immediately exercisable until the earlier of: (a) three years after death or such termination; or (b) ten years from the date of grant. | |||
(4) | The grant date present value of each option grant is estimated as of the date of grant using the Black-Scholes option pricing model, modified to include dividends, with the following assumptions: | |||
(a) | Expected Volatility—The annualized standard deviation of the continuously compounded rate of return on the underlying stock, based on the closing price observations for the twelve-month period ended | |||
(b) | Risk Free Rate of Return—The rate available, on the date of grant, on zero-coupon U.S. government issues with a remaining term comparable to the expected life of the options as reported in the Federal Reserve Statistical Release was | |||
(c) | Dividend Yield—The yield calculated by dividing the estimated annualized dividend rate of the Common Shares in the amount of | |||
(d) | Expected Life—The average length of time before assumed exercise reflecting vesting provisions and maximum exercise period, which was | |||
Stock Option Exercises And Option Values
The following table sets forth certain information concerning the number and value of unexercised stock options at the end of 20042005 held by the DesignatedNamed Executive Officers.
Number of Securities Underlying Unexercised Value of Unexercised Shares Options/SARS In-the-Money Options/SARS Acquired on Value at FY-End(#) at FY-End ($)(1) Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable Joseph V. Taranto 210,000 $12,088,921 385,000 160,000 $15,833,678 $5,247,824 Thomas J. Gallagher 63,000 4,282,630 137,800 29,700 7,381,531 1,319,529 Stephen L. Limauro 4,000 249,345 40,200 46,800 1,946,970 1,235,413 Keith T. Shoemaker 0 0 6,100 14,900 212,377 344,431 Mark S. de Saram 0 0 40,500 22,000 2,174,411 583,556 Peter J. Bennett 19,000 870,245 0 0 0 0
Name | ||||||||||||
Joseph V. Taranto | 95,000 | 370,000 | 80,000 | |||||||||
Thomas J. Gallagher | 0 | 154,300 | 13,200 | |||||||||
Stephen L. Limauro | 6,000 | 48,600 | 32,400 | |||||||||
Keith T. Shoemaker | 6,100 | 4,200 | 16,200 | |||||||||
Mark S. de Saram | 20,500 | 26,900 | 15,100 |
(1) | Based on the year-end fair market value of Common Shares of |
12
Compensation Committee Report
I. Executive Compensation Policy
Overview. The Company’s executive compensation program in 20042005 was designed to attract, retain and motivate highly talented individuals whose abilities are critical to the success of the Company. Compensation policies that attract personnel of this caliber are particularly important for a relatively complex, multinational public entity like the Company. The Company’s compensation program is guided by the following fundamental principles:
The Company’s executive compensation program in 20042005 achieved the objectives described above and was a significant factor in attaining a high level of corporate performance and increased shareholder value throughout the year.
In establishing executive compensation, the various components of compensation are considered collectively in order to properly assess the appropriateness of the Company’s program relative to the attainment of its objectives. The Company’s executive compensation program consists of two key elements: (i) an annual component consisting of base salary and annual bonus and (ii) a long-term component which may consist of stock options, stock appreciation rights, restricted stock and stock awards.
The Compensation Committee reviewed a variety of factors of historical and projected Company performance in determining executive compensation. In the course of this review, the Compensation Committee considered the Company’s long-term compensation goals, the Company’s financial performance and the compensation practices of other reinsurers through a review of publicly available information. In reviewing these factors, the Compensation Committee was able to assess the overall performance of the Company and its prospects for the future to establish an acceptable range for executive compensation.
II. Components Of Executive Compensation
A. Annual Compensation
In 2004,2005, annual compensation for executive officers of the Company consisted of two components-basecomponents - base salary and a cash payment under either the Company’s Executive Performance Annual Incentive Plan (in the case of Mr. Taranto) or the Company’s Annual Incentive Plan (in the case of the other executive officers). The base salary for Mr. Taranto was subject to the terms of his current employment agreement (see “Employment and Change of Control Agreements—Mr. Taranto” below). The base salaries for the other executive officers were determined by the Compensation Committee based on each executive officer’s performance and, as previously discussed, the Company’s performance and the range of compensation of executive officers with similar responsibilities in comparable companies.
Annual bonuses paid to executive officers under the Annual Incentive Plan and the Executive Performance Annual Incentive Plan are a significant element of the executive compensation program. Under the Annual Incentive Plan, the Company may make cash payments each year to employees who hold positions of significant responsibility and/or whose performance or potential contribution, in the judgment of the Compensation Committee, will contribute materially to the success of the Company and/or its subsidiaries. The Annual Incentive Plan is designed to provide incentive to those employees, to reward their accomplishments, to motivate future accomplishments, and to aid in attracting and retaining employees of the caliber necessary for the continued success of the Company. The Compensation Committee has discretion to determine the amounts of individual awards under the Annual Incentive Plan based on such criteria and factors as the Compensation Committee in its sole discretion may determine and after
13
considering recommendations made by the Chief Executive Officer of the Company. The aggregate amount available for all awards each year is determined annually by the Compensation Committee based upon performance goals established by the Compensation Committee. The determination of individual awards is subjective in nature and is influenced by the Compensation Committee’s perception of the importance of an individual’s contributions to the overall success of the Company. To evaluate corporate performance, the Compensation Committee considered the following factors related to the Company’s 2004 financial results: after-tax operating income, return on equity and earnings growth.
The Compensation Committee has arrived at total compensation for each of the DesignatedNamed Executive Officers that it believes is appropriate to the Company’s performance and their individual contributions.
The Executive Performance Annual Incentive Plan was approved by the Company’s shareholders on May 20, 1999. An amendment to1999 and was amended with the Executive Performance Annual Incentive Plan is being submitted to theapproval of shareholders for their approval at the 2005 Annual General Meeting. (See Proposal Number 4 below, “Approval of Amendment to the Everest Re Group, Ltd. Executive Performance Annual Incentive Plan”.) Each year the Compensation Committee selects executive officers of the Company and its subsidiaries who will be eligible that year to participate in the Executive Performance Annual Incentive Plan. Currently, only Mr. Taranto, the Company’s Chairman and Chief Executive Officer, is a participant (see “Chief Executive Officer Compensation” below). Each year, the Compensation Committee establishes, in writing, objective performance goals for each participant, which, if attained, will entitle such participant to specific award amounts that will be paid to each participant. Each participant’s performance is measured by any of the following performance criteria: net income before or after taxes, operating income before or after taxes, premiums earned, earnings per share, return on shareholders’ equity, return on assets,
appreciation in and/or maintenance of the price of the Common Shares or any other publicly traded securities of the Company, comparisons with various stock market indices, market share, statutory combined ratio, expense ratio, reductions in costs and expense growth, or gross or net premium growth.
The Compensation Committee establishes an objective method by which award amounts are calculated under this plan. The maximum award amount any one participant may be awarded in one year is $2 million but will be increased to $2.5 million if the shareholders approve Proposal Number 4 below.million. The Compensation Committee, in its sole discretion, may eliminate or reduce but not increase any award determination. The plan provides that the total amount of awards granted to all participants in any one year may not exceed 10% of the Company’s average annual income before taxes for the preceding five years.
B. Long-Term Compensation
In 2004,2005, the Company’s long-term compensation program for executive officers was implemented by means of the Everest Re Group, Ltd. 2002 Stock Incentive Plan.Plan (“2002 Stock Incentive Plan”). Awards under this plan are intended to reinforce management’s long-term perspective on corporate performance and provide an incentive for key executives to remain with the Company for the long-term. The 2002 Stock Incentive Plan was approved by shareholders on May 22, 2002. An amendment to the 2002 Stock Incentive Plan is being submitted to the shareholders for their approval at the 2006 Annual General Meeting. (See Proposal Number 3 below, “Approval of Amendment to the Everest Re Group, Ltd. 2002 Stock Incentive Plan.”)
Awards under the 2002 Stock Incentive Plan are a significant element of the Company’s executive compensation program. Compensation derived from share ownership provides a strong incentive to increase shareholder value since the value of this compensation is determined by changes in the price of the Common Shares over the term of each award. Awards under the 2002 Stock Incentive Plan may take the form of stock options, stock appreciation rights, restricted stock or stock awards. StockRestricted stock awards and stock options encourage retention because they carry a five-year vesting period and if not exercised, are generally forfeited if the employee leaves the Company before retirement.vesting. In addition, stock options, granted at the fair market value on the date of grant and with terms not to exceed 10 years, are designed to keep management and professional employees oriented to growth over the long-term and not simply to short-term profits. Awards are granted subjectively at the discretion of the Compensation Committee based on a variety of factors, including a recipient’s demonstrated past and expected future performance as well as a recipient’s level of responsibility with the Company and his or her ability to affect shareholder value.
Since the institution of the 1995 Stock Incentive Plan and through December 31, 2004,2005, the Compensation Committee has granted employees 2,880,700 options to purchase Common Shares under the 1995 Stock Incentive Plan and 1,148,2501,471,250 options to purchase Common Shares and 248,900 shares of restricted stock under the 2002 Stock Incentive Plan. In 2004,2005, the Compensation Committee granted 435,500
14
323,000 options to purchase Common StockShares and 128,500 shares of restricted stock under the 2002 Stock Incentive Plan, which was approved by the shareholders at the 2002 Annual General Meeting.Plan. Restricted stock and stock option awards granted to the Company’s DesignatedNamed Executive Officers during 20042005 are summarized under the captions “Options/SARs Grants in Last Fiscal Year” and “Summary Compensation Table” above. When granting these awards, the Compensation Committee took into account prior grants to these individuals under the 1995 Stock Incentive Plan and the 2002 Stock Incentive Plan and determined that the 20042005 grants were appropriate and in the best interests of the Company.
The Company does not have a long-term cash bonus plan in effect and currently intends to rely on the 2002 Stock Incentive Plan as the means of long-term compensation, believing compensation in the form of share ownership increases long-term value for the shareholders while compensating individual employees for superior performance.
III. Deductibility Cap On Executive Compensation
Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, (the “Code”), limits the ability of a publicly-held company to take a tax deduction for annual compensation in excess of $1 million paid to its chief executive officer or to any of its four other most highly paid executive officers. However, compensation is exempt from this limit if it qualifies as “performance-based compensation.” To preserve this deduction, the Company has designed its incentive plans to constitute “performance-based compensation” and not be counted toward the $1 million limit. However,
the 2002 Stock Incentive Plan does allow for the Compensation Committee, in its sole discretion, to grant awards under the plans which do not constitute “performance-based compensation.” In the event that certain awards are granted which are not intended to constitute “performance-based compensation,” the awards will not be subject to the share limitations applicable to a single individual. Although the Compensation Committee will consider deductibility under section 162(m) with respect to the compensation arrangements for executive officers, deductibility will not be the sole factor used in determining appropriate levels or methods of compensation. Since Company objectives may not always be consistent with the requirements for full deductibility, the Company and the subsidiaries may enter into compensation arrangements under which payments would not be deductible under section 162(m).
IV. Chief Executive Officer Compensation
In 2004,2005, Mr. Taranto’s compensation was based on the terms of his Employment Agreement with the Company and Everest Re (see “Employment and Change of Control Agreements—Mr. Taranto” below) and consisted of base salary and restricted stock as set forth in that section. The Compensation Committee also approved a $2,000,000an $800,000 cash payment to Mr. Taranto under the Executive Performance Annual Incentive Plan for fiscal year 20042005 (see “Summary Compensation Table” and “Annual Compensation” above). This performance-based award was calculated as a function of the Company’s actual operating earnings per share in 2004 in accordance with a formula previously established by the Compensation Committee.Committee that took into consideration the cumulative financial performance of the Company over time.
Kenneth J. Duffy, Chairman
John R. Dunne
Martin Abrahams
John A. Weber
15
Audit Committee Report
The Audit Committee has reviewed and discussed with management, which has primary responsibility for the financial statements, and with PricewaterhouseCoopers LLP, the Company’s independent auditors, the audited financial statements for the year ended December 31, 20042005 (the “Audited Financial Statements”). In addition, the Audit Committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Statement on Auditing Standards No. 61. The Audit Committee has received the written disclosures and the letter from PricewaterhouseCoopers LLP required by Independence Standards Board Standard No. 1, and has discussed with that firm its independence. The Audit Committee also has discussed with management of the Company and with PricewaterhouseCoopers LLP such other matters and received such assurances from them as the Committee deemed appropriate. Based on the foregoing review and discussions and relying thereon, the Audit Committee has recommended to the Company’s Board of Directors the inclusion of the Audited Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.2005.
