<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LASALLE RE HOLDINGS LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA 6719 NOT APPLICABLE
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL IDENTIFICATION NO.)
CLASSIFICATION CODE NUMBER)
25 CHURCH STREET CT CORPORATION SYSTEM
P.O. BOX HM 1502 1633 BROADWAY
HAMILTON HM FX BERMUDA NEW YORK, NEW YORK 10019
(441) 292-3339 (212) 664-1666
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF NUMBER, INCLUDING AREA CODE, OF AGENT
REGISTRANT'S FOR SERVICE)
PRINCIPAL EXECUTIVE OFFICES)
COPIES TO:
RICHARD WARREN SHEPRO ALEXANDER M. DYE
MAYER, BROWN & PLATT LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
190 SOUTH LASALLE STREET 125 WEST 55TH STREET
CHICAGO, ILLINOIS 60603-3441 NEW YORK, NEW YORK 10019-5389
(312) 782-0600 (212) 424-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED
OF SECURITIES MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
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<S> <C> <C>
Common Shares, par value $1.00
per share................... $97,750,000 $29,622
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes Common Shares subject to an over-allotment option granted by the
Selling Shareholders to the U.S. Underwriters.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus, one to be used
in connection with a United States and Canadian offering (the "U.S.
Prospectus") and one to be used in a concurrent international offering outside
the United States and Canada (the "International Prospectus"). The U.S.
Prospectus and the International Prospectus are identical except for the front
and back cover pages. The form of U.S. Prospectus included herein is followed
by the front cover page and the back cover page to be used in the
International Prospectus. Each of the pages for the International Prospectus
included herein is labeled "Alternate Page."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 25, 1996
PROSPECTUS
SHARES
LASALLE RE HOLDINGS LIMITED
COMMON SHARES
--------
Of the common shares, par value $1.00 per share (the "Common Shares"),
of LaSalle Re Holdings Limited (the "Company") offered hereby, Common
Shares are being offered in the United States and Canada and Common
Shares are being offered in a concurrent international offering outside the
United States and Canada (collectively, the "Offerings"). The public offering
price and the aggregate underwriting discount per Common Share will be
identical for each of the Offerings. See "Underwriting."
All of the Common Shares offered hereby are being offered by certain
shareholders of the Company (the "Selling Shareholders"). The Company will not
receive any proceeds from the sale of the Common Shares. See "Use of Proceeds."
The Company is a holding company with no operations or significant assets
other than its ownership of a majority of the capital stock of LaSalle Re
Limited ("LaSalle Re"). Upon completion of the Offerings, certain founding
shareholders of the Company will own approximately % of the Common Shares and
approximately % of the capital stock of LaSalle Re ( % and % if the U.S.
Underwriters' over-allotment option is exercised in full). As a result, such
shareholders, if they act in concert, will be able to control most fundamental
decisions affecting the Company, including the election of directors and the
merger or sale of the Company. See "Risk Factors--Control by Founding
Shareholders," "Certain Transactions," "Principal and Selling Shareholders" and
"Description of Capital Stock."
The Common Shares are quoted on the Nasdaq National Market under the symbol
"LSREF." On October 23, 1996, the last reported sale price of the Common Shares
on the Nasdaq National Market was $26.625 per share. See "Price Range of Common
Shares."
SEE "RISK FACTORS" ON PAGE 11 FOR A DESCRIPTION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON SHARES.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS (1) SHAREHOLDERS (2)
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<S> <C> <C> <C>
Per Common Share................... $ $ $
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Total (3).......................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the U.S. Underwriters and the Managers
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offerings estimated at $ payable by
the Company.
(3) The Selling Shareholders have granted the U.S. Underwriters a 30-day option
to purchase up to additional Common Shares on the same terms as
set forth above to cover over-allotments, if any. If the U.S. Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Selling Shareholders will be
$ , $ and $ , respectively. See "Underwriting."
--------
The Common Shares are being offered by the several U.S. Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the Common Shares
offered hereby will be available for delivery on or about , 1996
at the offices of Smith Barney Inc., 388 Greenwich Street, New York, New York
10013.
--------
SMITH BARNEY INC.
LAZARD FRERES & CO. LLC
MORGAN STANLEY & CO.
INCORPORATED
, 1996
<PAGE>
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
DURING THE OFFERINGS, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR
THE ACCOUNTS OF OTHERS IN THE COMMON SHARES PURSUANT TO EXCEPTIONS FOR RULES
10b-6, 10b-7 AND 10b-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
IN CONNECTION WITH THE OFFERINGS, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET-
MAKING TRANSACTIONS IN THE COMMON SHARES ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY
OF THIS DOCUMENT. THE BUYER IN NORTH CAROLINA UNDERSTANDS THAT NEITHER THE
COMPANY NOR ITS SUBSIDIARIES ARE LICENSED IN NORTH CAROLINA PURSUANT TO
CHAPTER 58 OF THE NORTH CAROLINA GENERAL STATUTES, NOR COULD THEY MEET THE
BASIC ADMISSIONS REQUIREMENTS IMPOSED BY SUCH CHAPTER AT THE PRESENT TIME.
CONSENT UNDER THE EXCHANGE CONTROL ACT 1972 (AND REGULATIONS THEREUNDER) HAS
BEEN OBTAINED FROM THE BERMUDA MONETARY AUTHORITY FOR THE ISSUE OF THE SHARES
BEING OFFERED PURSUANT TO THE OFFERINGS. IN ADDITION, A COPY OF THIS DOCUMENT
HAS BEEN DELIVERED TO THE REGISTRAR OF COMPANIES IN BERMUDA FOR FILING
PURSUANT TO THE COMPANIES ACT 1981 OF BERMUDA. IN GIVING SUCH CONSENT AND IN
ACCEPTING THIS PROSPECTUS FOR FILING, THE BERMUDA MONETARY AUTHORITY AND THE
REGISTRAR OF COMPANIES IN BERMUDA ACCEPT NO RESPONSIBILITY FOR THE FINANCIAL
SOUNDNESS OF ANY PROPOSAL OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS MADE
OR OPINIONS EXPRESSED HEREIN.
THESE SECURITIES MAY NOT BE OFFERED OR SOLD TO PERSONS IN THE UNITED KINGDOM
EXCEPT TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING,
HOLDING, MANAGING OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE
PURPOSES OF THEIR BUSINESSES, OR OTHERWISE IN CIRCUMSTANCES WHICH DO NOT
CONSTITUTE AN OFFER TO THE PUBLIC IN THE UNITED KINGDOM WITHIN THE MEANING OF
THE PUBLIC OFFERS OF SECURITIES REGULATIONS 1995. ALL APPLICABLE PROVISIONS OF
THE FINANCIAL SERVICES ACT 1986 OF THE UNITED KINGDOM MUST BE COMPLIED WITH IN
RELATION TO ANYTHING DONE IN RELATION TO THESE SECURITIES IN, FROM OR
OTHERWISE INVOLVING THE UNITED KINGDOM. THIS DOCUMENT MAY NOT BE ISSUED OR
PASSED ON TO ANY PERSON IN THE UNITED KINGDOM UNLESS THAT PERSON IS OF A KIND
DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT 1986 (INVESTMENT
ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996 OR IS A PERSON TO WHOM THIS DOCUMENT
MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON.
2
<PAGE>
In this Prospectus, references to "dollar" and "$" are to United States
currency, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
ENFORCEMENT OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS
The Company is a Bermuda company and certain of its officers and directors
are residents of various jurisdictions outside the United States. All or a
substantial portion of the assets of the Company and such officers and
directors, at any one time, are or may be located in jurisdictions outside the
United States. Therefore, it may be difficult for investors to effect service
of process within the United States on any of such persons or to enforce
against them judgments of United States courts predicated upon civil liability
provisions of the United States federal securities laws. Notwithstanding the
foregoing, the Company has appointed CT Corporation System, 1633 Broadway, New
York, New York 10019, its agent to receive service of process with respect to
actions against it arising out of or in connection with the United States
federal securities laws or out of violations of such laws in any federal or
state court in the United States relating to the transactions covered by this
Prospectus. The Company has been advised by Conyers, Dill & Pearman, its
Bermuda counsel, that there is a doubt as to whether the courts of Bermuda
would enforce (i) judgments of United States courts obtained in actions
against such persons or the Company predicated upon the civil liability
provisions of the United States federal securities laws and (ii) original
actions brought in Bermuda against such persons or the Company predicated
solely upon United States federal securities laws. There is no treaty in
effect between the United States and Bermuda providing for such enforcement,
and there are grounds upon which Bermuda courts may not enforce judgments of
United States courts. Certain remedies available under the United States
federal securities laws would not be allowed in Bermuda courts as contrary to
that jurisdiction's public policy.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the United States
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the United States Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Company with the
Commission can be inspected without charge and copied, upon payment of
prescribed rates, at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Seven
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2551. Copies of
such material and any part thereof are also available by mail from the Public
Reference Section of the Commission, at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Copies of such material are
also available and can be copied at the offices of the Nasdaq National Market,
1735 K Street, Washington, D.C. 20006. In addition, the Commission maintains a
Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission, including the Company.
The Company has filed with the Commission a registration statement (herein,
together with all amendments, exhibits and schedules thereto, referred to as
the "Registration Statement") under the United States Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Common Shares offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with rules and regulations of the
Commission. For further information with respect to the Company and the Common
Shares, reference is hereby made to the Registration Statement. Statements
made in this Prospectus concerning the contents of any contract, agreement or
other document are not necessarily complete. With respect to each such
contract, agreement or other document filed with the Commission as an exhibit
to the Registration Statement, reference is made to such exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company currently will be treated as a domestic corporation for purposes
of certain requirements of the Exchange Act, including the proxy rules,
because the Company currently does not fit the definition of a
3
<PAGE>
"foreign private issuer" within the meaning of Rule 3b-4 under the Exchange
Act. Pursuant to current Rule 3b-4, a "foreign private issuer" is any foreign
issuer other than a foreign government, except an issuer meeting the following
conditions: (i) more than 50% of the outstanding voting securities are held of
record by residents of the United States and (ii) any of the following: (1)
the majority of the executive officers or directors are United States citizens
or residents, (2) more than 50% of the assets are located in the United States
or (3) the business is administered principally in the United States. By
virtue of (i) and (ii)(1), the Company currently is not and does not expect
that it will become a "foreign private issuer," although there is no assurance
of such. If the Company were to become a "foreign private issuer," it would be
exempted from the proxy and short-swing profit rules under Sections 14 and 16
of the Exchange Act and, for reporting purposes under the Exchange Act, would
be subjected to rules applicable to "foreign private issuers."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Forward-looking statements are statements other than historical
information or statements of current condition. Some forward-looking
statements may be identified by use of terms such as "believes,"
"anticipates," "intends" or "expects." The forward-looking statements are
generally located in the material set forth under the headings "Prospectus
Summary," "Risk Factors," "Dividend Policy," "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and "Business,"
but may be found in other locations as well. These forward-looking statements
relate to the plans and objectives of the Company for future operations,
including the Company's objective to seek average annualized returns on
shareholders' equity of 20% to 25% over time and the Company's policy to
distribute as dividends in each fiscal year 50% to 60% of the Company's net
income from the prior fiscal year if any, on a quarterly basis. In light of
the risks and uncertainties inherent in all future projections, including but
not limited to those set forth under the heading "Risk Factors," the inclusion
of forward-looking statements in this Prospectus should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. Many factors could cause the Company's actual
results to differ materially from those in the forward-looking statements,
including the following: (i) the occurrence of catastrophic events with a
frequency or severity exceeding the Company's estimates; (ii) a decrease in
the level of demand for property catastrophe reinsurance; (iii) an increase in
the supply of property catastrophe reinsurance as a result of additional
capital provided by recent or future market entrants or by existing property
catastrophe reinsurers; (iv) increased competitive pressure from current
reinsurers and future market entrants; (v) a competitive disadvantage
resulting from certain of the Company's principal competitors having higher
financial ratings than the Company, any lowering or loss of one of the
Company's financial ratings in the future or the Company's non-admitted status
in United States jurisdictions; (vi) a major decrease in the cession of
business from CNA Financial Corporation (together with its affiliates, "CNA")
to the Company; (vii) loss of the services of any of the Company's executive
officers; (viii) the occurrence of a single catastrophic event affecting
multiple geographic zones; (ix) actual loss expenses exceeding the Company's
loss reserve, which is necessarily based on actuarial and statistical
projections of ultimate loss expenses; (x) changing rates of inflation and
other economic conditions, which could have an adverse impact on loss
payments, investment returns and premiums; (xi) losses due to foreign currency
exchange rate fluctuations or the failure of a counterparty to perform under
any of the Company's foreign exchange contracts; (xii) the termination of any
of the Service Agreements, particularly the Underwriting Services Agreement
and the Administrative Services Agreement; (xiii) the passage of federal or
state legislation subjecting the Company to supervision or regulation in the
United States; (xiv) challenges by insurance regulators in the United States
or the United Kingdom to the Company's claim of exemption from insurance
regulation under current laws; (xv) a contention by the United States Internal
Revenue Service (the "IRS") that the Company or LaSalle Re is engaged in the
conduct of a trade or business within the U.S.; and (xvi) sales of substantial
amounts of the Common Shares in the public markets following the Offerings, or
the perception that such sales could occur. The foregoing review of important
factors should not be construed as exhaustive and should be read in
conjunction with other cautionary statements that are included in this
Prospectus. The Company undertakes no obligation to release publicly the
results of any future revisions it may make to forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, all financial information presented
herein has been prepared in accordance with U.S. generally accepted accounting
principles ("GAAP") and the information contained in this Prospectus assumes
that the Underwriters' over-allotment option has not been exercised. Certain
terms used herein are defined in "Glossary of Selected Insurance and
Reinsurance Terms." Unless the context otherwise requires, references herein to
the "Company" include LaSalle Re Holdings Limited ("Holdings"), the issuer of
the Common Shares offered hereby, LaSalle Re Limited ("LaSalle Re"), the
Company's insurance subsidiary, LaSalle Re (Services) Limited ("LaSalle Re
Services"), the Company's London representative office, and LaSalle Re
Corporate Capital Ltd. ("LaSalle Re Capital"), an investment holding company.
THE COMPANY
OVERVIEW
The Company writes high severity, low frequency reinsurance on a worldwide
basis through its subsidiary, LaSalle Re. The Company primarily writes property
catastrophe reinsurance and also writes selected other lines of reinsurance
when it believes that market conditions are favorable. These lines currently
include property risk excess, property pro rata treaty, casualty clash, marine,
crop hail, aviation and satellite. The Company believes that these other lines
will constitute a growing portion of the Company's total portfolio of
reinsurance business, helping to moderate the volatility of its property
catastrophe reinsurance exposures.
The Company has been successful in attaining a selective and geographically
diverse portfolio of property catastrophe reinsurance risks. In the year ended
September 30, 1996, 41.7% of the Company's net premiums written represented
U.S.-based risks, 11.6% represented continental Europe-based risks, 8.6%
represented U.K.-based risks and 36.2% represented risks located in a variety
of other geographic zones elsewhere in the world. As a result of long-term
relationships between the Company's management and certain clients and brokers,
the Company has developed a strong base of regional business in discrete zones
within the U.S. This business assists the Company in diversifying its U.S.-
based risks and makes more efficient use of its capital by limiting multi-zone
exposures. In the year ended September 30, 1996, this regional business
represented a significant component of the Company's U.S.-based net premiums
written.
At September 30, 1996, the Company had total shareholders' equity and
minority interest (together, "Combined Equity") of $486.9 million compared to
$400.8 million at September 30, 1995. It achieved annualized returns on average
Combined Equity of 29.2% and 26.6%, respectively, and combined ratios of 46.0%
and 52.6%, respectively, for the years ended September 30, 1996 and 1995. In
addition, its loss and loss expense ratios were 26.4% and 35.5% for the same
periods. The Company wrote net premiums of $190.2 million and $201.9 million,
respectively, for the years ended September 30, 1996 and 1995. There can be no
assurance that the Company will achieve similar results in the future.
CAPITAL MANAGEMENT STRATEGY
The Company has adopted a capital management strategy focused on balancing
capital levels with aggregate exposures while seeking to achieve average
annualized returns on shareholders' equity of 20% to 25% over time. Consistent
with this strategy, in October 1996, the Company adopted a dividend policy
pursuant to which it intends to distribute in each fiscal year 50% to 60% of
the Company's net income from the prior fiscal year, if any, on a quarterly
basis. In 1997, the Company expects to distribute 50% of its fiscal 1996 net
income. Based on the Company's net income for the year ended September 30,
1996, the Company currently expects to pay a quarterly dividend of $0.71 per
share in January 1997. See "Dividend Policy." In support of its dividend policy
and to protect its capital base, the Company currently is negotiating the
purchase of non-traditional, multi-year
5
<PAGE>
reinsurance protection to reduce earnings volatility resulting from one or more
severe catastrophic events over a period of years. There can be no assurance
that the Company will be able to obtain such reinsurance on terms acceptable to
it.
As part of its capital management strategy, the Company also intends to
repurchase up to $50 million of Common Shares in open market or privately
negotiated transactions from time to time depending on market conditions and
the Company's capital and liquidity requirements. The Company expects this
share repurchase program to commence early in calendar year 1997.
The Company believes that its capital management strategy is attractive to
investors, while its level of capital and surplus offers financial security to
cedents and demonstrates to brokers and clients a commitment to property
catastrophe reinsurance. The Company's ability to implement its capital
management strategy in the future will depend on various factors, some of which
are beyond its control, and is subject to change at the discretion of the
Company's Board of Directors (the "Board"). See "Risk Factors" and "Dividend
Policy."
OPERATING STRATEGIES
The Company pursues the following operating strategies which, in conjunction
with its capital management strategy, are intended to maximize return on
shareholders' equity:
Focus on Property Catastrophe Reinsurance. The Company concentrates on
writing property catastrophe reinsurance of risks located throughout the world.
For the years ended September 30, 1996 and 1995, the Company derived 86.5% and
88.4%, respectively, of its net premiums written from property catastrophe
reinsurance. The high level of severity and frequency of property catastrophe
losses from 1987 through 1992 precipitated a general increase in rates and
attachment points in this line of reinsurance. Although rates have declined
from their highs in 1993 and 1994, the Company believes that property
catastrophe reinsurance can still be significantly profitable for a reinsurer,
such as the Company, that has the financial strength, flexibility and
responsiveness needed to attract quality business and the high level of
technical underwriting judgment and skill necessary to price risks
appropriately.
Selectively Write Other Lines of Business. While property catastrophe
reinsurance is the Company's primary focus, the Company also seeks to take
advantage of pricing opportunities that may occur in other lines of
reinsurance. These lines generally are characterized by a relatively short
period between the collection of premium and the notification of loss. These
lines currently include property risk excess and pro rata treaty insurance,
which constituted 5.1% and 2.6% of the Company's net premiums written in the
years ended September 30, 1996 and 1995, respectively. The Company also writes
casualty clash, marine, crop hail, aviation and satellite reinsurance. For the
years ended September 30, 1996 and 1995, these coverages represented 6.5% and
6.0%, respectively, of the Company's net premiums written. The Company believes
that writing these types of reinsurance enhances the utilization of capital
because these lines generally do not create additional aggregate exposure for
the Company. In addition, the Company has formed LaSalle Re Capital to provide
capital support to selected Lloyd's of London ("Lloyd's") syndicates commencing
in January 1997. See "Business--Reinsurance Products."
Utilize a Disciplined Underwriting Approach. Underwriting decisions are made
following analysis of each reinsurance contract based on the expected
incremental return on equity in relation to the Company's overall portfolio of
reinsurance contracts. To assess its property catastrophe risks, the Company
uses a variety of underwriting techniques, including simulation models,
exposure ratings and experience ratings. The Company has developed its
proprietary L-CAM(TM) catastrophe analysis model to assess its risks in the
U.S. property catastrophe market. The Company controls and monitors its
aggregate exposures on a real-time basis using computer-based rating and
control systems. The Company is highly selective in accepting risks, extending
coverage on approximately only 29.1% and 24.4% of the contract submissions it
received in the years ended September 30, 1996 and 1995, respectively. See
"Business--Underwriting."
6
<PAGE>
Maintain and Develop Long-Term Relationships with Clients and Brokers. The
Company seeks to maintain and develop long-term relationships with its clients
and brokers by providing a high level of service. The Company promptly responds
to underwriting submissions, designs customized programs, offers lead terms
when circumstances warrant and pays valid claims within an average of five
days. The Company retains a substantial portion of its clients from year to
year. Retention of clients permits the Company to use its experience regarding
a client's underwriting practices and risk management systems to underwrite its
own business with greater precision. In addition, the Company's relationships
with brokers permit it to obtain business and monitor developments in various
lines of reinsurance in order to increase its writings when market conditions
in those lines are favorable. See "Business--Marketing."
INDUSTRY TRENDS
The Company believes that an imbalance between the supply of and demand for
property catastrophe reinsurance existed in 1993 and resulted in an increase in
premiums from pre-1993 levels. As a result of the increased property
catastrophe reinsurance capacity since 1993, the Company believes that supply
and demand in the property catastrophe reinsurance market became more stable in
1994 and have remained relatively stable in succeeding years. Based on the
Company's marketing efforts, reinsurance contract submissions and publicly
available information, the Company believes that property catastrophe rates
generally remained at the substantially increased 1993 levels in 1994 and
decreased somewhat in 1995 from 1994 levels. On these same bases, the Company
believes that rates in 1996 have decreased from levels in 1995. In particular,
rates have declined significantly in areas, such as Japan and Europe, where
there has been favorable loss experience, while in the U.S. market, where the
level of property catastrophe losses has generally been higher than in
international markets in recent years, rates have decreased to a lesser degree.
Notwithstanding these rate decreases, the Company believes that current rates
substantially exceed 1992 levels. If and while favorable loss experience
continues and reinsurance capacity does not diminish, the Company expects
further downward pressure on rates during 1997. See "Risk Factors--Business
Considerations" and "Business--Industry Trends."
FORMATION
Aon Corporation (together with its affiliates, "Aon"), CNA, Corporate
Partners, L.P. (together with its related parties, "Corporate Partners") and
certain other investors (together, the "Founding Shareholders") formed LaSalle
Re in Bermuda in October 1993 to take advantage of the supply and demand
imbalance that they believed existed in the property catastrophe reinsurance
market. Affiliates of Aon and CNA provide certain underwriting, investment
management and administrative services to the Company pursuant to service
agreements. See "Certain Transactions." Holdings was incorporated in Bermuda in
September 1995 as a holding company in connection with the Company's
recapitalization and initial public offering. Holdings owns 100% of the
outstanding voting stock of LaSalle Re, which upon completion of the Offerings
will constitute approximately % of the outstanding capital stock of LaSalle
Re. Certain Founding Shareholders hold exchangeable non-voting shares of
LaSalle Re (the "Exchangeable Non-Voting Shares"), which shares are
exchangeable, at the option of the holder, for Common Shares of the Company on
a one-for-one basis, unless the Board determines such exchange may cause actual
or potential adverse tax consequences to the Company or any shareholder. See
"Description of Capital Stock--Capital Stock of LaSalle Re." Upon completion of
the Offerings, the Founding Shareholders will own approximately % of the
Common Shares and approximately % of the capital stock of LaSalle Re ( % and %
if the U.S. Underwriters' over-allotment option is exercised in full). See
"Principal and Selling Shareholders."
----------------
The Company's principal executive offices are located at 25 Church Street,
Hamilton HM FX Bermuda, and its phone number is (441) 292-3339.
RISK FACTORS
Prospective investors in the Common Shares offered hereby should consider
carefully the matters set forth in "Risk Factors," as well as the other
information set forth in this Prospectus.
7
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Common Shares sold in the
Offerings:
U.S. Offering...................
International Offering..........
Total(1)......................
Common Shares to be Outstanding
after the Offerings(2)...........
Price Per Common Share............ $
Use of Proceeds................... The Company will not receive any of the
proceeds from the sale of the Common Shares
offered hereby. See "Use of Proceeds."
Dividends......................... In October 1996, the Company adopted a
dividend policy pursuant to which it
intends to distribute in each fiscal year
50% to 60% of the Company's net income from
the prior fiscal year, if any. In 1997, the
Company expects to distribute 50% of its
fiscal 1996 net income. The Company plans
to continue to pay dividends on a quarterly
basis in January, April, July and October
of each year. Based on the Company's net
income for the year ended September 30,
1996, the Company currently expects to pay
a quarterly dividend of $0.71 per share in
January 1997. The actual amount and timing
of any future dividends, including the
proposed dividend payable in January 1997,
is at the discretion of the Board and is
dependent upon the profits and financial
requirements of the Company and other
factors, including certain legal,
regulatory and other restrictions. See
"Dividend Policy."
Nasdaq National Market Symbol..... LSREF
</TABLE>
- --------
(1) Excludes up to Common Shares that may be sold if the over-allotment
option granted by the Selling Shareholders to the U.S. Underwriters is
exercised. See "Underwriting."
(2) Includes 8,329,290 Exchangeable Non-Voting Shares that are held by certain
Founding Shareholders and are exchangeable, at the option of the holder,
for Common Shares on a one-for-one basis, unless the Board determines that
such exchange may cause actual or potential adverse tax consequences to the
Company or any shareholder. See "Certain Transactions--Formation and
Recapitalization," "Description of Capital Stock" and "Certain Tax
Considerations." Excludes 2,840,220 Common Shares reserved for issuance
upon exercise of options issued in connection with the formation of LaSalle
Re, granted to certain executive officers and issuable in connection with
outstanding stock appreciation rights. See "Management--Employment
Agreements" and "--Long-Term Incentive Plan" and "Certain Transactions--
Formation and Recapitalization."
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The historical consolidated financial data presented below as of and for each
of the periods ended September 30, 1996, 1995 and 1994 were derived from the
Company's audited consolidated financial statements included elsewhere in this
Prospectus. The summary consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
notes appearing elsewhere in this Prospectus and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED SEPTEMBER 30, OCTOBER 26, 1993
-------------------------- TO SEPTEMBER 30,
1996 1995(1) 1994(1)
------------ ------------ ----------------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA
Net premiums written.............. $ 190,151 $ 201,916 $ 133,327
Net premiums earned............... 195,141 170,370 76,989
Net investment income (net of
realized losses)................. 26,428 25,066 15,739
Loss and loss expenses incurred... 51,477 60,397 49,801
Underwriting expenses............. 27,268 22,988 8,686
Operating expenses(2)............. 13,373 7,603 4,342
Income before minority interest... 129,451 104,448 29,899
Minority interest(3).............. 47,966 38,774 10,958
Net income........................ 81,485 65,674 18,941
Net income per share(4)........... 5.40 4.51 1.31
Weighted average shares
outstanding(5)................... 23,967,870 23,170,680 22,852,910
Dividend per Common Share(6)...... $ 1.85 $ 4.62 $ --
OTHER DATA
Loss and loss expense ratio(7).... 26.4% 35.5% 64.7%
Expense ratio(7).................. 19.6% 17.1% 16.6%
Combined ratio(7)................. 46.0% 52.6% 81.3%
Return on average Combined
Equity(8)........................ 29.2% 26.6% 9.3%
Total statutory capital and
surplus(9)....................... $ 476,722 $ 390,683 $ 376,414
BALANCE SHEET DATA (AT END OF
PERIOD)
Total investments and cash........ $ 537,504 $ 522,425 $ 409,738
Reinsurance balances receivable... 70,625 86,146 50,307
Total assets...................... 634,374 636,547 481,424
Reserve for losses and loss
expenses......................... 49,875 66,654 37,789
Reserve for unearned premiums..... 82,894 87,885 56,338
Minority interest(3).............. 179,470 147,389 140,838
Total shareholders' equity........ 307,448 253,422 243,446
Book value per share(10).......... $ 21.42 $ 17.64 $ 16.91
</TABLE>
- --------
(1) In October 1995, LaSalle Re changed its fiscal year end from December 31 to
September 30, effective September 30, 1995. All prior periods have been
adjusted to reflect a fiscal year end of September 30.
(2) Includes operating expenses, corporate expenses, interest payable and
foreign exchange gains and losses. For a discussion of foreign exchange
gains and losses, see "Management's Discussion of Financial Condition and
Results of Operations."
(3) Minority interest represents those shares in LaSalle Re which are held as
Exchangeable Non-Voting Shares and currently constitute approximately 37%
of the capital stock of LaSalle Re. The Exchangeable Non-Voting Shares are
held by certain Founding Shareholders and are exchangeable, at the option
of the holder,
9
<PAGE>
for Common Shares of Holdings on a one-for-one basis, unless the Board
determines that such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder. See "Certain Tax
Considerations."
(4) Net income per share equals income before minority interest divided by
weighted average shares outstanding.
(5) Weighted average shares outstanding include Common Shares and Exchangeable
Non-Voting Shares (as described in note (3) above) as common stock
equivalents and the dilutive effect of stock options and stock
appreciation rights using the treasury stock method.
(6) Dividend per Common Share is based on outstanding Common Shares of
14,397,720 (1995: 14,397,720; 1994: 14,395,710).
(7) The loss and loss expense ratio is calculated by dividing the losses and
loss expenses incurred by net premiums earned. The expense ratio is
calculated by dividing underwriting expenses and certain operational
expenses by net premiums earned. The combined ratio is the sum of the loss
and loss expense ratio and the expense ratio.
(8) Return on average Combined Equity is calculated by dividing income before
minority interest by the average of the opening and closing sum of
shareholders' equity and minority interest. The adjustment in respect of
minority interest reflects the exchangeable nature of the Exchangeable
Non-Voting Shares. Closing shareholders' equity and minority interest
reflects any dividends declared or paid during such periods, with the
average not adjusted to reflect the timing of dividends declared or paid.
See "Dividend Policy."
(9) Total statutory capital and surplus of LaSalle Re is calculated in
accordance with the provisions of The Insurance Act 1978 of Bermuda,
amendments thereto and related regulations. See "Business--Regulation."
(10) Book value per share is calculated based on Combined Equity divided by
Common Shares and Exchangeable Non-Voting Shares of 22,727,010 (1995:
22,727,010; 1994: 22,725,000).
10
<PAGE>
RISK FACTORS
Prospective investors in the Common Shares offered hereby should consider
carefully the matters set forth below, as well as the other information set
forth in this Prospectus.
LIMITED OPERATING HISTORY
LaSalle Re commenced operations in November 1993 and has a limited operating
and claims history. The financial data included herein are not necessarily
indicative of the financial condition or results of operations of the Company
in the future. In addition, the Company's limited operating and claims history
may make it more difficult for the Company to assess the risks it underwrites
based on its own historical loss experience. See "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
VOLATILITY OF FINANCIAL RESULTS; CAPITAL MANAGEMENT STRATEGY
The Company primarily underwrites property catastrophe reinsurance, which
covers unpredictable events such as hurricanes, windstorms, hailstorms,
earthquakes, fires, industrial explosions, freezes, riots, floods and other
man-made or natural disasters. Because the Company has large aggregate
exposures to man-made and natural disasters, the Company expects that its
claims experience will be characterized by relatively low frequency and high
severity. The occurrence of claims from catastrophic events is likely to
result in substantial volatility in the Company's financial results for any
fiscal quarter or year, and therefore, in the timing and amount of any
dividend paid. The Company endeavors to manage its exposures to catastrophic
events by limiting the amount of its exposure in each geographic zone
worldwide and requiring that its property catastrophe contracts provide for
aggregate limits and attachment points. Nonetheless, a single catastrophic
event could affect multiple geographic zones or the frequency or severity of
catastrophic events could exceed the Company's estimates. The occurrence of
these events could have a material adverse effect on the Company's financial
condition and results of operations and its ability to write new business and
to pay dividends. To date, the Company has not used retrocessions to manage
its exposures. Catastrophic events of significant magnitude historically have
been relatively infrequent, although the Company believes that the property
catastrophe reinsurance market has experienced a high level of worldwide
catastrophic losses in terms of both frequency and severity from 1987 to the
present as compared with prior years. The Company expects that increases in
the values and concentrations of insured property and the effects of inflation
will increase the severity of such occurrences per year in the future. See
"Business--Reinsurance Products."
Pursuant to its dividend policy, the Company intends to distribute in each
fiscal year 50% to 60% of the Company's net income from the prior fiscal year,
if any, on a quarterly basis. In 1997, the Company expects to distribute 50%
of its fiscal 1996 net income. The Company's credit facility currently
restricts dividends to a maximum of 50% of net income for the prior fiscal
year. In order to pay dividends in excess of 50% of net income, the Company
would have to renegotiate certain terms of its credit facility. The payment of
dividends and any share repurchases will result in the Company having less
capital available to sustain losses than would otherwise be the case. See
"Dividend Policy," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Capital Management Strategy."
RELIANCE ON AON AND CNA; TRANSACTIONS WITH AFFILIATES; CONFLICTS OF INTEREST
The Company's day-to-day operations are performed by affiliates of Aon and
CNA pursuant to service agreements with the Company (the "Service
Agreements"). The Service Agreements consist of: (i) an underwriting services
agreement (the "Underwriting Services Agreement") with CNA (Bermuda) Services
Ltd. ("CNA Bermuda") pursuant to which CNA Bermuda provides underwriting
services and underwrites all classes
11
<PAGE>
of insurance and reinsurance for LaSalle Re; (ii) an administrative services
agreement (the "Administrative Services Agreement") with Aon Risk Consultants
(Bermuda) Ltd. ("Aon Bermuda") pursuant to which Aon Bermuda provides LaSalle
Re with actuarial and financial reporting, accounting, office space and other
administrative services; (iii) an investment management agreement (the
"Investment Management Agreement") with Aon Advisors (UK) Limited ("Aon
Advisors") pursuant to which Aon Advisors provides LaSalle Re with investment
management services in accordance with the investment guidelines set by the
Board of Directors of LaSalle Re; and (iv) a claims agreement (the "Claims
Agreement") with Integrated Runoff Insurance Services Corporation ("IRISC"), an
affiliate of Aon, pursuant to which IRISC serves as claims administrator for
LaSalle Re. The Service Agreements terminate on December 31, 1998 with a two-
year extension at the option of the Company, other than the Claims Agreement,
which terminates on December 31, 1996. After the termination of the Claims
Agreement, Aon Bermuda will serve as claims administrator for LaSalle Re under
the Administrative Services Agreement. While a number of other organizations
offer the services provided to the Company by affiliates of Aon and CNA, there
can be no assurance that if any of the Service Agreements were to terminate,
the Company would be able to successfully perform such services for itself or
obtain such services from persons which are not affiliates of CNA or Aon on
substantially similar terms. In particular, the termination of the Underwriting
Services Agreement or the Administrative Services Agreement could have a
material adverse effect on the Company. See "Certain Transactions."
In 1996 and 1995, CNA ceded to the Company a portion of its existing book of
property catastrophe reinsurance business. The terms of these cessions to the
Company were negotiated between the parties and the Company believes that they
are at market rates. This ceded business represented 12.7% and 14.3% of the
Company's net premiums written and 12.9% and 15.6% of net premiums earned in
1996 and 1995, respectively. Such cessions assisted the Company in establishing
a geographic diversification of exposures that might have been difficult for a
newly organized reinsurer to establish on its own. Excluding the business ceded
by CNA, for the year ended September 30, 1996, 48.1% of the Company's net
premiums written represented U.S.-based risks and the remaining 51.9% was
spread in other territories around the world. Although the Company expects the
level of such cessions to continue to decrease, if CNA were to suddenly cease
ceding business to the Company, the geographical diversity of the Company's
portfolio of property catastrophe risks and the Company's results of operations
could be materially adversely affected. See "Certain Transactions--Reinsurance
Transactions with Aon and CNA."
The Service Agreements and other transactions between Aon or CNA and the
Company may give rise to potential conflicts of interest between Aon or CNA, on
the one hand, and the Company, on the other hand. However, as provided under
Bermuda law, directors who have an interest in any matter are permitted under
Holdings' bye-laws (the "Bye-Laws") and LaSalle Re's bye-laws to vote with
respect to such matters as long as they have disclosed their interest. A
director of Holdings or LaSalle Re who is directly or indirectly interested in
a proposed contract or other matter with such company must declare the nature
of such interest to the Board or the Board of Directors of LaSalle Re, as the
case may be. Each of the Service Agreements has been approved by a vote of the
Board of Directors of LaSalle Re at a meeting at which all directors present
who are affiliated with Aon or CNA recused themselves. CNA competes with the
Company for property catastrophe and other lines of reinsurance underwritten by
the Company. Aon, CNA and other Founding Shareholders have sponsored and may in
the future sponsor or otherwise participate in other insurance ventures with
other entities engaged in or intending to engage in insurance and reinsurance
underwriting, some of which compete and may in the future compete with the
Company. Conflicts of interest could also arise with respect to business
opportunities that could be advantageous to Aon, CNA or other Founding
Shareholders, on the one hand, and the Company, on the other hand. Aon and CNA
also have entered into agreements and maintain relationships with numerous
companies that may compete with the Company. No agreement or understanding
exists regarding the resolution of any of these potential conflicts of
interest.
DEPENDENCE ON MANAGEMENT
The Company's success depends on the efforts and abilities of its Chairman,
Chief Executive Officer and President, Victor H. Blake, its Executive Vice
President and Chief Underwriting Officer, Guy D. Hengesbaugh, and its Chief
Financial Officer and Treasurer, Andrew Cook. The Company has entered into
employment
12
<PAGE>
agreements with Mr. Blake and Mr. Cook. The Company receives the services of
Mr. Hengesbaugh pursuant to the terms of the Underwriting Services Agreement
and does not have an employment agreement with him. The Company does not
maintain key-man life insurance on any of its executive officers. See
"Management--Employment Agreements" and "Certain Transactions--Underwriting
Services Agreement."
Under Bermuda law, non-Bermudians may not engage in any gainful occupation
in Bermuda without the specific permission of the appropriate Bermuda
government authority. Such permission, or a work permit for a specific period
of time, can be granted upon showing that, after proper public advertisement,
no Bermudian or spouse of a Bermudian is available who meets the minimum
standards for the advertised position. Of the Company's executive officers,
Victor H. Blake, Guy D. Hengesbaugh and Andrew Cook are working under work
permits. There can be no assurance that the work permits of such executive
officers will be extended or that, if such executive officers were to leave
the Company, work permits for new executive officers would be granted.
BUSINESS CONSIDERATIONS
The Company believes that an imbalance between the supply of and demand for
property catastrophe reinsurance existed in 1993 and resulted in an increase
in premiums from pre-1993 levels. The Company believes that the numerous and
severe catastrophic events experienced worldwide from 1987 to 1992 resulted in
large losses for reinsurers and led to the withdrawal, in whole or in part, of
certain reinsurers from the property catastrophe market. At the same time,
increased scrutiny of catastrophe exposures and a general increase in insured
property values in catastrophe-exposed areas contributed to increased demand
for property catastrophe insurance and reinsurance. The Company believes that
the supply and demand imbalance led to the entry of approximately $4.3 billion
of capital in the Bermuda-based property catastrophe reinsurance market in
1992 and 1993. As a result of the increased property catastrophe reinsurance
capacity, the Company believes that supply and demand in the property
catastrophe reinsurance market became more stable in 1994 and have remained
relatively stable in succeeding years. Based on the Company's marketing
efforts, reinsurance contract submissions and publicly available information,
the Company believes that property catastrophe rates generally remained at the
substantially increased 1993 levels in 1994 and decreased somewhat in 1995
from 1994 levels. On these same bases, the Company believes that rates in 1996
have decreased from levels in 1995. In particular, rates have declined
significantly in areas, such as Japan and Europe, where there has been
favorable loss experience, while in the U.S. market, where the level of
property catastrophe losses has generally been higher than in international
markets in recent years, rates have decreased to a lesser degree.
Notwithstanding these rate decreases, the Company believes that current rates
substantially exceed 1992 levels. If and while favorable loss experience
continues and reinsurance capacity does not diminish, the Company expects
further downward pressure on rates during 1997. If rates decline, the Company
expects net premiums written from property catastrophe reinsurance to decline
in 1997. However, based on its current perception of market opportunities, the
Company expects that growth in its other lines of business would cause total
net premiums to remain relatively stable. There can be no assurance that the
present level of demand will continue or that the present level of supply of
reinsurance will not increase as a result of capital provided by recent or
future market entrants or by existing property catastrophe reinsurers. See
"Business--Industry Trends."
LOSS RESERVES
The Company establishes loss reserves for the ultimate settlement costs of
all loss and loss expenses incurred with respect to business written by it.
Loss reserves represent estimates derived from actuarial and statistical
projections of the Company's expectations of ultimate loss and loss expenses
for incurred losses at a given time. Under GAAP, the Company is not permitted
to establish loss reserves with respect to its property catastrophe
reinsurance until an event occurs that may give rise to a claim. As a result,
only loss reserves applicable to losses incurred up to the reporting date may
be set aside, with no allowance for the provision of a contingency reserve to
account for expected future losses. Reserve estimates by new property
catastrophe reinsurers, such as the Company, may be inherently less reliable
than the reserve estimates of reinsurers with stable volumes of business and
an established claims history. Although the Company's own historical loss
experience by itself may be inadequate for estimating reserves, the Company
utilizes loss data generally available through various trade associations and
draws on the experience of both Aon and CNA. See "--Reliance on Aon
13
<PAGE>
and CNA; Transactions with Affiliates; Conflicts of Interest." The Company
believes that its loss reserves to date have been adequate. In contrast to
casualty property losses, which frequently can be determined only through
lengthy, unpredictable litigation, non-casualty property losses tend to be
reported promptly and usually are settled within a shorter period.
Nevertheless, actual losses and loss expenses paid may deviate, perhaps
substantially, from the reserve estimates reflected in the Company's financial
statements. The Company's loss reserves are reviewed regularly by the Company's
actuaries and executive officers and the Board of Directors of LaSalle Re, and
as they develop upward or downward, the results are reflected in the net income
in the period in which the reserve deficiency or redundancy is evaluated. If
the Company's loss reserves are determined to be inadequate, the Company will
be required to increase loss reserves with a corresponding reduction in the
Company's net income in the period in which the deficiency is identified. There
can be no assurance that the final loss settlements will not exceed the
Company's loss reserve and have a material adverse effect on the Company's
financial condition and results of operations in a particular period. See
"Business--Underwriting" and "--Reserves."
COMPETITION; RATINGS; NON-ADMITTED STATUS
The property catastrophe reinsurance industry is highly competitive. The
Company competes, and will continue to compete, with major U.S. and non-U.S.
insurers and property catastrophe reinsurers, including other Bermuda-based
property catastrophe reinsurers and CNA, some of which have greater financial
and organizational resources than the Company. There may be established
companies or new companies of which the Company is not aware which may be
planning to enter the property catastrophe reinsurance market or existing
property catastrophe reinsurers which may be planning to raise additional
capital. In addition, Lloyd's began to allow capital from corporate investors
in 1994. Competition in the types of reinsurance that the Company underwrites
is based on many factors, including rates and other terms and conditions
offered, services provided, ratings assigned by independent rating agencies,
speed of claims payment, perceived financial strength of the reinsurer and
reputation and experience of the reinsurer in the line of reinsurance to be
written.
LaSalle Re currently is rated by A.M. Best Company, Inc. ("A.M. Best") and
Standard & Poor's Corporation ("S&P"). In April 1996, LaSalle Re received an
initial rating from A.M. Best of "A-" (Excellent). Prior to that time, LaSalle
Re was not rated by any rating agency. The rating received by LaSalle Re
represents the fourth highest in the rating scale used by A.M. Best. In October
1996, LaSalle Re received an initial rating of its claims paying ability from
S&P of "A" (Good). The rating received by LaSalle Re represents the sixth
highest in the rating scale used by S&P. Such ratings are based on factors of
concern to cedents and brokers and are not directed toward the protection of
investors. Such ratings are neither a rating of securities nor a recommendation
to buy, hold or sell such securities. While the Company believes that its new
ratings will not be a major competitive advantage or disadvantage, some of the
Company's principal competitors have higher ratings than the Company. Insurance
ratings are one factor used by brokers and cedents as a means of assessing the
financial strength and quality of reinsurers. In addition, a cedent's own
rating may be adversely affected by the lack of a rating of its reinsurer.
Therefore, a cedent may elect to reinsure with a competitor of the Company that
has a higher insurance rating. Similarly, the lowering or loss of a rating in
the future could adversely affect the Company's ability to compete.
The Company is not licensed or admitted as an insurer in any jurisdiction
other than Bermuda and has no plans to become so licensed or admitted. Because
jurisdictions in the United States do not permit cedents to take credit for
reinsurance obtained from unlicensed or non-admitted reinsurers on their
statutory financial statements unless security is posted, the Company's
reinsurance contracts with United States cedents generally require it to post a
letter of credit or provide other security for outstanding claims and/or
unearned premiums. In order to post these letters of credit, the Company
generally is required to provide the issuing banks with collateral equal to
such amounts. See "Business--Regulation." As a result of the size of the
Company's capitalization, the Company does not believe that its non-admitted
status in any jurisdiction has, or should have, a material adverse effect on
its ability to compete or obtain business in the property catastrophe
reinsurance market in which it operates, principally because many of the
Company's competitors are not admitted or licensed in United States
jurisdictions. However, there can be no assurance that increased competitive
pressure from current reinsurers and future market entrants or the Company's
non-admitted status will not adversely affect the Company. See "Business--
Competition."
14
<PAGE>
FOREIGN CURRENCY FLUCTUATIONS
The Company's financial statements are reported in U.S. dollars. The Company
writes a significant amount of business in currencies other than U.S. dollars
and is exposed to risks relating to fluctuations in foreign currency exchange
rates. These risks include exposure to changes in net cash inflows on non-U.S.
dollar denominated insurance premiums and exposure to reinsurance losses
denominated in non-U.S. currencies. The Company may from time to time
experience significant exchange gains or losses in currencies other than U.S.
dollars, which will affect the Company's consolidated statement of operations.
In an effort to manage its exposure to foreign currency exchange rate
fluctuations, the Company from time to time enters into foreign exchange
contracts. These contracts generally involve the exchange of one currency for
U.S. dollars at some future date. Counterparties to these contracts are large
financial institutions. The Company is exposed to credit loss in the event of
non-performance by any of such counterparties. See "Business--Investments--
Foreign Currency Exposures."
REGULATION
LaSalle Re is registered as an insurer and is subject to regulation and
supervision in Bermuda. The applicable Bermuda insurance statutes and
regulations generally are designed to protect insureds and ceding insurance
companies rather than shareholders. Among other things, such statutes and
regulations require LaSalle Re to maintain minimum levels of capital and
surplus, prescribe solvency margins that must be maintained and require
periodic examinations of LaSalle Re and its financial condition. These
provisions may, in effect, restrict the ability of LaSalle Re to write new
business or distribute funds to the Company, which, as a holding company, will
depend on such distributions as its principal source of funds. Other relevant
Bermuda statutes and regulations may also limit transfers of ownership of
LaSalle Re's capital stock and may impede the Company's ability to effect a
business combination involving a substantial change in the ownership or
control of LaSalle Re or the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
LaSalle Re is not registered or licensed as an insurance company in any
jurisdiction other than Bermuda. For the year ended September 30, 1996, 41.7%
of the Company's net premiums written represented U.S.-based risks. The
insurance laws of each state of the United States do not directly regulate the
sale of reinsurance to insurance companies domiciled or licensed therein by
alien reinsurers, such as the Company. Nevertheless, the sale of reinsurance
by alien reinsurers, such as the Company, to insurance companies domiciled or
licensed in United States jurisdictions is indirectly regulated by state
"credit for reinsurance" laws that operate to deny financial statement credit
to ceding insurers unless the non-admitted alien reinsurer posts acceptable
security for ceded liabilities and agrees to certain contract provisions
(e.g., insolvency and intermediary clauses). Although the insurance laws of
United States jurisdictions generally exempt the business of reinsurance from
"doing business" laws, the Company conducts its business at its principal
offices in Bermuda and does not maintain an office in the United States, and
its personnel do not solicit, advertise, settle claims or conduct other
insurance activities in the United States. All policies are issued and
delivered and premiums are received outside the United States. The Company
does not believe that it is subject to the insurance laws of any state in the
United States. See "Business--Regulation." Nevertheless, there can be no
assurance that inquiries or challenges to the insurance activities of the
Company will not be raised in the future.
From time to time, there have been congressional and other initiatives in
the United States regarding the supervision and regulation of the insurance
industry, including proposals to supervise and regulate alien reinsurers.
While none of these proposals has been adopted to date on either the federal
or state level, there can be no assurance that federal or state legislation
will not be enacted subjecting the Company to supervision and regulation in
the United States, which could have a material adverse effect on the Company.
In addition, no assurance can be given that if the Company were to become
subject to any laws of the United States or any state thereof or of any other
country at any time in the future, it would be in compliance with such laws.
15
<PAGE>
Despite the importance of its policyholders domiciled in the United States,
the Company does not believe that conducting its business through its offices
in Bermuda and its inability to conduct any insurance operations in the United
States have materially affected its operations to date. However, no assurance
can be given that these factors will not materially affect its operations in
the future. See "Business--Underwriting," "--Marketing," and "--Regulation."
LaSalle Re Services maintains an office in London in order to introduce
prospective customers to the Company. LaSalle Re Services is not registered as
an insurer in England or in any other jurisdiction. Although the Company
believes that LaSalle Re Services is not required to be so registered and also
believes that the impact of other U.K. regulation on the Company's business is
minimal, no assurance can be given that U.K. regulation will not materially
affect its operations in the future.
HOLDING COMPANY STRUCTURE
Holdings is a holding company with no operations or significant assets other
than its ownership of a majority of the capital stock of LaSalle Re. Holdings
relies on cash dividends and other permitted payments from LaSalle Re to pay
expenses, to make principal and interest payments on outstanding indebtedness
of Holdings, if any, and to pay cash dividends to the holders of Common Shares.
The payment of dividends by LaSalle Re to Holdings is limited under Bermuda law
and regulations, including Bermuda insurance law. Under The Insurance Act 1978
of Bermuda, amendments thereto and related regulations (the "Insurance Act"),
LaSalle Re is prohibited from paying dividends of more than 25% of its opening
statutory capital and surplus unless it files an affidavit stating that it will
continue to meet the required solvency margin and minimum liquidity ratio
requirements and from declaring or paying any dividends without the approval of
the Minister of Finance if it failed to meet its required margins in the
previous fiscal year. The Insurance Act also requires LaSalle Re to maintain a
minimum solvency margin and minimum liquidity ratio and prohibits dividends
which would result in a breach of these requirements. In addition, LaSalle Re
is prohibited under the Insurance Act from reducing its opening total statutory
capital by more than 15% without the approval of the Minister of Finance. See
"Dividend Policy," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Business--
Regulation."
TAX MATTERS
Holdings and LaSalle Re are Bermuda corporations. The Company believes that
neither Holdings nor LaSalle Re will be required to pay U.S. corporate income
tax (other than withholding tax on certain U.S. source income) because they
will continue to operate their business in a manner that will cause them to not
be engaged in the conduct of a trade or business within the U.S. However,
because there are no definitive standards provided by the Internal Revenue Code
of 1986, as amended (the "Code"), existing or proposed regulations thereunder
or judicial precedent, and as the determination is inherently factual, there
can be no assurance that the IRS could not successfully contend that Holdings
or LaSalle Re is engaged in such a trade or business. If the IRS did so
contend, Holdings and LaSalle Re would (unless exempted from tax by the U.S.-
Bermuda income tax treaty (the "Bermuda Treaty")) be subject to U.S. corporate
income tax on that portion of its net income treated as effectively connected
with a U.S. trade or business, as well as the U.S. branch profits tax. Even if
the IRS were to contend successfully that LaSalle Re was engaged in a U.S.
trade or business, if LaSalle Re were entitled to benefits under the Bermuda
Treaty, the Bermuda Treaty would preclude the U.S. from taxing LaSalle Re on
its business income except to the extent that such income were attributable to
a permanent establishment maintained by LaSalle Re in the U.S. Although the
Company believes that LaSalle Re does not have a permanent establishment in the
U.S., there can be no assurance that, in the event that LaSalle Re were
entitled to the Bermuda Treaty benefits, the IRS would not successfully contend
that LaSalle Re has such an establishment and therefore is subject to taxation.
If Holdings were considered to be engaged in a U.S. trade or business and/or
if LaSalle Re were considered to be engaged in a U.S. trade or business through
a permanent establishment located therein (or if it were considered not
entitled to the benefits of the permanent establishment clause of the Bermuda
Treaty and LaSalle
16
<PAGE>
Re were considered to be engaged in the conduct of a U.S. trade or business)
and, thus, subject to U.S. income tax, the Company's results of operations and
cash flows could be materially adversely affected. LaSalle Re Capital may
become a corporate member of a Lloyd's syndicate. If it does become such a
member, it will be treated under a Closing Agreement between Lloyd's and the
IRS as engaged in business in the U.S. and will become subject to U.S.
corporate income tax on its net income from U.S. sources. See "Certain Tax
Considerations--Taxation of the Company and its Subsidiaries--United States."
Generally, the U.S. shareholders of the Company will not be subject to any
U.S. tax until they receive a distribution from the Company or dispose of their
Common Shares. However, special provisions of the Code may apply to U.S.
citizens, residents, domestic corporations, partnerships, estates or trusts,
who through their ownership of Common Shares, directly, indirectly or by
attribution, own 10% or more of the voting power of all classes of stock of
Holdings and/or LaSalle Re. Under those provisions, such a holder of Common
Shares may be required to include in its income its pro rata share of the
Company's subpart F income as earned, even if not distributed. All of the
Company's income is expected to be subpart F income. Such shareholders that are
taxed currently on their pro rata share of the Company's subpart F income will
not be taxed on dividends actually distributed by the Company that are
allocable to such income. The Company has attempted to avoid being considered a
"controlled foreign corporation" under the Code by requiring prior Board
approval for any transfer of Common Shares that results in any shareholder
(other than a mutual fund) beneficially owning Common Shares equaling 5.0% or
more of the voting power of Holdings or any shareholder holding Controlled
Shares (as defined herein) in excess of 9.9% of the voting power of Holdings.
Any such transfer without prior Board approval shall not be registered in the
share register of Holdings and shall be void and of no effect. See "Description
of Capital Stock--Capital Stock of Holdings--Common Shares."
