<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LASALLE RE HOLDINGS LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA NOT APPLICABLE
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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 NUMBER, INCLUDING AND TELEPHONE
AREA CODE, OF REGISTRANT'S PRINCIPAL NUMBER, INCLUDING AREA CODE, OF AGENT
EXECUTIVE OFFICES) FOR SERVICE)
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 the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, 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>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Preferred Shares, par value $1.00
per share................................ 3,000,000 shares $25.00 $75,000,000 $22,728
- ----------------------------------------------------------------------------------------------------
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
---------------
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>
SUBJECT TO COMPLETION, DATED MARCH 13, 1997
PROSPECTUS
3,000,000 SHARES
LASALLE RE HOLDINGS LIMITED
SERIES A PREFERRED SHARES
------------
All of the 3,000,000 Series A Preferred Shares, par value $1.00 per share
(the "Series A Preferred Shares"), offered hereby are being sold by LaSalle Re
Holdings Limited (the "Company"). Upon liquidation, holders of the Series A
Preferred Shares will be entitled to receive out of any surplus assets a
liquidation preference of $25.00 per share, plus accrued and unpaid dividends,
if any, to the date of liquidation. See "Description of Series A Preferred
Shares--Liquidation Rights."
Dividends on the Series A Preferred Shares will be cumulative from the date
of original issuance and will be payable quarterly on the first day of March,
June, September and December of each year, commencing June 1, 1997, in an
amount per share equal to % of the liquidation preference per annum
(equivalent to $ per share). See "Description of Series A Preferred Shares--
Dividends."
On and after March , 2007, the Series A Preferred Shares will be
redeemable, in whole or in part, at the option of the Company at any time, at
a redemption price of $25.00 per share, plus accrued and unpaid dividends, if
any, to the date of redemption. The Series A Preferred Shares have no stated
maturity and will not be subject to any sinking fund or mandatory redemption
and will not be convertible into any other securities of the Company. See
"Description of Series A Preferred Shares--Redemption."
The Company intends to make application to list the Series A Preferred
Shares on the New York Stock Exchange (the "NYSE"). If such application is
approved, trading in the Series A Preferred Shares is expected to commence
within a 30-day period after the initial delivery of the Series A Preferred
Shares. See "Underwriting."
SEE "RISK FACTORS" ON PAGE 14 FOR A DESCRIPTION OF CERTAIN MATTERS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SERIES A PREFERRED 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.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE COMPANY(1)(3)
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<S> <C> <C> <C>
Per Share.......................... $25.00 $ $
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Total.............................. $75,000,000 $ $
</TABLE>
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(1) Plus accrued dividends, if any, from the date of original issuance.
(2) For information regarding indemnification of the Underwriters, see
"Underwriting."
(3) Before deducting expenses estimated at $ payable by the Company.
------------
The Series A Preferred Shares are being offered by the several 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 Series
A Preferred Shares offered hereby will be available for delivery on or about
March , 1997 at the offices of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
------------
SMITH BARNEY INC.
LAZARD FRERES & CO. LLC
MORGAN STANLEY & CO.
INCORPORATED
March , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SERIES A
PREFERRED SHARES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING
TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, 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 THIS OFFERING TO PERSONS NOT RESIDENT IN BERMUDA FOR
EXCHANGE CONTROL PURPOSES. 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.
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.
2
<PAGE>
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 such persons 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 informational 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 New York Stock
Exchange, 11 Wall Street, New York, New York 10005. 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 Series A Preferred
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 Series A Preferred 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."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1996, and the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1996, each filed pursuant to Section 13 of the Exchange Act
(file number 0-27216).
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering of the Series A Preferred Shares (the "Offering"), shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any subsequently filed
document which is incorporated or deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated herein by reference, other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents.
Requests should be addressed to the principal executive offices of LaSalle Re
Holdings Limited, Attention: Investor Relations, P.O. Box HM 1502, Hamilton HM
FX, Bermuda (telephone (441) 292-3339, facsimile (441) 292-1501).
4
<PAGE>
NOTE ON 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
contained and incorporated by reference in this Prospectus are generally
located in the material set forth under the headings "Prospectus Summary,"
"Risk Factors" 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 policy concerning
dividends. 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 or future market entrants; (v) a
competitive disadvantage resulting from certain of the Company's principal
competitors having higher financial ratings than the Company, any future
decline in or loss of the Company's financial ratings 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 Company's service agreements; (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; and (xv) a contention by the
United States Internal Revenue Service (the "IRS") that the Company or its
insurance subsidiary, LaSalle Re Limited ("LaSalle Re"), is engaged in the
conduct of a trade or business within the U.S. 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.
5
<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 or incorporated by reference
in this Prospectus. Unless otherwise indicated, all financial information
presented herein has been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"). 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 Series A Preferred Shares
offered hereby, 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"), the
Company's subsidiary which is a corporate member of Lloyd's of London
("Lloyd's").
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 December 31, 1996, the Company had total shareholders' equity and minority
interest (together, "Combined Equity") of $503.1 million compared to $412.5
million at December 31, 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. During the three
months ended December 31, 1996 and 1995, the Company wrote net premiums of $5.2
million and $12.6 million, respectively. There can be no assurance that the
Company will achieve similar results in the future.
DEVELOPMENT OF THE BUSINESS
In October 1993, 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 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.
6
<PAGE>
In September 1995, Holdings was incorporated in Bermuda as a holding company
in connection with the Company's recapitalization and initial public offering.
Since November 1995, Holdings has owned 100% of the outstanding voting stock of
LaSalle Re and a majority of the outstanding capital stock of LaSalle Re. The
remaining outstanding capital stock of LaSalle Re is held by certain Founding
Shareholders in the form of exchangeable non-voting shares of LaSalle Re
("Exchangeable Non-Voting Shares"). Exchangeable Non-Voting Shares are
exchangeable, at the option of the holder, on a one-for-one basis for common
shares of the Company, par value $1.00 per share ("Common Shares"), unless the
Company's Board of Directors (the "Board") determines that such exchange may
cause actual or potential adverse tax consequences to the Company or any
shareholder.
