-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G1g63cL8MzxJNCkR2+vMZm5cc1Eya0Kpw78glf515WkDOTX/5MshSguyRX7SH96h bXdhtcSbd0+ynj8Y0UINDw== 0000914748-98-000008.txt : 19980807 0000914748-98-000008.hdr.sgml : 19980807 ACCESSION NUMBER: 0000914748-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980806 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVEREST REINSURANCE HOLDINGS INC CENTRAL INDEX KEY: 0000914748 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 223263609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-71652 FILM NUMBER: 98678624 BUSINESS ADDRESS: STREET 1: 477 MARTINSVILLE RD STREET 2: PO BOX 830 CITY: LIBERTY CORNER STATE: NJ ZIP: 07938 BUSINESS PHONE: 9086043000 MAIL ADDRESS: STREET 1: 477 MARTINSVILLE RD STREET 2: PO BOX 830 CITY: LIBERTY CORNER STATE: NJ ZIP: 07938 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL REINSURANCE HOLDINGS INC DATE OF NAME CHANGE: 19931115 10-Q 1 EVEREST REINSURANCE HOLDINGS, INC. 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: Commission File Number: JUNE 30, 1998 1-13816 - --------------------- ---------------------- EVEREST REINSURANCE HOLDINGS, INC. ---------------------------------- (Exact name of Registrant as specified in its charter) DELAWARE 22-3263609 - ------------------------ ---------------------------- (State or other juris- (IRS Employer Identification diction of incorporation Number) or organization) WESTGATE CORPORATE CENTER LIBERTY CORNER, NEW JERSEY 07938-0830 ------------------------------------- (908) 604-3000 ------------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of Shares Outstanding CLASS at August 4, 1998 ----- ---------------------------- COMMON STOCK, $.01 PAR VALUE 50,503,704 EVEREST REINSURANCE HOLDINGS, INC. INDEX TO FORM 10-Q PART I FINANCIAL INFORMATION --------------------- PAGE ---- ITEM 1. FINANCIAL STATEMENTS -------------------- Consolidated Balance Sheets at June 30, 1998 (unaudited) and December 31, 1997 3 Consolidated Statements of Operations for the three months and six months ended June 30, 1998 and 1997 (unaudited) 4 Consolidated Statements of Changes in Stockholders' Equity for the three months and six months ended June 30, 1998 and 1997 (unaudited) 5 Consolidated Statements of Cash Flows for the three months and six months ended June 30, 1998 and 1997 (unaudited) 6 Notes to Consolidated Interim Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS 13 ------------------------- PART II OTHER INFORMATION ----------------- ITEM 1. LEGAL PROCEEDINGS 17 ----------------- ITEM 2. CHANGES IN SECURITIES 17 --------------------- ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ------------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 --------------------------------------------------- ITEM 5. OTHER INFORMATION None ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 -------------------------------- Part I - Item 1 EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except par value per share)
June 30, December 31, --------------- --------------- ASSETS: 1998 1997 --------------- --------------- (unaudited) Fixed maturities - available for sale, at market value (amortized cost: 1998, $3,798,109; 1997, $3,658,370) $ 4,013,446 $ 3,866,860 Equity securities, at market value (cost: 1998, $123,324; 1997, $120,510) 177,418 158,784 Short-term investments 99,074 75,244 Other invested assets 5,180 10,848 Cash 48,343 51,578 --------------- --------------- Total investments and cash 4,343,461 4,163,314 Accrued investment income 61,732 60,424 Premiums receivable 282,431 256,191 Reinsurance receivables 670,601 692,473 Funds held by reinsureds 190,412 186,454 Deferred acquisition costs 78,422 82,332 Prepaid reinsurance premiums 9,410 8,980 Deferred tax asset 76,399 74,434 Other assets 19,542 13,418 --------------- --------------- TOTAL ASSETS $ 5,732,410 $ 5,538,020 =============== =============== LIABILITIES: Reserve for losses and adjustment expenses $ 3,486,060 $ 3,437,818 Unearned premium reserve 329,643 337,383 Funds held under reinsurance treaties 202,241 190,639 Losses in the course of payment 62,503 55,969 Contingent commissions 99,612 100,027 Other net payable to reinsurers 11,395 13,231 Current federal income taxes 15,078 13,567 Other liabilities 126,487 81,903 --------------- --------------- Total liabilities 4,333,019 4,230,537 --------------- --------------- STOCKHOLDERS' EQUITY: Preferred stock, par value: $0.01; 50 million shares authorized; no shares issued and outstanding - - Common stock, par value: $0.01; 200 million shares authorized; 50.8 million shares issued 508 508 Additional paid-in capital 389,985 389,876 Unearned compensation (335) (514) Accumulated other comprehensive income, net of deferred income taxes 165,726 152,319 Retained earnings 851,677 773,380 Treasury stock, at cost; 0.3 million shares (8,170) (8,086) --------------- --------------- Total stockholders' equity 1,399,391 1,307,483 --------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,732,410 $ 5,538,020 =============== ===============
The accompanying notes are an integral part of the consolidated financial statements. 3 EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ (unaudited) REVENUES: Premiums earned $ 264,726 $ 247,515 $ 506,062 $ 477,958 Net investment income 62,525 57,368 122,538 111,410 Net realized capital gain 2,523 13,410 2,506 13,211 Other income 649 773 2,195 4,007 ------------ ------------ ------------ ------------ Total revenues 330,423 319,066 633,301 606,586 ------------ ------------ ------------ ------------ CLAIMS AND EXPENSES: Incurred loss and loss adjustment expenses 195,552 180,191 374,144 347,032 Commission, brokerage, taxes and fees 65,468 65,875 125,905 127,890 Other underwriting expenses 12,393 12,362 24,217 25,101 ------------ ------------ ------------ ------------ Total claims and expenses 273,413 258,428 524,266 500,023 ------------ ------------ ------------ ------------ INCOME BEFORE TAXES 57,010 60,638 109,035 106,563 Income tax 13,466 16,300 25,690 27,761 ------------ ------------ ------------ ------------ NET INCOME $ 43,544 $ 44,338 $ 83,345 $ 78,802 ============ ============ ============ ============ Other comprehensive income, net of tax 2,043 50,885 13,407 5,041 ------------ ------------ ------------ ------------ COMPREHENSIVE INCOME $ 45,587 $ 95,223 $ 96,752 $ 83,843 ============ ============ ============ ============ PER SHARE DATA: Average shares outstanding (000's) 50,480 50,469 50,481 50,480 Net income per common share - basic $ 0.86 $ 0.88 $ 1.65 $ 1.56 ============ ============ ============ ============ Average diluted shares outstanding (000's) 50,799 50,738 50,799 50,731 Net income per common share - diluted $ 0.86 $ 0.87 $ 1.64 $ 1.55 ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 4 EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ (unaudited) COMMON STOCK (shares outstanding): Balance, beginning of period 50,482,326 50,490,673 50,479,271 50,490,273 Issued during the period 2,000 3,400 4,000 3,800 Treasury stock acquired during period (8,460) (29,996) (8,460) (29,996) Treasury stock reissued during period 1,362 1,475 2,417 1,475 ------------ ------------ ------------ ------------ Balance, end of period 50,477,228 50,465,552 50,477,228 50,465,552 ============ ============ ============ ============ COMMON STOCK (par value): Balance, beginning of period $ 508 $ 508 $ 508 $ 508 Issued during the period - - - - ------------ ------------ ------------ ------------ Balance, end of period 508 508 508 508 ------------ ------------ ------------ ------------ ADDITIONAL PAID IN CAPITAL: Balance, beginning of period 389,928 389,202 389,876 389,196 Common stock issued during the period 34 57 67 63 Treasury stock reissued during period 23 9 42 9 ------------ ------------ ------------ ------------ Balance, end of period 389,985 389,268 389,985 389,268 ------------ ------------ ------------ ------------ UNEARNED COMPENSATION: Balance, beginning of period (436) (324) (514) (374) Net increase during the period 101 50 179 100 ------------ ------------ ------------ ------------ Balance, end of period (335) (274) (335) (274) ------------ ------------ ------------ ------------ ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF DEFERRED INCOME TAXES: Balance, beginning of period 163,683 31,568 152,319 77,412 Net increase during the period 2,043 50,885 13,407 5,041 ------------ ------------ ------------ ------------ Balance, end of period 165,726 82,453 165,726 82,453 ------------ ------------ ------------ ------------ RETAINED EARNINGS: Balance, beginning of period 810,657 658,945 773,380 626,501 Net income 43,544 44,338 83,345 78,802 Dividends declared ($0.05 and $0.10 per share in 1998 and $0.04 and $0.08 per share in 1997) (2,524) (2,018) (5,048) (4,038) ------------ ------------ ------------ ------------ Balance, end of period 851,677 701,265 851,677 701,265 ------------ ------------ ------------ ------------ TREASURY STOCK AT COST: Balance, beginning of period (8,061) (7,220) (8,086) (7,220) Treasury stock acquired during period (141) (808) (141) (808) Treasury stock reissued during period 32 35 57 35 ------------ ------------ ------------ ------------ Balance, end of period (8,170) (7,993) (8,170) (7,993) ------------ ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD $ 1,399,391 $ 1,165,227 $ 1,399,391 $ 1,165,227 ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 5 EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 43,544 $ 44,338 $ 83,345 $ 78,802 Adjustments to reconcile net income to net cash provided by operating activities: (Increase) decrease in premiums receivable (17,637) 7,758 (26,309) (20,791) (Increase) decrease in funds held by reinsureds, net 2,442 (3,558) 7,673 13,218 Decrease in reinsurance receivables 17,259 56,398 21,745 75,502 (Increase) in deferred tax asset (7,230) (3,988) (9,185) (7,893) Increase in reserve for losses and loss adjustment expenses 8,467 25,872 49,488 60,684 Increase (decrease) in unearned premiums (8,392) (5,557) (7,356) 1,173 Decrease in other assets and liabilities 16,929 13,800 6,116 20,560 Non cash compensation expense 101 50 179 100 Accrual of bond discount/amortization of bond premium (219) (368) (292) (715) Realized capital gains (2,523) (13,410) (2,506) (13,211) ------------ ----------- ------------ ------------ Net cash provided by operating activities 52,741 121,335 122,898 207,429 ------------ ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from fixed maturities matured/called - held to maturity - - - 2,155 Proceeds from fixed maturities matured/called - available for sale 40,643 142,757 70,626 203,151 Proceeds from fixed maturities sold - available for sale 264,512 453,502 317,671 587,064 Proceeds from equity securities sold 4,327 37,246 6,987 47,625 Proceeds from other invested assets sold 5,357 - 6,671 - Cost of fixed maturities acquired - available for sale (338,539) (738,788) (531,099) (1,024,462) Cost of equity securities acquired (6,778) (9,915) (8,187) (23,241) Cost of other invested assets acquired (150) (31,708) (445) (33,203) Net (purchases) sales of short-term securities 8,482 1,611 (23,588) - Net increase (decrease) in unsettled securities transactions (21,619) 16,364 7,273 27,743 ------------ ------------ ------------ ------------ Net cash used in investing activities (43,765) (128,931) (154,091) (213,168) ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (86) (764) (42) (764) Common stock issued during the period 34 57 67 63 Dividends paid to stockholders (2,524) (2,018) (5,048) (4,038) Net increase in collateral for loaned securities 3,855 - 31,753 - ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities 1,279 (2,725) 26,730 (4,739) ------------ ------------ ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (596) 3,018 1,228 (4,137) ------------ ------------ ------------ ------------ Net increase (decrease) in cash 9,659 (7,303) (3,235) (14,615) Cash, beginning of period 38,684 45,283 51,578 52,595 ------------ ------------ ------------ ------------ Cash, end of period $ 48,343 $ 37,980 $ 48,343 $ 37,980 ============ ============ ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Cash transactions: Income taxes paid, net $ 25,950 $ 18,198 $ 33,694 $ 37,409 Non-cash financing transaction: Issuance of common stock in connection with public offering $ 101 $ 50 $ 179 $ 100