Certain special subpart F provisions of the Code could apply to U.S. persons
who either directly or indirectly through their ownership of Common Shares own
shares of LaSalle Re if (A) 25% or more of the value or voting power of the
Common Shares is owned directly, indirectly or by attribution by U.S. persons
that own Common Shares directly or indirectly through foreign entities, as will
be the case; and (B) (i) 20% or more of either the voting power or the value of
LaSalle Re stock is owned directly or indirectly through entities by U.S.
persons insured or reinsured by LaSalle Re or by persons related to them and
(ii) LaSalle Re has gross related person insurance income ("RPII") equal to 20%
or more of its gross insurance income. RPII is income (investment income and
premium income) from the direct or indirect insurance or reinsurance of (x) the
risk of any U.S. person who owns Common Shares (directly or indirectly through
foreign entities) or (y) the risk of a person related to such a U.S. person.
The Company currently anticipates that less than 20% of the gross insurance
income of LaSalle Re for any taxable year will constitute RPII. However, there
can be no assurance that the IRS will not assert that 20% or more of LaSalle
Re's gross income is RPII or that a taxpayer will be able to meet its burden of
proving otherwise.
Generally, a U.S. shareholder will realize capital gain or loss on the sale
or exchange of Common Shares. However, upon a U.S. shareholder's sale or
exchange of Common Shares at a gain, the IRS could contend that an amount of
such gain equal to the allocable untaxed earnings and profits of the Company or
LaSalle Re will be taxed as a dividend. For individuals, this would mean
taxation of such amount at the rates applicable to ordinary income rather than
the lower rates applicable to long-term capital gain. See "Certain Tax
Considerations--Taxation of Shareholders--United States Taxation of U.S. and
Non-U.S. Shareholders."
LIMITATIONS ON TRANSFER AND OWNERSHIP
Under the Bye-Laws, any transfer of Common Shares that results in any
shareholder (other than a mutual fund) beneficially owning Common Shares
equaling 5.0% or more of the voting power of Holdings or any shareholder
holding Controlled Shares in excess of 9.9% of the voting power of Holdings, in
each case without the Board's prior approval, shall not be registered in the
share register of Holdings and shall be void and of no effect. In addition, the
Board has absolute discretion to decline to register a transfer of Common
Shares unless a registration statement under the Securities Act is in effect
with respect to such Common Shares or a written
17
<PAGE>
opinion from counsel acceptable to the Board is obtained to the effect that
such registration is not required. A shareholder will be permitted to dispose
of any Common Shares purchased which violate such restrictions and as to the
transfer of which registration is refused. The transferor of such Common Shares
will be deemed to own such Common Shares for dividend, voting and reporting
purposes until a transfer of such Common Shares has been registered on the
register of members of Holdings. See "Description of Capital Stock-- Capital
Stock of Holdings--Common Shares."
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Bye-Laws have the effect of rendering more
difficult or discouraging unsolicited takeover bids from third parties. While
these provisions have the effect of encouraging persons seeking to acquire
control of the Company to negotiate with the Board, they could have the effect
of discouraging a prospective acquirer from making a tender offer or otherwise
attempting to attain control of the Company. Such provisions include providing
for "blank check" preferred stock, a classified Board of Directors and
providing that any transfer of Common Shares that results in any shareholder
(other than a mutual fund) beneficially owning Common Shares equaling 5.0% or
more of the voting power of Holdings or any shareholder holding Controlled
Shares in excess of 9.9% of the voting power of Holdings, in each case without
the Board's prior approval, shall not be registered in the share register of
Holdings and shall be void and of no effect. See "Description of Capital
Stock--Capital Stock of Holdings--Common Shares."
LIMITED PRIOR PUBLIC MARKET
The Common Shares have been quoted on the Nasdaq National Market only since
November 1995, when the Company's initial public offering occurred. The Common
Shares offered hereby have also been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance. The Company has been
advised by Smith Barney Inc. that, subject to applicable laws and regulations,
Smith Barney Inc. currently intends to continue making a market in the Common
Shares following completion of the Offerings. However, Smith Barney Inc. is not
obligated to do so and any market-making may be discontinued at any time
without notice. There can be no assurance that an active trading market for the
Common Shares will develop or continue upon completion of the Offerings or that
the market price of the Common Shares will not decline below the price to
public set forth on the cover page of this Prospectus.
CONTROL BY FOUNDING SHAREHOLDERS
Representatives of the Founding Shareholders, together with the Chairman,
Chief Executive Officer and President of Holdings, constitute all of the
members of the Board. See "Management--Directors and Executive Officers." Upon
completion of the Offerings, the Founding Shareholders will own approximately
% of the Common Shares and approximately % of the capital stock of LaSalle
Re ( % and % if the U.S. Underwriters' over-allotment option is exercised in
full). As a result, if the Founding Shareholders were to act in concert, they
would be able to control most fundamental decisions affecting the Company,
including the election of directors and the merger or sale of the Company. The
Exchangeable Non-Voting Shares are exchangeable, at the option of the holder,
for Common Shares on a one-for-one basis, unless the Board determines that such
exchange may cause actual or potential adverse tax consequences to the Company
or any shareholder. See "Certain Transactions," "Principal and Selling
Shareholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
Common Shares, or the availability of Common Shares for future sale, will have
on the market price of the Common Shares prevailing from time to time. Sales of
substantial amounts of the Common Shares in the public markets following the
Offerings, or the perception that such sales could occur, could adversely
affect the market price of the Common Shares as well as the ability of the
Company to raise additional equity capital at a desirable time and price. The
Common Shares
18
<PAGE>
sold in the Offerings and 4,312,500 currently outstanding Common Shares will
be freely tradeable without restriction or further registration under the
Securities Act by persons other than "affiliates" of the Company within the
meaning of Rule 144 promulgated under the Securities Act. The remaining
outstanding Common Shares are "restricted" securities within the meaning of
Rule 144 and may not be resold in the absence of registration under the
Securities Act or pursuant to an exemption from registration. Pursuant to an
Amended and Restated Shareholders Agreement dated November 27, 1995 among
LaSalle Re, Holdings, certain Founding Shareholders and Mr. Blake (the
"Shareholders Agreement"), certain holders of Common Shares have been granted
certain rights to cause the Company to register under the Securities Act any
Common Shares held by them subject to certain conditions. The Company, each of
its officers and directors set forth under the heading "Management" in this
Prospectus, and certain Founding Shareholders have agreed that, for a period
of 180 days after the date of this Prospectus, they will not, without the
prior written consent of Smith Barney Inc., offer, sell, contract to sell or
otherwise dispose of any common shares of the Company or any subsidiary of the
Company (or any securities convertible into or exercisable or exchangeable for
such common shares), or grant any options or warrants to purchase such common
shares, except that (i) the Company may issue Common Shares pursuant to stock
purchase plans and grant options pursuant to stock option plans and (ii)
certain Founding Shareholders may sell shares subject to the U.S.
Underwriters' over-allotment option and shares repurchased by the Company
pursuant to the Company's capital management strategy. See "Shares Eligible
for Future Sale."
SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS
The Company is a Bermuda company and certain of its officers and directors
are residents of various jurisdictions outside the United States. All or a
substantial portion of the assets of the Company and such officers and
directors, at any one time, are or may be located in jurisdictions outside the
United States. Although the Company has appointed an agent in New York, New
York to receive service of process with respect to actions against it arising
out of violations of the United States federal securities laws in any federal
or state court in the United States relating to the transactions covered by
this Prospectus, it may be difficult for investors to effect service of
process within the United States on directors and officers of the Company who
reside outside the United States or to enforce against the Company or such
directors and officers judgments of United States courts predicated upon civil
liability provisions of the United States federal securities laws.
19
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Common
Shares offered hereby. The Company will pay certain expenses related to the
Offerings, including certain expenses incurred by the Selling Shareholders,
estimated to be $ .
PRICE RANGE OF COMMON SHARES
The Common Shares were initially offered to the public on November 20, 1995
at a price of $19.25 per share. The Common Shares are quoted on the Nasdaq
National Market under the symbol "LSREF." The following table sets forth, for
the periods indicated, the high and low sale prices for the Common Shares as
reported by the Nasdaq National Market. Such prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Quarter ended December 31, 1995 (from November 20, 1995). $23.250 $19.500
Quarter ended March 31, 1996............................. 23.625 21.000
Quarter ended June 30, 1996.............................. 22.750 19.750
Quarter ended September 30, 1996......................... 25.500 21.000
Quarter ended December 31, 1996 (through November ,
1996)...................................................
</TABLE>
On November , 1996, the last reported sale price of the Common Share as
reported by Nasdaq National Market was $ per share. As of November , 1996,
there were holders of record of the Common Shares.
20
<PAGE>
DIVIDEND POLICY
In October 1996, the Company adopted a dividend policy pursuant to which it
intends to distribute in each fiscal year 50% to 60% of the Company's net
income from the prior fiscal year, if any. In 1997, the Company expects to
distribute 50% of its fiscal 1996 net income. The Company plans to continue to
pay dividends on a quarterly basis in January, April, July and October of each
year. Based on the Company's net income for the year ended September 30, 1996,
the Company currently expects to pay a quarterly dividend of $0.71 per share
in January 1997.
The actual amount and timing of any future dividends, including the proposed
dividend payable in January 1997, is at the discretion of the Board and is
dependent upon the profits and financial requirements of the Company as well
as loss experience, business opportunities and any other factors that the
Board deems relevant. In addition, if the Company has funds available for
distribution, it may nevertheless determine that such funds should be retained
for the purposes of replenishing capital, expanding premium writings or other
purposes. Holdings is a holding company whose principal source of income is
cash dividends and other permitted payments from LaSalle Re. LaSalle Re's
ability to pay dividends to Holdings is subject to legal and regulatory
restrictions. In addition, in order for Holdings to pay dividends in excess of
50% of net income, the Company would have to renegotiate certain terms of its
credit facility. See "Risk Factors--Holding Company Structure," "--Volatility
of Financial Results; Capital Management Strategy," "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Business--Regulation." As a result of these factors,
there can be no assurance that the Company's dividend policy will not change
or that the Company will declare or pay any dividends.
In March, October and November 1995, LaSalle Re paid cash dividends on its
capital stock in the aggregate amounts of $30 million, $75 million and $25
million, respectively, which are reflected in the Company's Consolidated
Financial Statements. The payment of these dividends was part of the Company's
capital management strategy, which sought to maintain a level of capital
consistent with the risks and requirements of the business the Company
expected to write. In April, July and October 1996, the Company paid dividends
of $0.25, $0.25 and $0.25 per Common Share. The payment of these dividends was
in accordance with the Company's dividend policy as in effect prior to October
1996.
21
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at September 30, 1996, and as adjusted to give effect to the
Offerings. The table should be read in conjunction with the Company's
Consolidated Financial Statements and related notes appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
AS ADJUSTED FOR
ACTUAL THE OFFERINGS
-------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Minority interest(1)............................ $179,470
Shareholders' equity
Share capital................................. 14,398
Additional paid-in capital.................... 221,968
Retained earnings............................. 72,943
Net unrealized loss on investments............ (1,861)
-------- --------
Total shareholders' equity.................. 307,448
-------- --------
Total capitalization........................ $486,918 $486,918
======== ========
</TABLE>
- --------
(1) Minority interest represents those shares of LaSalle Re that are held as
Exchangeable Non-Voting Shares. These shares currently constitute
approximately 37% of the capital stock of LaSalle Re and upon completion
of the Offerings will constitute approximately % of the capital stock
of LaSalle Re ( % if the U.S. Underwriters' over-allotment option is
exercised in full). The Exchangeable Non-Voting Shares are held by certain
Founding Shareholders and are exchangeable, at the option of the holder,
for Common Shares of Holdings on a one-for-one basis, unless the Board
determines that such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder. See "Certain
Transactions--Formation and Recapitalization" and "Certain Tax
Considerations."
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The historical consolidated financial data presented below as of and for
each of the periods ended September 30, 1996, 1995 and 1994 were derived from
the Company's audited consolidated financial statements included elsewhere in
this Prospectus. The selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
notes appearing elsewhere in this Prospectus and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR
ENDED SEPTEMBER 30, PERIOD OCTOBER 26,
------------------------ 1993 TO SEPTEMBER 30,
1996 1995(1) 1994(1)
----------- ----------- ---------------------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA
Net premiums written........... $ 190,151 $ 201,916 $ 133,327
Net premiums earned............ 195,141 170,370 76,989
Net investment income (net of
realized losses).............. 26,428 25,066 15,739
Loss and loss expenses
incurred...................... 51,477 60,397 49,801
Underwriting expenses.......... 27,268 22,988 8,686
Operating expenses (2)......... 13,373 7,603 4,342
Income before minority
interest...................... 129,451 104,448 29,899
Minority interest (3).......... 47,966 38,774 10,958
Net income..................... 81,485 65,674 18,941
Net income per share (4)....... $ 5.40 $ 4.51 $ 1.31
Weighted average shares
outstanding (5)............... 23,967,870 23,170,680 22,852,910
Dividend per Common Share (6).. $ 1.85 $ 4.62 --
OTHER DATA
Loss and loss expense ratio
(7)........................... 26.4% 35.5% 64.7%
Expense ratio (7).............. 19.6% 17.1% 16.6%
Combined ratio (7)............. 46.0% 52.6% 81.3%
Return on average Combined
Equity (8).................... 29.2% 26.6% 9.3%
Total statutory capital and
surplus (9)................... $ 476,722 $ 390,683 $ 376,414
BALANCE SHEET DATA (AT END OF
PERIOD)
Total investments and cash..... $ 537,504 $ 522,425 $ 409,738
Reinsurance balances
receivable.................... 70,625 86,146 50,307
Total assets................... 634,374 636,547 481,424
Reserve for losses and loss
expenses...................... 49,875 66,654 37,789
Reserve for unearned premiums.. 82,894 87,885 56,338
Minority interest (3).......... 179,470 147,389 140,838
Total shareholders' equity..... 307,448 253,422 243,446
Book value per share (10)...... $ 21.42 $ 17.64 $ 16.91
</TABLE>
- --------
(1) In October 1995, LaSalle Re changed its fiscal year end from December 31
to September 30, effective September 30, 1995. All prior periods have been
adjusted to reflect a fiscal year end of September 30.
(2) Includes operating expenses, corporate expenses, interest payable and
foreign exchange gains and losses. For a discussion of foreign exchange
gains and losses see "Management's Discussion of Financial Condition and
Results of Operations."
(3) Minority interest represents those shares in LaSalle Re that are held as
Exchangeable Non-Voting Shares and currently constitute approximately 37%
of the capital stock of LaSalle Re. The Exchangeable Non-Voting Shares are
held by certain Founding Shareholders and are exchangeable, at the option
of the holder, for Common Shares of Holdings on a one-for-one basis,
unless the Board determines that such exchange may cause actual or
potential adverse tax consequences to the Company or any shareholder. See
"Certain Tax Considerations."
23
<PAGE>
(4) Net income per share equals income before minority interest divided by
weighted average shares outstanding.
(5) Weighted average shares outstanding include Common Shares and Exchangeable
Non-Voting Shares as common stock equivalents and the dilutive effect of
stock options and stock appreciation rights using the treasury stock
method.
(6) Dividend per Common Share is based on outstanding Common Shares of
14,397,720 (1995: 14,397,720; 1994: 14,395,710).
(7) The loss and loss expense ratio is calculated by dividing the losses and
loss expenses incurred by net premiums earned. The expense ratio is
calculated by dividing underwriting expenses and certain operational
expenses by net premiums earned. The combined ratio is the sum of the loss
and loss expense ratio and the expense ratio.
(8) Return on average Combined Equity is calculated by dividing income before
minority interest by the average of the opening and closing sum of
shareholders' equity and minority interest. The adjustment in respect of
minority interest reflects the exchangeable nature of the Exchangeable Non-
Voting Shares. Closing shareholders' equity and minority interest reflects
any dividends declared or paid during such periods, with the average not
adjusted to reflect the timing of dividends declared or paid. See "Dividend
Policy."
(9) Total statutory capital and surplus of LaSalle Re is calculated in
accordance with the provisions of the Insurance Act. See "Business--
Regulation."
(10) Book value per share is calculated based on Combined Equity divided by
Common Shares and Exchangeable Non-Voting Shares of 22,727,010 (1995:
22,727,010; 1994: 22,725,000).
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations and
financial position. This discussion should be read in conjunction with the
Company's Consolidated Financial Statements and related notes appearing
elsewhere in this Prospectus.
OVERVIEW
LaSalle Re was incorporated under the laws of Bermuda in October 1993 and
commenced operations on November 22, 1993. LaSalle Re was initially
capitalized with $373.1 million provided through private sales of common
shares and special non-voting shares to the Founding Shareholders. Holdings
was incorporated in Bermuda in September 1995 as a holding company in
connection with the Company's recapitalization and initial public offering.
The Company owns 100% of the outstanding voting stock of LaSalle Re, which
upon completion of the Offerings will constitute approximately % of the
outstanding capital stock of LaSalle Re. Certain Founding Shareholders hold
Exchangeable Non-Voting Shares, which shares are exchangeable, at the option
of the holder, for Common Shares of the Company on a one-for-one basis, unless
the Board determines such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder. See "Description of Capital
Stock-Capital Stock of LaSalle Re."
If and while favorable loss experience continues and reinsurance capacity
does not diminish, the Company expects further downward pressure on rates for
property catastrophe reinsurance during 1997. If rates decline, the Company
expects net premiums written from property catastrophe reinsurance to decline
in 1997. However, based on its current perception of market opportunities, the
Company expects that growth in its other lines of business would cause total
net premiums written to remain relatively stable. See "Risk Factors--Business
Considerations."
Premiums written include new and renewal business, reinstatement premiums
and premium adjustments on current and prior year contracts. Renewal dates for
property catastrophe reinsurance contracts historically have been concentrated
in the January 1 to July 1 period. As a result, the Company's net premiums
written for the first six months of each calendar year generally represent a
significant portion of its net premiums written for the entire calendar year.
Premiums on property catastrophe excess of loss contracts are earned on a
pro rata basis over the period coverage is provided, which is generally 12
months. Under pro rata of property catastrophe contracts, the risks underlying
the contracts incept throughout the policy period and premiums generally are
earned over an 18-month period. As a result, the Company's net premiums earned
are not concentrated in any interim period.
Net realized gains and losses on the Company's investment portfolio are
disclosed separately from net investment income. In accordance with GAAP, the
Company has classified its investments as available for sale; therefore,
unrealized gains and losses on the Company's investment portfolio are not
recognized in the Company's consolidated results of operations but are
reflected as a separate component of shareholders' equity, net of minority
interest.
Losses and loss expenses incurred represent losses and loss expenses
reported by cedents and reserves established in respect of specific losses.
See "Business--Reserves."
Underwriting expenses are composed primarily of brokerage, ceding
commissions and excise taxes. Brokerage on property catastrophe excess of loss
contracts is 10% of ceded premiums. Pro rata of property catastrophe contracts
have varying rates of brokerage, ceding and profit commissions that are
individually negotiated based on the underlying risks of each contract and
generally are not dependent on geographic factors. These commissions range
from 0% to 45% of ceded premiums and averaged 9.8% of net premiums written for
the year ended September 30, 1996. United States federal excise tax on
premiums paid by United States domiciled cedents is 1% of ceded premiums. In
addition, underwriting expenses include underwriting services fees and,
depending upon the Company's financial performance, underwriting profit
commissions payable to an affiliate of CNA pursuant to the Underwriting
Services Agreement. Until December 31, 1995, LaSalle Re paid CNA Bermuda
underwriting fees equal to 2% for the first $150 million of gross written and
collected premiums per fiscal year and 1.5% thereafter and, for periods during
which the Company's loss ratio since inception of LaSalle Re was 57% or less,
subject to certain conditions, an underwriting profit commission of 2.5% of
the aggregate net underwriting profits of LaSalle Re. Effective January 1,
1996, these fees equalled 1.5% of gross
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<PAGE>
written and collected premium per fiscal year and, subject to the same loss
ratio test and conditions, an underwriting profit commission of 4.0% of the
aggregate net underwriting profits of LaSalle Re. LaSalle Re accrued
underwriting service fees to CNA Bermuda of $3.1 million, $3.5 million and
$1.5 million for the years ended September 30, 1996, 1995 and the period from
October 26, 1993 to September 30, 1994, respectively. In addition, the Company
incurred $4.1 million, $2.2 million and $nil in respect of profit commissions
to CNA Bermuda for the years ended September 30, 1996, 1995 and the period
from October 26, 1993 to September 30, 1994, respectively. All underwriting
expenses are charged to income on the same basis as the premiums to which they
relate are earned. The primary component of operating expenses is fees paid to
an affiliate of Aon pursuant to the Administrative Services Agreement with the
Company. See "Certain Transactions--Underwriting Services Agreement" and "--
Administrative Services Agreement."
The Company's loss and loss expense ratio is calculated by dividing the
losses and loss expenses incurred by net premiums earned. The expense ratio is
calculated by dividing underwriting expenses and operational expenses by net
premiums earned. The combined ratio is the sum of the loss and loss expense
ratio and the expense ratio. The loss and loss expense ratios and the combined
ratios fluctuate based on losses and loss expenses incurred, which are not
within the control of the Company. The underwriting expense component of the
expense ratio fluctuates in proportion to earned premiums and profitability of
the Company, while the operational expenses component consists primarily of
amounts payable to Aon Bermuda pursuant to the Administrative Services
Agreement and executive compensation. See "Certain Transactions--
Administrative Services Agreement."
The Company's financial statements are reported in U.S. dollars. The Company
writes a significant amount of business in currencies other than U.S. dollars
and therefore is exposed to risks relating to fluctuations in foreign currency
exchange rates. These risks include exposure to changes in net cash inflows on
non-U.S. dollar denominated insurance premiums and exposure to reinsurance
losses denominated in non-U.S. currencies. The Company may from time to time
experience significant exchange gains or losses as a result of fluctuations in
foreign currency exchange rates, which will affect the Company's statement of
operations. In an effort to manage its exposure to foreign currency exchange
rate fluctuations, the Company from time to time enters into foreign exchange
contracts. See "Business--Investments--Foreign Currency Exposures."
RESULTS OF OPERATIONS
Year Ended September 30, 1996 Compared with Year Ended September 30, 1995
Net premiums written decreased 5.8% to $190.2 million for the year ended
September 30, 1996 from $201.9 million for the year ended September 30, 1995,
as a result of a reduction in United States property catastrophe excess of
loss premiums and adjustments on current and prior years' premium estimates.
The overall decrease was mitigated by a 26.4% increase in premiums written in
other lines of business to $22.1 million for the year ended September 30, 1996
from $17.4 million for the year ended September 30, 1995. Of the net premiums
written for the years ended September 30, 1996 and 1995, $164.6 million and
$178.5 million, respectively, were attributable to property catastrophe excess
of loss and pro rata of property catastrophe reinsurance. The total number of
contracts bound by the Company increased from 893 for the year ended September
30, 1995 to 995 for the year ended September 30, 1996. Reinstatement premiums
for the year ended September 30, 1996 totaled $5.5 million and related to a
variety of worldwide events. In the year ended September 30, 1995,
reinstatement premiums were $5.9 million, of which approximately 50% related
to hurricanes Luis and Marilyn.
Net premiums earned increased 14.5% to $195.1 million for the year ended
September 30, 1996 from $170.4 million for the year ended September 30, 1995.
The magnitude of this increase was primarily due to the overall increase in
premiums written in the third and fourth quarters of fiscal 1995 compared with
fiscal 1994, which had a subsequent impact on net premiums earned in fiscal
1996 and fiscal 1995, respectively.
Net investment income increased 6.8% to $26.8 million for the year ended
September 30, 1996 from $25.1 million for the year ended September 30, 1995.
This increase was primarily attributable to a larger average
26
<PAGE>
investment base in the year ended September 30, 1996 compared to the year
ended September 30, 1995. Investment income as a percentage of the average
market value of invested assets was 5.44% for the year ended September 30,
1996 compared to 5.38% for the year ended September 30, 1995.
Net realized losses on investments were $0.5 million during the year ended
September 30, 1996 compared to net realized losses of $25,000 during the year
ended September 30, 1995. In accordance with GAAP for investments classified
as available for sale, unrealized gains and losses on the Company's investment
portfolio are not recognized in the Company's consolidated results of
operations but are reflected as a separate component of shareholders' equity,
net of minority interest.
The following table sets forth the Company's combined ratios for the years
ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1996 1995
------------ ------------
<S> <C> <C> <C> <C>
Loss and loss expense ratio.................. 26.4% 35.5%
Expense ratio................................ 19.6 17.1
------------ ------------
Combined ratio............................... 46.0% 52.6%
============ ============
</TABLE>
Losses and loss expenses incurred decreased 14.8% to $51.5 million for the
year ended September 30, 1996 from $60.4 million for the year ended September
30, 1995. The Company has not been affected by any significant catastrophic
events in the year ended September 30, 1996; however, additional reserves of
$14.2 million were established for hurricanes Luis and Marilyn, which occurred
in September 1995. Other losses emanate from the 1996 hurricane season and the
end of the 1995 hurricane season, winter/spring storms in the United States,
the United Kingdom and Northern Europe and satellite losses from the in-orbit
portion of coverages. Losses and loss expenses incurred in the year ended
September 30, 1995 included $27.3 million in respect of hurricanes Luis and
Marilyn, with the balance of the losses and loss expenses relating to a
variety of worldwide incidents.
Underwriting expenses increased 18.6% to $27.3 million for the year ended
September 30, 1996 from $23.0 million for the year ended September 30, 1995,
primarily attributable to the growth in net premiums earned. As a percentage
of net premiums earned, underwriting expenses increased from 13.5% for the
year ended September 30, 1995 to 14.0% for the year ended September 30, 1996.
This increase was attributable to an increase in the level of fees accrued
pursuant to the Underwriting Services Agreement, which as a percentage of net
premiums earned were 3.7% for the year ended September 30, 1996 and 3.3% for
the year ended September 30, 1995. The Company's brokerage, ceding and profit
commissions were comparable for the years ended September 30, 1996 and 1995 at
10.3% and 10.2%, respectively.
Operational expenses increased 78.7% to $11.1 million for the year ended
September 30, 1996 from $6.2 million for the year ended September 30, 1995.
This increase was primarily due to increased staff at the executive level and
increased fees under the Administrative Services Agreement.
Interest expense was $0.2 million during the year ended September 30, 1996
compared with no expense in the year ended September 30, 1995. Interest
expense in the year ended September 30, 1996 related to agency fees and
ongoing commitment fees payable on the Company's credit facility. As at
September 30, 1996, there were no borrowings under this credit facility.
Foreign exchange losses in the year ended September 30, 1996 were $1.1
million compared to $0.2 million in the year ended September 30, 1995. The
losses in the year ended September 30, 1996 were due to the weak performance
of the United States dollar against the Yen in conjunction with a
strengthening of Sterling in excess of the average foreign exchange contract
rates. In the year ended September 30, 1995, the Company experienced foreign
currency losses, principally as a result of the weakening of Sterling against
the United States dollar.
Income before minority interest increased 23.9% to $129.5 million for the
year ended September 30, 1996 from $104.4 million for the year ended September
30, 1995. This increase was primarily due to an increase in net premiums
earned and a decrease in losses and loss expenses incurred.
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<PAGE>
The Company's net income per share was $5.40 for the year ended September 30,
1996 compared to $4.51 for the year ended September 30, 1995.
Year Ended September 30, 1995 and Period from October 26, 1993 through
September 30, 1994
LaSalle Re was incorporated in October 1993 and commenced operations on
November 22, 1993.
Net premiums written increased 51.4% to $201.9 million for the year ended
September 30, 1995 from $133.3 million for the 1994 period, primarily due to
increased writings of property catastrophe reinsurance. Of the net premiums
written for the 1995 year and 1994 period, $178.5 million and $117.8 million,
respectively, were attributable to property catastrophe excess of loss and pro
rata property catastrophe reinsurance. The total number of contracts bound by
the Company increased from 508 for the 1994 period to 893 for the year ended
September 30, 1995. Reinstatement premiums were $5.9 million in the year ended
September 30, 1995 and $8.2 million in the 1994 period. Approximately 50% of
the reinstatement premiums recorded in 1995 related to hurricanes Luis and
Marilyn. Primarily all of the 1994 reinstatement premiums were attributable to
the Northridge, California earthquake.
Net premiums earned increased 121.3% to $170.4 million for the year ended
September 30, 1995 from $77.0 million for the 1994 period. This increase was
primarily a result of the greater volume of premiums written in the year ended
September 30, 1995 together with the earnings of premiums written in the 1994
period that were unearned at September 30, 1994.
Net investment income increased 59.2% to $25.1 million for the year ended
September 30, 1995 from $15.8 million for the 1994 period. This increase was
primarily attributable to a larger investment base and an increase in yields,
particularly in the second quarter of the year ended September 30, 1995.
Investment income as a percentage of the average market value of investments
and cash was 5.4% and 4.7% for the year ended September 30, 1995 and the 1994
period, respectively.
The following table sets forth the Company's combined ratios for the year
ended September 30, 1995 and the period from October 26, 1993 through September
30, 1994:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
Loss and loss expense ratio................... 35.5% 64.7%
Expense ratio................................. 17.1 16.6
---- ----
Combined ratio................................ 52.6% 81.3%
==== ====
</TABLE>
Losses and loss expenses incurred increased 21.3% to $60.4 million for the
year ended September 30, 1995 from $49.8 million for the 1994 period. The main
component of losses and loss expenses incurred in the year ended September 30,
1995 were losses of $27.3 million related to hurricanes Luis and Marilyn, which
occurred in September 1995. The balance of the losses and loss expenses relate
to a variety of worldwide incidents including property risk excess losses of
$7.9 million, development of the Northridge, California earthquake of $5.8
million and summer flooding in Norway of $4.4 million. In 1994, the Northridge,
California earthquake resulted in losses of $42.3 million, representing
approximately 85% of total losses incurred in the 1994 period.
Underwriting expenses increased 164.7% from $8.7 million for the 1994 period
to $23.0 million for the year ended September 30, 1995, primarily due to the
growth in net premiums earned. As a percentage of net premiums earned,
underwriting expenses were 13.5% for the year ended September 30, 1995 and
11.3% for the 1994 period. The increase is primarily due to the accrual of a
$2.1 million underwriting profit commission incurred pursuant to the
Underwriting Services Agreement. No underwriting profit commission was accrued
in respect of the 1994 period because the conditions for earning such
commission were not satisfied. See "Certain Transactions--Underwriting Services
Agreement."
Operational expenses increased 52.9% to $6.2 million for the year ended
September 30, 1995 from $4.1 million for the 1994 period. The increase is
primarily due to increased fees of $1.7 million under the Administrative
Services Agreement. See "Certain Transactions--Administrative Services
Agreement."
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<PAGE>
As a result of a relatively stable U.S. dollar and the placement of foreign
currency contracts, the Company experienced a foreign exchange loss of $0.2
million for the year end September 30, 1995 compared with a $1.6 million gain
for the 1994 period. Due to the Kobe, Japan earthquake and the potential for
loss payments in Yen, the Company did not place foreign currency contracts for
Yen balances during the year ended September 30, 1995 and sustained a loss on
this currency of $0.4 million.
Income before minority interest increased 249.3% to $104.4 million for the
year ended September 30, 1995 from the 1994 period. This increase was due
primarily to increases in net premiums earned and net investment income. The
Company's net income per share increased to $4.51 for the year ended September
30, 1995 from $1.31 for the 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, Holdings' assets consist primarily of the outstanding
voting stock of LaSalle Re and its cash flows depend primarily on dividends
and other permitted payments from LaSalle Re.
LaSalle Re's sources of funds consist of net premiums written, investment
income and proceeds from sales and redemptions of investments. Cash is used
primarily to pay losses and loss expenses, brokerage commissions, excise
taxes, administrative expenses and dividends. Under the Insurance Act, LaSalle
Re is prohibited from paying dividends of more than 25% of its opening
statutory capital and surplus unless it files an affidavit stating that it
will continue to meet the required solvency margin and minimum liquidity ratio
requirements and from declaring or paying any dividends without the approval
of the Minister of Finance if it failed to meet its required margins in the
previous fiscal year. The Insurance Act also requires LaSalle Re to maintain a
minimum solvency margin and minimum liquidity ratio and prohibits dividends
which would result in a breach of these requirements. In addition, LaSalle Re
is prohibited under the Insurance Act from reducing its total opening
statutory capital by more than 15% without the approval of the Minister of
Finance. See "Business--Regulation." LaSalle Re currently meets these
requirements. In addition, the payment of dividends by LaSalle Re is subject
to the rights of holders of the Exchangeable Non-Voting Shares to receive a
pro rata share of any dividend and to its need to maintain shareholders'
equity adequate to support the level of LaSalle Re's insurance operations.
Operating activities provided net cash of $131.4 million for the year ended
September 30, 1996 and $130.2 million for year ended September 30, 1995. Cash
flows from operations in future years may differ substantially from net
income. Cash flows are affected by loss payments, which, due to the nature of
the reinsurance coverage provided by LaSalle Re, are generally expected to
comprise large loss payments on a limited number of claims and can therefore
fluctuate significantly from year to year. The irregular timing of these large
loss payments can create significant variations in cash flows from operations
between periods. LaSalle Re funds such payments from cash flows from
operations and sales of investments.
As a result of the potential for large loss payments, LaSalle Re maintains a
substantial portion of its assets in cash and marketable securities. As of
September 30, 1996, 84.7% of its total assets were held in cash and marketable
securities. To further mitigate the uncertainty surrounding the amount and
timing of potential liabilities and to minimize interest rate risk, LaSalle Re
maintains a short average duration for its investment portfolio. The modified
average duration of the portfolio was 2.57 years at September 30, 1996. At
September 30, 1996, the fair value of the Company's total investment
portfolio, including cash, was $537.5 million.
The Company has adopted the Statement of Financial Accounting Standard 115
("SFAS 115") to account for its marketable securities. In accordance with SFAS
115, all of the Company's investments are classified as "available for sale."
Under this classification, investments are recorded at fair market value and
any unrealized gains or losses are reported as a separate component of
shareholders' equity. The unrealized loss on the investment portfolio net of
amounts attributable to minority interest was $1.9 million at September 30,
1996 compared to $1.0 million at September 30, 1995.
As of September 30, 1996, all of the securities held in the Company's
investment portfolio were fixed-income securities rated "A" or better by S&P
or Moody's Investors Services Inc. ("Moody's"). No single
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<PAGE>
investment comprised more than 5% of the overall portfolio. See "Business--
Investments" and Notes 3 and 8 to Consolidated Financial Statements for
additional information regarding the Company's investment portfolio.
In March, October and November 1995, LaSalle Re paid cash dividends on its
capital stock in the aggregate amounts of $30 million, $75 million and $25
million, respectively. In April, July and October, 1996, the Company paid
dividends of $0.25, $0.25 and $0.25 per Common Share to holders of its capital
stock. In October 1996, the Company adopted a dividend policy pursuant to
which it intends to distribute in each fiscal year 50% to 60% of the Company's
net income from the prior fiscal year, if any, on a quarterly basis. In 1997,
the Company expects to distribute 50% of its fiscal 1996 net income. Based on
the Company's net income for the year ended September 30, 1996, the Company
currently expects to declare a quarterly dividend of $0.71 per share payable
in January 1997. The actual amount and timing of any future dividends,
including the proposed dividend payable in January 1997, is at the discretion
of the Board and is dependent upon the profits and financial requirements of
the Company and other factors, including certain legal, regulatory and other
restrictions. There can be no assurance that the Company's dividend policy
will not change or that the Company will declare or pay any dividends. See
"Dividend Policy."
As part of its capital management strategy, the Company currently intends to
repurchase up to $50 million of Common Shares in open market or privately
negotiated transactions from time to time depending on market conditions and
the Company's capital and liquidity requirements. The Company expects that any
share repurchases will be funded by available cash.
In accordance with the terms of certain reinsurance contracts, the Company
has posted letters of credit in the amount of $15.5 million as of September
30, 1996 as compared to $15.7 million as of September 30, 1995. These letters
of credit support outstanding loss reserves and are secured by a lien on the
Company's investment portfolio equal to 115% of the amount of the outstanding
letters of credit.
The Company made loss payments of $68.3 million during the year ended
September 30, 1996 as compared to $31.5 million for the year ended September
30, 1995. The majority of the payments made in the year ended September 30,
1995 related to the Northridge, California earthquake, which increased as
cedent paid losses exceeded Company attachment points and loss payments were
required. As of September 30, 1996, the Company paid a total of $37.6 million,
or 76.7%, of total incurred losses of $48.0 million relating to the
Northridge, California earthquake (as compared to $29.0 million, or 60.4%, of
such total incurred losses as of September 30, 1995). The majority of loss
payments in 1996 relates to hurricanes Luis and Marilyn, for which the Company
paid a total of $33.8 million, or 81.4% of total incurred losses of $41.2
million (as compared to $0.6 million, or 1.5%, of such total incurred losses
as of September 30, 1995).
At September 30, 1996, reserves for unpaid losses and loss expenses were
$49.9 million. The Company has no material commitments for capital
expenditures.
The Company has in place a $100 million committed line of credit from a
syndicate of banks. The proceeds from the credit facility may only be used to
buy preferred shares of LaSalle Re, which in turn may use the proceeds of such
purchase to meet current cash requirements. The facility matures December 1,
2000, and is secured by a pledge ("legal mortgage") of all the capital stock
of LaSalle Re held by the Company, including any preferred shares that may be
issued by LaSalle Re to the Company. The line of credit contains various
covenants, including: limitations on incurring additional indebtedness;
prohibitions of dividend and other restricted payments that would cause the
Company's tangible net worth (total shareholders' equity and minority
interest) to fall below $350 million for calendar year 1996, $375 million for
calendar years 1997 and 1998, and $400 million thereafter; restriction of
dividends per fiscal quarter to 12.5% of consolidated net income of the
Company for the immediately preceding fiscal year; restrictions on the sale or
lease of assets not in the ordinary course of business; maintenance of a ratio
of consolidated total debt to consolidated tangible net worth of no more than
0.40 to 1.00; maintenance of tangible net worth at the end of each fiscal year
of the greater of $250 million or 70% of net premiums written; maintenance of
statutory capital of LaSalle Re at the end of each fiscal year of at least
$250 million; and maintenance of a ratio of net premiums written to statutory
capital at the end of any fiscal quarter for the four fiscal quarters then
ended of no more than 1.00 to 1.00 in each case. In order
30
<PAGE>
for Holdings to pay dividends in excess of 50% of net income, the Company
would have to renegotiate certain terms of its credit facility. See "Risk
Factors--Volatility of Financial Results; Capital Management Strategy." As of
September 30, 1996, the credit facility had not been utilized.
The Company's financial condition and results of operations are influenced
by both internal and external forces. Loss payments, investment returns and
premiums may be impacted by changing rates of inflation and other economic
conditions. Cash flows from operations and the liquidity of its investment
portfolio are, in the Company's opinion, adequate to meet the Company's
expected cash requirements over the next 12 months.
INFLATION
The Company believes that inflation has not had a significant effect on
operations to date. Nonetheless, inflation does increase the value of insured
property, which may increase losses and loss expenses incurred by the Company,
and also affects investment returns.
BUSINESS
OVERVIEW
The Company writes high severity, low frequency reinsurance on a worldwide
basis through its subsidiary, LaSalle Re. The Company primarily writes
property catastrophe reinsurance and also writes selected other lines of
reinsurance when it believes that market conditions are favorable. These lines
currently include property risk excess, property pro rata treaty, casualty
clash, marine, crop hail, aviation and satellite. The Company believes that
these other lines will constitute a growing portion of the Company's total
portfolio of reinsurance business, helping to moderate the volatility of its
property catastrophe reinsurance business.
The Company has been successful in attaining a selective and geographically
diverse portfolio of property catastrophe reinsurance risks. In the year ended
September 30, 1996, 41.7% of the Company's net premiums written represented
U.S.-based risks, 11.6% represented continental Europe-based risks, 8.6%
represented U.K.-based risks and 36.2% represented risks located in a variety
of other geographic zones elsewhere in the world. As a result of long-term
relationships between the Company's management and certain clients and
brokers, the Company has developed a strong base of regional business in the
U.S. This business assists the Company in diversifying its U.S.-based risks
and makes more efficient use of its capital by limiting multi-zone exposures.
In the year ended September 30, 1996, this regional business represented a
significant component of the Company's U.S.-based net premiums written.
At September 30, 1996, the Company had Combined Equity of $486.9 million
compared to $400.8 million at September 30, 1995. It achieved annualized
returns on average Combined Equity of 29.2% and 26.6%, respectively, and
combined ratios of 46.0% and 52.6%, respectively, for the years ended
September 30, 1996 and 1995. In addition, its loss and loss expense ratios
were 26.4% and 35.5% for the same periods. The Company wrote net premiums of
$190.2 million and $201.9 million, respectively, for the years ended September
30, 1996 and 1995. There can be no assurance that the Company will achieve
similar results in the future.
CAPITAL MANAGEMENT STRATEGY
The Company has adopted a capital management strategy focused on balancing
capital levels with aggregate exposures while seeking to achieve average
annualized returns on shareholders' equity of 20% to 25% over time. Consistent
with this strategy, in October 1996, the Company adopted a dividend policy
pursuant to which it intends to distribute in each fiscal year 50% to 60% of
the Company's net income from the prior fiscal year, if any, on a quarterly
basis. In 1997, the Company expects to distribute 50% of its fiscal 1996 net
income. Based on the Company's net income for the year ended September 30,
1996, the Company currently expects to pay a quarterly dividend of $0.71 per
share in January 1997. See "Dividend Policy." In support of its dividend
policy and to protect its capital base, the Company currently is negotiating
the purchase of non-traditional, multi-year reinsurance protection to reduce
earnings volatility resulting from one or more severe catastrophic events over
a period of years. There can be no assurance that the Company will be able to
obtain such reinsurance on terms acceptable to it.
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<PAGE>
As part of its capital management strategy, the Company also intends to
repurchase up to $50 million of Common Shares in open market or privately
negotiated transactions from time to time depending on market conditions and
the Company's capital and liquidity requirements. The Company expects this
share repurchase program to commence in early calendar year 1997.
The Company believes that its capital management strategy is attractive to
investors, while its level of capital and surplus offers financial security to
cedents and demonstrates to brokers and clients a commitment to property
catastrophe reinsurance. The Company's ability to implement its capital
management strategy in the future will depend on various factors, some of
which are beyond its control, and is subject to change at the discretion of
the Board. See "Risk Factors" and "Dividend Policy."
OPERATING STRATEGIES
The Company pursues the following operating strategies which, in conjunction
with its capital management strategy, are intended to maximize return on
shareholders' equity:
Focus on Property Catastrophe Reinsurance. The Company concentrates on
writing property catastrophe reinsurance of risks located throughout the
world. For the years ended September 30, 1996 and 1995, the Company derived
86.5% and 88.4%, respectively, of its net premiums written from property
catastrophe reinsurance. The high level of severity and frequency of property
catastrophe losses from 1987 through 1992 precipitated a general increase in
rates and attachment points in this line of reinsurance. Although rates have
declined from their highs in 1993 and 1994, the Company believes that property
catastrophe reinsurance can still be significantly profitable for a reinsurer,
such as the Company, that has the financial strength, flexibility and
responsiveness needed to attract quality business and the high level of
technical underwriting judgment and skill necessary to price risks
appropriately.
Selectively Write Other Lines of Business. While property catastrophe
reinsurance is the Company's primary focus, the Company also seeks to take
advantage of pricing opportunities that may occur in other lines of
reinsurance. These lines generally are characterized by a relatively short
period between the collection of premium and the notification of loss. These
lines currently include property risk excess and pro rata treaty insurance,
which constituted 5.1% and 2.6% of the Company's net premiums written in the
years ended September 30, 1996 and 1995, respectively. The Company also writes
casualty clash, marine, crop hail, aviation and satellite reinsurance. For the
years ended September 30, 1996 and 1995, these coverages represented 6.5% and
6.0%, respectively, of the Company's net premiums written. The Company
believes that writing these types of reinsurance enhances the utilization of
capital because these lines generally do not create additional aggregate
exposure for the Company. In addition, the Company has formed LaSalle Re
Capital to provide capital support to selected Lloyd's syndicates commencing
in January 1997. See "Business--Reinsurance Products."
Utilize a Disciplined Underwriting Approach. Underwriting decisions are made
following analysis of each reinsurance contract based on the expected
incremental return on equity in relation to the Company's overall portfolio of
reinsurance contracts. To assess its property catastrophe risks, the Company
uses a variety of underwriting techniques, including simulation models,
exposure ratings and experience ratings. The Company has developed its
proprietary L-CAM(TM) catastrophe analysis model to assess its risks in the
U.S. property catastrophe market. The Company controls and monitors its
aggregate exposures on a real-time basis using computer-based rating and
control systems. The Company is highly selective in accepting risks, extending
coverage on approximately only 29.1% and 24.4% of the contract submissions it
received in the years ended September 30, 1996 and 1995, respectively. See
"Business--Underwriting."
Maintain and Develop Relationships with Clients and Brokers. The Company
seeks to maintain and develop long-term relationships with its clients by
providing a high level of service. The Company promptly responds to
underwriting submissions, designs customized programs, offers lead terms when
circumstances warrant and pays valid claims within an average of five days.
The Company retains a substantial portion of its clients
from year to year. Retention of clients permits the Company to use its
knowledge of their underwriting practices and risk management systems to
underwrite its own business with greater precision. In addition, the Company's
relationships with brokers permit it to obtain business and monitor
developments in various lines of reinsurance in order to increase its writings
when market conditions in those lines are favorable. See "Business--
Marketing."
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<PAGE>
INDUSTRY TRENDS
The Company believes that an imbalance between the supply of and demand for
property catastrophe reinsurance existed in 1993 and resulted in an increase
in premiums from pre-1993 levels. The Company believes that the decrease in
supply of property catastrophe capacity was attributable to the withdrawal, in
whole or in part, of certain reinsurers, including syndicates at Lloyd's, from
the property catastrophe market. Such withdrawals followed a succession of
property catastrophe losses by those reinsurers that began in 1987 and
culminated with hurricane Andrew, which caused insured claims in excess of $16
billion, as estimated by the Property Claims Service Division of the American
Insurance Services Group, Inc. The Company believes that the losses suffered
by many of such reinsurers were attributable, in part, to their failure to
control aggregate and geographic exposures, to monitor probability of loss and
risk of ruin and, in certain cases, to write treaties with aggregate limits.
The Company believes that the increase in demand for property catastrophe
reinsurance was attributable to several factors. Among those factors, the
significant property catastrophe losses occurring in 1987 and afterwards
caused many insurers and reinsurers to reexamine their assumptions regarding
their need for reinsurance protection from catastrophe exposures. Also, rating
agencies of insurers and reinsurers began to pay closer attention to
catastrophe exposures. For example, A.M. Best now requires completion of a
catastrophe loss analysis questionnaire dealing with expected claims resulting
from potential catastrophic events. Furthermore, the Statement of Financial
Accounting Standard 113--Accounting and Reporting for Reinsurance of Short-
Duration and Long-Duration Contracts and Issue 93-6 of the Emerging Issues
Task Force prompted insurers to reduce the use of certain types of financial
reinsurance, such as funded covers, that were traditionally used by insurers
as a means of managing catastrophe exposure. Some insurers that previously had
purchased financial reinsurance began seeking to purchase catastrophe
reinsurance instead, further increasing the demand for property catastrophe
reinsurance. Finally, a general increase in insured property values in
catastrophe-exposed areas has contributed to increased demand for property
catastrophe insurance and reinsurance.
The Company believes that the supply and demand imbalance led to the entry
into the market of eight Bermuda-based property catastrophe reinsurance
companies, including the Company. The Company estimates that these reinsurers
had aggregate capital and surplus of approximately $5.2 billion at December
31, 1995 and wrote approximately 25% to 30% of the worldwide property
catastrophe net premiums written in 1995. As a result of the increased
property catastrophe reinsurance capacity, the Company believes that supply
and demand in the property catastrophe reinsurance market became more stable
in 1994 and have remained relatively stable in succeeding years. Based on the
Company's marketing efforts, reinsurance contract submissions and publicly
available information, the Company believes that property catastrophe rates
generally remained at the substantially increased 1993 levels in 1994 and
decreased somewhat in 1995 from 1994 levels. On these same bases, the Company
believes that rates in 1996 have decreased from levels in 1995. In particular,
rates have declined significantly in areas, such as Japan and Europe, where
there has been favorable loss experience, while in the U.S. market, where the
level of property catastrophe losses has generally been higher than in
international markets in recent years, rates have decreased to a lesser
degree. Notwithstanding these rate decreases, the Company believes that
current rates substantially exceed 1992 levels. If and while favorable loss
experience continues and reinsurance capacity does not diminish, the Company
expects further downward pressure on rates during 1997.
REINSURANCE PRODUCTS
The Company's property catastrophe reinsurance contracts cover unpredictable
events such as hurricanes, windstorms, hailstorms, earthquakes, fires,
industrial explosions, freezes, riots, floods and other man-made or natural
disasters. The Company's predominant exposure under such coverages is to
property damage. However, other risks, including business interruption and
other non-property losses, may also be covered when arising from a covered
peril. In accordance with market practice, the Company's property catastrophe
reinsurance contracts generally exclude certain risks such as war, nuclear
contamination and radiation.
33
<PAGE>
The Company's property catastrophe reinsurance contracts provide for
aggregate limits on exposure to losses and require cedents to incur insured
losses in specified amounts before the Company becomes obligated to pay
claims. Consequently, the Company expects that most claims under its contracts
will be the result of relatively few high loss catastrophic events. The
Company seeks to moderate its exposure by writing various lines of
reinsurance, limiting the amount of its exposure in each geographic zone
worldwide and implementing exposure limits and attachment points on each
program. Historically, the Company has not used retrocessions to manage its
exposures. Currently, the Company is negotiating the purchase of non-
traditional, multi-year reinsurance protection to reduce earnings volatility
resulting from one or more severe catastrophic events over a period of years.
There can be no assurance that the Company will be able to obtain such
reinsurance on terms acceptable to it.
The occurrence of claims from catastrophic events is likely to result in
substantial volatility in the Company's financial results for any fiscal
quarter or year and could have a material adverse effect on the Company's
financial condition and results of operations and its ability to write new
business. Catastrophic events of significant magnitude historically have been
relatively infrequent, although the Company believes that the property
reinsurance market has experienced a high level of worldwide catastrophic
losses in terms of both frequency and severity from 1987 to the present as
compared with prior periods. The Company expects that increases in the values
and concentrations of insured property and the effects of inflation will
increase the severity of such occurrences per year in the future. See "Risk
Factors--Volatility of Financial Results; Capital Management Strategy."
Types of Reinsurance
The following table sets forth the Company's net premiums written and number
of contracts written by type of reinsurance for the periods indicated (dollars
in millions):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
---------------------- ----------------------
NET PREMIUMS NUMBER OF NET PREMIUMS NUMBER OF
TYPE OF REINSURANCE WRITTEN CONTRACTS WRITTEN CONTRACTS
------------------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Property catastrophe reinsurance:
Excess of loss................. $122.4 832 $135.7 773
Pro rata....................... 42.2 10 42.8 10
Other lines of business:
Property--risk excess and pro
rata.......................... 9.7 70 5.3 59
Casualty clash................. 3.0 30 2.6 27
Marine......................... 4.6 17 3.1 4
Miscellaneous.................. 4.8 36 6.4 20
Adjustments and reinstatement
premiums...................... 3.5 -- 6.0 --
------ --- ------ ---
Total........................ $190.2 995 $201.9 893
====== === ====== ===
</TABLE>
Property Catastrophe. The largest portion of the Company's business consists
of property catastrophe excess of loss contracts. Property catastrophe excess
of loss reinsurance provides coverage when total losses and loss expenses from
a single occurrence of a covered peril under a portfolio of primary
reinsurance contracts exceed the attachment point specified in the reinsurance
contract with the primary insurer. Some of the Company's property catastrophe
excess of loss policies limit coverage to one occurrence in a policy year, but
most policies provide for coverage of a second occurrence after the payment of
a reinstatement premium. The Company also writes a minimal amount of aggregate
property catastrophe excess of loss contracts, which cover more than one
catastrophe with one attachment point.
The Company writes pro rata of property catastrophe reinsurance treaties
when it believes that rates and volume are attractive. In such programs, the
Company assumes a specified proportion of the exposure under a portfolio of
excess of loss property catastrophe reinsurance contracts written by the
ceding reinsurer and receives
34
<PAGE>
an equal proportion of the premium received by the cedent. The cedent
generally receives a ceding commission, based upon the premiums ceded to the
reinsurer, and may also be entitled to receive a profit commission based on
the ratio of losses, loss expenses and the reinsurer's expenses to premiums
ceded. The Company generally requires that its pro rata of property
catastrophe contracts have aggregate exposure limits per occurrence on a zonal
basis. The Company generally obtains detailed information concerning each
underlying contract and the exposures underlying the risks it assumes and
audits the premiums associated with the cessions. However, the Company is
dependent upon the cedent's underwriting, pricing and claims administration to
yield an underwriting profit.
Other Lines of Business. The Company's property risk excess of loss
contracts cover a cedent's loss on a single "risk" in excess of the cedent's
attachment point, rather than covering multiple risks as does property
catastrophe reinsurance. A "risk" in this context might mean the insurance
coverage on one building or a group of buildings or the insurance coverage
under a single policy, which the reinsured treats as a single risk. In
property pro rata reinsurance treaties, the Company assumes a proportional
part of the original premiums and losses of the reinsured on non-catastrophe
reinsurance contracts. In property pro rata reinsurance, the reinsurer
generally pays the ceding company a ceding commission. The ceding commission
generally is based on the ceding company's cost of acquiring the business
being reinsured (including commissions, premium taxes, assessments and
miscellaneous administrative expense) and also may include a profit factor.
In addition to property risk excess of loss and pro rata, the Company also
writes other lines of reinsurance, which currently include casualty clash,
marine, crop hail, aviation and satellite. Casualty clash reinsurance protects
cedents against an aggregation of casualty losses incurred by multiple
insureds from a single event. In addition to aggregation of losses, casualty
clash coverage protects a reinsured against a single extraordinary loss caused
by a judgment in excess of the original policy limit issued (including
punitive damages) or an action by an original insured against the insurer for
"bad faith" handling of a claim (extra-contractual obligations). Marine and
aviation risks involve property damage, although they may also involve
casualty coverages arising from the same event causing the property claims.