CAPITAL MANAGEMENT STRATEGY
Since its inception the Company has endeavored to provide liquidity to
shareholders and to pursue a capital management strategy focused on balancing
capital levels with aggregate exposures while seeking to achieve strong returns
on shareholders' equity. Consistent with this strategy, in October 1996 the
Company adopted a dividend policy pursuant to which it intended to distribute
in each fiscal year 50% to 60% of its net income from the prior fiscal year, if
any, on a quarterly basis. As part of its capital management strategy, the
Company also announced its intention 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 completed a secondary offering of 3,910,000 Common Shares in
December 1996 (the "Secondary Offering"). The Secondary Offering increased the
number of Common Shares owned by the public (i.e. persons not affiliated with
the Founding Shareholders) from 4,312,500 to 8,222,500 and reduced the
percentage of Common Shares owned by Founding Shareholders to approximately
50%. In addition, as a result of the exchange of certain Exchangeable Non-
Voting Shares in connection with the Secondary Offering, the Company increased
its ownership of the outstanding capital stock of LaSalle Re from 63% to 73%.
In order to reduce its earnings volatility, protect its capital base and
support its dividend policy, the Company purchased a multi-year excess of loss
reinsurance program effective January 1, 1997. The program is event-based,
providing up to $100 million of coverage in excess of the first $100 million of
losses for the first loss occurrence and $100 million of coverage in excess of
the first $150 million of losses for the second loss occurrence, with a $200
million aggregate coverage limit over a three-year period. The attachment point
is triggered by losses incurred by the Company rather than industry losses. The
reinsurance is provided by a company which holds a rating of "A+" (Superior)
from A.M. Best Company, Inc. ("A.M. Best") and a claims-paying ability rating
of "AA" from Standard & Poor's Rating Services ("S&P").
On February 27, 1997 the Board approved the Offering and, contingent on the
completion of the Offering, voted to expand the Company's planned share
repurchase program from the previously announced level of $50 million to a new
level of $125 million of Common Shares. Accordingly, following completion of
the Offering, the Company expects to make a public tender offer to repurchase
approximately $100 million of Common Shares (the "Tender Offer"). At a future
date, the Company also expects to repurchase up to $25 million of Common Shares
through open market or privately negotiated transactions (together with the
repurchases effected pursuant to the Tender Offer, the "Repurchases"). The
Board also confirmed the dividend policy pursuant to which the Company intends
to distribute as dividends to holders of Common Shares and Exchangeable Non-
Voting Shares in each fiscal year 50% to 60% of the amount by which its net
income (before minority interest) from the prior fiscal year exceeds the amount
of dividends payable on Series A Preferred Shares in the current fiscal year.
The Company believes that its capital management strategy is consistent with
its policy to actively manage its capital and its goal to increase shareholder
value. Following consummation of the Repurchases, the Company believes that its
cash, short-term investments and borrowing capacity, together with anticipated
cash flows from
7
<PAGE>
operations, will be adequate for its needs in the foreseeable future. However,
the Company's actual experience may differ from the expectations set forth in
the preceding sentence, due to future events that might have the effect of
reducing the Company's available cash balances (such as operating losses
following catastrophes or other adverse events) or that might reduce or
eliminate the availability of external financial resources. For a discussion of
some of the factors that could cause the Company's actual experience to differ
from expectations, prospective investors should refer to "Risk Factors" and
"Note on Forward-Looking Statements." The Company's capital management strategy
is subject to change at the discretion of the Board, as the Company's ability
to implement its capital management strategy will depend on various factors,
some of which are beyond its control.
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. During the quarter ended
December 31, 1996, LaSalle Re Capital was accepted as a corporate member of
Lloyd's, and since January 1, 1997 LaSalle Re Capital has participated in three
Lloyd's syndicates. One of these 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. LaSalle Re Capital provides capital support to the
syndicates through letters of credit.
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 29% and 24% of the contract submissions it received
in the years ended September 30, 1996 and 1995, respectively.
8
<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.
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. The Company
believes that property catastrophe reinsurance capacity has increased further
since 1994. 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 and further in 1996 from
1994 levels. 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 generally 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, which it expects will
in turn put downward pressure on its premium levels. Based on the 1997 contract
renewals that have occurred to date, the Company estimates that it has
experienced overall rate decreases of approximately 15% compared to 1996. See
"Risk Factors--Business Considerations."
----------------
The Company's principal executive offices are located at 25 Church Street,
Hamilton HM FX Bermuda, and its phone number is (441) 292-3339.
9
<PAGE>
TERMS OF THE OFFERING
The description of the terms of the Series A Preferred Shares in this section
does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the terms and provisions of the Certificate of
Designation relating to the Series A Preferred Shares (the "Certificate of
Designation") and the Bye-Laws. See "Description of Series A Preferred Shares."
Securities Offered.. 3,000,000 Series A Preferred Shares.
Dividends...........
Dividends on the Series A Preferred Shares will be
cumulative from the date of original issuance and will be
payable quarterly in arrears on the first day of March,
June, September and December of each year (or, if such
date is not a business day, on the business day
immediately before such date), commencing June 1, 1997,
in an amount per share equal to % of the liquidation
preference per annum (equivalent to $ per share). See
"Description of Series A Preferred Shares--Dividends."
Liquidation Rights.. Upon liquidation, holders of the Series A Preferred
Shares will be entitled to receive out of any surplus
assets a liquidation preference of $25.00 per share, plus
accrued and unpaid dividends, if any, to the date of
liquidation. See "Description of Series A Preferred
Shares--Liquidation Rights."
Conversion.......... The Series A Preferred Shares are not convertible into or
exchangeable for any other securities of the Company.
Redemption.......... On and after March , 2007, the Series A Preferred
Shares will be redeemable, in whole or in part, at the
option of the Company at any time, at a redemption price
of $25.00 per share, plus accrued and unpaid dividends,
if any, to the date of redemption. At any time prior to
March , 2007, if the Company shall have submitted to the
holders of its Common Shares a proposal for amalgamation,
consolidation, merger or statutory share exchange, or any
proposal for any other matter that requires for its
validation or effectuation an affirmative vote of the
holders of the Series A Preferred Shares at the time
outstanding, acting as a single class, the Company, at
its option upon not less than 30 nor more than 90 days'
written notice, may redeem all of the outstanding Series
A Preferred Shares at a redemption price of $26.00 per
share, plus accrued and unpaid dividends, if any, to the
date of redemption. The Series A Preferred Shares have no
stated maturity and will not be subject to any sinking
fund or mandatory redemption. See "Description of Series
A Preferred Shares--Redemption."