The accompanying notes are an integral part of the consolidated financial statements. 6 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (DOLLARS IN THOUSANDS) 1. GENERAL The consolidated financial statements of Everest Reinsurance Holdings Inc. (the "Company") for the three months and six months ended June 30, 1998 and 1997 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of results on an interim basis. Certain financial information which is normally included in annual financial statements prepared in accordance with generally accepted accounting principles has been omitted since it is not required for interim reporting purposes. The year end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The results for the three months and six months ended June 30, 1998 and 1997 are not necessarily indicative of the results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 1997, 1996 and 1995. 2. CONTINGENCIES The Company continues to receive claims under expired contracts which assert alleged injuries and/or damages relating to or resulting from toxic torts, toxic waste and other hazardous substances, such as asbestos. The Company's asbestos claims typically involve potential liability for bodily injury from exposure to asbestos or for property damage resulting from asbestos or products containing asbestos. The Company's environmental claims typically involve potential liability for (i) the mitigation or remediation of environmental contamination or (ii) bodily injury or property damages caused by the release of hazardous substances into the land, air or water. The Company's reserves include an estimate of the Company's ultimate liability for asbestos and environmental claims for which ultimate value cannot be estimated using traditional reserving techniques. There are significant uncertainties in estimating the amount of the Company's potential losses from asbestos and environmental claims. Among the complications are: (i) potentially long waiting periods between exposure and manifestation of any bodily injury or property damage; (ii) difficulty in identifying sources of asbestos or environmental contamination; (iii) difficulty in properly allocating responsibility and/or liability for asbestos or environmental damage; (iv) changes in underlying laws and judicial interpretation of those laws; (v) potential for an asbestos or environmental claim to involve many insurance providers over many policy periods; (vi) long reporting delays, both from insureds to insurance companies and ceding companies to reinsurers; (vii) limited historical data concerning asbestos and environmental losses; (viii) questions concerning interpretation and application of insurance and reinsurance coverage; and (ix) uncertainty regarding the number and identity of insureds with potential asbestos or environmental exposure. 7 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (DOLLARS IN THOUSANDS) Management believes that these issues are not likely to be resolved in the near future. The Company establishes reserves to the extent that, in the judgment of management, the facts and prevailing law reflect an exposure for the Company or its ceding company. In connection with its initial public offering in October 1995, the Company purchased an aggregate stop loss retrocession agreement (the "Stop Loss Agreement") from Gibraltar Casualty Company ("Gibraltar"), an affiliate of the Company's former parent, The Prudential Insurance Company of America ("The Prudential"). This coverage protects the Company's consolidated earnings against up to $375,000 of the first $400,000 of adverse development, if any, on the Company's consolidated reserves for losses, allocated loss adjustment expenses and uncollectible reinsurance at June 30, 1995 (December 31, 1994 for catastrophe losses). Due to the uncertainties discussed above, the ultimate losses may vary materially from current loss reserves and, if coverage under the Stop Loss Agreement is exhausted, could have a material adverse effect on the Company's future financial condition, results of operations and cash flows. The following table shows the development of prior year asbestos and environmental reserves on both a gross and net of retrocessional basis for the three months and six months ended June 30, 1998 and 1997:
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 -------------------------- -------------------------- Gross Basis: Beginning of period reserves $ 469,666 $ 428,685 $ 446,132 $ 423,336 Incurred losses 8,825 17,463 36,720 28,662 Paid losses (11,923) (19,554) (16,284) (25,404) ----------- ----------- ----------- ----------- End of period reserves $ 466,568 $ 426,594 $ 466,568 $ 426,594 =========== =========== =========== =========== Net Basis: Beginning of period reserves $ 232,377 $ 201,885 $ 212,376 $ 199,557 Incurred losses - 461 2,222 461 Paid losses 20,515 1,074 38,294 3,402 ----------- ----------- ----------- ----------- End of period reserves $ 252,892 $ 203,420 $ 252,892 $ 203,420 =========== =========== =========== ===========
8 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (DOLLARS IN THOUSANDS) At June 30, 1998, the gross reserves for asbestos and environmental losses were comprised of $131,823 representing case reserves reported by ceding companies, $60,596 representing additional case reserves established by the Company on assumed reinsurance claims, $43,366 representing case reserves established by the Company on direct excess insurance claims and $230,783 representing incurred but not reported ("IBNR") reserves. To the extent loss reserves on assumed reinsurance need to be increased and were not ceded to unaffiliated reinsurers under existing reinsurance agreements, the Company would be entitled to certain reimbursements under the Stop Loss Agreement. To the extent loss reserves on direct excess insurance policies needed to be increased and were not ceded to unaffiliated reinsurers under existing reinsurance agreements, the Company would be entitled to 100% protection from Gibraltar under a retrocessional agreement in place since 1986. While there can be no assurance that reserves for and losses from these claims would not increase in the future, management believes that the Company's existing reserves and ceded reinsurance arrangements, including reimbursements available under the Stop Loss Agreement, lessen the probability that such increases, if any, would have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company is also named in various legal proceedings incidental to its normal business activities. In the opinion of management, none of these proceedings is likely to have a material adverse effect upon the financial condition, results of operations or cash flows of the Company. The Prudential sells annuities which are purchased by property and casualty insurance companies to settle certain types of claim liabilities. In 1993 and prior, the Company, for a fee, accepted the claim payment obligation of the property and casualty insurer, and, concurrently, became the owner of the annuity or assignee of the annuity proceeds. In these circumstances, the Company would be liable if The Prudential were unable to make the annuity payments. The estimated cost to replace all such annuities for which the Company was contingently liable at June 30, 1998 was $141,941. The Company has purchased annuities from an unaffiliated life insurance company to settle certain claim liabilities of the Company. Should the life insurance company become unable to make the annuity payments, the Company would be liable. The estimated cost to replace such annuities at June 30, 1998 was $10,369. 9 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (DOLLARS IN THOUSANDS) 3. EARNINGS PER SHARE Net income per common share has been computed as follows (Shares in thousands, except per share amounts):
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ------------------- ------------------- Net income (numerator) $ 43,544 $ 44,338 $ 83,345 $ 78,802 ======== ======== ======== ======== Weighted average common and effect of dilutive shares used in the computation of net income per share: Average shares outstanding -basic (denominator) 50,480 50,469 50,481 50,480 Effect of dilutive shares 319 269 318 251 -------- -------- -------- -------- Average shares outstanding -diluted (denominator) 50,799 50,738 50,799 50,731 Net income per common share: Basic $ 0.86 $ 0.88 $ 1.65 $ 1.56 Diluted 0.86 0.87 1.64 1.55
As of June 30, 1998 and 1997 options to purchase 337,750 and 1,500 shares of common stock, respectively, were outstanding but were not included in the computation of diluted earnings per share for the three month and six month periods ended on such dates, because the options' exercise price was greater than the average market price of the common shares during the period. 4. CHANGES IN ACCOUNTING PRINCIPLES Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". This statement requires an enterprise to present items of other comprehensive income in a financial statement and to disclose accumulated balances of other comprehensive income in the equity section of a financial statement. The additional required presentation has been provided in the interim consolidated 10 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (DOLLARS IN THOUSANDS) financial statements for the current period as well as earlier periods. The Company's components of other comprehensive income include unrealized gains and losses on investments and foreign currency translation adjustments. As those items were previously presented as direct charges or credits to the Company's stockholders' equity, the only impact of adopting this standard is to reflect an additional presentation of those items. The Company's other comprehensive income is comprised as follows:
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---------------------- ---------------------- Net unrealized appreciation (depreciation) of investments, net of deferred income taxes $ 4,392 $ 51,115 $ 14,734 $ 9,583 Cumulative translation adjustments, net of deferred income taxes (2,349) (230) (1,327) (4,542) --------- --------- --------- --------- Other comprehensive income/(loss), net of deferred income taxes $ 2,043 $ 50,885 $ 13,407 $ 5,041 ========= ========= ========= =========
5. NEW ACCOUNTING STANDARDS In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". This statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair value of plan assets that will facilitate financial analysis and eliminates certain disclosures. This statement is effective for fiscal years beginning after December 15, 1997. When adopted, the additional required disclosures will be provided for earlier periods. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement requires all derivatives to be recognized as either assets or liabilities in the statement of financial position and to be measured at fair value. This statement is effective for all fiscal quarters and fiscal years beginning after June 15, 1999. The Company's management is currently analyzing the impact of this statement. 11 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (DOLLARS IN THOUSANDS) 6. INCOME TAXES On April 21, 1998, the Supreme Court issued its decision in ATLANTIC MUTUAL V. COMMISSIONER, upholding the Internal Revenue Service's position regarding the computation of the fresh start benefit relating to 1986 reserve strengthening. Pursuant to the Separation Agreement with The Prudential, the Company has paid The Prudential $10,445 representing tax and interest in resolution of the matter. The Company had adequate provisions for this tax contingency and, as a result, this item has not materially impacted the Company's financial position. 7. CREDIT LINE In May 1998, First Union National Bank granted a 364 day extension to the Company's $50,000 revolving line of credit. All of the terms and conditions of the original credit facility remain in full force and effect without amendment except that the maturity date as extended is now June 12, 1999. 12 PART I - ITEM 2 EVEREST REINSURANCE HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 PREMIUMS. Gross premiums written increased 5.6% to $267.5 million in the three months ended June 30, 1998 from $253.2 million in the three months ended June 30, 1997 as the Company continued to maintain a cautious approach to increasingly competitive market conditions. Factors contributing to this increase include a 55.0% increase (to $98.2 million) in U.S. broker treaty operations, attributable to growth in accident and health business, non- standard auto and workers compensation business, and incoming portfolio reinsurance transactions, a 12.4% increase (to $47.7 million) in U.S. direct treaty reinsurance and insurance operations, attributable to incoming portfolio reinsurance transactions, and a 5.7% increase (to $19.6 million) in U.S. facultative operations, partially offset by a 26.2% decrease (to $30.2 million) in marine, aviation and surety operations and a 18.4% decrease (to $71.8 million) in international operations reflecting the highly competitive conditions in these markets. Ceded premiums increased to $11.9 million in the three months ended June 30, 1998 from $7.2 million in the three months ended June 30, 1997. This increase was principally attributable to an increase in the Company's contract specific retrocessions. Net premiums written increased by 3.9% to $255.6 million in the three months ended June, 1998 from $246.1 million in the three months ended June 30, 1997 consistent with the growth in gross premiums written partially offset by the increase in ceded premiums. REVENUES. Net premiums earned increased by 7.0% to $264.7 million in the three months ended June 30, 1998 from $247.5 million in the three months ended June 30, 1997, generally consistent with the growth in net premiums written and changes in the Company's mix of business during the preceding twelve months. Net investment income increased 9.0% to $62.5 million in the three months ended June 30, 1998 from $57.4 million in the three months ended June 30, 1997, principally reflecting the effect of investing the $291.9 million of cash flow from operations in the twelve months ended June 30, 1998. The annualized pre-tax yield on average cash and invested assets decreased to 6.2% in the three months ended June 30, 1998, from the 6.3% yield in the three months ended June 30, 1997, reflecting an increasing orientation to tax preferenced fixed maturity investments and the lower interest rate environment. Net realized capital gains were $2.5 million in the three months ended June 30, 1998, reflecting realized capital gains on the Company's investments of $5.1 million which were offset by $2.6 million of realized capital losses, compared to net realized capital gains of $13.4 million in the three months ended June 30, 1997. The net realized capital gains in the three months ended June 13 30, 1997 reflected realized capital gains of $18.0 million which were offset by $4.6 million of realized capital losses. The realized capital gains in both periods mainly arose from activity in the Company's portfolio of equity securities, including, in 1997, a $14.0 million realized capital gain on the sale of the Company's investment in the common stock of Corporacion MAPFRE S.A. ("MAPFRE"), an insurance group in Spain, whereas the realized capital losses for both periods mainly arose from activity in the Company's fixed maturities portfolio. EXPENSES. Incurred losses and loss adjustment expenses ("LAE") increased by 8.5% to $195.6 million in the three months ended June 30, 1998 from $180.2 million in the three months ended June 30, 1997. The Company's loss and LAE ratio increased by 1.1 percentage points to 73.9% in the three months ended June 30, 1998 from 72.8% in the three months ended June 30, 1997, principally as a result of changes in the Company's mix of business. Net incurred losses and LAE for the three months ended June 30, 1998 reflected ceded losses and LAE of $1.4 million, including $0.0 million ceded under the Stop Loss Agreement, compared to ceded losses and LAE of $20.0 million in the three months ended June 30, 1997, including $8.6 million ceded under the Stop Loss Agreement. Underwriting expenses decreased by 0.5% to $77.9 million in the three months ended June 30, 1998 from $78.2 million in the three months ended June 30, 1997. Commission and brokerage expenses decreased by $0.4 million, principally relating to changes in the Company's business mix. Other underwriting expenses were unchanged at $12.4 million. The Company had 379 employees at June 30, 1998 including 27 employees in the agency operations acquired on June 30, 1998, compared to 396 employees at June 30, 1997. The Company's expense ratio was 29.4% in the three months ended June 30, 1998 compared to 31.6% in the three months ended June 30, 1997. The Company's combined ratio decreased to 103.3% in the three months ended June 30, 1998 compared to 104.4% in the three months ended June 30, 1997. INCOME TAXES. The Company recognized income tax expense of $13.5 million in the three months ended June 30, 1998 compared to $16.3 million in the three months ended June 30, 1997. The principal cause of this change was the decrease in net realized capital gains. NET INCOME. Net income was $43.5 million in the three months ended June 30, 1998 compared to $44.3 million in the three months ended June 30, 1997. This mainly reflected the improvement in underwriting results and an increase in net investment income offset by a decrease in net realized capital gains. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 PREMIUMS. Gross premiums written increased 4.3% to $520.5 million in the six months ended June 30, 1998 from $499.2 million in the six months ended June 30, 1997 as the Company continued to maintain a cautious approach to increasingly competitive market conditions. Factors contributing to this increase included a 48.1% increase (to $178.7 million) in U.S. broker treaty operations, principally attributable to growth in accident and health, non-standard auto and workers compensation business and incoming portfolio reinsurance transactions and a 14.8% 14 increase (to $100.8 million) in U.S. direct treaty reinsurance and insurance operations, attributable to incoming portfolio reinsurance transactions. These gains were partially offset by a 23.3% decrease (to $59.5 million) in marine, aviation and surety operations, a 15.7% decrease (to $146.1 million) in international operations and a 11.4% decrease (to $35.3 million) in U.S. facultative operations reflecting the highly competitive conditions in these markets. Ceded premiums increased to $22.2 million in the six months ended June 30, 1998 from $19.4 million in the six months ended June 30, 1997. This increase was principally attributable to an increase in the Company's contract specific retrocessions. Net premiums written increased by 3.8% to $498.3 million in the six months ended June 30, 1998 from $479.9 million in the six months ended June 30, 1997 reflecting the growth in gross premiums written and partially offset by the increases in ceded premiums. REVENUES. Net premiums earned increased by 5.9% to $506.1 million in the six months ended June 30, 1998 from $478.0 million in the six months ended June 30, 1997, generally consistent with the growth in net premiums written and changes in the Company's mix of business during the preceding twelve months. Net investment income increased 10.0% to $122.5 million in the six months ended June 30, 1998 from $111.4 million in the six months ended June 30, 1997, reflecting the effect of investing the $291.9 million of cash flow from operations in the twelve months ended June 30, 1998. The annualized pre-tax yield on average cash and invested assets was stable at 6.1% for the six months ended both June 30, 1998 and June 30, 1997. Net realized capital gains were $2.5 million in the six months ended June 30, 1998, reflecting realized capital gains on the Company's investments of $6.7 million which were offset by $4.2 million of realized capital losses, compared to net realized capital gains of $13.2 million in the six months ended June 30, 1997. The net realized capital gains in the six months ended June 30, 1997 reflected realized capital gains of $20.8 million which were offset by $7.6 million of realized capital losses. The realized capital gains in both periods mainly arose from activity in the Company's portfolio of equity securities, including, in 1997, a $14.0 million realized capital gain on the sale of the Company's investment in the common stock of MAPFRE, whereas the realized capital losses in both periods mainly arose from activity in the Company's fixed maturities portfolio. EXPENSES. Incurred losses and LAE increased by 7.8% to $374.1 million in the six months ended June 30, 1998 from $347.0 million in the six months ended June 30, 1997. Catastrophe losses in the six months ended June 30, 1998 were $7.0 million compared with $0.0 million in the six months ended June 30, 1997. The Company's loss and LAE ratio increased by 1.3 percentage points to 73.9% for the six months ended June 30, 1998 from 72.6% in the six months ended June 30, 1997, principally as a result of higher catastrophe losses and changes in the Company's mix of business towards certain reinsurance treaties with higher expected losses and lower ceding commissions. Net incurred losses and LAE for the six months ended June 30, 1998 reflected ceded losses and LAE of $35.2 million, including $20.0 million ceded under the Stop Loss Agreement, a significant amount of which was not settled until July 1998, compared to ceded losses and LAE of $32.3 million in the six months ended June 30, 1997, including $13.9 million ceded under the Stop Loss Agreement. 