Crop hail reinsurance provides property coverage for hail damage to crops.
Satellite reinsurance protects the reinsured primarily from losses relating to
launches, improper orbits and other losses in the early stages of the
satellite's life.
The Company has formed LaSalle Re Capital to provide capital support to
selected Lloyd's syndicates commencing in January 1997. The Company expects
that such support will be provided through letters of credit or a deposit of
funds at Lloyd's. The Company is currently negotiating with three syndicates.
One of such syndicates writes direct and facultative property insurance, one
writes marine insurance and reinsurance, and one writes professional indemnity
and directors and officers' insurance and bankers blanket bond business. There
can be no assurance that any such negotiations will result in a definitive
agreement. LaSalle Re Capital's provision of capital support to Lloyd's
syndicates is subject to approval by the appropriate regulatory authorities.
Geographic Diversification
The Company seeks to diversify its property catastrophe exposures across
geographic zones in order to optimize its spread of risk. For the year ended
September 30, 1996, 41.7% of the Company's net premiums written represented
U.S.-based risks. Within the United States, the Company's largest exposure on
a zonal basis is the West Coast, including Hawaii and Alaska. The remaining
58.3% of net premiums written was spread in other territories around the
world. This distribution of risk is subject to change and is dependent upon
rates available in various zones. The Company intends to continue its
expansion in international writings to further diversify its exposures. As a
result of long-term relationships between the Company's management and certain
clients and brokers, the Company has developed a strong base of regional
business in the U.S. This business assists the Company in diversifying its
U.S.-based risks and makes more efficient use of its capital by limiting
multi-zone exposures. In the year ended September 30, 1996, this regional
business represented a significant component of the Company's U.S.-based net
premiums written.
35
<PAGE>
The following table sets forth the percentage of the Company's net premiums
written allocated to the zone of exposure at the dates indicated (dollars in
millions):
<TABLE>
<CAPTION>
GEOGRAPHIC AREA SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
--------------- ------------------- -------------------
PERCENTAGE PERCENTAGE
NET OF NET NET OF NET
PREMIUMS PREMIUMS PREMIUMS PREMIUMS
WRITTEN WRITTEN WRITTEN WRITTEN
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
United States........................... $ 79.4 41.7% $ 91.6 45.4%
Europe (excluding the U.K.)............. 22.0 11.6 21.0 10.4
United Kingdom.......................... 16.3 8.6 14.1 7.0
Japan................................... 8.0 4.2 7.6 3.8
Australasia............................. 11.0 5.8 9.8 4.8
Worldwide............................... 22.0 11.6 26.9 13.3
Worldwide (excluding the U.S.)(1)....... 11.5 6.0 8.8 4.4
Other(2)................................ 16.5 8.6 16.1 8.0
Adjustments and reinstatements.......... 3.5 1.9 6.0 2.9
------ ----- ------ -----
Total............................... $190.2 100.0% $201.9 100.0%
====== ===== ====== =====
</TABLE>
- --------
(1) The category "Worldwide (excluding the U.S.)" consists of contracts that
cover more than one zone (none of which is in the U.S.). The exposure in
this category for business written to date is predominantly from Europe
and Japan.
(2) Other relates to other lines of reinsurance, including casualty clash,
marine, crop hail, aviation and satellite.
Program Limits
The following table sets forth the number of the Company's property
catastrophe excess of loss programs written in the year ended September 30,
1996 by aggregate excess of loss program limits:
<TABLE>
<CAPTION>
NUMBER OF
PROGRAMS
---------
<S> <C>
Greater than $15 million but less than $20 million.............. 2
$10-15 million.................................................. 15
$7.5-10 million................................................. 18
$5-7.5 million.................................................. 36
$2.5-5 million.................................................. 70
Less than $2.5 million.......................................... 209
---
Total....................................................... 350
===
</TABLE>
UNDERWRITING
The Company's principal underwriting strategy is to underwrite property
catastrophe exposures within clearly defined parameters that permit thorough
analysis and appropriate pricing of each of the Company's reinsurance
contracts. Underwriting decisions are made following analysis of each
reinsurance contract based on the expected incremental return on equity in
relation to the Company's overall portfolio of reinsurance contracts.
The Underwriting/Actuarial Committee of the Board has set limits on the
Company's aggregate exposure. The Company uses various methods to evaluate and
monitor its exposure to loss. The Company diversifies its property catastrophe
exposures worldwide and within each geographic zone and also maintains
exposure limits within each geographic zone. Aggregate exposures also are
controlled and monitored on a real-time basis using computer-based rating and
control systems. The Company imposes attachment points in its contracts at a
level that is expected to exceed frequency of loss and limits aggregate risk
exposure. In addition, the Company regularly reevaluates its pricing to ensure
that general market conditions remain attractive.
The Company obtains information from brokers, potential cedents and other
sources, as appropriate, in order to make informed underwriting decisions. A
potential cedent generally is not accepted without a thorough examination of
its historical record, management, business strategy, underwriting policies
and risk management systems. The Company also seeks to select clients with
disciplined catastrophe management programs. The Company seeks to build long-
term relationships with its clients because the Company believes that it can
underwrite renewal business with greater precision.
36
<PAGE>
The Company uses computer-based modeling systems to estimate exposure to
loss and evaluate pricing adequacy of its reinsurance programs. These models
are also used in the analysis of projected return on equity and the monitoring
of aggregate exposures within geographic zones.
For U.S.-based risks, the Company has developed a proprietary model called
L-CAM(TM) (LaSalle Catastrophe Analysis Model). L-CAM(TM) incorporates
commercially available catastrophe simulation models and the Company's
internally-generated models. The commercially available models include (i)
CATMAP(TM), which uses market share data derived from zip code and/or country
aggregate data to develop individual contract and portfolio loss statistics
and (ii) IRAS(TM), which derives loss statistics based on hypothetical risk
location determined from the most detailed information provided by the primary
insurer. Models developed by the Company and used in L-CAM(TM) include (i) the
Modified Historical Event Model, which fits a Pareto loss distribution to over
45 years of catastrophe loss data, adjusted for inflation and demographic
shifts, (ii) the Market Loss Pricing Model, which uses underwriting-zone
market share information to develop attachment and exhaustion probabilities
from which pricing input is determined and (iii) the Industry Peer Model,
which is a portfolio management tool selecting treaties in force with similar
characteristics for pricing considerations.
For non-U.S. based property catastrophe risks, the Company uses modeling
techniques which incorporate Pareto loss distributions with exposure rating
based on aggregate liabilities per geographic zone. The Company also examines
experience ratings of adjusted historical loss events and, for some non-U.S.
territories, uses a commercially available software program produced by
EQUECAT International, which utilizes probabilistic and deterministic loss
calculations.
For the other lines of reinsurance, the Company uses internal rating
techniques that incorporate, among other things, exposure and experience
ratings and thorough analysis of loss ratios and underwriting expenses
associated with the business to be reinsured. The Company carefully structures
the terms and conditions of its contracts to restrict coverage to the specific
perils intended.
The results of these analyses are measured against the Company's current
portfolio and other known treaties in the market and combined with
management's knowledge of the client and the current reinsurance market
environment. Pricing and participation decisions are then made based on the
estimated exposure of losses and the potential impact of each contract on
incremental return on equity.
Underwriting services are provided to the Company by CNA Bermuda pursuant to
the Underwriting Services Agreement. See "Certain Transactions--Underwriting
Services Agreement." A staff of five professionals with extensive experience
in the reinsurance industry currently serve as the Company's underwriting team
in Bermuda. The Company also has access to the reinsurance expertise of CNA in
terms of underwriting databases and technology, a staff of specialized
professionals and a worldwide network of contacts in the reinsurance market.
In addition, the underwriting of all new exposures is reviewed by the Chief
Executive Officer or Chief Underwriting Officer of the Company.
MARKETING
The Company markets its reinsurance products worldwide primarily through
reinsurance brokers. By marketing its products primarily through the broker
network, the Company avoids the expense of establishing and maintaining
worldwide offices and marketing operations. The Company believes that its
broker relationships permit it to obtain business and monitor developments in
various lines of reinsurance in order to increase its writings when market
conditions in those lines are favorable.
The Company maintains an office in London, England through LaSalle Re
Services. LaSalle Re Services introduces prospective customers to the Company
and provides an important liaison with brokers in the London Market, assisting
in the distribution of marketing literature and collecting information for
LaSalle Re on demand and developments in the London reinsurance market
generally. In addition, LaSalle Re Services plays a key role in the Company's
marketing efforts in Europe.
The Company strives to develop strong relationships with its brokers and
clients. Retention of clients permits the Company to use experience regarding
a client's underwriting practices and risk management systems to underwrite
its own business with greater precision. The Company also targets brokers and
clients that it
37
<PAGE>
believes will enhance the risk/return composition of its portfolio, are capable
of supplying detailed and accurate underwriting data and can potentially add
diversification to the Company's book of business. Additionally, the Company
believes that its level of capital and surplus offers financial security and
demonstrates to brokers and clients a high level of commitment to property
catastrophe reinsurance.
The Company focuses on providing high quality service by promptly responding
to underwriting submissions, designing customized programs and offering lead
terms when circumstances warrant and paying valid claims within an average of
five days. The Company believes that it has established a reputation with its
brokers and clients for high quality service.
The Company received approximately 3,423 contract submissions in the year
ended September 30, 1996 as compared to 3,667 in the year ended September 30,
1995. The Company is highly selective in accepting risks, extending coverage on
only 995 contracts, or 29.1% of the program submissions received, in the year
ended September 30, 1996. Subsidiaries and affiliates of Aon were brokers for
approximately 12.4% and 10.6% of the Company's net written premiums in the
years ended September 30, 1996 and 1995 respectively. Guy Carpenter & Company,
Inc., together with its affiliates, generated 16.6% of the Company's net
premiums written for the year ended September 30, 1996 and 21.1% of the
Company's net premiums written for the year ended September 30, 1995. No other
broker accounted for more than 10% of the Company's net premiums written for
the years ended September 30, 1996 or 1995.
Consistent with its emphasis on disciplined underwriting practices, the
Company is not obligated to accept any business from any intermediary,
including Aon, CNA or LaSalle Re Services. No intermediary has the authority to
bind the Company on any business.
RESERVES
The Company establishes loss reserves for the ultimate settlement costs of
all losses and loss expenses incurred with respect to business written by it.
As at September 30, 1996, the Company's total incurred losses and loss expenses
from inception was $161.7 million. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and Note 9 to LaSalle Re's
Consolidated Financial Statements. GAAP does not permit the Company to
establish reserves with respect to its property catastrophe reinsurance until
an event occurs that may give rise to a claim. As a result, only loss reserves
applicable to losses incurred up to the reporting date may be set aside, with
no allowance for the provision of a contingency reserve to account for expected
future losses.
The derivation of loss reserves involves the actuarial and statistical
projection at any given time of the Company's expectations of the ultimate
settlement of loss and loss expenses. These loss projections become necessary,
in large part, as a result of time lags associated with reinsurance loss
reporting. These lags are principally attributable both to claimant delays in
reporting to the primary carrier as well as primary and reinsurance company
delays in gathering statistics and subsequently reporting cession details to
the Company. As a result, in addition to the loss estimates reported by primary
insurers on known claims, actuarially projected estimates of reserves
applicable to both the development (growth) of known claims as well as the
emergence of new claims reports related to losses events which have been
incurred but not reported ("IBNR losses") prior to the evaluation date must be
developed. In addition to the impact of reporting lags upon the accuracy of
estimated loss liabilities, other factors have tremendous impact upon the
ultimate settlement of insured losses, including loss cost inflation, trends in
the amount of insurance purchased to the full value of insured properties and
trends in the size and demographics of insured populations. The loss reserve
estimates are not precise in that they necessarily involve an attempt to
predict the ultimate outcome of future loss reporting and settlement
activities.
To establish appropriate loss reserves, the Company uses a combination of
data sources and commercially available catastrophe models. These models are
employed upon the occurrence of an event to arrive at estimates of losses to
the Company. In addition, grouped and individual contract data illustrating the
loss development history for prior similar events, as well as actual loss
emergence experience of the underlying insurers, are analyzed to assist in the
determination of suitable loss reserves. The data derived from the industry
sources, and supplemented with the client specific information, are then used
to arrive at estimates of loss emergence patterns and initial estimates of
ultimate loss rates. These parameters are then applied, on a contract by
contract basis, to
38
<PAGE>
arrive at estimates of ultimate losses. These loss estimates are then
supplemented with the results derived from the catastrophe models, and final
loss estimates are selected and reduced for losses reported to the Company to
arrive at IBNR losses as of the date of evaluation.
The reserves are reviewed regularly by the Company's actuaries and executive
officers and the Board of Directors of LaSalle Re, and to the extent they
develop upward or downward, the results are reflected in the net income in the
period in which the reserve deficiency or redundancy is evaluated. There can be
no assurance that the final loss settlements will not exceed the Company's loss
reserve and have a material adverse effect upon the Company's financial
condition and results of operations in a particular period. See "Risk Factors--
Loss Reserves."
The Company determines its reserves with the assistance of actuarial staff
provided by Aon Bermuda pursuant to the Administrative Services Agreement. See
"Certain Transactions--Administrative Services Agreement."
INVESTMENTS
Composition of Portfolio
The Board has implemented a set of investment guidelines designed to meet the
Company's liquidity requirements and return objectives. The guidelines are
intended to be conservative, stressing preservation of principal, yield
enhancement through the identification of value and market inefficiencies,
market liquidity and risk reduction. The primary objective of the investment
portfolio, as set forth in the guidelines, is to maximize investment returns
consistent with these policies. The Company's investment guidelines are
reviewed periodically and are subject to change at the discretion of the Board.
The following table summarizes the composition of the Company's investment
portfolio as of September 30, 1996 and 1995 (dollars in millions):
<TABLE>
<CAPTION>
TYPE OF INVESTMENT SEPTEMBER 30,
------------------ --------------------------
1996 1995
------------ ------------
FAIR % OF FAIR % OF
VALUE TOTAL VALUE TOTAL
------ ----- ------ -----
<S> <C> <C> <C> <C>
Fixed maturities:
Non-U.S. government bonds and agencies............ $ 75.3 14.0% $ 63.3 12.1%
U.S. government bonds and agencies................ 90.1 16.8 4.9 0.9
Corporate bonds................................... 325.1 60.5 371.8 71.2
------ ----- ------ -----
Subtotal........................................ 490.5 91.3 440.0 84.2
Cash and cash equivalents........................... 47.0 8.7 82.4 15.8
------ ----- ------ -----
Total investments............................... $537.5 100.0% $522.4 100.0%
====== ===== ====== =====
</TABLE>
Quality of Portfolio
The Company has investment guidelines which restrict investments in
securities below an "AA" grade rating to 15% of the total portfolio, and only
10% can be invested in "BBB" grade rating. In addition, the guidelines restrict
investments in a single issuer to no greater than 5% of the market value of the
portfolio (except for U.S. and U.K. Government issues) and, with respect to
country of issue, to no greater than 25% of the market value of the portfolio,
except for U.S. and supernational borrowers.
The following table summarizes the composition of the Company's fixed
maturity portfolio by rating as assigned by S&P or Moody's as of September 30,
1996 and 1995 (dollars in millions):
<TABLE>
<CAPTION>
RATING SEPTEMBER 30,
------ --------------------------
1996 1995
------------ ------------
FAIR % OF FAIR % OF
VALUE TOTAL VALUE TOTAL
------ ----- ------ -----
<S> <C> <C> <C> <C>
AAA................................................. $310.5 63.3% $305.4 69.4%
AA.................................................. 126.1 25.7 134.6 30.6
A................................................... 53.9 11.0 -- --
------ ----- ------ -----
$490.5 100.0% $440.0 100.0%
====== ===== ====== =====
</TABLE>
39
<PAGE>
Maturity and Duration of Portfolio
The Company's investment guidelines specify a one to four year duration for
the Company's investment portfolio, reflecting the need to maintain a liquid,
short duration portfolio to assure the Company's ability to pay claims on a
timely basis. The Company currently has a target duration for the portfolio of
three years and at September 30, 1996, the modified average duration of the
portfolio was 2.57 years. The Company expects to periodically reevaluate the
target duration in light of market conditions, including the level of interest
rates, and estimates of the duration of its liabilities.
The following table summarizes the contractual maturities of the Company's
fixed maturity portfolio as of September 30, 1996 and 1995 (dollars in
millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1996 1995
------------ ------------
<S> <C> <C> <C> <C>
Due in less than one year..................... $ 99.8 20.4% $ 45.1 10.3%
Due in one to five years...................... 331.8 67.6 353.3 80.3
Due in five to ten years...................... 58.9 12.0 41.6 9.4
Greater than 10 years......................... -- -- -- --
------ ----- ------ -----
$490.5 100.0% $440.0 100.0%
====== ===== ====== =====
</TABLE>
Equity Securities/Real Estate
Pursuant to the Company's investment guidelines, the Company's investment
portfolio may not contain any direct investments in real estate, mortgage
loans or equity securities.
Foreign Currency Exposures
At present, the Company's fixed maturity portfolio is composed only of
securities denominated in U.S. dollars. In the future, the Company's
investment managers may be instructed to invest some of the fixed maturity
portfolio in securities denominated in currencies other than U.S. dollars
based upon the business the Company anticipates writing, the exposures and
claims reserves on the Company's books and the local currency outlook compared
to that of the U.S. dollar. The primary risk exposures and premiums receivable
are denominated in U.S. dollars, European currencies, Japanese yen and
Australian dollars.
In an effort to manage its exposure to foreign currency exchange rate
fluctuations, the Company from time to time enters into foreign exchange
contracts. These contracts generally involve the exchange of one currency for
U.S. dollars at some future date. At September 30, 1996, the Company had a
notional principal amount outstanding of approximately $25.2 million in
foreign exchange contracts as compared to $6.1 million at September 30, 1995.
The carrying value of these contracts at September 30, 1996 approximated their
fair value. Realized and unrealized gains or losses on these contracts are
recorded as an income item in the Company's consolidated statement of
operations. Foreign exchange contracts at September 30, 1996 generally had
maturities of six months or less and related to major Western currencies.
Diversification and Liquidity
Pursuant to the investment guidelines of the Company, no more than 25% of
the fair market value of the Company's investment portfolio may be invested in
the securities of any sovereign government or agency issuing in its own
currency (except for the U.S. and supernational entities). Additionally, no
more than 5% of the fair market value of the investment portfolio may be
invested in securities issued by any single issuer.
Investment Manager
LaSalle Re has entered into the Investment Management Agreement with Aon
Advisors (the "Investment Manager"). Pursuant to the terms of the Investment
Management Agreement, the Company pays the Investment
40
<PAGE>
Manager a fee equal to 0.35% per annum of the first $100 million of assets
under management, 0.25% per annum of the next $100 million of assets under
management in excess of $100 million and 0.15% per annum of any additional
assets under management in excess of $200 million. The terms of the Investment
Management Agreement were determined in arm's length commercial negotiations.
The performance of, and the fees paid to, the Investment Manager under the
Investment Management Agreement are reviewed periodically by the Board. See
"Certain Transactions--Investment Management Agreement."
COMPETITION
The property catastrophe reinsurance industry is highly competitive. The
Company competes, and will continue to compete, with major U.S. and non-U.S.
insurers and property catastrophe reinsurers, including other Bermuda based
property catastrophe reinsurers and CNA, some of which have greater financial
and organizational resources than the Company. There may be established
companies or new companies of which the Company is not aware which may be
planning to enter the property catastrophe reinsurance market or existing
reinsurers which may be planning to raise additional capital. In addition,
Lloyd's began to allow capital from corporate investors in 1994. Competition
in the types of reinsurance business that the Company underwrites is based on
many factors, including rates and other terms and conditions offered, services
provided, ratings assigned by independent rating agencies, speed of claims
payment and reputation, the perceived financial strength and experience of the
reinsurer in the line of reinsurance to be written.
In April 1996, LaSalle Re received an initial rating from A.M. Best of "A-"
(Excellent). Prior to that time, LaSalle Re was not rated by any rating
agency. The rating received by LaSalle Re represents the fourth highest in the
rating scale used by A.M. Best. In October 1996, LaSalle Re received an
initial rating of its claims paying ability from S&P of "A" (Good). The rating
received by LaSalle Re represents the sixth highest in the rating scale used
by S&P. Such ratings are based on factors of concern to cedents and brokers
and are not directed toward the protection of investors. Such ratings are
neither a rating of securities nor a recommendation to buy, hold or sell such
securities. While the Company believes that its new ratings will not be a
major competitive advantage or disadvantage, some of the Company's principal
competitors have higher ratings than the Company. Insurance ratings are one
factor used by brokers and cedents as a means of assessing the financial
strength and quality of reinsurers. In addition, a cedent's own rating may be
adversely affected by the lack of a rating of its reinsurer. Therefore, a
cedent may elect to reinsure with a competitor of the Company that has a
higher insurance rating. Similarly, the lowering or loss of a rating in the
future could adversely affect the Company's ability to compete.
The Company is not licensed or admitted as an insurer in any jurisdiction
other than Bermuda and has no plans to become so licensed or admitted. Because
jurisdictions in the United States do not permit insurance companies to take
credit for reinsurance obtained from unlicensed or non-admitted insurers on
their statutory financial statements unless security is posted, the Company's
reinsurance contracts generally require it to post a letter of credit or
provide other security for outstanding claims and/or unearned premiums. In
order to post these letters of credit, the Company generally is required to
provide the issuing banks with collateral equal to such amounts. As a result
of the size of the Company's capitalization, the Company does not believe that
its non-admitted status in any jurisdiction has, or should have, a material
adverse effect on its ability to compete or obtain business in the property
catastrophe reinsurance market in which it operates, principally because many
of the Company's competitors are not admitted or licensed in United States
jurisdictions. However, there can be no assurance that increased competitive
pressure from current reinsurers and future market entrants or the Company's
non-admitted status will not adversely affect the Company. See "Risk Factors--
Competition; Ratings; Non-Admitted Status."
EMPLOYEES
The Company has three employees, which are Mr. Blake, Chairman, Chief
Executive Officer and President of Holdings, Mr. Cook, Chief Financial Officer
and Treasurer of Holdings and the Company's Investor Relations Manager. In
addition to their activities, the Company's day-to-day operations are
performed by affiliates of Aon and CNA pursuant to the Service Agreements.
Under the Service Agreements, 31 employees of Aon and CNA
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are currently dedicated to the Company. See "Certain Transactions." The
Company believes that its employee relations are satisfactory. None of the
Company's employees are subject to collective bargaining agreements, and the
Company knows of no current efforts to implement such agreements at the
Company.
PROPERTIES
The Company is provided office space in Bermuda and London by Aon Bermuda
pursuant to the Administrative Services Agreement. See "Certain Transactions--
Administrative Service Agreement."
LEGAL PROCEEDINGS
The Company is not currently involved in any litigation or arbitration. The
Company expects, however, that it will be subject to litigation and
arbitration from time to time in the ordinary course of its business.
REGULATION
Bermuda
The Insurance Act 1978, as amended, and Related Regulations. As a holding
company, Holdings is not subject to Bermuda insurance regulations. However,
the Insurance Act, which regulates the insurance business of LaSalle Re,
provides that no person shall carry on an insurance business in or from within
Bermuda unless registered as an insurer under the Insurance Act by the
Minister of Finance (the "Minister"). The Minister, in deciding whether to
grant registration, has broad discretion to act as he thinks fit in the public
interest. The Minister is required by the Insurance Act to determine whether
the applicant is a fit and proper body to be engaged in the insurance business
and, in particular, whether it has, or has available to it, adequate knowledge
and expertise. The registration of an applicant as an insurer is subject to
its complying with the terms of its registration and such other conditions as
the Minister may impose at any time.
An Insurance Advisory Committee appointed by the Minister advises him on
matters connected with the discharge of his functions, and sub-committees
thereof supervise and review the law and practice of insurance in Bermuda,
including reviews of accounting and administrative procedures.
The Insurance Act imposes on Bermuda insurance companies solvency and
liquidity standards and auditing and reporting requirements and grants to the
Minister powers to supervise, investigate and intervene in the affairs of
insurance companies. Other significant aspects of the Bermuda insurance
regulatory framework are set forth below.
Cancellation of Insurer's Registration. An insurer's registration may be
cancelled by the Minister on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with its obligations under the
Insurance Act or, if in the opinion of the Minister after consultation with
the Insurance Advisory Committee, the insurer has not been carrying on
business in accordance with sound insurance principles.
Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer, both
of which, in the case of LaSalle Re, are required to be filed annually with
the Registrar of Companies (the "Registrar"), who is the chief administrative
officer under the Insurance Act. The independent auditor of the insurer must
be approved by the Minister and may be the same person or firm which audits
the insurer's financial statements and reports for presentation to its
shareholders.
Loss Reserve Specialist. LaSalle Re is registered as a Class 4 insurer.
Every Class 4 insurer is required to submit an annual loss reserve opinion
when filing the Annual Statutory Financial Return. This opinion must be issued
by a Loss Reserve Specialist. The Loss Reserve Specialist, who will normally
be a qualified casualty actuary, must be approved by the Minister.
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Statutory Financial Statements. An insurer must prepare Annual Statutory
Financial Statements. The Insurance Act prescribes rules for the preparation
and substance of such Statutory Financial Statements (which include, in
statutory form, a balance sheet, income statement, statement of capital and
surplus and detailed notes thereto). The insurer is required to give detailed
information and analyses regarding premiums, claims, reinsurance and
investments. The Statutory Financial Statements are not prepared in accordance
with GAAP and are distinct from the financial statements prepared for
presentation to the insurer's shareholders under the Companies Act 1981 of
Bermuda, which financial statements may be prepared in accordance with GAAP.
LaSalle Re is required to submit the Annual Statutory Financial Statements as
part of the Annual Statutory Financial Return.
Minimum Solvency Margin. The Insurance Act provides that the statutory
assets of an insurer must exceed its statutory liabilities by an amount
greater than the prescribed minimum solvency margin which varies with the type
of business and class of registration of the insurer and the insurer's net
premiums written and loss reserve level. As a registered Class 4 insurer,
LaSalle Re is required to maintain a minimum solvency margin equal to the
greatest of $100 million, 50% of its net premiums written and 15% of its loss
and other certain insurance reserves. At September 30, 1996, LaSalle Re's
actual statutory capital and surplus was $476.7 million, compared to its
minimum solvency margin requirement of $100 million.
Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity
ratio for general business. An insurer engaged in general business is required
to maintain the value of its relevant assets at not less than 75% of the
amount of its relevant liabilities. Relevant assets include cash and time
deposits, quoted investments, unquoted bonds and debentures, first liens on
real estate, investment income due and accrued, accounts and premiums
receivable and reinsurance balances receivable. There are certain categories
of assets which, unless specifically permitted by the Minister, do not
automatically qualify as relevant assets, such as unquoted equity securities,
investments in and advances to affiliates, real estate and collateral loans.
The relevant liabilities are total general business insurance reserves and
total other liabilities less deferred income tax and sundry liabilities (by
interpretation, those not specifically defined).
Annual Statutory Financial Return. LaSalle Re is required to file with the
Registrar an Annual Statutory Financial Return no later than four months after
its financial year end (unless specifically extended). The Annual Statutory
Financial Return includes, among other matters, a report of the approved
independent auditor on the Annual Statutory Financial Statements of the
insurer; a declaration of the statutory ratios; a solvency certificate; the
Annual Statutory Financial Statements themselves; the opinion of the approved
Loss Reserve Specialist and certain details concerning ceded reinsurance. The
solvency certificate and the declaration of the statutory ratios must be
signed by the principal representative and at least two directors of the
insurer who are required to state (among other matters) whether the Minimum
Solvency Margin and, in the case of the solvency certificate, the Minimum
Liquidity Ratio have been met, and the independent approved auditor is
required to state whether in its opinion it was reasonable for them to so
state and whether the declaration of the statutory ratios complies with the
requirements of the Insurance Act. The Statutory Financial Return must include
the opinion of the Loss Reserve Specialist in respect of the loss and loss
expense provisions of LaSalle Re. Where an insurer's accounts have been
audited for any purpose other than compliance with the Insurance Act, a
statement to that effect must be filed with the Statutory Financial Return.
Supervision, Investigation and Intervention. The Minister may appoint an
inspector with extensive powers to investigate the affairs of an insurer if
the Minister believes that an investigation is required in the interest of the
insurer's policyholders or persons who may become policyholders. In order to
verify or supplement information otherwise provided to him, the Minister may
direct an insurer to produce documents or information relating to matters
connected with the insurer's business.
If it appears to the Minister that there is a risk of the insurer becoming
insolvent or that it is in breach of the Insurance Act or any conditions
imposed upon its registration, the Minister may (among other matters) direct
the insurer not to take on any new insurance business; not to vary any
insurance contract if the effect would be to increase the insurer's
liabilities; not to make certain investments; to realize certain investments;
to maintain in
43
<PAGE>
Bermuda, or transfer to the custody of a specified bank, certain assets; not
to declare or pay any dividends or other distributions or to restrict the
making of such payments; and/or to limit its premium income.
Principal Representative. An insurer is required to maintain a principal
office in Bermuda and to appoint and maintain a principal representative in
Bermuda. For the purpose of the Insurance Act, the principal office of LaSalle
Re is at the Company's offices at 25 Church Street, Hamilton HM FX Bermuda,
and Andrew Cook is the principal representative of LaSalle Re. Without a
reason acceptable to the Minister, an insurer may not terminate the
appointment of its principal representative, and the principal representative
may not cease to act as such, unless 30 days' notice in writing to the
Minister is given of the intention to do so. It is the duty of the principal
representative, within 30 days of his reaching the view that there is a
likelihood of the insurer for which he acts becoming insolvent or its coming
to his knowledge, or his having reason to believe, that an "event" has
occurred, to make a report in writing to the Minister setting out all the
particulars of the case that are available to him. Examples of such an "event"
include failure by the reinsurer to comply substantially with a condition
imposed upon the reinsurer by the Minister relating to a solvency margin or a
liquidity or other ratio.
Class 4 Insurer. LaSalle Re is registered as a Class 4 insurer and, as such:
(i) is required to maintain a minimum statutory capital and surplus equal to
the greatest of $100 million, 50% of its net premiums written and 15% of its
loss and other insurance reserves; (ii) is required to file annually within
four months following the end of the relevant financial year with the
Registrar a Statutory Financial Return together with a copy of its Annual
Statutory Financial Statements and an opinion of a Loss Reserve Specialist in
respect of its loss and loss expense provisions; (iii) is prohibited from
declaring or paying any dividends during any financial year if it is in breach
of its minimum solvency margin or minimum liquidity ratio or if the
declaration or payment of such dividends would cause it to fail to meet such
margin or ratio (if it has failed to meet its minimum solvency margin or
minimum liquidity ratio on the last day of any financial year, LaSalle Re will
be prohibited, without the approval of the Minister, from declaring or paying
any dividends during the next financial year); (iv) is prohibited from
declaring or paying in any financial year dividends of more than 25% of its
total statutory capital and surplus (as shown on its previous financial year's
statutory balance sheet) unless it files with the Registrar an affidavit
stating that it will continue to meet the required margins; (v) is prohibited,
without the approval of the Minister, from reducing by 15% or more its total
statutory capital, as set out in its previous year's financial statements; and
(vi) is required, at any time it fails to meet its solvency margin, within 30
days (45 days where total statutory capital and surplus falls to $75 million
or less) after becoming aware of that failure or having reason to believe that
such failure has occurred to file with the Minister a written report
containing certain information.
Certain Other Considerations. As "exempted" companies, Holdings and LaSalle
Re may not, without the express authorization of the Bermuda legislature or a
license granted by a Minister, participate in certain business transactions,
including: (i) the acquisition or holding of land in Bermuda (except that
required for its business and held by way of lease or tenancy agreement for a
term not exceeding 21 years); (ii) the taking of mortgages on land in Bermuda
in excess of $50,000; (iii) the acquisition of securities created or issued
by, or any interest in, any Bermuda company, business or undertaking (other
than an exempted company or partnership or a permit company); or (iv) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda.
The Bermuda government actively encourages foreign investment in "exempted"
entities like the Company that are based in Bermuda but do not operate in
competition with local businesses. As well as having no restrictions on the
degree of foreign ownership, Holdings and LaSalle Re are not currently subject
to taxes on their income or dividends or to any foreign exchange controls in
Bermuda. In addition, there currently is no capital gains tax in Bermuda, and
profits can be accumulated by Holdings and LaSalle Re, as required, without
limitation.
UNITED STATES, UNITED KINGDOM AND OTHER
LaSalle Re is registered as an insurer and is subject to regulation and
supervision in Bermuda. LaSalle Re is not admitted or authorized to do
business in any jurisdiction except Bermuda. The insurance laws of each
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<PAGE>
state of the United States do not directly regulate the sale of reinsurance
within their jurisdictions by alien insurers, such as LaSalle Re.
Nevertheless, the sale of reinsurance by alien reinsurers, such as LaSalle Re,
to insurance companies domiciled or licensed in United States jurisdictions is
indirectly regulated by state "credit for reinsurance" laws that operate to
deny financial statement credit to ceding insurers unless the non-admitted
alien reinsurer posts acceptable security for ceded liabilities and agrees to
certain contract provisions (e.g., insolvency and intermediary clauses).
Although the insurance laws of United States jurisdictions generally exempt
the business of reinsurance from "doing business" laws, the Company conducts
its business at its principal offices in Bermuda and does not maintain an
office in the United States, and its personnel do not solicit, advertise,
settle claims or conduct other insurance activities in the United States. All
policies are issued and delivered and premiums are received outside the United
States. The Company does not believe that it is subject to the insurance laws
of any state in the United States.
From time to time, there have been congressional and other initiatives in
the United States regarding the supervision and regulation of the insurance
industry, including proposals to supervise and regulate alien reinsurers.
While none of these proposals has been adopted to date on either the federal
or state level, there can be no assurance that federal or state legislation
will not be enacted subjecting the Company to supervision and regulation in
the United States, which could have a material adverse effect on the Company.
In addition, no assurance can be given that if the Company were to become
subject to any laws of the United States or any state thereof or of any other
country at any time in the future, it would be in compliance with such laws.
LaSalle Re does not intend to maintain an office or to solicit, advertise,
settle claims or conduct other insurance activities in any jurisdiction other
than Bermuda where the conduct of such activities would require that LaSalle
Re be so admitted. Consistent with this policy, LaSalle Re established LaSalle
Re Services as a subsidiary in the United Kingdom to operate a London "contact
office" at the London Underwriting Center. LaSalle Re Services is not
registered as an insurer in England or in any other jurisdiction. The Company
believes that LaSalle Re Services is not required to be registered as an
insurance company in the United Kingdom, and that the activities of LaSalle Re
Services do not cause the Company to be subject to regulation as an insurance
company in the United Kingdom.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the names, ages and positions of the persons who
are the directors and executive officers of the Company as of September 30,
1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Victor H. Blake......... 61 Chairman, Chief Executive Officer and President;
Director
William J. Adamson, Jr.. 43 Deputy Chairman; Director
Andrew Africk........... 30 Director
Ivan P. Berk............ 59 Director
Joseph Haviv............ 42 Director
Jonathan H. Kagan....... 40 Director
Donald P. Koziol, Jr.... 48 Director
Lester Pollack.......... 63 Director
Peter J. Rackley........ 58 Director
Scott A. Schoen......... 38 Director
Harvey G. Simons........ 49 Director
David A. Stockman....... 49 Director
Paul J. Zepf............ 31 Director
Guy D. Hengesbaugh...... 37 Executive Vice President and Chief Underwriting
Officer
Andrew Cook............. 34 Chief Financial Officer and Treasurer
</TABLE>
45
<PAGE>
Victor H. Blake has been Chairman, Chief Executive Officer and President of
Holdings since its organization in September 1995 and Chairman and Chief
Executive Officer of LaSalle Re since May 1994. Mr. Blake has 37 years
experience in the insurance industry, concentrating primarily in reinsurance.
Mr. Blake served as Chairman and Chief Executive Officer of CNA Re, a leading
property and casualty insurer operating in the London market, from its
formation in 1976 until October 1995. In addition, he acted as the chairman
and chief executive officer of CNA Reinsurance Group, from its formation in
April 1994 until October 1995. CNA Reinsurance Group includes CNA Re and CNA's
United States reinsurance operations. Mr. Blake is the non-executive chairman
of CNA Reinsurance Group. Mr. Blake is also founder Chairman of the LUC
Holdings Ltd, the shareholders of the London Underwriting Centre, a
marketplace housing many of the London market insurers and reinsurers. He also
served as a member of the Council of the London Insurance and Reinsurance
Market Association and its predecessor bodies from 1977 to 1996.
William J. Adamson, Jr. has been Deputy Chairman and a director of Holdings
since its organization in September 1995 and a director of LaSalle Re since
its organization in October 1993. He also served as Chairman of LaSalle Re
from its inception until May 1994. Mr. Adamson has 21 years experience with
CNA in the reinsurance industry in Chicago and London. Mr. Adamson became
Chief Executive Officer of CNA Re in November 1995. Mr. Adamson has been
Senior Vice President of Continental Casualty Company ("CCC") since November
1995 and head of its Chicago-based reinsurance operations and also President
of CNA Re and CNA Bermuda since 1993. Prior to his appointment as Senior Vice
President, he was a Group Vice President and a Vice President of CCC and its
principal insurance subsidiaries. Mr. Adamson has acted as the chief operating
officer of CNA Reinsurance Group since its formation in April 1994 and became
its chief executive officer in November 1995.
Andrew Africk has been a director of Holdings since its organization in
September 1995 and an alternate director of LaSalle Re since its organization
in October 1993. Mr. Africk has been associated since 1992 with Apollo
Advisors, L.P., which acts as managing general partner of certain securities
investment funds, and Lion Advisors, L.P., which acts as financial advisor to
and representative for certain institutional investors with respect to
securities investments. Prior thereto, Mr. Africk was completing graduate
degree programs at the Wharton School of Business and the University of
Pennsylvania Law School. Mr. Africk is also a director of Continental Graphics
Holdings, Inc.
Ivan P. Berk has been a director of Holdings since its organization in
September 1995 and an alternate director of LaSalle Re since its organization
in October 1993. He has been Executive Director-Manager of Equities of Aon
Advisors, Inc. since March 1993 and was Senior Portfolio Manager of Aon
Advisors, Inc. from December 1990 until March 1993. Mr. Berk has 28 years of
investment experience, including the formation of six insurance related
companies in the last three years.
Joseph Haviv has been a director of Holdings since October 1995. Mr. Haviv
has been Vice President of EXOR America Inc. since April 1994. Prior to his
current position with EXOR America Inc., Mr. Haviv was a Principal of McKinsey
& Company, Inc.
Jonathan H. Kagan has been a director of Holdings since its organization in
September 1995 and a director of LaSalle Re since its organization in October
1993. Mr. Kagan is a Managing Director of Corporate Advisors, L.P., which he
joined in 1988. Mr. Kagan has also been associated with Lazard Freres & Co.
LLC since 1980, has been a Managing Director since 1995 and is a Managing
Director of Centre Partners Management LLC. Mr. Kagan is also a director of
Continental Cablevision, Inc., Tyco Toys Inc., Firearms Training Systems, Inc.
and Patient Education Media, Inc.
Donald P. Koziol, Jr. has been a director of Holdings since its organization
in September 1995. Mr. Koziol has been Executive Vice President and Chief
Operating Officer of Aon Risk Services since January 1995. Mr. Koziol was
Chairman and Chief Executive Officer of Carvill America, Inc., a reinsurance
brokerage firm, from 1984 until 1994.
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<PAGE>
Lester Pollack has been a director of Holdings since its organization in
September 1995 and director of LaSalle Re since its organization in October
1993. Mr. Pollack was a Deputy Chairman of LaSalle Re from October 1993 to May
1996. Mr. Pollack has been a Managing Director of Centre Partners Management
LLC since 1995, Senior Managing Director of Corporate Advisors, L.P. since
1988, Managing Director of Lazard Freres & Co. LLC since 1986 and Chief
Executive Officer of Centre Partners, L.P. since 1986. Mr. Pollack is also a
director of Continental Cablevision, Inc., Parlex Corporation, Polaroid
Corporation, Sphere Drake Holdings, Ltd., SunAmerica, Inc. and Tidewater Inc.
Peter J. Rackley has been a director of Holdings since its organization in
September 1995 and a director of LaSalle Re since its organization in October
1993. Mr. Rackley has been Chairman and Group Chief Executive of Western
International Financial Group Ltd., a Bermuda-based insurance business, since
1993. Prior to that, Mr. Rackley held senior management executive positions in
General Accident Fire & Life Assurance Company plc and NZI Insurance Group.
Mr. Rackley is also Chairman of Catlin Westgen Holdings Limited, Westgen High
Ridge Holdings Limited, and CHA Insurance Company Limited and Deputy Chairman
of Commercial Risk Partners Limited.
Scott A. Schoen has been a director of Holdings since its organization in
September 1995 and a director of LaSalle Re since its organization in October
1993. Mr. Schoen is a Managing Director of Thomas H. Lee Company which he
joined in 1986. Mr. Schoen is also a director of Alliance International Group,
Inc., Anchor Advanced Products, Health O Meter Products Inc., Rayovac
Corporation and First Alert, Inc. and a Trustee of Insight Premier Funds.
Harvey G. Simons has been a director of Holdings since its organization in
September 1995 and a director of LaSalle Re since its organization in October
1993. Mr. Simons has served as Executive Vice President and Chief Underwriting
Officer of CNA International Reinsurance Company Limited for more than five
years.
David A. Stockman has been a director of Holdings since its organization in
September 1995 and a director of LaSalle Re since its organization in October
1993. Mr. Stockman was a Deputy Chairman of LaSalle Re from October 1993 to
May 1996. Mr. Stockman has been a General Partner of Blackstone Group Holdings
L.P. ("Blackstone") since 1988. Prior to joining Blackstone, Mr. Stockman was
a Managing Director of Salomon Brothers Inc. Mr. Stockman served as the
Director of the Office of Management and Budget in the Reagan Administration
from 1981 to 1985. Prior to that, Mr. Stockman represented Southern Michigan
in the U.S. House of Representatives. Mr. Stockman is also a director of
Collins & Aikman Corporation.
Paul J. Zepf has been a director of Holdings since May 1996. Previously he
had been an alternate director of LaSalle Re since its organization in
September 1993. He is a Principal of Corporate Advisors, L.P., which he joined
in 1989. Mr. Zepf is also a Principal of Centre Partners Management LLC, which
manages Centre Capital Investors II, L.P. and related investment funds. Mr.
Zepf is also a director of Firearms Training Systems, Inc.
Guy D. Hengesbaugh has been Executive Vice President and Chief Underwriting
Officer of Holdings since its organization in September 1995 and Executive
Vice President and Chief Underwriting Officer of LaSalle Re since its
organization in October 1993. Mr. Hengesbaugh has ten years experience in
underwriting management with CNA in Chicago and London. Mr. Hengesbaugh is a
Vice President of CCC and an employee of CNA Bermuda and his services are made
available to the Company pursuant to the Underwriting Services Agreement. See
"Certain Transactions--Underwriting Services Agreement."
Andrew Cook, a Chartered Accountant, has been Chief Financial Officer and
Treasurer of Holdings since its organization in September 1995 and Chief
Financial Officer and Treasurer of LaSalle Re since its organization in
October 1993. Mr. Cook was an employee of Aon from 1993 until October 1995.
Mr. Cook was employed by Becher and Carlson Risk Management Limited, a
subsidiary of American Re, from November 1990 to October 1993, where he was a
Vice President responsible for a portfolio of captive insurance companies.
From December 1987 to October 1990, Mr. Cook was an audit manager with Ernst &
Young in Bermuda specializing in the audit of insurance and reinsurance
companies.
None of the directors or executive officers has any family relationship with
any other director or executive officer.
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<PAGE>
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
The Board is divided into three classes of directors. The terms of office of
those directors in the first class (Messrs. Adamson, Berk, Schoen, Stockman
and Zepf) expire in 1999, of those in the second class (Messrs. Blake, Haviv,
Pollack and Simons) expire in 1997 and of those in the third class (Messrs.
Africk, Kagan, Koziol and Rackley) expire in 1998. The directors of the class
elected at each future annual meeting of shareholders hold office for a term
of three years. The Bye-Laws provide for a Board of 13 directors and empower
the Board to appoint persons to fill any vacancies.
Directors of Holdings are currently not paid to serve on the Board. Non-
management directors of Holdings receive reimbursement of their reasonable
costs for attendance at each meeting of the Board and each meeting of a
committee of the Board.
The Board has established five standing committees: Underwriting/Actuarial,
Nominating, Investment, Audit and Compensation. The Underwriting/Actuarial
Committee establishes guidelines for the Company's underwriters and actuaries
and periodically reviews underwriting decisions. The Nominating Committee
reviews candidates for the Board and makes recommendations to shareholders.
The Investment Committee approves guidelines that provide standards to ensure
portfolio liquidity and safety, approves investment managers and custodians
for portfolio assets and recommends asset allocations to the Board. The Audit
Committee reviews the adequacy and effectiveness of the external auditors and
their audit report. The Compensation Committee has responsibility for
determining executive compensation and administers the Long-Term Incentive
Plan and the Employee Stock Purchase Plan (as described later in this
Prospectus).
EXECUTIVE COMPENSATION
The following table sets forth, in summary form, the compensation earned by
each of the Company's executive officers during the years ended September 30,
1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
------------------ ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Victor H. Blake......... 1995 $262,500(1) $ 90,421 $134,785(2) $ 22,695(3)
Chief Executive Officer 1996 529,038 525,000 118,778(2) 85,218 852,308(4)
and President
Guy D. Hengesbaugh(5)... 1995 $170,000 $ 45,000 $ 71,783(6) $ 5,950(7)
Executive Vice
President and 1996 200,000 100,000 104,756(6) 45,000 7,788(7)
Chief Underwriting
Officer
Andrew Cook(8).......... 1995 $ 97,333 $ 19,000 $ 30,835(9) $ 7,740(10)
Chief Financial Officer 1996 161,231 75,000 76,077(9) 33,000 13,701(11)
and Treasurer
</TABLE>
- --------
(1) The compensation indicated relates to Mr. Blake's part-time service. See
"Management--Employment Agreements."
(2) Includes housing expenses of $123,541 for fiscal 1995 and $116,346 for
fiscal 1996.
(3) Consists of amounts paid for life insurance covering Mr. Blake.
(4) Consists of $489,061 paid in connection with certain pension benefits for
services rendered in fiscal 1996 and prior periods, $249,863 paid in
connection with certain pension benefits for future services, $88,096
paid for monthly pension contributions, $22,032 paid for life insurance
covering Mr. Blake and $3,256 paid for permanent health insurance
covering Mr. Blake.
(5) The compensation indicated was paid by CNA Bermuda pursuant to the
Underwriting Services Agreement. See "Certain Transactions--Underwriting
Services Agreement."
(6) Includes housing expenses and overseas allowances of $66,106 for fiscal
1995 and $97,607 for fiscal 1996.
(7) Consists of contributions to a 401(k) Plan.
48
<PAGE>
(8) The compensation indicated for fiscal 1995 was paid by Aon Bermuda
pursuant to the Administrative Services Agreement. See "Certain
Transactions--Underwriting Services Agreement."
(9) Includes housing expenses of $28,800 for fiscal 1995 and $60,462 for
fiscal 1996.
(10) Consists of $5,740 paid in connection with a noncontributory pension plan
and $2,000 paid in connection with a Company savings plan.
(11) Consists of $13,701 paid in connection with a noncontributory pension
plan.
The following table sets forth information concerning stock options granted
to each of the Company's executive officers during the year ended September
30, 1996 pursuant to the Long-Term Incentive Plan:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK PRICE
UNDERLYING OPTIONS GRANTED APPRECIATION FOR OPTION TERM (2)
OPTIONS TO EMPLOYEES IN EXERCISE OR EXPIRATION --------------------------------------
NAME GRANTED (1) FISCAL YEAR BASE PRICE DATE 5% 10%
- ---- ----------- --------------- ----------- ------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Victor H. Blake......... 85,218 52.2% $18.75 November 27, $ 1,507,937 $ 3,115,753
2005
Guy D. Hengesbaugh...... 45,000 27.6% $18.75 November 27, $ 796,277 $ 1,645,297
2005
Andrew Cook............. 33,000 20.2% $18.75 November 27, $ 583,937 $ 1,206,551
2005
</TABLE>
- --------
(1) The options vest ratably in five annual installments over five years from
the date of grant.
(2) The actual value, if any, an executive officer may realize will depend on
the future performance of the Common Shares and the excess of the stock
price over the exercise price on the date the option is exercised, so that
there is no assurance the value realized by an executive officer will be
at or near the value reflected in the above table. These amounts represent
certain assumed rates of appreciation only and may not be realized by the
executive officer.
The following table sets forth information for each of the Company's
executive officers with regard to the number of Common Shares underlying
unexercised stock options and SARs, and the value of such stock options and
SARs, in each case at September 30, 1996. No stock options or SARs have been
exercised by any of the executive officers.
AGGREGATE OPTION/SAR EXERCISES IN FISCAL YEAR 1996 AND 1996 FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
SEPTEMBER 30, 1996 AT SEPTEMBER 30, 1996
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------------- -------------------------
<S> <C> <C>
Victor H. Blake(1)... 0/426,090 0/$4,802,034
Guy D. Hengesbaugh... 0/ 45,000 0/$ 208,350
Andrew Cook.......... 0/ 33,000 0/$ 152,790
</TABLE>
- --------
(1) Of the 426,090 securities underlying Mr. Blake's options/SARs, 85,218
pertain to stock options and 340,872 pertain to SARs. These are valued at
$394,559 and $4,407,475, respectively.
49
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement, as amended, with
Victor H. Blake, pursuant to which he serves as Chairman of the Board of
Directors, President and Chief Executive Officer of the Company. The agreement
provides for an annual base salary, which is currently $575,000. In addition,
Mr. Blake is entitled to an annual non-discretionary bonus based on the
amount, if any, by which the Company's return on equity for that year exceeds
15% per annum, subject to a maximum of $855,000 (which he would receive at a
35% rate of return). In addition, Mr. Blake has been awarded 340,872 stock
appreciation rights ("SARs") with respect to Common Shares. A portion of these
SARs may become exercisable on January 1 of each of 1997, 1998 or 1999 based
upon the amount, if any, by which the Company's compound annual rate of return
exceeds 18% per annum for the entire measurement period. Once exercisable,
each SAR may be exercised on or before March 30, 2004 or, if earlier, two
years after Mr. Blake's termination of employment, for an amount equal to the
fair market value of a Common Share, minus an amount equal to $16.67 minus
dividend adjustments. The current exercise price is $10.45. The Company's
dividend policy will likely result in substantial downward adjustments to this
exercise price. See "Dividend Policy." Alternatively, at the Company's sole
discretion, the SARs will entitle Mr. Blake to either (i) the number of
special non-voting shares, par value U.S. $1.00 per share, which were issued
by LaSalle Re in connection with the formation and capitalization of LaSalle
Re (the "Special Non-Voting Shares") equal to the aggregate value of the SARs
divided by the fair market value of a Special Non-Voting Share at the exercise
date, or (ii) upon payment of the base value for each SAR, the number of
Special Non-Voting Shares equal to the number of SARs exercised. The SARs may
also become exercisable upon the occurrence of an "extraordinary transaction"
involving a change in control of the Company. The agreement also provides Mr.
Blake with certain benefits, including certain disability, pension and life
insurance benefits, use of an automobile, certain club memberships and
reimbursement of expenses incurred on a basis appropriate to an individual
holding the position of chairman of a company such as the Company. In
addition, the Company has loaned $695,000 to Mr. Blake in order to finance the
purchase of a condominium in Bermuda. See "Certain Transactions--Loan to
Executive Officer." The agreement expires on March 31, 2000, but provides for
automatic annual one-year renewals thereafter unless notice of non-renewal is
provided by either party at least 18 months prior to the expiration of the
agreement.
Mr. Blake has agreed that, during the Non-Competition Period (as defined
below), he will not directly or indirectly (i) provide goods or perform
services for the benefit of any client, except with respect to goods provided
or services performed for the benefit of the Company or CNA by the Company
during the period in which Mr. Blake is employed by the Company, or (ii)
solicit, attempt to solicit, or endeavor to procure engagement, for himself or
for any business, the opportunity to provide such goods or perform services
for any person (a) to whom the Company has provided such goods or performed
such services for the benefit of the Company or CNA in the 12-month period
prior to Mr. Blake's termination date or (b) to whom, during the six-month
period prior to Mr. Blake's termination date, the Company has devoted material
efforts to obtaining as a purchaser of its goods or services. Mr. Blake has
also agreed that, during the Non-Competition Period, he will not directly or
indirectly, divert or attempt to divert any business from the Company. For
purposes of the agreement, the "Non-Competition Period" means (i) if Mr.
Blake's employment is terminated because of his permanent disability, for
cause or if Mr. Blake resigns, the period commencing on the date Mr. Blake's
employment is terminated and continuing for 24 months following such
termination date and (ii) if Mr. Blake terminates his employment following a
breach of the agreement by the Company or if Mr. Blake's employment is
otherwise terminated by the Company, the period commencing on the date Mr.
Blake's employment is terminated and continuing until the earlier to occur of
the last day of the agreement term or 24 months following the termination
date; provided that, for purposes of clause (ii), the Company may extend the
Non-Competition Period beyond the end of the agreement term to a specified
date not later than 24 months following the termination date upon continuation
of Mr. Blake's then applicable base salary.
The Company has entered into an employment agreement with Andrew Cook
pursuant to which he serves as Chief Financial Officer and Treasurer of both
Holdings and LaSalle Re. The agreement is for a three-year term and provides
for an annual base salary, which is currently $185,000. In addition, Mr. Cook
is entitled to an annual partially discretionary bonus based in part on the
Company's return on equity, subject to a maximum of
50
<PAGE>
$185,000. The agreement provides Mr. Cook with certain benefits, including
disability and pension benefits, use of an automobile, club membership,
housing and living allowance and reimbursement of reasonable business
expenses. The agreement also includes a non-competition clause that is similar
to the non-competition clause contained in Mr. Blake's employment agreement
and described above.