Special
Representation and
Voting Rights...... Generally, the holders of Series A Preferred Shares will
not have any voting rights. Whenever dividends on the
Series A Preferred Shares or any class or series of
capital shares ranking on a parity with the Series A
Preferred Shares with respect to the payment of dividends
and amounts upon liquidation, dissolution or winding up
("Parity Shares") are in arrears in an amount equivalent
to dividends for six full dividend periods (whether or
not consecutive), holders of the Series A Preferred
Shares (voting together as a class with the holders of
Parity Shares) will have the right to elect two special
representatives (the "Special Representatives") who will
be entitled to receive notice of all Board meetings and
to take part in Board meetings, with the privilege of
voice but not vote, until such dividend arrearage is
eliminated. At all times when the holders of the Series A
Preferred Shares and any Parity Shares have the right to
be represented by Special Representatives at the
10
<PAGE>
Company Board level, the Company shall be obligated to
cause, to the extent permitted under Bermuda law, the
election of two additional directors of LaSalle Re who
shall be designated by the Special Representatives. These
rights will allow the holders of Series A Preferred
Shares and any Parity Shares to exercise, in effect,
voting rights through board members at the LaSalle Re
board level under such circumstances. In addition,
certain changes that would vary the rights of holders of
Series A Preferred Shares cannot be made without the
approval of the holders of 75% of the Series A Preferred
Shares. See "Description of Series A Preferred Shares--
Special Representation and Voting Rights; Relationship to
Preferred Shares of LaSalle Re."
Ranking............. The Series A Preferred Shares will rank senior to the
Common Shares with respect to payment of dividends and
amounts upon liquidation, dissolution or winding up. See
"Description of Series A Preferred Shares--Dividends" and
"Description of Series A Preferred Shares--Liquidation
Rights." However, 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. See "Risk Factors--Holding Company Structure."
Limitations on
Transfer and
Ownership..........
The Certificate of Designation provides that no person
may acquire ownership of more than 9.9% of the
outstanding Series A Preferred Shares, and that the
Company shall repurchase any shares owned by a person in
excess of such 9.9% limitation within 20 days of becoming
aware of such excess ownership. The Board may exempt from
the foregoing requirement any person who has provided
evidence that such ownership will cause no adverse tax,
legal or regulatory consequences to the Company, any of
its subsidiaries or any of its shareholders. The Bye-Laws
provide for additional limitations on transfer and
ownership of capital stock of the Company. See
"Description of Series A Preferred Shares--Limitations on
Transfer and Ownership" and "Certain Tax Considerations--
Taxation of Shareholders."
NYSE Listing........ The Company intends to make application to list the
Series A Preferred Shares on the NYSE. If such
application is approved, trading in the Series A
Preferred Shares is expected to commence within a 30-day
period after the initial delivery of the Series A
Preferred Shares. See "Underwriting."
Ratings............. The Series A Preferred Shares have been assigned ratings
of by S&P and by Moody's Investors Service, Inc.
("Moody's"). These ratings have been obtained with the
understanding that S&P and Moody's will continue to
monitor the credit rating of the Company and will make
future adjustments to the extent warranted. A rating
reflects only the views of S&P or Moody's, as the case
may be, and is not a recommendation to buy, sell or hold
the Series A Preferred Shares. There is no assurance that
any such rating will be retained for any given period of
time or that it will not be revised downward or withdrawn
entirely by S&P or Moody's, as the case may be, if, in
their respective judgments, circumstances so warrant. See
"Risk Factors--Competition; Ratings; Non-Admitted
Status."
Use of Proceeds..... The Company intends to use all of the net proceeds from
the sale of the Series A Preferred Shares to repurchase
Common Shares in accordance with the Company's capital
management strategy. See "Business--Capital Management
Strategy." Pending such repurchase, proceeds from the
sale of the Series A Preferred Shares may be temporarily
invested.
11
<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 the
periods ended September 30, 1996, 1995 and 1994 were derived from and should be
read in conjunction with the Company's audited consolidated financial
statements and related notes incorporated by reference in this Prospectus. The
historical consolidated financial data presented below as of and for the
periods ended December 31, 1996 and 1995, except as indicated below, were
derived from and should be read in conjunction with the Company's unaudited
consolidated financial statements which management believes incorporate all of
the adjustments necessary for the fair presentation of the financial condition
and results of operations for such periods. The pro forma consolidated
financial data presented below are unaudited and reflect adjustments necessary
to give effect to the Offering and the Tender Offer, and should be read in
conjunction with the Pro Forma Condensed Consolidated Financial Data and
related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD
THREE MONTHS ENDED YEAR ENDED OCTOBER 26,
DECEMBER 31, SEPTEMBER 30, 1993 TO
------------------------ -------------------------- SEPTEMBER 30,
1996 1995 1996 1995(1) 1994(1)
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net premiums written... $ 5,237 $ 12,619 $ 190,151 $ 201,916 $ 133,327
Net premiums earned.... 43,123 49,444 195,141 170,370 76,989
Net investment income
(net of realized
losses/gains)......... 8,179 6,203 26,428 25,066 15,739
Loss and loss expenses
incurred.............. 10,837 15,881 51,477 60,397 49,801
Underwriting expenses.. 7,115 6,498 27,268 22,988 8,686
Operating expenses(2).. 5,303 3,868 13,373 7,603 4,342
Income before minority
interest.............. 28,047 29,400 129,451 104,448 29,899
Minority interest(3)... 6,907 11,109(4) 47,966 38,774 10,958
Net income............. 21,140 18,291(4) 81,485 65,674 18,941
Net income per
share(5).............. 1.16 1.23 5.40 4.51 1.31
Weighted average shares
outstanding(6)........ 24,263,620 23,900,115 23,967,870 23,170,680 22,852,910
Dividend per Common
Share(7).............. $ 0.71 $ 1.10 $ 1.85 $ 4.62 $ --
OTHER DATA