15 Underwriting expenses decreased by 1.9% to $150.1 million in the six months ended June 30, 1998 from $153.0 million in the six months ended June 30, 1997. Commission and brokerage expenses decreased by $2.0 million, principally reflecting changes in the Company's business mix. Other underwriting expenses decreased by $0.9 million, reflecting the impact of the Company's continuing expense reduction initiatives. The Company's expense ratio was 29.7% in the six months ended June 30, 1998 compared to 32.0% in the six months ended June 30, 1997. The Company's combined ratio decreased to 103.6% in the six months ended June 30, 1998 from 104.6% in the six months ended June 30, 1997. INCOME TAXES. The Company recognized income tax expense of $25.7 million in the six months ended June 30, 1998 compared to $27.8 million in the six months ended June 30, 1997. The principal cause of this change was the decrease in capital gains. NET INCOME. Net income was $83.3 million in the six months ended June 30, 1998 compared to $78.8 million in the six months ended June 30, 1997. This improvement mainly reflected improved underwriting results and an increase in investment income partially offset by a decrease in realized capital gains. FINANCIAL CONDITION INVESTED ASSETS. Aggregate invested assets, including cash and short-term investments, were $4,343.5 million at June 30, 1998 and $4,163.3 million at December 31, 1997. The increase in invested assets between December 31, 1997 and June 30, 1998 resulted primarily from cash flow from operations of $122.9 million generated during the six months ended June 30, 1998, a $31.8 million increase in collateral for loaned securities and an increase of $25.2 million in net appreciation on investments. STOCKHOLDERS' EQUITY. Holdings' stockholders' equity increased to $1,399.4 million as of June 30, 1998, from $1,307.5 million as of December 31, 1997 principally reflecting net income of $83.3 million for the six months ended June 30, 1998 and an increase of $14.7 million in unrealized appreciation on investments, net of deferred taxes. Dividends of $5.0 million were declared and paid by Holdings in the six months ended June 30, 1998. 16 EVEREST REINSURANCE HOLDINGS, INC. OTHER INFORMATION Part II - ITEM 1. LEGAL PROCEEDINGS The Company is subject to litigation and arbitration in the normal course of its business. Management does not believe that any such pending litigation or arbitration will have a material adverse effect on the Company's results of operations, financial condition and cash flows. Part II - ITEM 2. CHANGES IN SECURITIES c) Information required by Item 701 of Regulation S-K: (a) On April 1, 1998, 1,225 common shares of the Company (previously held as treasury shares) were distributed. On May 20, 1998, 137 common shares of the Company (previously held as treasury shares) were distributed. (b) The securities were distributed to the Company's five non- employee directors and one former non-employee director. (c) The securities were issued as compensation to the non-employee directors for services rendered to the Company during the first quarter of 1998 and for one such director for services rendered to the Company through May 19, 1998. (d) Exemption from registration was claimed pursuant to Section 4(2) of the Securities Act of 1933. There was no public offering and the participants in the transactions were the Company and its non-employee directors. (e) Not applicable. Part II - ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) The Annual Meeting was held on May 19, 1998. b) Kenneth J. Duffy and Joseph V. Taranto were elected at the Annual Meeting as Directors of the Company for a term expiring in 2001. The term of office of the following Directors continued after the meeting: Martin Abrahams, John R. Dunne, Thomas J. Gallagher and William F. Galtney, Jr. 17 c) The following matter was voted on at the Annual Meeting: (1) The following Directors were elected: Votes Votes For Withheld ----- --------- Kenneth J. Duffy 45,621,536 473,087 Joseph V. Taranto 44,948,748 1,145,875 Part II - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibit Index: Exhibit No. Description Location ----------- ----------- -------- *10.21 Employment Agreement Filed herewith with Joseph V. Taranto executed on July 15, 1998. *10.22 Change of Control Agreement Filed herewith with Joseph V. Taranto effective July 15, 1998. 10.23 Credit Line Extension dated Filed herewith May 20, 1998 between Everest Reinsurance Holdings, Inc. and First Union National Bank. 11.1 Statement regarding computation of per-share earnings Filed herewith 27 Financial Data Schedule Filed herewith - ---------------------- *Management contract or compensatory plan or arrangement. b) Reports on Form 8-K: There were no reports on Form 8-K filed during the three month period ending June 30, 1998. 18 Omitted from this Part II are items which are inapplicable or to which the answer is negative for the period covered. 19 EVEREST REINSURANCE HOLDINGS, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Everest Reinsurance Holdings, Inc. (Registrant) - By: /s/ STEPHEN L. LIMAURO ---------------------- Stephen L. Limauro Duly Authorized Officer, Vice President and Comptroller Dated: August 6, 1998 EX-10.21 2 EMPLOYMENT AGREEMENT Exhibit 10.21 EMPLOYMENT AGREEMENT -------------------- Employment Agreement (the "Agreement") first effective as of the 1st day of January, 2000, between EVEREST REINSURANCE COMPANY a Delaware corporation (the "Company"), EVEREST REINSURANCE HOLDINGS, INC. ("Holdings") and JOSEPH V. TARANTO ("Taranto"). W I T N E S S E T H : --------------------- WHEREAS, the Company and Holdings wish to continue to secure the services of Taranto pursuant to the terms and conditions hereof; and WHEREAS, Taranto is willing to accept such employment with the Company and Holdings and to enter into the Agreement; NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Position; Duties; Responsibilities. ----------------------------------- 1.1 The Company hereby employs Taranto and Taranto hereby agrees to serve as Chairman and Chief Executive Officer of Company and in such other executive positions as designated by the Board of Directors of the Company ("Board"). Taranto shall report to and be subject to the supervision, control and direction of the Board. He shall be the senior executive of the Company. Taranto shall have such other responsibilities and authority consistent with the status, titles and reporting requirements set forth herein as are appropriate to said positions, subject to change from time to time by the Board, provided that Taranto shall not be required to accept any position or reporting requirements or perform any duties that are inconsistent with his status as the Chief Executive Officer of the Company. Taranto's office shall be principally located at the Company's headquarters, currently in Liberty Corner, New Jersey. During the term of the Agreement, the Company will not relocate its headquarters more than one and one-half hours' travel time by automobile from the Company's headquarters in Liberty Corner, New Jersey. Holdings hereby employs Taranto and Taranto hereby agrees to serve during the term of this Agreement, without additional compensation, on similar terms and conditions as set forth in the preceding paragraph, as Chairman and Chief Executive Officer of Holdings and, subject to his election, as a director of the Company, and as a director and officer of any corporation which is a subsidiary or affiliate of the 2 Company, if elected by the stockholders or the board of directors of such corporation. It is the intention of Holdings and the Company to cause Taranto to continue to be a member of the Board and to continue his appointment as a member of the Executive Committee of the Board. 1.2 During the course of his employment, Taranto agrees to devote his full working time and attention and give his best efforts and skill to furthering the business and interests of the Company and Holdings. Consistent with the foregoing, Taranto may volunteer a reasonable portion of his non-working time to charitable, civic and professional organizations. 1.3 Notwithstanding the provisions of Section 1.2 above, during the course of his employment Taranto may serve as a director or officer of one or more companies affiliated with the Company. Taranto may also, with the written consent of the Company and Holdings, serve as a director of any public or private corporation, as a member of the governing board or as an officer of any charitable, civic, educational or professional organization, provided, however, that Taranto shall comply with the procedures established by the Company and Holdings to prevent conflicts of interest by 3 its officers and employees with respect to the business of the Company and Holdings, their subsidiaries and affiliates. 2. Term. ----- The term of employment under this Agreement shall commence as of January 1, 2000 (the "Appointment Date"), and shall continue through December 31, 2001, unless sooner terminated in accordance with this Agreement. 3. Salary. ------- The Company shall pay Taranto a base salary during the term of employment at the annual rate of One Million Dollars ($1,000,000) ("Base Salary"), payable in accordance with the standard payroll practices for senior executives of the Company. 