The Audit Committee devoted substantial time in 20042005 to discussing with the Company’s independent auditors and internal auditors the status and operating effectiveness of the Company’s internal control over financial reporting. The Audit Committee’s oversight involved several meetings both with management and with the auditors outside the presence of management to monitor the preparation of management’s report on the effectiveness of the Company’s internal controls and the independent auditors’ opinion on management’s assessment. The meetings reviewed in detail the standards that were established, the content of management’s assessment, and the auditors’ testing and evaluation of the design and operating effectiveness of the internal controls. As reported in the Company’s Annual Report on Form 10-K filed March 15, 2005,9, 2006, the independent auditors concluded that, as of December 31, 2004,2005, management’s assessment of the effectiveness of internal control was fairly stated in all material respects and that the Company maintained, in all material respects, effective internal control over financial reporting based upon the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Under its Charter and the “Audit and Non-Audit Services Pre-Approval Policy” (the “Policy”), the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditors. The Policy requires that any service that has not received a general pre-approval or that exceeds pre-approved cost levels or budgeted amounts requires specific approval by the Audit Committee. For both specific and general pre-approval, the Audit Committee considers whether such services are consistent with the SEC’s rules on auditor independence. The Audit Committee also considers whether the independent auditors are best positioned to provide the most effective and efficient service and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services and may determine, for each fiscal year, the appropriate ratio between the total amount of fees for audit, audit-related and tax fees and a total amount of fees for certain permissible non-audit services classified as “All Other Fees” below. All such factors are considered as a
whole, and no one factor is determinative. The Audit Committee has considered whether the performance by PricewaterhouseCoopers LLP of the services disclosed below is compatible with maintaining their independence. The Audit Committee approved all of the audit-related fees, tax fees and all other fees for 20042005 and 2003.2004.
The fees billed to the Company by PricewaterhouseCoopers LLP and its worldwide affiliates in 20042005 and 20032004 are as follows:
(1) Audit fees $3,734,650 $1,585,766 (2) Audit-related fees 69,300 68,000 (3) Tax fees 28,176 612,825 (4) All other fees — 8,702
16 2005 2004 (1) Audit fees $3,110,828 $3,817,907 (2) Audit-related fees 66,000 69,300 (3) Tax fees 26,412 139,960 (4) All other fees 2,130 —
(2) Audit-related fees include assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements.
(3) Tax fees include tax compliance, tax planning and tax advice and may be granted general pre-approval by the Audit Committee.
(4) All other fees are for accounting and form research subscriptions.
Martin Abrahams Kenneth J. Duffy John R. Dunne, Chairman
Martin Abrahams
Kenneth J. Duffy
John A. Weber
17
Performance Graph
The following Performance Graph compares cumulative total shareholder returns on the Common Shares (assuming reinvestment of dividends) from December 31, 19992000 through December 31, 2004,2005, with the cumulative total return of the Standard & Poor’s 500 Index and the Standard & Poor’s Insurance (Property and Casualty) Index.
EVEREST RE GROUP, LTD. | ||||||||||||||
S&P 500 | ||||||||||||||
S&P PROPERTY & CASUALTY INSURANCE |
* | $100 INVESTED ON 12/31/ FISCAL YEAR ENDING DECEMBER 31. |
18
Retirement Plan
All the executive officers of the Company, with the exception of Mr. de Saram, participate in the Everest Reinsurance Company Retirement Plan (the “Retirement Plan”) and in the Supplemental Retirement Plan (the “Supplemental Plan”), both of which are defined benefit pension plans. As an employee of Bermuda Re, Mr. de Saram is not eligible to participate in the Retirement Plan and Bermuda Re does not maintain a defined benefit retirement plan. The Retirement Plan is a tax-qualified plan that determines benefits under a formula that takes into account a participant’s years of continuous service and final average earnings with Everest Re and certain affiliates, including during the period of affiliation with the The Prudential Insurance Company of America (“Prudential”). The Supplemental Plan is a non-qualified plan that provides benefits that would otherwise be provided under the Retirement Plan formula but for the application of certain limitations on tax-qualified benefits under the Code. The Retirement Plan and the Supplemental Plan are similar to the tax-qualified and supplemental pension plans of Prudential in which the executive officers and other employees of the Company and Everest Re participated prior to the Company’s initial public offering. The following table shows the estimated annual pension benefits payable at normal retirement age to a participant under the Retirement Plan and the Supplemental Plan who attains the earnings and service classifications indicated under the plans.
Final Average Earnings | |||||||||||||||||||||||
$ | 150,000 | $ | 13,413 | $ | 26,827 | $ | 40,240 | $ | 53,654 | $ | 67,067 | $ | 73,957 | $ | 80,847 | ||||||||
200,000 | 18,413 | 36,827 | 55,240 | 73,654 | 92,067 | 101,457 | 110,847 | ||||||||||||||||
250,000 | 23,413 | 46,827 | 70,240 | 93,654 | 117,067 | 128,957 | 140,847 | ||||||||||||||||
300,000 | 28,413 | 56,827 | 85,240 | 113,654 | 142,067 | 156,457 | 170,847 | ||||||||||||||||
350,000 | 33,413 | 66,827 | 100,240 | 133,654 | 167,067 | 183,957 | 200,847 | ||||||||||||||||
400,000 | 38,413 | 76,827 | 115,240 | 153,654 | 192,067 | 211,457 | 230,847 | ||||||||||||||||
450,000 | 43,413 | 86,827 | 130,240 | 173,654 | 217,067 | 238,957 | 260,847 | ||||||||||||||||
500,000 | 48,413 | 96,827 | 145,240 | 193,654 | 242,067 | 266,457 | 290,847 | ||||||||||||||||
750,000 | 73,413 | 146,827 | 220,240 | 293,654 | 367,067 | 403,957 | 440,847 | ||||||||||||||||
1,000,000 | 98,413 | 196,827 | 295,240 | 393,654 | 492,067 | 541,457 | 590,847 | ||||||||||||||||
1,500,000 | 148,413 | 296,827 | 445,240 | 593,654 | 742,067 | 816,457 | 890,847 | ||||||||||||||||
2,000,000 | 198,413 | 396,827 | 595,240 | 793,654 | 992,067 | 1,091,457 | 1,190,847 | ||||||||||||||||
2,500,000 | 248,413 | 496,827 | 745,240 | 993,654 | 1,242,067 | 1,366,457 | 1,490,847 | ||||||||||||||||
3,000,000 | 298,413 | 596,827 | 895,240 | 1,193,654 | 1,492,067 | 1,641,457 | 1,790,847 | ||||||||||||||||
3,500,000 | 348,413 | 696,827 | 1,045,240 | 1,393,654 | 1,742,067 | 1,916,457 | 2,090,847 |
$ 150,000 $ 13,417 $ 26,835 $ 40,252 $ 53,670 $ 67,087 $ 73,978 $ 80,870 200,000 18,417 36,835 55,252 73,670 92,087 101,478 110,870 250,000 23,417 46,835 70,252 93,670 117,087 128,978 140,870 300,000 28,417 56,835 85,252 113,670 142,087 156,478 170,870 350,000 33,417 66,835 100,252 133,670 167,087 183,978 200,870 400,000 38,417 76,835 115,252 153,670 192,087 211,478 230,870 450,000 43,417 86,835 130,252 173,670 217,087 238,978 260,870 500,000 48,417 96,835 145,252 193,670 242,087 266,478 290,870 750,000 73,417 146,835 220,252 293,670 367,087 403,978 440,870 1,000,000 98,417 196,835 295,252 393,670 492,087 541,478 590,870 1,500,000 148,417 296,835 445,252 593,670 742,087 816,478 890,870 2,000,000 198,417 396,835 595,252 793,670 992,087 1,091,478 1,190,870 2,500,000 248,417 496,835 745,252 993,670 1,242,087 1,366,478 1,490,870 3,000,000 298,417 596,835 895,252 1,193,670 1,492,087 1,641,478 1,790,870 3,500,000 348,417 696,835 1,045,252 1,393,670 1,742,087 1,916,478 2,090,870
Benefits shown in the table above are computed as a single-life annuity and reflect a reduction to recognize in part Everest Re’s cost of social security benefits. A participant’s “final average earnings” under the Retirement Plan will be his or her average annual “earnings” under the plan during the 72 consecutive months of continuous service in which the participant received the greatest amount of earnings out of the final 120 months of continuous service. For this purpose, “earnings” generally include the participant’s base salary, cash bonus payments under the Chief Executive Officer’s Bonus Plan which(which has been terminated,terminated), the Executive Performance Annual Incentive Plan and, for participants who held positions equivalent to or senior to that of department vice president when that position existed, cash payments under the Company’s Annual Incentive Plan. With respect to cash payments made under the Annual Incentive Plan through December 31, 1999, “earnings” did not include amounts in excess of 50% of salary or $275,000, whichever was greater. Moreover, “earnings”“Earnings” does not include any other compensation set forth in the Summary Compensation Table. Final average earnings and earnings will be determined under the Supplemental Plan in the same manner as under the Retirement Plan, except that a participant’s earnings are not subject to the limitations under the Code. “Continuous service” under the Retirement Plan and Supplemental Plan will be the number of years and months worked for Everest Re and certain affiliates, including during the period of affiliation with Prudential.
The years of continuous service for Mr. Taranto, Mr. Gallagher, Mr. Limauro and Mr. Shoemaker to be taken into account under the Retirement Plan and Supplemental Plan (rounded to the nearest year), as of April 1, 20052006 are
19
10, 30, 3211, 31, 33 and 4,5, respectively. Final average earnings for Mr. Taranto, Mr. Gallagher, Mr. Limauro and Mr. Shoemaker to be taken into account as of April 1, 20052006 are $2,612,493, $855,165, $497,708$2,613,622, $875,999, $564,815 and $175,621,$181,417, respectively.
Employment And Change Of Control Agreements—Mr. Taranto
On July 15, 1998, the Company entered into an employment agreement with Mr. Taranto (the “Employment Agreement”). The Employment Agreement, which became effective on January 1, 2000, and was amended on April 20, 2001 to extend his term of employment from December 31, 2001 to March 31, 2004, and was further amended on April 18, 2003, extending his term of employment to March 31, 2006, and was most recently amended on August 31, 2005 to extend his term of employment to March 31, 2008, unless sooner terminated in accordance with its terms. The Employment Agreement provides for a base salary of $1,000,000 per year and states that Mr. Taranto is eligible to participate in the Executive Performance Annual Incentive Plan. Upon entering into the Employment Agreement in July 1998, Mr. Taranto received non-qualified options under the Company’s 1995 Stock Incentive Plan to purchase 150,000 Common Shares as a sign-on bonus. Upon execution of the April 20, 2001 amendment extending the term of his employment, he was granted non-qualified options to purchase 200,000 Common Shares under the same plan. Upon execution of the August 31, 2005 amendment, Mr. Taranto was granted 40,000 shares of restricted stock under the Company’s 2002 Stock Incentive Plan. The most recent amendment to the Employment Agreement also provides for the amendment of all restricted stock and option award agreements to permit vesting as of March 31, 2008, provided that Mr. Taranto has not been terminated for cause or that such acceleration will not cause the compensation to be treated as “deferred compensation” pursuant to Section 409A of the Code.
In connection with the restructuring of the Company in February 2000, Mr. Taranto’s Employment Agreement was amended to state that he would be the Chairman and Chief Executive Officer of the Company after the restructuring and that he would provide services to the Company after the restructuring that were comparable to those required under his Employment Agreement prior to the restructuring. As a result, the Company and Everest Holdings are both parties to the Employment Agreement and have co-extensive rights, powers, duties and obligations. The February 2000 amendment made other conforming changes to the Employment Agreement to reflect the restructuring. When the Company established Everest Global as a new Delaware subsidiary to perform administrative and back-office functions for the Company and its insurance subsidiaries, Mr. Taranto became an employee of that company and Everest Global became a party to the Employment Agreement.
If the Company terminates Mr. Taranto’s employment for due cause (as defined in the Employment Agreement) or if he voluntarily terminates his employment other than for good reason (as defined in the Employment Agreement), Mr. Taranto will be entitled to his base salary due him through the date of termination. If the Company terminates Mr. Taranto’s employment other than for due cause, or if he voluntarily terminates his employment for good reason, the Company will be obligated to pay him, in addition to all base salary accrued through the date of termination, (i) the aggregate amount of base salary from the date of termination and through the end of the termMarch 31, 2008, and (ii) the aggregate bonus amounts due under the appropriate bonus plans or programs through the end of the term.March 31, 2008.
In connection with the execution of the Employment Agreement, the Company and Mr. Taranto also entered into a Change of Control Agreement dated as of July 15, 1998. The Change of Control Agreement provides that if, within one year after the occurrence of a material change (as defined in the agreement), Mr. Taranto terminates his employment for any reason, or if the Company terminates Mr. Taranto’s employment for any reason other than for due cause (as defined in the agreement), then (a) all of Mr. Taranto’s outstanding stock options granted under the Company’s stock plans shall immediately vest and become exercisable; (b) Mr. Taranto shall receive a cash payment equal to the lesser of (i) 2.99 multiplied by Mr. Taranto’s annual compensation for the most recent taxable year ending prior to the date of the material change less the value of Mr. Taranto’s gross income in the most recent taxable year ending prior to the date of a material change attributable to Mr. Taranto’s exercise of stock options, stock appreciation rights and other stock-based awards granted Mr. Taranto by the Company and (ii) 2.99 multiplied by Mr. Taranto’s “annualized includible compensation for the base period” as that phrase is defined in Section 280G(d) of the Code; (c) Mr. Taranto shall continue to be covered under the Company’s medical and dental insurance plans for a period of three years from the date of termination; and (d) Mr. Taranto shall receive “Special Retirement Benefits” in an amount
that will equal the retirement benefits he would have received had he continued in the employ of the Company for three years following his termination under the Everest Reinsurance Retirement Plan and any supplemental, substitute or successor retirement plans adopted by the Company. In the event that the benefits Mr. Taranto receives under the Change of Control Agreement cause Mr. Taranto to receive a “Parachute Payment” within the meaning of Section 280G of the Code, Mr. Taranto’s benefits will be reduced to an amount that is one dollar less than the amount that would cause a Parachute Payment. If an award made under the Change of Control Agreement nevertheless results in
20
an assessment against Mr. Taranto of a “Parachute Tax” pursuant to Section 4999 of the Code, Mr. Taranto shall be entitled to receive an additional amount of money that would put him in the same net tax position had no Parachute Tax been incurred. The Change of Control Agreement will terminate on the earliest of (i) one year following a material change; (ii) termination by Mr. Taranto of his employment with the Company under circumstances not following a material change; (iii) the Company’s termination of Mr. Taranto’s employment for due cause; or (iv) March 31, 2006,2008, or any date thereafter, with 60 days written notice.