LONG-TERM INCENTIVE PLAN
Holdings has adopted a Long-Term Incentive Plan (the "Incentive Plan"). The
Incentive Plan permits the award of stock options, SARs, restricted stock,
performance stock and performance units, and permits the establishment of one
or more stock purchase programs. The number of Common Shares that may be
issued with respect to awards under the Incentive Plan (including share
purchase and all other types of awards) may not exceed 340,938 shares in the
aggregate. The Incentive Plan is administered by the Compensation Committee of
the Board of Holdings. The Compensation Committee, in its discretion, may make
awards to (and establish stock purchase programs for the benefit of) employees
of Holdings and its subsidiaries, and other persons providing services to
those companies. The Incentive Plan permits the grant of options to purchase
Common Shares that are either incentive stock options that satisfy the
requirements of Section 422 of the Code, or non-qualified options that are not
intended to satisfy the requirements of Section 422 of the Code. SARs may be
granted in tandem or otherwise in connection with options, or may be granted
as free-standing awards. Under the terms of the Incentive Plan, options and
SARs will have an exercise price that is not less than the par value of Common
Shares at the time of grant, and may be exercised for a period of not more
than ten years following the grant date. If the holder of an option or SAR
ceases to be an employee of Holdings and its subsidiaries, and otherwise
ceases to provide services to Holdings and its subsidiaries, the holder (or
his estate) will have not more than three months to exercise any vested
options and SARs, unless the holder's termination was by reason of retirement,
death or disability. In the case of retirement, the holder will have not more
than three years to exercise any options and SARs, and in the case of
termination because of death or disability, the holder will have not more than
one year to exercise any options and SARs. The Incentive Plan permits the
grant of restricted stock, the vesting of which is subject to such conditions
as may be established by the Compensation Committee. The Incentive Plan
permits the grant of performance stock, the distribution of which is subject
to achievement of such performance objectives as may be established by the
Compensation Committee. The Incentive Plan permits the grant of performance
units, which entitle the holder to receive value for the units at the end of a
performance period to the extent provided under the award. The number of units
earned, and value received for them, will be contingent on the degree to which
the performance measures established at the time of the initial award are met.
The Incentive Plan permits the establishment of stock purchase programs by the
Compensation Committee. Such programs may permit discount purchases of Common
Shares, and may provide that Holdings will award Common Shares matching the
Common Shares purchased by the participants (but at a matching rate that is
not greater than one matching share for each share purchased by the
participant, and matching share awards may not be made in conjunction with
discount purchases of stock). Any shares subject to an award under the
Incentive Plan that for any reason expires or is terminated without issuance
of shares shall again be available under the Incentive Plan.
EMPLOYEE STOCK PURCHASE PLAN
Holdings has adopted the LaSalle Re Holdings Limited Employee Stock Purchase
Plan (the "Stock Purchase Plan"). Under the Stock Purchase Plan, Holdings is
authorized to sell up to 150,000 Common Shares at a discount to eligible
employees of Holdings and its subsidiaries, and other persons providing
services to those companies. Offers and sales of Common Shares under the Stock
Purchase Plan will be made only in accordance with the provisions of
Regulation S under the Securities Act. The Stock Purchase Plan is administered
by the Compensation Committee. The Compensation Committee establishes
subscriptions periods during which eligible employees may authorize the
Company to make payroll deductions equal to 2%, 5%, 10%, 15%, or 20% of the
individual's salary otherwise payable during such subscription period up to
$25,000 in any calendar year ($12,500 in the period beginning July 1, 1996 and
ending December 31, 1996). On the third business day following the last
business day of such subscription period, a participant will be deemed to
purchase the number of whole Common Shares as his or her accumulated payroll
deductions for the period will purchase. The
51
<PAGE>
purchase price is 85% of the fair market value of the Common Shares on the
last business day of such period. Any compensation costs resulting from the
issuance of shares under the Stock Purchase Plan will be borne by Aon and CNA.
If a participant ceases to be an eligible employee for any reason during a
subscription period, all payroll deductions accumulated during such period
that have not been used to purchase Common Shares will be paid to such
participant without interest. Common Shares sold to participants may not be
sold by a participant for a period of two years after the date on which such
shares were purchased by a participant. However, if the Compensation Committee
determines that a sale by a participant prior to the end of the two-year
period is on account of hardship, as determined by the Compensation Committee
in accordance with the terms of the Stock Purchase Plan, the participant may
sell to the Company and the Company shall purchase from the participant prior
to the end of the two year period, the Common Shares which have been purchased
by the participant. The sale price of the Common Shares sold to the Company
will be the lesser of the fair market value of such Common Shares determined
as of the date of such sale or the price which the participant paid for such
Common Shares when the participant purchased them. None of the executive
officers of the Company are entitled to participate in the Stock Purchase
Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board consists of Messrs. Pollack,
Rackley, Haviv, Africk and Schoen. No member of the Compensation Committee is
or was an officer or employee of the Company or served as a director or a
member of the compensation committee of any other company, one of whose
executive officers served as a member of the Board or a member of the
Compensation Committee of the Board.
52
<PAGE>
CERTAIN TRANSACTIONS
FORMATION AND RECAPITALIZATION
In connection with the formation and capitalization of LaSalle Re, LaSalle
Re issued options to purchase 2,336,130 Special Non-Voting Shares to Founding
Shareholders who purchased 1,500,000 or more common shares, par value $0.01
per share, of LaSalle Re (the "LaSalle Re Common Shares"), or Special Non-
Voting Shares, including options to purchase 909,000 Special Non-Voting
Shares, 454,500 Special Non-Voting Shares and 454,500 Special Non-Voting
Shares to Aon, CNA and Corporate Partners, respectively. The options are all
currently exercisable. The original exercise price of the options was $16.67,
which was equal to the fair value of LaSalle Re Common Shares at the grant
date, minus dividend adjustments. The current exercise price is $10.45. The
Company's dividend policy will likely result in substantial downward
adjustments to this exercise price. See "Dividend Policy." Because the options
were granted to certain of the Founding Shareholders and their affiliates as
an inducement to purchase stock in LaSalle Re, no compensation expense has
been recorded by LaSalle Re in connection with the options.
In connection with the formation of LaSalle Re, organizational expenses of
$600,000 were paid by LaSalle Re on behalf of Corporate Partners in respect of
legal and other organizational costs, and placement fees of $5,681,250 were
paid to Lazard Freres & Co. LLC. Lester Pollack, a director of Holdings, is
Senior Managing Director of Corporate Advisors, L.P. ("Corporate Advisors")
and a Managing Director of Lazard Freres & Co. LLC. Jonathan H. Kagan, a
director of Holdings and of LaSalle Re, is a Managing Director of Corporate
Advisors and a Managing Director of Lazard Freres & Co. LLC. A wholly owned
subsidiary of Lazard Freres & Co. LLC is the sole general partner of Corporate
Advisors, which in turn is the sole general partner of Corporate Partners,
L.P. and Corporate Offshore Partners, L.P. Corporate Advisors is also an
investment manager for The State Board Administration of Florida, which
purchased 372,198 LaSalle Re Common Shares and Special Non-Voting Shares
pursuant to its investment management agreement with Corporate Advisors.
Certain entities controlled by Lazard Freres & Co. LLC also own limited
partnership interests in Corporate Partners, L.P. and Corporate Advisors.
Immediately prior to the completion of the Company's initial public
offering, an exchange offer (the "Exchange Offer") was consummated, pursuant
to which (i) the Founding Shareholders exchanged all shares of capital stock
of LaSalle Re for Common Shares or, in certain circumstances, Exchangeable
Non-Voting Shares, (ii) those Founding Shareholders who are U.S. Persons and
who held options to purchase Special Non-Voting Shares exchanged their options
for options to purchase Exchangeable Non-Voting Shares and (iii) those
Founding Shareholders who are not U.S. Persons and who held options to
purchase Special Non-Voting Shares exchanged their options for options to
purchase Common Shares. Pursuant to the Exchange Offer, Aon, CNA, Corporate
Partners, affiliates of Blackstone (the "Blackstone Entities"), Hyatt
Minneapolis Corporation ("Hyatt") and affiliates of Thomas H. Lee Company
("Thomas H. Lee Company") exchanged an aggregate of 8,329,290 LaSalle Re
Common Shares and Special Non-Voting Shares for 8,329,290 Exchangeable Non-
Voting Shares of LaSalle Re. The Exchangeable Non-Voting Shares are
exchangeable for Common Shares on a one-for-one basis, unless the Board
determines that such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder, pursuant to a Conversion
Agreement among Holdings, LaSalle Re, and all holders of Exchangeable Non-
Voting Shares of LaSalle Re or options to acquire such shares (the "Conversion
Agreement"). Immediately following the completion of the Company's initial
public offering, LaSalle Re redeemed an aggregate of 1,392,000 LaSalle Re
Common Shares and Special Non-Voting Shares from Aon, CNA, Corporate Partners,
the Blackstone Entities, Hyatt and Thomas H. Lee Company at a price per share
that was the equivalent of the initial public offering price per Common Share
(less the underwriting discount and commissions).
UNDERWRITING SERVICES AGREEMENT
Pursuant to the Underwriting Services Agreement, CNA Bermuda provides
underwriting services and underwrites all classes of insurance and reinsurance
as agent for LaSalle Re. The Underwriting Services
53
<PAGE>
Agreement expires on December 31, 1998 with a two year extension at the option
of the Company. Until December 31, 1995, the fees for the underwriting
services were as follows: (i) 2% for the first $150 million of gross written
and collected premiums per fiscal year and 1.5% thereafter and (ii) for
periods during which the Company's loss ratio since inception of LaSalle Re
was 57% or less, subject to certain conditions, an underwriting profit
commission of 2.5% of the aggregate net underwriting profits of LaSalle Re.
Effective January 1, 1996, these fees are (i) 1.5% of gross written and
collected premiums per fiscal year and (ii) subject to the same loss ratio
test and conditions, an underwriting profit commission of 4.0% of the
aggregate net underwriting profits of LaSalle Re. The fees for underwriting
services were renegotiated in September 1995 by and approved by a vote of
directors of LaSalle Re who are not affiliated with either CNA or Aon. The
performance of CNA Bermuda and the fees paid are periodically reviewed by the
Board of Directors of LaSalle Re.
LaSalle Re accrued underwriting service fees to CNA Services of $3,081,245,
$3,411,321 and $1,465,283 for the years ended September 30, 1996 and 1995 and
the period from October 26, 1993 to September 30, 1994. In addition, the
Company incurred profit commissions to CNA Bermuda of $4,139,573, $2,186,071
and $nil for the years ended September 30, 1996 and 1995 and the period from
October 26, 1993 to September 30, 1994.
ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to the Administrative Services Agreement, Aon Bermuda provides
LaSalle Re with actuarial and financial reporting, accounting, office space
and other administrative services. The Administrative Services Agreement
expires on December 31, 1998 with a two year extension at the option of the
Company. The fees for administrative services are: (i) $547,945 for 1993 (pro
rata basis), (ii) $3,000,000 for 1994, (iii) $5,000,000 for 1995 and (iv)
$7,000,000 for 1996. For periods beginning January 1, 1997, the fees for
administrative services, and for the claims administrator services currently
performed by IRISC, will be $3,300,000 per year, plus a commission of 2.75% of
the aggregate net underwriting profits of LaSalle Re, for periods during which
the Company's loss ratio is 57% or less, subject to the same conditions
applicable in the Underwriting Services Agreement. The fees for administrative
services were negotiated in September 1995 by and approved by a vote of
directors who are not affiliated with either CNA or Aon. The performance of
Aon Bermuda and the fees paid are periodically reviewed by the Board of
Directors of LaSalle Re.
INVESTMENT MANAGEMENT AGREEMENT
Pursuant to the Investment Management Agreement, Aon Advisors provides
LaSalle Re with investment management services in accordance with the
investment guidelines set by the Board of Directors of LaSalle Re. The
Investment Management Agreement expires on September 30, 1998 with a one year
extension at the option of the Company. The fees for the investment management
services are as follows: (i) 35 basis points for the first $100 million of
funds under management, (ii) 25 basis points for the next $100 million of
funds under management and (iii) 15 basis points for all funds managed in
excess of $200 million. The fees for investment management services were
reviewed in September 1995 by and reapproved by a vote of directors of LaSalle
Re who are not affiliated with either CNA or Aon. The performance of Aon
Advisors and the fees paid are periodically reviewed by the Board of Directors
of LaSalle Re. LaSalle Re paid Aon Advisors investment management fees of
$1,027,685, $986,774 and $752,348 for the years ended September 30, 1996 and
1995 and the period from October 26, 1993 to September 30, 1994.
CLAIMS AGREEMENT
Pursuant to the Claims Agreement, IRISC serves as claims administrator for
LaSalle Re. After a review in September 1995 by directors who are not
affiliated with CNA or Aon, the Company notified IRISC that it would not renew
the Claims Agreement. As a result, the Claims Agreement will terminate on
December 31, 1996. The services provided under the Claims Agreement will be
provided by Aon Bermuda for no additional charge under the Administrative
Services Agreement after December 31, 1996. The minimum fees under the Claims
Agreement are as follows: (i) $nil for 1993, (ii) $50,000 for 1994, (iii)
$52,750 for 1995 and (iv) $55,651 for 1996. The Claims Agreement also provides
for additional fees calculated on an hourly basis if services provided exceed
450 hours in a given year.
54
<PAGE>
SHAREHOLDERS AGREEMENT
Pursuant to the Shareholders Agreement, certain holders of Common Shares
have the right to demand that Holdings register such shares with the
Commission for an underwritten or at the market public offering. Such
shareholders also have the right to have their Common Shares registered in
connection with any registration of securities by Holdings. Such demand right
may be exercised at any time, subject to limitations. In connection with the
first four such registrations, Holdings is required to bear all registration
and selling expenses, other than underwriting fees and commissions. Pursuant
to the Shareholders Agreement, Holdings also is (i) prevented from engaging in
certain activities without the consent of a majority of the holders of
Exchangeable Non-Voting Shares, (ii) prevented from incurring certain
indebtedness without the consent of a majority of the holders of Common Shares
who are parties to the Shareholders Agreement and (iii) prevented from
changing the terms of the Exchangeable Non-Voting Shares (other than as
contemplated by the Conversion Agreement) without the consent of a majority of
both of (A) the outstanding Exchangeable Non-Voting Shares and (B) the Common
Shares held by certain Founding Shareholders. In addition, upon a liquidation
of LaSalle Re, holders of Exchangeable Non-Voting Shares will be contractually
obligated to the parties to the Shareholders Agreement to transfer to holders
of Common Shares such amount so as to ensure that the proceeds of the
liquidation will be shared on a pro rata basis among the holders of Common
Shares and the Exchangeable Non-Voting Shares. Additionally, LaSalle Re may
not knowingly sell reinsurance so as to generate "related person insurance
income" of 20% or more of its gross insurance income without approval of 85%
of the Board of Directors of LaSalle Re. If LaSalle Re knowingly sells
reinsurance so as to generate "related person insurance income" of 20% or more
of its gross insurance income, then any such shareholder may exercise its
registration rights regardless of the number of Common Shares it holds or, at
the option of Holdings, Holdings may repurchase such shareholder's shares for
their fair market value.
EXCESS OWNERSHIP AGREEMENT
Pursuant to an Excess Ownership Agreement dated November 27, 1995 among
LaSalle Re, Holdings and certain Founding Shareholders (the "Excess Ownership
Agreement"), each such shareholder will at the request of Holdings (i) provide
certain information on its ownership to Holdings, (ii) notify the Company of
any change in its ownership and (iii) inquire of each new partner or new 10%
owner of the shareholder if such party owns shares in the Company or any
ownership interest in any shareholder of the Company. Additionally, under
certain circumstances such Founding Shareholders will agree to dispose of all
or part of their respective shares of Holdings or to exchange them for
Exchangeable Non-Voting Shares of LaSalle Re.
REINSURANCE TRANSACTIONS WITH AON AND CNA
In the years ended September 1996 and 1995 and the period from October 26,
1993 to September 30, 1994, the Company assumed premiums totalling
approximately $24,045,470, $28,835,485 and $24,186,000, respectively, from a
ceding company related to CNA. Absent CNA's relationship with the Company,
such premiums may not have been written by the Company. In addition, during
the same periods the Company wrote premiums totalling approximately
$23,577,000, $22,057,000 and $14,163,000, respectively, through brokers
related to Aon. During the same periods, brokerage fees incurred in respect of
this business were approximately $2,357,700, $2,205,700 and $1,416,300,
respectively. The terms of these reinsurance transactions were negotiated
between the parties and the Company believes that such terms were at market
rates.
LOAN TO EXECUTIVE OFFICER
In accordance with Mr. Blake's employment agreement, the Company loaned Mr.
Blake $695,000 to purchase a condominium in Bermuda. See "Management--
Employment Agreements." The loan is secured by a mortgage on the condominium.
The Company has agreed to reimburse Mr. Blake for interest paid on the loan.
The loan is due at the time the condominium is sold or otherwise transferred
by Mr. Blake. Subject to Mr.
55
<PAGE>
Blake's right to purchase the condominium upon termination of his employment,
the sale of the condominium is required within a reasonable time following
termination of his employment. If Mr. Blake elects to purchase the condominium
upon termination of his employment, the principal of, and any unpaid interest
on, the loan will be due on the 50th day after the termination date. If, as of
the termination date, the fair market value of the condominium has increased
over the purchase price, Mr. Blake shall also be required to pay the amount of
the increase to the Company. If the fair market value of the condominium has
decreased to below the purchase price, the amount due from Mr. Blake shall be
reduced by the amount of the decrease.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Shares and Exchangeable Non-Voting Shares by (i) each
shareholder who is known by the Company to beneficially own more than 5% of
the outstanding Common Shares, (ii) each director, (iii) each executive
officer of the Company and (iv) all directors and executive officers as a
group. Unless otherwise indicated, each such person or individual has sole
voting and investment power with respect to all such Common Shares. Amounts of
less than 1% are indicated by an asterisk.
<TABLE>
<CAPTION>
OWNERSHIP PRIOR TO OFFERINGS OWNERSHIP AFTER OFFERINGS
------------------------------ ------------------------------
PERCENT OF PERCENT OF
TOTAL NUMBER TOTAL NUMBER
OF COMMON COMMON OF COMMON
PERCENT SHARES AND SHARES TO PERCENT SHARES AND
NUMBER OF OF EXCHANGEABLE BE SOLD NUMBER OF OF EXCHANGEABLE
COMMON COMMON NON-VOTING IN THE COMMON COMMON NON-VOTING
NAME OF BENEFICIAL OWNER SHARES SHARES SHARES OFFERINGS SHARES SHARES SHARES
- ------------------------ --------- ------- ------------ --------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aon Corporation(1)...... 556,500 3.87% 13.20% %
123 North Wacker Drive
Chicago, IL 60606
Continental Casualty 1,425,354 9.90 13.20
Company(2).............
CNA Plaza
Chicago, IL 60685
Corporate Partners(3)... 911,917 6.33 12.84
30 Rockefeller Plaza
Suite 5050
New York, NY 10020
Apollo LS Holdings 1,073,959 7.46 4.73
LDC(4).................
P.O. Box 694
George Town, Grand
Cayman
Cayman Islands, B.V.I
Blackstone Entities(5).. 403,569 2.80 9.17
345 Park Avenue
31st Floor
New York, NY 10154
FIMA Finance Management 1,073,959 7.46 4.73
Inc. (BVI)(6)..........
Wickhams Cay
P.O. Box 662
Road Town, Tortola
British Virgin Islands
Hyatt Minneapolis 1,425,354 9.90 6.60
Corporation............
200 West Madison Street
Chicago, IL 60606
Perry Partners, L.P.(7). 643,417 4.47 2.83
245 Park Avenue
44th Floor
New York, NY 10167
Thomas H. Lee 493,847 3.43 4.59
Company(8).............
75 State Street
Boston, MA 01752
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP PRIOR TO OFFERINGS OWNERSHIP AFTER OFFERINGS
------------------------------ ------------------------------
PERCENT OF PERCENT OF
TOTAL NUMBER TOTAL NUMBER
OF COMMON COMMON OF COMMON
PERCENT SHARES AND SHARES TO PERCENT SHARES AND
NUMBER OF OF EXCHANGEABLE BE SOLD NUMBER OF OF EXCHANGEABLE
COMMON COMMON NON-VOTING IN THE COMMON COMMON NON-VOTING
NAME OF BENEFICIAL OWNER SHARES SHARES SHARES OFFERINGS SHARES SHARES SHARES
- ------------------------ --------- ------- ------------ --------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Strome Group(9)......... 1,073,959 7.46% 4.73% %
100 Wilshire Boulevard
15th Floor
Santa Monica, CA 90401
Bermuda Investors 96,656 * * *
Limited................
Engineers Joint Pension 12,888 * * *
Fund...................
Generali Worldwide
Insurance Company
Limited................ 120,000 * * *
Lamb Partners........... 42,957 * * *
Leon Black Trusts....... 42,957 * * *
Third Avenue Value Fund, 85,917 * * *
Inc....................
Victor H. Blake......... 22,010 * * 0
William J. Adamson, Jr.. 1,000 * * 0
Andrew Africk........... 0 -- -- 0
Ivan P. Berk............ 300 * * 0
Joseph Haviv............ 0 -- -- 0
Jonathan H. Kagan(3).... 911,917 6.33 12.84 0
Donald P. Koziol, Jr.... 0 -- -- 0
Lester Pollack(3)....... 911,917 6.33 12.84 0
Peter J. Rackley........ 0 -- -- 0
Scott A. Schoen(8)...... 493,847 3.43 4.59 0
Harvey G. Simons........ 0 -- -- 0
David A. Stockman(5).... 403,569 2.80 9.17 0
Paul J. Zepf(10)........ 912,417 6.34 12.84 0
Guy D. Hengesbaugh...... 1,000 * * 0
Andrew Cook............. 1,000 * * 0
All directors and
executive officers as a
group (15 persons)..... 1,835,143 12.75 26.72 0
</TABLE>
- --------
* Less than 1%.
(1) Of these shares, 50% are owned by each of Combined Insurance Company of
America and Virginia Surety Company, Inc., which are the registered
shareholders of the Common Shares and wholly owned subsidiaries of Aon.
Excludes options to purchase 909,000 Exchangeable Non-Voting Shares.
(2) All of these shares are owned by Continental Casualty Company, the
registered shareholder of the Common Shares and a wholly owned subsidiary
of CNA Financial Corporation. At December 31, 1995, approximately 84% of
the outstanding voting securities of CNA Financial Corporation were owned
by Loews Corporation. Excludes options to purchase 454,500 Exchangeable
Non-Voting Shares.
(3) Of these shares, 85%, 6% and 9% are owned by Corporate Partners, L.P.,
Corporate Offshore Partners, L.P. and the State Board Administration of
Florida ("SBA"), respectively, which are the registered shareholders of
the Common Shares. Corporate Advisors, as the general partner of Corporate
Partners, L.P. and Corporate Offshore Partners, L.P., has sole voting and
investment power as to the shares held by them. Corporate Advisors serves
as investment manager over a certain investment management account for SBA
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and has sole voting and dispositive power with respect to the Common Shares
held by SBA. All shares listed in the table as being beneficially owned by
Messrs. Pollack and Kagan are beneficially owned by Corporate Advisors. Mr.
Pollack may be deemed to share voting and investment power over such shares
as the Chairman and Treasurer and as a Director of LFCP Corp. and Senior
Managing Director of Corporate Advisors. Mr. Kagan may be deemed to share
voting and investment power over such shares as the President of LFCP Corp.
and Managing Director of Corporate Advisors. LFCP Corp. is the sole general
partner of Corporate Advisors and a wholly owned subsidiary of Lazard
Freres & Co. llc. Mr. Pollack and Mr. Kagan are both Managing Directors of
Lazard Freres & Co. llc. Each of Messrs. Pollack and Kagan disclaims
beneficial ownership of such shares. Excludes options to purchase 454,500
Exchangeable Non-Voting Shares.
(4) Apollo LS Holdings LDC is a subsidiary of AIF II, L.P. Apollo Capital
Management, Inc. is the general partner of the managing general partner of
AIF II, L.P. Leon E. Black and John J. Hannan are the directors of Apollo
Capital Management, Inc. Each of Messrs. Black and Hannan disclaims
beneficial ownership of such Common Shares. Excludes options to purchase
68,175 Common Shares.
(5) Of these shares, 71%, 22% and 7% are owned by Blackstone LR Capital
Partners L.P., Blackstone LR Offshore Capital Partners, L.P., and
Blackstone Family Investment Partnership (Cayman) L.P., respectively,
which are the registered shareholders of the Common Shares. Mr. Stockman
has an interest in the general partner of each of the Blackstone Entities
and may be deemed to share voting and investment power with respect to all
of such Common Shares. The general partner of the general partner of the
Blackstone Entities is owned and controlled by Peter G. Peterson and
Stephen A. Schwarzman, each of whom have voting and investment power over
the Common Shares held or controlled by the Blackstone Entities. Each of
Messrs. Peterson, Schwarzman and Stockman disclaims beneficial ownership
of such Common Shares. Excludes options to purchase 136,350 Exchangeable
Non-Voting Shares.
(6) FIMA Finance Management Inc. (BVI) is a wholly-owned subsidiary of EXOR
Group S.A., a publicly traded corporation incorporated in Luxembourg.
Excludes options to purchase 68,175 Common Shares.
(7) Perry Corp. is the general partner of Perry Partners, L.P. Excludes
options to purchase 40,087 Exchangeable Non-Voting Shares.
(8) Of these shares, 82% and 18% are owned by Thomas H. Lee Equity Partners
and THL-CCI Investors Limited Partnership, respectively, which are the
registered shareholders of the Common Shares. Mr. Schoen is an employee of
Thomas H. Lee Company, which is an affiliate of Thomas H. Lee Equity
Partners and THL-CCI Investors Limited Partnership and may be deemed to
share voting and investment power with respect to all of such Common
Shares. Mr. Schoen disclaims beneficial ownership of such Common Shares.
Excludes options to purchase 68,175 Exchangeable Non-Voting Shares.
(9) Of these shares, 60% and 40% are owned by Strome Offshore Limited and
Strome Partners, L.P., respectively. SSCO, Inc. is the general partner of
the general partner of Strome Partners, L.P. and the general partner of
the investment advisor to Strome Offshore Limited. SSCO, Inc. is
controlled by Mark Strome. Mr. Strome disclaims beneficial ownership of
such Common Shares. Excludes options to purchase 68,175 Exchangeable Non-
Voting Shares.
(10) Of these 912,417 shares, 911,917 are owned by Corporate Partners, L.P.,
Corporate Offshore Partners, L.P. and SBA. Corporate Advisors, as the
general partner of Corporate Partners, L.P. and Corporate Offshore
Partners, L.P., has sole voting and investment power as to the shares
held by them. Corporate Advisors serves as investment manager over a
certain investment management account for SBA and has sole voting and
dispositive power with respect to the Common Shares held by SBA. Mr. Zepf
may be deemed to share voting and investment power over such shares as a
Principal of Corporate Advisors. Mr. Zepf disclaims beneficial ownership
of such shares. Excludes options to purchase 454,500 Exchangeable Non-
Voting Shares.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK OF HOLDINGS
The following description of the capital stock of Holdings summarizes certain
provisions of the Memorandum of Association of Holdings and the Bye-Laws. Such
summaries do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all of the provisions of the Memorandum of
Association of Holdings and the Bye-Laws. Copies of the Memorandum of
Association of Holdings and the Bye-Laws are filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
General. The authorized share capital of Holdings consists of: (i)
100,000,000 Common Shares, of which Common Shares will be outstanding
upon consummation of the Offerings and (ii) preferred shares, par value $1.00
per share, none of which are outstanding.
Common Shares. Holders of Common Shares are entitled to one vote for each
Common Share held on all matters submitted to a vote on a poll of such holders
and do not have any cumulative voting rights. Most matters to be approved by
holders of Common Shares require approval by a simple majority vote. The
holders of 75% of the Common Shares present in person or by proxy at a meeting
and voting thereon must generally approve a merger or amalgamation with another
company. Holders of Common Shares have no pre-emptive, redemption, conversion
or sinking fund rights. In the event of a liquidation, dissolution or winding-
up of Holdings, the holders of Common Shares are entitled to share equally and
ratably in the assets of Holdings, if any, remaining after the payment of all
debts and liabilities of Holdings and the liquidation preference of any
outstanding Preferred Shares. Upon completion of the Offerings, all outstanding
Common Shares will be fully paid and nonassessable.
Any transfer of Common Shares that results in a shareholder (other than a
mutual fund) beneficially holding Common Shares equaling 5% or more of the
voting power of Holdings or any shareholder holding "Controlled Shares" in
excess of 9.9% of the voting power of Holdings, in each case without the
Board's prior approval, shall not be registered in the share register of
Holdings and shall be void and of no effect. "Controlled Shares" means (i) all
shares of Holdings directly, indirectly or constructively owned by any person
within the meaning of Section 958 of the Code and (ii) all shares of Holdings
directly, indirectly or beneficially owned by such person within the meaning of
Section 13(d) of the Exchange Act (including any shares owned by a group of
persons as so defined and including any shares that would otherwise be excluded
by the provisions of Section 13(d)(6) of the Exchange Act). This restriction is
a limitation on ownership and does not preclude the exercise of proxies by
management or others. In addition, the Board has absolute discretion to decline
to register a transfer of Common Shares unless a registration statement under
the Securities Act is in effect with respect to such Common Shares or a written
opinion from counsel acceptable to the directors is obtained to the effect that
such registration is not required. See "Risk Factors--Anti-Takeover
Considerations."
Preferred Shares. Pursuant to the Bye-Laws and Bermuda law, the Board by
resolution may issue preferred shares having such number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations as may be fixed by the Board without the
approval of the shareholders of Holdings. Such powers, rights, preferences and
limitations as may be established could have the effect of discouraging an
attempt to obtain control of the Company.
Bye-Laws. The Bye-Laws provide for the corporate governance of Holdings,
including the establishment of share rights, modification of such rights,
issuance of share certificates, imposition of a lien over shares in respect of
unpaid amounts on those shares, calls on shares which are not fully paid,
forfeiture of shares, the transfer of shares, alterations to capital, the
calling and conduct of general meetings, proxies, the appointment and removal
of directors, conduct and powers of directors, the payment of dividends, the
appointment of an auditor and the winding-up of Holdings.
The Bye-Laws provide that the Board shall be divided into three classes that
are elected for staggered three-year terms. Shareholders may only remove a
director for cause prior to the expiration of such director's term at a special
meeting of shareholders at which a majority of the holders of shares entitled
to vote thereon vote in favor of such action.
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<PAGE>
The Bye-Laws also provide that if the Board in its absolute discretion
determines that share ownership by any shareholder may result in adverse tax,
regulatory or legal consequences to Holdings, any of its subsidiaries or any
other shareholder, then Holdings will have the option, but not the obligation,
to repurchase all or part of the shares held by such shareholder to the extent
the Board determines it is necessary or advisable to avoid such adverse or
potential adverse consequences. The price to be paid for such shares will be
the fair market value of such shares.
CAPITAL STOCK OF LASALLE RE
The following description of the capital stock of LaSalle Re summarizes
certain provisions of the Memorandum of Association and the Bye-Laws of LaSalle
Re. Such summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Memorandum of Association and the Bye-Laws of LaSalle Re.
General. The authorized share capital of LaSalle Re consists of: (i) LaSalle
Re Common Shares, of which 14,397,720 LaSalle Re Common Shares are outstanding,
(ii) Exchangeable Non-Voting Shares, of which 8,329,290 are outstanding and
(iii) preferred shares, par value $1.00 per share (the "LaSalle Re Preferred
Shares"), none of which are outstanding.
Common Shares. Holders of LaSalle Re Common Shares are entitled to one vote
per share on all matters submitted to a vote of holders of LaSalle Re Common
Shares and do not have any cumulative voting rights. Most matters to be
approved by holders of LaSalle Re Common Shares require approval by a simple
majority vote. The holders of 75% of the LaSalle Re Common Shares present in
person or by proxy at a meeting and voting thereon must generally approve a
merger or amalgamation with another company. Holders of LaSalle Re Common
Shares have no pre-emptive, redemption, conversion or sinking fund rights. In
the event of a liquidation, dissolution or winding-up of LaSalle Re, the
holders of LaSalle Re Common Shares are entitled to share equally and ratably
in the assets of LaSalle Re, if any, remaining after the payment of all debts
and liabilities of LaSalle Re and the liquidation preference of any outstanding
preferred shares of LaSalle Re. There is no restriction on the transfer or
voting power of LaSalle Re Common Shares other than (i) the discretion of the
Board of Directors of LaSalle Re to decline to register a transfer of LaSalle
Re Common Shares unless a registration statement under the Securities Act is in
effect with respect to such LaSalle Re Common Shares or a written opinion from
counsel acceptable to the directors is obtained to the effect that such
registration is not required and (ii) as otherwise restricted under Bermuda
law.
Exchangeable Non-Voting Shares. The Exchangeable Non-Voting Shares shall at
all times rank, as to the assets, dividends and in all other respects, on a
parity with LaSalle Re Common Shares, except that Exchangeable Non-Voting
Shares shall not have the right to vote on any matters except as required by
Bermuda law and except as provided in the Shareholders Agreement. The
Exchangeable Non-Voting Shares are exchangeable for Common Shares of Holdings
on a one-for-one basis, unless the Board determines that such exchange may
cause actual or potential adverse tax consequences to the Company or any
shareholder, pursuant to the Conversion Agreement. Upon a liquidation of
LaSalle Re, holders of Exchangeable Non-Voting Shares will be contractually
obligated to the parties to the Shareholders Agreement to transfer to holders
of Common Shares such amount so as to ensure that the proceeds of the
liquidation will be shared on a pro rata basis among the holders of Common
Shares and the Exchangeable Non-Voting Shares.
Preferred Shares. Pursuant to the Bye-Laws of LaSalle Re and Bermuda law, the
Board of Directors of LaSalle Re by resolution may issue preferred shares
having such number of shares, designations, relative voting rights, dividend
rates, liquidation and other rights, preferences and limitations as may be
fixed by the Board of Directors of LaSalle Re without the approval of the
shareholders of LaSalle Re. In connection with the Company's credit facility,
LaSalle Re has authorized the issuance of up to $100 million of LaSalle Re
Preferred Shares and concurrently entered into a subscription agreement dated
as of December 1, 1995 with Holdings, pursuant to which Holdings agreed to
subscribe from time to time for LaSalle Re Preferred Shares at a price of $25
per share, for a period of five years ending on December 1, 2000. Holders of
the LaSalle Re Preferred Shares are, among other things, entitled to
preferential dividend rates and distribution rights upon liquidation or
dissolution of LaSalle Re and to notice of shareholder meetings.
TRANSFER AGENT
The Company's registrar and transfer agent for the Common Shares is First
Chicago Trust Company of New York.
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DIFFERENCES IN CORPORATE LAW
The Companies Act 1981 of Bermuda (the "Act") differs in certain material
respects from laws generally applicable to United States corporations and
their shareholders. Set forth below is a summary of certain significant
provisions of the Act (including modifications adopted pursuant to the Bye-
Laws) applicable to the Company, which differ in certain respects from
provisions of Delaware corporate law. The following statements are summaries,
and do not purport to deal with all aspects of Bermuda law that may be
relevant to the Company and its shareholders.
Interested Directors. The Bye-Laws provide that any transaction entered into
by the Company in which a director has an interest is not voidable by the
Company nor can such director be liable to the Company for any profit realized
pursuant to such transaction provided the nature of the interest is disclosed
at the first opportunity at a meeting of directors, or in writing to the
directors. Under Delaware law, such transaction would not be voidable if (i)
the material facts as to such interested director's relationship or interests
are disclosed or are known to the board of directors and the board in good
faith authorizes the transaction by the affirmative vote of a majority of the
disinterested directors, (ii) such material facts are disclosed or are known
to the stockholders entitled to vote on such transaction and the transaction
is specifically approved in good faith by vote of the stockholders or (iii)
the transaction is fair as to the corporation as of the time it is authorized,
approved or ratified. Under Delaware law, such interested director could be
held liable for any transaction for which such director derived an improper
personal benefit.
Mergers and Similar Arrangements. The Company may acquire the business of
another Bermuda company similarly exempt from Bermuda taxes or a company
incorporated outside Bermuda and carry on such business when it is within the
objects of its Memorandum of Association. The Company may also amalgamate with
another Bermuda company or with a body incorporated outside Bermuda. In the
case of an amalgamation, a shareholder may apply to a Bermuda court for a
proper valuation of such shareholder's shares if such shareholder is not
satisfied that fair value has been paid for such shares. The court ordinarily
would not set aside the transaction on that ground absent evidence of fraud or
bad faith. Under Delaware law, with certain exceptions, any merger,
consolidation or sale of all or substantially all the assets of a corporation
must be approved by the board of directors and a majority of the outstanding
shares entitled to vote. Under Delaware law, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which such
stockholder may receive cash in the amount of the fair market value of the
shares held by such stockholder (as determined by a court or by agreement of
the corporation and the stockholder) in lieu of the consideration such
stockholder would otherwise receive in the transaction. Delaware law does not
provide stockholders of a corporation with voting or appraisal rights when the
corporation acquires another business through the issuance of its stock or
other consideration (i) in exchange for the assets of the business to be
acquired, (ii) in exchange for the outstanding stock of the corporation to be
acquired or (iii) in a merger of the corporation to be acquired with a
subsidiary of the acquiring corporation.
Takeovers. Bermuda law provides that where an offer is made for shares of
another company and, within four months of the offer, the holders of not less
than 90% of the shares which are the subject of the offer accept, the offeror
may by notice require the nontendering shareholders to transfer their shares
on the terms of the offer. Dissenting shareholders may apply to the court
within one month of the notice objecting to the transfer. The burden is on the
dissenting shareholders to show that the court should exercise its discretion
to enjoin the required transfer, which the court will be unlikely to do unless
there is evidence of fraud or bad faith or collusion between the offeror and
the holders of the shares who have accepted the offer as a means of unfairly
forcing out minority shareholders. Delaware law provides that a parent
corporation, by resolution of its board of directors and without any
shareholder vote, may merge with any 90% or more owned subsidiary. Upon any
such merger, dissenting stockholders of the subsidiary would have appraisal
rights.
Shareholder's Suit. The rights of shareholders under Bermuda law are not as
extensive as the rights of shareholders under legislation or judicial
precedent in many United States jurisdictions. Class actions and derivative
actions are generally not available to shareholders under the laws of Bermuda.
However, the Bermuda
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courts ordinarily would be expected to follow English case law precedent,
which would permit a shareholder to commence an action in the name of the
Company to remedy a wrong done to the Company where the act complained of is
alleged to be beyond the corporate power of the Company or is illegal or would
result in the violation of the Memorandum of Association or Bye-Laws.
Furthermore, consideration would be given by the court to acts that are
alleged to constitute a fraud against the minority shareholders or where an
act requires the approval of a greater percentage of the Company's
shareholders than actually approved it. The winning party in such an action
generally would be able to recover a portion of attorneys' fees incurred in
connection with such action. Class actions and derivative actions generally
are available to stockholders under Delaware law for, among other things,
breach of fiduciary duty, corporate waste and actions not taken in accordance
with applicable law. In such actions, the court has discretion to permit the
winning party to recover attorneys' fees incurred in connection with such
action.
Indemnification of Directors. The Company may indemnify its directors or
officers in their capacity as such in respect of any loss arising or liability
attaching to them by virtue of any rule of law in respect of any negligence,
default, breach of duty or breach of trust of which a director or officer may
be guilty in relation to the Company other than in respect of his own willful
default, willful neglect, fraud or dishonesty. Under Delaware law, a
corporation may adopt a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for breaches of the
director's duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of law, for improper
payment of dividends or for any transaction from which the director derived an
improper personal benefit. Delaware law has provisions and limitations similar
to Bermuda regarding indemnification by a corporation of its directors or
officers, except that under Delaware law the statutory rights to
indemnification may not be as limited.
Inspection of Corporate Records. Members of the general public have the
right to inspect the public documents of the Company available at the office
of the Registrar of Companies in Bermuda, which will include the Memorandum of
Association (including its objects and powers) and any alteration to the
Memorandum of Association and documents relating to any increase or reduction
of authorized capital. The shareholders have the additional right to inspect
the Bye-Laws, minutes of general meetings and audited financial statements of
the Company, which must be presented to the annual general meeting of
shareholders. The register of shareholders of the Company is also open to
inspection by shareholders without charge, and to members of the public for a
fee. The Company is required to maintain its share register in Bermuda but may
establish a branch register outside Bermuda. The Company is required to keep
at its registered office a register of its directors and officers which is
open for inspection by members of the public without charge. Bermuda law does
not, however, provide a general right for shareholders to inspect or obtain
copies of any other corporate records. Delaware law permits any shareholder to
inspect or obtain copies of a corporation's shareholder list and its other
books and records for any purpose reasonably related to such person's interest
as a shareholder. Delaware law does not permit inspection by the public of the
register of shareholders.
SHARES ELIGIBLE FOR FUTURE SALE
No predictions can be made as to the effect, if any, that future sales of
Common Shares, or the availability of such Common Shares for future sale, will
have on the market price of the Common Shares prevailing from time to time.
Sales of substantial amounts of Common Shares in the public markets following
the Offerings, or the perception that such sales could occur, could adversely
affect prevailing market prices and the Company's ability to raise additional
equity capital at a desirable time and price.
The Common Shares sold in the Offerings and 4,312,500 currently outstanding
Common Shares will be freely tradeable without restriction or further
registration under the Securities Act by persons other than "affiliates" of
the Company within the meaning of Rule 144 promulgated under the Securities
Act. The remaining outstanding Common Shares will be "restricted" securities
within the meaning of Rule 144 promulgated under the Securities Act and may
not be resold in the absence of registration under the Securities Act or
pursuant to an exemption from such registration.
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Rule 144 promulgated under the Securities Act provides such an exemption for
resales of securities under certain circumstances. Under Rule 144, as
currently in effect, a person (or persons whose shares are aggregated) who
beneficially owns "restricted" shares that have been issued and not held by an
affiliate of the Company for at least two years from the time the shares were
fully paid for will be entitled to sell in "brokers' transactions" or to
market makers, within any three-month period, a number of shares that does not
exceed the greater of (i) 1% of the shares then outstanding or (ii) the
average weekly trading volume of the shares on all national securities
exchanges and/or the Nasdaq National Market during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain notice
requirements and the availability of current public information about the
Company. Restricted shares held for three years by a person who is not, at the
time of sale and has not been at any time within three months prior thereto,
an affiliate of the Company may be sold without regard to the volume
limitations or manner of sale restrictions under Rule 144. The foregoing
summary of Rule 144 is not intended to be a complete description thereof. The
Company is seeking a no-action letter from the Commission permitting (a) the
Founding Shareholders to tack their pre-Exchange Offer holding period for
LaSalle Re Common Shares, and options therefor, to their holding period for
Common Shares or Exchangeable Non-Voting Shares, and options therefor,
received in, or in connection with, the Exchange Offer and (b) holders of
Exchangeable Non-Voting Shares received in the Exchange Offer, or upon the
exercise of options, to tack their holding period for such shares or options
to Common Shares that they may subsequently receive in an exchange permitted
by the Board. If the Commission provides a favorable no-action response with
respect to Common Shares and options therefor issued in, or in connection
with, the Exchange Offer, (w) all such Common Shares owned by the Founding
Shareholders immediately following the completion of the Company's initial
public offering will be available for resale under Rule 144 upon the
expiration of the lock-up period described below and (x) all Common Shares
directly issuable upon exercise of options will be available for immediate
resale upon issuance thereof upon expiration of the lock-up period described
below. If the Commission provides a favorable response both with respect to
(y) Exchangeable Non-Voting Shares issued in the Exchange Offer, or upon the
exercise of options, and (z) Common Shares issued in the future upon a
permitted exchange of Exchangeable Non-Voting Shares issued in the Exchange
Offer, or upon exercise of options, all Common Shares which may be issued upon
an exchange of Exchangeable Non-Voting Shares (including such shares issuable
upon the exercise of options) will be eligible for immediate resale under Rule
144 at such time they are exchanged (although a new holding period might
subsequently be commenced by a transfer of the underlying Exchangeable Non-
Voting Shares or options to an unaffiliated third party by a Founding
Shareholder who is an affiliate of the Company). If the Commission does not
permit such tacking, Common Shares issued to the Founding Shareholders
pursuant to the Exchange Offer and Common Shares issued to the Founding
Shareholders in exchange for Exchangeable Non-Voting shares that were issued
in the Exchange Offer or upon exercise of options will have to be held for the
applicable holding period before being eligible for resale under Rule 144.
The Founding Shareholders and Mr. Blake have been granted certain rights
pursuant to the Shareholders Agreement to cause the Company to register Common
Shares held by them under the Securities Act. See "Certain Transactions--
Shareholders Agreement."
The Company, each of its officers and directors set forth under the heading
"Management" in this Prospectus and certain Founding Shareholders have agreed
that, for a period of 180 days after the date of this Prospectus, they will
not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell or otherwise dispose of any common shares of the Company or
any subsidiary of the Company (or any securities convertible into or
exercisable or exchangeable for such common shares), or grant any options or
warrants to purchase such common shares, except that (i) the Company may issue
Common Shares pursuant to stock purchase plans and grant options pursuant to
stock option plans and (ii) the Founding Shareholders may sell shares subject
to the U.S. Underwriters' over-allotment option and shares repurchased by the
Company pursuant to the Company's capital management strategy. See "Business--
Capital Management Strategy," "Management--Long-Term Incentive Plan" and "--
Employee Stock Purchase Plan."
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CERTAIN TAX CONSIDERATIONS
The following summary of taxation of Holdings, LaSalle Re, LaSalle Re
Services and LaSalle Re Capital and the taxation of shareholders of the
Company is based upon current law. The following discussion is a summary of
the principal Bermuda, United Kingdom and U.S. federal income tax consequences
of the ownership and disposition of Holdings' Common Shares. The summary does
not purport to be a complete analysis of all of the tax considerations that
may be applicable to a decision to acquire Common Shares of Holdings and,
unless explicitly noted to the contrary, deals only with investors who are
U.S. Persons (as defined below) who will hold the Common Shares as "capital
assets" within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code"); provided, however, that except as explicitly
provided below, the summary does not apply to a U.S. 10% shareholder (as
defined below) of Holdings or LaSalle Re. The tax treatment of any particular
shareholder may vary depending on such shareholder's particular tax situation
or status. Consequently, each prospective shareholder is urged to consult his
or its own tax advisors as to the particular tax consequences of the Offerings
to such shareholder, including the effect and applicability of federal, state,
local and foreign income and other tax laws. Legislative, judicial or
administrative changes may be forthcoming that could affect this summary.
As used herein, the term "U.S. Person" means a citizen or resident of the
United States; a corporation, partnership, or other entity created or
organized in the United States or under the laws of the United States or of
any political subdivision thereof; an estate whose income is includible in
gross income for United States Federal income tax purposes regardless of its
source; or a "United States Trust." A United States Trust is (a) for taxable
years beginning after December 31, 1996, or if the trustee of a trust elects
to apply the following definition to an earlier taxable year, any trust if,
and only if, (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more U.S.
trustees have the authority to control all substantial decisions of the trust,
and (b) for all other taxable years, any trust whose income is includible in
gross income for United States Federal income tax purposes regardless of its
source. A U.S. Person who holds Common Shares or shares of LaSalle Re as
"capital assets" within the meaning of section 1221 of the Code will be
referred to herein as a "U.S. Holder."
Statements made below as to Bermuda tax law are based on the opinion of
Conyers, Dill & Pearman, Bermuda counsel to the Company (subject to the
qualifications and assumptions set forth in such statements). Statements made
below as to United States federal income tax law are based upon the opinion of
Mayer, Brown & Platt, United States counsel to the Company (subject to the
qualifications and assumptions set forth in such statements). Statements below
as to the United Kingdom tax law are based on the opinion of Clyde & Co., U.K.
counsel to the Company (subject to the qualifications and assumptions set
forth in such statements). The statements as to the Company's beliefs and
conclusions as to the application of such tax laws to the Company represent
the views of the Company's management as to the application of such laws and
do not represent legal opinions of the Company or its counsel.
TAXATION OF THE COMPANY AND ITS SUBSIDIARIES
Bermuda
Under current Bermuda law, there is no income tax or capital gains tax
payable by Holdings, LaSalle Re or LaSalle Re Capital. Holdings, LaSalle Re
and LaSalle Re Capital have received from the Bermuda Minister of Finance an
assurance under The Exempted Undertakings Tax Protection Act, 1966 of Bermuda,
to the effect that in the event of there being enacted in Bermuda any
legislation imposing tax computed on profits or income, or computed on any
capital asset, gain or appreciation, or any tax in the nature of estate duty
or inheritance tax, then the imposition of any such tax shall not be
applicable to Holdings, to LaSalle Re, to LaSalle Re Capital, or to any of
their operations or their shares, debentures or other obligations, until March
28, 2016. This assurance is subject to the proviso that it is not construed so
as to prevent the application of any tax or duty to such persons as are
ordinarily resident in Bermuda (Holdings, LaSalle Re and LaSalle Re Capital
are not so currently affected) or to prevent the application of any tax
payable in accordance with the provisions of The Land Tax Act 1967 of Bermuda
or otherwise payable in relation to the property leased to LaSalle Re.
Holdings and LaSalle Re, under current rates, each pay annual Bermuda
government fees of $1,380 and $15,000, respectively, and LaSalle Re currently
pays annual insurance fees of $1,100. In addition, all entities employing
individuals in Bermuda are required to pay a payroll tax to the Bermuda
government.
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United Kingdom
LaSalle Re Services and LaSalle Re Capital are subject to tax in the United
Kingdom on their income. However, the Company believes that the taxable income
of LaSalle Re Services and LaSalle Re Capital will be modest, and that their
tax liability is and will continue to be small. LaSalle Re Capital may become a
corporate member of a Lloyd's syndicate. If it does become such a member, it
will be subject to the U.K. corporation tax and value added tax. The Company
believes that the activities of LaSalle Re Services and LaSalle Re Capital will
not cause LaSalle Re or Holdings to be subject to United Kingdom tax on any
portion of their net income.
United States
In general, under current U.S. tax rules and regulations, a foreign
corporation is subject to U.S. federal income tax on its taxable income that is
treated as effectively connected to its conduct of a trade or business within
the U.S. and to the U.S. branch profits tax on its effectively connected
earnings and profits (with certain adjustments) deemed repatriated out of the
United States. However, pursuant to most U.S. income tax treaties, a foreign
corporation is subject to the U.S. federal income tax on its business profits
only if it is engaged in the conduct of a trade or business in the U.S. through
a permanent establishment located therein. The U.S. has entered into a treaty
with Bermuda (the "Bermuda Treaty"). Pursuant to the Bermuda Treaty business
profits earned by residents of Bermuda may be taxed in the United States only
if such profits are attributable to the conduct of a trade or business carried
on through a permanent establishment in the United States; however, the
permanent establishment provision of the Bermuda Treaty applies only to the
business profits of an enterprise of insurance and a Bermuda resident will be
entitled to the benefits of the Bermuda Treaty only if (i) 50% or more of its
equity is beneficially owned, directly or indirectly, by Bermuda residents or
U.S. citizens or residents and (ii) its income is not used in substantial part,
directly or indirectly, to make disproportionate distributions to, or to meet
certain liabilities to, persons who are not Bermuda residents or U.S. citizens
or residents (the "Bermuda Treaty Benefits Test"). For purposes of the Bermuda
Treaty, a permanent establishment generally is defined to include a branch,
office or other fixed place of business through which the business of the
enterprise is carried on, or an agent (other than an agent of independent
status acting in the ordinary course of its business) that has, and habitually
exercises in the U.S., authority to conclude contracts in the name of the
corporation.
It is the opinion of the Company's United States counsel that, based on
representations made by Holdings and LaSalle Re regarding their activities with
respect to the United States, Holdings and LaSalle Re should not be subject to
U.S. federal net income tax imposed on their business income. It is anticipated
that Holdings and LaSalle Re will operate in the future so as not to be engaged
in the conduct of a trade or business in the U.S. However, as there are no
definitive standards provided by the Code, regulations or court decisions as to
those activities that constitute being engaged in the conduct of a trade or
business within the United States, and as the determination is essentially
factual in nature, there can be no assurance that the IRS will not contend
successfully that Holdings and/or LaSalle Re is engaged in a trade or business
in the United States. If Holdings and/or LaSalle Re were deemed to be so
engaged, that entity would be subject to U.S. income tax, as well as the branch
profits tax, on its income which is treated as effectively connected with the
conduct of that trade or business unless the entity is entitled to relief under
the permanent establishment provision of the Bermuda Treaty, as discussed
below.
It is uncertain whether LaSalle Re will be entitled to relief under the
permanent establishment provisions of the Bermuda Treaty upon completion of
this offering or at any time thereafter as it cannot be predicted whether
LaSalle Re would satisfy the Bermuda Treaty Benefits Test. No regulations
interpreting the Bermuda Treaty have been issued. However, as stated above,
while there can be no assurances, the Company believes that LaSalle Re will not
be engaged in the conduct of a U.S. trade or business and, in any event, the
Company does not believe that LaSalle Re will have a permanent establishment in
the United States.
If the Company or LaSalle Re is subject to U.S. federal income tax, that
entity would be taxed at regular corporate rates on all of its income that is
effectively connected with the conduct of its U.S. business (or, in the case of
LaSalle Re, all of its income attributable to its U.S. permanent establishment
if LaSalle Re is entitled to the benefits of the Bermuda Treaty). In addition,
the Company or LaSalle Re would be subject to the branch
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profits tax. Such income tax, if imposed, would be based on effectively
connected income computed in a manner generally analogous to that applied to
the income of a domestic corporation, except that a foreign corporation can
anticipate an allowance of deductions and credits only if it files a United
States income tax return. Penalties may be assessed for failure to file tax
returns. Holdings and LaSalle Re intend to file protective U.S. income tax
returns on a timely basis in order to preserve their right to claim tax
deductions and credits if either company subsequently is determined to be
subject to U.S. tax on a net basis. The highest marginal federal income tax
rates currently are 35% for a corporation's effectively connected income and
30% for the "branch profits" tax. If LaSalle Re were deemed to be engaged in
business in the United States but did not have a permanent establishment in
the United States within the meaning of the Bermuda Treaty and LaSalle Re
qualified for Bermuda Treaty benefits, there is an argument that premium
income of LaSalle Re would be exempt from U.S. tax but that its investment
income effectively connected with its U.S. business would be subject to U.S.
tax on a net basis, and that the branch profits tax may be applicable to that
investment income.