Loss and loss expense
ratio(8).............. 25.1% 32.1% 26.4% 35.5% 64.7%
Expense ratio(8)....... 24.3% 18.1% 19.6% 17.1% 16.6%
Combined ratio(8)...... 49.4% 50.2% 46.0% 52.6% 81.3%
Return on average
Combined Equity(9).... 22.7% 28.9% 29.2% 26.6% 9.3%
Total statutory capital
and surplus(10)....... $ 495,959 $ 404,816 $ 475,580 $ 390,683 $ 376,414
BALANCE SHEET DATA (AT
END OF PERIOD)
Total investments and
cash.................. $ 552,049 $ 445,635 $ 537,504 $ 522,425 $ 409,738
Reinsurance balances
receivable............ 45,845 60,210 70,625 86,146 50,307
Total assets........... 620,842 531,129 634,374 636,547 481,424
Reserve for losses and
loss expenses......... 45,981 60,887 49,875 66,654 37,789
Reserve for unearned
premiums.............. 45,008 51,058 82,894 87,885 56,338
Minority interest(3)... 137,462 151,999 179,470(4) 147,389 140,838
Total shareholders'
equity................ 365,599 260,478 307,448(4) 253,422 243,446
Book value per
share(11)............. 22.13 18.15 21.42 17.64 16.91
PRO FORMA DATA
Income before minority
interest.............. $ 27,378 -- $ 127,801 -- --
Minority interest(12).. 6,188 -- 33,522 -- --
Net income............. 21,191 -- 94,279 -- --
Net income per
share(5).............. 1.24 -- 5.92 -- --
Weighted average shares
outstanding(6)........ 20,815,065 -- 20,519,315 -- --
Dividends on Series A
Preferred Shares...... $ 1,594 -- $ 6,375 -- --
Minority interest(12).. 105,722 -- -- -- --
Total shareholders'
equity................ 372,339 -- -- -- --
Book value per
share(13)............. 20.91 -- -- -- --
</TABLE>
12
<PAGE>
(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.
(3) Minority interest represents shares of LaSalle Re that are held as
Exchangeable Non-Voting Shares. These shares currently constitute
approximately 27% of the capital stock of LaSalle Re. Exchangeable Non-
Voting Shares 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 Tax Considerations."
(4) The amounts indicated have been restated on a different accounting basis
from the corresponding amounts in the Company's Quarterly Report on Form
10-Q for the period ended December 31, 1996 (the "10-Q"). In the 10-Q,
these amounts were restated by accounting for the exchange of certain
Exchangeable Non-Voting Shares for Common Shares in connection with the
Secondary Offering as if it were a pooling of interests. The amounts
presented here for the same periods instead account for such exchange as a
conversion of equity securities, which is the accounting treatment the
Company intends to use with respect to further exchanges initiated by
holders of Exchangeable Non-Voting Shares. The numbers reported for the
quarter ended December 31, 1996 are unchanged from the 10-Q.
(5) Net income per share equals income before minority interest divided by
weighted average shares outstanding.
(6) 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.
(7) Dividend per Common Share is based on outstanding Common Shares of
16,517,111 and 14,397,720 as at December 31, 1996 and 1995 respectively
and 14,397,720, 14,397,720, 14,395,710 as at September 30, 1996, 1995 and
1994 respectively.
(8) 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.
(9) 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.
(10) 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.
(11) Book value per share is calculated based on Combined Equity divided by the
total of Common Shares and Exchangeable Non-Voting Shares of 22,727,291
and 22,727,010 as at December 31, 1996 and 1995 respectively and
22,727,010, 22,727,010, 22,725,000, as at September 30, 1996, 1995 and
1994 respectively.
(12) Pro forma minority interest represents approximately 26% of the capital
stock of LaSalle Re.
(13) Pro forma book value per share is based on Combined Equity (excluding
equity represented by Series A Preferred Shares) divided by the total of
Common Shares and Exchangeable Non-Voting Shares of 19,278,736 as at
December 31, 1996.
13
<PAGE>
RISK FACTORS
Prospective investors in the Series A Preferred 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 "Prospectus Summary--Selected
Consolidated Financial Data" and "Business."
VOLATILITY OF FINANCIAL RESULTS; ABILITY OF THE COMPANY TO PAY PREFERRED
DIVIDENDS
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. 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.
Pursuant to its capital management strategy, the Company intends to
distribute as dividends to holders of Common Shares and Exchangeable Non-
Voting Shares in each fiscal year 50% to 60% of the amount by which its net
income (before minority interest) from the prior fiscal year exceeds the
amount of dividends payable on Series A Preferred Shares in the current fiscal
year. The Company's credit facility currently restricts dividends to a maximum
of 50% of net income from 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. Since the Board is authorized to issue
additional classes or series of Parity Shares without the consent of any
holder of Series A Preferred Shares, the Company could incur obligations in
the future to pay preferred dividends in addition to, and ranking on a parity
with, the dividends on Series A Preferred Shares. As part of its capital
management strategy, the Company expects to repurchase approximately $100
million of Common Shares in the Tender Offer following successful completion
of the Offering. At a future date, the Company also expects to repurchase up
to $25 million of Common Shares by means of open market or privately
negotiated transactions, depending on market conditions and the Company's
capital and liquidity requirements. See "Business--Capital Management
Strategy." The payment of dividends and the Repurchases will result in the
Company having less capital available to sustain losses than would otherwise
be the case. If substantial losses were to occur, the ability of the Company
to pay dividends, including dividends on the Series A Preferred Shares, could
be adversely affected.
The Series A Preferred Shares have been assigned ratings of by S&P and
by Moody's. These ratings have been obtained with the understanding that
S&P and Moody's will continue to monitor the credit rating of the Company and
will make future adjustments to the extent warranted. A rating reflects only
the views
14
<PAGE>
of S&P or Moody's, as the case may be, and is not a recommendation to buy,
sell or hold the Series A Preferred Shares. There is no assurance that any
such rating will be retained for any given period of time or that it will not
be revised downward or withdrawn entirely by S&P or Moody's, as the case may
be, if, in their respective judgments, circumstances so warrant.