In connection with the restructuring, Mr. Taranto entered into an amendment to his Change of Control Agreement which provides that transactions with respect to the Company after the restructuring will trigger benefits under the agreement to the same extent as transactions with respect to Everest Holdings prior to the restructuring. Changes were also made in the Change of Control Agreement to take into account the establishment of Everest Global and Mr. Taranto’s employment by that company.
Employment Agreement—Mr. de Saram
On October 14, 2004, Bermuda Re entered into an employment agreement with Mr. de Saram, which was amended on December 8, 2004, under which he is to serve as the Managing Director and Chief Executive Officer of Bermuda Re from November 1, 2004 until November 1, 2006. As amended, the agreement provides for an annual salary of $300,000, plus $12,500 per month as a housing allowance. Fifty percent of Mr. de Saram’s salary is paid in U.S dollars and fifty percent is paid in Great Britain pounds sterling. Mr. de Saram is also eligible to participate in the Company’s Annual Incentive Plan, which is entirely discretionary in nature and which may be amended or terminated by the Company at any time. Any payments made under the Annual Incentive Plan shall be in U.S. dollars. He is also a participant in the Senior Executive Change of Control Plan. (See “Other Change of Control Arrangements”). Pursuant to his employment agreement, Mr. de Saram also participates in the medical insurance, dental insurance and group life insurance plans currently available to other Bermuda Re employees. In lieu of participating in the Bermuda Savings Plan, he receives a monthly payment equal to 10% of his monthly salary, which is paid in Great Britain pounds sterling.
If Bermuda Re terminates Mr. de Saram’s employment prior to November 1, 2006 for reasons other than misconduct or a breach of Bermuda Re’s policies, a separation payment equivalent to one year’s salary will be made and a reasonable allowance will be provided to move his personal possessions back to the United Kingdom. Bermuda Re may terminate Mr. de Saram’s employment for cause as defined in the employment agreement at any time during the term of the agreement without prior notice. If Bermuda Re does not renew Mr. de Saram’s employment agreement at the expiration of its term and does not offer him employment at the level at which he was employed prior to entering into that agreement, then Bermuda Re will pay Mr. de Saram a sum equal to six month’s base salary, plus the reasonable cost of six months of medical insurance.
Termination of Employment Agreement—Mr. Bennett
The employment of Mr. Bennett, who was Mr. de Saram’s predecessor as Managing Director and Chief Executive Officer of Bermuda Re, terminated on October 13, 2004. In connection with that termination, Bermuda Re agreed to pay Mr. Bennett, through April 2005, his monthly salary of $11,153.85, his monthly housing allowance of $8,000 and the reasonable cost of medical insurance, and to provide a reasonable allowance to move his personal possessions back to the United Kingdom.
Other Change Of Control Arrangements
The Company established a Senior Executive Change of Control Plan (the “Change of Control Plan”), effective September 28, 1998. The Change of Control Plan is administered by the Compensation Committee, which selects participants from among the senior executives of the Company and its subsidiaries. Among others, the Compensation Committee has selected Mr. Gallagher, Mr. Limauro and Mr. de Saram to participate in the plan.
The Change of Control Plan provides that if within two years after the occurrence of a material change (as defined in the plan) a participant terminates his or her employment for good reason (as defined in the plan) or the Company terminates the participant’s employment for any reason other than for due cause (as defined in the plan), then (a) all
21
of the participant’s outstanding stock options granted under the Company’s stock plans shall immediately vest and
become exercisable for three months following termination of employment; (b) all restrictions on the participant’s restricted stock awarded under the Company’s stock plans shall immediately terminate and lapse; (c) the participant shall receive a cash payment equal to the participant’s average salary and annual incentive bonus for the three most recent taxable years (or such shorter period as may be applicable) multiplied by a number between 22.00 and 2.99 determined by the Compensation Committee (for Mr. Gallagher the number is 2.99 and for Mr. Limauro and Mr. de Saram the number is 2)2.00); (d) the participant shall continue to be covered under the Company’s medical and dental insurance plans for a period of two years from the date of termination; and (e) the participant shall receive “special retirement benefits” in an amount that will equal the retirement benefits he or she would have received under the Everest Reinsurance Retirement Plan and any supplemental, substitute or successor plans adopted by the Company had he or she continued in the employ of the Company for a period following termination determined by the Compensation Committee. For Mr. Gallagher, the period is 3 years and for Mr. Limauro and Mr. de Saram, the period is 2 years.
Compensation Committee Interlocks and Insider Participation
During 2004,2005, the Compensation Committee was comprised of Martin Abrahams, Kenneth J. Duffy, John R. Dunne and John A. Weber, all of whom are Non-Employee Directors of the Company and none of whom is or has been an officer of the Company. No compensation committee interlocks existed during 2004.2005.
Certain Transactions With Directors
One of the Company’s Non-Employee Directors, William F. Galtney, Jr., was the President of Gallagher Healthcare Insurance Services, Inc. (“GHIS”), a wholly-owned subsidiary of Arthur J. Gallagher & Co. (“Gallagher”) until December 31, 2004. Thereafter, Mr. Galtney continued as Chairman of GHIS until March 31, 2005. Effective April 1, 2005, Mr. Galtney became Chairman of Oxford Insurance Services Limited (“Oxford”), a company 99% owned directly by Mr. Galtney. In addition, Mr. Galtney owns shares in Gallagher representing less than a 1% interest. In 2004,2005, Everest Re paid brokerage commissions to Gallagher of $2,556,173. Currently, brokerage$4,169,756. Brokerage commissions payable to Gallagher is $531,233.as of December 31, 2005 total $334,581.
In 2002, GHIS entered into Program Administrator Agreements with Everest National and with Mt. McKinley Managers as underwriting manager for Everest Indemnity (the “Everest Companies”). Under these agreements, policies placed by GHIS with the Everest Companies are generally reinsured under an 82% quota share treaty by Transatlantic Reinsurance Company, which then reinsures up to 100% of the assumed risk with Sunrise Professional Indemnity, Ltd., a Cayman reinsurance company owned by WFG Interests, LLC, which is owned by Mr. Galtney. Under these agreements, in 2004,2005, the Everest Companies recorded $67,920,869$12,292,807 in gross written premiums and related commissions andpaid fees of $6,274,820 to GHIS of which $5,081,710 was paid in 2004.totalling $2,456,888. Effective April 1, 2005, the GHIS agreements were terminated and the Everest Companies began negotiating new agreements with Mr. Galtney.Oxford. Under these new agreements with Oxford in 2005, the Everest Companies recorded $48,797,255 in gross written premiums with related commissions and fees of $3,997,711, of which $2,376,918 was paid in 2005. GHIS has also entered into a service agreement with Oxford pursuant to which Oxford provides certain underwriting services related to GHIS under its agreements with the Everest Companies. It is anticipated thatUnder this agreement, the estimated grossCompany recorded an additional $1,738,717 in commissions to GHIS from Oxford, of which $1,267,036 was paid in 2005. Gross written premiums and related commissions and fees attributable to these agreements for 2005 for both the GHIS and Oxford agreements with the Everest Companies2006 are approximately $53.3estimated to be $48.6 million and $4.3$4.2 million, respectively. GHIS, through its Western Litigation Specialists division (“WLS”), provides claims services for medical malpractice policies issued under both the GHIS and Oxford agreements. Total fees paid to WLS in 2005 were $515,882. Estimated fees for 2006 are $555,000.
GHIS was the producing agent for workers’ compensation, general liability and automobile risks written by the Everest Companies for Rural/Metro Corporation (“Rural Metro”). The workers’ compensation component of the program did not renew in May 2004. In 2004,2005, the Company recorded $8,641,315$127,994 in written premiums in connection with this program and paid related commissions to GHIS of $796,018,$1,175. Furthermore, the Company recorded an additional $187,500 in related Rural Metro commissions to GHIS from Oxford under their new respective service agreement, of which $575,611$140,625 was paid in 2004.2005. Under the Oxford agreements with the Everest Companies, the Company recorded $3,845,000 in written premium with related commissions to Oxford of $125,000, of which $93,750 was paid in 2005. Estimated premium and commissions for the 20052006 renewals of such policies, if written, are $9.7 million$3,845,000 and $.8 million, $125,000,
respectively. If such policies are written in 2005,2006, it is anticipated that the policies would be written through Oxford as producing agent.
GHIS also was the producing agent for workers’ compensation, general liability/professional liability and automobile risks written by the Everest Companies for San Diego Medical Services Enterprise, LLC (“SDMS”). SDMS is a joint venture between Rural/Metro and the City of San Diego. In 2004,2005, the written premium for SDMS was
22
$1,346,069 $96,834 with related commissions paid to GHIS of $134,607. Estimated premium and commissions for the 2005 renewals of such policies, if written, are $1.3 million and $134,607, respectively. If such policies are written$9,683. The account did not renew in 2005, it is anticipated that the policies would be written through Oxford as producing agent.2005.
Gallagher Bassett Services, Inc. (“Gallagher Bassett”), a Gallagher affiliate, provides claims services for the Rural Metro program mentioned above, for Everest Indemnity’s All Risks, Ltd. Program, and for Everest National’s Risk Services, LLC program.program and for Everest National’s Tangram Program Managers. Mr. Galtney does not have any affiliation with All Risks, Ltd orLtd., with Risk Services, LLC.LLC or with Tangram Program Managers. In 2004,2005, the Company paid fees to Gallagher Bassett of $862,786 net of audit refunds for prior year’s services of $164,893.$1,347,346. Estimated fees for 20052006 are $2,559,272.$2,357,132.
In 2004, Everest Indemnity, through Mt. McKinley Managers, wrote a surplus lines medical malpractice book of business in Arizona known as APIC through SKANCO, a surplus lines producer affiliate of Gallagher. UnderGross written premium for 2005 under these agreements in 2004, written premium was $2,171,827$2,455,667 with related commissions of $54,295.$61,392. Estimated premium and commissions for 20052006 are $2.0 million$2,542,500 and $50,000,$63,562 respectively.
Beginning in late 2003 and terminating in late 2004, Everest Indemnity, through Mt. McKinley Managers, wrote a California construction liability program on a surplus lines basis through Cromwell Management Corporation. J.P. Woods Co., Inc., a Gallagher affiliate, receives a brokerage fee equal to 1.0% of the gross written premium for the first $1 million of limits on policies written. For 2005, the estimated premium for the first $1 million in limits is $25,336,091, and the resulting estimated brokerage duefees paid to J.P. Woods Co., Inc. is $828,431.was $210,406. There are no payables due in 2006.
Everest National had a business relationship with WorkCare Northwest, Inc. (“WorkCare Northwest”), a company of which is fully owned by Gallagher. Edward B. Galtney, William Galtney’s brother, is a majority owner.serves as Area President of WorkCare Northwest. In 2004,2005, Everest National paid commissions in the amount of $0$1,023 to WorkCare Northwest for insurance agency services as a program administrator. This program was cancelled as of July 1, 2001 and is currently in run-off. It is expected that no commissions will be paid to WorkCare Northwest in the future.
In addition to the above, Everest National’s Western Regional Office does business with several Gallagher-affiliated Custom Accounts. Under these accounts in 2005, the Everest Companies recorded $7,892,913 in gross written premiums with related commissions and fees paid to these agents of $622,030.
PROPOSAL NO. 2—APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that you vote FOR the appointment of PricewaterhouseCoopers LLP as the Company’s independent, auditorsregistered public accounting firm to act as the Company’s auditor for the year ending December 31, 20052006 and the authorization of the Board of Directors acting by the Audit Committee of the Board of Directors to set the fees for the independent, auditors.registered public accounting firm acting as the Company’s auditor. Proxies will be so voted unless shareholders specify otherwise in their proxies.
The Company’s independent, auditors haveregistered public accounting firm has been appointed to act as the Company’s auditor each year at the Annual General Meeting of Shareholders pursuant to the Board’s recommendation, which in turn is based on the recommendation of the Audit Committee. For the 20052006 Annual General Meeting, and in accordance with the Sarbanes-Oxley Act of 2002 (“Sarbanes Oxley”), the Audit Committee has evaluated the performance and independence of PricewaterhouseCoopers LLP and has recommended to the shareholders their appointment as the Company’s independent, auditorsregistered public accounting firm to act as auditor for the year ending December 31, 2005.2006. In making its recommendation, the Audit Committee reviews both the audit scope and estimated fees for professional services for the coming year. Representatives of PricewaterhouseCoopers LLP will be present at the 20052006 Annual General Meeting, will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions from shareholders.