LaSalle Re Capital may become a corporate member of a Lloyd's syndicate. If
it does become such a member, it will become subject to a Closing Agreement
between Lloyd's and the IRS as engaged in business in the U.S. and will become
subject to U.S. corporate income tax on its net income from U.S. sources.
Foreign corporations not engaged in a trade or business in the United
States, as well as foreign corporations engaged in the conduct of a U.S. trade
or business but only with respect to their income that is not effectively
connected with such trade or business, are nonetheless subject to U.S. income
tax on certain "fixed or determinable annual or periodical gains, profits and
income" (such as dividends and certain interest on investments) derived from
sources within the United States. Such tax generally is imposed at a rate of
30% on the gross income subject to the tax, but the rate may be reduced by
applicable treaties, and the tax is eliminated with respect to certain types
of U.S. source income, such as portfolio interest.
The United States also imposes an excise tax on insurance and reinsurance
premiums paid to foreign insurers or reinsurers with respect to risks located
in the United States. The rates of tax applicable to premiums paid to LaSalle
Re are 4% for casualty insurance premiums and 1% for reinsurance premiums.
The Treasury Department has recently announced proposals that would
significantly affect the taxation of companies that enter into insurance or
reinsurance contracts with certain affiliated companies. These proposals, if
enacted into law, might significantly affect the taxation of the Company.
However, these proposals have not been introduced in Congress as legislation
and it is impossible to predict whether, or in what form, such legislation
will be enacted and the effect, if any, of legislation that might be enacted
on the taxation of the Company.
TAXATION OF SHAREHOLDERS
Bermuda Taxation
Currently, there is no Bermuda withholding tax on dividends paid by the
Company.
United States Taxation of U.S. and Non-U.S. Shareholders
Taxation of Dividends. Subject to the discussion below relating to the
potential application of the "controlled foreign corporation" and "passive
foreign investment company" rules, cash distributions made with respect to
Common Shares will constitute dividends for U.S. federal income tax purposes
to the extent paid out of current or accumulated earnings and profits of
Holdings. U.S. Holders generally will be subject to U.S. federal income tax on
the receipt of such dividends. Generally, such dividends will not be eligible
for the dividends received deduction. To the extent that a distribution
exceeds earnings and profits, it will be treated first as a return of the U.S.
Holder's basis to the extent thereof, and then as gain from the sale of a
capital asset.
Possible Classification of the Company as a Controlled Foreign Corporation.
Under section 951(a) of the Code, each "U.S. 10% shareholder" (as defined
below) that, on the last day of the foreign corporation's taxable year, owns,
directly or indirectly through a foreign entity, shares of a foreign
corporation that is a "controlled
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foreign corporation" ("CFC") for an uninterrupted period of 30 days or more
during any taxable year must include in its gross income for United States
federal income tax purposes its pro rata share of the CFC's "subpart F income"
for such year, even if the subpart F income is not distributed. In addition,
the U.S. 10% shareholders of a CFC may be deemed to receive taxable
distributions to the extent the CFC increases the amount of its earnings that
are invested in certain specified types of U.S. property. All of Holdings',
LaSalle Re's, and LaSalle Re Capital's income is expected to be subpart F
income. "Subpart F income" includes, inter alia, (i) "foreign personal holding
company income," such as interest, dividends, and other types of passive
investment income and (ii) "insurance income," which is defined to include any
income (including underwriting and investment income) that is attributable to
the issuing (or reinsuring) of any insurance or annuity contract in connection
with property in, liability arising out of activity in, or in connection with
the lives or health of residents of, a country other than the country under
the laws of which the CFC is created or organized, and which (subject to
certain modifications) would be taxed under the insurance company provisions
of the Code if such income were the income of a domestic insurance company
("Subpart F Insurance Income"). However, Subpart F income does not include any
income from sources within the U.S. which is effectively connected with the
conduct of a trade or business within the U.S. and not exempted or subject to
a reduced rate of tax by applicable treaty.
Under Code section 951(b), any U.S. Person who owns, directly or indirectly
through foreign entities, or is considered to own (by application of the rules
of constructive ownership set forth in Code section 958(b), generally applying
to family members, partnerships, estates, trusts or 10% controlled
corporations) 10% or more of the total combined voting power of all classes of
stock of a foreign corporation will be considered to be a "U.S. 10%
shareholder." In general, a foreign corporation is treated as a CFC only if
its U.S. 10% shareholders collectively own more than 50% of the total combined
voting power or total value of the corporation's stock on any day (the "50%
Test"). However, for purposes only of taking into account Subpart F Insurance
Income, a foreign corporation will be treated as a CFC if (i) more than 25% of
the total combined voting power or total value of its stock is owned by U.S.
10% shareholders and (ii) the gross amount of premiums or other consideration
in respect of risks outside its country of incorporation exceeds 75% of the
gross amount of all premiums or other consideration in respect of all risks
(the "25% Test"). It is anticipated for both LaSalle Re and LaSalle Re Capital
that the gross premiums of each corporation in respect of Subpart F Insurance
Income will exceed 75% of each such corporation's gross premiums in respect of
all risks so that the 25% Test, rather than the 50% Test, will be applicable
with respect to the Subpart F Insurance Income of both LaSalle Re and LaSalle
Re Capital.
In determining the U.S. 10% shareholders of LaSalle Re and LaSalle Re
Capital, capital stock of LaSalle Re and LaSalle Re Capital held indirectly by
U.S. persons through Holdings or any other non-U.S. entity is treated as held
by United States persons. The Company believes that because of the dispersion
of its share ownership and because Holdings' Bye-Laws require prior Board
approval for any transfer of Common Shares that results in any shareholder
(other than a mutual fund) beneficially owning Common Shares equal to 5% or
more of the voting power of Holdings or any shareholder holding actually,
indirectly through foreign entities or constructively more than 9.9% of the
voting power of Holdings, neither Holdings, LaSalle Re nor LaSalle Re Capital
is a CFC under the foregoing general rules. However, there can be no assurance
that Holdings, LaSalle Re or LaSalle Re Capital will not at some time become a
CFC. Each prospective investor should consult its own tax advisor to determine
whether its ownership interest in Holdings would cause it to become a U.S. 10%
shareholder of Holdings, LaSalle Re, LaSalle Re Capital or of any subsidiary
which may be created by Holdings or LaSalle Re and to determine the impact of
such a classification of such investor.
RPII Companies. A different definition of "controlled foreign corporation"
is applicable in the case of a foreign corporation which earns related person
insurance income ("RPII"). RPII is defined in Code section 953(c)(2) as any
"insurance income" (as defined above) attributable to policies of insurance or
reinsurance with respect to which the person (directly or indirectly) insured
is a "RPII shareholder" (as defined below) of the foreign corporation or a
"related person" to such a shareholder. For purposes only of taking into
account RPII, and subject to the exceptions described below, LaSalle Re or
LaSalle Re Capital will be treated as a CFC if its "RPII shareholders"
collectively own, directly, indirectly, or by attribution under Code Section
958(b), 25% or
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more of the total combined voting power or value of such corporation's stock
on any day during a taxable year. If LaSalle Re or LaSalle Re Capital is a CFC
for an uninterrupted period of at least 30 days during any taxable year under
the special RPII rules, a U.S. Person who owns, directly or indirectly through
foreign entities, shares of LaSalle Re or LaSalle Re Capital on the last day
of any such taxable year must include in its gross income for United States
Federal income tax purposes its allocable share of RPII income of such
corporation for the entire taxable year, subject to certain modifications. For
purposes of inclusion of LaSalle Re's or LaSalle Re Capital's RPII in the
income of U.S. Persons who own Common Shares or shares of LaSalle Re, unless
an exception applies, the term "RPII shareholder" includes all U.S. Persons
who own, directly or indirectly through foreign entities, any amount (rather
than 10% or more) of the Common Shares or shares of LaSalle Re or LaSalle Re
Capital. Generally, the term "related person" for purposes of the RPII rules
means someone who controls or is controlled by the RPII shareholder or someone
who is controlled by the same person or persons which control the RPII
shareholder. Control is measured by either more than 50% in value or more than
50% in voting power of stock applying constructive ownership principles
similar to the rules of section 958 of the Code.
RPII Exceptions. The special RPII rules do not apply if direct and indirect
insureds and persons related to such insureds, whether or not U.S. Persons,
are treated at all times during the taxable year as owning, directly or
indirectly through entities, less than 20% of the voting power and less than
20% of the value of the stock of LaSalle Re and LaSalle Re Capital, or the
RPII of LaSalle Re and LaSalle Re Capital, determined on a gross basis, is
less than 20% of such corporation's gross insurance income for such taxable
year, or if certain other exceptions apply. Where no exception applies, each
RPII shareholder of LaSalle Re and LaSalle Re Capital on the last day of such
corporation's fiscal year will be required to include in its gross income for
United States federal income tax purposes its share of the RPII for the entire
taxable year, determined as if all such RPII were distributed proportionately
only to such RPII shareholders at that date, but limited by such corporation's
current-year earnings and profits and reduced by the RPII shareholder's share,
if any, of prior-year deficits in earnings and profits.
LaSalle Re reinsures, and expects to continue reinsuring, the risks of an
insurance company that is related to CNA, a RPII shareholder of LaSalle Re,
and thus expects to generate RPII. In addition, LaSalle Re may be considered
to reinsure directly or indirectly the risks of other RPII shareholders of
LaSalle Re or parties related thereto, thus generating RPII. LaSalle Re has in
the past and intends in the future to monitor the reinsurance of related
persons to limit the gross RPII from such reinsurance to less than 20% of
LaSalle Re's gross insurance income. For LaSalle Re's most recent taxable year
ended September 30, 1996, the Company believes gross RPII of LaSalle Re was
less than 20% of LaSalle Re's gross insurance income for the year and,
although no assurances can be given, the Company will endeavor to take such
steps as it determines to be reasonable to cause its gross RPII to remain
below such level. The Company believes gross RPII of LaSalle Re Capital will
be less than 20% of LaSalle Re Capital's gross insurance income for each
taxable year and will endeavor to take such steps as it determines to be
reasonable to cause LaSalle Re Capital's gross RPII to remain below such
level.
Computation of RPII. In order to determine how much RPII LaSalle Re and
LaSalle Re Capital have earned in each fiscal year, the Company intends to
obtain and rely upon information from its insureds to determine whether any of
the insureds or persons related to such insureds own shares of Holdings or
LaSalle Re and are U.S. Persons. The Company may not be able to determine
whether any of the underlying insureds of the insurance companies to which
LaSalle Re and LaSalle Re Capital provide reinsurance are RPII shareholders or
related persons to such shareholders. Consequently, Holdings may not be able
to determine accurately the gross amount of RPII earned by LaSalle Re and
LaSalle Re Capital in a given taxable year. LaSalle Re and LaSalle Re Capital
will take reasonable steps to secure such additional information relevant to
determine the amount of each corporation's insurance income that is RPII as
they believe advisable, but there can be no assurance that such information
will be sufficient to enable LaSalle Re and LaSalle Re Capital to establish
clearly such amount. For any year in which the Company has determined that
gross RPII is 20% or more of LaSalle Re's or LaSalle Re Capital's gross
insurance income, the Company may also seek information from its shareholders
as to whether direct or indirect owners of Common Shares or shares of LaSalle
Re at the end of the year are U.S. Persons so that the RPII may be determined
and apportioned among such persons. In any such year, the Company will
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inform all shareholders of RPII per share and RPII shareholders are obligated
to file a return reporting such amounts. To the extent the Company is unable
to determine whether a direct or indirect owner of shares is a U.S. Person the
Company may assume that such owner is not a U.S. Person for the purpose of
allocating RPII, thereby increasing the per share RPII amount for all RPII
shareholders.
Apportionment of RPII to RPII Shareholders. The amount of RPII includible in
the income of a RPII shareholder is based upon the net RPII income for the
year after deducting related expenses such as losses, loss reserves and
operating expenses. Every U.S. Person who owns, directly or indirectly through
foreign entities, Common Shares or shares of LaSalle Re on the last day of any
taxable year of LaSalle Re or LaSalle Re Capital in which LaSalle Re's or
LaSalle Re Capital's gross insurance income constituting RPII for that year
equals or exceeds 20% of such corporation's gross insurance income should
expect that for such year it will be required to include in gross income its
share of such corporation's RPII for the entire year, whether or not
distributed, even though it may not have owned the shares for the entire year.
A U.S. Person who owns Common Shares or shares of LaSalle Re during such
taxable year but not on the last day of the taxable year, which would normally
be September 30, is not required to include in gross income any part of
LaSalle Re's or LaSalle Re Capital's RPII.
Basis Adjustments. A RPII shareholder's tax basis in its Common Shares or
shares of LaSalle Re will be increased by the amount of any RPII that the
shareholder includes in income. The shareholder may exclude from income the
amount of any distributions by Holdings or LaSalle Re to the extent of the
RPII included in income for the year in which the distribution was paid or for
any prior year. The RPII shareholder's tax basis in its Common Shares or
shares of Lasalle Re will be reduced by the amount of such distributions that
are excluded from income. In general, a RPII shareholder will not be able to
exclude from income distributions with respect to RPII that a prior
shareholder included in income.
Information Reporting. Every U.S. Person who "controls" a foreign
corporation by owning directly or by attribution more than 50% of the total
combined voting power of all classes of stock entitled to vote, or more than
50% of the total value of shares of all classes of stock, of such corporation,
for an uninterrupted period of 30 days or more during a fiscal year of that
foreign corporation, must file a Form 5471 with its U.S. income tax return.
However, the IRS has the authority to, and does require, any U.S. Person
treated as a U.S. 10% shareholder or RPII shareholder of a CFC that owns
shares directly or indirectly through a foreign entity to file a Form 5471.
Thus, if LaSalle Re's or LaSalle Re Capital's gross RPII for a taxable year
constitutes 20% or more of such corporation's gross insurance income for such
period, any U.S. Person treated as owning shares of LaSalle Re or LaSalle Re
Capital directly or indirectly on the last day of such taxable year is
considered a RPII shareholder for purposes of the RPII rules and will be
required to file a Form 5471. In addition, U.S. Persons who own more than 5%
in value of the outstanding stock of Holdings or LaSalle Re at any time during
a taxable year are required in certain circumstances to file Form 5471 even if
neither corporation is a CFC. For any taxable year in which the Company
determines that LaSalle Re's or LaSalle Re Capital's gross RPII constitutes
20% or more of such corporation's gross insurance income, the Company intends
to mail to all shareholders of record, and will make available at the transfer
agent with respect to the Common Shares and shares of LaSalle Re, Form 5471
(completed with Company information) for attachment to the returns of
shareholders. However, the Company's determination of the amount of LaSalle
Re's or LaSalle Re Capital's gross RPII for a given fiscal year may not be
accurate because of the Company's inability to gather the information
necessary to make such determination. See "Certain Tax Considerations--
Taxation of Shareholders--United States Taxation of U.S. and Non-U.S.
Shareholders--Computation of RPII." A tax-exempt organization that is treated
as a U.S. 10% shareholder or a RPII shareholder for any purpose under subpart
F will be required to file a Form 5471 in the circumstances described above.
Failure to file Form 5471 may result in penalties.
Tax-Exempt Shareholders. Code section 512(b)(17), which was added to the
Code on August 20, 1996, by the Small Business Job Protection Act of 1996
(P.L. 104-188), requires a tax-exempt entity owning, directly or indirectly
through a foreign entity or constructively under Code section 958(b) shares of
Holdings or LaSalle Re, to treat as unrelated business taxable income ("UBTI")
within the meaning of Code section 512 the portion of any deemed distribution
to such shareholder of Subpart F income under Code section 951(a) that is
attributable
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to insurance income which, if derived directly by such shareholder, would be
treated as UBTI. Exceptions are provided for income attributable to a policy of
insurance or reinsurance with respect to which the person (directly or
indirectly) insured is--(i) the tax-exempt shareholder, (ii) an affiliate of
the tax-exempt shareholder which itself is exempt from tax under Code section
501(a), or (iii) a director or officer of, or an individual who (directly or
indirectly) performs services for, the tax-exempt shareholder or an exempt
affiliate but only if the insurance covers primarily risks associated with the
performance of services in connection with the tax-exempt shareholder or exempt
affiliate.
Code section 512(b)(17) applies to amounts included in gross income in any
taxable year beginning after December 31, 1995. If LaSalle Re's or LaSalle Re
Capital's gross RPII were to equal or exceed 20% of such corporation's gross
insurance income, or Holdings, LaSalle Re or LaSalle Re Capital were otherwise
treated as a CFC, for a taxable year beginning after December 31, 1995, tax-
exempt entities owning stock in the Company might be required to treat a
portion of the Company's Subpart F income as UBTI. Prospective investors that
are tax-exempt entities are urged to consult their tax advisors as to the
potential impact of Code section 512(b)(17) and the UBTI provisions of the
Code.
Dispositions of Common Shares. Subject to the discussion elsewhere relating
to the potential application of the "controlled foreign corporation" and
"passive foreign investment company" rules, capital gain or loss realized by a
U.S. Holder on the sale, exchange or other disposition of Common Shares will be
includible in gross income as capital gain or loss in an amount equal to the
difference between such holder's basis in Common Shares and the amount realized
on the sale, exchange or other disposition. If a U.S. Holder's holding period
for the Common Shares is more than one year, any gain will be subject to the
U.S. federal income tax at a current maximum marginal rate of 28% for
individuals and 35% for corporations.
Code section 1248 provides that if a U.S. Person owns directly, indirectly
through foreign entities or constructively under Code section 958(b), 10% or
more of the voting shares of a corporation that is a CFC, any gain from the
sale or exchange of the shares may be treated as ordinary income to the extent
of the CFC's earnings and profits during the period that the shareholder held
the shares (with certain adjustments). Code section 953(c)(7) generally
provides that section 1248 also will apply to the sale or exchange of shares by
a RPII shareholder in a foreign corporation that earns RPII and is
characterized as a CFC under the RPII rules if the foreign corporation would be
taxed as an insurance company if it were a domestic corporation, regardless of
whether the shareholder is a U.S. 10% shareholder or whether RPII constitutes
20% or more of the corporation's gross insurance income. Existing Treasury
Department regulations do not address whether Code section 1248 would apply
when a foreign corporation (such as Holdings) is not a CFC but the foreign
corporation has an insurance company subsidiary that is a CFC (such as LaSalle
Re or LaSalle Re Capital) for purposes of requiring U.S. shareholders to take
into account RPII.
It is the opinion of the Company's United States counsel that Code section
1248 should not apply to dispositions of Common Shares because Holdings will
not have any U.S. 10% shareholders and Holdings is not directly engaged in the
insurance business. There can be no assurance, however, that the IRS will
interpret proposed regulations under Code section 953 in this manner or that
the Treasury Department will not amend the proposed regulations under Code
section 953 or other regulations to provide that Code section 1248 will apply
to dispositions of shares in a corporation such as Holdings which is engaged in
the insurance business indirectly through its subsidiaries. If the IRS or
Treasury Department were to take such action, the Company would notify
shareholders that Code section 1248 will apply to dispositions of Common
Shares.
Uncertainty as to Application of RPII. The RPII provisions of the Code have
never been interpreted by the courts. Regulations interpreting the RPII
provisions of the Code exist only in proposed form, having been proposed on
April 16, 1991. It is not certain whether these regulations will be adopted in
their proposed form or what changes or clarifications might ultimately be made
thereto or whether any such changes, as well as any interpretation or
application of RPII by the IRS, the courts or otherwise, might have retroactive
effect. Accordingly, the meaning of the RPII provisions and the application
thereof to Holdings, LaSalle Re and LaSalle
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Re Capital is uncertain. These provisions include the grant of authority to
the U.S. Treasury Department to prescribe "such regulations as may be
necessary to carry out the purpose of this subsection including . . .
regulations preventing the avoidance of this subsection through cross
insurance arrangements or otherwise." In addition, there can be no assurance
that any amounts of RPII inclusions reported by the Company to RPII
shareholders will not be subject to adjustment based upon subsequent IRS
examination. Each U.S. person who is considering an investment in Common
Shares should consult his tax advisor as to the effects of these
uncertainties.
Foreign Tax Credit. Because it is anticipated that U.S. Persons will own a
majority of Holdings' shares after the Offering and because a substantial part
of LaSalle Re's business includes the insurance of U.S. risks, only a portion
of the RPII and dividends paid by Holdings (including any gain from the sale
of Common Shares that is treated as a dividend under Code section 1248) will
be treated as foreign source income for purposes of computing a shareholder's
U.S. foreign tax credit limitation. It is likely that substantially all of the
RPII and dividends that are foreign source income will constitute either
"passive" or "financial services" income for foreign tax credit limitation
purposes. Thus, it may not be possible for certain U.S. Holders to utilize
excess foreign tax credits to reduce U.S. tax on such income.
Passive Foreign Investment Companies. Code sections 1291 through 1297
contain special rules applicable with respect to foreign corporations that are
"passive foreign investment companies" ("PFICs"). In general, a foreign
corporation will be a PFIC if 75% or more of its gross income constitutes
"passive income" (the "75% Income Test") or 50% or more of its assets produce,
or are held for the production of, passive income (the "50% Asset Test"). If
the Company were to be characterized as a PFIC, its United States shareholders
would have to make an election (a "QEF Election") to be currently taxable on
their pro-rata share of earnings of the Company whether or not such earnings
were distributed or they would be subject to a special tax and an interest
charge at the time of the sale of, or receipt of an "excess distribution" with
respect to, their shares, and a portion of any gain may be recharacterized as
ordinary income. In general, a shareholder receives an "excess distribution"
if the amount of the distribution is more than 125% of the average
distribution with respect to the stock during the three preceding taxable
years (or shorter period during which the taxpayer held the stock). In
general, the special tax and interest charges are based on the value of the
tax deferral of the taxes that are deemed due during the period the United
States shareholder owned the shares, computed by assuming that the excess
distribution or gain (in the case of a sale) with respect to the shares was
taxed in equal portions throughout the holder's period of ownership at the
highest marginal tax rate. The interest charge is computed using the
applicable rate imposed on underpayments of U.S. Federal income tax for such
period. In general, if a U.S. Person owns stock in a foreign corporation
during any taxable year in which such corporation is a PFIC and such
shareholder does not make a QEF Election, the stock will be treated as stock
in a PFIC for all subsequent years.
For the above purposes, "passive income" is defined to include income of a
kind that would be characterized as foreign personal holding company income
under Code section 954(c), and generally includes interest, dividends,
annuities and other investment income. The PFIC statutory provisions contain
an express exception for income "derived in the active conduct of an insurance
business by a corporation which is predominantly engaged in an insurance
business . . ." (the "Insurance Company Exception"). This exception is
intended to ensure that income derived by a bona fide insurance company is not
treated as passive income. Thus, to the extent such income is attributable to
financial reserves in excess of the reasonable needs of the insurance
business, it may be treated as passive income for purposes of the PFIC rules.
The PFIC statutory provisions also contain a look-through rule that states
that, for purposes of determining whether a foreign corporation is a PFIC,
such foreign corporation shall be treated as if it "received directly its
proportionate share of the income . . ." and as if it "held its proportionate
share of the assets . . ." of any other corporation in which it owns at least
25% of the value of the stock. It is anticipated that both LaSalle Re and
LaSalle Re Capital should be entitled to the Insurance Company Exception and
that neither corporation will have financial reserves in excess of the
reasonable needs of its insurance business, and therefore that none of LaSalle
Re's or LaSalle Re Capital's income or assets will be considered to be
passive. Under the look-through rule Holdings would be deemed to own its
proportionate share of the assets and to have received its proportionate share
of the income of LaSalle Re and LaSalle Re Capital for purposes of the 75%
Income and 50% Asset Tests, and therefore Holdings should not be considered a
PFIC.
71
<PAGE>
However, no final regulations interpreting the substantive PFIC provisions
have yet been issued. Therefore, substantial uncertainty exists with respect to
their application or their possible retroactivity. Each U.S. person who is
considering an investment in Common Shares should consult his tax advisor as to
the effects of these rules.
Other. Dividends paid by Holdings to U.S. corporate shareholders will not be
eligible for the dividends received deduction provided by Code section 243.
Except as discussed below with respect to backup withholding, dividends paid
by Holdings will not be subject to a U.S. withholding tax.
Information reporting to the IRS by paying agents and custodians located in
the U.S. will be required with respect to payments of dividends (if any) on the
Common Shares to holders of Common Shares or to paying agents or custodians
located in the United States. In addition, a holder of Common Shares may be
subject to backup withholding at the rate of 31% with respect to dividends paid
by such persons, unless such holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact; or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. The backup withholding tax is not
an additional tax and may be credited against a holder's regular Federal income
tax liability.
Sales of Common Shares through brokers by certain U.S. Persons also may be
subject to back-up withholding. Sales by corporations, certain tax-exempt
entities, individual retirement plans, REITs, certain financial institutions,
and other "exempt recipients" as defined in applicable Treasury regulations
currently are not subject to back-up withholding. Holders of Common Shares
should consult their own tax advisors regarding the possible applicability of
the back-up withholding provisions to sales of their Common Shares.
If a non-U.S. holder sells Common Shares through a U.S. office of a U.S. or
foreign broker, the broker is required to file an information return and is
required to withhold 31% of the sale proceeds unless the non-U.S. holder is an
exempt recipient or has provided the broker with the information and
statements, under penalties of perjury, necessary to establish an exemption
from backup withholding. If payment of the proceeds of the sale of a share by a
non-U.S. holder is made to or through the foreign office of a broker, that
broker will not be required to backup withhold or, except as provided in the
next sentence, to file information returns. In the case of proceeds from a sale
of a share by a non-U.S. holder paid to or through the foreign office of a U.S.
broker or a foreign office of a foreign broker that is (i) a controlled foreign
corporation for U.S. tax purposes or (ii) a person 50% or more of whose gross
income for the three-year period ending with the close of the taxable year
preceding the year of payment (or for the part of that period that the broker
has been in existence) is effectively connected with the conduct of a trade or
business within the United States (a "Foreign U.S. Connected Broker"),
information reporting is required unless the broker has documentary evidence in
its files that the payee is not a U.S. person and certain other conditions are
met, or the payee otherwise establishes an exemption. In addition, the Treasury
Department has indicated that it is studying the possible application of backup
withholding in the case of such foreign offices of U.S. and Foreign U.S.
Connected Brokers.
The foregoing discussion (including and subject to the matters and
qualifications set forth in such summary) is based upon current law and is for
general information only. The tax treatment of a holder of Common Shares, or of
a person treated as a holder of Common Shares for United States Federal income,
state, local or non-U.S. tax purposes, may vary depending on the holder's
particular tax situation. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could be retroactive and could affect
the tax consequences to holders of Common Shares. PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL
AND NON-U.S. TAX CONSEQUENCES TO THEM OF OWNING THE COMMON SHARES.
72
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions in the U.S. Underwriting
Agreement dated the date hereof, each of the underwriters of the United States
and Canadian offering of Common Shares named below (the "U.S. Underwriters"),
for whom Smith Barney Inc., Lazard Freres & Co. LLC and Morgan Stanley & Co.
Incorporated are acting as the Representatives (the "Representatives"), has
severally agreed to purchase, and the Selling Shareholders have agreed to sell
to each U.S. Underwriter, Common Shares which equal the number of shares set
forth opposite the name of such U.S. Underwriter below:
<TABLE>
<CAPTION>
NUMBER
OF
U.S. UNDERWRITER SHARES
---------------- ------
<S> <C>
Smith Barney Inc. .................................................
Lazard Freres & Co. LLC............................................
Morgan Stanley & Co. Incorporated..................................
---
Total............................................................
===
</TABLE>
Under the terms and subject to the conditions contained in the International
Underwriting Agreement dated the date hereof, each of the managers of the
concurrent international offering of Common Shares named below (the
"Managers"), for whom Smith Barney Inc., Lazard Capital Markets and Morgan
Stanley & Co. International Limited are acting as lead managers (the "Lead
Managers"), has severally agreed to purchase, and the Selling Shareholders
have agreed to sell to each Manager, Common Shares which equal the number of
shares set forth opposite the name of such Manager below:
<TABLE>
<CAPTION>
NUMBER
OF
U.S. UNDERWRITER SHARES
---------------- ------
<S> <C>
Smith Barney Inc. .................................................
Lazard Capital Markets.............................................
Morgan Stanley & Co. International Limited.........................
---
Total............................................................
===
</TABLE>
The U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the Common Shares directly to the public at
the public offering price set forth on the cover page of this Prospectus and
part to certain dealers at a price that represents a concession not in excess
of $ per share below the public offering price. The U.S. Underwriters and
the Managers may allow, and such dealers may reallow, a concession not in
excess of $ per share to the other U.S. Underwriters or Managers,
respectively, or to certain other dealers. After the initial offering of the
Common Shares to the public, the public offering price and such concessions
may be changed by the U.S. Underwriters and the Managers.
The Underwriting Agreements provide that the obligations of the several
Underwriters to pay for and accept delivery of the Common Shares are subject
to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all Common
Shares offered hereby (other than those covered by the over-allotment option
described below) if any such Common Shares are taken.
The Selling Shareholders have granted to the U.S. Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of additional Common Shares at the public offering price set
forth on the cover page of this Prospectus less underwriting discounts and
commissions. The U.S. Underwriters may exercise such option to purchase
additional Common Shares solely for the purpose of covering over-allotments,
if any, incurred in connection with the sale of the Common Shares offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number of shares set forth
opposite such U.S. Underwriter's name in the preceding table bears to the
total number of shares in such table.
73
<PAGE>
The Company, the U.S. Underwriters and the Managers have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
The Company, each of its officers and directors set forth under the heading
"Management" in this Prospectus and certain Founding Shareholders have agreed
that, for a period of 180 days after the date of this Prospectus, they will
not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell or otherwise dispose of any common shares of the Company or
any subsidiary of the Company (or any securities convertible into or
exercisable or exchangeable for such common shares), or grant any options or
warrants to purchase such common shares, except that (i) the Company may issue
Common Shares pursuant to stock purchase plans and grant options pursuant to
stock option plans and (ii) the Founding Shareholders may sell shares subject
to the U.S. Underwriters' over-allotment option and shares repurchased by the
Company pursuant to the Company's capital management strategy. See "Business--
Capital Management Strategy," "Management--Long-Term Incentive Plan" and "--
Employee Stock Purchase Plan."
The U.S. Underwriters and the Managers have entered into an Agreement
Between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the shares offered in the
United States and Canadian offering (i) it is not purchasing any such shares
for the account of anyone other than a U.S. or Canadian Person and (ii) it has
not offered or sold, and will not, offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the
United States and Canadian offering outside the United States or Canada or to
anyone other than a U.S. or Canadian Person. In addition, each Manager has
agreed that as part of the distribution of the Common Shares offered in the
international offering: (i) it is not purchasing any such shares for the
account of any U.S. or Canadian Person and (ii) it has not offered or sold,
and will not offer, sell, resell or deliver, directly or indirectly, any of
such shares or distribute any prospectus relating to the international
offering in the United States or Canada or to any U.S. or Canadian Person.
Each Manager has also agreed that it will offer to sell Common Shares only in
compliance with all relevant requirements of any applicable laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and Managers, including: (i) certain purchases and sales between
the U.S. Underwriters and the Managers, (ii) certain offers, sales, resales,
deliveries or distributions to or through investment advisors or other persons
exercising investment discretion, (iii) purchases, offers or sales by a U.S.
Underwriter who is also acting as Manager or by a Manager who is also acting
as a U.S. Underwriter and (iv) other transactions specifically approved by the
Representatives and the Lead Managers. As used herein, "U.S. or Canadian
Person" means any resident or national of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or any estate or trust the income of which
is subject to United States or Canadian income taxation regardless of the
source of its income (other than the foreign branch of any U.S. or Canadian
Person), and includes any United States or Canadian branch of a person other
than a U.S. or Canadian Person.
Any offer of Common Shares in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the relevant province
of Canada in which such offer is made.
Each Manager has agreed that (i) it will not offer or sell any shares to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which will not involve an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995
("the Regulations"); (ii) it will comply with all applicable provisions of the
Financial Services Act 1986 and the Regulations with respect to anything done
by it in relation to the shares in, from, or otherwise involving the United
Kingdom; and (iii) it will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the offer of the Common
Shares if that person is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued or passed on.
74
<PAGE>
No action has been or will be taken in any jurisdiction by the Company, the
Selling Shareholders or the Managers that would permit an offering to the
general public of the Common Shares offered hereby in any jurisdiction other
than the United States.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of shares
as may be mutually agreed. The price of any shares so sold shall be the public
offering price as then in effect for shares being sold by the U.S. Underwriters
and the Managers, less all or any part of the selling concession, unless
otherwise determined by mutual agreement. To the extent that there are sales
between the U.S. Underwriters and the Managers pursuant to the Agreement
Between U.S. Underwriters and Managers, the number of Common Shares initially
available for sale by the U.S. Underwriters and by the Managers may be more or
less than the number of Common Shares appearing on the front cover of this
Prospectus.
The rules of the Commission generally prohibit the Underwriters from making a
market in the Common Shares during the two business days prior to commencement
of sales in the Offerings (the "Cooling Off Period"). The Commission has,
however, adopted Rule 10b-6A under the Exchange Act ("Rule 10b-6A"), which
provides an exemption from such prohibition for certain passive market making
transactions. Such passive market making transactions must comply with
applicable price and volume limits and must be identified as passive market
making transactions. In general, pursuant to Rule 10b-6A, a passive market
maker must display its bid for a security at a price not in excess of the
highest independent bid for the security. If all independent bids are lowered
below the passive maker's bid, however, such bid must then be lowered when
certain purchase limits are exceeded. Further, net purchases by a passive
market maker on each day are generally limited to a specified percentage of the
passive market maker's average daily trading volume in a security during a
specified prior period and must be discontinued when such limit is reached.
Pursuant to the exemption provided by Rule 10b-6A, certain of the Underwriters
and selling group members may engage in passive market making in the Common
Shares during the Cooling Off Period. Passive market making may stabilize the
market price of the Common Shares at a level above that which might otherwise
prevail, and, if commenced, may be discontinued at any time.
Smith Barney Inc., Lazard Freres & Co. LLC and Morgan Stanley & Co.
Incorporated have provided investment banking and financial advisory services
to the Company and certain of the Founding Shareholders.
LEGAL MATTERS
The validity of the Common Shares under Bermuda law will be passed upon for
the Company by Conyers, Dill & Pearman, Hamilton, Bermuda. Certain legal
matters in connection with the Offerings will be passed upon for the Company
and the Selling Shareholders by Mayer, Brown & Platt, Chicago, Illinois, and
for the Underwriters by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited
liability partnership including professional corporations, New York, New York,
in each case in reliance on the opinion of Conyers, Dill & Pearman with respect
to Bermuda law.
EXPERTS
The consolidated financial statements and schedules of Holdings as of
September 30, 1996 and 1995 and for the years ended September 30, 1996 and 1995
and the period October 26, 1993 (date of incorporation) to September 30, 1994
have been included herein and in the Registration Statement in reliance upon
the reports of KPMG Peat Marwick, independent auditors, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
75
<PAGE>
GLOSSARY OF SELECTED INSURANCE AND REINSURANCE TERMS
Acquisition costs. Brokerage, commissions, the portion of administrative,
general and other expenses attributable to underwriting operations and excise
taxes.
Alien reinsurer. A reinsurance company that is organized under the laws of a
non-U.S. jurisdiction.
Attachment point. The amount of losses above which excess of loss
reinsurance becomes operative.
Broker. A person or firm that negotiates contracts of reinsurance between a
ceding company and a reinsurer on behalf of the ceding company and receives a
brokerage commission for placement of the reinsurance contract as well as
other services rendered.
Casualty insurance and/or reinsurance. Insurance and/or reinsurance that is
concerned primarily with the legal liability of the insured for injuries or
damage to the person or property of third persons (persons other than the
policyholder).
Cede; ceding company; cedent; cession. When an insurance or reinsurance
company transfers all or a portion of a risk it has underwritten to a
reinsurance company, it "cedes" such risk and is referred to as the "ceding
company" or the "cedent." Such transfer of risk is referred to as a "cession."
Clash exposure. The exposure of an insurer or reinsurer to losses arising
from a single set of circumstances but covered by more than one insurance or
reinsurance contract underwritten by such insurer or reinsurer.
Combined ratio. The sum of the loss and loss expense ratio and the expense
ratio. A combined ratio below 100% generally indicates profitable underwriting
prior to the consideration of investment income. A combined ratio over 100%
generally indicated unprofitable underwriting prior to the consideration of
investment income.
Excess of loss reinsurance. The generic term describing reinsurance that
indemnifies the ceding company against all or a specified portion, the
"limit," of losses on underlying insurance policies or reinsurance contracts
in excess of a specified dollar amount, called "attachment point" or
"retention." The combination of a limit and an attachment point constitutes a
layer.
Expense ratio. The ratio of (i) acquisition costs and operational expenses
minus net gains on foreign exchange to (ii) earned premiums, determined in
accordance with GAAP.
Facultative Reinsurance--The reinsurance of part or all of (the insurance
provided by) a single policy, with separate negotiation for each cession. The
word "facultative" connotes that both the primary insurer and the reinsurer
have the faculty or option of accepting or rejecting the individual submission
(as distinguished from the obligation to cede and accept, to which the parties
agree in treaty reinsurance).
Generally accepted accounting principles ("GAAP"). Accounting principles as
set forth in opinions of the Accounting Principle Board of the American
Institute of Certified Public Accountants and/or in statements of the
Financial Accounting Standards Board and/or their respective successors and
that are applicable to the circumstances as of the date in question.
Gross premiums written. Total premiums for insurance and reinsurance assumed
during a given period.
Incurred but not reported ("IBNR") loss reserves. Reserves for losses that
have been incurred but not yet reported to the insurer or reinsurer and which
are often estimated using actuarial analysis.
Incurred losses. The total losses sustained by an insurer or reinsurer under
its policies or contracts, whether paid or unpaid. Incurred losses include a
provision for claims that have occurred but have not yet been reported to the
insurer or reinsurer ("IBNR").
Layer. See "Excess of loss reinsurance."
76
<PAGE>
Lloyd's. Lloyd's of London, the formal name of which is "Underwriters at
Lloyd's, London", is an organization for underwriting insurance and
reinsurance in which collections of individuals (referred to as "Names") and
certain corporations assume policy liabilities as the individual obligations
of each.
Loss expenses. The expenses of adjusting, defending and settling claims,
including legal and other fees and the portion of general expenses allocated
to claim settlement costs.
Loss and loss expense ratio. The ratio of (i) incurred losses and loss
expenses to (ii) earned premiums, determined in accordance with GAAP.
Loss reserves. Liabilities established by insurers and reinsurers to reflect
the estimated cost of claims payments that the insurer or reinsurer ultimately
will be required to pay in respect of insurance or reinsurance it has written.
Reserves are established for losses and loss expenses, and consist of case
reserves and IBNR reserves.
Net premiums earned. The portion of net premiums written that is recognized
for accounting purposes as income during a period.
Net premiums written. Gross premiums written for a given period less
premiums ceded to reinsurers during such period.
Program. A treaty or a combination of treaties that provide the cedent with
one or more layers of reinsurance protection.
Property catastrophe reinsurance. A form of excess of loss reinsurance that,
subject to a specified limit, indemnifies the ceding company for the amount of
loss in excess of a specified retention with respect to an accumulation of
losses resulting from a catastrophic event. The reinsurance contract is called
a "catastrophe cover."
Property insurance and/or reinsurance. Insurance and/or reinsurance that
indemnifies a person with an insurable interest in tangible property for its
loss, damage or loss of use.
Pro rata of reinsurance. A generic term describing forms of reinsurance in
which the reinsurer shares a proportional part of the original premiums and
losses of the ceding company. Pro rata reinsurance is also known as
proportional or quota share reinsurance.
Reinstatement. The restoration of the reinsurance limit, under an excess of
loss treaty, for any portion of the original limit depleted by losses incurred
on that treaty by the reinsurer. The reinstatement applies for the remainder
of the duration of the treaty, or until depleted by further losses.
Reinstatement premium. Premium paid by a primary insurer to a reinsurer to
reinstate coverage under an excess of loss treaty.
Reinsurance. The practice whereby one party, called the reinsurer, in
consideration of a premium paid to it, agrees to indemnify another party,
called the reinsured, for part or all of the liability assumed by the
reinsured under a policy or policies of insurance that it has issued or
contract(s) of reinsurance it has written. The reinsured may be referred to as
the ceding company. The purchase of reinsurance does not legally discharge the
ceding company from its liability to its insureds or reinsureds.
Retention; retention layer. The amount or portion of risk that an insurer or
reinsurer retains for its own account. Losses in excess of the retention are
paid by that company's reinsurer or retrocessionaire. The retention can be
expressed as a dollar amount or a percentage of the amount at risk.
77
<PAGE>
Retrocession; retrocessionaire. A transaction whereby a reinsurer cedes to
another reinsurer (the "retrocessionaire") all or part of the reinsurance it
has assumed. Retrocessions (as is the case with any reinsurance) do not
legally discharge the ceding reinsurer from its liability to its reinsured.
Treaty reinsurance; treaty. Reinsurance of a specified type or category of
risk defined in a reinsurance agreement (a "treaty") between a ceding company
and a reinsurer. Typically, in treaty reinsurance the ceding company is
obligated to offer and the reinsurer is obligated to accept a specified
portion of all such type or category of risks originally insured or reinsured
by the ceding company.
Underwriting. The process of reviewing applications submitted for insurance
or reinsurance coverage, deciding whether to accept all or part of the
coverage requested and determining the applicable premiums and coverage
conditions.
Unearned premiums. Premiums written but not yet earned, as they are
attributable to the unexpired portion of the related contract term.
Unearned premium reserve. Liabilities established in respect of unearned
premiums.
Zonal exposure. The calculation of an insurer's or reinsurer's exposure to
insured losses arising from a single event or series of events (i.e., storms,
earthquakes, etc.) occurring within a specified geographic area. The insurer
or reinsurer establishes its own definition of zones and determines the amount
of insured risk it is willing to assume in each such zone and from all such
zones combined.
78
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Changes in Shareholders' Equity.................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
LaSalle Re Holdings Limited.
We have audited the accompanying consolidated balance sheets of LaSalle Re
Holdings Limited as at September 30, 1996 and 1995 and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for the years ended September 30, 1996 and 1995 and the period from
October 26, 1993 (date of incorporation) to September 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LaSalle Re
Holdings Limited and its subsidiaries as at September 30, 1996 and 1995 and
the results of their operations, and their cash flows for the years ended
September 30, 1996 and 1995 and the period from October 26, 1993 (date of
incorporation) to September 30, 1994 in conformity with United States
generally accepted accounting principles.
KPMG Peat Marwick
Chartered Accountants
Hamilton, Bermuda
October 19, 1996
F-2
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ -------- --------
<S> <C> <C>
Cash and cash equivalents.................................. $ 46,990 $ 82,360
Investments held as available for sale at fair value (Note
3 (a))
(amortized cost 1996: $493,450; 1995: $441,705)........... 490,514 440,065
Accrued investment income.................................. 14,211 15,803
Reinsurance balances receivable (Note 7) (related party
1996: $11,700; 1995: $25,206)............................. 70,625 86,146
Deferred acquisition costs................................. 10,464 10,708
Other assets (Note 4)...................................... 1,570 1,465
-------- --------
Total assets........................................... $634,374 $636,547
======== ========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
Reserve for losses and loss expenses (Note 9).............. $ 49,875 $ 66,654
Unearned premium reserve................................... 82,894 87,885
Other liabilities (Notes 6 & 7) (related party 1996:
$6,080; 1995: $6,076)..................................... 11,087 6,197
Dividend payable .......................................... 3,600 75,000
-------- --------
Total liabilities...................................... 147,456 235,736
-------- --------
Minority interest (Note 1)................................. $179,470 $147,389
-------- --------
Shareholders' equity
Share capital (Note 5)................................... $ 14,398 $ 14,398
Additional paid in capital (Note 5)...................... 221,968 221,968
Unrealized loss on investments (Note 3 (a)).............. (1,861) (1,039)
Retained earnings........................................ 72,943 18,095
-------- --------
Total shareholders' equity............................. 307,448 253,422
-------- --------
Total liabilities, minority interest and shareholders'
equity................................................ $634,374 $636,547
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND THE PERIOD FROM OCTOBER 26, 1993 TO
SEPTEMBER 30, 1994
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Premiums written (Notes 7, 8 & 13) (related $ 190,151 $ 201,916 $ 133,327
party 1996: $24,045; 1995: $28,836; 1994:
$24,186) .................................
Change in unearned premiums................ 4,990 (31,546) (56,338)
---------- ---------- ----------
Net premiums earned........................ 195,141 170,370 76,989
Net investment income (Note 3(b)).......... 26,846 25,091 15,758
Net realized losses on investments (Note
3(b))..................................... (418) (25) (19)
---------- ---------- ----------
Total revenues......................... 221,569 195,436 92,728
---------- ---------- ----------
EXPENSES
Losses and loss expenses incurred (Note 9). 51,477 60,397 49,801
Underwriting expenses (Note 7) (related
party 1996: $10,419; 1995: $8,524; 1994:
$3,183)................................... 27,268 22,988 8,686
Operational expenses (Note 7) (related
party 1996: $6,500; 1995: $4,500; 1994:
$2,798) .................................. 11,114 6,218 4,066
Corporate expenses......................... 911 1,145 1,866
Interest expense........................... 222 0 0
Exchange loss/(gain)....................... 1,126 240 (1,590)
---------- ---------- ----------
Total expenses......................... 92,118 90,988 62,829
---------- ---------- ----------
Income before minority interest............ 129,451 104,448 29,899
Minority interest (Note 1)................. 47,966 38,774 10,958
---------- ---------- ----------
Net income................................. $ 81,485 $ 65,674 $ 18,941
========== ========== ==========
Net income per share....................... $ 5.40 $ 4.51 $ 1.31
========== ========== ==========
Weighted average number of Common Share and
common share equivalents outstanding...... 23,967,870 23,170,680 22,852,910
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND THE PERIOD FROM OCTOBER 26, 1993 TO
SEPTEMBER 30, 1994
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
COMMON SHARES PAR VALUE $1
Balance at beginning of period................... $ 14,398 $ 14,396 $ 0
Issuance of shares............................... 0 2 14,396
-------- -------- --------
Balance at end of period......................... $ 14,398 $ 14,398 $ 14,396
======== ======== ========
ADDITIONAL PAID IN CAPITAL
Balance at beginning of period................... $221,968 $221,945 $ 0
Proceeds on issue of shares in excess of par
value........................................... 0 23 221,945
-------- -------- --------
Balance at end of period......................... $221,968 $221,968 $221,945
======== ======== ========
UNREALIZED LOSS ON INVESTMENTS
Balance at beginning of period................... $ (1,039) $(11,836) $ 0
Unrealized (loss)/gain in period................. (822) 10,797 (11,836)
-------- -------- --------
Balance at end of period......................... $ (1,861) $ (1,039) $(11,836)
======== ======== ========
RETAINED EARNINGS
Balance at beginning of period................... $ 18,095 $ 18,941 $ 0
Net income....................................... 81,485 65,674 18,941
Dividends........................................ (26,637) (66,520) 0
-------- -------- --------
Balance at end of period......................... $ 72,943 $ 18,095 $ 18,941
======== ======== ========
TOTAL SHAREHOLDERS' EQUITY....................... $307,448 $253,422 $243,446
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND THE PERIOD FROM OCTOBER 26, 1993 TO
SEPTEMBER 30, 1994
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................... $ 81,485 $ 65,674 $ 18,941
Adjustments to reconcile net income to cash
provided by operating activities:
Minority interest in net income............ 47,966 38,774 10,958
Amortization of investment premium......... 3,280 4,535 3,438
Net loss on sale of investments............ 418 25 19
Unrealized loss/(gain) on foreign exchange. 590 (153) (1,319)
Changes in:
Accrued investment income.................. 1,592 (2,294) (13,509)
Reinsurance balances receivable............ 15,412 (35,745) (48,987)
Deferred acquisition costs................. 244 (3,898) (6,809)
Other assets............................... (105) (404) (1,061)
Reserve for losses and loss expenses....... (16,748) 28,923 37,789
Unearned premium reserve................... (4,991) 31,546 56,338
Other liabilities.......................... 2,294 3,187 3,012
--------- --------- ---------
Cash provided by operating activities........ 131,437 130,170 58,810
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments...................... (270,287) (108,796) (381,826)
Net sales/(purchases) of short term
investments................................. 47 2,654 (42,247)
Proceeds on the sale of marketable
securities.................................. 170,296 50,198 5,293
Proceeds on the maturity of marketable
securities.................................. 44,500 25,000 0
--------- --------- ---------
Cash applied to investing activities......... (55,444) (30,944) (418,780)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends......................... (111,363) (30,003) 0
Subscription to share capital................ 0 39 373,068
--------- --------- ---------
Cash (applied to) provided by financing
activities.................................. (111,363) (29,964) 373,068
--------- --------- ---------
Net (decrease)/increase in cash and cash
equivalents................................. (35,370) 69,262 13,098
Cash and cash equivalents at beginning of
period...................................... 82,360 13,098 0
--------- --------- ---------
Cash and cash equivalents at end of period... $ 46,990 $ 82,360 $ 13,098
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND THE PERIOD FROM OCTOBER 26, 1993 TO
SEPTEMBER 30, 1994
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
1. GENERAL
The Company was incorporated on September 20, 1995 under the laws of Bermuda
to act as an investment holding company.
LaSalle Re Limited ("LaSalle Re") was incorporated on October 26, 1993 under
the laws of Bermuda and commenced operations on November 22, 1993. The Company
is licensed under the Insurance Act, 1978 as amended by the Insurance
Amendment Act, 1995 of Bermuda to write insurance business and operates as a
multi-line reinsurance company, with emphasis on property catastrophe
business.
Property catastrophe reinsurance covers unpredictable events such as
hurricanes, windstorms, hailstorms, earthquakes, fires, industrial explosions,
freezes, riots, floods and other man-made or natural disasters. Because the
Company has large aggregate exposures to these risks, the Company expects that
its claims experience will be characterized by relatively low frequency and
high severity claims. The occurrence of claims from catastrophic events is
likely to result in substantial volatility in the Company's financial results
for any particular period. The Company endeavors to manage its exposures to
catastrophic events by limiting the amount of its exposure in each geographic
zone worldwide and requiring that its property catastrophe contracts provide
for aggregate limits and attachment points.
On August 26, 1994, LaSalle Re incorporated a subsidiary company in the
United Kingdom, LaSalle Re (Services) Limited, to act as a representative
office for the Company. In addition, on June 11, 1996, LaSalle Re incorporated
a subsidiary company in Bermuda, LaSalle Re Corporate Capital Ltd., to act as
an investment holding company.
In November 1995, the Company and LaSalle Re consummated an offer (the
"Exchange Offer") pursuant to which, among other things, the founding
shareholders of the Company (the "Founding Shareholders") exchanged their
capital stock of LaSalle Re for common shares of the Company (the "Common
Shares") and, in certain circumstances, exchangeable non-voting shares of
LaSalle Re (the "Exchangeable Non-Voting Shares"). The Exchangeable Non-Voting
Shares are held by certain Founding Shareholders who would otherwise hold, or
cause another shareholder to hold, directly, indirectly or constructively, in
excess of 9.9% of the voting power of the Company or LaSalle Re. The
Exchangeable Non-Voting Shares are exchangeable, at the option of the holder,
for Common Shares on a one-for-one basis, unless the board of directors of the
Company determines such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder. The Exchangeable Non-Voting
Shares will at all times rank as to assets, dividends and in all other
respects on a parity with the common shares of LaSalle Re except that they do
not have the right to vote on any matters except as required by Bermuda law
and in connection with certain actions by the Company.
On November 27, 1995, the Company and certain Founding Shareholders also
consummated an initial public offering of 4,312,500 Common Shares (the
"Offerings"). Of these shares, 2,920,500 were sold by founding shareholders
and 1,392,000 by the Company. The proceeds from the sale of 1,392,000 shares
sold by the Company were used to enable LaSalle Re to redeem shares of its
capital stock (the "Redemption").
Since the consummation of the Exchange Offer, the Offerings and the
Redemption, the Company has owned 100% of the outstanding voting stock which
constitutes approximately 63% of the outstanding capital stock of LaSalle Re.
The minority interest represents approximately the 37% interest in LaSalle Re
not owned by the Company.
The Exchange Offer was accounted for as if it were a pooling of interests of
combining enterprises under common control. The consolidated financial
statements include the results of the Company and the Company's share of
LaSalle Re and its subsidiaries for all periods presented.
F-7
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared in
accordance with United States generally accepted accounting principles
("GAAP"). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
and disclosed amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates. The estimates most susceptible to
significant change are those used in determining the reserve for unpaid losses
and loss expenses and ultimate premium written.
The following are the significant accounting policies adopted by the
Company:
(a) Principles of consolidation
The consolidated financial statements include the financial statements of
LaSalle Re Holdings Limited, LaSalle Re Limited and its subsidiaries, LaSalle
Re (Services) Limited and LaSalle Re Corporate Capital Ltd. All significant
intercompany balances and transactions have been eliminated in consolidation.
(b) Premiums earned and deferred acquisition expenses
Premiums written are estimated by management based upon reports received
from ceding companies. These estimates are subject to review with adjustments
recorded in the period in which the actual amounts are determined. Premiums on
property catastrophe excess of loss contracts are earned on a pro rata basis
over the period the coverage is provided, which is generally 12 months. Under
pro rata property catastrophe contracts, the risks underlying the contracts
incept throughout the policy period and premiums generally are earned over an
18 month period. Unearned premiums represent the portion of premiums written
which is applicable to the unexpired terms of the policies in force.
Acquisition costs, mainly brokerage, commissions, underwriting fees and
excise taxes related to unearned premiums are deferred and amortized to income
over the period in which the premiums are earned. Future earned premiums and
anticipated losses and loss adjustment expenses related to those premiums are
considered in determining the recoverability of deferred acquisition costs.
The Company does not consider anticipated future investment income in
determining if a premium deficiency exists.
(c) Losses and loss expenses
The reserve for losses and loss expenses is based on reports and individual
case estimates received from ceding companies. An amount is included for
losses and loss expenses incurred but not reported on the basis of reports
received from ceding companies and an internally produced actuarial analysis.