RELIANCE ON CNA AND AON; TRANSACTIONS WITH AFFILIATES; CONFLICTS OF INTEREST
The Company's day-to-day operations are performed by affiliates of CNA and
Aon 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 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 claims administration, actuarial
and financial reporting, accounting, office space and other administrative
services; and (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. The Service Agreements terminate on December 31, 1998
with a two-year extension at the option of the Company. The Company and Aon
have agreed in principle, subject to execution of a definitive agreement and
to Board approval, to terminate the Administrative Services Agreement as of
mid-1997, after which the Company anticipates that all of the personnel
currently assigned to the Company by Aon Bermuda would become employees of the
Company. There can be no assurance that the Company will be able to retain all
such employees. While a number of other organizations offer the services
provided to the Company by affiliates of CNA, there can be no assurance that
if the Underwriting Services Agreement 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 on substantially similar terms.
In particular, the termination of the Underwriting Services Agreement could
have a material adverse effect on the Company.
In the 1996 and 1995 fiscal years, 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,
47.8% of the Company's net premiums written represented U.S.-based risks and
the remaining 52.2% 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.
The Service Agreements and other transactions between CNA or Aon and the
Company may give rise to potential conflicts of interest between CNA or Aon,
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, as amended (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 CNA or Aon recused
themselves. CNA competes with the Company for property catastrophe and other
lines of reinsurance underwritten by the Company. CNA, Aon 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
15
<PAGE>
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 CNA, Aon or other Founding Shareholders, on the one hand, and
the Company, on the other hand. CNA and Aon 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, its Chief
Financial Officer and Treasurer, Andrew Cook, and its Senior Vice President,
Terry J. Alfuth. The Company has entered into employment agreements with Mr.
Blake and Mr. Cook. The Company receives the services of Mr. Hengesbaugh and
Mr. Alfuth pursuant to the terms of the Underwriting Services Agreement and
the Administrative Services Agreement, respectively, and does not have
employment agreements with them. The Company does not maintain key-man life
insurance on any of its executive officers.
Under Bermuda law, non-Bermudians (other than spouses of 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, Andrew Cook
and Terry J. Alfuth 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
Based on the Company's marketing efforts, reinsurance contract submissions
and publicly available information, the Company believes that property
catastrophe rates decreased somewhat in 1995 and further in 1996 from 1994
levels. 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 generally 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. Based on the 1997
contract renewals that have occurred to date, the Company estimates that it
has experienced overall rate decreases of approximately 15% compared to 1996.
As 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 will partially offset the decline in its property
catastrophe premiums. There can be no assurance that the present level of
demand will continue, 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 or that rates will not decline
further. See "Prospectus Summary--The Company--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
16
<PAGE>
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 CNA and
Aon. See "--Reliance on CNA and Aon; 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.
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 and 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;
however, LaSalle Re Capital is a corporate member of Lloyd's and is authorized
to write business for the 1997 year of account up to a maximum premium income
of (Pounds)16.3 million. 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 115% of such amounts. As a result of the size of the
Company's capitalization, the Company does not believe that its non-admitted
status
17
<PAGE>
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.
REGULATION
LaSalle Re is registered as an insurer and is subject to regulation and
supervision in Bermuda under The Insurance Act 1978 (together with amendments
thereto and related regulations, the "Insurance Act"). The Insurance Act
generally is designed to protect insureds and ceding insurance companies
rather than shareholders. Among other things, the Insurance Act requires
LaSalle Re to maintain minimum levels of capital and surplus, prescribes
solvency margins that must be maintained and requires 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.
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. 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.
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.
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.
18
<PAGE>
LaSalle Re Capital is subject as a corporate member of Lloyd's to Lloyd's
regulation and its ability to continue to underwrite as such in future years
may be affected by changes in such regulation. The volume of business which can
be written from one year of account to the next will also be dependent on the
level of funds made available by the Company to support such underwriting.
Based on its corporate membership in Lloyd's, LaSalle Re Capital is also
registered in Bermuda under the Insurance Act as a "member of a recognised
association of underwriters."
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 dividends to its shareholders. The payment of
dividends by LaSalle Re to Holdings is limited under Bermuda law and
regulations, including Bermuda insurance law. 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. Based on the foregoing regulation, LaSalle Re is entitled
to pay dividends of up to $118.9 million during the current 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. Because the Company is a
holding company, the right of the Company, and hence the right of creditors and
shareholders of the Company, to participate in any distribution of assets of
any subsidiary, including LaSalle Re, upon its liquidation or reorganization or
otherwise is necessarily subject to the prior claims of creditors of the
subsidiary, except to the extent that claims of the Company itself as a
creditor of the subsidiary may be recognized. There can be no assurance that
Holdings will have sufficient funds to pay dividends to holders of the Series A
Preferred Shares.
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 not to
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 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
19
<PAGE>
Capital is a corporate member of Lloyd's. Pursuant to a Closing Agreement
between Lloyd's and the IRS, LaSalle Re Capital will be treated as engaged in
business in the U.S. and is 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 or Series A Preferred 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
or Series A Preferred Shares, directly, indirectly or by attribution, own 10%
or more of the total combined voting power of all classes of stock of
Holdings, LaSalle Re and/or LaSalle Re Capital. Under those provisions, such a
holder of Common Shares or Series A Preferred 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 shares that results in any shareholder (other than a registered investment
company under the U.S. Investment Company Act of 1940, as amended (an
"Investment Company")) beneficially owning more than 5.0% of the outstanding
capital stock of Holdings or any shareholder holding "Controlled Shares"
(defined as all shares that a person is deemed to own directly, indirectly or
by attribution within the meaning of Section 958 of the Code) in excess of
9.9% of the outstanding capital stock of Holdings. The Bye-Laws provide that
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. 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 at fair market value all or part of the shares held by such
shareholder to the extent the Board determines it is necessary to avoid such
adverse or potential adverse consequences. In addition, the Certificate of
Designation provides that no person may acquire ownership of more than 9.9% of
the outstanding Series A Preferred Shares, and that the Company shall
repurchase any shares owned by a person in excess of such 9.9% limitation
within 20 days of becoming aware of such excess ownership. The Board may
exempt from the foregoing requirement any person who has provided evidence
that such ownership will cause no adverse tax, legal or regulatory
consequences to the Company, any of its subsidiaries or any of its
shareholders. See "Description of Series A Preferred Shares--Limitations on
Transfer and Ownership."