The Board of Directors recommends that you vote FOR the approval of the amendment to the Everest Re Group, Ltd. 2003 Non-Employee Director Equity Compensation2002 Stock Incentive Plan to be effective upon shareholder approval. Proxies given by shareholders of record will be so voted unless the shareholders specify otherwise in their proxies. Proxies given by beneficial owners to shareholders of record may not be so voted unless beneficial owners specify a vote for approval in their proxies.
23
Proposed Amendment
On February 23, 2005,22, 2006, the Board approved, subject to approval by shareholders at the Annual General Meeting, an amendment to the 2003 Directors’ Plan that expands the type and variety of awards available under the plan to be comparable to those available for award to employees of the Company under the Everest Re Group, Ltd. 2002 Stock Incentive Plan.Plan (the “Plan”) that will eliminate the sublimit on the number of common shares available for restricted stock and stock awards. As originally adopted, the 2003 Directors’ Plan provides for retainer awards through whichthat the maximum number of common shares of the Company that may be awarded under the Plan is 4,000,000 shares. Within this overall limit, the Plan imposes a Non-Employee Directorsublimit of 250,000 on the number of common shares that may elect to receive his annual compensation in the form of Company shares rather than in cashbe awarded as restricted stock and for discretionary option awards through which a Non-Employee Director may purchase, for a certain period of time, Company shares at a specified exercise price. Under thestock awards. The proposed amendment to the 2003 Directors’ Plan would additionally provide foreliminate the 250,000 share sublimit, and the Company would have the discretion to award the number of stock appreciation rights (“SARs”), restricted stock awards and stock awards as it deems appropriate, subject only to Non-Employee Directors, as described more fully below in the “Description4,000,000 overall limit on the total number of shares available for grant under the Plan.”
Reasons for Amendment
The Board recommends that shareholders approve the adoption of the amendment to the 2003 Directors’ Plan, because the additionelimination of a greater varietythe sublimit on the number of awards, comparable to those that arecommon shares available for award to employees underas restricted stock and stock awards will, consistent with the Company’s 2002 Stock Incentive Plan, will further enhance the Company’s ability to encourage high levels of performance and to attract, motivate and retain knowledgeable directorstalented individuals who are key to the success of the Company. Since the time when the Plan was originally adopted, the trend in stock-based incentive compensation has been to grant more restricted stock awards and encourage such directors to increase their proprietary interest infewer option awards. In line with this trend, the Company consistent withhas, since 2003, increased the purposeuse of restricted stock awards as a form of incentive compensation for its senior executives. As a result, the plan. Furthermore,Board believes that the sublimit of 250,000 common shares available for restricted stock awards is no longer adequate for the Company’s incentive compensation needs. Accordingly, the Board believes that the amendment to the 2003 Directors’ Plan is in the best interests of the Company because it will enhance the Company’s ability to remain at a competitive advantage with other industry leaders by conforming the plan’sPlan’s operation to the trend in equity awards to grant fewer optionsoption and more SARs, restricted stock awards, and stock awards.
In addition, Furthermore, the Board believes that the amendment to the 2003 Directors’ Plan will help the Company to continue to attract and provide incentives to directorsofficers and key employees without adversely affecting or potentially diluting shareholders’ interests in the Company. The amendment does not change the maximum number of shares available for award under the plan overall nor does the amendment change the maximum limit on awards that may be made to any individual participant in a year.Plan. The maximum number of shares available for award under the 2003 Directors’ Plan will remain at 500,000,4,000,000 (of which approximately 2,300,000 remain available for award), which is the same number of shares that werewas authorized when the planPlan was initially adopted in May, 2003. Similarly, the amendment preserves the same annual limit on the number of total awards that may be granted to any one director in a year: the annual 5,000 share aggregate limit per director which now applies to retainer awards will now apply to retainer awards, restricted stock awards and stock awards as a group. The annual 10,000 share aggregate limit per director for option awards will now apply to option awards and SARs as a group.2002.
Background
The 2003 Directors’ Plan was originally adopted by the Board of Directors on February 25, 2003, and shareholders approved the adoption of the plan at the Company’s Annual General Meeting on May 22, 2003. The 2003 Directors’ Plan was further amended by the Board of Directors on November 20, 2003 to provide that the expiration date for exercising vested options is three years following the participant’s termination as a director, except where termination is for cause, in which case the options expire immediately. The purpose of the 2003 Directors’ Plan is to benefit the Company, its subsidiaries, and its shareholders by enhancing the Company’s ability to attract and retain experienced and knowledgeable directors and to encourage such directors to increase their proprietary interest in the Company through ownership of shares.
Description of 2003 Directors’ Plan
Even though the proposed amendment to the 2003 Directors’ Plan relates only to the typeelimination of the sublimit on the number of common shares available for restricted stock and variety ofstock awards available under the plan,Plan, the following paragraphs provide a summary of all of the material terms of the plan,Plan, including those aspects which are not proposed to be changed. This summary is qualified in its entirety by the full text of the 2003 Directors’ Plan, as amended, a copy of which is set forth as Appendix B to this Proxy Statement.
Plan Administration
The Plan is administered by a committee of the Board of Directors (the “Committee”), which is required under the terms of the Plan to consist of two or more non-employee directors. The Board of Directors has designated the Compensation Committee as the Committee to administer the Plan. The Committee has the authority to grant and amend any type or combination of types of awards, whether payable in stock, cash or a combination of the two.
24
General
The 2003 Directors’Committee may delegate all or any portion of its responsibilities or powers under the Plan to persons selected by it. The Committee may also delegate to officers of the Company discretionary authority with respect to substantial decisions or functions regarding the Plan or awards, including decisions regarding the timing, eligibility, pricing, amount or other terms of an award, provided such awards are not made to insiders, who are defined as persons subject to Section 16 of the Exchange Act.
The Plan provides for the grant of non-qualified and incentive stock options, stock appreciation rights (“Options”SARs”), retainer awards (“Retainer Awards”), SARs, restricted stock awards and stock awardsawards. The purpose of the Plan is to Non-Employee Directors.benefit the Company, its subsidiaries and its shareholders by encouraging high levels of performance by individuals who are key to the success of the Company and its subsidiaries and to enable the Company to attract, motivate and retain talented and experienced individuals essential to its success.
Awards may be granted under the Plan to any person, including any director of the Company who is an employee of the Company or any consultant or advisor (other than non-employee directors) who provides bona fide services for the Company. No determination has been made as to which individuals will receive grants under the Plan in the future and, therefore, the benefits to be allocated to any one individual or to any group of eligible individuals are not presently known.
As of MarchApril 1, 2005, five directors2006, approximately 670 employees of the Company were eligible to receive awards under the 2003 Directors’ Plan. On March 29, 2005,Plan, subject to the closing sale pricepower of the Common Shares as reported onCommittee to determine the New York Stock Exchange was $86.34 per share.
eligible employees and other persons to whom awards would be granted. The total number of shares reserved for issuancethat may be granted under the 2003 Directors’ Plan is 500,000.4,000,000 (of which approximately 2,300,000 remain available for award). Any shares allocated to an award under the 2003 Directors’ Plan that expires, lapses or is forfeited or terminated for any reason without issuance of the shares (whether or not cash or other consideration is paid to the participant in respect of such shares) will be available for new awards to be granted under the plan.Plan. No awards may be granted under the Plan after the ten-year anniversary of the effective date of the Plan.
The following additional limitslimitations apply to awards under the plan:Plan: (1) no more than 10,000350,000 shares in the aggregate may be issued for Options oroptions and SARs granted to any one eligible directorindividual in any calendar year; and (2) no more than 5,0001,000,000 shares in the aggregate may be issued for Retainer Awards oroptions intended to be incentive stock options. The Committee may make awards including restricted stockwhich are not intended to comply with Section 162(m) of the Code, which awards will not be subject to any one eligible directorthe individual limitations in any calendar year.the preceding sentence.
The shares with respect to which awards may be made under the 2003 Directors’ Plan may be shares that are currently authorized but unissued, or to the extent permitted by applicable law, currently held or subsequently acquired by subsidiaries of the Company, including shares purchased in the open market or in private transactions. All Common Sharescommon shares issued in settlement of an award shall be issued as fully paid. As of March 31, 2006 the fair market value of a Common Share (calculated by averaging the high and low trading prices on the NYSE) was $92.86.
The Committee may grant any combination of Options,stock options (both incentive and non-qualified), SARs, restricted stock or stock awards. The number of shares subject to thean award and any other restrictions that are deemed appropriate by the Committee for a particular type of award, to particular individuals or in particular circumstances, will be included in anthe individual award document reflecting the grant of the award to the recipient and setting forth specific terms and conditions of the award (the “Award Agreement”). A stock award, other than an award of restricted stock, need not be evidenced by an Award Agreement.
The Plan Administration
The 2003 Directors’ Plan is administered by a committeecontains provisions relating to adjustments of the Board (the “Committee”)terms of outstanding awards to reflect changes in the Company’s capitalization or shares or the occurrence of specified events. The number of shares that may be acquired under the Plan, the maximum number of shares that may be delivered pursuant to awards, and such other terms as are necessarily affected by such specified events are subject to adjustment in the event of a stock dividend, stock split, recapitalization, merger, consolidation (whether or not Everest Re Group, Ltd. is the surviving corporation), reorganization, combination or exchange of shares or similar events.
Except as otherwise provided by the members of which areCommittee, awards under the Plan will only be transferable to the extent designated by the Board. The Committee currently is the full Board. If the Board designates a Committee that is less than the full Board, the Committee shall not include directors eligible to receive awards under the plan. The Committee has the authority to grantparticipant by will or by laws of descent and amend any type or combination of types of awards permitted under the plan.distribution.
The Committee may delegate all or any portion of its responsibilities or powers under the 2003 Directors’ Plan to persons selected by it, provided, however, that the Committee may not delegate discretionary authority with respect to substantial decisions or functions regarding the plan or awards.
Retainer Awards
Each plan year, each Non-Employee Director shall be entitled to elect to be granted a stock-based Retainer Award for the year in lieu of receiving all or a portion of the applicable retainer fees in cash. The Retainer Award shall be in the form of shares having a fair market value equal to the retainer fee that would otherwise be paid in cash. If a director becomes an eligible director during a plan year, on a date other than the first day of the plan year, the director shall be entitled to elect to be granted a Retainer Award for the remainder of the year in lieu of receiving all or a portion of the applicable retainer fees which would otherwise be paid in cash.
Shares awarded as Retainer Awards shall be fully vested as of the date of grant.
Stock Options
The Committee may grant Options to Non-Employee Directorsoptions to purchase Common Shares of the Company.shares which may be either incentive stock options or non-qualified stock options. The purchase price of shares under each Optionoption must be based on the fair market value of a share on the date the Optionoption is granted. Options granted under the 2003 Directors’ Plan will be exercisable in accordance with the terms established by the Committee. The full purchase price of each share purchased upon the exercise of any Optionoption must be paid at
25
the time of exercise. The Committee, in its discretion, may impose such conditions, restrictions and contingencies on shares acquired pursuant to the exercise of an Optionoption as the Committee determines to be desirable.
Except as otherwise provided by the Committee, if an employee recipient of a director’s date of termination occursstock option award under the Plan terminates employment with the Company for a reason other than removal for cause,death, disability or retirement, the holder of the Optionstock option may exercise the Optionstock option at any time within a period of three months after such termination to the extent the stock option was exercisable on the date of such termination. If the employee terminates employment by reason of death, disability or retirement, the employee may exercise the stock option at any time within a period of three years after such termination to the extent the Optionstock option was exercisable on the date of such termination. If the director’s date of termination occurs by reason of death or disability, the director (or estate as the case may be) may exercise the Option at any time within a period of three years after such termination to the extent the Option was exercisable on the date of such termination. An Option shall expire immediately upon a director’s removal for cause. In no event, however, may any Optionstock option be exercised by any person after its expiration date.
Stock Appreciation Rights
The Committee may grant an SAR in connection with all or any portion of an Option oroption as well as independent of any Optionoption grant. An SAR entitles the participant to receive the amount by which the fair market value of a specified number of Sharesshares on the exercise date exceeds an exercise price established by the Committee. The excess amount will be payable in shares, in cash or in a combination thereof, as determined by the Committee. If Common Shares are issued on surrender of an SAR, such Common Shares shall be issued fully paid, in consideration of the eligible director’s services. The Committee, in its discretion, may impose such conditions, restrictions and contingencies on the shares acquired pursuant to the exercise of an SAR as the Committee determines to be desirable.
Other Stock Awards
The Committee may grant stock awards (a grant of shares as payment of a bonus, as payment of any other compensation obligation, upon the occurrence of a special event or as otherwise determined by the Committee) and restricted stock (grants(a grant of shares with such shares or rights being made subject to a risk of forfeiture or other restrictions that lapse upon the achievement of one or more goals relating to completion of service by the participant, as determined by the Committee). Recipients of restricted stock may have voting rights and may receive dividends on the granted shares prior to the time the restrictions lapse.
Payment Provisions
The 2003 Directors’ Plan permits the payment of the Optionoption exercise price or award price by the following methods: (1) in cash;cash or, (2) at the Committee’s discretion, by the eligible director’s surrender to the Company for repurchase of Common Shareswith shares valued at their fair market value, with the proceeds of such repurchase applied by the Company to pay the exercise or award price (or part thereof), as applicable; or (3) with a combination of such shares and cash. Shares may only be used for such purpose,payment, however, if they have been ownedheld by the participant for at least six months (or such other period as may be required by the Committee) by the eligible director who is the holder of such Option or award and they meet any other requirements established by the Committee. Other lawful consideration, which may include a promissory note as may be approved by the Committee, may also be applied to the purchase or exercise price of an award under the plan,Plan, to the extent authorized by the Committee and as may be permitted under relevant state or Bermuda law.