4. Bonus. ------ 4.1 During the course of his employment, Taranto shall be eligible to participate in a bonus program or plan to be established by Holdings, subject to the approval of Holdings' stockholders. If Holdings' stockholders do not approve the bonus plan or program described in this Section 4.1, Taranto shall have the right to re-open this Agreement to negotiate an alternative bonus arrangement, provided, however, that Taranto must exercise his right to re-open by providing Holdings with written notice of his intent to re- 4 open within thirty days of Taranto's becoming aware that the stockholders of Holdings did not approve the bonus plan or program described in this Section 4.1. 4.2 All bonuses pursuant to this Section 4 shall be paid to Taranto in conformance with Company's and/or Holdings' normal bonus pay policies following the end of the respective fiscal year. Any bonus payable to Taranto with respect to the fiscal year ending December 2001 shall survive the termination of this Agreement. 5. Sign-On Bonus. -------------- 5.1 Holdings shall grant to Taranto as a sign-on bonus ("Sign-On Bonus") One Hundred Fifty Thousand (150,000) non-qualified options for the purchase of Holdings' stock under, and subject to the terms of, Holdings' 1995 Stock Incentive Plan, upon execution by Taranto. The options granted pursuant to this Section 5.1 shall be subject to the general terms and conditions of the Holdings 1995 Stock Incentive Plan and applicable award agreements issued thereunder and shall vest at the rate of 20% per year over five years, such vesting to occur on each of the first five anniversary dates of the grant. 5 6. Employee Benefit Plans. ----------------------- 6.1 During the term of Taranto's employment hereunder, Taranto shall be eligible to participate in the Company's employee benefit plans on the same basis as the Company's other senior executives. 6.2 In addition to benefits described in Section 6.1, Taranto shall also receive or participate, at a level consistent with Taranto's position, in, to the extent permitted by law, the various perquisites and plans which the Board determines to make available to officers of the Company from time to time in accordance with the provisions thereof. Taranto shall be entitled to not less than four weeks vacation per year. 6.3 Nothing contained in this Agreement shall prevent the Board or the Board of Directors of Holdings ("Holdings Board") from adopting additional compensation arrangements for Taranto or providing additional benefits under any of the existing compensation arrangements. 7. Expense Reimbursements. ----------------------- 7.1 During Taranto's employment with Company and Holdings, Taranto will be entitled to receive reimbursement by the Company and Holdings for all reasonable, out-of-pocket expenses incurred by him (in accordance with policies 6 and procedures established by the Company and Holdings), in connection with his performing services hereunder. 8. Consequences of Termination of Employment. ------------------------------------------ 8.1 DEATH. In the event of the death of Taranto during the term of employment under this Agreement or during the period when payments are being made pursuant to Section 8.2, this Agreement shall terminate and all obligations to Taranto shall cease as of the date of death except that Company will (1) pay the Base Salary until the end of the month in which Taranto dies, (2) Taranto's beneficiaries or estate, as appropriate, shall be entitled to all rights and benefits accrued up to the date of termination under the stock option plans and benefit plans and programs of the Company in which Taranto is a participant, as determined in accordance with the terms and provisions of such plans and programs, provided, however, that Taranto shall cease to be an active participant in such plans and programs as of the date of termination. Any bonus (or amounts in lieu thereof) pursuant to Section 4.1, payable with respect to the year in which Taranto's death occurs, shall be annualized and promptly paid to Taranto's estate pro rata to the date of death. 8.2 DISABILITY. If Taranto shall become incapacitated by reason of sickness, accident or other 7 physical or mental disability, as such incapacitation is certified in writing by a physician chosen by Company and reasonably acceptable to Taranto (or his spouse or representative if in the Company's reasonable determination Taranto is not then able to exercise sound judgment), and shall therefore be unable to perform his duties hereunder for a period of either (i) one hundred twenty consecutive days, or (ii) more than six months in any twelve month period, with reasonable accommodation as required by law, then to the extent consistent with applicable law, Taranto shall be considered "disabled" and the employment of Taranto hereunder and this Agreement may be terminated by Taranto or the Company upon thirty (30) days' written notice to the other party following such certification. Should Taranto not acquiesce in the Company's selection of the certifying doctor, Taranto (or his spouse or representative if in the Company's reasonable determination Taranto is not then able to exercise sound judgment) may choose a doctor to determine whether he is disabled. If the two doctors are unable to concur on whether Taranto is disabled, the two doctors shall designate a third doctor whose decision shall be determinative. Upon termination of employment pursuant to this Section 8.2, the Company shall thereafter pay to Taranto, (1) Base Salary through the date of termination, 8 and (2) Taranto shall be entitled to all rights and benefits accrued up to the date of termination under the stock option plans and benefit plans and programs of the Company in which Taranto is a participant, as determined in accordance with the terms and provisions of such plans and programs, provided, however, that Taranto shall cease to be an active participant in such plans and programs as of the date of termination. Any bonus (or amounts in lieu thereof) pursuant to Section 4.1 of this Agreement, payable with respect to the year in which Taranto's termination pursuant to Section 8.2 occurs, shall be annualized and promptly paid to Taranto pro rata to the date of termination. 8.3 DUE CAUSE. The Company may terminate Taranto and this Agreement at any time for Due Cause. In the event of such termination for Due Cause, Taranto shall only continue to receive Base Salary through the date of such termination for Due Cause, and Taranto shall be entitled to no further benefits or compensation under this Agreement, except that Taranto shall be entitled to all rights and benefits accrued up to the date of termination under the stock option plans and benefit plans and programs of the Company in which Taranto is a participant, as determined in accordance with the terms and provisions of such plans and programs, provided, however, that Taranto shall cease to be an active participant in such plans or programs as of the 9 date of termination. The term "Due Cause" shall mean (a) repeated and gross negligence in fulfillment of, or repeated failure of Taranto to fulfill, his material obligations under this Agreement, in either event after written notice thereof, (b) material willful misconduct by Taranto in respect of his obligations hereunder, (c) conviction of any felony, or any crime of moral turpitude or, (d) a material breach in trust committed in willful or reckless disregard of the interests of the Company or Holdings or undertaken for personal gain. 8.4 TERMINATION BY THE COMPANY WITHOUT DUE CAUSE. The other provisions of this Agreement notwithstanding, the Company may terminate Taranto's employment and this Agreement at any time for whatever reason it deems appropriate, without Due Cause and with or without prior notice. In the event of such a termination of Taranto's employment and this Agreement, Taranto shall have no further obligations of any kind under or arising out of the Agreement and Company shall be obligated only to pay Taranto as severance as soon after such termination as reasonably possible the following: (a) the aggregate amount of Base Salary at the rate then in effect for the period from the date of termination through December 31, 2001, (b) the aggregate bonus amounts due under the appropriate bonus plans or programs for the period from the date of 10 termination through December 31, 2001, payable in accordance with, and at the time provided for under, the appropriate bonus plan or program. As a condition precedent to Taranto's receipt of the payments described in this Section 8.4, Taranto shall execute a general release and waiver on behalf of the Company and Holdings in a form acceptable to the Company and Holdings. Taranto shall be entitled to all rights and benefits accrued up to the date of termination under the stock option plans and benefit plans and programs of the Company in which Taranto is a participant, as determined in accordance with the terms and provisions of such plans and programs, provided, however, that Taranto shall cease to be an active participant in such plans and programs as of the date of termination. 8.5 EMPLOYEE VOLUNTARY TERMINATION. In the event Taranto terminates his employment of his own volition, and not pursuant to Section 8.6 of this Agreement, prior to the end of the term specified in Section 2 of this Agreement, such termination shall constitute a voluntary termination and in such event Company's only obligation to Taranto shall be to make Base Salary payments provided for in this Agreement through the period ending with the date of such voluntary termination. Taranto shall be entitled to all rights and benefits accrued up to the date of termination under the stock option plans and benefit plans and programs 11 of the Company in which Taranto is a participant, as determined in accordance with the terms and provisions of such plans and programs, provided, however, that Taranto shall cease to be an active participant in such plans and programs as of the date of termination. Taranto understands and agrees that in the event of the termination of employment pursuant to this Section 8.5 the Company shall have no obligation to make any payments under this Agreement other than as set forth in this Section 8.5. Taranto specifically understands and agrees that in the event of the termination of employment pursuant to this Section 8.5 the Company shall have no further obligation to pay any bonus to Taranto pursuant to Section 4 of this Agreement. 