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 or
Series A Preferred Shares own shares of LaSalle Re if (A) 25% or more of the
value or voting power of the capital stock of LaSalle Re is owned directly,
indirectly or by attribution by U.S. persons that own such stock 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 the capital stock of LaSalle
Re 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. Similar considerations will apply to U.S. persons who
indirectly through their ownership of Common Shares or Series A Preferred
Shares own shares of LaSalle Re Capital. 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 or Series A Preferred
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 each of LaSalle Re and LaSalle
Re Capital 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 or
LaSalle Re Capital'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 or Series A Preferred Shares. However, upon a
U.S. shareholder's sale or exchange of Common Shares or Series A
20
<PAGE>
Preferred 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
The Certificate of Designation provides that no person may acquire ownership
of more than 9.9% of the outstanding Series A Preferred Shares, and that the
Company shall repurchase any shares owned by a person in excess of such 9.9%
limitation within 20 days of becoming aware of such excess ownership. The
Board may exempt from the foregoing requirement any person who has provided
evidence that such ownership will cause no adverse tax, legal or regulatory
consequences to the Company, any of its subsidiaries or any of its
shareholders. Under the Bye-Laws, any transfer of shares that results in any
shareholder (other than an Investment Company) beneficially owning more than
5.0% of the outstanding capital stock of Holdings or any shareholder holding
Controlled Shares in excess of 9.9% of the outstanding capital stock 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. 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 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. See "Description of Series A Preferred Shares--
Limitations on Transfer and Ownership."
LIMITED PRIOR PUBLIC MARKET
The Company intends to make application to list the Series A Preferred
Shares on the NYSE. However, there can be no assurance that an active trading
market for the Series A Preferred Shares will develop or continue upon
completion of the Offering or that the market price of the Series A Preferred
Shares will not decline below the price to public set forth on the cover page
of this Prospectus.
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.
21
<PAGE>
USE OF PROCEEDS
The Company intends to use all of the net proceeds from the sale of the
Series A Preferred Shares to repurchase Common Shares in accordance with the
Company's capital management strategy. See "Business--Capital Management
Strategy." Pending such repurchase, proceeds from the sale of the Series A
Preferred Shares may be temporarily invested.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
For the purpose of computing the following ratios, (i) "earnings" consist of
earnings from operations before minority interest plus fixed charges and (ii)
"fixed charges" consist of annual agency fees, commitment fees and interest on
any borrowed funds under the Company's credit facility. The pro forma ratios
give effect to the issuance of the Series A Preferred Shares.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED PERIOD
ENDED SEPTEMBER 30, OCTOBER 26, 1993
DECEMBER 31, ------------- TO SEPTEMBER 30,
1996 1996 1995(1) 1994(1)
------------ ----- ------- ----------------
<S> <C> <C> <C> <C>
Ratio of earnings to fixed charges. 419.6 584.1 -- --
Pro forma ratio of earnings to
fixed charges and preferred share
dividends......................... 16.5 19.4 -- --
</TABLE>
- --------
(1) The Company incurred no fixed charges in the year ended September 30, 1995
and the period from October 26, 1993 to September 30, 1994.
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The net proceeds to the Company from the Offering are estimated to be
approximately $72 million after deducting the underwriting discounts and
commissions and estimated offering expenses. The Company intends to use all of
the net proceeds of the Offering, together with excess capital of
approximately $25 million, to repurchase Common Shares in the Tender Offer.
In the Tender Offer the Company may repurchase (i) Common Shares that are
currently issued and outstanding, (ii) Common Shares issuable upon the
exercise of options, (iii) Common Shares issuable upon the exchange of
Exchangeable Non-Voting Shares and (iv) Common Shares issuable upon the
exercise of options to purchase Exchangeable Non-Voting Shares and the
exchange of the Exchangeable Non-Voting Shares so acquired. Any exchanges of
Exchangeable Non-Voting Shares that are made in connection with the Tender
Offer will reduce the minority interest in LaSalle Re.
The following pro forma condensed consolidated balance sheet data, as of
December 31, 1996, give effect to the Offering and the Tender Offer as if they
had occurred as of such date. The following pro forma condensed consolidated
income statement data for the three-month period ended December 31, 1996 and
the year ended September 30, 1996 present consolidated operating results as if
the Offering and the Tender Offer had occurred on the first day of the periods
presented. All of the pro forma condensed consolidated financial data assume,
for purposes of illustration only, that the price per Common Share at which
shares are purchased in the Tender Offer will be $28.375, which was the
closing price per Common Share on the Nasdaq National Market on March 3, 1997.
Such pro forma condensed consolidated financial data do not give effect to any
future repurchases other than the Tender Offer and do not purport to represent
what the Company's financial position or results of operations actually would
have been had the Offering and the Tender Offer in fact occurred on the dates
indicated, or to project the Company's financial position or results of
operations for any future date or period.