Shares held by a participant may also be used to discharge tax withholding obligations related to the exercise of options or the receipt of other awards to the extent authorized by the Committee.
Change inIn Control
The 2003 Directors’ Plan permits the acceleration of vesting with respect to any outstanding Options under the plan in In the event of a “Change in Control” of the Company as(as defined below. The form of Award Agreement that is currently in effect with respect to Options provides that the Options shall fully vest on the date of a ChangePlan), in Control. In addition to any action required or authorized by the terms of an Award Agreement, the Committee may, in its sole discretion, recommend
that the Board of Directors take any of the following actions as a result, or in anticipation, of any such event to assure fair and equitable treatment of participants:
26
Any such action approved by the Board of Directors shall be conclusive and binding on the Company and all participants.
For purposes of the 2003 Directors’ Plan, a Change in Control shall mean the occurrence of any of the following:
Amendment and Termination
The Board of Directors may at any time amend, suspend or discontinue the 2003 Directors’ Plan, in whole or in part, provided, no such amendment shall increase any of the share limitations nor shall it permit the Committee to grant an Option with an exercise price below fair market value on the date of grant.part. The Committee may at any time alter or amend any or all Award Agreements under the planPlan to the extent permitted by law, but no such alteration or amendment shall impair the rights of any holder of an award without the holder’s consent.
Adjustments
The 2003 Directors’ Plan contains provisions relating to adjustments of the terms of outstanding awards to reflect changes in the Company’s capitalization or shares or the occurrence of specified events. The number of shares that may be acquired under the plan, the maximum number of shares that may be delivered pursuant to awards, and such other terms as are necessarily affected by such specified events are subject to adjustment in the event of a stock dividend, stock split, recapitalization, merger, consolidation (whether or not the Company is the surviving corporation), reorganization, combination or exchange of shares or similar events.
Transferability
Except as otherwise provided by the Committee, awards under the 2003 Directors’ Plan will only be transferable to the extent designated by the participant by will or by laws of descent and distribution.
Registration
Common Shares issuable pursuant to the 2003 Directors’ Plan are covered by a registration statement on Form S-8 filed with the Securities and Exchange Commission on May 22, 2003.
27
Interest of Certain Persons in Matters to be Acted Upon
Each of the Non-Employee Directors of the Company has a direct interest in the approval of the amendment of the 2003 Directors’ Plan, which will make additional types of equity awards available to such Non-Employee Directors.
United States Income Tax Consequences of the Plan
The following paragraphs provide a general summary of the material U.S. federal income tax consequences of the 2003 Directors’ Plan based upon current laws and regulations. These laws and regulations arelaw, which is subject to change. This summary does not address state,State, local or foreign tax consequences to which a participant inare beyond the plan may be subject.scope of this summary. In addition, this summary is necessarily general and does not describe all possible federal income tax effects to particular recipients of awards under the planPlan or to the Company in all circumstances. The Company suggests that participants consult with their individual tax advisors to determine the applicability of the tax rules to the awards granted to them under the plan.
Retainer Awards
A participant who has elected to receive a Retainer Award in lieu of receiving retainer fees in cash will realize ordinary income at the time of grant in an amount equal to the then fair market value of those shares. Gains or losses realized by the participant upon disposition of such shares will be treated as capital gains and losses, with the basis in such shares equal to the fair market value of the shares at the time of grant.
Non-Qualified Stock Options
The grant of a non-qualified stock option will not result in taxable income to the participant. Except as described below, the participant will realize ordinary income at the time of exercise in an amount equal to the excess of the fair market value of the shares acquired over the exercise price for those shares. Gains or losses realized by the participant upon disposition of such shares will be treated as capital gains and losses, with the basis in such shares equal to the fair market value of the shares at the time of exercise.
Special rules will apply if the participant uses previously-ownedpreviously owned shares to pay some or all of the Optionoption exercise price.
The exercise of a non-qualified stock option through the delivery of previously acquired stock will generally be treated as a non-taxable, like-kind exchange as to the number of shares surrendered and the identical number of shares received under the Option.option. That number of shares received will take the same basis and, for capital gains purposes, the same holding period as the shares that are surrendered.given up. The value of the shares received upon such an exchange that are in excess of the number of shares surrenderedgiven up will be includible as ordinary income to the participant at the time of exercise. The excess shares will have a new holding period for capital gain purposes and a basis equal to the value of such shares determined at the time of exercise.
The grant of an incentive stock option will not result in taxable income to the participant. The exercise of an incentive stock option will not result in taxable income to the participant provided that the participant was, without a break in service, an employee of the Company during the period beginning on the date of the grant of the option and ending on the date three months prior to the date of exercise (one year prior to the date of exercise if the participant is disabled, as that term is defined in the Code).
The excess of the fair market value of the shares at the time of the exercise of an incentive stock option over the exercise price is an adjustment that is included in the calculation of the participant’s alternative minimum taxable income for the tax year in which the incentive stock option is exercised. For purposes of determining the participant’s
alternative minimum tax liability for the year of disposition of the shares acquired pursuant to the incentive stock option exercise, the participant will have a basis in those shares equal to the fair market value of the shares at the time of exercise.
If the participant does not sell or otherwise dispose of the stock within two years from the date of the grant of the incentive stock option or within one year after the transfer of such stock to the participant, then, upon disposition of such shares, any amount realized in excess of the exercise price will be taxed to the participant as capital gain. A capital loss will be recognized to the extent that the amount realized is less than the exercise price.
If the foregoing holding period requirements are not met, the participant will generally realize ordinary income at the time of the disposition of the shares in an amount equal to the lesser of (i) the excess of the fair market value of the shares on the date of exercise over the exercise price, or (ii) the excess, if any, of the amount realized upon disposition of the shares over the exercise price. If the amount realized exceeds the value of the shares on the date of exercise, any additional amount will be capital gain. If the amount realized is less than the exercise price, the participant will recognize no income and a capital loss will be recognized equal to the excess of the exercise price over the amount realized upon the disposition of the shares.
The exercise of an incentive stock option through the exchange of previously acquired stock will generally be treated in the same manner as such an exchange would be treated in connection with the exercise of a non-qualified stock option; that is, as a non-taxable, like-kind exchange as to the number of shares given up and the identical number of shares received under the option. That number of shares will take the same basis and, for capital gain purposes, the same holding period as the shares that are given up. However, such holding period will not be credited for purposes of the one-year holding period required for the new shares to receive incentive stock option treatment. Shares received in excess of the number of shares given up will have a new holding period and will have a basis of zero or, if any cash was paid as part of the exercise price, the excess shares received will have a basis equal to the amount of the cash. If a disqualifying disposition (a disposition before the end of the applicable holding period) occurs with respect to any of the shares received from the exchange, it will be treated as a disqualifying disposition of the shares with the lowest basis.
If the exercise price of an incentive stock option is paid with shares acquired through a prior exercise of an incentive stock option, gain will be realized on the shares given up (and will be taxed as ordinary income) if those shares have not been held for the minimum incentive stock option holding period (two years from the date of grant and one year from the date of transfer), but the exchange will not affect the tax treatment, as described in the immediately preceding paragraph, of the shares received.
Stock Appreciation RightsThe grant of an SAR will not result in taxable income to the participant. Upon exercise of an SAR, the amount of cash or the fair market value of shares received will be taxable to the participant as ordinary income. Gains and losses realized by the participant upon disposition of any such shares will be treated as capital gains and losses, with the basis in such shares equal to the fair market value of the shares at the time of exercise.
Restricted Stock and Other Stock Awards
A participant who has been granted a restricted stock award will not realize taxable income at the time of grant, assuming that the restrictions constitute a “substantial risk of forfeiture” for U.S. income tax purposes. Upon the vesting of shares subject to an award, the holder will realize ordinary income in an amount equal to the then fair market value of those shares. Gains or losses realized by the participant upon disposition of such shares will be treated as capital gains and losses, with the basis in such shares equal to the fair market value of the shares at the time of vesting. Dividends paid to the holder during the restriction period, if so provided, will also be compensation income to the participant.
28
A participant may elect pursuant to section 83(b) of the Code to have income recognized at the date of grant of a restricted stock award and to have the applicable capital gain holding period commence as of that date.
A participant who receives a stock award, which is not subject to a “substantial risk of forfeiture” will be taxed based on the value of the stock on the date of the award.
The Company may withhold amounts from participants to satisfy withholding tax requirements. Except as otherwise provided by the Committee, participants may have shares withheld from awards or may tender previously owned shares to the Company to satisfy tax withholding requirements. The shares withheld from awards may only be used to satisfy the Company’s minimum statutory withholding obligation.
Deferred Compensation Rules
Under U.S. tax rules that generally became effective January 1, 2005, certain types of awards under the 2003 Directors’ Plan might constitute deferred compensation. The grant of deferred compensation awards could result in tax penalties for participants unless certain requirements are satisfied. The Company currently intends to structure awards under the plan so that they do not result in the application of such tax penalties to participants.
Tax Deduction
Everest Re Group, Ltd. is not subject to U.S. income taxes. However, if an award is granted to a participant employed by a subsidiary that is a U.S. taxpayer, the subsidiary will be entitled to a deduction equal to the amount of income includible in the participant’s income provided that such amount constitutes an ordinary and necessary business expense to the subsidiary and is reasonable in amount.
A U.S. income tax deduction will generally be unavailable for annual compensation in excess of $1 million paid to any of the five most highly compensated officers of a public corporation. However, amounts that constitute “performance-based compensation” are not counted toward the $1 million limit. If a U.S. subsidiary has an employee who is among the five most highly compensated officers, that subsidiary’s deduction will be subject to this limit. To preserve the deduction for its U.S. subsidiary, the Company has designed the Plan to enable awards thereunder to constitute “performance-based compensation” and not be counted toward the $1 million limit. The Plan provides that the Committee, in its sole discretion, may grant awards which are not intended to constitute “performance-based compensation.”
Certain awards under the Plan may be subject to tax rules that apply to nonqualified deferred compensation plans. If an award is subject to those rules, and fails to conform to them, the recipient may have accelerated recognition of taxable income, and may also become liable for interest and tax penalties. Failure to satisfy the new rules will not have an adverse tax effect on the Company. The Company intends that, to the extent that awards are subject to the new deferred compensation rules, the awards will be structured to satisfy those rules.
ChangeAny acceleration of the vesting or payment of an Option awardawards under the 2003 Directors’ Plan in the event of a Change in Control ofin the Company may cause part or all of the consideration involved to be treated as an “excess parachute payment” under the Code, which may subject the participant to a 20% excise tax and preclude deduction by a subsidiary.
PROPOSAL No. 4—APPROVAL OF AMENDMENT TO THE EVEREST RE GROUP, LTD.EXECUTIVE PERFORMANCE ANNUAL INCENTIVE PLAN
The Board of Directors recommends that you vote FORpreceding discussion is based on U.S. tax laws and regulations presently in effect, which are subject to change, and the approvaldiscussion does not purport to be a complete description of the amendment toU.S. income tax aspects of the Everest Re Group, Ltd. Executive Performance Annual Incentive Plan the (“Executive Plan”) toPlan. A participant may also be effective upon shareholder approval. Proxies given by shareholders of record will be so voted unless the shareholders specify otherwise in their proxies. Proxies given by beneficial owners to shareholders of record may not be so voted unless beneficial owners specify a vote for approval in their proxies.
Proposed Amendment
On February 23, 2005, the Board approved, subject to approval by shareholders atstate and local taxes in connection with the Annual General Meeting, an amendmentgrant of awards under the Plan. The Company suggests that participants consult with their individual tax advisors to determine the Executive Plan that increases the maximum award that may be paid to any one participant in a year from $2 million to $2.5 million.
Background and Reasons for Amendment
The Board recommends that shareholders approve the adoptionapplicability of the amendment in ordertax rules to enhance the Executive Plan’s ability to continue to serve the purpose for which it was originally adopted. The purpose of the Executive Plan is to provide an incentive for executives who are in a position to contribute materially to the success of the Company and its subsidiaries, reward their accomplishments, motivate future accomplishments, and aid in attracting and retaining executives of the caliber necessary for the continued success of the Company and its subsidiaries. The maximum award available under the Executive Plan has not been increased since the plan was originally adopted by shareholders in 1999. In order to enable the Company to be competitive with other industry leaders, the Board believes that it is necessary to increase the maximum award available to reward and to motivate executives’ superior performance.
29
The purpose of the Executive Plan is also to define and limit amounts which may be awarded to eligible executives of the Company so that the awards will qualify as performance-based compensation under Section 162(m) of the Code. By qualifying as performance-based compensation under Section 162(m), the cash bonuses could be deductible to the Company (or its subsidiary, if applicable) if it were subject to U.S. taxation.
Description of the Plan
Even though the proposed amendment to the Executive Plan relates only to the maximum award that may be paid to any one participant in a year, the following paragraphs provide a summary of all of the material terms of the plan, including those aspects which are not proposed to be changed. This summary is qualified in its entirety by the full text of the Executive Plan, as amended, a copy of which is set forth as Appendix C to this Proxy Statement.