Given the inherent nature of major catastrophic events, considerable
uncertainty underlies the assumptions and associated estimated reserves for
losses and loss expenses. These estimates are reviewed regularly and, as
experience develops and new information becomes known, the reserves are
adjusted as necessary. Such adjustments if any, are reflected in results of
operations in the period in which they are determined and are accounted for as
changes in estimates. Due to the inherent uncertainty in estimating reserves
for losses and loss expenses there can be no assurance that the ultimate
liability will not exceed recorded amounts, with a resulting material effect
on the Company. Based on the current assumptions used in calculating reserves,
management believes that the Company's reserve levels are adequate to meet its
future obligations.
Reserves are recorded without consideration of potential salvage or
subrogation recoveries which are estimated to be immaterial. Such recoveries,
when realized, are reflected as a reduction of losses incurred.
F-8
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(d) Investments
The Company's investments comprise fixed interest securities and short term
investments, such as certificates of deposit or commercial paper. All
investments are considered to be available for sale under the definition
included in Statement of Financial Accounting Standards No. 115. As such, they
are reported at fair value with unrealized gains and losses reported as a
separate component of shareholders' equity, net of amounts attributable to
minority interests.
Purchases and sales of investments are accounted for on the trade date of
the transaction.
(e) Investment income
Investment income, net of investment expenses, is accrued to the balance
sheet date and includes amortization of premiums and discounts relative to
fixed interest securities purchased at prices different to par value.
Realized gains or losses on sales of investments are determined on the basis
of specific identification and are included as part of net investment income
in the statements of operations.
(f) Translation of foreign currencies
The U.S. dollar is the Company's functional currency. Foreign currency
monetary assets and liabilities are translated at exchange rates in effect at
the balance sheet date. Unearned premiums and deferred acquisition costs are
translated at historic exchange rates. Foreign currency revenues and expenses
are translated at the exchange rates in effect at the date of the transaction.
Exchange gains and losses are included in the determination of net income.
The Company enters into foreign exchange contracts to manage the currency
risks associated with the receipt of non-U.S. dollar insurance premiums.
Realized and unrealized gains and losses on these contracts are included in
the determination of net income.
(g) Fair value of financial statements
Fair value disclosures with respect to certain financial instruments are
separately included herein, where appropriate.
The carrying values of other financial instruments, including cash and cash
equivalents, reinsurance balances receivable, accrued investment income,
promissory note receivable and other liabilities approximate their fair value
due to the short term nature of the balances.
(h) Corporate expenses
Corporate expenses are expensed as they are incurred on an accruals basis.
(i) Cash and cash equivalents
For the purposes of the statements of cash flows, the Company considers all
time deposits and certificates of deposit with an original maturity of 90 days
or less as equivalent to cash.
F-9
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(j) Stock incentive compensation plans
The Company accounts for stock option grants in accordance with APB opinion
No. 25, Accounting for Stock Issued to Employees, and, accordingly, recognizes
compensation expense for stock option grants to the extent that the fair value
of the stock exceeds the exercise price of the option at the measurement date.
Any resulting compensation expense is recorded over the shorter of the vesting
or service period.
(k) Income per common share
Net income per common share is calculated by dividing net income by the
weighted average number of common shares and common share equivalents
outstanding during the period. The Exchangeable Non-Voting Shares in LaSalle Re
are considered common share equivalents as are stock options and stock
appreciation rights which are included in the computation of weighted average
number of common shares outstanding using the treasury stock method. There is
no material difference between primary and fully diluted net income per common
share.
3. INVESTMENTS
(a) All fixed interest securities and short term investments are considered
available for sale. The fair values are based on quoted market prices at the
reporting date for those, or similar, investments. As of September 30, 1996 and
1995, the fair values and amortized costs of investments are as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
1996 COST GAINS LOSSES VALUE
- ---- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. government and agencies........... $ 90,596 $ 221 $ (693) $ 90,124
Non U.S. government and agencies....... 75,863 258 (828) 75,293
Corporate.............................. 326,991 1,077 (2,971) 325,097
-------- ------ ------- --------
$493,450 $1,556 $(4,492) $490,514
======== ====== ======= ========
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
1995 COST GAINS LOSSES VALUE
- ---- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. government and agencies........... $ 4,988 $ 0 $ (57) $ 4,931
Non U.S. government and agencies....... 63,208 672 (589) 63,291
Corporate.............................. 373,509 2,950 (4,616) 371,843
-------- ------ ------- --------
$441,705 $3,622 $(5,262) $440,065
======== ====== ======= ========
</TABLE>
The unrealized loss on investments as shown on the consolidated balance sheet
of $1,861 (1995: $1,039) is net of the minority's interest of $1,075 (1995:
$601).
Investments held at September 30, 1996 mature as follows:
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Less than 1 year..................................... $100,034 $ 99,819
1-5 years............................................ 334,252 331,808
5-10 years........................................... 59,164 58,887
-------- --------
$493,450 $490,514
======== ========
</TABLE>
The following table summarized the composition of the fair value of available
for sale securities by ratings assigned or, with respect to non-rated issues,
as estimated by the Company's investment managers.
F-10
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
AAA......................................................... 63.3% 69.4%
AA.......................................................... 25.7% 30.6%
A........................................................... 11.0% 0.0%
------ ------
100.0% 100.0%
====== ======
</TABLE>
In the normal course of reinsurance operations, the Company's bankers have
issued letters of credit totalling $15,511 (1995: $15,704) in favor of ceding
insurance companies to secure the Company's obligations under various
reinsurance contracts. At September 30, 1996, $17,837 (1995: $18,059) of fixed
interest securities have been pledged as collateral for these letters of
credit.
(b) Net investment income
Net investment income for the years ended September 30, 1996, 1995 and the
period ended September 30, 1994 is derived from the following sources:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash and short term investments..................... $ 1,443 $ 2,558 $ 2,379
U.S. government and agencies fixed interest
securities......................................... 1,631 107 0
Non U.S. government and agencies fixed interest
securities......................................... 4,702 3,224 1,877
Corporate fixed interest securities................. 20,197 20,288 12,315
Gross realized losses............................... (418) (25) (19)
------- ------- -------
Gross investment income............................. 27,555 26,152 16,552
Investment expenses (Note 7)........................ (1,127) (1,086) (813)
------- ------- -------
Net investment income............................... $26,428 $25,066 $15,739
======= ======= =======
</TABLE>
Included in gross investment income for the year ended September 30, 1996 was
a charge of $3,280 (1995: $4,535; 1994: $3,438) relating to the
accretion/amortization of investment premium.
The change in net unrealized losses, net of the minority's interest, that has
been included as a separate component of shareholders' equity for the year
ended September 30, 1996 was an increase of $822 (decrease 1995: $10,797;
increase 1994: $11,836).
Proceeds received from the sale of available for sale securities in the
period ended September 30, 1996 were $170,296 (1995: $50,198; 1994: $5,293).
4. OTHER ASSETS
Included in other assets is a promissory note receivable. In connection with
the terms of the Chief Executive Officer's five year employment contract,
LaSalle Re advanced $695 to him for the purpose of purchasing a property in
Bermuda. The advance is evidenced by a promissory note which is secured upon
the title deeds of the property. The promissory note bears interest at the rate
of 8% per annum and is repayable in full at the earlier of the termination date
of the Chief Executive Officer's employment contract or the date of sale of the
property. Under the employment contract LaSalle Re will assume any gain or loss
on the disposition of the property.
F-11
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL
The authorized share capital of the Company is 100,000,000 Common Shares of
par value $1 each. As of September 30, 1996 and 1995, the following shares
have been issued and fully paid.
<TABLE>
<CAPTION>
1996 & 1995
----------------------------------
NUMBER OF
SHARES SHARE ADDITIONAL
ISSUED CAPITAL PAID IN CAPITAL
---------- ------- ---------------
<S> <C> <C> <C>
Common Shares................................ 14,397,720 $14,398 $221,968
========== ======= ========
</TABLE>
During the year, the Company established an Employee Stock Purchase Plan
(the "Plan"). Under the Plan, the Company is authorized to sell up to 150,000
Common Shares at a discount equivalent to 15% of the market price, to eligible
employees of the Company and its subsidiaries, and other persons providing
services to those companies. The maximum investment by an employee is $25 per
calendar year. As at September 30, 1996, no shares had been issued in respect
of the Plan.
6. SHARE PURCHASE OPTIONS AND STOCK APPRECIATION RIGHTS
(a) Non-compensatory
The Company has issued options to purchase 136,350 common shares to certain
shareholders and their affiliates. In addition, LaSalle Re has issued options
to purchase 2,199,780 Exchangeable Non-Voting shares. The options became
exercisable on October 1, 1996 and may be exercised until November 22, 2003.
The original exercise price of the options was $16.67 per share, which was
equal to the fair value of the Company's shares at the grant date, minus
dividend adjustments. The current exercise price is $10.45. As the options
were granted to certain of the Founding Shareholders and their affiliates as
an inducement to purchase stock in LaSalle Re, no compensation expense has
been recorded in connection with the options.
(b)(i) Compensatory--Stock Appreciation Rights
In consideration for entering into an employment agreement with LaSalle Re,
the Company's Chief Executive Officer was granted a total of 340,872 Stock
Appreciation Rights (SARs) during 1994. Upon exercise, the SAR's entitle the
Executive to a cash payment equal to the SARs value as of the exercise date.
Alternatively, at the Company's sole discretion, the SARs will entitle the
Executive to either (i) the number of common shares in LaSalle Re Holdings
Limited equal to the aggregate value of the SAR's divided by the fair value of
a common share at the exercise date, or (ii) upon payment of the base value
for each SAR, the number of common shares equal to the number of SARs
exercised. Any common shares taken up through the exercise of the SARs shall
rank equally with the other common shares.
The value of each SAR equals the fair market value of a common share of
LaSalle Re Holdings less the base value on the exercise date, subject to anti-
dilution adjustments. The fair market value shall be determined by the board
of directors of the Company, but shall be based on the market price of the
common shares. The base value of each SAR was $16.67, minus dividend
adjustments. The current exercise price is $10.45.
F-12
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A percentage of these SARs may become exercisable on January 1 of each of
1997, 1998 or 1999. These percentages vary depending on the internal rate of
return achieved during the period from November 22, 1993 through to the date
of exercise and ending on March 30, 2004 or, if earlier, two years after the
Chief Executive Officer's termination of employment. SARs will not be
exercisable unless a targeted internal rate of return of at least 18% per
annum is achieved during the entire measurement period. This is based upon the
financial performance of LaSalle Re from inception to November 27, 1995 and
LaSalle Re Holdings' consolidated performance from that date forward. At
September 30, 1996, the Company's internal rate of return has exceeded 18% and
therefore the Company has charged an expense of $909 (1995: $240; 1994: $Nil).
(b)(ii) Compensatory--Options
In November 1995, the Company adopted a Long Term Incentive Plan (the
"Incentive Plan") which permits the award of various incentives to employees
of the Company, its subsidiaries and other persons providing services to those
companies.
Under the Incentive Plan, the Company granted options for 163,218 common
shares during the year ended September 30, 1996. The options vest rateably in
five annual instalments over 5 years from the grant date. The options can be
exercised over a 10 year period, commencing on the vesting date. As of
September 30, 1996, no options were exercisable. The original exercise price
was $19.25 per share. The current exercise price is $18.75 as adjusted for
dividends. The options were granted at the fair value of the Company's shares
at the grant date.
The Company applies APB Opinion 25 and Related Interpretations in accounting
for the Incentive Plan. Accordingly, no compensation cost has been recognized.
Had compensation cost been determined based on the fair value at the grant
date of the options consistent with the method of SFAS 123, the net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996
-------
<S> <C> <C>
Net Income........................................... As reported $81,485
Pro forma $81,465
Primary earnings per share........................... As reported $ 5.40
Pro forma $ 5.40
</TABLE>
The fair value of the option grants are estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
dividend yield of 10% per annum; expected volatility of 9%; and a risk free
interest rate of 5.2%.
7. RELATED PARTY TRANSACTIONS
In addition to the share purchase options discussed in Note 6, LaSalle Re
has entered into the following transactions and agreements with companies
related to the Founding Shareholders:
(a) Premiums written
During the year ended September 30, 1996, LaSalle Re assumed premiums
written of approximately $24,045 (1995: $28,836; 1994: $24,186) from a ceding
company related to a shareholder of LaSalle Re. In addition, LaSalle Re
assumed premiums totalling $23,577 (1995: $22,057; 1994: $14,163) through
brokers related to a shareholder of LaSalle Re. Brokerage fees incurred in
respect of this business were approximately $2,357 (1995: $2,206; 1994:
$1,416). All such transactions were undertaken on normal commercial terms.
Reinsurance balances receivable at the balance sheet date include $11,700
(1995: $25,206) due from such related parties.
F-13
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(b) Underwriting services
LaSalle Re is party to an underwriting services agreement with CNA (Bermuda)
Services Limited ("CNA Bermuda"). Under this agreement, LaSalle Re has granted
CNA Bermuda the authority to provide underwriting services and to underwrite
all classes of insurance and reinsurance as agents for LaSalle Re. LaSalle Re
has agreed to pay fees to CNA Bermuda as follows:
With effect from January 1, 1996:
(i) 1.5% of the gross written and collected premium per fiscal year; and
(ii) An underwriting profit commission equal to 4.0% of the aggregate net
underwriting profits of LaSalle Re, where certain conditions are met.
Prior to January 1, 1996:
(i) 2.0% of the gross written and collected premium per fiscal year, up
to premium of $150,000 plus 1.5% of the gross written and collected premium
in excess of $150,000; and
(ii) An underwriting profit commission equal to 2.5% of the aggregate net
underwriting profits of LaSalle Re, where certain conditions are met.
The Company has incurred $3,081 (1995: $3,411; 1994: $1,465) for
underwriting services provided for the year ended September 30, 1996, of which
$2,482 (1995: $3,629) was payable at September 30, 1996.
The Company has incurred $4,140 (1995: $2,186; 1994: $Nil) for underwriting
profit commission for the year ended September 30, 1996, of which $3,350 was
payable at September 30, 1996 (1995: $2,186).
(c) Administrative services
LaSalle Re is party to an agreement with Aon Risk Consultants (Bermuda)
Limited ("ARC Bermuda"). Under this agreement ARC Bermuda performs certain
actuarial and administrative services on behalf of the Company. LaSalle Re has
agreed to pay management fees to ARC Bermuda as follows:
<TABLE>
<CAPTION>
CALENDAR YEAR
-------------
<S> <C>
1993............................................. $ 548 (pro rata basis)
1994............................................. $3,000
1995............................................. $5,000
1996............................................. $7,000
</TABLE>
Beginning on January 1, 1997, the management fees payable to ARC Bermuda
will be:
(i) $3,300 per annum; and
(ii) an underwriting profit commission equal to 2.75% of the aggregate
net underwriting profit of LaSalle Re, where certain conditions are met.
(d) Investment management services
LaSalle Re is party to an agreement with Aon Advisors (UK) Limited ("Aon
UK") to provide investment management services. LaSalle Re has agreed to pay
fees to Aon UK based on the average daily balance of the investment portfolio
of the preceding quarter, as follows:
<TABLE>
<CAPTION>
PORTFOLIO BALANCE ANNUAL FEE IN BASIS POINTS
----------------- --------------------------
<S> <C>
$0 through $100,000............................ 35
Excess of $100,000 through $200,000............ 25
Excess of $200,000............................. 15
</TABLE>
F-14
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has incurred $1,028 (1995: $987; 1994: $752) for services
provided for the year ended September 30, 1996, of which $272 (1995: $261) was
payable at September 30, 1996.
(e) Claims handling services
LaSalle Re is party to an agreement with Integrated Runoff Insurance
Services Corporation ("IRISC") whereby IRISC performs certain claims handling
services for LaSalle Re. LaSalle Re has agreed to pay the following minimum
fees to IRISC:
<TABLE>
<CAPTION>
CALENDAR YEAR
-------------
<S> <C>
1994................................................................ $50
1995................................................................ $53
1996................................................................ $56
</TABLE>
The agreement provides for additional fees to be payable if services
provided exceed a certain "base level". Fees in excess of this "base level"
are calculated on an hourly rate.
The Company has incurred $92 (1995: $78; 1994: $47) for services provided
for the year ended September 30, 1996, of which $Nil (1995: $Nil) was payable
at the balance sheet date.
8. CONCENTRATION OF CREDIT RISK
The Company has investment guidelines which restrict investments in
securities below an "AA" grade rating to 15% of the total portfolio, and only
10% can be invested in "BBB" grade rating. In addition, the guidelines
restrict investments in a single issuer to no greater than 5% of the market
value of the portfolio (except for U.S. and U.K. Government issues) and, with
respect to country of issue, to no greater than 25% of the market value of the
portfolio, except for U.S. and supernational borrowers.
A broker who is unrelated to the Company, arranged more than 16% of the
Company's premiums written for the year ended September 30, 1996 (1995: 21%;
1994: 20%). Another broker who is related to the Company arranged more than
12% (1995: 10%; 1994; 11%). Approximately 13% (1995: 15%; 1994: 18%) of the
gross premiums written for the year ended September 30, 1996 were ceded by
related companies.
9. RESERVE FOR LOSSES AND LOSS EXPENSES
Activity in the reserve for losses and loss expenses during the periods
ended September 30, 1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Balance as of October 1.............................. $66,654 $37,789 $ 0
------- ------- -------
Incurred related to:
Current year....................................... 31,910 52,587 49,801
Prior year events.................................. 19,567 7,810 0
------- ------- -------
51,477 60,397 49,801
------- ------- -------
Paid related to:
Current year....................................... (10,222) (7,572) (12,012)
Prior year......................................... (58,034) (23,960) 0
------- ------- -------
(68,256) (31,532) (12,012)
------- ------- -------
Balance as of September 30........................... $49,875 $66,654 $37,789
======= ======= =======
</TABLE>
F-15
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amounts incurred in respect of prior year losses in 1996 relate
primarily to hurricanes Luis and Marilyn which occurred in September 1995.
Additional information reported by ceding companies in the months following
the losses necessitated additional reserving. This impact has been mitigated
by the collection of additional reinstatement premiums. In respect of 1995,
additional losses of $5.7 million (gross of reinstatements of approximately
$1.1 million) related to development of the Northridge earthquake, reflecting
an increase in the market estimates of anticipated total insured loss.
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company's functional currency is the U.S. dollar, however, as the
Company operates internationally, it has exposure to changes in foreign
currency exchange rates. These exposures include net cash inflows on non-U.S.
dollar denominated insurance premiums.
To manage the Company's exposure to these risks, the Company enters into
foreign exchange contracts in the major currencies to which the Company is
exposed. These contracts generally involve the exchange of one currency for
another at some future date. At September 30, 1996, the Company had a notional
principal amount outstanding of approximately $25,192 (1995: $6,129) in
contracts to sell foreign currencies in the future. The fair value of these
contracts, based on quoted forward rates available for the maturity of the
contracts, as at September 30, 1996 was $(571) (1995: $(136)). A loss of $294
(1995: $756; 1994: $nil) is included in the Statements of Operations in
respect of these contracts.
Foreign exchange contracts at September 30, 1996 generally have maturities
of six months or less and relate to major Western currencies. Counterparties
to the transactions are large financial institutions. Although the Company is
exposed to credit loss in the event of non-performance by other parties in the
contracts, such non-performance is not anticipated.
The Company may also enter into foreign exchange contracts to manage the
exposures relating to known reinsurance losses denominated in foreign
currencies. However, no such contracts had been entered into at the balance
sheet date.
11. CREDIT FACILITY
On December 1, 1995, the Company obtained a five year, $100 million
committed line of credit from a syndicate of banks, maturing on December 1,
2000. The facility may only be used to buy preferred shares of LaSalle Re,
which in turn may use the proceeds of such purchase to meet current cash
requirements. The preferred stock of LaSalle Re, when issued would be pledged
by the Company as security for the borrowings under the facility. As at
September 30, 1996, the facility had not been utilized.
The credit facility contains various covenants, including: limitations on
incurring additional indebtedness; prohibition of dividend payments that would
cause the Company's tangible net worth, defined as total shareholders' equity
and minority interest, to fall below $350 million in calendar 1996, $375
million in calendar years 1997 and 1998 and thereafter $400 million;
restriction of dividends to a maximum of 50% of the consolidated net income
for the immediately preceding fiscal year; restrictions on the sale or lease
of assets not in the ordinary course of business; maintenance of a ratio of
consolidated total debt to consolidated tangible net worth of no more than
0.40 to 1.00; maintenance of tangible net worth at the end of each fiscal year
of the greater of $250 million or 70% of net premiums written; maintenance of
statutory capital at the end of each fiscal year of at least $250 million; and
maintenance of a ratio of net premiums written to statutory capital at the end
of any fiscal quarter of no more than 1.00 to 1.00 in each case. At September
30, 1996, the Company was in compliance with all covenants under the facility.
F-16
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STATUTORY DATA
The Company's ability to pay dividends is subject to certain regulatory
restrictions on the payment of dividends by LaSalle Re. Under The Insurance
Act 1978, amendments thereto and related regulations of Bermuda, LaSalle Re is
required to prepare statutory financial statements and to file in Bermuda a
statutory financial return. LaSalle Re is required to maintain certain
measures of solvency and liquidity.
The statutory capital and surplus of LaSalle Re at September 30, 1996 was
approximately $477,000 (1995: $391,000) and the minimum required statutory
capital and surplus required by its license as a Class 4 insurer, was
approximately $100,000 (1995: $100,000).
In this regard, the declaration of dividends from retained earnings and
distributions from additional paid in capital is limited to the extent that
the above requirements are met. At September 30, 1996, there were no
restrictions on distribution of retained earnings.
13. SEGMENTAL INFORMATION
The following table sets forth the Company's net premiums written and the
percentage thereof allocated to the zone of exposure for the years ended
September 30, 1996 and 1995 and the period ended September 30, 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
PREMIUMS PREMIUMS PREMIUMS
WRITTEN PERCENTAGE WRITTEN PERCENTAGE WRITTEN PERCENTAGE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States........... $ 79,357 41.7% $ 91,561 45.4% $ 67,176 50.4%
Europe
(excluding the U.K.)... 21,959 11.6 21,041 10.4 18,147 13.6
United Kingdom.......... 16,310 8.6 14,089 7.0 8,724 6.5
Japan................... 7,998 4.2 7,642 3.8 4,896 3.7
Australasia............. 11,038 5.8 9,756 4.8 4,510 3.4
Worldwide............... 22,049 11.6 26,893 13.3 7,920 5.9
Worldwide
(excluding U.S.)....... 11,451 6.0 8,789 4.4 6,441 4.8
Other................... 16,433 8.6 16,128 8.0 7,241 5.5
Reinstatement and
adjustment premiums.... 3,556 1.9 6,017 2.9 8,272 6.2
-------- ----- -------- ----- -------- -----
$190,151 100.0% $201,916 100.0% $133,327 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
14. TAXATION
Under current Bermuda law the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that will exempt the
Company from taxation until the year 2016 in the event of any such taxes being
imposed.
The Company does not consider itself to be engaged in a trade or business in
the United States and accordingly does not expect to be subject to United
States income taxes.
F-17
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
15. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended September 30, 1996
Net premiums earned.......................... $49,445 $53,647 $55,294 $36,755
Net investment income (net of realized
losses)..................................... 6,204 6,399 6,789 7,036
Losses and loss expenses incurred............ 15,882 18,354 9,954 7,287
Net income................................... 29,400 31,332 40,818 27,901
Net income per share......................... $ 1.23 $ 1.31 $ 1.70 $ 1.16
Year ended September 30, 1995
Net premiums earned.......................... $28,683 $45,344 $48,758 $47,585
Net investment income (net of realized
losses)..................................... 5,585 6,126 6,349 7,006
Losses and loss expenses incurred............ 591 13,462 10,488 35,856
Net income................................... 28,264 31,154 35,320 9,710
Net income per share......................... $ 1.22 $ 1.34 $ 1.49 $ 0.41
</TABLE>
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPEC-
TUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE COMMON SHARES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UN-
LAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforcement of Civil Liabilities.......................................... 3
Available Information..................................................... 3
Forward-Looking Statements................................................ 4
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 20
Price Range of Common Shares.............................................. 20
Dividend Policy........................................................... 21
Capitalization............................................................ 22
Selected Consolidated Financial Data...................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 31
Management................................................................ 45
Certain Transactions...................................................... 53
Principal and Selling Shareholders........................................ 56
Description of Capital Stock.............................................. 59
Shares Eligible for Future Sale........................................... 62
Certain Tax Considerations................................................ 64
Underwriting.............................................................. 73
Legal Matters............................................................. 75
Experts................................................................... 75
Glossary of Selected Insurance and Reinsurance Terms...................... 76
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
LASALLE RE
HOLDINGS LIMITED
COMMON SHARES
--------
PROSPECTUS
, 1996
--------
SMITH BARNEY INC.
LAZARD FRERES & CO. LLC
MORGAN STANLEY & CO.
INCORPORATED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[ALTERNATE PAGE]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 25, 1996
PROSPECTUS
SHARES
LASALLE RE HOLDINGS LIMITED
COMMON SHARES
--------
Of the common shares, par value $1.00 per share (the "Common Shares"),
of LaSalle Re Holdings Limited (the "Company") offered hereby, Common
Shares are being offered outside the United States and Canada and
Common Shares are being offered in a concurrent offering inside the United
States and Canada (collectively, the "Offerings"). The public offering price
and the aggregate underwriting discount per Common Share will be identical for
each of the Offerings. See "Underwriting."
All of the Common Shares offered hereby are being offered by certain
shareholders of the Company (the "Selling Shareholders"). The Company will not
receive any proceeds from the sale of the Common Shares. See "Use of Proceeds."
The Company is a holding company with no operations or significant assets
other than its ownership of a majority of the capital stock of LaSalle Re
Limited ("LaSalle Re"). Upon completion of the Offerings, certain founding
shareholders of the Company will own approximately % of the Common Shares and
approximately % of the capital stock of LaSalle Re ( % and % if the U.S.
Underwriters' over-allotment option is exercised in full). As a result, such
shareholders, if they act in concert, will be able to control most fundamental
decisions affecting the Company, including the election of directors and the
merger or sale of the Company. See "Risk Factors--Control by Founding
Shareholders," "Certain Transactions," "Principal and Selling Shareholders" and
"Description of Capital Stock."
The Common Shares are quoted on the Nasdaq National Market under the symbol
"LSREF." On October 23, 1996, the last reported sale price of the Common Shares
on the Nasdaq National Market was $26.625 per share. See "Price Range of Common
Shares."
SEE "RISK FACTORS" ON PAGE 11 FOR A DESCRIPTION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON SHARES.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS (1) SHAREHOLDERS (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Common Share.................... $ $ $
- --------------------------------------------------------------------------------
Total (3)........................... $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the U.S. Underwriters and the Managers
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offerings estimated at $ payable by the
Company.
(3) The Selling Shareholders have granted the U.S. Underwriters a 30-day option
to purchase up to additional Common Shares on the same terms as
set forth above to cover over-allotments, if any. If the U.S. Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Selling Shareholders will be
$ , $ and $ , respectively. See "Underwriting."
--------
The Common Shares are being offered by the several Managers named herein,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that certificates for the Common Shares offered
hereby will be available for delivery on or about , 1996 at the
offices of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013.
--------
SMITH BARNEY INC.
LAZARD CAPITAL MARKETS
MORGAN STANLEY & CO.
INTERNATIONAL
, 1996
<PAGE>
[ALTERNATE PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPEC-
TUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE COMMON SHARES OFFERED HEREBY, NOR DOES IT CON-
STITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECU-
RITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforcement of Civil Liabilities.......................................... 3
Available Information..................................................... 3
Forward-Looking Statements................................................ 4
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 20
Price Range of Common Shares.............................................. 20
Dividend Policy........................................................... 21
Capitalization............................................................ 22
Selected Consolidated Financial Data...................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 31
Management................................................................ 45
Certain Transactions...................................................... 53
Principal and Selling Shareholders........................................ 56
Description of Capital Stock.............................................. 59
Shares Eligible for Future Sale........................................... 62
Certain Tax Considerations................................................ 64
Underwriting.............................................................. 73
Legal Matters............................................................. 75
Experts................................................................... 75
Glossary of Selected Insurance and Reinsurance Terms...................... 76
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
LASALLE RE
HOLDINGS LIMITED
COMMON SHARES
-------
PROSPECTUS
, 1996
-------
SMITH BARNEY INC.
LAZARD CAPITAL MARKETS
MORGAN STANLEY & CO.
INTERNATIONAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of the expenses payable by the Company in
connection with issuance and distribution of the securities being registered
hereby. None of the expenses are payable by the Selling Shareholders. All
amounts shown are estimates, except the Commission registration fee, the NASD
filing fee and the Nasdaq quotation fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $29,622
NASD filing fee.................................................. 10,275
Printing and engraving........................................... *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Custodian fees and expenses...................................... *
Nasdaq quotation fee............................................. *
Blue sky fees and expenses....................................... *
Miscellaneous.................................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- --------
*To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the provisions of the Act, Holdings has adopted provisions in
its Bye-Laws which require it to indemnify its directors and officers to the
fullest extent permitted by law and specifically to indemnify its directors
and officers against all amounts actually and reasonably incurred to Holdings
or its stockholders by reason of a breach of duty to the Company, provided
that such director or officer acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Company and,
with respect to any criminal action, suit or proceeding, had no reasonable
cause to believe that the conduct was unlawful, and except for any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable for wilful negligence, wilful default, fraud or dishonesty in the
performance of the duty to Holdings.
The Company also maintains insurance on its directors and officers, which
covers liabilities under the federal securities laws.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On November 20, 1995, 13,005,720 Common Shares were issued to existing
shareholders of LaSalle Re in exchange for capital stock of LaSalle Re. This
exchange was exempt from registration pursuant to Section 4(2) of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
The following documents are filed with this Registration Statement.
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S> <C>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1 Memorandum of Association (Incorporated by reference to
Exhibit 3.1 to Registration Statement on Form S-1 (No.
33-97304)).
3.2 Bye-Laws (Incorporated by reference to Exhibit 3.1 to Form
10-Q for the quarterly period ended December 31, 1995
(File No. 0-27216)).
5.1* Opinion of Conyers Dill & Pearman regarding the validity
of the Common Shares.
8.1* Opinion of Conyers Dill & Pearman regarding certain Ber-
muda tax matters.
8.2* Opinion of Mayer, Brown & Platt regarding certain U.S. tax
matters.
8.3* Opinion of Clyde & Co. regarding certain U.K. tax matters.
10.1 Excess Ownership Agreement dated November 27, 1995 among
Holdings, LaSalle Re and the Founding Shareholders (In-
corporated by reference to Exhibit 10.3 to Form 10-Q for
the quarterly period ended December 31, 1995 (File No. 0-
27216)).
10.2 Amended and Restated Shareholders Agreement dated November
27, 1995 among Holdings, LaSalle Re and the Founding
Shareholders (Incorporated by reference to Exhibit 10.1
to Form 10-Q for the quarterly period ended December 31,
1995 (File No. 0-27216)).
10.3 Amended and Restated Option Agreement dated November 27,
1995 among Holdings, LaSalle Re and certain of the Found-
ing Shareholders (Incorporated by reference to Exhibit
10.2 to Form 10-Q for the quarterly period ended December
31, 1995 (File
No. 0-27216)).
10.4 Conversion Agreement dated November 27, 1995 among Hold-
ings, LaSalle Re and holders of Exchangeable Non-Voting
Shares (Incorporated by reference to Exhibit 10.4 to
Form 10-Q for the quarterly period ended December 31,
1995 (File No. 0-27216)).
10.5 Amended and Restated Employment Agreement dated October 1,
1993 between Victor H. Blake and LaSalle Re (Incorporated
by reference to Exhibit 10.5 to Form 10-Q for the quar-
terly period ended December 31, 1995 (File No. 0-27216)).
10.6 Amended and Restated Underwriting Services Agreement dated
September 21, 1995 among Holdings, LaSalle Re and CNA
Services (Incorporated by reference to Exhibit 10.6 to
Form 10-Q for the quarterly period ended December 31,
1995 (File No. 0-27216)).
10.7 Amended and Restated Administrative Services Agreement
dated September 21, 1995 among Holdings, LaSalle Re and
Aon Bermuda (Incorporated by reference to Exhibit 10.7 to
Form 10-Q for the quarterly period ended December 31,
1995 (File No. 0-27216)).
10.8 Amended and Restated Investment Management Agreement dated
September 21, 1995 among Holdings, LaSalle Re and Aon Ad-
visors.
10.9 Claims Agreement dated December 16, 1993 between LaSalle
Re and IRISC.
10.10 Employment Agreement dated October 1, 1995, between Andrew
Cook and LaSalle Re (Incorporated by reference to Exhibit
10.10 to Form 10-Q for the quarterly period ended Decem-
ber 31, 1995 (File No. 0-27216)).
10.11 Credit Agreement dated as of December 1, 1995 among Hold-
ings, several banks and Chemical Bank, as administrative
agent (Incorporated by reference to Exhibit 10.9 to
Form 10-Q for the quarterly period ended December 31,
1995 (File No. 0-27216)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S> <C>
10.12 First Amendment, dated September 25, 1996 among Holdings,
several banks and Chase Manhattan Bank as administrative
agent, to Credit Agreement dated as of December 1, 1995
among Holdings, several banks and Chemical Bank as admin-
istrative agent.
10.13 Long-Term Incentive Plan.
10.14 Employee Stock Purchase Plan.
10.15* First Amendment dated July 1, 1996 to Amended and Restated
Underwriting Services Agreement dated as of September 21,
1995 between CNA (Bermuda) Services Limited and LaSalle
Re.
10.16 First Amendment dated July 1, 1996 to Amended and Restated
Administrative Services Agreement dated as of September
21, 1995 between Aon Risk Consultants (Bermuda) Limited
and LaSalle Re.
10.17* Quota Share Treaty between CNA International Reinsurance
Company Limited and LaSalle Re in respect of 1994 under-
writing year of account (London office).
10.18* Quota Share Treaty between CNA International Reinsurance
Company Limited and LaSalle Re in respect of 1995 under-
writing year of account (London office).
10.19* Quota Share Treaty between CNA International Reinsurance
Company Limited and LaSalle Re in respect of 1996 under-
writing year of account (London office).
10.20* Quota Share Treaty between CNA International Reinsurance
Company Limited and LaSalle Re in respect of 1994 under-
writing year of account (Amsterdam office).
10.21* Quota Share Treaty between CNA International Reinsurance
Company Limited and LaSalle Re in respect of 1995 under-
writing year of account (Amsterdam office).
10.22* Quota Share Treaty between CNA International Reinsurance
Company Limited and LaSalle Re in respect of 1996 under-
writing year of account (Amsterdam office).
10.23* LMX Quota Share Retrocessional Agreement between Continen-
tal Casualty Company and LaSalle Re for the 1995 under-
writing year of account.
10.24* LMX Quota Share Retrocessional Agreement between Continen-
tal Casualty Company and LaSalle Re for the 1996 under-
writing year of account.
12.1 Statement Re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Conyers, Dill & Pearman (included in Exhibit
8.1).
23.2* Consent of Mayer, Brown & Platt (included in Exhibit 8.2).
23.3* Consent of Clyde & Co. (included in Exhibit 8.3).
23.4 Consent of KPMG Peat Marwick.
</TABLE>
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*To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under
II-3
<PAGE>
the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) At the closing specified in the underwriting agreement, it will
provide to the underwriter certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN HAMILTON, BERMUDA, ON
THE 25TH DAY OF OCTOBER, 1996.
LaSalle Re Holdings Limited
/s/ Andrew Cook
By: _________________________________
Name: Andrew Cook
Title: Chief Financial Officer and
Treasurer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Victor H.
Blake, Andrew Cook and Steven Given, or any of them, such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE 25TH DAY OF OCTOBER, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Victor H. Blake Chairman, President and Chief Executive
___________________________________________ Officer (Principal Executive Officer)
Victor H. Blake
/s/ Andrew Cook Chief Financial Officer and Treasurer
___________________________________________ (Principal Financial Officer)
Andrew Cook
/s/ Steven Given Controller (Principal Accounting Officer)
___________________________________________
Steven Given
Director
___________________________________________
William J. Adamson, Jr.
/s/ Andrew Africk Director
___________________________________________
Andrew Africk
/s/ Ivan P. Berk Director
___________________________________________
Ivan P. Berk
/s/ Joseph Haviv Director
___________________________________________
Joseph Haviv
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Jonathan H. Kagan Director
___________________________________________
Jonathan H. Kagan
/s/ Donald P. Koziol, Jr. Director
___________________________________________
Donald P. Koziol, Jr.
/s/ Lester Pollack Director
___________________________________________
Lester Pollack
/s/ Peter J. Rackley Director
___________________________________________
Peter J. Rackley
/s/ Scott A. Schoen Director
___________________________________________
Scott A. Schoen
/s/ Harvey G. Simons Director
___________________________________________
Harvey G. Simons
/s/ David A. Stockman Director
___________________________________________
David A. Stockman
/s/ Paul J. Zepf Director
___________________________________________
Paul J. Zepf
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1 Memorandum of Association (Incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1 (No. 33-97304)).
3.2 Bye-Laws (Incorporated by reference to Exhibit 3.1 to Form 10-Q for
the quarterly period ended December 31, 1995 (File No. 0-27216)).
5.1* Opinion of Conyers Dill & Pearman regarding the validity of the Common
Shares.
8.1* Opinion of Conyers Dill & Pearman regarding certain Bermuda tax
matters.
8.2* Opinion of Mayer, Brown & Platt regarding certain U.S. tax matters.
8.3* Opinion of Clyde & Co. regarding certain U.K. tax matters.
10.1 Excess Ownership Agreement dated November 27, 1995 among Holdings,
LaSalle Re and the Founding Shareholders (Incorporated by reference to
Exhibit 10.3 to Form 10-Q for the quarterly period ended December 31,
1995 (File No. 0-27216)).
10.2 Amended and Restated Shareholders Agreement dated November 27, 1995
among Holdings, LaSalle Re and the Founding Shareholders (Incorporated
by reference to Exhibit 10.1 to Form 10-Q for the quarterly period
ended December 31, 1995 (File No. 0-27216)).
10.3 Amended and Restated Option Agreement dated November 27, 1995 among
Holdings, LaSalle Re and certain of the Founding Shareholders
(Incorporated by reference to Exhibit 10.2 to Form 10-Q for the
quarterly period ended December 31, 1995 (File No. 0-27216)).
10.4 Conversion Agreement dated November 27, 1995 among Holdings, LaSalle
Re and holders of Exchangeable Non-Voting Shares (Incorporated by
reference to Exhibit 10.4 to Form 10-Q for the quarterly period ended
December 31, 1995 (File No. 0-27216)).
10.5 Amended and Restated Employment Agreement dated October 1, 1995
between Victor H. Blake and LaSalle Re (Incorporated by reference to
Exhibit 10.5 to Form 10-Q for the quarterly period ended December 31,
1995 (File No. 0-27216)).
10.6 Amended and Restated Underwriting Services Agreement dated September
21, 1995 among Holdings, LaSalle Re and CNA Services (Incorporated by
reference to Exhibit 10.6 to Form 10-Q for the quarterly period ended
December 31, 1995 (File No. 0-27216)).
10.7 Amended and Restated Administrative Services Agreement dated September
21, 1995 among Holdings, LaSalle Re and Aon Bermuda (Incorporated by
reference to Exhibit 10.7 to Form 10-Q for the quarterly period ended
December 31, 1995 (File No. 0-27216)).
10.8 Amended and Restated Investment Management Agreement dated September
21, 1995 among Holdings, LaSalle Re and Aon Advisors.
10.9 Claims Agreement dated December 16, 1993 between LaSalle Re and IRISC.
10.10 Employment Agreement dated October 1, 1995 between Andrew Cook and
LaSalle Re (Incorporated by reference to Exhibit 10.10 to Form 10-Q
for the quarterly period ended December 31, 1995 (File No. 0-27216)).
</TABLE>
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*To be filed by amendment.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
10.11 Credit Agreement dated as of December 1, 1995 among Holdings, several
banks and Chemical Bank, as administrative agent (Incorporated by
reference to Exhibit 10.9 to Form 10-Q for the quarterly period ended
December 31, 1995 (File No. 0-27216)).
10.12 First Amendment, dated September 25, 1996, among Holdings, several
banks and Chase Manhattan Bank as administrative agent, to Credit
Agreement dated as of December 1, 1995 among Holdings, several banks
and Chemical Bank, as administrative agent.
10.13 Long-Term Incentive Plan.
10.14 Employee Stock Purchase Plan.
10.15* First Amendment dated July 1, 1996 to Amended and Restated
Underwriting Services Agreement dated as of September 21, 1995 between
CNA (Bermuda) Services Limited and LaSalle Re.
10.16 First Amendment dated July 1, 1996 to Amended and Restated
Administrative Services Agreement dated as of September 21, 1995
between Aon Risk Consultants (Bermuda) Limited and LaSalle Re.
10.17* Quota Share Treaty between CNA International Reinsurance Company
Limited and LaSalle Re in respect of 1994 underwriting year of account
(London office).
10.18* Quota Share Treaty between CNA International Reinsurance Company
Limited and LaSalle Re in respect of 1995 underwriting year of account
(London office).
10.19* Quota Share Treaty between CNA International Reinsurance Company
Limited and LaSalle Re in respect of 1996 underwriting year of account
(London office).
10.20* Quota Share Treaty between CNA International Reinsurance Company
Limited and LaSalle Re in respect of 1994 underwriting year of account
(Amsterdam office).
10.21* Quota Share Treaty between CNA International Reinsurance Company
Limited and LaSalle Re in respect of 1995 underwriting year of account
(Amsterdam office).
10.22* Quota Share Treaty between CNA International Reinsurance Company
Limited and LaSalle Re in respect of 1996 underwriting year of account
(Amsterdam office).
10.23* LMX Quota Share Retrocessional Agreement between Continental Casualty
Company and LaSalle Re for the 1995 underwriting year of account.
10.24* LMX Quota Share Retrocessional Agreement between Continental Casualty
Company and LaSalle Re for the 1996 underwriting year of account.
12.1 Statement Re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Conyers, Dill & Pearman (included in Exhibit 8.1).
23.2* Consent of Mayer, Brown & Platt (included in Exhibit 8.2).
23.3* Consent of Clyde & Co. (included in Exhibit 8.3).
23.4 Consent of KPMG Peat Marwick.
</TABLE>
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*To be filed by amendment.
<PAGE>
Exhibit 10.8
AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT ("Agreement") made and entered into as of 21 September 1995
amends and restates the agreement entered into on 22 November 1993 by and
between Aon Advisors (U.K.) Limited, a corporation organized under the laws of
the United Kingdom ("Manager"), and LaSalle Re Limited, a corporation organized
under the laws of Bermuda (the "Client").
PREAMBLES:
WHEREAS, the Manager is a member of the Investment Management Regulatory
Organization ("IMRO") and is regulated in the conduct of its investment business
by IMRO;
WHEREAS, Client is a business investor as defined by the IMRO rules in the
form attached hereto as Schedule A;
WHEREAS, the Client desires to appoint Manager as the investment manager of
all the assets contained in the Client's investment portfolio described in
Schedule B hereto (the "Portfolio"); and
WHEREAS, Manager, on the terms provided below, desires to be the investment
manager for the Portfolio.
NOW THEREFORE, in consideration of the mutual agreements herein contained,
and for other good and valuable consideration, the parties hereto agree as
follows:
1. THE PORTFOLIO. The Client warrants and represents to Manager that the
Client is the beneficial owner of the Portfolio and that there are no
restrictions on the transfer or sale of all or any portion thereof. The Client
shall notify the Manager promptly, in writing, if any such restrictions arise
(and of the nature of such restrictions) or if the Client, or any Affiliate
(defined below) of the Client, is an affiliate, director, or controlling person
of any issuer whose securities are in the Portfolio. "Affiliate" shall mean an
entity that directly or indirectly through one or more intermediaries controls,
is controlled by or is under common control with the Manager or the Client, as
the case may be.
2. INVESTMENT MANAGER APPOINTMENT. The Client hereby appoints Manager as
investment manager and to supervise, manage, and direct the investment and
reinvestment, and vary the investment of, the Portfolio. Manager hereby accepts
such appointment on the terms and conditions of this Agreement.
<PAGE>
3. PORTFOLIO MANAGEMENT.
a. MANAGEMENT. Manager agrees to supervise and direct, with full
authority and at its discretion, on the Client's behalf and at the Client's sole
risk, the investment and reinvestment of the Portfolio under the terms of this
Agreement. Manager shall manage the Portfolio in such manner as Manager may
deem advisable in accordance in all material respects with the written
investment instructions and guidelines attached hereto as Schedule C (the
"Investment Guidelines"). The Client may from time to time amend the Investment
Guidelines in writing. Manager will not be bound to follow any amendment to the
Investment Guidelines, however, until it has received a copy of the amended
Investment Guidelines from the Client and has acknowledged such receipt to
Client. Other than by the Investment Guidelines and the terms of this
Agreement, the investment and reinvestment of the Portfolio by Manager shall not
be restricted in any manner, whether such restrictions arise under the current
or future laws of any jurisdiction or by virtue of the terms of any contract or
instrument purporting to bind the Client. The Client hereby ratifies and
confirms any and all transactions heretofore or hereafter engaged in by the
Manager where such transactions comply in all material respects with the
Investment Guidelines.
b. COMPLIANCE. All securities purchased for the Portfolio and
security positions reflected in any periodic report to the Client will be deemed
to be in compliance with the Investment Guidelines and will be deemed approved
by the Client unless written notice to the contrary is received by Manager from
the Client within ten (10) days of the settlement date as specified on the
confirmation delivered to the Client for such securities or security positions.
c. INVESTMENT OF CASH. The Client understands that the Manager may,
consistent with the terms of this Agreement, invest Portfolio cash balances in
money market funds or in other investment vehicles as prudent management
dictates. The Client acknowledges that the yield on any money market fund or
other investment will be affected by the distribution, management,
administrative, and other charges imposed by the fund or investment. Fees
payable to the Manager hereunder shall not be offset or reduced by any portion
of such fees and charges, including advisory fees assessed against the Client's
balance therein.
d. CALLING. Manager shall have the authority to make unsolicited
calls to appropriate officers of Client. All personal visits and oral
communications will be at reasonable hours and only as permitted by IMRO rules.
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<PAGE>
4. DIRECTIONS TO MANAGER. The Client shall furnish the Manager with a
certified copy of a resolution of the Board of Directors of Client authorizing
specified persons to give Portfolio investment directions to the Manager on the
Client's behalf ("Authorized Persons"). The Manager shall be entitled to rely
upon such resolution as conclusive evidence of the Authorized Persons' authority
to give such directions to the Manager. All such directions by or on behalf of
the Client to Manager shall be in writing and signed by an Authorized Person.
For this purpose, the term "in writing" shall include directions given by telex
or by facsimile. Directions received from the Client via facsimile transmission
must reflect signature of an Authorized Person. Manager shall acknowledge
receipt of such directions by letter, telex, facsimile, or telephone. All
acknowledgements by Manager shall be made before the close of business on the
following business day. The above notwithstanding, Manager shall be fully
protected in relying upon any direction signed or given by any person reasonably
believed by it to be an Authorized Signer. Manager shall also be fully
indemnified by Client and have no liability when acting upon directions from
Client reflected in an instrument, certificate or paper Manager reasonably
believes to be genuine and to be signed or presented by an Authorized Signer.
5. COMPLAINTS.
a. PROCEDURE. If Client is dissatisfied with any aspect of Manager's
service it may contact Manager's Compliance Officer or any other officer for
referral to the Compliance Officer. Within five (5) business days of the
Compliance Officer's receipt of such complaint, the Compliance Officer will
notify Client of the result of his deliberations and of the actions that has
been or will be taken in respect of such complaint.
b. IMRO. In the event of Client being dissatisfied with any aspect
of Manager's service, or if Client prefers not to contact Manager as provided
above, Client may contact IMRO directly, which itself will examine Client's
complaint. If requested, Manager will supply Client with a statement describing
Client's rights to compensation if Manager is unable to meet any of its
liabilities (if any) to Client arising under this Agreement.
6. BROKERS AND DEALERS.
a. SELECTION. Pursuant to the discretionary authority conferred on
the Manager by this Agreement, and unless the Client directs otherwise in
writing, the Manager will use its discretion in selecting the broker or dealer
to be used to execute each order for the Portfolio and to effect each Portfolio
transaction.
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<PAGE>
b. DIRECTED SELECTION. The Client may direct the Manager to use a
particular broker or dealer to execute transactions for the Portfolio. In such
event, the Client's direction will be by a writing authorizing the Manager to
execute all or certain specified transactions with a designated broker or
dealer. The Client acknowledges that in directing the Manager to use a
particular broker or dealer, the Manager may not be in a position where it can
freely negotiate commission rates or spreads, or select brokers or dealers on
the basis of price and execution. The Client further acknowledges that such
directed brokerage transactions may not be commingled or "batched" for purposes
of execution with orders for the same securities for the accounts of other
persons or entities managed by the Manager. Accordingly, Client acknowledges
that the Client's direction of a particular broker or dealer to execute
transactions for the Portfolio could result in higher commissions, greater
spreads, or less favorable net prices.
c. INVESTMENT RESEARCH AND INFORMATION. Client acknowledges that the
investment research and information provided by brokers or dealers and their
ability to achieve quality executions and other brokerage services are
important. Client therefore agrees that brokers or dealers selected by the
Manager may be paid commissions for effecting transactions for the Client in
excess of the amounts other brokers or dealers would have charged for effecting
these transactions if the Manager determines in good faith that such amounts are
reasonable in relation to the value of the brokerage or research services
provided by those brokers or dealers. In the event that such transactions are
effected pursuant to a separate soft commission agreement, Manager will make
such disclosure as is required by IMRO rules.
7. TRANSACTIONS. The Manager may sell or purchase investments which are
included in, or intended to become part of, the Portfolio as part of a larger
transaction or series of transactions in which other persons are interested,
provided that the terms of such purchase or sale are in the Manager's reasonable
opinion fair and equitable. Where the Manager deals on behalf of the Client and
other persons as part of a larger transaction, or in a transaction not
specifically allocated to the Client at the time of dealing, the transaction is
to be identified in the Manager's records on the day of dealing as being
expressly, wholly or to a specified extent for the benefit of the Client, and is
to be allocated to the Client at the price paid or received in the original
transaction. The Manager shall value the Portfolio on a daily basis using
valuation methods mutually agreed by the Manager and Client. Valuations will be
provided to the Client at least quarterly, or as reasonably requested by Client.
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<PAGE>
8. LIMITS ON MANAGER'S LIABILITY.
a. GOOD FAITH PERFORMANCE. The duties and obligations of the Manager
shall be determined solely by the express provisions of this Agreement and the
Manager shall be responsible only for the good faith performance of its duties
as specifically set out in this Agreement. The Manager shall not be bound in
any way by any agreement or contract between the Client and any other third
party (whether or not the Manager has knowledge thereof).
b. CLIENT BREACH. The Manager shall not be responsible in any manner
whatsoever for any failure or inability of the Client to honor any of the
provisions of this Agreement.
c. SOLVENCY AND PERFORMANCE. The Manager shall not be responsible
for the solvency of or the due and proper performance of the obligations of any
third party bank, clearing organization, broker, dealer, intermediary, nominee
or agent appointed or employed by the Manager. The Manager shall make available
to the Client such rights (if any) as the Manager may have against such person
or entity in the event of the insolvency of any of the above or the failure of
such person or entity properly to perform such obligations and shall give such
assistance as the Client may reasonably require for the Client to exercise such
rights.
d. RELIANCE. Manager shall be fully indemnified by Client and have
no liability for any action taken by Client in connection with this Agreement or
for acting and relying upon any written advice, certificate, notice, direction,
instruction, request or other paper or document which the Manager in good faith
believes to be genuine and to have been signed or presented by the proper
parties.
e. LEGAL COUNSEL. Manager may seek the advice of legal counsel in
the event of any dispute or questions as to the construction of any of the
provisions of this Agreement or its duties hereunder, and it shall incur no
liability and shall be fully protected in respect of any action taken, omitted
or suffered by it in good faith in accordance with the opinion of such counsel.
f. LIABILITY. Manager shall not be liable to the Client for any acts
or omissions by the Manager, its employees, independent contractors, or agents
under and in connection with this Agreement, except by reason of material acts
or omissions of the Manager constituting bad faith, gross negligence or willful
misconduct.
g. INDEMNIFICATION. The Client shall reimburse, and indemnify the
Manager for, and hold it harmless against, any
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<PAGE>
loss, liability or expense (including, without limitation, attorney fees),
incurred by the Manager arising out of or in connection with Client's breach of
this Agreement or Manager's acceptance of, or the performance of its duties and
obligations under, this Agreement as well as the costs and expenses of defending
against any claim or liability arising out of or relating to this Agreement;
provided that Client shall not be obligated to provide such indemnification for
material acts or omissions of the Manager constituting bad faith, gross
negligence, or willful misconduct.
h. INFORMATION. Manager shall have no obligation to seek to obtain
any material non-public information about any issuer of securities, nor to
purchase or sell, or to recommend for purchase or sale, for the Portfolio the
securities of any issuer on the basis of any such information as may come into
its possession.
i. CLIENT COMPLIANCE. Manager shall not be responsible for Client's
own compliance with any laws, rules, or regulations.
j. OTHER BUSINESS. Manager shall have no liability whatsoever for
the management of any other assets of the Client other than the Portfolio and
shall incur no liability for any loss or other damage which may result from any
management of such other assets. Nothing contained in this Agreement shall
prevent the Manager or any of its Affiliates from engaging in any business or
rendering services of any kind to any other person or entity. In connection
therewith, the Manager and its Affiliates may, without limitation:
(i) be retained to provide services to (A) the Client or any of
its Affiliates or (B) any of the issuers of securities held
in the Portfolio; and
(ii) hold the capital stock of (A) the Client or any of its
Affiliates or (B) any of the issuers of securities held in
the Portfolio.
k. EXCHANGE RATES. The Manager shall not be liable for any loss
experienced on a Portfolio investment or reinvestment due to changes in currency
exchange rates.
l. EXCHANGES AND CLEARING HOUSES. Client acknowledges and agrees
that the rules of an exchange and its clearing house (if any) usually contain
wide powers in an emergency or otherwise undesirable situation or in the event
of a default (not necessarily on the part of Client or Manager) to close out
contracts traded under, or registered in accordance with, the rules of such
exchange or clearing house (as the case may be), to effect invoicing back of
such contracts, to exercise rights of
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<PAGE>
set-off, and to take such other steps as the exchange or clearing house may
think fit. Client agrees that if any exchange or clearing house takes any such
action which affects any contract Manager may have with any intermediate broker
and which relates to a contract between Client and Manager, then, Manager may at
its discretion take such action as it considers desirable to correspond with the
action so taken by the exchange or clearing house, or to mitigate any loss.