23
<PAGE>
LASALLE RE HOLDINGS LIMITED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ 48,819 $ 0 $ 48,819
Investments held as available for
sale................................. 503,230 (25,000)(1) 478,230
Accrued investment income............. 15,150 0 15,150
Reinsurance balances receivable....... 45,845 0 45,845
Deferred acquisition costs............ 6,084 0 6,084
Other assets.......................... 1,714 0 1,714
-------- -------- --------
TOTAL ASSETS........................ $620,842 $(25,000) $595,842
======== ======== ========
LIABILITIES
Reserve for losses and loss expenses.. 45,981 0 45,981
Unearned premium reserve.............. 45,008 0 45,008
Dividend payable...................... 11,728 0 11,728
Other liabilities..................... 15,064 0 15,064
-------- -------- --------
TOTAL LIABILITIES................... 117,781 0 117,781
-------- -------- --------
MINORITY INTEREST....................... 137,462 (31,740)(2) 105,722
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock....................... 0 3,000 (3) 3,000
Common stock.......................... 16,517 (2,295)(2)(4) 14,222
Additional paid in capital............ 254,645 34,389 (2)(3)(5) 289,034
Unrealized gain on investments........ 935 14 (2) 949
Retained earnings..................... 93,502 (28,368)(2)(6) 65,134
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY.......... 365,599 6,740 372,339
-------- -------- --------
TOTAL LIABILITIES, SHAREHOLDERS'
EQUITY AND MINORITY INTEREST....... $620,842 $(25,000) $595,842
======== ======== ========
</TABLE>
24
<PAGE>
LASALLE RE HOLDINGS LIMITED
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT
FOR SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Earned premiums......................... $ 43,123 $ 43,123
Net investment income................... 8,179 $ (369)(7) 7,810
---------- ---------- ----------
Total revenue......................... 51,302 (369) 50,933
---------- ---------- ----------
EXPENSES
Losses and loss expenses incurred....... 10,837 10,837
Underwriting and operational expenses... 11,512 11,512
Corporate expenses...................... 839 300 (8) 1,139
Interest expense........................ 67 67
---------- ---------- ----------
Total expenses........................ 23,255 300 23,555
---------- ---------- ----------
Net income before minority interest....... 28,047 (669) 27,378
Minority interest......................... 6,907 (719)(9) 6,188
---------- ---------- ----------
Net income after minority interest........ 21,140 50 21,190
---------- ---------- ----------
Dividends on preferred stock.............. 0 1,594 (10) 1,594
---------- ---------- ----------
Weighted average common shares............ 24,263,620 (3,448,555)(11) 20,815,065
========== ========== ==========
Earnings per share........................ $1.16 $0.08 (12) $1.24
========== ========== ==========
</TABLE>
25
<PAGE>
LASALLE RE HOLDINGS LIMITED
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT FOR
SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Earned premiums......................... $ 195,141 $ 195,141
Net investment income................... 26,428 $ (1,350)(7) 25,078
---------- ---------- ----------
Total revenue......................... 221,569 (1,350) 220,219
---------- ---------- ----------
EXPENSES
Losses and loss expenses incurred....... 51,477 51,477
Underwriting and operational expenses... 39,508 39,508
Corporate expenses...................... 911 300 (8) 1,211
Interest expense........................ 222 222
---------- ---------- ----------
Total expenses........................ 92,118 300 92,418
---------- ---------- ----------
Net income before minority interest....... 129,451 (1,650) 127,801
Minority interest......................... 47,966 (14,444)(9) 33,522
---------- ---------- ----------
Net income after minority interest........ 81,485 12,794 94,279
---------- ---------- ----------
Dividends on preferred stock.............. 0 6,375 (10) 6,375
---------- ---------- ----------
Weighted average common shares............ 23,967,870 (3,448,555)(11) 20,519,315
========== ========== ==========
Earnings per share........................ $ 5.40 $ 0.52 (12) $ 5.92
========== ========== ==========
</TABLE>
26
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(1) Relates to the use of excess capital as partial funding for the Tender
Offer.
(2) Relates to the reduction in minority interest due primarily to the Tender
Offer. In addition, as part of the Tender Offer, it is assumed that
certain Founding Shareholders will exchange some of their Exchangeable
Non-Voting Shares for Common Shares. On that basis, the Tender Offer will
reduce the minority interest in LaSalle Re, with the Company increasing
its ownership of the outstanding stock of LaSalle Re from approximately
73% to approximately 74%. The Company has continually owned 100% of the
outstanding voting stock of LaSalle Re.
(3) Relates to the Offering. Because the shares are issued with a par value
of $1.00, the pro forma statements show $3,000,000 as preferred stock
with the balance, net of underwriting discounts and commissions, credited
to additional paid-in capital.
(4) Relates to the issue of Common Shares in connection with the exchange of
Exchangeable Non-Voting Shares by certain Founding Shareholders and the
repurchase of Common Shares in the Tender Offer.
(5) Relates to the elimination of the original additional paid-in capital on
the Common Shares repurchased in the Tender Offer.
(6) Relates to the funding of the difference between the price paid for
Common Shares repurchased in the Tender Offer and the original additional
paid-in capital and par value on those Common Shares.
(7) Relates to the interest income foregone on the excess capital of
approximately $25 million used as partial funding for the Tender Offer.
(8) Relates to an estimate of costs associated with the Offering and the
Tender Offer.
(9) Relates to the change in minority interest, due to the exchange of
Exchangeable Non-Voting Shares for Common Shares. With respect to the
fiscal year ended September 30, 1996, the minority interest has been
further reduced by the exchange of certain Exchangeable Non-Voting Shares
in connection with the Secondary Offering.
(10) Relates to the dividends payable on the Series A Preferred Shares
calculated, for illustrative purposes only, at an assumed rate of 8.50%.
(11) Relates to the change in the weighted average number of Common Shares
outstanding, due to the repurchase of Common Shares in the Tender Offer.
(12) Relates to the change in the weighted average number of Common Shares
outstanding, due to the repurchase of Common Shares in the Tender Offer,
and the deduction of the dividends on Series A Preferred Shares from net
income.
27
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the
Company after giving effect to the Offering; and (iii) the pro forma
capitalization of the Company after giving effect to the Offering and the
Tender Offer. The table should be read in conjunction with the Company's
Consolidated Financial Statements and related notes appearing elsewhere or
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
AS FURTHER
AS ADJUSTED ADJUSTED FOR
ACTUAL FOR OFFERING TENDER OFFER
-------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Minority interest(1)................... $137,462 $137,462 $105,722
-------- -------- --------
Shareholders' equity
Common Share capital................. 16,517 16,517 14,222
Series A Preferred Share capital..... 0 3,000 3,000
Additional paid-in capital........... 254,645 324,498 289,034
Retained earnings.................... 93,502 93,502 65,134
Net unrealized gain on investments... 935 935 949
-------- -------- --------
Total shareholders' equity......... 365,599 438,452 372,339
-------- -------- --------
Total capitalization............... $503,061 $575,914 $478,061
======== ======== ========
</TABLE>
- --------
(1) Minority interest represents those shares of LaSalle Re that are held as
Exchangeable Non-Voting Shares. Following the Tender Offer, these shares
will constitute approximately 26% of the capital stock of LaSalle Re.