Administration
The Executive Plan provides that it shall be administered by a committee appointed by the Board to administer the plan, consisting of no fewer than two members of the Board. Each member of the committee must qualify as an “outside director” within the meaning of Code Section 162(m). The committee has all discretion and authority necessary or appropriate to administer the plan and to interpret the provisions of the plan consistent with qualification of the plan as performance-based compensation under Code Section 162(m). The Board has designated the Compensation Committee of the Board to perform the functions of this committee.
Eligibility
Within ninety (90) days after the beginning of each year, the Compensation Committee, in its sole discretion, selects corporate officers of the Company and its subsidiaries who will be eligible that year to participate in the Executive Plan (the “Participants”).
Awards and Performance Measures
The Compensation Committee establishes in writing objective performance goals for each Participant, which, if attained, shall entitle such Participant to specific award amounts that will be paid to each Participant. The Participants’ performance shall be measured by any of the following performance criteria: net income before or after taxes, operating income before or after taxes, premiums earned, earnings per share, return on stockholders’ equity, return on assets, appreciation in and/or maintenance of the price of the common stock or any other publicly traded securities of the Company, comparisons with various stock market indices, market share, statutory combined ratio, expense ratio, reductions in costs and expense growth, or gross or net premium growth.
The Compensation Committee establishes an objective method by which award amounts will be calculated under the Executive Plan. The maximum award amount any one Participant may be awarded in one year is currently $2 million, but would be increased to $2.5 million under the proposed amendment. The Compensation Committee, in its sole discretion, may eliminate or reduce but not increase, any award determination. The plan provides that the total amount of awards granted to all Participantsthem in any one year will not exceed 10% of the Company’s average annual income before taxes for the preceding five years.their personal circumstances.
Other Terms and Conditions
The Executive Plan provides that no award shall be assignable or transferable other than by will or by laws of descent and distribution. The plan further provides that the Board may at any time and without notice to any corporate officer of the Company or a subsidiary suspend, discontinue, revise, amend or terminate the plan, provided that any such revision or amendment which requires shareholder approval in order to maintain the qualification of awards as performance-based compensation pursuant to Code Section 162(m) shall not be made without such approval. Because payments under the plan are determined by comparing actual performance to the annual performance goals established by the Compensation Committee, it is not possible to conclusively state the amount of benefits which will be paid under the plan. Consistent with the Compensation Committee’s practice since the plan was approved by Shareholders in 1999, the Compensation Committee has determined that only the Chairman of the Board and Chief
30
Executive Officer, Joseph V. Taranto, will be a Participant in the Executive Plan for 2005 and eligible for a performance-based award payable in 2006. A performance goal has been established for Mr. Taranto based upon the Company’s earnings per share. Maximum awards payable have been set as a function of the actual 2005 earnings per share. In all cases, the maximum award payable to Mr. Taranto in 2006 will be substantially less than 1% of the Company’s 2005 after-tax operating income. Further, if the amendment is approved by shareholders, the award will not exceed $2.5 million and the Compensation Committee has sole discretion under the plan to reduce or eliminate the award as it deems appropriate.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes, as of December 31, 2004,2005, information about compensation plans under which securities of the Company are authorized for issuance:
Equity Compensation Plans
Number of securities | Number of securities | |||||||||||||
remaining available | remaining available | |||||||||||||
Number of securities | for future issuance | Number of securities | for future issuance | |||||||||||
to be issued upon | Weighted-average | under equity | to be issued upon | Weighted-average | under equity | |||||||||
exercise of | exercise price of | compensation plans | exercise of | exercise price of | compensation plans | |||||||||
outstanding options, | outstanding options, | (excluding securities | outstanding options, | outstanding options, | (excluding securities | |||||||||
warrants and rights | warrants and rights | reflected in column (a)) | warrants and rights | warrants and rights | reflected in column (a)) | |||||||||
Plan Category | (a) | (b) | (c) | (b) | ||||||||||
Equity compensation plans | 2,318,534 | $53.8223 | 3,256,289(1) | 2,236,078 | $61.75 | 2,794,789 | (1) | |||||||
approved by security holders | ||||||||||||||
Equity compensation plans not | 96,000(2) | $36.2184 | -0- | 89,500 | (2) | $36.62 | -0- | |||||||
approved by security holders | ||||||||||||||
Total | 2,414,534 | $53.1224 | 3,256,289 | 2,325,578 | $60.783 | 2,794,789 |
(1) | Includes shares available under the Everest Re Group, Ltd. 2002 Stock Incentive Plan and the 2003 Non-Employee Director Equity Compensation Plan which . | ||
(2) | As of December 31, | ||
On April 1, 1999, each of the Non-Employee Directors was granted a stock option award covering 6,500 Common Shares at an exercise price of $30.625 per share, which was the fair market value of the shares on the date of grant. The options vest ratably over three years. | |||
On February 23, 2000, each of the Non-Employee Directors was granted a stock option award covering 7,500 Common Shares at an exercise price of $25.3438 per share, which was the fair market value of the shares on the date of grant. The options vest ratably over three years. | |||
On September 21, 2001, each of the Non-Employee Directors was granted a stock option award covering 10,000 Common Shares at an exercise price of $48.01 per share, which was the fair market value of the shares on the date of grant. The options vest ratably over three years. |
31
MISCELLANEOUS—GENERAL MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officersNamed Executive Officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the NYSE. Named Executive officers,Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company’s review of the copies of the forms it has received and representations that no other reports were required, the Company believes that all of its executive officers, directors and greater than ten percent
beneficial owners have filed with the SEC on a timely basis all required forms with respect to transactions during fiscal year 2004.2005.
Shareholder Proposals for the 20062007 Annual General Meeting of Shareholders
To be considered for inclusion in the Company’s Proxy Statement and Proxy Card relating to the 20062007 Annual General Meeting of Shareholders, a shareholder proposal must be received by the Secretary of the Company in proper form at the Company’s registered office at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda, no later than December 16, 2005.15, 2006.
The proxy solicited by the Board relating to the 20062007 Annual General Meeting of Shareholders shall confer discretionary authority to vote on a shareholder proposal if the Secretary of the Company receives notice of that proposal after March 1, 2006.2007.
Proxy Solicitations
The expense of this proxy solicitation will be borne by the Company. In addition to solicitation by mail, proxies may be solicited in person or by telephone, telegraphfacsimile or facsimilemail by directors or officers who are employees of the Company without additional compensation. In addition, Georgeson Shareholder Communication,Communications Inc. will provide solicitation services to the Company for a fee of approximately $5,500 plus out-of-pocket expenses. The firm will solicit proxies by personal interview, telephone, telegraphfacsimile and mail. The Company will, on request, reimburse shareholders of record who are brokers, dealers, banks or voting trustees, or their nominees, for their reasonable expenses in sending proxy materials and annual reports to the beneficial owners of the shares they hold of record.
Transfer Agent and Registrar
The Company has appointed EquiServeComputershare Trust Company, N.A. (formerly known as Equiserve Trust Company, N.A.) to serve as transfer agent, registrar and dividend paying agent for the Common Shares. Correspondence relating to any share accounts or dividends should be addressed to:
EquiServeComputershare Trust Company, N.A.
Shareholder Services
P.O. Box 43069
Providence, Rhode Island 02940
(800) 519-3111
(781) 575-2726
All transfers of certificates for Common Shares should also be mailed to the above address.
By Order of the Board of Directors | |
Secretary |
32
APPENDIX A
CORPORATE GOVERNANCE GUIDELINE ON DIRECTOR INDEPENDENCE
A majority of the Board shall be composed of “independent” directors, as that term is defined from time to time by the listing standards of the NYSE. As required by such listing standards, in assessing independence, the Board shall make a determination whether a director has any material relationship with the Company (directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). In making this determination, absent other considerations, the Board will deem a director to be independent if either the director or a member of his immediate family:
[This Page Intentionally Left Blank]
A-1
APPENDIX B
(As Amended through SecondThird Amendment)
Section 1. Establishment and Purpose
The purpose of the Everest Re Group, Ltd. 2003 Non-Employee Directors Equity Compensation2002 Stock Incentive Plan (the “Plan”) has been established by Everest Re Group, Ltd., a Bermuda company (the “Company”),is to promotebenefit the interests of the CompanyCorporation, its Subsidiaries, and its shareholders by enhancingencouraging high levels of performance by individuals who are key to the Company’s abilitysuccess of the Corporation and its Subsidiaries and to enable the Corporation and its Subsidiaries to attract, motivate and retain the services oftalented and experienced and knowledgeable directors andindividuals essential to their success. This is to be accomplished by encouragingproviding such directorseligible individuals an opportunity to acquire an increasedobtain or increase their proprietary interest in the Company throughCorporation’s performance and by providing such individuals with additional incentives to remain with the ownership of Common Shares. The Common Shares can be acquired through grants of stock in lieu of cash-based retainer feesCorporation and through grants of Discretionary Awards.its Subsidiaries.
Section 2. Definitions
The following terms, used herein, shall have the meaning specified:
(a)“Award”means the Retainer Awardany award or a Discretionary Awardbenefit granted to any Eligible Director under the terms of the Plan.
(b)“Award Date” means the date on which an Award under the Plan is granted.
(c) “Award Agreement”means an agreement described in Section 86 hereof entered into between the CompanyCorporation and a Participant, setting forth the terms and conditions applicable to the Award granted to the Participant.
(d) (c)“Board”Board of Directors”means the Board of Directors of the CompanyCorporation as it may be comprised from time to time.
(e) Unless otherwise defined in an Award Agreement, (d)“Cause” shall mean any one of the following: (i) the willful engaging by the Participant in continuing or repeated conduct which is demonstrably and materially injurious to the Company or its affiliates, (ii) commission by the Participant of an act that involves theft, fraud or dishonesty (whether or not involving the Company, its affiliates or Participant’s duties at or relating to the Company or its affiliates), (iii) the Participant’s continuing or repeated material failure to abide by or comply with the internal policies or procedures of the Company or its affiliates (as may be applicable to Directors) or any non-compete or confidentiality agreement with the Company or its affiliates, or (iv) conviction of any crime that constitutes a felony (whether or not involving the Company, its affiliates or the Participant’s duties at or relating to the Company or its affiliates).
(f) “Change in Control” shall be as defined in Section 10.
(g) “Code”means the Internal Revenue Code of 1986, and any successor statute, and the regulations promulgated thereunder, as it or they may be amended from time to time.
(h) (e)“Committee”means the Committee as defined in Section 12.8.
(i) (f)“Common Shares”Corporation”means common shares of the Company, par value $.01 per share, orEverest Re Group, Ltd., and any security of the Company issued in substitution, exchange or lieu thereof.successor corporation.
(j) (g)“Date of Termination” means the last day on which a Participant serves as a Director.
(k) “Discretionary Award” shall be as defined in Section 6.
(l) “Director” means a member of the Board.
(m) “Effective Date”means the Effective Date as defined in Section 12(e).15.
(n) (h)“Eligible Director” means each Director who is not an Employee of the Company.
B-1
(o) “Employee”means officers and other key employees of the CompanyCorporation or a Subsidiary, and excludes directors who are not also officers or employees of the CompanyCorporation or a Subsidiary. “Employee” includes consultants and advisors that providebona fideservices (other than services as a director) to the CompanyCorporation or a Subsidiary, provided that such services are not in connection with the offer or sale of securities of the CompanyCorporation or a Subsidiary in a capital-raising transaction.
(p) (i)“Exchange Act”means the Securities Exchange Act of 1934, and any successor statute, as it may be amended from time to time.
(q) (j)“Exercise Price”means a purchase or exercise price established by the Committee at the time an Option or an SAR is granted.
(r) (k)“Fair Market Value”means, unless otherwise provided in the Award Agreement, the average of the highest and lowest sale price of Common Sharesthe Stock as reported on the Composite Transaction Tape of the New York Stock Exchange (or on such other exchange, if any, on which the Common Shares areStock is traded) on the relevant date, or if no sale of Common Shares arethe Stock is reported for such date, the next preceding day for which there is a reported sale. If Common Shares arethe Stock is not traded on any such exchange, Fair Market Value shall be as determined in the Award Agreement, or as may be determined in good faith by the Committee. In no event, shall
(l)“Incentive Stock Option”means an option that is intended to satisfy the Fair Market Value be less thanrequirements applicable to an “incentive stock option” described in Section 422(b) of the prevailing par value of a Common ShareCode.
(m)“Insider”means any person who is subject to be issued under the Plan.“Section 16.”
(s) (n)“Option”means a non-qualified stock optionan Award granted under the Plan that entitles the Participant, for a certain period of time, to purchase Common Sharesshares of Stock at an Exercise Price established by the Committee.
(t) (o)“Participant”means any Eligible DirectorEmployee who has been granted an Award pursuant to this Plan.
(u) (p)“Plan Year” shall mean each calendar year, with the first Plan Year beginning on the Effective Date and ending on December 31, 2003.
(v) “Restricted Stock” shall be as defined in Section 6(c)(2).
(w) “Retainer Award” shall be as defined in Section 5(a).
(x) “Retainer Fee” means the annual compensation fee for services to be rendered as a Director to be paid to each Eligible Director as determined annually by the Board in its sole discretion. Such fees are to be paid in cash, or in stock at the election of each Eligible Director as provided in Section 5 of this Plan, on a quarterly basis (or other period as may be determined by the Board). Cash payments will become payable as of the last business day of the applicable Plan Year quarter. For Retainer Fees to be paid in the form of stock, the payment date shall be the first business day of the next following Plan Year quarter.