Client agrees that it shall be bound by any action which is taken by Manager.
9. CUSTODY. The cash and assets of the Portfolio shall be held in
custody for Client by a bank described in Schedule E (the "Custodian") under
separate agreement between the Custodian and Client. The Custodian shall be
mutually agreeable to the Client and the Manager. The Client hereby represents
to Manager that the Custodian has agreed to act as sole custodian for the
Portfolio and in accordance with Manager's instructions. The Portfolio shall be
deposited by Manager into an account held by Custodian. The Client shall
instruct the Custodian to provide Manager with such periodic reports concerning
the status of the Portfolio as Manager may reasonably request from time to time.
The Client hereby represents to Manager that it will not change the Custodian
without giving Manager reasonable prior notice of its intention to do so
together with the name and other relevant information with respect to the new
Custodian. The Client shall pay all costs and fees of the Custodian and with
regard to any accounts Client maintains with the Custodian. The Client may, at
its discretion, provide written authorization permitting Manager's fees, as
described in this Agreement, to be paid directly from the Client's account held
by the Custodian.
10. CLIENT DEPOSITS AND WITHDRAWALS. The Client may deposit into the
Portfolio at any time additional cash, liquid securities or other readily
marketable property acceptable to the Manager in such amounts (not less than an
amount to be mutually agreed upon by the Manager and the Client, and in
accordance with the Client's separate agreement with the Custodian) as the
Client may determine. A deposit must be accompanied by a written notice of
deposit clearly indicating the character and amount of the deposit. The Client
shall immediately notify the Manager in writing of any such deposit. Manager
shall acknowledge notice of such deposit by letter, telex, facsimile, or
telephone before the close of business on the following business day. The
Client may, at any time, withdraw any amount up to the total value of the
Portfolio from the Portfolio subject to reasonable prior written notice to the
Manager and the Custodian of each withdrawal. The notice of withdrawal must (a)
indicate the name of the Portfolio, (b) state the amount to be withdrawn, and
(c) be signed by an Authorized Person. Client represents and warrants to
Manager that the Custodian will make payments of amounts withdrawn by wire
transfer in accordance with the Client's separate agreement with the Custodian.
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<PAGE>
11. PROXY VOTING AND OTHER MATTERS.
a. RESPONSIBILITY. The Manager shall not be required to take any
action or render any advice with respect to (a) the voting of proxies solicited
by or with respect to the issuers of Portfolio securities, (b) the tender,
redemption, call, or conversion of Portfolio securities, (c) any waivers,
consents, or other instruments regarding Portfolio securities, (d) any
endorsement, transfer, or delivery of Portfolio securities, (e) any consent to
any class action, reorganization, merger, combination, consolidation,
liquidation, or other arrangement with respect to any Portfolio security or
security issuer, or (f) any other transaction or matter which is the same or
substantially the same or similar to any of the above. Manager will send the
Client any materials pertaining to the above which the Manager receives.
b. DISCRETION. In the event that within a reasonable time as
determined by Manager, the Manager has not received any direction from Client
with regard to any matter and materials described in (a) above, Manager at its
discretion may take such action regarding such matter and materials as it deems
prudent without liability to Client. In addition, the Manager will not be
obligated to render advice or take any action on behalf of the Client with
respect to securities or other investments presently or formerly held in the
Portfolio or the issuers thereof which become the subject of any proceedings
including without limitation bankruptcies or other proceedings whether legal or
otherwise.
12. FEES. The Client agrees to pay the Manager a fee, due quarterly in
arrears, computed in accordance with the terms of Schedule D attached hereto and
made a part hereof. Such fee shall be in addition to Client's payment of any
value added tax ("VAT") pertaining to such fee computed at the rate in force
from time to time. In accordance with the procedures set forth in Section 9 of
this Agreement, the fees stated herein may be paid directly to Manager out of
the account of Client maintained by the Custodian. Manager agrees to send to
Client and Custodian at the same time an invoice indicating the amount of such
fees, the value of the assets on which the fees are based, and the manner in
which Manager calculated the fees. The fees of Manager shall be paid within ten
(10) days following the date of each fee invoice of Manager. The fees payable
to Manager are in addition to any other fees that Manager (or to its knowledge
any Affiliate of Manager) may receive in connection with any transactions
effected by Manager for Client under this Agreement. Such fees are also in
addition to Client's required reimbursement of Manager for all costs, expenses,
and commissions incurred by Manager for transactions effected on behalf of
Client as well as of all travel, food, and lodging expenses of Manager for
travel to Client. Any such reimbursement of expenses and payment of VAT shall
be made at the time Manager's fees are payable.
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<PAGE>
13. CONFIDENTIAL RELATIONSHIP. All nonpublic information and advice
furnished by either party to the Agreement to the other such party shall be
treated as confidential and shall not be disclosed to third parties except as
required by law or otherwise as expressly agreed to by the parties.
14. OTHER CLIENTS' INVESTMENTS. Client acknowledges and agrees that
Manager and its Affiliates act as advisers to other clients and may give advice,
and take action, with respect to any of those clients that may differ from the
advice given, or the time or nature of action taken, with respect to the
Portfolio. Manager shall have no obligation to recommend for purchase or sale
by the Portfolio, any security that Manager or its Affiliates, or their
employees, agents, or independent contractors may purchase for themselves or for
any other clients. Client further acknowledges and agrees that such other
clients may be involved in businesses and/or have investment objectives and/or
securities portfolios similar to that of Client but that the performance of the
assets managed by Manager or its Affiliates of such other clients may be
materially better or worse than that of the Portfolio. Manager shall have no
liability for any such performance differences.
15. TERM AND TERMINATION.
a. TERM. This Agreement shall be effective as of the date hereof and
shall remain in effect through December 31, 1998 unless terminated or extended
pursuant to this Section. The Client shall have the right, exercisable at any
time before September 30, 1998, to extend such initial term until December 31,
2000.
b. TERMINATION EFFECT. Termination of this Agreement will not affect
the liabilities or obligations of the parties under this Agreement arising from
transactions initiated prior to the effective date of Agreement termination and
will be without prejudice to the completion of transactions initiated by Manager
prior to such effective date of termination. Agreement termination shall also
not affect the Client's obligations to pay the Manager's fees accrued prior to
such effective date of termination. The Client also agrees to pay any
additional expenses which the Manager necessarily incurs on termination of the
Agreement and any losses necessarily realized in settling or concluding
outstanding obligations entered into by Manager pursuant to this Agreement.
Upon termination of this Agreement, the Manager shall be under no obligation
whatsoever to recommend any action with regard to, or to liquidate, the
securities or other investments of the Portfolio. The Manager retains the
right, however, to complete any transaction open as of the effective termination
date of this Agreement and to retain amounts in the Portfolio sufficient to
effect such completion.
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<PAGE>
Upon termination, it shall be the Client's exclusive responsibility to issue
directions in writing regarding any assets held in the Portfolio.
16. REPRESENTATIONS AND WARRANTIES. The Client hereby represents and
warrants to the Manager as follows:
a. GOOD STANDING. The Client is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation indicated above. Client has the corporate power and authority to
own its assets and transact the business in which it is engaged.
b. CORPORATE POWER. The Client has the corporate power and authority
to execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement has been duly authorized, executed and delivered by the Client
and constitutes a legal, valid and binding obligation of the Client enforceable
against it in accordance with its terms. No consent of any person including,
without limitation, the stockholders or creditors of the Client, and no license,
permit, approval or authorization of, exemption by, notice or report to, or
registration, filing or declaration with, any governmental authority or other
person or entity is required by the Client in connection with the Client's
execution, delivery and performance of this Agreement other than those already
obtained.
c. VIOLATION. The exercise, delivery and performance of this
Agreement will not violate any provision of any law or regulation binding on the
Client, or any order, judgment or decree of any court, arbitrator or government
authority binding on the Client, or the memorandum of association or bye-laws of
the Client, or any mortgage, indenture, lease, contract or other agreement,
instrument or undertaking to which the Client is a party or by which it or any
of its assets may be bound, or require the creation or imposition of any lien on
its property, assets or revenues.
d. AUTHORIZED PERSONS. The list of Authorized Persons provided as
part of the Board of Directors resolution referenced in Section 4 above
constitutes the complete and entire list of all officers, employees or agents of
the Client authorized to take action with respect to the Portfolio and the
Manager shall be entitled to rely conclusively on any document executed by any
one of them.
e. CLIENT SOPHISTICATION. The Client acknowledges that (i) it,
either directly or through its representatives, has such knowledge and
experience in financial affairs that it is capable of evaluating the merits and
risks of engaging the Manager to manage the Portfolio and (ii) movements in
currency
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<PAGE>
exchange rates may have a material effect, unfavorable as well as favorable, on
Portfolio performance.
f. DEVELOPMENTS. The Client shall promptly notify the Manager in
writing of any facts or circumstances or any change therein which may, directly
or indirectly, affect the management of the Portfolio by the Manager.
g. INFORMATION. The Client shall promptly deliver to Manager such
information, papers and documents required or reasonably requested by the
Manager in connection with the performance of its duties under this Agreement.
h. OWNERSHIP. The Client is and shall, during the term of this
Agreement, remain as the beneficial owner of the Portfolio, free and clear of
any and all liens, charges, options and encumbrances or other third party rights
whatsoever.
17. REPORTS. At least quarterly the Manager will send the Client a report
indicating (a) the beginning and ending valuation of the Portfolio for such
quarter or other time period, and (b) Portfolio transactions for such quarter or
other time period. Any measures of Portfolio performance that may be included
by Manager as part of such reports shall be mutually agreed by Manager and
Client.
18. NOTICES. All notices and directions with respect to securities
transactions or any other matters contemplated by this Agreement shall be deemed
duly given when delivered in writing to the appropriate party at the address
appearing below for each party, or to such other address as shall be notified in
writing by that party to the other party from time to time.
If to Manager:
Aon Advisors (U.K.) Limited
---------------------------
---------------------------
Attention:
----------------
If to Client:
LaSalle Re Limited
---------------------------
---------------------------
Attention:
----------------
19. MISCELLANEOUS.
a. GOVERNING LAW. This Agreement is made and shall be construed
under the laws of Bermuda. Any litigation concerning this Agreement shall be
brought before courts of competent
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<PAGE>
jurisdiction located in Hamilton, Bermuda. The parties hereto agree to the
personal jurisdiction of such courts and that service of process may be made on
them at the addresses indicated in Section 18 above.
b. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties with regard to the subject matter hereof.
c. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a statute, rule, regulation, decision of a court of competent
jurisdiction or otherwise, the remainder of this Agreement shall not be affected
thereby and, to this extent, the provisions of this Agreement shall be deemed to
be severable.
d. WAIVER AND AMENDMENT. No provision of this Agreement may be (i)
amended except by a writing signed by both parties hereto, or (ii) waived except
by a writing signed by the party making the waiver.
e. ASSIGNABILITY. Neither party may assign this Agreement without
the prior written consent of the other party.
f. HEADINGS. The section headings used in this Agreement are purely
for convenience purposes and shall not be used to interpret this Agreement.
g. JOINT VENTURE. The Manager and Client are not partners or joint
venturers together and nothing herein shall be construed to make them such or
impose liability by reason thereof.
h. SUCCESSORS AND ASSIGNS. Subject to Section 18.e. above, the
provisions of this Agreement shall be binding upon and shall inure to the
benefit of and be enforceable, by each of the parties hereto and their
successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly appointed officers so as to be effective on the day,
month and year first above written.
Aon ADVISORS (U.K.) LIMITED LASALLE RE LIMITED
By: /s/ Michael A. Conway By: /s/ Andrew Cook
- --------------------------- -------------------------
Title: Chairman Title: Chief Financial Officer and
--------------------- Treasurer
----------------------------
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<PAGE>
SCHEDULE A
DEFINITION OF A "BUSINESS INVESTOR"
(1) "Business Investor" means:
(a) a government, local authority or public authority within the meaning of
Note 1 to paragraph 3 of Schedule 1 to the Act or any body whose functions
are confined to acting on behalf of any such government, local authority or
public authority, or
(b) a Body Corporate satisfying any of the criteria set out in paragraph (2)
below and which carries on a business which is not Investment Business or,
if it is Investment Business, may under the Act be lawfully carried on by
that body without its being an Authorized Person, or
(c) a trustee of a trust where the aggregate value of the cash and investment
which form part of the trust's assets (before deducting the amount of its
liabilities) is (Pounds)10,000,000 or more or has been (Pounds)10,000,000
or more at any time during the previous two years, and
(2) The criteria referred to in paragraph (1) are the following:
(a) if the company is a Body Corporate which has more than 20 members or which,
being a Subsidiary, has a Holding Company which has more than 20 members,
the company or any of its Holding Companies or any of its Subsidiaries has
a called up share capital, or net assets, of not less than
(Pounds)5,000,000, or
(b) if the company is not a Body Corporate, the company has net assets of not
less than (Pounds)5,000,000.
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<PAGE>
SCHEDULE B
PORTFOLIO
The Portfolio shall consist of all cash, securities, and other property
which from time to time are placed by Client under the Manager's management, all
changes therein occurring as a result of purchase, sale, or other transactions
affecting the Portfolio, as well as all accretions of any sort including
dividends, interest, stock splits, and realized capital gains. Any securities
or other property purchased out of such accretions shall be part of the
Portfolio. The initial value of the Portfolio as of the date of this Agreement
is expected to be approximately US $400,000,000.
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<PAGE>
SCHEDULE C
INVESTMENT GUIDELINES
1. QUALITY OF ISSUER
1.1 In order for the debt securities of a borrower to qualify for
investment, the securities must have an S&P or Moody's bond rating of
a minimum of "AA". Where no rating is available the Manager shall
ascribe his own rating which must in no case be lower than the
equivalent of AA.
1.2 The banks whose certificates of deposit may be purchased or with whom
deposits may be made, shall be determined by the Manager, keeping in
mind marketability, but in any case will be limited to banks ranking
among the top 150 in terms of total assets as determined by the
Bankers Magazine. Euro-commercial paper of these banks, or other
borrowers, must be investment grade with minimum ratings of A1/P1, or
the equivalent, and readily marketable.
2. OBJECTIVE
To provide for the preservation of capital and liquidity requirements of
the Portfolio while maximizing the total Portfolio return through a
combination of investment income and capital appreciation. Investments
will be concentrated in short-term money market instruments, floating rate
securities and fixed income bonds and tied to agreed upon asset/liability
matching.
3. PERMISSIBLE INVESTMENTS
3.1 Certificates of Deposit issued by the London branches of major banks
and time deposits with banks of the same quality and other short-term
money market instruments maturing within 12 months or less.
3.2 Floating rate notes and floating rate certificates of deposit issued
by corporate borrowers, banks, governments and their agencies and
supranational agencies. The maturity of these instruments shall be
twelve (12) months or less and will be measured by the date on which
the coupon is next due to be refixed.
3.3 Fixed income bonds of up to 10 years' maturity.
3.4 Equity or equity-linked investments are not permitted.
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<PAGE>
3.5 Investments are permitted in U.S. dollar and in foreign currency
denominated securities.
3.6 The purchase of property, other than securities, is not permitted.
3.7 Options, futures, and foreign exchange contracts are permitted only to
the extent required to hedge known claims to be paid subject to an
approved derivative transaction policy.
3.8 The acquisition of securities committing the Client to contribute
funds over and above the then market value of the Portfolio is not
permitted nor is any borrowing of funds by Manager on behalf of Client
using the Portfolio as collateral.
3.9 The Manager acting as a principal shall not buy from or sell to the
Portfolio any securities.
3.10 The Manager may not without prior disclosure to the Client effect
transactions with or for the Client in respect of which the Manager
has directly or indirectly a material interest (except for an interest
arising solely from the mere participation of the Manager as agent for
the Client) or a relationship of any description with another party
which may involve a conflict with the Manager's duty to the Client as
set forth by this Agreement together with a disclosure of the nature
of the interest.
4. SIZE AND NATURE OF HOLDINGS
4.1 The Manager's investment in any one issuer or borrower other than the
U.S. and U.K. governments, shall not exceed 5 per cent of the market
value of the Portfolio at time of purchase.
4.2 The maximum exposure to any one country will be 25% of the Portfolio.
This limit does not apply to U.S. and supranational borrowers.
5. GENERAL
5.1 Investments shall be in instruments which are free of all withholding
taxes or sold prior to the deduction of such taxes.
5.2 The Manager at least quarterly will provide a quarterly valuation
report for the Portfolio and an outlook for future investment policy.
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<PAGE>
SCHEDULE D
FEE SCHEDULE
The Client shall pay the Manager a fee for its services on a quarterly basis, in
arrears, equal to the applicable percentage listed below of the average daily
balance of the Portfolio for that preceding quarter:
<TABLE>
<CAPTION>
PORTFOLIO BALANCE ANNUAL FEE IN BASIS POINTS
----------------- --------------------------
(in millions)
<S> <C>
0 through $100 35
Over $100 through $200 25
Over $200 15
</TABLE>
Example. The fee for $150 Million in Managed Assets would be 25 basis points
for $50 Million and 35 basis points for $100 Million divided by four to reflect
the quarterly payment due.
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<PAGE>
SCHEDULE E
PERMITTED CUSTODIANS
1. Banks within the United Kingdom as follows:
(a) institutions authorized by the Bank of England to take deposits under
the Banking Act 1987 with net tangible assets of not less than
(Pounds)100 million;
(b) wholly owned subsidiaries of such authorized institutions with net
tangible assets of not less than (Pounds)100 million and which are
themselves similarly authorized; and
(c) members of the London Discount Market Association, provided that the
deposits are secured.
2. For the purpose of 1 above, net tangible assets are defined as the
aggregate of issued share capital, consolidated reserves and subordinated
loans, less the amount of any intangible assets all as shown in the latest
audited financial statements of the institution. Financial statements
prepared in foreign currencies are to be translated at the exchange rate
prevailing at the balance sheet date.
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<PAGE>
Exhibit 10.9
CLAIMS AGREEMENT
This CLAIMS AGREEMENT, dated as of December 16, 1993 (this "Agreement"), is
among INTEGRATED RUNOFF INSURANCE SERVICES CORPORATION, a New Jersey corporation
("IRISC"), and LASALLE RE LIMITED, a company incorporated and organized under
the laws of Bermuda (the "Customer").
WHEREAS, Customer desires to hire IRISC to perform audits, and to handle
and process claims emanating from the Portfolio (as defined herein); and
WHEREAS, IRISC is in the business of providing Claims Management, Audit and
other Services (collectively, "Services"), as more fully described herein; and
WHEREAS, Customer desires to engage IRISC for such Services;
NOW, THEREFORE, for good and valuable consideration, it is agreed by and
between Customer and IRISC as follows:
Section 1. Term.
(a) This Agreement shall be effective as of the date hereof, (the
"Effective Date") and shall remain in effect through December 31, 1996
(the initial "Term") unless terminated pursuant to Section 2 hereof or
extended pursuant to Section 1(b).
(b) Unless terminated, the Term of this Agreement shall automatically, and
without any further action of either party, be extended at the end of
each calendar year commencing on December 31, 1996, for an additional
year, unless either party shall give six months prior written notice
to the other of its election that this Agreement shall terminate on
such annual anniversary date. In the case of a termination the
Customer may nevertheless, on 90 days' notice to IRISC, extend the
term of this Agreement for an additional three months following the
date on which the termination would otherwise be effective.
Section 2. Cancellation/Termination.
(a) Customer or IRISC may terminate this Agreement immediately if the
other party (i) loses its corporate charter, (ii) is placed in
receivership, makes an assignment for the benefit of creditors, is
placed in a
<PAGE>
proceeding for the purpose of winding up or liquidating its business
affairs or is the subject of any proceeding based upon its insolvency
or (iii) loses any license or permit which is then required in order
to engage in the business contemplated by this Agreement.
(b) Customer or IRISC may terminate this Agreement immediately upon
written notice based upon (i) fraud upon the terminating party by the
other party or (ii) a material breach of this Agreement by the party
being terminated which has not been corrected after thirty days
written notice.
(c) Unless prior written consent has been obtained, either Customer or
IRISC may terminate this Agreement upon ninety days written notice to
the other in the event that there has been a transfer or sale of a
controlling interest in the other party, except for transfers to a
parent, subsidiary or affiliate of the party whose stock is being
transferred.
(d) In the event of a termination of this Agreement, Customer agrees that
it will not, for a period of one year from the date of termination,
solicit or engage the services of employees of IRISC.
(e) Termination of this Agreement shall not relieve either party of its
liability for performance under the Agreement to the date of
termination. Following any termination, the parties will cooperate
with each other to satisfy any reasonable requests for information
concerning actions taken during the Term.
(f) In the event of cancellation or termination of this Agreement,
Customer shall immediately arrange for the return or transfer to a
succeeding administrator of copies of all its files and records at its
cost. IRISC will cooperate fully with Customer in this return or
transfer.
Section 3. IRISC Services and Obligations.
(a) During the Term of this Agreement, IRISC shall provide the following
Services for Customer related to the Portfolio:
(1) Claims Management Services, including the establishment of claims
handling procedures, the securing of sufficient documentation
concerning claims arising from the Portfolio, the adjustment,
agreement, and settlement of such claims, or
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otherwise the rejection and assertion of defense of uncovered
claims, each in accordance with the terms and conditions of the
policies, treaties, contracts, binders, or facultative
certificates of reinsurance underlying the Portfolio and in
accordance with applicable law and reasonable and customary
industry standards;
(2) AUDIT SERVICES, as may be required by the Customer, including
reviews of prospective reinsured's claim operations preliminary
to underwriting an account, and post-underwriting audits;
(3) ANCILLARY SERVICES, including review of slip and policy wordings,
evaluation of the reinsured's catastrophe response plan, and such
other services as Customer and IRISC agree that IRISC shall
provide.
(b) IRISC will adhere to applicable contractual, legal and regulatory
obligations and shall otherwise maintain standards at least equal, in
all material respects, to generally accepted reinsurance industry
practices.
(c) IRISC Services do not include any actuarial services or assessment of
the ultimate amount of loss and expense projected to develop from the
Portfolio.
(d) IRISC will maintain management and staffing at levels necessary to
provide the Services in accordance with Customer contractual
obligations, regulatory requirements and generally accepted industry
standards.
Section 4. Customer's Obligations. Customer shall:
(a) in no event require IRISC to provide Services that are not in
accordance with all applicable contractual, legal and regulatory
obligations;
(b) deliver and or make available all files, records, accounts, documents
and other information necessary for IRISC to carry out its obligations
under this Agreement.
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<PAGE>
Section 5. Books and Records - Access and Ownership.
(a) IRISC shall keep and provide to Customer, in a manner and form
approved by and acceptable to Customer and IRISC, true and complete
records of all business conducted under and pursuant to this
Agreement, which (together with all other information related to
Customer) shall be separate and apart from other records and
information of IRISC, and shall make available for examination and
inspection to duly authorized representatives of the Customer, at any
time during ordinary business hours upon reasonable notice, all such
records and information.
(b) Any records and information maintained by IRISC pursuant to this
Agreement, whether in written or electronic form, shall, subject to
the property rights of any third person, remain the property of
Customer and shall be delivered to Customer or its designee
immediately upon termination of this Agreement, along with any and all
files, programs, systems, data, input materials and output materials,
the media upon which they are located (including cards, tapes, discs
and other storage facilities), and all software programs or packages
(together with any related documentation, source code or codes, object
codes, upgrades, revisions, modifications, and any related materials)
which may be necessary or useful to assist in the use of such records
and information. In the event that a dispute arises between Customer
and IRISC, IRISC shall have the right at any time after any
termination of this Agreement to inspect the relevant records and
information of Customer, in so far as they relate to the dispute, and
to make copies thereof or extracts therefrom; provided that the
foregoing shall not be deemed to supersede any discovery rights
otherwise available to IRISC or Customer.
Section 6. Service Fees and Expenses.
(a) Customer agrees to pay IRISC, in consideration of the Services
provided, fees as set forth in Schedule A.
(b) Customer also agrees to reimburse IRISC for reasonable Services-
related travel expenses at cost if such travel has been requested by
the Customer.
(c) Billing for the Base Level (as defined in Schedule A hereof) will be
transmitted to Customer on or before the fifteenth day of the month
preceding each quarter. Billing for Services performed in 1993 shall
be
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<PAGE>
transmitted on the date hereof. Billings for expenses and Excess
Support (as defined in Schedule A hereof) will be transmitted to
Customer on or before the fifteenth business day after the end of the
month in which the Excess Support was rendered and expenses incurred
by IRISC. Remittance by Customer shall be due within thirty days of
transmission of the relevant billing (as described in Schedule A
hereof), by wire transfer to an account to be specified by IRISC.
Interest shall be payable on late payments at the rate of one half of
one percent per month for each subsequent month or fraction of month
thereof after the due date until payment has been received by IRISC.
Section 7. Loss & Allocated Expense. It is hereby understood and
agreed by Customer that the Fees and expenses described in Section 6 do not
include loss payments or Allocated Expenses. Loss and Allocated Expense
payments will be paid by the Customer.
Section 8. Reports to Customer. IRISC shall make periodic reports in
connection with the Services it provides for Customer, in a manner and form
approved by and acceptable to Customer and IRISC.
Section 9. Computer Software, Hardware. IRISC shall supply the
hardware and Customer shall provide the software necessary to process
information in order to provide the Services specified under Section 3(a)(1)
through (4). Customer will reimburse IRISC for hardwares and telecommunications
costs associated with services provided under this Agreement. Hardware
purchases shall be submitted to the Customer for a prior approval.
Section 10. Indemnification.
(a) If, in connection with any Services, IRISC or any of its employees or
agents becomes involved as a defendant in any action or legal proceeding
brought by a third party, Customer agrees to indemnify and hold IRISC, its
employees or agents harmless against all damages, claims, losses, fines,
penalties, disputes, and liabilities, whether legal or otherwise, including
reasonable attorney's fees and other costs of defense; provided, however,
that Customer shall not be liable under the foregoing indemnity agreement
to the extent that the conduct of IRISC, its employees or agents which is
the subject of the action or proceeding was wilfully negligent, reckless,
fraudulent or involved willful misconduct. The provisions of this
subsection shall survive the expiration or termination of this Agreement,
including any extension thereof.
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(b) If Customer, any of its affiliates or any director, officer or employee
of Customer or any of its affiliates (collectively, "Customer Parties")
becomes involved as a defendant in any action or legal proceeding brought
by a third party in connection with any services that are the subject of
this Agreement, IRISC agrees to indemnify and hold the Customer Parties
harmless against all damages, claims, losses, fines, penalties, disputes
and liabilities, including reasonable attorney's fees and other costs of
defense incurred by the Customer Parties in connection therewith; provided,
however, that IRISC shall be liable under the foregoing indemnity agreement
only to the extent that the action or proceeding is related to or arises
out of conduct of IRISC, its employees or agents that was wilfully
negligent, reckless or fraudulent or involved willful misconduct. The
provision of this subsection shall survive the expiration or termination of
this Agreement, including any extensions thereof.
Section 11. Assignment. Neither party may assign or transfer this
Agreement to any person, firm, or corporation other than a parent, subsidiary,
or affiliate without the written consent of the other party. This Agreement
shall be binding upon the parties, their heirs, legal representatives,
successors and assigns.
Section 12. Applicable Law. This Agreement will be construed under the
laws of Bermuda.
Section 13. Enforceability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if the invalid
or unenforceable provisions had been omitted.
Section 14. No Implied Waiver. The failure of any party to enforce any
of the provisions herein shall not be construed to be a waiver of the right of
such party to enforce any such provision.
Section 15. Independent Contractor. IRISC shall act as an independent
contractor in providing Services to Customer hereunder, and, except as expressly
provided herein, not as an agent of Customer. Neither this Service Agreement
nor the performance thereof by IRISC shall create nor be deemed to create any
employer-employee, joint venture or partnership relationship between any of
IRISC or any affiliate, officer, director or employee thereof, on the one hand,
and any of Customer or any affiliate, officer, director or employee thereof, on
the other hand.
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<PAGE>
Section 16. Force Majeure. Neither party shall be liable for any delay
or failure to meet its obligations (other than payment of IRISC Service Fees and
Expenses) under this Agreement due to any cause outside its reasonable control
including (without limitation) Acts of God, war, riot, malicious acts of damage,
civil commotion, industrial dispute (other than a dispute involving solely the
employees of the party in question), refusal of license, power failure, fire,
explosion, or the lack of availability of materials.
Section 17. Conflicts of Interest. Customer acknowledges that IRISC and
its affiliates have interests, dealings and commitments that may conflict with
the interests of Customer or the duties owed by IRISC to the Customer in
connection with the Services to be provided under this Agreement. Customer
agrees that IRISC may without prior reference to Customer take action or refrain
from acting under this Agreement notwithstanding any such conflict. Neither
IRISC nor any affiliate will be liable to account to Customer for any profit or
remuneration made or received from or by reason of any appointment, dealings or
arrangements whatsoever that may give rise to any such conflict and IRISC's fees
under this Agreement shall not be abated thereby.
Section 18. Confidentiality.
(a) IRISC agrees that it will not disclose or use for any purpose outside
the scope of this Agreement proprietary and confidential information
provided to it by Customer unless and until such information (i)
becomes public knowledge other than through disclosure by IRISC or
(ii) is subpoenaed or otherwise required by an authorized governmental
authority. In the event that IRISC determines that it is required to
provide any such information, it shall promptly provide notice to
Customer.
(b) IRISC's obligations under this Section shall continue after this
Agreement terminates.
Section 19. Arbitration/Litigation. If any irreconcilable dispute shall
arise between the parties to this Agreement, such dispute shall be submitted to
binding arbitration upon the request of one of the parties. Each party will
choose one arbiter. The two arbiters will choose an umpire. The arbiters will
be active or retired, disinterested executive officers of insurance or
reinsurance companies. Each party will pay the fee of its arbiter and one-half
the fee of the umpire. Remaining costs of arbitration will be paid as the
written decision directs. Arbitration will take place in _______________
-7-
<PAGE>
in accordance with the rules and procedures of the American Arbitration
Association; provided, however, that, where a party to this Agreement is sued by
a third party, such party to this Agreement can assert a cross-complaint,
counterclaim, interpleader or other similar action against the other party to
this Agreement in the court where the third party suit is filed.
Section 20. Notices. Any notice required under this Agreement shall be
sent, in writing, by certified or registered mail, postage prepaid, return
receipt requested, by facsimile, by courier service or shall be hand delivered
to the respective parties as follows:
LASALLE RE LIMITED
Cumberland House
1 Victoria Street
P.O. Box HM 1502
Hamilton HM CX
Bermuda
Attn: ___________________
Telephone: (809) 292-3339
Facsimile: (809) 292-2656
INTEGRATED RUNOFF INSURANCE SERVICES CORPORATION
8 Centre Drive
P.O. Box 195
Jamesburg, N.J. 08831
Attn: Peter D. Johnson, President
Telephone: (609) 655-8383
Facsimile: (609) 655-0503
Section 21. Section Headings. The division of this Agreement into
sections and the addition of section headings are for convenience only and shall
not affect the interpretation or construction of this Agreement.
Section 22. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and one and the same
instrument. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to provide or account for the other counterpart(s).
Section 23. Definitions.
"Allocated Expense" means fees, costs and expenses related to independent
adjusters and investigators, physical damage inspectors, experts,
witnesses, attorneys, taxed court costs, post-judgement interest, statutory
penalties, and other reasonable and necessary fees, costs and expenses
incurred in connection with the investigation, defense and settlement of
claims and pursuit of reinsurance recoveries,
-8-
<PAGE>
but does not include IRISC salaries, benefits, administrative or normal
overhead costs.
"Portfolio" means the book of excess and participating treaty and
facultative reinsurance agreements underwritten by Customer.
"Services" means administrative services provided by IRISC which fall into
the categories specified in Section 3(1) through (4).
Section 23. Entire Agreement. The provisions set out herein constitute
the whole and entire Agreement between Customer and IRISC, the parties hereto,
and may be altered only by mutual agreement, reduced to writing and executed by
authorized officers of both parties. There are merged herein all prior
representations, promises and conditions, whether oral or written, in connection
with the subject matter hereof. Any representation, promise or condition not
incorporated herein shall not be binding upon the parties.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
INTEGRATED RUNOFF INSURANCE SERVICES CORPORATION
Michael D. O'Halleran
By: ____________________________________________
Chairman
Its: ___________________________________________
LASALLE RE LIMITED
Alan N. Colner
By: ____________________________________________
Director
Its: ___________________________________________
-9-
<PAGE>
SCHEDULE A
----------
IRISC FEES
IRISC shall dedicate a base level of dedicated support (the "Base Level") to the
provision of Services for Customer. The Base Level shall constitute up to four-
hundred and fifty (450) hours of service per year. In respect of the Base Level,
the annual fee shall be U.S.$50,000, payable quarterly in advance. This fee
shall be subject to a 5.5% annual increase each January 1, commencing January 1,
1995. For Services performed in 1993, Customer shall pay IRISC the amount of
U.S.$ 4,166.66, the prorated fee at the rate of U.S.$50,000 per year from
December 1, 1993 to December 31, 1993.
In the event that additional IRISC resources are required, in excess of the Base
Level, to provide support following a loss, or to conduct audits, or to maintain
agreed service standards as a consequence of generally increased workloads
("Excess Support"), IRISC fees for such services shall be payable on an hourly
basis in accordance with Annex 1 to this Schedule. IRISC shall obtain Customer's
approval before providing such additional resources. IRISC shall provide a
reconciliation of any such Excess Support and the Base Level of support and the
calendar year ending during the term of this Agreement. The Customer shall pay
IRISC for any applicable Excess Support within 30 days of presentation of the
relevant billing.
-10-
<PAGE>
ANNEX 1
-------
EXCESS SUPPORT FEES
-------------------
A. Staffing level Hourly rate (U.S.$)
-------------- -------------------
Adjuster 90.00
Manager/AVP 115.00
Vice President 180.00
Senior Vice President 200.00
President/CEO 250.00
Clerical Support 45.00
B. Hourly fees shall increase by five and one half percent (5.5%) on each
anniversary date of this Agreement.
-11-
<PAGE>
Exhibit 10.12
FIRST AMENDMENT, dated as of September 25, 1996 (this "Amendment"), to the
Credit Agreement, dated as of December 1, 1995, among LASALLE RE HOLDINGS
LIMITED, a Bermuda company (the "Borrower"), the several banks and other
financial institutions from time to time parties to this Agreement
(collectively, the "Lenders"; individually, a "Lender") and THE CHASE MANHATTAN
BANK (formerly known as CHEMICAL BANK), a New York banking corporation, as
administrative agent for the Lenders hereunder.
WITNESSETH:
----------
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower, and
WHEREAS, the Borrower has requested, and, upon this Amendment becoming
effective, the Required Lenders have agreed, that certain provisions of the
Credit Agreement be amended in the manner provided for in this Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. Defined Terms. Terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.
II. Amendment to Credit Agreement.
1. Amendment to Subsection 6.7. Subsection 6.7 of the Credit Agreement is
hereby amended by (a) deleting in its entirety clause (ii) thereof and
substituting in lieu thereof the following:
"(ii) (A) LaSalle Re may pay a cash dividend on its common shares
immediately prior to December 31, 1995 in an aggregate amount not to
exceed $25,000,000, and (B) the Borrower or LaSalle Re may make a
share repurchase of its common shares immediately prior to December
31, 1996 in an aggregate amount not to exceed $50,000,000 and"
and (b) deleting in its entirety the proviso of clause (iii) thereof and
substituting in lieu thereof the following:
";provided that the Borrower or LaSalle Re may make a Restricted
Payment on its common shares when (A) the Consolidated Tangible Net
Worth resulting after such Restricted Payment would be at least (1)
during calendar year 1996,
<PAGE>
2
$350,000,000, (2) during calendar years 1997 and 1998, $375,000,000,
and (3) thereafter, $400,000,000 and (B) the aggregate Restricted
Payments, resulting after such Restricted Payment, made pursuant to
this clause (iii) during any fiscal quarter of the Borrower would not
exceed 12.5% of the Consolidated Net Income of the Borrower for the
immediately preceding fiscal year".
III. Conditions to Effectiveness. This Amendment shall become effective on
the date (the "Amendment Effective Date") on which the following condition
precedent has been satisfied or waived:
1. The Borrower, the Agent and the Required Lenders shall have executed
and delivered this Amendment to the Agent.
IV. General.
1. Representations and Warranties. To induce the Agent and the Lenders
parties hereto to enter into this Amendment, the Borrower hereby represents and
warrants to the Agent and all of the Lenders as of the Amendment Effective Date
that:
(a) Financial Condition. (1) The audited consolidated balance sheet of
the Borrower and its consolidated Subsidiaries as at September 30, 1995 and the
related audited consolidated statements of income and of cash flows for the
fiscal year ended on such date, copies of which have heretofore been furnished
to each Lender, are complete and correct and present fairly the consolidated
financial condition of the Borrower and its consolidated Subsidiaries as at such
date, and the consolidated results of their operations and their consolidated
cash flows for the fiscal year then ended.
(2) The unaudited consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at December 31, 1995, March 31, 1996 and June 30,
1996, and the related unaudited consolidated statements of income and of cash
flows for the three-, six- and nine-month periods ended on each such date,
certified by a Responsible Officer, copies of which have heretofore been
furnished to each Lender, are complete and correct and present fairly the
consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at such dates, and the consolidated results of their operations
and their consolidated cash flows for the three-, six- and nine-month periods
then ended (subject to normal year-end audit adjustments).
(3) All such financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed therein).
(b) Corporate Power; Authorization; Enforceable Obligations.
(1) The Borrower has the corporate power and authority, and the legal
right, to make, deliver this Amendment and to perform the Loan Documents to
which it is a party, as amended by this Amendment, and has taken all necessary
corporate action to authorize the
<PAGE>
3
execution, delivery and performance of this Amendment and the performance of
such Loan Documents, as so amended.
(2) No consent or authorization of, approval by, notice to, filing with or
other act by or in respect of, any Governmental Authority or any other Person is
required in connection with the execution and delivery of this Amendment or with
the performance, validity or enforceability of the Loan Documents to which it is
a party, as amended by this Amendment.
(3) This Amendment has been duly executed and delivered on behalf of the
Borrower.
(4) This Amendment and each Loan Document to which it is a party, as
amended by this Amendment, constitutes a legal, valid and binding obligation of
the Borrower enforceable against the Borrower in accordance with its terms,
except as affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting the
enforcement of creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an implied covenant
of good faith and fair dealing.
(c) No Legal Bar. The execution, delivery and performance of this Amendment
and the performance of the Loan Documents, as amended by this Amendment, will
not violate any Requirement of Law or Contractual Obligation of the Borrower or
of any of its Subsidiaries and will not result in, or require, the creation or
imposition of any Lien on any of its or their respective properties or revenues
pursuant to any such Requirement of Law or Contractual Obligation.
(d) Representations and Warranties. The representations and warranties made
by the Borrower in the Loan Documents are true and correct in all material
respects on and as of the Amendment Effective Date, before and after giving
effect to the effectiveness of this Amendment, as if made on and as of the
Amendment Effective Date.
2. Payment of Expenses. The Borrower agrees to pay or reimburse the Agent
for all of its out-of-pocket costs and reasonable expenses incurred in
connection with this Amendment, any other documents prepared in connection
herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the Agent.
3. No Other Amendments; Confirmation. Except as expressly amended, modified
and supplemented hereby, the provisions of the Credit Agreement are and shall
remain in full force and effect.
4. Governing Law; Counterparts. (a) This Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties to this
Agreement on any number of separate counterparts, and all of said counterparts
taken together
<PAGE>
4
shall be deemed to constitute one and the same instrument. A set of the copies
of this Amendment signed by all the parties shall be lodged with the Borrower
and the Agent. This Amendment may be delivered by facsimile transmission of the
relevant signature pages hereof.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
LASALLE RE HOLDINGS LIMITED
By: /s/ Andrew Cook
---------------------------------
Title: CFO & Treasurer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ Heather Lindstrom
---------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Sam Bridges
---------------------------------
Title: First Vice President
MELLON BANK, N.A.
By: /s/ Karen E. McConomy
---------------------------------
Title: Banking Officer
FLEET NATIONAL BANK
By: /s/ Thomas E. McKinley
---------------------------------
Title: Senior Vice President
CITIBANK, N.A.
By: /s/ A.C. Fowler
---------------------------------
Title: Vice President
<PAGE>
Exhibit 10.13
LASALLE RE HOLDINGS LIMITED
1996 LONG-TERM INCENTIVE PLAN
-----------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
SECTION 1 ................................................. 1
GENERAL............................................... 1
1.1. Purpose....................................... 1
1.2. Participation................................. 1
1.3. Operation and Administration.................. 2
SECTION 2.................................................. 2
OPTIONS............................................... 2
2.1. Definition.................................... 2
2.2. Eligibility................................... 2
2.3. Price......................................... 2
2.4. Exercise...................................... 3
2.5. Post-Exercise Limitations..................... 3
2.6. Expiration Date............................... 3
2.7. Reload Provision.............................. 4
SECTION 3.................................................. 4
STOCK APPRECIATION RIGHTS............................. 4
3.1. Definition.................................... 4
3.2. Eligibility................................... 4
3.3. Exercise...................................... 5
3.4. Settlement of Award........................... 5
3.5. Post-Exercise Limitations..................... 5
3.6. Expiration Date............................... 6
3.7. Limited Stock Appreciation Rights............. 6
SECTION 4.................................................. 7
RESTRICTED STOCK...................................... 7
4.1. Definition.................................... 7
4.2. Eligibility................................... 8
4.3. Terms and Conditions of Awards................ 8
SECTION 5.................................................. 9
PERFORMANCE STOCK..................................... 9
5.1. Definition.................................... 9
5.2. Eligibility................................... 9
SECTION 6.................................................. 9
STOCK PURCHASE PROGRAM................................ 9
6.1. Purchase of Stock............................. 9
6.2. Matching Shares............................... 9
6.3. Restrictions on Shares........................ 10
SECTION 7.................................................. 10
PERFORMANCE UNITS..................................... 10
7.1. Definition.................................... 10
7.2. Eligibility................................... 10
7.3. Terms and Conditions of Awards................ 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7.4. Settlement.................................. 10
7.5. Termination during Performance Period....... 11
SECTION 8................................................ 11
OPERATION AND ADMINISTRATION........................ 11
8.1. Effective Date.............................. 11
8.2. Shares Subject to Plan...................... 12
8.3. Adjustments to Shares....................... 12
8.4. Limit on Distribution....................... 14
8.5. Withholding................................. 15
8.6. Transferability............................. 15
8.7. Administration.............................. 15
8.8. Notices..................................... 15
8.9. Form and Time of Elections.................. 15
8.10. Agreement With Company..................... 16
8.11. Limitation of Implied Rights............... 16
8.12. Evidence................................... 16
8.13. Action by Company or Related Company....... 16
8.14. Gender and Number.......................... 17
SECTION 9................................................ 17
CHANGE IN CONTROL................................... 17
9.1. Acceleration................................ 17
SECTION 10............................................... 17
COMMITTEE........................................... 17
10.1. Selection of Committee..................... 17
10.2. Powers of Committee........................ 18
10.3. Delegation by Committee.................... 18
10.4. Information to be Furnished to Committee... 19
10.5. Liability and Indemnification of Committee. 19
SECTION 11............................................... 19
AMENDMENT AND TERMINATION........................... 19
SECTION 12............................................... 19
DEFINED TERMS............................................ 19
</TABLE>
ii
<PAGE>
LASALLE RE HOLDINGS LIMITED
1996 LONG-TERM INCENTIVE PLAN
-----------------------------
SECTION 1
---------
GENERAL
-------
1.1. Purpose. The LaSalle Re Holdings Limited 1996 Long-Term Incentive
Plan (the "Plan") has been established by LaSalle Re Holdings Limited (the
"Company") to:
(a) attract and retain employees and other persons providing services to the
Company and the Related Companies;
(b) motivate Participants, by means of appropriate incentives, to achieve long-
range goals;
(c) provide incentive compensation opportunities that are competitive with those
of other major corporations; and
(d) further identify Participants' interests with those of the Company's other
shareholders through compensation that is based on the Company's common
stock;
and thereby promote the long-term financial interest of the Company and the
Related Companies, including the growth in value of the Company's equity and
enhancement of long-term shareholder return.
1.2. Participation. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Individuals, those persons who will be granted one or more Awards under
the Plan, and thereby become "Participants" in the Plan. In the discretion of
the Committee, and subject to the terms of the Plan, a Participant may be
granted any Award permitted under the provisions of the Plan, and more than one
Award may be granted to a Participant. Except as otherwise agreed by the Company
and the Participant, or except as otherwise provided in the Plan, an Award under
the Plan shall not affect any previous Award under the Plan or an award under
any other plan maintained by the Company or the Related Companies. For purposes
of the Plan, the term "Eligible Individual" shall mean any employee of the
Company or a Related Company, and any other person providing services to the
Company or a Related Company; provided, however, that a member of the Board of
Directors of the Company who is not an employee of the Company or a Related
Company shall not be an "Eligible Individual".
<PAGE>
1.3. Operation and Administration. The operation and administration of the
Plan, including the Awards made under the Plan, shall be subject to the
provisions of Section 8 (relating to operation and administration). Capitalized
terms in the Plan shall be defined as set forth in the Plan (including the
definition provisions of Section 12 of the Plan).
SECTION 2
---------
OPTIONS
-------
2.1. Definitions. The grant of an "Option" under this Section 2 entitles
the Participant to purchase shares of Stock at a price fixed at the time the
Option is granted, or at a price determined under a method established at the
time the Option is granted, subject to the terms of this Section 2. Options
granted under this Section 2 may be either Incentive Stock Options or Non-
Qualified Stock Options, as determined in the discretion of the Committee. An
"Incentive Stock Option" is an Option that is intended to satisfy the
requirements applicable to an "incentive stock option" described in section
422(b) of the Code. A "Non-Qualified Option" is an Option that is not intended
to be an "incentive stock option" as that term is described in section 422(b) of
the Code.
2.2. Eligibility. The Committee shall designate the Participants to whom
Options are to be granted under this Section 2 and shall determine the number of
shares of Stock to be subject to each such Option. To the extent that the
aggregate fair market value of Stock with respect to which Incentive Stock
Options are exercisable for the first time by any individual during any calendar
year (under all plans of the Company and all Related Companies) exceeds
$100,000, such options shall be treated as Non-Qualified Stock Options, to the
extent required by section 422 of the Code.
2.3. Price. The determination and payment of the purchase price of a share
of Stock under each Option granted under this Section 2 shall be subject to the
following:
(a) The purchase price shall be established by the Committee or shall be
determined by a method established by the Committee at the time the Option
is granted; provided, however, that in no event shall such price be less
than the par value of a share of Stock on such date.
(b) Subject to the following provisions of this subsection 2.3, the full
purchase price of each share of Stock purchased upon the exercise of any
Option shall be paid at the time of such exercise and, as soon as
practicable thereafter, a
2
<PAGE>
certificate representing the shares so purchased shall be delivered to the
person entitled thereto.
(c) The purchase price shall be payable in cash or in shares of Stock (valued
at Fair Market Value as of the day of exercise), or in any combination
thereof, as determined by the Committee.
(d) A Participant may elect to pay the purchase price upon the exercise of an
Option through a cashless exercise arrangement to the extent provided by
the Committee.
2.4. Exercise. Except as otherwise expressly provided in the Plan, an
Option granted under this Section 2 shall be exercisable in accordance with the
following terms of this subsection 2.4:
(a) The terms and conditions relating to exercise of an Option shall be
established by the Committee, and may include, without limitation,
conditions relating to completion of a specified period of service (subject
to paragraph 2.4(b)), achievement of performance standards prior to
exercise of the Option, or achievement of Stock ownership objectives by the
Participant.
(b) No Option may be exercised by a Participant: (i) prior to the date on which
the Participant completes one continuous year of employment with the
Company or any Related Company after the date as of which the Option is
granted (provided, however, that the Committee may permit earlier exercise
following the Participant's Date of Termination by reason of death or
Disability); or (ii) after the Expiration Date applicable to that Option.
(c) The exercise of an Option will result in the surrender of the corresponding
rights under a tandem Stock Appreciation Right, if any.
2.5. Post-Exercise Limitations. The Committee, in its discretion, may
impose such restrictions on shares of Stock acquired pursuant to the exercise of
an Option (including stock acquired pursuant to the exercise of a tandem Stock
Appreciation Right) as it determines to be desirable, including, without
limitation, restrictions relating to disposition of the shares and forfeiture
restrictions based on service, performance, Stock ownership by the Participant,
and such other factors as the Committee determines to be appropriate.
2.6. Expiration Date. The "Expiration Date" with respect to an Option
means the date established as the Expiration Date by the Committee at the time
of the grant; provided, however, that
3
<PAGE>
the Expiration Date with respect to any Option shall not be later than the
earliest to occur of:
(a) the ten-year anniversary of the date on which the Option is granted;
(b) if the Participant's Date of Termination occurs by reason of death or
Disability, the one-year anniversary of such Date of Termination;
(c) if the Participant's Date of Termination occurs by reason of Retirement,
the three-year anniversary of such Date of Termination; or
(d) if the Participant's Date of Termination occurs for reasons other than
Retirement, death or Disability, the three-month anniversary of such Date
of Termination.
2.7. Reload Provision. In the event the Participant exercises an Option
and pays all or a portion of the purchase price in Stock, in the manner
permitted by subsection 2.3, such Participant (either pursuant to the terms of
the Option Award, or pursuant to the exercise of Committee discretion at the
time the Option is exercised) may be issued a new Option to purchase additional
shares of Stock equal to the number of shares of Stock surrendered to the
Company in such payment. Such new Option shall have an exercise price equal to
the Fair Market Value per share on the date such new Option is granted, shall
first be exercisable six months from the date of grant of the new Option and
shall have an Expiration Date on the same date as the Expiration Date of the
original Option so exercised by payment of the purchase price in shares of
Stock.
SECTION 3
---------
STOCK APPRECIATION RIGHTS
-------------------------
3.1. Definition. Subject to the terms of this Section 3, a Stock
Appreciation Right granted under the Plan entitles the Participant to receive,
in cash or Stock (as determined in accordance with subsection 3.4), value equal
to all or a portion of the excess of: (a) the Fair Market Value of a specified
number of shares of Stock at the time of exercise; over (b) a specified price
which shall not be less than 100% of the Fair Market Value of the Stock at the
time the Stock Appreciation Right is granted, or, if granted in tandem with an
Option, the exercise price with respect to shares under the tandem Option.
3.2. Eligibility. Subject to the provisions of the Plan, the Committee
shall designate the Participants to whom Stock Appreciation Rights are to be
granted under the Plan, shall
4
<PAGE>
determine the exercise price or a method by which the price shall be established
with respect to each such Stock Appreciation Right, and shall determine the
number of shares of Stock on which each Stock Appreciation Right is based. A
Stock Appreciation Right may be granted in connection with all or any portion of
a previously or contemporaneously granted Option or not in connection with an
Option. If a Stock Appreciation Right is granted in connection with an Option
then, in the discretion of the Committee, the Stock Appreciation Right may, but
need not, be granted in tandem with the Option.
3.3. Exercise. The exercise of Stock Appreciation Rights shall be subject
to the following:
(a) If a Stock Appreciation Right is not in tandem with an Option, then the
Stock Appreciation Right shall be exercisable in accordance with the terms
established by the Committee in connection with such rights; and may
include, without limitation, conditions relating to completion of a
specified period of service, achievement of performance standards prior to
exercise of the Stock Appreciation Rights, or achievement of objectives
relating to Stock ownership by the Participant. However, except as
otherwise expressly provided in the Plan, no Stock Appreciation Right
subject to this paragraph (a) may be exercised by a Participant (i) prior
to the date on which the Participant completes one continuous year of
employment with the Company and the Related Companies after the date as of
which the Stock Appreciation Right is granted (provided, however, that the
Committee may permit earlier exercise following the Participant's Date of
Termination by reason of death or Disability); or (ii) after the Expiration
Date applicable to that Stock Appreciation Right.
(b) If a Stock Appreciation Right is in tandem with an Option, then the Stock
Appreciation Right shall be exercisable at the time the tandem Option is
exercisable. The exercise of a Stock Appreciation Right will result in the
surrender of the corresponding rights under the tandem Option.
3.4. Settlement of Award. Upon the exercise of a Stock Appreciation
Right, the value to be distributed to the Participant, in accordance with
subsection 3.1, shall be distributed in shares of Stock (valued at their Fair
Market Value at the time of exercise), in cash, or in a combination thereof, in
the discretion of the Committee.
3.5. Post-Exercise Limitations. The Committee, in its discretion, may
impose such restrictions on shares of Stock acquired pursuant to the exercise of
a Stock Appreciation Right as it determines to be desirable, including, without
limitation,
5
<PAGE>
restrictions relating to disposition of the shares and forfeiture restrictions
based on service, performance, ownership of Stock by the Participant, and such
other factors as the Committee determines to be appropriate.
3.6. Expiration Date. If a Stock Appreciation Right is in tandem with an
Option, then the "Expiration Date" for the Stock Appreciation Right shall be the
Expiration Date for the related Option. If a Stock Appreciation Right is not in
tandem with an Option, then the "Expiration Date" for the Stock Appreciation
Right shall be the date established as the Expiration Date by the Committee;
provided, however, that subject to the following provisions of this subsection
3.6, the Expiration Date with respect to any Stock Appreciation Right shall not
be later than the earliest to occur of:
(a) the ten-year anniversary of the date on which the Stock Appreciation Right
is granted;
(b) if the Participant's Date of Termination occurs by reason of death or
Disability, the one-year anniversary of such Date of Termination; or
(c) if the Participant's Date of Termination occurs by reason of Retirement,
the three-year anniversary of such Date of Termination; or
(d) if the Participant's Date of Termination occurs by reason other than
Retirement, death or Disability, the three-month anniversary of such Date
of Termination.