8.6 EMPLOYEE VOLUNTARY TERMINATION FOR GOOD REASON. If at the time Taranto terminates his employment any of the following circumstances shall have occurred without Taranto's express consent and shall have remained uncorrected for more than thirty (30) days following Taranto's giving written notice of such occurrence to the Company, then Taranto's termination of his employment shall be deemed a "Termination for Good Reason": (a) a materially adverse change in the nature or status of his position or responsibilities; (b) a reduction by the Company in the Base Salary set forth in Section 3 hereof; or (c) a material breach of this Agreement by Company or Holdings, provided, 12 for purposes of clarification, that the failure of Taranto and the Company to reach agreement on an alternative bonus arrangement pursuant to Section 4.1 of this Agreement shall not constitute a material breach. If Taranto's termination of employment is deemed a Termination for Good Reason, the Company shall pay to Taranto and afford to him the compensation and benefits Taranto would be entitled to receive in the event of a Termination by the Company without Due Cause pursuant to Section 8.4 hereof. 8.7 CHANGE OF CONTROL. In lieu of any other provision of this Agreement, if within one year of a Material Change (as defined in the Change of Control Agreement between the parties hereto effective as of July 15, 1998), Taranto terminates his employment with the Company for any reason or the Company terminates Taranto's employment for any reason other than for Due Cause, Taranto shall continue to receive Base Salary through the date of such termination and the Company and Holdings shall pay to Taranto and afford to him the compensation and benefits provided for in the Change of Control Agreement. 8.8 GENERAL. The Company's and Holdings' obligations to pay Taranto the compensation and other benefits specified herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set off, 13 counterclaim, recoupment, defense or other right which the Company or Holdings may have against him or anyone else. In no event shall Taranto be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to him under this Agreement. 9. Covenants of Employee. ---------------------- 9.1 Taranto acknowledges that as a result of the services to be rendered to the Company hereunder, Taranto will be brought into close contact with many confidential affairs of the Company, its subsidiaries and affiliates, not readily available to the public. Taranto further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual character; that the business of the Company is international in scope; that its goods and services are marketed throughout the United States and other countries; and that the Company competes with other organizations that are or could be located in any part of the United States or the world. 9.2 In recognition of the foregoing, Taranto covenants and agrees that, except as is necessary in providing services under this Agreement, Taranto will not knowingly use for his own benefit nor knowingly divulge any Confidential Information and Trade Secrets of the Company, 14 its subsidiaries and affiliated entities, which are not otherwise in the public domain and, so long as they remain Confidential Information and Trade Secrets not in the public domain, will not disclose them to anyone outside of the Company either during or after his employment. For the purposes of this Agreement, "Confidential Information and Trade Secrets" of the Company means information which is secret to the Company, its subsidiaries and affiliated entities. It may include, but is not limited to, information relating to present future concepts and business of Company, its subsidiaries and affiliates, in the form of memoranda, reports, computer software and data banks, customer lists, employee lists, books, records, financial statements, manuals, papers, contracts and strategic plans. As a guide, Taranto is to consider information originated, owned, controlled or possessed by the Company, its subsidiaries or affiliated entities which is not disclosed in printed publications stated to be available for distribution outside the Company, its subsidiaries and affiliated entities as being secret and confidential. In instances where doubt does or should reasonably be understood to exist in Taranto's mind as to whether information is secret and confidential to the Company, its subsidiaries and affiliated entities, Taranto agrees to 15 request an opinion, in writing, from the Company as to whether information is secret and confidential. 9.3 Taranto will deliver promptly to the Company on the termination of his employment with the Company, or at any other time the Company may so request, all memoranda, notes, records, reports and other documents relating to the Company, its subsidiaries and affiliated entities, and all property owned by the Company, its subsidiaries and affiliated entities, which Taranto obtained while employed by the Company, and which Taranto may then possess or have under his control. 9.4 During and for a period of one (1) year after the termination of employment with the Company (except that the time period of such restrictions shall be extended by any period during which Taranto is in violation of this Section 9.4), Taranto will not: (a) knowingly interfere with, disrupt or attempt to disrupt, any then existing relationship, contractual or otherwise between the Company, its subsidiaries or affiliated entities, and any customer, client, supplier, or agent; (b) solicit, or assist any other entity in soliciting for employment, any person known to Taranto to be an agent or executive employee of the Company, its subsidiaries or affiliated entities; or (c) except where the termination of employment occurs as a result of the expiration of the term of this Agreement, accept any 16 position of employment as an executive officer of any other company engaged in the property and casualty insurance or reinsurance business. 9.5 Taranto will promptly disclose to the Company all inventions, processes, original works of authorship, trademarks, patents, improvements and discoveries related to the business of the Company, its subsidiaries and affiliated entities (collectively "Developments"), conceived or developed during Taranto's employment with the Company and based upon information to which he had access during the term of employment, whether or not conceived during regular working hours, through the use of Company time, material or facilities or otherwise. All such Developments shall be the sole and exclusive property of the Company, and upon request Taranto shall deliver to the Company all outlines, descriptions and other data and records relating to such Developments, and shall execute any documents deemed necessary by the Company to protect the Company's rights hereunder. Taranto agrees upon request to assist the Company to obtain United States or foreign letters patent and copyright registrations covering inventions and original works of authorship belonging to the Company hereunder. If the Company is unable because of Taranto's mental or physical incapacity to secure Taranto's signature to apply for or to pursue any application for any United States or 17 foreign letters patent or copyright registrations covering inventions and original works of authorship belonging to the Company hereunder, then Taranto hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as his agent and attorney in fact, to act for and in his behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by him. Taranto hereby waives and quitclaims to the Company any and all claims, of any nature whatsoever, that he may hereafter have for infringement of any patents or copyright resulting from any such application for letters patent or copyright registrations belonging to the Company hereunder. 9.6 Taranto agrees that the remedy at law for any breach or threatened breach of any covenant contained in this Section 9 will be inadequate and that the Company, in addition to such other remedies as may be available to it, in law or in equity, shall be entitled to injunctive relief without bond or other security. 9.7 Although the restrictions contained in Sections 9.1, 9.2, 9.3 and 9.4 above are considered by the parties hereto to be fair and reasonable in the circumstances, it is recognized that restrictions of such 18 nature may fail for technical reasons, and accordingly it is hereby agreed that if any of such restrictions shall be determined, by a court in a final determination not subject to appeal to be void or unenforceable for whatever reason, but would be valid if part of the wording thereof were deleted, or the period thereof reduced or the area dealt with thereby reduced in scope, the restrictions contained in Sections 9.1, 9.2, 9.3 and 9.4 shall be enforced to the maximum extent permitted by law, and the parties consent and agree that such scope or wording may be accordingly judicially modified in any proceeding brought to enforce such restrictions. 9.8 Notwithstanding that Taranto's employment hereunder may expire or be terminated as provided in Section 2 or Section 8 above, this Agreement shall continue in full force and effect insofar as is necessary to enforce the covenants and agreements of Taranto contained in this Section 9. 10. Arbitration. ------------ The parties shall use their best efforts and good will to settle all disputes by amicable negotiations. The Company and Taranto agree that, with the express exception of any dispute or controversy arising under Section 9 of this Agreement, any controversy or claim arising out of or 19 in any way relating to Taranto's employment with the Company, including, without limitation, any and all disputes concerning this Agreement and the termination of this Agreement that are not amicably resolved by negotiation, shall be settled by arbitration in New Jersey, or such other place agreed to by the parties, as follows: (a) Any such arbitration shall be heard by a single arbitrator. Except as the parties may otherwise agree, the arbitration, including the procedures for the selection of an arbitrator, shall be conducted in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association ("AAA"). (b) All attorneys' fees and costs of the arbitration shall in the first instance be borne by the respective party incurring such costs and fees, but the arbitrator shall have the discretion to award costs and/or attorneys' fees as he or she deems appropriate under the circumstances. The parties hereby expressly waive punitive damages, and under no circumstances shall an award contain any amounts that are in any way punitive in nature. (c) Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 20 (d) It is intended that controversies or claims submitted to arbitration under this Section 10 shall remain confidential, and to that end it is agreed by the parties that neither the facts disclosed in the arbitration, the issues arbitrated, nor the view or opinions of any persons concerning them, shall be disclosed to third persons at any time, except to the extent necessary to enforce an award or judgment or as required by law or in response to legal process or in connection with such arbitration. 