(y) “SAR” shall be as defined in Section 6(b).
(z) “Section 16”means Section 16 of the Exchange Act, and any successor statutory provision, and the rules promulgated thereunder, as it or they may be amended from time to time.
(aa) (q)“Stock Award”Stock” shall be as definedmeans shares of common stock (class of common shares) of the Corporation, par value $.01 per share, or any security of the Corporation issued in Section 6(c)(1).substitution, exchange or lieu thereof.
(bb) (r)“Subsidiary”means any corporation in which the Company,Corporation, directly or indirectly, controls 50% or more of the total combined voting power of all classes of such corporation’s common equity.stock.
(s)“Ten-percent Shareholder”means any person who owns, directly or indirectly, on the relevant date securities representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or of its parent or Subsidiary. For purposes of applying the foregoing ten percent (10%) limitation, the rules of Code Section 424(d) shall apply.
Section 3. Eligibility
Persons eligible for Awards under the Plan shall consist solely of Eligible Directors.Employees who hold positions of significant responsibilities with the Corporation and/or a Subsidiary or whose performance or potential contribution, in the judgment of the Committee, will benefit the future success of the Corporation and/or a Subsidiary.
B-2
Section 4. Awards
The Eligible Directors shall be eligible to receive any of the types of Awards enumerated in Sections 5 or 6, either singly, in tandem or in combination with other types of Awards, as provided herein or as the Committee may in its sole discretion determine. Retainer Awards shall only be granted if the Eligible Director elects to waive cash payment of all or a portion of the applicable Retainer Fees.
Section 5. Retainer Awards
(a) For each Plan Year, each Director who is an Eligible Director on the first day of that Plan Year shall be entitled to elect to be granted a stock-based “Retainer Award” for the year in lieu of receiving all or a portion of the Retainer Fee in cash. The Retainer Award shall be in the form of Common Shares having a Fair Market Value (as determined on the last day of the applicable Plan Year quarter) equal to the Retainer Fee that would otherwise be paid in cash.
(b) If a Director becomes an Eligible Director during a Plan Year, on a date other than the first day of the Plan Year, he shall be entitled to elect to be granted a Retainer Award for the remainder of the year in lieu of receiving all or a portion of the applicable Retainer Fee. The Retainer Award shall be in the form of Common Shares having a Fair Market Value (as determined on the last day of the applicable Plan Year quarter) equal to the Retainer Fee, subject to a pro-rata reduction to reflect the portion of the Plan Year prior to the date on which he becomes an Eligible Director.
(c) Common Shares awarded under this subsection 5(a) shall be fully vested as of the date of grant.
Section 6. Discretionary Option Awards.
The Committee may grant any of the types of Awards enumerated in paragraphs (a) through (c)(d) of this Section 6 (“Discretionary Awards”)4, either singly, in tandem or in combination with other types of Awards, as the Committee may in its sole discretion determine:
(a)Non-qualified Stock Options.The grant of an Option entitles the Participant to purchase a specific number of shares of Stock at an Exercise Price established by the Committee. Any Option granted under this Section 4 may either be an incentive stock option or a non-qualified stock option. A Non-qualified Stock Option is an Option that is not intended to be an “incentive stock option” as described in section 422(b) of the Code. All Non-qualified Stock Options granted under the Plan shall expire not later than ten (10) years after grant, and shall have an Exercise Price equal to 100% of the Fair Market Value of the Stock on the date the option is granted.
(b)Incentive Stock Options.An Incentive Stock Option is an Option that is intended to satisfy the requirements applicable to an “incentive stock option” as described in section 422(b) of the Code. All Incentive Stock Options granted under the Plan shall be subject to the following:
(i) The aggregate fair market value (determined at the time of the grant of the Award) of the shares of Stock subject to Incentive Stock Options which are exercisable by one person for the first time during a particular calendar year shall not exceed $100,000. (ii) No Incentive Stock Option may be granted under this Plan on or after the tenth anniversary of the date this Plan is adopted, or the date this Plan is approved by shareholders, whichever is earlier. (iii) No Incentive Stock Option may be exercisable more than: | |
A. in the case of an Employee who is not a Ten-Percent Shareholder on the date that the option is granted, ten (10) years after the date the option is granted, and |
B. in the case of an Employee who is a Ten-Percent Shareholder on the date the option is granted, five (5) years after the date the option is granted. | |
(iv) The exercise price of any Incentive Stock Option shall | |
A. in the B. in the case of an Employee who is a Ten-Percent Shareholder on the date that the option is granted, 110% of the Fair Market Value of | |
advisor. |
(b) (c)Stock Appreciation Rights.A stock appreciation right (“SAR”) is a right to receive, upon surrender of the right, an amount payable in cash or in Common Shares,shares of Stock, which may be Restricted Stock. The amount payable with respect to each SAR shall be equal in value to the excess, if any, of the Fair Market Value of a specified number of Common Shares on the exercise date (or on such other date or dates set forth in the Award Agreement) over the Exercise
B-3
(i) The amount payable with respect to each SAR shall be equal in value to the excess, if any, of the Fair Market Value of a specified number of shares of Stock on the exercise date (or on such other date or dates set forth in the Award Agreement) over the Exercise Price relative to such shares, as may be established by the Committee. (ii) In the case of an SAR granted with respect to an Incentive Stock Option to an Employee who is a Ten-Percent Shareholder on the date of such Award, the Exercise Price shall not be less than 110% of the Fair Market Value of a share of Stock on the date the Award is made. |
(c) (d)Restricted Stock and Stock Awards.
(i) Restricted Stock is Stock that is issued to a Participant | |||
(ii) Stock Awards (iii) Restricted Stock and Stock Awards may be issued at the time of grant, upon the exercise of an SAR, Option or other right, as payment of a bonus, as payment of any other compensation obligations, upon the occurrence of a future event, at a specified time in the future or as otherwise determined by the Committee. The period during which Restricted Stock is subject to restrictions may commence prior to the actual transfer of Restricted Stock to a Participant if so specified in the Award Agreement. |
(d) (e)Payment of Option Exercise Price.Price. The payment of the Exercise Price of an Option granted under this Section 64 shall be subject to the following:
(i) Subject to the following provisions of this subsection |
(ii) The Exercise Price of | |||
(iii) Without limiting the foregoing, to the extent permitted by law (including relevant state or Bermuda law), (A) the Committee may agree to accept as full or partial payment of the Exercise Price of Stock issued upon exercise of options, a promissory note of the Participant evidencing the Participant’s obligation to make future cash payments to the Corporation, which promissory notes shall be payable as determined by the Committee (but in no event later than five (5) years after the date thereof), shall be secured by a pledge of the shares of Stock purchased, and shall bear interest at a rate established by the Committee and (B) the Committee may also permit Participants, either on a selective or aggregate basis, to simultaneously exercise Options and sell the shares of Stock thereby acquired, pursuant to | payment of the Exercise Price of such Stock. |
Section 7. Common5. Shares of Stock and Other Share-BasedStock-Based Awards Available Under Plan
(a) The Common SharesStock which may be issued pursuant to an Award under the Plan may be shares currently authorized but unissued or currently held or subsequently acquired by the Company or its subsidiaries,Corporation as treasury shares, including shares purchased in the open market or in private transactions.
(b) Subject to the adjustment provisions of Section 9 hereof, the maximum aggregate number of shares that may be delivered to Participants and their beneficiaries under the Plan shall be equal to 500,000 Common Shares and4,000,000 shares of Stock.
(c) Subject to the maximum numberadjustment provisions of shares that may be granted to any one Eligible Director in a single calendar year shall be 10,000 shares pursuant to Discretionary Awards whichSection 9 hereof, the following additional maximums are Options or SARs and 5,000 shares pursuant to Retainer Awards and Discretionary Awards which are Stock Awards (including Restricted Stock).imposed on the Plan:
(i) The maximum number of shares of Stock that may be issued pursuant to Options intended to be Incentive Stock Options shall be 1,000,000 shares. (ii) The aggregate maximum number of shares of Stock that may be covered by Awards granted to any one individual pursuant to Section 4 relating to Options and SARs, shall be 350,000 shares during any one calendar-year period. Notwithstanding the preceding sentence, or any other provision of the Plan, the Committee, in its sole discretion, may make Awards under the Plan which are not intended to satisfy the “performance-based” compensation exception of Section 162(m) of the Code and regulations thereunder, which Awards shall not be subject to the individual limits set forth in the preceding sentence. |
B-4
(c) (d) To the extent that any Common Sharesshares of Stock covered by an Award are not delivered to a Participant or beneficiary because the Award is forfeited or canceled, or the Common Sharesshares of Stock are not delivered because the Award is settled in cash or used to satisfy the applicable tax withholding obligation, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of Common Sharesshares of Stock available for delivery under the Plan and they shall again be available under the Plan.
(d) (e) If the Exercise Price of any Option granted under the Plan is satisfied by tendering Common Sharesshares of Stock to the CompanyCorporation (by either actual delivery or by attestation), only the number of Common Sharesshares of Stock issued net of the Common Shares tenderedshares of Stock tender shall be deemed delivered for purposes of determining the maximum number of Common Sharesshares of Stock available for delivery under the Plan.
(e) (f) For the purposes of computing the total number of Common Sharesshares of Stock granted under the Plan, each Optionthe following rules shall be deemedapply to be the equivalent of the maximum number of Common Shares that may be issued upon exercise of the particular Option. Where one or more types of Awards (both of which are payable in Common Shares) are granted in tandem with each other, the number of Common SharesStock:
(i) each Option shall be deemed to be the equivalent of the maximum number of shares of Stock that may be issued upon exercise of the particular Option; |
(ii) where one or more types of Awards (both of which are payable in Stock) are granted in tandem with each other, the number of shares of Stock shall be deemed to be the greater of the number of shares that would be counted if one or the other Award alone was outstanding. |
Additional rules for determining the number of Common Sharesshares of Stock granted under the Plan may be adopted by the Committee, as it deems necessary and appropriate.
(f) No fractional Common Shares shall be distributed under the Plan and, instead, the Fair Market Value of such fractional share shall be distributed in cash, with the Fair Market Value determined as of the date the fractional share would otherwise have been distributable. For purposes of the foregoing sentence, if more than one Award or type of Award under the Plan is to be distributed in Common Shares on a single date, such Common Shares shall be aggregated prior to determining the number of whole and fractional shares to be distributed.
Section 8.6. Award Agreements
Each Discretionary Award (other than Stock Awards which are not Restricted Stock) under the Plan shall be evidenced by an Award Agreement setting forth the number of Common Shares shares of Stock and/or SARs subject to the Award and such other terms and conditions applicable to the Award, as determined by the Committee, not inconsistent with the terms of the Plan and applicable law.Plan. The Committee may, but need not require that the Participant sign a copy of such document. Such document is referred to as the Award Agreement regardless of whether any Participant signature is required. In the event that the Committee requires that the Participant execute and return the Award Agreement, no person shall have any rights under the Award unless and until the Participant to whom such Award shall have been granted shall have properly executed and delivered to the Company the Award Agreement; provided,, however,, the execution and delivery of such an Award Agreement shall not be a precondition to the granting of such Award. By executing the Award Agreement, or submitting an option exercise form (whether or not the Award Agreement required execution) a Participant shall be deemed to have accepted and consented to any action taken under the Plan by the Committee, the Board of Directors or their delegates.
(a) Award Agreements shall include the following terms:
(i)Non-assignability. Unless otherwise specifically provided for by the Committee, a provision that no | |||
(ii)Termination of | |||
(iii)Rights as a |
B-5
as provided in Section 9 hereof, no adjustment shall be made for dividends or other rights, unless the Award Agreement specifically requires such adjustment. (iv)Withholding. A provision requiring the withholding of applicable taxes required by law from all amounts paid to the holder of an Award in satisfaction of such Award. In the case of an Award paid in cash, the withholding obligation shall be satisfied by withholding the applicable amount and paying the net amount in cash to the Participant. In the case of Awards paid in shares of Stock, a Participant may satisfy the withholding obligation by paying the amount of any taxes in cash or, with the approval of the Committee, shares of Stock may be deducted from the payment to satisfy the obligation in full or in part. The amount of the withholding and the number of shares of Stock to be deducted shall be determined by the Committee with reference to the Fair Market Value of the Stock when the withholding is required to be made; provided, however, the amount of Stock so deducted shall not exceed the minimum required withholding obligation. |
(v)Treatment of Option. Each Award of an option shall state whether or not it is intended to constitute an Incentive Stock Option. (vi)Minimum |
(b)Other Terms.Terms. Award Agreements may include such other terms as the Committee may determine are necessary, and appropriate to effect an Award to the Participant, including, but not limited to, the term of the Award, vesting provisions, any requirements for continued serviceemployment with the Company,Corporation or a Subsidiary, any other restrictions or conditions (including performance requirements) on the Award and the method by which restrictions or conditions lapse, the effect on the Award of a change in control of the Company,Corporation or an employing Subsidiary, the price, amount or value of Awards, and the terms, if any, pursuant to which a Participant may elect to defer the receipt of cash or Common SharesStock under an Award.