3.7. Limited Stock Appreciation Rights. The Committee may grant Limited
Stock Appreciation Rights. Notwithstanding the foregoing provisions of this
Section 3, Limited Stock Appreciation Rights shall be subject to the following:
(a) A Limited Stock Appreciation Right may (but need not) be granted in
connection with all or any portion of a previously or contemporaneously
granted Option. A Limited Stock Appreciation Right may be granted in
tandem with an Option regardless of whether the Option is in tandem with a
Stock Appreciation Right.
(b) A Limited Stock Appreciation Right entitles the Participant to receive a
cash payment in connection with a Change in Control, determined as follows:
(i) In the case of a Limited Stock Appreciation Right that is in tandem
with an Option, the payment amount shall be equal to the difference
between the exercise price per share of the Stock covered by the
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tandem Option and the Market Price of a share of Stock.
(ii) In the case of a Limited Stock Appreciation Right that is not in
tandem with an Option, the payment amount shall be equal to the
difference between (A) the Fair Market Value of the Stock at the
time of grant of the Limited Stock Appreciation Right, or the
average Stock value over a period of up to six months prior to the
date of the Change in Control; and (B) the Market Price of a share
of Stock.
(c) To the extent provided by the Committee, a Limited Stock Appreciation Right
may be automatically exercisable at a time determined by the Committee, or
it may be exercised by the Participant during the period beginning not
earlier than the date of a Change in Control, and ending not later than the
seven-month anniversary of the date of the Change in Control, and may be
exercisable regardless of whether the Participant is then employed (or
otherwise providing services to) the Company or a Related Company.
(d) If the Limited Stock Appreciation Right is in tandem with an Option, the
exercise of the Limited Stock Appreciation Right shall result in the
cancellation of the tandem Option (and any Stock Appreciation Right in
tandem with such Option).
(e) For purposes of this subsection 3.7, the term "Market Price" shall mean the
greater of (i) the highest price per share of Stock paid in connection with
the Change in Control; and (ii) the highest price per share of Stock as
reported on the Composite Transaction Reporting System on the New York
Stock Exchange during a period beginning not earlier than 90 days prior to
the Change in Control and ending not later than the date of exercise of the
Limited Stock Appreciation Right, as determined by the Committee.
SECTION 4
---------
RESTRICTED STOCK
----------------
4.1. Definition. Subject to the terms of this Section 4, Restricted Stock
Awards under the Plan are grants of Stock to Participants, the vesting of which
is subject to such conditions as may be established by the Committee, with some
or all of those conditions relating to events (such as performance or continued
employment) occurring after the date of grant. To the extent that vesting of a
Restricted Stock Award is contingent on continued employment, the required
employment period shall not be less than one year following the grant of the
Award. The period beginning on the date of grant of Restricted Stock and ending
on
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the vesting or forfeiture of such stock is referred to as the "Restricted
Period".
4.2. Eligibility. The Committee shall designate the Participants to whom
Restricted Stock is to be granted, and the number of shares of Stock that are
subject to each such Award. The Award of shares under this Section 4 may, but
need not, be made in conjunction with a cash-based incentive compensation
program maintained by the Company, and may, but need not, be in lieu of cash
otherwise awardable under such program.
4.3. Terms and Conditions of Awards. Shares of Restricted Stock granted to
Participants under the Plan shall be subject to the following terms and
conditions:
(a) Except as otherwise hereinafter provided, Restricted Stock granted to
Participants may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Restricted Period. Except for such restrictions, the
Participant as owner of such shares shall have all the rights of a
shareholder, including but not limited to the right to vote such shares
and, except as otherwise provided by the Committee, the right to receive
all dividends paid on such shares.
(b) Except as otherwise determined by the Committee, a Participant whose Date
of Termination occurs prior to the end of the Restricted Period for any
reason shall forfeit all shares of Restricted Stock remaining subject to
any outstanding Restricted Stock Award.
(c) Each certificate issued in respect of shares of Restricted Stock granted
under the Plan shall be registered in the name of the Participant and, at
the discretion of the Committee, each such certificate may be deposited in
a bank designated by the Committee. Each such certificate shall bear the
following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the LaSalle Re Holdings Limited 1996 Long-
Term Incentive Plan and an agreement entered into between the
registered owner and LaSalle Re Holdings Limited. A copy of such plan
and agreement is on file in the office of the Secretary of LaSalle Re
Holdings Limited, #25 Church Street, Hamilton, HMFX, Bermuda."
(d) Subject to the limitations of the Plan and the Award of Restricted Stock,
at the end of the Restricted Period for Restricted Stock, such Restricted
Stock will be transferred
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free of all restrictions to a Participant (or his or her legal
representative, beneficiary or heir).
SECTION 5
---------
PERFORMANCE STOCK
-----------------
5.1. Definition. Subject to the terms of this Section 5, a Performance
Stock Award provides for the distribution of Stock to a Participant upon the
achievement of performance objectives established by the Committee. For purposes
of the Plan, the "Performance Period" with respect to any Performance Stock
Award shall be the period over which the applicable performance is to be
measured.
5.2. Eligibility. The Committee shall designate the Participants to whom
Performance Stock Awards are to be granted, and the number of shares of Stock
that are subject to each such Award. The Award of shares under this Section 5
may, but need not, be made in conjunction with a cash-based incentive
compensation program maintained by the Company, and may, but need not, be in
lieu of cash otherwise awardable under such program.
SECTION 6
---------
STOCK PURCHASE PROGRAM
----------------------
6.1. Purchase of Stock. The Committee may, from time to time, establish one
or more programs under which Participants will be permitted to purchase shares
of Stock under the Plan, and shall designate the Participants eligible to
participate under such Stock purchase programs. The purchase price for shares of
Stock available under such programs, and other terms and conditions of such
programs, shall be established by the Committee. The purchase price may not be
less than the Fair Market Value of the Stock at the time of purchase (or, in the
Committee's discretion, the average Stock value over a period determined by the
Committee); provided, however, that with respect to shares of Stock purchased
under a program that does not result in an award of matching shares (as provided
in subsection 6.2), the purchase price may not be less than 50% of the Fair
Market Value of the Stock at the time of purchase (or, in the Committee's
discretion, the average Stock value over a period determined by the Committee),
and further provided that the purchase price may not be less than par value.
6.2. Matching Shares. Except as otherwise provided in subsection 6.1, any
Stock purchase program established by the Committee under this Section 6 may
provide for the award of matching shares of Stock, except that in no event shall
the
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matching rate exceed one share for each one share purchased by the Participant.
6.3. Restrictions on Shares. The Committee may impose such restrictions
with respect to shares purchased under subsection 6.1, or matching shares
awarded pursuant to subsection 6.2, as the Committee determines to be
appropriate. Such restrictions may include, without limitation, restrictions of
the type that may be imposed with respect to Restricted Stock under Section 4.
SECTION 7
---------
PERFORMANCE UNITS
-----------------
7.1. Definition. Subject to the terms of this Section 7, the Award of
Performance Units under the Plan entitles the Participant to receive value for
the units at the end of a Performance Period to the extent provided under the
Award. The number of units earned, and the value received for them, will be
contingent on the degree to which the performance measures established at the
time of grant of the Award are met. For purposes of the Plan, the "Performance
Period" with respect to the award of any Performance Units shall be the period
over which the applicable performance is to be measured.
7.2. Eligibility. The Committee shall designate the Participants to whom
Performance Units are to be granted, and the number of units to be the subject
to each such Award.
7.3. Terms and Conditions of Awards. For each Participant, the Committee
will determine the value of units, which may be stated either in cash or in
units representing shares of Stock; the performance measures used for
determining whether the Performance Units are earned; the Performance Period
during which the performance measures will apply; the relationship between the
level of achievement of the performance measures and the degree to which
Performance Units are earned; whether, during or after the Performance Period,
any revision to the performance measures or Performance Period should be made to
reflect significant events or changes that occur during the Performance Period;
and the number of earned Performance Units that will be paid in cash and/or
shares of Stock.
7.4. Settlement. Settlement of Performance Units shall be subject to the
following:
(a) The Committee will compare the actual performance to the performance
measures established for the Performance Period and determine the number of
units as to which settlement is to be made, and the value of such units.
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(b) Settlement of units earned shall be wholly in cash, wholly in Stock or in a
combination of the two, to be distributed in a lump sum or installments, as
determined by the Committee.
(i) For Performance Units stated in units representing shares of Stock
when granted, one share of Stock will be distributed for each unit
earned, or cash will be distributed for each unit earned equal to
either (A) the Fair Market Value of a share of Stock at the end of
the Performance Period or (B) the average Stock value over a period
determined by the Committee.
(ii) For Performance Units stated in cash when granted, the value of
each unit earned will be distributed in its initial cash value, or
shares of Stock will be distributed based on the cash value of the
units earned divided by (A) the Fair Market Value of a share of
Stock at the end of the Performance Period or (B) the average Stock
value over a period determined by the Committee.
(c) Shares of Stock distributed in settlement of the units shall be subject to
such vesting requirements and other conditions, if any, as the Committee
shall determine. Such vesting restrictions may include, without
limitation, restrictions of the type that may be imposed with respect to
Restricted Stock under Section 4.
7.5. Termination during Performance Period. If a Participant's Date of
Termination occurs during a Performance Period with respect to any Performance
Units granted to him, the Committee may determine that the Participant will be
entitled to settlement of all or any portion of the Performance Units as to
which he would otherwise be eligible, and may accelerate the determination of
the value and settlement of such Performance Units or make such other
adjustments as the Committee, in its sole discretion, deems desirable.
SECTION 8
---------
OPERATION AND ADMINISTRATION
----------------------------
8.1. Effective Date. Subject to the approval of the shareholders of the
Company, the Plan shall be effective as of November 27, 1995 (the "Effective
Date"); provided, however, that to the extent that Awards are made under the
Plan prior to its approval by shareholders, they shall be contingent on approval
of the Plan by the shareholders of the Company. The Plan shall be unlimited in
duration and, in the event of Plan termination,
11
<PAGE>
shall remain in effect as long as any Awards under it are outstanding; provided,
however, that no Awards may be granted under the Plan on a date that is more
than ten years from the date the Plan is adopted or, if earlier, the date the
Plan is approved by shareholders.
8.2. Shares Subject to Plan. The shares of Stock with respect to which
Awards may be made under the Plan shall be shares currently authorized but
unissued or currently held or subsequently acquired by the Company as treasury
shares, including shares purchased in the open market or in private
transactions. Subject to the provisions of subsection 8.3, the number of shares
of Stock which may be issued with respect to Awards under the Plan shall not
exceed 340,938 shares in the aggregate. Except as otherwise provided herein, any
shares subject to an Award which for any reason expires or is terminated without
issuance of shares (whether or not cash or other consideration is paid to a
Participant in respect of such shares) shall again be available under the Plan.
8.3. Adjustments to Shares.
---------------------
(a) If the Company shall effect any subdivision or consolidation of shares of
Stock or other capital readjustment, payment of stock dividend, stock
split, combination of shares or recapitalization or other increase or
reduction of the number of shares of Stock outstanding without receiving
compensation therefor in money, services or property, then the Committee
shall adjust (i) the number of shares of Stock available under the Plan;
(ii) the number of shares available under any individual or other limits;
(iii) the number of shares of Stock subject to outstanding Awards; and (iv)
the per-share price under any outstanding Award to the extent that the
Participant is required to pay a purchase price per share with respect to
the Award.
(b) If the Company is reorganized, merged or consolidated or is party to a plan
of exchange with another corporation, pursuant to which reorganization,
merger, consolidation or plan of exchange, the shareholders of the Company
receive any shares of stock or other securities or property, or the Company
shall distribute securities of another corporation to its shareholders,
there shall be substituted for the shares subject to outstanding Awards an
appropriate number of shares of each class of stock or amount of other
securities or property which were distributed to the shareholders of the
Company in respect of such shares, subject to the following:
(i) If the Committee determines that the substitution described in
accordance with the foregoing provisions of
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<PAGE>
this paragraph (b) would not be fully consistent with the purposes of the
Plan or the purposes of the outstanding Awards under the Plan, the
Committee may make such other adjustments to the Awards to the extent that
the Committee determines such adjustments are consistent with the purposes
of the Plan and of the affected Awards.
(ii) All or any of the Awards may be cancelled by the Committee on or
immediately prior to the effective date of the applicable transaction, but
only if the Committee gives reasonable advance notice of the cancellation
to each affected Participant, and only if either: (A) the Participant is
permitted to exercise the Award for a reasonable period prior to the
effective date of the cancellation; or (B) the Participant receives payment
or other benefits that the Committee determines to be reasonable
compensation for the value of the cancelled Awards.
(iii) Upon the occurrence of a reorganization of the Company or any other
event described in this paragraph (b), any successor to the Company shall
be substituted for the Company to the extent that the Company and the
successor agree to such substitution.
(c) Upon (or, in the discretion of the Committee, immediately prior to) the
sale to (or exchange with) a third party unrelated to the Company of all or
substantially all of the assets of the Company, all Awards shall be
cancelled. If Awards are cancelled under this paragraph (c), then, with
respect to any affected Participant, either:
(i) the Participant shall be provided with reasonable advance notice of the
cancellation, and the Participant shall be permitted to exercise the Award
for a reasonable period prior to the effective date of the cancellation; or
(ii) the Participant shall receive payment or other benefits that the
Committee determines to be reasonable compensation for the value of the
cancelled Awards.
The foregoing provisions of this paragraph (c) shall also apply to the sale
of all or substantially all of the assets of the Company to a related
party, if the Committee determines such application is appropriate.
(d) In determining what action, if any, is necessary or appropriate under the
foregoing provisions of this subsection 8.3, the Committee shall act in a
manner that it determines to be consistent with the purposes of the Plan
and of the affected Awards and, where applicable or
13
<PAGE>
otherwise appropriate, in a manner that it determines to be necessary to
preserve the benefits and potential benefits of the affected Awards for the
Participants and the Company.
(e) The existence of this Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Company or its shareholders to
make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting the
Company's Stock or the rights thereof, the dissolution or liquidation of
the Company, any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
(f) Except as expressly provided by the terms of this Plan, the issue by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, for cash or property or for labor or
services, either upon direct sale, upon the exercise of rights or warrants
to subscribe therefor or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to Awards
then outstanding hereunder.
(g) Awards under the Plan are subject to adjustment under this subsection 8.3
only during the period in which they are considered to be outstanding under
the Plan. For purposes of this subsection 8.3, an Award is considered
"outstanding" on any date if the Participant's ability to obtain all
benefits with respect to the Award is subject to limits imposed by the Plan
(including any limits imposed by the Agreement reflecting the Award). The
determination of whether an Award is outstanding shall be made by the
Committee.
8.4. Limit on Distribution. Distribution of shares of Stock or other
amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall have no
liability to deliver any shares of Stock under the Plan or make any other
distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity.
14
<PAGE>
(b) In the case of a Participant who is subject to Section 16(a) and 16(b) of
the Securities Exchange Act of 1934, the Committee may, at any time, add
such conditions and limitations to any Award to such Participant, or any
feature of any such Award, as the Committee, in its sole discretion, deems
necessary or desirable to comply with Section 16(a) or 16(b) and the rules
and regulations thereunder or to obtain any exemption therefrom.
(c) To the extent that the Plan provides for issuance of certificates to
reflect the transfer of shares of Stock, the transfer of such shares may be
effected on a non-certificated basis, to the extent not prohibited by
applicable law or the rules of any stock exchange.
8.5. Withholding. All Awards and other payments under the Plan are subject
to withholding of all applicable taxes, which withholding obligations may be
satisfied, with the consent of the Committee, through the surrender of shares of
Stock which the Participant already owns, or to which a Participant is otherwise
entitled under the Plan.
8.6. Transferability. Awards under the Plan are not transferable except as
designated by the Participant by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code,
Title I of the Employee Retirement Income Security Act, or the rules thereunder
(a "QDRO"). To the extent that the Participant who receives an Award under the
Plan has the right to exercise such Award, the Award may be exercised during the
lifetime of the Participant only by the Participant.
8.7. Administration. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with Section 10.
8.8. Notices. Any notice or document required to be filed with the
Committee under the Plan will be properly filed if delivered or mailed by
registered mail, postage prepaid, to the Committee, in care of the Company, at
its principal executive offices. The Committee may, by advance written notice to
affected persons, revise such notice procedure from time to time. Any notice
required under the Plan (other than a notice of election) may be waived by the
person entitled to notice.
8.9. Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not
15
<PAGE>
inconsistent with the terms of the Plan, as the Committee shall require.
8.10. Agreement With Company. At the time of an Award to a Participant
under the Plan, the Committee may require a Participant to enter into an
agreement with the Company (the "Agreement") in a form specified by the
Committee, agreeing to the terms and conditions of the Plan and to such
additional terms and conditions, not inconsistent with the Plan, as the
Committee may, in its sole discretion, prescribe.
8.11. Limitation of Implied Rights.
----------------------------
(a) Neither a Participant nor any other person shall, by reason of the Plan,
acquire any right in or title to any assets, funds or property of the
Company or any Related Company whatsoever, including, without limitation,
any specific funds, assets, or other property which the Company or any
Related Company, in its sole discretion, may set aside in anticipation of a
liability under the Plan. A Participant shall have only a contractual right
to the amounts, if any, payable under the Plan, unsecured by any assets of
the Company and any Related Company. Nothing contained in the Plan shall
constitute a guarantee by the Company or any Related Company that the
assets of such companies shall be sufficient to pay any benefits to any
person.
(b) The Plan does not constitute a contract of employment, and selection as a
Participant will not give any employee the right to be retained in the
employ of the Company or any Related Company, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan. Except as otherwise provided in the Plan, no
Award under the Plan shall confer upon the holder thereof any right as a
shareholder of the Company prior to the date on which he fulfills all
service requirements and other conditions for receipt of such rights.
8.12. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
8.13. Action by Company or Related Company. Any action required or
permitted to be taken by the Company or any Related Company shall be by
resolution of its board of directors, or by action of one or more members of the
board (including a committee of the board) who are duly authorized to act for
the board, or (except to the extent prohibited by applicable law or the rules
16
<PAGE>
of any stock exchange) by a duly authorized officer of the company.
8.14. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
SECTION 9
---------
CHANGE IN CONTROL
-----------------
9.1. Acceleration. Subject to the provisions of subsection 8.3 (relating
to the adjustment of shares), and except as otherwise provided in the Plan or
the Agreement reflecting the applicable Award, upon the occurrence of a Change
in Control:
(a) All outstanding Options (regardless of whether in tandem with Stock
Appreciation Rights) shall become fully exercisable, except to the extent
that the right to exercise the Option is subject to any restrictions
established in connection with a Limited Stock Appreciation Right that is
in tandem with the Option.
(b) All outstanding Stock Appreciation Rights (regardless of whether in tandem
with Options) shall become fully exercisable, except that if Stock
Appreciation Rights are in tandem with an Option, and the Option is in
tandem with a Limited Stock Appreciation Right, the right to exercise the
Stock Appreciation Right shall be subject to any restrictions established
in connection with the Limited Stock Appreciation Right.
(c) All shares of Restricted Stock and Performance Stock shall become fully
vested.
(d) All vesting restrictions imposed under subsection 6.3 (relating to
restrictions on shares purchased by the Participants, and matching shares
awarded to Participants) shall cease to apply, and the Participant shall
become fully vested in those shares.
(e) Performance Units may be paid out in such manner and amounts as determined
by the Committee.
SECTION 10
----------
COMMITTEE
---------
10.1. Selection of Committee. The Committee shall be selected by the
Board, and shall consist of not less than two
17
<PAGE>
members of the Board, or such greater number as may be required for compliance
with SEC Rule 16b-3, none of whom shall be eligible to receive Awards under the
Plan.
10.2. Powers of Committee. The authority to manage and control the
operation and administration of the Plan shall be vested in the Committee,
subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select employees to receive Awards, to
determine the time or times of receipt, to determine the types of Awards
and the number of shares covered by the Awards, to establish the terms,
conditions, performance criteria, restrictions, and other provisions of
such Awards, and (subject to the restrictions imposed by Section 11) to
cancel or suspend Awards. In making such Award determinations, the
Committee may take into account the nature of services rendered by the
respective employee, his present and potential contribution to the
Company's success and such other factors as the Committee deems relevant.
(b) The Committee will have the authority and discretion to interpret the Plan,
to establish, amend, and rescind any rules and regulations relating to the
Plan, to determine the terms and provisions of any agreements made pursuant
to the Plan, and to make all other determinations that may be necessary or
advisable for the administration of the Plan.
(c) Any interpretation of the Plan by the Committee and any decision made by it
under the Plan is final and binding on all persons.
(d) Except as otherwise expressly provided in the Plan, where the Committee is
authorized to make a determination with respect to any Award, such
determination shall be made at the time the Award is made, except that the
Committee may reserve the authority to have such determination made by the
Committee in the future (but only if such reservation is made at the time
the Award is granted and is expressly stated in the Agreement reflecting
the Award).
10.3. Delegation by Committee. Except to the extent prohibited by
applicable law or the rules of any stock exchange, the Committee may allocate
all or any portion of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities and powers to
any person or persons selected by it. Any such allocation or delegation may be
revoked by the Committee at any time.
18
<PAGE>
10.4. Information to be Furnished to Committee. The Company and Related
Companies shall furnish the Committee with such data and information as may be
required for it to discharge its duties. The records of the Company and Related
Companies as to an employee's or Participant's employment (or other provision of
services), termination of employment (or cessation of the provision of
services), leave of absence, reemployment and compensation shall be conclusive
on all persons unless determined to be incorrect. Participants and other
persons entitled to benefits under the Plan must furnish the Committee such
evidence, data or information as the Committee considers desirable to carry out
the terms of the Plan.
10.5. Liability and Indemnification of Committee. No member or authorized
delegate of the Committee shall be liable to any person for any action taken or
omitted in connection with the administration of the Plan unless attributable to
his own fraud or willful misconduct; nor shall the Company or any Related
Company be liable to any person for any such action unless attributable to fraud
or willful misconduct on the part of a director or employee of the Company or
Related Company. The Committee, the individual members thereof, and persons
acting as the authorized delegates of the Committee under the Plan, shall be
indemnified by the Company against any and all liabilities, losses, costs and
expenses (including legal fees and expenses) of whatsoever kind and nature which
may be imposed on, incurred by or asserted against the Committee or its members
or authorized delegates by reason of the performance of a Committee function if
the Committee or its members or authorized delegates did not act dishonestly or
in willful violation of the law or regulation under which such liability, loss,
cost or expense arises. This indemnification shall not duplicate but may
supplement any coverage available under any applicable insurance.
SECTION 11
----------
AMENDMENT AND TERMINATION
-------------------------
The Board may, at any time, amend or terminate the Plan, provided that,
subject to subsection 6.3 (relating to certain adjustments to shares), no
amendment or termination may materially adversely affect the rights of any
Participant or beneficiary under any Award made under the Plan prior to the date
such amendment is adopted by the Board.
SECTION 12
----------
DEFINED TERMS
-------------
For purposes of the Plan, the terms listed below shall be defined as
follows:
19
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(a) Award. The term "Award" shall mean any award or benefit granted to any
Participant under the Plan, including, without limitation, the grant of Options,
Stock Appreciation Rights, Restricted Stock, Performance Stock, Stock acquired
through purchase or through matching allocations under Section 6, or Performance
Units.
(b) Board. The term "Board" shall mean the Board of Directors of the Company.
(c) Change in Control. The term "Change in Control" means a change in the
beneficial ownership of the Company's voting stock or a change in the
composition of the Board which occurs as follows:
(i) Any "person" (as such term is used in Section 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) is or becomes a beneficial
owner, directly or indirectly, of stock of the Company representing
30 percent or more of the total voting power of the Company's then
outstanding stock.
(ii) A tender offer (for which a filing has been made with the SEC which
purports to comply with the requirements of Section 14(d) of the
Securities Exchange Act of 1934 and the corresponding SEC rules) is
made for the stock of the Company, which has not been negotiated
and approved by the Board. In case of a tender offer described in
this paragraph (b), the Change in Control will be deemed to have
occurred upon the first to occur of (i) any time during the offer
when the person (using the definition in (a) above) making the
offer owns or has accepted for payment stock of the Company with 25
percent or more of the total voting power of the Company's stock or
(ii) three business days before the offer is to terminate unless
the offer is withdrawn first, if the person making the offer could
own, by the terms of the offer plus any shares owned by this
person, stock with 50 percent or more of the total voting power of
the Company's stock when the offer terminates.
(iii) Individuals who were the Board's nominees for election as directors
of the Company immediately prior to a meeting of the shareholders
of the Company involving a contest for the election of directors
shall not constitute a majority of the Board following the
election.
20
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(d) Code. The term "Code" means the United States Internal Revenue Code of
1986, as amended. A reference to any provision of the Code shall include
reference to any successor provision of the Code.
(e) Date of Termination. A Participant's "Date of Termination" shall be the
date on which he both ceases to be an employee of the Company and the
Related Companies and ceases to perform material services for the Company
and the Related Companies, regardless of the reason for the cessation;
provided that a "Date of Termination" shall not be considered to have
occurred during the period in which the reason for the cessation of
services is a leave of absence approved by the Company or the Related
Company which was the recipient of the Participant's services.
(f) Disability. Except as otherwise provided by the Committee, a Participant
shall be considered to have a "Disability" during the period in which he is
unable, by reason of a medically determinable physical or mental
impairment, to engage in any substantial gainful activity, which condition,
in the opinion of a physician selected by the Committee, is expected to
have a duration of not less than 120 days.
(g) Fair Market Value. For purposes of determining the "Fair Market Value" of
a share of Stock, the following rules shall apply:
(i) If the Stock is at the time listed or admitted to trading on any stock
exchange, then the Fair Market Value shall be the mean between the lowest
and highest reported sale prices of the Stock on the date in question on
the principal exchange on which the Stock is then listed or admitted to
trading. If no reported sale of Stock takes place on the date in question
on the principal exchange, then the reported closing asked price of the
Stock on such date on the principal exchange shall be determinative of Fair
Market Value.
(ii) If the Stock is not at the time listed or admitted to trading on a
stock exchange, the Fair Market Value shall be the mean between the lowest
reported bid price and highest reported asked price of the Stock on the
date in question in the over-the-counter market, as such prices are
reported in a publication of general circulation selected by the Committee
and regularly reporting the market price of Stock in such market.
(iii) If the Stock is not listed or admitted to trading on any stock
exchange or traded in the over-the-counter market,
21
<PAGE>
the Fair Market Value shall be as determined in good faith by the
Committee.
(h) Option. The term "Option" shall mean any Incentive Stock Option or Non-
Qualified Stock Option granted under the Plan.
(i) Related Companies. The term "Related Company" means any company during any
period in which it is a "subsidiary corporation" (as that term is defined
in Code section 424(f)) with respect to the Company.
(j) Retirement. "Retirement" of a Participant shall mean the occurrence of a
Participant's Date of Termination after providing at least five years of
service to the Company or the Related Companies and attaining age 65.
(k) SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
(l) Stock. The term "Stock" shall mean shares of common stock of the Company.
22
<PAGE>
Exhibit 10.14
LASALLE RE HOLDINGS LIMITED
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
SECTION 1............................................ 1
GENERAL............................................. 1
1.1. Purpose...................................... 1
1.2. Operation and Administration................. 1
1.3. Exemption from the Act....................... 1
SECTION 2............................................ 1
METHOD OF PURCHASE.................................. 1
2.1. Eligibility.................................. 1
2.2. Participation Election....................... 1
2.3. Change in Contribution Election.............. 2
2.4. Purchase of Stock............................ 2
2.5. Termination of Participation................. 3
SECTION 3............................................ 4
OPERATION AND ADMINISTRATION........................ 4
3.1. Effective Date............................... 4
3.2. Shares Subject to Plan....................... 4
3.3. Adjustments to Shares........................ 4
3.4. Terms and Conditions on Shares Purchased..... 5
3.5. Limit on Distribution........................ 6
3.6. Withholding.................................. 7
3.7. Transferability.............................. 7
3.8. Limitation of Implied Rights................. 7
3.9. Evidence..................................... 7
3.10. Action by Employers......................... 7
3.11. Gender and Number........................... 8
SECTION 4............................................ 8
COMMITTEE........................................... 8
4.1. Administration............................... 8
4.2. Selection of Committee....................... 8
4.3. Powers of Committee.......................... 8
4.4. Delegation by Committee...................... 8
4.5. Information to be Furnished to Committee..... 9
4.6. Liability and Indemnification of Committee... 9
SECTION 5............................................ 9
AMENDMENT AND TERMINATION........................... 9
SECTION 6............................................ 10
DEFINED TERMS....................................... 10
Act................................................ 10
Board.............................................. 10
Code............................................... 10
Date of Termination................................ 10
Directed Selling Efforts........................... 10
Dollars............................................ 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Effective Date..................................... 10
Eligible Associate................................. 10
Employer........................................... 10
Fair Market Value.................................. 11
Participant........................................ 11
Related Companies.................................. 11
U.S. Person........................................ 11
</TABLE>
ii
<PAGE>
LASALLE RE HOLDING LIMITED
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
SECTION 1
---------
GENERAL
-------
1.1. Purpose. The LaSalle Re Holdings Limited Employee Stock Purchase Plan
(the "Plan") has been established by LaSalle Re Holdings Limited (the "Company")
to provide Eligible Associates of the Company and the Related Companies with an
opportunity to acquire a proprietary interest in the Company through the
purchase of common shares of the Company ("Stock").
1.2. Operation and Administration. The operation and administration of the
Plan shall be subject to the provisions of Section 3. Capitalized terms in the
Plan shall be defined as set forth in Section 6 or elsewhere in the Plan.
1.3. Exemption from the Act. Offers and sales of Stock under the Plan
shall be made only in accordance with the provisions of Regulation S promulgated
under the Act. Offers and sales of Stock under the Plan shall be made only in
Offshore Transactions and no Directed Selling Efforts shall be made in the
United States in connection with the Plan. Shares of Stock purchased under the
Plan will not be registered under the Act and may not be offered or sold in the
United States or to U.S. Persons unless the shares are registered under the Act
or an exemption from the registration requirements of the Act is available.
SECTION 2
---------
METHOD OF PURCHASE
------------------
2.1. Eligibility. Plan participation shall be available to (and shall be
limited to) any person who is an Eligible Associate and who has completed one
continuous year as an Eligible Associate. Notwithstanding the foregoing
provisions of this subsection 2.1, an individual may participate in the Plan for
any calendar year only if he is an Eligible Associate on the first day of that
year; provided, however, that for the Subscription Periods (as defined below)
beginning on July 1, 1996 and October 1, 1996, an individual may participate in
the Plan for such Subscription Period if he is an Eligible Associate on the
first day of that period.
2.2. Participation Election. The Committee shall establish "Subscription
Periods" of not longer than one year for the
1
<PAGE>
accumulation of funds necessary for payment of the purchase price of Stock under
the Plan. As of the Effective Date, the initial Subscription Period is the
period beginning July 1, 1996 and ending September 30, 1996, and each subsequent
Subscription Period will be the calendar quarter. For the Subscription Periods
beginning July 1, 1996, and October 1, 1996, an Eligible Associate may become a
Plan Participant by filing a written payroll deduction authorization with
respect to salary otherwise payable to the Participant during the period at
least ten business days prior to either July 1, 1996 or October 1, 1996,
respectively. For any subsequent Subscription Period in a calendar year, an
Eligible Associate shall become a Plan "Participant" by filing with the
Committee, at least ten days prior to the first day of the calendar year, a
written payroll deduction authorization with respect to salary otherwise payable
to the Participant during the period. Such payroll deductions for a Subscription
Period shall be 2%, 5%, 10%, 15%, or 20% of the salary of the Participant,
rounded to the nearest dollar for each payroll period, but no more than $25,000
will be deducted in any calendar year ($12,500 in the period beginning July 1,
1996 and ending December 31, 1996). The payroll deduction authorization filed
with the Committee by the Participant with respect to a Subscription Period will
remain in effect for each subsequent Subscription Period, unless the Participant
files a new payroll deduction authorization with the Committee in accordance
with subsection 2.3 or discontinues participation in the Plan in accordance with
subsection 2.5. After the beginning of a Subscription Period, a Participant may
not alter the rate of his payroll deductions for that period; provided, however,
that he may discontinue his participation in the Plan in accordance with
subsection 2.5.
2.3. Change in Contribution Election. A Participant who has elected to
participate for any calendar year in accordance with subsection 2.2 may change
the percentage of his payroll deduction as of the first payroll period in any
Subscription Period in that year by filing a new written payroll deduction
authorization with the Committee at least 10 business day prior to the beginning
of the applicable Subscription Period. Such payroll deduction shall be in the
percentage specified in subsection 2.2.
2.4. Purchase of Stock. With respect to each Subscription Period, a
Participant shall be deemed to purchase the number of whole shares of Stock as
his accumulated payroll deductions for the Subscription Period will purchase,
subject to the following:
(a) The purchase price per share shall be equal to 85% of the Fair Market Value
of Stock on the last business day of the Subscription Period (the "Price
Date"); provided, however,
2
<PAGE>
that in no event shall such price per share be less than the par value of
the Stock.
(b) A Participant shall be deemed to have purchased the shares of Stock on the
third business day following the Price Date (the "Purchase Date").
(c) Any accumulated payroll deductions that are not used to purchase full
shares of Stock under the Plan shall be held applied toward the purchase of
Stock in the next following Subscription Period. Notwithstanding the
foregoing, the Participant may request that such amount be paid to the
Participant by filing a written application with the Committee in such form
and at such time as the Committee may require, in which case such amount
shall be paid to the Participant without interest as soon as practicable
following the Committee's receipt of the request.
(d) No Participant shall have the right to purchase more than $25,000 in value
of Stock under the Plan (and any other employee stock purchase plan
maintained by the Company or any Related Company) in any calendar year;
($12,500 for the period beginning July 1, 1996 and ending December 31,
1996), such value being based on the Fair Market Value of Stock as of the
Price Date immediately preceding the Purchase Date on which the Participant
is deemed to purchase Stock under the terms of the Plan.
2.5. Termination of Participation. A Participant may discontinue his
participation in the Plan for any Subscription Period, by notifying the
Committee of such discontinuance in writing, in such form and at such time as
the Committee may require. Upon any such discontinuance, no further payroll
deductions under the Plan will be made from the Participant's pay for that
calendar year, and all of the Participant's payroll deductions for the
Subscription Period in which he or she discontinues participation will be used
to purchase Stock for that Subscription Period in accordance with the
requirements of subsection 2.4. A Participant who has discontinued participation
in the Plan during a calendar year may not again participate in the Plan until
the next following calendar year, by filing a written payroll deduction
authorization with the Committee in accordance with the requirements of
subsection 2.2; provided, that he will be eligible to participate during the
next such calendar year only if he is an Eligible Associate on the first day of
such calendar year. If a Participant's Date of Termination occurs during a
Subscription Period for any reason, all payroll deductions accumulated by the
Participant under the Plan for the period that have not then been applied to the
purchase of Stock shall be paid to the Participant without interest.
3
<PAGE>
SECTION 3
---------
OPERATION AND ADMINISTRATION
----------------------------
3.1. Effective Date. The Plan shall be effective as of the Effective Date.
The Plan shall be unlimited in duration and, in the event of Plan termination,
shall remain in effect as long as any rights granted under the Plan are
outstanding.
3.2. Shares Subject to Plan. Shares of Stock to be purchased under the
Plan shall be subject to the following:
(a) The shares of Stock purchased under the Plan shall be shares currently
authorized but unissued or shares purchased in the open market or in
private transactions.
(b) Subject to subsection 3.3, the number of shares of Stock which may be
purchased under the Plan shall not exceed 150,000 shares in the aggregate.
(c) A Participant will have no interest in shares of Stock until the shares of
Stock are purchased pursuant to the terms of the Plan.
3.3. Adjustments to Shares.
(a) If the Company shall effect any subdivision or consolidation of shares of
Stock or other capital readjustment, payment of Stock dividend, Stock
split, combination of shares or recapitalization or other increase or
reduction of the number of shares of Stock outstanding without receiving
compensation therefor in money, services or property, then, in accordance
with a methodology comparable to that required under Code section 423, the
Committee shall adjust the number of shares of Stock available under the
Plan.
(b) If the Company is reorganized, merged or consolidated or is party to a plan
of exchange with another corporation, pursuant to which reorganization,
merger, consolidation or plan of exchange the shareholders of the Company
receive any shares of stock or other securities or property, or the Company
shall distribute securities of another corporation to its shareholders,
then, in accordance with a methodology comparable to that required under
Code section 423, there shall be substituted for the shares subject to
outstanding rights to purchase Stock under the Plan an appropriate number
of shares of each class of stock or amount of other securities or property
which were distributed to the shareholders of the Company in respect of
such shares.
4
<PAGE>
3.4. Terms and Conditions on Shares Purchased. Shares of Stock purchased
by Participants under the Plan shall be subject to the following terms and
conditions:
(a) Except as set forth herein, Stock sold to Participants may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as
hereinafter provided, for a period of two years after the Purchase Date on
which such shares were purchased (the "Restricted Period"). Except for such
restrictions, the Participant as owner of such shares shall have all the
rights of a shareholder, including but not limited to the right to vote
such shares and the right to receive all dividends paid on such shares.
(b) A Participant may sell shares of Stock purchased under the Plan after the
end of the Restricted Period with respect to such shares.
(c) If the Committee determines that a sale by a Participant prior to the end
of the Restricted Period is on account of Hardship (as described below),
the Participant may sell to the Company and the Company shall purchase from
the Participant, shares of Stock purchased under the Plan prior to the end
of the Restricted Period. Except as otherwise provided by the Committee,
the sale of shares pursuant to this subparagraph (c) shall occur as soon as
practicable following the date such Participant's written election is filed
with the Committee, and the sale price of the shares sold to the Company
will be the lesser of the Fair Market Value of such shares determined as of
the date of such sale or the price which the Participant paid for such
shares when the Participant purchased them. A sale shall be deemed to be on
account of "Hardship" if the Committee (in its sole discretion and based on
such information as it deems pertinent) determines that the withdrawal is
requested because it is necessary to meet an immediate and heavy financial
need of the Participant.
(d) If a Participant sells shares of Stock prior to the Restricted Date in
accordance with subparagraph (c) above, then, as of the date on which he or
she elects to sell such shares, no further payroll deductions with respect
to such Participant will be made for that Subscription Period, the
Participant will not be eligible to purchase shares for that Subscription
Period, all amounts which have been deducted during the Subscription Period
in which he or she makes the election to sell will be promptly paid to him
or her without interest, and the Participant may not again participate in
the Plan until the next following calendar year, by filing a written
payroll deduction authorization with the Committee in accordance with the
requirements of subsection 2.2;
5
<PAGE>
provided, that he or she will be eligible to participate during the next
such calendar year only if he or she is an Eligible Associate on the first
day of such calendar year.
(e) Each certificate issued in respect of such Stock shall be registered in the
name of the Participant and deposited, together with a stock power endorsed
in blank, with the Company. Each such certificate shall bear the following
(or similar) legends:
"The shares represented by this certificate have not been registered
under the United States Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold in the United States or to U.S.
persons (as defined in the Act) unless the shares are registered under
the Act or an exemption from the registration requirements of the Act
is available.
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the LaSalle Re Holdings Limited Employee
Stock Purchase Plan and an agreement entered into between the
registered owner and LaSalle Re Holdings Limited. A copy of such plan
and agreement is on file in the office of the General Counsel of
LaSalle Re Holdings Limited, #25 Church Street, Hamilton HMFX,
Bermuda."
Except as otherwise determined by the Committee, the Company shall retain
each certificate issued in respect of such Stock until the end of the
Restricted Period at which time the Participant may request the Company to
deliver such certificate to him or her.
3.5. Limit on Distribution. Distribution of shares of Stock or other
amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall have no
liability to issue any shares of Stock under the Plan unless such delivery
or distribution would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of certificates to
reflect the transfer of shares of Stock, the transfer of such shares may,
at the direction of the Committee, be effected on a non-certificated basis,
to the extent not prohibited by the provisions of any applicable rules.
6
<PAGE>
3.6. Withholding. All benefits under the Plan are subject to withholding
of all applicable taxes.
3.7. Transferability. Neither the amount of any payroll deductions made
with respect to a Participant's compensation nor any Participant's rights to
purchase shares of Stock under the Plan may be pledged or hypothecated, nor may
they be assigned or transferred other than by will and the laws of descent and
distribution. During the lifetime of the Participant, the rights provided to the
Participant under the Plan may be exercised only by the Participant.
3.8. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of the Plan,
acquire any right in or title to any assets, funds or property of the
Employers whatsoever, including, without limitation, any specific funds,
assets, or other property which the Employers, in their sole discretion,
may set aside in anticipation of a liability under the Plan. A Participant
shall have only a contractual right to the amounts, if any, payable under
the Plan, unsecured by any assets of the Employers. Nothing contained in
the Plan shall constitute a guarantee by any of the Employers that the
assets of the Employers shall be sufficient to pay any benefits to any
person.
(b) The Plan does not constitute a contract of employment, and participation in
the Plan will not give any Eligible Associate the right to be retained in
the employ of an Employer or any Related Company, the right to continue to
otherwise perform services for an Employer or Related Company, nor any
right or claim to any benefit under the Plan, unless such right or claim
has specifically accrued under the terms of the Plan. Except as otherwise
provided in the Plan, no right to purchase shares under the Plan shall
confer upon the holder thereof any right as a shareholder of the Company
prior to the date on which the shares of Stock are purchased pursuant to
the terms of the Plan.
3.9. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
3.10. Action by Employers. Any action required or permitted to be taken by
any Employer shall be by resolution of its board of directors, or by action of
one or more members of the board (including a committee of the board) who are
duly authorized to act for the board, or (except to the extent
7
<PAGE>
prohibited by the provisions of any applicable rules) by any other person
selected by the Committee.
3.11. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
SECTION 4
---------
COMMITTEE
---------
4.1. Administration. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with this Section 4.
4.2. Selection of Committee. The Committee shall be selected by the Board,
and shall consist of not less than two persons.
4.3. Powers of Committee. The authority to manage and control the
operation and administration of the Plan shall be vested in the Committee,
subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to establish the terms, conditions, restrictions,
and other provisions applicable to the right to purchase shares of Stock
under the Plan.
(b) The Committee will have the authority and discretion to interpret the Plan,
to establish, amend, and rescind any rules and regulations relating to the
Plan, to determine the terms and provisions of any agreements made pursuant
to the Plan, and to make all other determinations that may be necessary or
advisable for the administration of the Plan. Except as otherwise provided
by the Board, the Committee, without the consent of the Board, shall have
the authority to amend the provisions of the Plan relating to the periods
for making and changing elections under Section 2 and relating to the time
required for holding shares of Stock prior to selling such shares without
penalty under Section 3.
(c) Any interpretation of the Plan by the Committee and any decision made by it
under the Plan is final and binding on all persons.
4.4. Delegation by Committee. Except to the extent prohibited by the
provisions of any applicable rules, the Committee may allocate all or any
portion of its responsibilities and powers to any one or more of its members and
may delegate all
8
<PAGE>
or any part of its responsibilities and powers to any person or persons selected
by it. Any such allocation or delegation may be revoked by the Committee at any
time.
4.5. Information to be Furnished to Committee. The Employers shall furnish
the Committee with such data and information as may be required for it to
discharge its duties. The records of the Employers as to a Participant's
employment, termination of employment, leave of absence, reemployment and
compensation shall be conclusive on all persons unless determined to be
incorrect. Participants and other persons entitled to benefits under the Plan
must furnish the Committee such evidence, data or information as the Committee
considers desirable to carry out the terms of the Plan.
4.6. Liability and Indemnification of Committee. No member or authorized
delegate of the Committee shall be liable to any person for any action taken or
omitted in connection with the administration of the Plan unless attributable to
his or her own fraud or willful misconduct; nor shall the Employers be liable to
any person for any such action unless attributable to fraud or willful
misconduct on the part of a director or employee of the Employers. The
Committee, the individual members thereof, and persons acting as the authorized
delegates of the Committee under the Plan, shall be indemnified by the
Employers, to the fullest extent permitted by law, against any and all
liabilities, losses, costs and expenses (including legal fees and expenses) of
whatsoever kind and nature which may be imposed on, incurred by or asserted
against the Committee or its members or authorized delegates by reason of the
performance of a Committee function if the Committee or its members or
authorized delegates did not act dishonestly or in willful violation of the law
or regulation under which such liability, loss, cost or expense arises. This
indemnification shall not duplicate but may supplement any coverage available
under any applicable insurance.
SECTION 5
---------
AMENDMENT AND TERMINATION
-------------------------
The Board may, at any time, amend or terminate the Plan; provided that,
subject to subsection 3.3 (relating to certain adjustments to shares), no
amendment or termination may adversely affect the rights of any Participant or
beneficiary with respect to shares that have been purchased prior to the date
such amendment is adopted by the Board.
9
<PAGE>
SECTION 6
---------
DEFINED TERMS
-------------
For purposes of the Plan, the terms listed below shall be defined as
follows:
(a) Act. The term "Act" shall mean the United States Securities Act of 1933,
as amended.
(b) Board. The term "Board" shall mean the Board of Directors of the Company.
(c) Code. The term "Code" means the U.S. Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference
to any successor provision of the Code.
(d) Date of Termination. A Participant's "Date of Termination" shall be the
date on which his position as an Eligible Associate terminates for any
reason; provided, that a Date of Termination shall not be deemed to occur
by reason of a transfer of the Participant between two entities as an
Eligible Associate; and provided, further, that a Participant's Date of
Termination shall not be deemed to occur while the Participant is on a
leave of absence as an Eligible Associate, which leave of absence has been
approved by an Employer.
(e) Directed Selling Efforts. The term "Directed Selling Efforts" shall have
the meaning ascribed to such term in Regulation S promulgated under the
Act.
(f) Dollars. As used in the Plan, the term "dollars" or numbers preceded by the
symbol "$" shall mean amounts in United States Dollars.
(g) Effective Date. The "Effective Date" shall be July 1, 1996.
(h) Eligible Associate. The term "Eligible Associate" means any individual who
is an employee of an Employer, and any other individual who is performing
services for an Employer as an employee of Aon Risk Consultants (Bermuda)
Limited, CNA Bermuda Services Limited, or such other entity designated by
the Board. Notwithstanding the foregoing, (i) an executive officer of the
Company may not be an Eligible Associate, unless otherwise approved by the
Board and (ii) a U.S. Person may not be an Eligible Associate.
(i) Employer. The Company and each Related Company which, with the consent of
the Company, adopts the Plan for the benefit
10
<PAGE>
of its Eligible Associates are referred to collectively as the "Employers"
and individually as an "Employer".
(j) Fair Market Value. The "Fair Market Value" of a share of Stock of the
Company as of any date shall be the closing sale price for such Stock as
reported on the Nasdaq National Market on that date or, if Stock is not
traded on that date, on the next preceding date on which Stock was traded.
(k) Participant. The term "Participant" means any Eligible Associate who is
eligible and elects to participate in the Plan pursuant to the provisions
of Section 2.
(l) Related Companies. The term "Related Company" means any company during any
period in which it is a "subsidiary corporation" (as that term is defined
in Code section 424(f)) with respect to the Company.
(m) U.S. Person. The term "U.S. Person" shall have the meaning ascribed to such
term in Regulation S promulgated under the Act.
11
<PAGE>
Exhibit 10.16
FIRST AMENDMENT
Dated as of July 1, 1996
THIS FIRST AMENDMENT, dated as of July 1, 1996 (this "First
Amendment"), amends the Amended and Restated Administrative Services Agreement
dated as of September 21, 1995 (the "Administrative Services Agreement") between
AON RISK CONSULTANTS (BERMUDA) LTD. ("ARC Bermuda") and LASALLE RE LIMITED (the
"Company"). Capitalized terms used in this First Amendment and not otherwise
defined herein have the meanings ascribed to such terms in the Administrative
Services Agreement.
WHEREAS, the parties hereto have entered into the Administrative
Services Agreement pursuant to which ARC Bermuda provides certain actuarial and
administrative services to the Company;
WHEREAS, the Company and its parent, LaSalle Re Holdings Limited (the
"Parent"), have established the LaSalle Re Holdings Limited Employee Stock
Purchase Plan (the "Plan") in part for the provision of certain benefits to
employees of ARC Bermuda assigned to the Company, on the understanding that ARC
Bermuda would reimburse the Parent for certain costs; and
WHEREAS, the parties accordingly desire to amend the Administrative
Services Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration (the receipt and sufficiency of which are hereby
acknowledge), the parties hereto agree as follows:
Effective as of the date hereof, the Administrative Services Agreement
shall be amended by adding thereto the following paragraph 21, to be inserted in
its proper numerical sequence:
"21. REIMBURSEMENTS.
Section 2.4 of the Plan allows each Participant to purchase a certain
number of shares of Stock at a discounted price for each Subscription
Period. ARC Bermuda shall promptly reimburse the Parent for any difference
between the purchase price per share paid by such Participant who is an
employee of ARC Bermuda and the Fair Market Value of Stock on the Price
Date.
Capitalized terms used in this paragraph 21 and not otherwise defined
herein have the meanings ascribed to such terms in the Plan."
<PAGE>
As herein amended, the Administrative Services Agreement shall remain in
full force and effect and is hereby ratified and confirmed in all respects.
This First Amendment may be executed in any number of counterparts and by the
different parties on separate counterparts, and each such counterpart shall be
deemed to be an original but all such counterparts shall together constitute one
and the same First Amendment. This First Amendment shall be construed according
to the laws of Bermuda.
IN WITNESS WHEREOF, the parties hereto set their hands as of the date and
year first above written.
LASALLE RE LIMITED
By: /s/ Andrew Cook
---------------------------
Name: Andrew Cook
---------------------------
Title: CFO and Treasurer
---------------------------
AON RISK CONSULTANTS (BERMUDA) LTD.
By: /s/ Sam Licitra
---------------------------
Name: Sam Licitra
---------------------------
Title: President
---------------------------
<PAGE>
Exhibit 12.1
LaSalle Re Holdings Limited
STATEMENT OF COMPUTATION OF NET INCOME PER COMMON SHARE
(Expressed in thousands of United States Dollars
except for number of shares and earnings per share)
<TABLE>
<CAPTION>
1996 1995
---- ----
Fully Fully
Primary Diluted Primary Diluted
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income before minority interest: (1) 129,451 129,451 104,448 104,448
Number of shares: ========== ========== ========== ==========
Weighted average shares outstanding 14,397,720 14,397,720 14,396,715 14,396,715
Exchangeable non-voting Shares (1) 8,329,290 8,329,290 8,329,290 8,329,290
Incremental shares of outstanding stock
options (2) 1,210,317 1,324,055 441,790 473,714
Incremental shares of outstanding stock
appreciation rights (3) 30,543 49,147 2,885 5,383
--------- ---------- ---------- ----------
23,967,870 24,100,212 23,170,680 23,205,102
========== ========== ========== ==========
Earnings per Share: 5.40 5.37 4.51 4.50
1994
----
Net income before minority interest: (1) 29,899 29,899
========== ==========
Number of shares:
Weighted average shares outstanding 14,395,710 14,395,710
Exchangeable non-voting Shares (1) 8,329,290 8,329,290
Incremental shares of outstanding stock
options (2) 127,910 242,542
Incremental shares of outstanding stock
appreciation rights (3) 0 0
---------- ----------
22,852,910 22,967,542
========== ==========
Earnings per Share: 1.31 1.30
</TABLE>
(1) The holders of exchangeable non-voting Shares in LaSalle Re Limited, which
represents the minority interest, can exchange these shares at any time, on
a one for one basis, for common shares in LaSalle Re Holdings Limited. For
purposes of the computation of net income per common share, these shares
have been treated as common share equivalents.
(2) As of September 30, 1996, 1995, and 1994, the Company had 2,499,348 options
outstanding. The dilution would be the equivalent of approximately
1,210,317, 441,790 and 127,910 shares for the years ended September 30,
1996 and 1995 and the period ended September 30, 1994, using the treasury
stock method, based on average market price.
(3) As of September 30, 1996, 1995 and 1994, the Company had granted 340,872
stock appreciation rights. The dilution would be the equivalent of
approximately 30,543 and 2,885 and nil shares for the years ended
September 30, 1996, and 1995 and the period ended September 30, 1994
using the treasury stock method, based on average market price.
<PAGE>
Schedule III
LaSalle Re Holdings Limited
Supplementary Insurance Information
(Expressed in Thousands of United States Dollars)
<TABLE>
<CAPTION>
Segment Deferred Future Policy Unearned Other Policy Premium
Acquisition Cost Benefits, Losses, Premiums Claims and Revenue
Claims and Loss Benefits Payable
Expenses
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996: Property & Similar 10,464 49,875 82,894 NIL 195,141
====== ====== ====== === =======
1995: Property & Similar 10,708 66,654 87,885 NIL 170,370
====== ====== ====== === =======
1994: Property & Similar 6,809 37,789 56,338 NIL 76,989
====== ====== ====== === =======
Segment Net Investment Benefits, Claims, Amortization of Other Operating Premiums
Income Losses and Deferred Expenses Written
Settlement Acquisition
Expenses Costs
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996: Property & Similar 26,846 51,477 27,268 13,373 190,151
====== ====== ====== ====== =======
1995: Property & Similar 25,091 60,397 22,988 7,603 201,916
====== ====== ====== ====== =======
1994: Property & Similar 15,758 49,801 8,686 4,342 133,327
====== ====== ====== ====== =======
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF LASALLE RE HOLDINGS LIMITED
. LaSalle Re Limited
. LaSalle Re (Services) Limited
. LaSalle Re Corporate Capital Ltd.
<PAGE>
Exhibit 23.4
Consent of Independent Chartered Accountants
The Board of Directors
LaSalle Re Holdings Limited
The audits referred to in our report dated October 19, 1996 included the related
consolidated financial statement schedules of LaSalle Re Holdings Limited as at
September 30, 1996 and 1995 and for the years ended September 30, 1996 and 1995
and for the period from October 26, 1993 (the date of incorporation) to
September 30, 1994 included in the registration statement. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
whole, present fairly in all material respects the information set forth
therein.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick
Hamilton, Bermuda Chartered Accountants
October 25, 1996