11. Successors and Assigns. ----------------------- 11.1 ASSIGNMENT BY THE COMPANY AND HOLDINGS. This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company and Holdings, respectively. It is assignable by Company and Holdings to the purchaser or assignee of all or substantially all of the Company's or Holdings' assets. 11.2 ASSIGNMENT BY TARANTO. Taranto may not assign this Agreement or any part thereof; provided, however, that nothing herein shall preclude one or more beneficiaries of Taranto from receiving any amount that may be payable following occurrence of his legal incompetency or his death and shall not preclude the legal representative of his estate from receiving such amount or from assigning any 21 right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of the intestacy applicable to his estate. 12. Governing Law. -------------- This Agreement shall be deemed a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of New Jersey without reference to the principles of conflict of laws. 13. Entire Agreement. ----------------- This Agreement contains all the understandings and representations between the parties hereto pertaining to the subject matter hereof and supersedes all undertakings and agreements, whether oral or in writing, if any there be, previously entered into by them with respect thereto. 14. Amendment or Modification; Waiver. ---------------------------------- No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing, signed by Taranto and by a duly authorized officer of the Company. Except as otherwise specifically provided in this Agreement, no waiver by either party hereto of any breach by the other party of any condition or provision of the Agreement to be performed by such other 22 party shall be deemed a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time. 15. Notices. -------- Any notice to be given hereunder shall be in writing and delivered personally or sent by overnight mail, such as Federal Express, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: If to Company or Holdings: EVEREST REINSURANCE HOLDINGS, INC. Westgate Corporate Center 477 Martinsville Road P.O. Box 830 Liberty Corner, New Jersey 07938-0830 Attention: General Counsel If to Taranto: 160 Henry Street Brooklyn, New York 11201 16. Severability. ------------- In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 23 17. Withholding. ------------ Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to Taranto or his beneficiaries, including his estate, shall be subject to withholding and deductions as the Company may reasonably determine it should withhold or deduct pursuant to any applicable law or regulation. In lieu of withholding or deducting, such amounts in whole or in part, the Company may, in its sole discretion, accept other provision for payment as permitted by law, provided it is satisfied in its sole discretion that all requirements of law affecting its responsibilities to withhold such taxes have been satisfied. 18. Survivorship. ------------- The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 19. Headings. --------- Headings of the sections of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any section. 24 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the dates set forth below. EVEREST REINSURANCE HOLDINGS, INC. _____________________ By____________________________ Joseph V. Taranto Dated: July 15, 1998 Dated: July 15, 1998 EVEREST REINSURANCE COMPANY By____________________________ Dated: July 15, 1998 25 EX-10.22 3 CHANGE OF CONTROL AGREEMENT Exhibit 10.22 CHANGE OF CONTROL AGREEMENT --------------------------- This Agreement between and among EVEREST REINSURANCE COMPANY ("Company") and EVEREST REINSURANCE HOLDINGS, INC. ("Holdings") and Joseph V. Taranto ("Taranto") ("Agreement") is effective as of July 15, 1998. WHEREAS, the Board of Directors of the Company (the "Board") and Holdings ("Holdings Board") have determined it to be in the best interests of the Company, Holdings and their respective shareholders to enter into an agreement with Taranto that will provide Taranto with certain benefits in the event that there is a change in control of the Company or Holdings; and WHEREAS, Taranto is willing to enter into an agreement that will provide him with certain benefits in the event there is a change in control of the Company or Holdings; NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Change of Control ----------------- A. If within one year of a Material Change (as defined herein) Taranto terminates his employment with the Company for any reason or the Company terminates Taranto's employment for any reason other than for Due Cause (as defined herein): (a) all of Taranto's outstanding stock options granted under Holdings' stock option plans shall vest immediately, be automatically exercisable and remain exercisable for three months following the termination of his employment, notwithstanding any provision to the contrary in the applicable award agreement(s) between Taranto and Holdings; (b)Taranto shall receive within sixty (60) days of the termination of his employment with the Company a lump sum payment (the "Cash Payment") equal to the lesser of (i) 2.99 multiplied by Taranto's annual compensation for the most recent taxable year ending prior to the date of the Material Change less the value of Taranto's gross income in the most recent taxable year ending prior to the date of a Material Change attributable to Taranto's exercise of stock options, stock appreciation rights and other stock-based awards granted to Taranto by Holdings (or its predecessor), and (ii) 2.99 multiplied by Taranto's "annualized includible compensation for the base period" as that phrase is defined in Section 28OG(d) of the Internal Revenue Code of 1986, as amended ("Code"); (c) Taranto shall continue to be covered under the Company's medical and dental insurance plans for a period of three years from the date of termination to the same extent and under the same terms and conditions as active employees of the Company; and (d) Taranto shall receive "Special Retirement Benefits" as provided herein. 2 B. In the event that the value of benefits Taranto receives pursuant to this Agreement causes Taranto to receive a "Parachute Payment" within the meaning of Section 280G of the Code, the Company shall provide Taranto with written notice that his receipt of benefits hereunder would result in Taranto receiving a Parachute Payment. Upon receipt of such notice, Taranto shall, within ten (10) days, advise the Company in writing of the specific benefits he elects to have reduced by an amount necessary to reduce the value of such benefits to an amount that is one dollar less than the amount that would cause the value of the benefits to constitute a "Parachute Payment", and the benefits shall be reduced accordingly. If the Company does not receive notice from Taranto within this ten (10) day period, the Company shall automatically reduce the Cash Payment portion of the benefits provided hereunder. 3 C. For purposes of this Agreement, a Material Change means the occurrence of any of the following events: (i) A tender offer or exchange offer is made whereby the effect of such offer is to take over and control the affairs of the Company or Holdings, and such offer is consummated for the ownership of securities of the Company or Holdings representing twenty-five percent (25%) or more of the combined voting power of the Company's or Holdings' then outstanding voting securities. (ii) The Company or Holdings is merged or consolidated with another corporation and, as a result of such merger or consolidation, less than seventy-five percent (75%) of the outstanding voting securities of the surviving or resulting corporation shall then be owned in the aggregate by the former stockholders of the Company or Holdings other than affiliates within the meaning of the Securities Exchange Act of 1934 ("Exchange Act"). (iii) The Company or Holdings transfers substantially all of its assets to another corporation or entity that is not a wholly owned subsidiary of the Company or Holdings. (iv) Any person (as such term is used in Sections 3 (a) (9) and 13 (d) (3) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company or Holdings representing twenty-five 4 percent (25%) or more of the combined voting power of the Company's or Holdings' then outstanding securities, and the effect of such ownership is to take over and control the affairs of the Company or Holdings. (v) As the result of a tender offer, merger, consolidation, sale of assets, or contested election, or any combination of such transactions, the persons who were members of the Board or the Holdings Board immediately before this transaction, cease to constitute at least a majority thereof. D. For purposes of this Agreement, Special Retirement Benefits means the additional retirement benefits necessary (if any) so that the total retirement benefits Taranto receives will equal the retirement benefits he would have received had he continued in the employ of the Company for three years following his termination (or until his normal retirement date, whichever is earlier). Special Retirement Benefits will include all ancillary benefits, such as early retirement and survivor rights and benefits available at retirement, as well as benefits (if any) under the Everest Reinsurance Retirement Plan and any supplemental retirement plans adopted by the Company, or any successor or substitute plan or plans ("the Plans"). If Taranto's credited service with the Company plus three (3) years would result in vested benefits and/or eligibility for ancillary benefits or additional benefits under the Plans, the amount payable to Taranto or his beneficiaries shall equal the excess of the amount specified in paragraph (i) over that in paragraph (ii) below: 5 (i) the total retirement benefits that would be paid to Taranto or his beneficiaries, if the three (3) years (or the period to his normal retirement date, if less) following his termination are added to his credited service under the Plans and his final average compensation is the same as his actual average compensation, including the Cash Payment as compensation for services rendered to the Company in the year of his termination; (ii) the total retirement benefits payable to Taranto or his beneficiaries under the Plans. All Special Retirement Benefits are provided on an unfunded basis and are not intended to meet the qualification requirements of Section 401 of the Code. All Special Retirement Benefits shall be payable solely from the general assets of the Company and shall be paid at the same times as retirement benefits under the Plans are payable, in accordance with the payment terms of such Plans. E. For purposes of this Agreement, Due Cause means (a) repeated and gross negligence in fulfillment of, or repeated failure of Taranto to fulfill his material obligations as an employee of the Company, in either event after written notice thereof; (b) material willful misconduct by Taranto in respect of his obligations as an employee of the Company; (c) conviction of any felony or any crime of moral turpitude by Taranto; or (d) a material breach in trust committed in willful or 6 reckless disregard of the interests of the Company or Holdings or undertaken for personal gain by Taranto. 