The Board of Directors may at any time amend, suspend or discontinue the Plan, in whole or in part; provided that no amendment by the Board of Directors shall increase any limitations set forth in Section 5 nor shall it permit any options to be awarded at exercise prices below Fair Market Value. The Committee may at any time alter or amend any or all Award Agreements under the Plan to the extent permitted by law, but no such alteration or amendment shall impair the rights of any holder of an Award without the holder’s consent. Adjustments pursuant to Section 9 shall not be subject to the foregoing limitations of this Section 7.
Section 8. Administration(a) The Plan and all Awards granted pursuant thereto shall be administered by a committee of the Board of Directors (the “Committee”), which Committee shall consist of not less than two (2) members of such Board of Directors who are not employees of the Corporation or any Subsidiary. The members of the Committee shall be designated by the Board of Directors. If the Committee does not exist, or for any other reason determined by the Board, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee.
(b) The Committee shall have the authority and discretion to interpret and administer the Plan, to establish, amend and rescind any rules and regulations relating to the Plan and to determine the terms and provisions of any Award Agreement made pursuant to the Plan. All questions of interpretation with respect to the Plan, the number of shares of Stock or other security, SARs, or rights granted and the terms of any Award Agreements, including the timing, pricing, and amounts of Awards, shall be determined by the Committee, and its determination shall be final and conclusive upon all parties in interest. In the event of any conflict between an Award Agreement and this Plan, the terms of this Plan shall govern.
(c) Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may delegate to the officers or employees of the Corporation and its Subsidiaries the authority to execute and deliver such instruments and documents, to do all such acts and things, and to take all such other steps deemed necessary, advisable or convenient for the effective administration of the Plan in accordance with its terms and purpose, except that the Committee may not delegate any discretionary authority with respect to substantive decisions or functions regarding the Plan or Awards thereunder as these relate to Insiders, including, but not limited to, decisions regarding the timing, eligibility, pricing, amount or other material terms of such Awards. Any such delegation may be revoked by the Committee at any time.
(d) To the extent that the Committee determines that the restrictions imposed by the Plan preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Committee will have the authority and discretion to modify those restrictions as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.
(a) In the event of any change in the outstanding shares of Common SharesStock by reason of a stock dividend or split, recapitalization, merger or consolidation (whether or not the CompanyCorporation is a surviving corporation), reorganization, combination or exchange of Common Sharesshares or other similar corporate changes or an extraordinary dividend paid in cash or property, the number of Common Sharesshares of Stock (or other securities) then remaining subject to this Plan, and the maximum number of shares that may be issued annually to anyone pursuant to this Plan, including those that are then covered by outstanding Awards, shall (i) in the event of an increase in the number of outstanding shares, be proportionately increased and the price for each share then covered by an outstanding Award shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding shares, be proportionately reduced and the price for each share then covered by an outstanding Award shall be proportionately increased.
(b) In the event the adjustments described in clauses (i) and (ii) of subsectionparagraph (a) of this Section 9 are inadequate to ensure equitable treatment of any Award holder, then, to the extent permissible under applicable law, the Committee shall make any further adjustments as it deems necessary to ensure equitable treatment of any holder of an Award as the result of any transaction affecting the securities subject to the Plan or as is required or authorized under the terms of any applicable Award Agreement.
(c) The existence of the Plan and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Board of Directors or the shareholders of the CompanyCorporation to make or authorize any adjustment, recapitalization, reorganization or other capital structure of its business, any merger or consolidation of the Company,Corporation, any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common SharesStock or the rights thereof, the dissolution or liquidation of the CompanyCorporation or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding.
Section 10. Change inof Control
(a) In the event of a “Change in Control” of the CompanyCorporation (defined below), in addition to any action required or authorized by the terms of an Award Agreement, the Committee may, in its sole discretion, recommend that the Board of Directors take any of the following actions as a result, or in anticipation, of any such event to assure fair and equitable treatment of Participants:
(a) offer to purchase any outstanding Award made pursuant to this Plan from the holder for its equivalent cash value, as determined by the Committee, as of the date of the change of control; or
(b) make adjustments or modifications to outstanding Awards as the Committee deems appropriate to maintain and protect the rights and interests of Participants following such change in control, which adjustment or modification may include acceleration of time periods for purposes of vesting in, or realizing gain from, any outstanding Award made pursuant to the Plan.
(i) accelerate time periods for purposes of vesting in, or realizing gain from, any outstanding Award made pursuant to this Plan; (ii) offer to purchase any outstanding Award made pursuant to this Plan from the holder for its equivalent cash value, as determined by the Committee, as of the date of the change of control; or (iii) make adjustments or modifications to outstanding Awards as the Committee deems appropriate to maintain and protect the rights and interests of Participants following such change of control. |
Any such action approved by the Board of Directors shall be conclusive and binding on the CompanyCorporation and all Participants.
B-6
(c) (b) For purposes of this Section, a “Change in Control”Change of Control shall mean the occurrence of any of the following:
(i) A tender offer or exchange offer whereby the effect of such offer is to take over and control the affairs of the | |||
(ii) The |
resulting corporation shall then be owned in the aggregate by the former shareholders of the | |||
(iii) The | |||
Corporation. (iv) Any person (as such term is used in Sections 3(a)(9) and 13(d)(3) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the | |||
Corporation. (v) As the result of a tender offer, merger, consolidation, sale of assets, or contested election, or any combination of such transactions, the persons who were members of the Board of Directors of the |
Section 11. General Restrictions
Delivery of Common Sharesshares of Stock or other amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the CompanyCorporation shall have no liability to deliver any Common Sharesshares of Stock under the Plan or make any other distribution of benefits under the Plan unless such delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act of 1933), and the applicable requirements of any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock certificates to reflect the issuance of Common Shares,shares of Stock, the issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.
Section 12. Operation and Administration
(a) Administration.
B-7
(b) Unfunded Plan.Plan
The Plan shall be unfunded. Neither the Company,Corporation, a Subsidiary, nor the Board of Directors shall be required to segregate any assets that may at any time be represented by Awards made pursuant to the Plan. Neither the Company,Corporation, a Subsidiary, the Committee, nor the Board of Directors shall be deemed to be a trustee of any amounts to be paid under the Plan.
(c) Section 13. Limits of Liability.Liability
(a) Any liability of the Corporation or a Subsidiary to any Participant with respect to an Award shall be based solely upon contractual obligations created by the Plan and the Award Agreement.
(d) Section 14. Rights of Participants.Employees
(a) Status as an eligible Employee shall not be construed as a commitment that any Award will be made under this Plan to such eligible Employee or to eligible Employees generally.
(b) Nothing contained in this Plan or in any Award Agreement (or in any other documents related to this Plan or to any Award or Award Agreement) shall confer upon any Employee or Participant any right to continue in the employ or other service of the CompanyCorporation or a Subsidiary or constitute any contract or limit in any way the right of the CompanyCorporation or a Subsidiary to change such person’s compensation or other benefits or to terminate the employment or other service of such person with or without cause.
(e) Duration. The Board of Directors adopted the Plan subject to the approval of the shareholders of the CompanyCorporation at the Company’s 2003 Annual General MeetingCorporation’s 2002 annual meeting of its shareholders on May 22, 2003.2002. The date of such shareholder approval shall be the “Effective Date” of the Plan. The Plan shall remain in effect until all Awards under the Plan have been exercised or terminated under the terms of the Plan and applicable Award Agreements, provided, however, that Awards under the Plan may only be granted within ten years from the Effective Date of the Plan.
(f) Form and Time of Elections. Any election required or permitted under the Plan shall be in writing, and shall be deemed to be filed when timely delivered to the Secretary of the Company. Any election to receive a Retainer Award in lieu of cash shall be irrevocable after it is filed with respect to the Plan Year for which it is filed, and such election shall remain in effect and be irrevocable with respect to any future Plan Year unless a new election with respect to such Plan Year is filed in accordance with rules established by the Committee, in which case such new election shall be irrevocable with respect to such Plan Year.[This Page Intentionally Left Blank]
(g) Action by Company. Any action required or permitted to be taken by the Company shall be by resolution of the Board, or by action of one or more members of the Board (including a committee of the Board) who are duly
B-8
authorized to act for the Board or (except to the extent prohibited by the provisions of Rule 16b-3, applicable local law, the applicable rules of any stock exchange, or any other applicable rules) by a duly authorized officer of the Company.
(h) Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.
Section 13. Amendment and Termination
The Board may at any time amend, suspend or discontinue the Plan, in whole or in part; provided, however, that no amendment by the Board shall increase any limitations set forth in Section 7 nor shall it permit any Options to be awarded at Exercise Prices below Fair Market Value without approval of the shareholders. The Committee may at any time alter or amend any or all Award Agreements under the Plan to the extent permitted by law, but no such alteration or amendment shall impair the rights of any holder of an Award without the holder’s consent. Adjustments pursuant to Section 9 shall not be subject to the foregoing limitations of this Section 13.
B-9
Appendix C
Everest Re Group, Ltd.Executive Performance Annual Incentive Plan
(as amended through First Amendment)
1. PURPOSE
The purpose of the Everest Re Group, Ltd. Executive Performance Annual Incentive Plan (the “Plan”) is to provide incentive for executives who are in a position to contribute materially to the success of the Company and its Subsidiaries; to reward their accomplishments; to motivate future accomplishments; and to aid in attracting and retaining executives of the caliber necessary for the continued success of the Company and its Subsidiaries.
2. DEFINITIONS
The following terms as used herein shall have the meaning specified:
000000000.000 ext | ||||||
000004 | 000000000.000ext | |||||
000000000.000ext | ||||||
000000000.000ext | ||||||
000000000.000ext | ||||||
Least Address Line | 000000000.000ext | |||||
000000000.000ext | ||||||
A performance criteria may be applied by the Committee as a measure of the performance of any, all, or any combination of the Company or a Subsidiary.
C-1
3. TERM
The Plan shall be effective as of January 1, 1999, subject to approval by a vote of the shareholders at the 1999 Annual Meeting of Shareholders, and such shareholder approval shall be a condition to the right of any Participant to receive any benefits hereunder. As long as the Plan remains in effect, it shall be resubmitted to shareholders as necessary to enable the Plan to continue to qualify as performance-based compensation under Section 162(m) of the Code.
4. AWARDS
C-2
5. ADMINISTRATION
6. MISCELLANEOUS
C-3
C-4
EVEREST RE GROUP, LTD.
Annual General Meeting of ShareholdersMay 25, 2005, 11:00 a.m.Wessex House, 45 Reid StreetHamilton HM 12, Bermuda
PROXY
EVEREST RE GROUP, LTD.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
EVEREST RE GROUP, LTD.
C/O EQUISERVE TRUST COMPANY N.A.P.O. BOX 8687EDISON, NJ 08818-8687
EVEREST RE GROUP, LTD.
Annual General Meeting of ShareholdersMay 25,2005,11:00 a.m.Wessex House, 45 Reid StreetHamilton HM 12, Bermuda
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
C 1234567890 | J N T | |||||||||
[ ] | Mark this box with an X if you have made changes to your name or address details above. | |||||||||
01 - Martin Abrahams | ||||
02 - John R. Dunne | ||||
03 - John A. Weber |
2. | To appoint PricewaterhouseCoopers LLP as the Company’s | ||||||
independent auditors for the year ending December 31, | |||||||
and authorize the Board of Directors acting by the Audit | |||||||
Committee of the Board to set the fees for the independent | |||||||
auditors. | |||||||
3. | To approve an amendment to the Everest Re Group, Ltd. | ||||||
2002 Stock Incentive Plan. |
CAuthorized Signatures - Sign Here - This section must be completed for your instructions to be executed.
In their discretion, upon such other matters as may properly come before the meeting, and any and all adjournments thereof, all in accordance with the accompanying Notice and Proxy Statement, receipt of which is acknowledged.IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES REPRESENTED THEREBY WILL BE VOTED. IF A CHOICE IS SPECIFIED BY THE SHAREHOLDER, THE SHARES WILL BE VOTED ACCORDINGLY. IF NOT OTHERWISE SPECIFIED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR ITEMS 1, 2, AND 3. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.Sign exactly as name appears hereon. When signing in a representative capacity, please give full title.
Signature 1 - Please keep signature within the box | Signature 2 - Please keep signature within the box | Date (mm/dd/yyyy) | ||
|
/ / | ||||
0 0 8 9 3 7 1 | 1 U P X | C O Y |
001CD40001 | 00JVKA |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J.V. Taranto, S.L Limauro, and S. Mukherjee, and each of them, as proxies of the undersigned, each with full power to act without the others and with full power of substituion, to vote all the Common Shares of EVEREST RE GROUP, LTD. held in the name of the undersigned at the close of business on March 27, 2006, at the Annual General Meeting of Shareholders to be held on May 23, 2006, at the Wessex House, 45 Reid Street, Hamilton HM 12, Bermuda at 11:00 a.m. (local time), and at any adjournment or postponement thereof, with all the powers the undersigned would have if personally present, on the matters set forth hereon in accordance with any directions given by the undersigned and, in their discretion, on all other matters that may properly come before the Annual General Meeting, all in accordance with the accompanying Notice and Proxy Statement, receipt of which is acknowledged.
You are encouraged to specify your choices by marking the appropriate boxes (SEE REVERSE SIDE), but you need not mark any box if you wish to vote in accordance with the Board of Directors’ recommendations. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.