2. Special Reimbursement --------------------- In the event that Taranto's employment terminates after a Material Change and he is assessed a tax pursuant to Section 4999 of the Code (the "Parachute Tax"), the Company shall immediately pay Taranto that additional amount of money (the "Gross-Up Payment") which will put Taranto in the same net after tax position had no Parachute Tax been incurred. The Gross-Up Payment shall be sufficient in amount to cover any income or excise tax on the Gross-Up Payment itself. In the event that the Parachute Tax is ultimately determined to exceed the amount taken into account in computing the Gross-Up Payment at the time of the termination of Taranto's employment (including by reason of any payment the existence or amount of which could not be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess at the time that the amount of such excess is finally determined. Taranto and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of any such subsequent liability for the Parachute Tax. 3. General ------- 7 A. The Company's and Holdings' obligations to pay Taranto the compensation and other benefits specified herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or Holdings may have against him or anyone else. In no event shall Taranto be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to him under this Agreement. All amounts payable and benefits provided by the Company and Holdings hereunder shall be paid or provided without notice or demand. Each and every payment made hereunder by the Company and Holdings shall be final and the Company and Holdings will not seek to recover all or any part of any such payment from Taranto or from whoever may be entitled thereto, for any reason whatsoever. B. This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company and Holdings, respectively. This Agreement shall inure to the benefit of and shall be binding upon Taranto and his estate, but neither this Agreement nor any rights arising hereunder may be assigned by Taranto. C. In the event that any provision or portion of this Agreement shall shall be determined to be invalid or unenforceable for any reason, the remaining provisions 8 or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. D. Anything to the contrary notwithstanding, all payments required to be made by the Company and Holdings hereunder to Taranto or his beneficiaries, including his estate, shall be subject to withholding and deductions as the Company and Holdings may reasonable determine should be withheld or deducted pursuant to any applicable law or regulations. E. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of New Jersey. F. This Agreement shall terminate on the earliest of: (i) one year following a Material Change; (ii) termination by Taranto of his employment with the Company under circumstances not following a Material Change; (iii) the Company's termination of Taranto's employment for Due Cause; or (iv) December 31, 2001, or any date thereafter, provided that sixty days prior written notice of termination of this Agreement is given to Taranto by the Company and Holdings, and further provided that such written notice of termination shall not be effective during any period of time when the Board or Holdings' Board is aware of any circumstance which could reasonably be expected to result in a Material Change. Termination of this Agreement shall not relieve the Company and Holdings from 9 their respective obligations to Taranto under this Agreement relating to a Material Change which occurs prior to such termination. G. In the event Taranto institutes litigation to obtain or enforce any right or benefit to which he is entitled under this Agreement, the Company and Holdings agree to pay as incurred all legal fees and expenses reasonably incurred by Taranto; provided, however, that Taranto agrees to repay all legal fees and expenses paid to him by the Company and Holdings in the event that it is determined by a judgment of a court of competent jurisdiction that the Company has established that, under all the facts and circumstances, there was no reasonable basis for Taranto's litigation. The Company and Holdings agree to pay as incurred, to the fullest extent permitted by law, all legal fees and expenses which Taranto may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, Holdings or third parties of the validity or enforceability of, or liability under, any provision of this Agreement. In addition, the Company and Holdings agree to pay pre-judgment interest on any money judgment obtained by Taranto and to pay interest on any delayed payment calculated at the prime rate of interest as published in the Wall Street Journal in effect from time to time, from the date that payment to him should have been made in accordance with the provisions of this Agreement. 10 H. Any notice to be given under this Agreement shall be in writing and delivered personally or sent by over-night mail (such as Federal Express), addressed to the party concerned at the address indicated below or to such other address as such party may subsequently provide in writing: If to the Company or Holdings: Everest Reinsurance Company 477 Martinsville Road P.O. Box 830 Liberty Corner, NJ 07938-0830 (908) 604-3170 Attn: General Counsel If to Taranto: 160 Henry Street Brooklyn, New York 11201 I. Nothing contained herein shall give Taranto any right to any employee benefit upon termination of employment with the Company, except as specifically provided herein, required by law or provided by the terms of another employee benefit plan document relating to the treatment of former employees generally. Pursuant to the terms of the Everest Reinsurance Company Severance Plan for United States Employees Taranto shall not be eligible for benefits under such Severance Plan. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the dates set forth below. EVEREST REINSURANCE HOLDINGS, INC. ______________________ By:___________________________ Joseph V. Taranto Dated: Dated: 11 EVEREST REINSURANCE COMPANY By:___________________________ Dated: 12 EX-10.23 4 CREDIT LINE EXTENSION EXHIBIT 10.23 FIRST UNION NATIONAL BANK NC0735 Capital Markets Group 301 South College Street Charlotte, North Carolina 28288-0735 May 20, 1998 Everest Reinsurance Company 477 Martinsville Road P.O. Box 830 Liberty Comer, New Jersey 07938-0830 Attention: Stephen Limauro, Vice President and Comptroller Re: Request for Extension of Maturity Date Dear Steve: Pursuant to that certain Credit Agreement between Everest Reinsurance Holdings, Inc. ("Everest") and First Union National Bank ("Bank") dated as of June 16, 1997 (the "Credit Agreement"), the Bank extends Everest a $50,000,000.00 Revolving Credit Facility which matures on the Maturity Date (as defined in the Credit Agreement), i.e., June 15, 1998. Pursuant to Section 2.16 of the Agreement, Everest has requested that the Bank extend the initial Maturity Date by 364 calendar days to June 12, 1999. The Bank is willing to extend the Maturity Date to June 14, 1999, provided, however, that Everest and the Bank agree to the following: 1. All of the terms and conditions of the Credit Agreement remain in full force and effect without amendment except that the Maturity Date as extended is now June 12, 1999; 2. Everest certifies (a) that each of the representations and warranties of Everest contained in ARTICLE IV of the Credit Agreement and in the other Credit Documents are true and correct, on the date hereof with the same effect, as though made on and as of such date (except where such representation or warranty speaks as of specified date) and (b) that no default or Event of Default has occurred and is continuing on the date hereof, and 3. In the event, pursuant to Section 2.16, Everest requests a further extension of the Maturity Date, the Bank shall, in addition to all other conditions which the Credit Agreement may provide, condition such extension upon Everest Re (as defined in the Credit Agreement) maintaining for the period requested a larger Statutory Surplus (as defined in the Credit Agreement), and shall require that the Credit Agreement's Section 6.2 be amended accordingly. Presently the Bank is considering a Statutory Surplus which would be the greater of $575,000,000 or seventy-five (75%) percent of the Statutory Surplus shown on Everest Re's latest Annual Statement (as defined in the Credit Agreement) available for consideration at the time the Maturity Date is requested to be extended. Please indicate Everest's acknowledgment of and agreement herewith by executing and dating the enclosed copy of this letter as indicated below and returning it to me not later than June 30, 1998. Sincerely, FIRST UNION NATIONAL BANK By: /S/ GAIL GOLIGHTLY ------------------ Gail Golightly Senior Vice President Acknowledged and Agreed this 27TH day of MAY, 1998 EVEREST REINSURANCE HOLDINGS, INC. By:/S/ STEPHEN L. LIMAURO ---------------------- Stephen L. Limauro Vice President and Comptroller EX-11.1 5 COMPUTATION OF EARNINGS PER SHARE Exhibit 11.1 EVEREST REINSURANCE HOLDINGS, INC. COMPUTATION OF EARNINGS PER SHARE FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (Dollars in thousands)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net Income (Numerator) $ 43,544 $ 44,338 $ 83,345 $ 78,802 ============ ============ ============ ============ Weighted average common and effect of dilutive shares used in the computation of net income per share: Average shares outstanding - basic (denominator) 50,479,901 50,469,367 50,480,627 50,479,879 Effect of dilutive shares: Options outstanding 310,130 267,545 313,928 249,480 Options exercised 27 330 283 495 Options cancelled 9,210 1,138 4,605 1,284 ------------ ------------ ------------ ------------ Average share outstanding - diluted (denominator) 50,799,268 50,738,380 50,799,443 50,731,138 Net Income per common share: Basic $ 0.86 $ 0.88 $ 1.65 $ 1.56 Diluted 0.86 0.87 1.64 1.55
EX-27 6 FDS FOR EVEREST REINSURANCE HOLDINGS, INC. 10-Q
7 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 4,013,446 0 0 177,418 0 0 4,295,118 48,343 670,601 78,422 5,732,410 3,486,060 329,643 0 0 0 0 0 508 1,398,883 5,732,410 506,062 122,538 2,506 2,195 374,144 3,753 146,369 109,035 25,690 83,345 0 0 0 83,345 1.65 1.64 0 0 0 0 0 0 0
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