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."
28
<PAGE>
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 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 December 31, 1996, the Company had Combined Equity of $503.1 million
compared to $412.5 million at December 31, 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. During the three months ended December 31, 1996 and 1995,
the Company wrote net premiums of $5.2 million and $12.6 million,
respectively. There can be no assurance that the Company will achieve similar
results in the future.
DEVELOPMENT OF THE BUSINESS
In October 1993, the Founding Shareholders formed LaSalle Re in Bermuda 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.
In September 1995, Holdings was incorporated in Bermuda as a holding company
in connection with the Company's recapitalization and initial public offering.
Since November 1995, Holdings has owned 100% of the outstanding voting stock
of LaSalle Re and a majority of the outstanding capital stock of LaSalle Re.
The remaining outstanding capital stock of LaSalle Re is held by certain
Founding Shareholders in the form of Exchangeable Non-Voting Shares.
Exchangeable Non-Voting Shares are exchangeable, at the option of the holder,
on a one-for-one basis for Common Shares, unless the Company's Board
determines that such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder.
CAPITAL MANAGEMENT STRATEGY
Since its inception the Company has endeavored to provide liquidity to
shareholders and to pursue a capital management strategy focused on balancing
capital levels with aggregate exposures while seeking to achieve strong
returns on shareholders' equity. Consistent with this strategy, in October
1996 the Company adopted a dividend policy pursuant to which it intended to
distribute in each fiscal year 50% to 60% of its net income from the prior
fiscal year, if any, on a quarterly basis. As part of its capital management
strategy, the Company also announced its intention 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.
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<PAGE>
The Company completed a secondary offering of 3,910,000 Common Shares in
December 1996. The Secondary Offering increased the number of Common Shares
owned by the public (i.e. persons not affiliated with the Founding
Shareholders) from 4,312,500 to 8,222,500 and reduced the percentage of Common
Shares owned by Founding Shareholders to approximately 50%. In addition, as a
result of the exchange of certain Exchangeable Non-Voting Shares in connection
with the Secondary Offering, the Company increased its ownership of the
outstanding capital stock of LaSalle Re from 63% to 73%.
In order to reduce its earnings volatility, protect its capital base and
support its dividend policy, the Company purchased a multi-year excess of loss
reinsurance program effective January 1, 1997. The program is event-based,
providing up to $100 million of coverage in excess of the first $100 million
of losses for the first loss occurrence and $100 million of coverage in excess
of the first $150 million of losses for the second loss occurrence, with a
$200 million aggregate coverage limit over a three-year period. The attachment
point is triggered by losses incurred by the Company rather than industry
losses. The reinsurance is provided by a company which holds a rating of "A+"
(Superior) from A.M. Best and a claims-paying ability rating of "AA" from S&P.
On February 27, 1997 the Board approved the Offering and, contingent on the
completion of the Offering, voted to expand the Company's planned share
repurchase program from the previously announced level of $50 million to a new
level of $125 million of Common Shares. Accordingly, following completion of
the Offering, the Company expects to make a public tender offer to repurchase
approximately $100 million of Common Shares. At a future date, the Company
also expects to repurchase up to $25 million of Common Shares through open
market or privately negotiated transactions. The Board also confirmed the
dividend policy pursuant to which the Company intends to distribute as
dividends to holders of Common Shares and Exchangeable Non-Voting Shares in
each fiscal year 50% to 60% of the amount by which its net income (before
minority interest) from the prior fiscal year exceeds the amount of dividends
payable on Series A Preferred Shares in the current fiscal year.
The Company believes that its capital management strategy is consistent with
its policy to actively manage its capital and its goal to increase shareholder
value. Following consummation of the Repurchases, the Company believes that
its cash, short-term investments and borrowing capacity, together with
anticipated cash flows from operations, will be adequate for its needs in the
foreseeable future. However, the Company's actual experience may differ from
the expectations set forth in the preceding sentence, due to future events
that might have the effect of reducing the Company's available cash balances
(such as operating losses following catastrophes or other adverse events) or
that might reduce or eliminate the availability of external financial
resources. For a discussion of some of the factors that could cause the
Company's actual experience to differ from expectations, investors should
refer to the headings "Risk Factors" and "Note on Forward-Looking Statements."
The Company's capital management strategy is subject to change at the
discretion of the Board, as the Company's ability to implement its capital
management strategy will depend on various factors, some of which are beyond
its control.
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
30
<PAGE>
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. During the
quarter ended December 31, 1996, LaSalle Re Capital was accepted as a
corporate member of Lloyd's, and since January 1, 1997 LaSalle Re Capital has
participated in three Lloyd's syndicates. One of these 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. LaSalle Re Capital provides
capital support to the syndicates through letters of credit.
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 29% and 24% of the contract submissions it received
in the years ended September 30, 1996 and 1995, respectively.
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.
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. The Company
believes that property catastrophe reinsurance capacity has increased further
since 1994. 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 and further in 1996 from
1994 levels. 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 generally 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,
which it expects will in turn put downward pressure on its premium levels.
Based on the 1997 contract renewals that have occurred to date, the Company
estimates that it has experienced overall rate decreases of approximately 15%
compared to 1996. See "Risk Factors--Business Considerations."
For a more complete description of the Company's business, reference is made
to the documents of the Company incorporated by reference in this Prospectus.
See "Incorporation of Certain Documents by Reference."
31
<PAGE>
DESCRIPTION OF SERIES A PREFERRED SHARES
The description of the terms and provisions of the Series A Preferred Shares
in this Prospectus does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the terms and provisions of the
Certificate of Designation and the Bye-Laws, which are incorporated by
reference herein. Copies of the Certificate of Designation 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 100,000,000 shares,
including (i) Common Shares, of which 16,517,485 were outstanding as of March
10, 1997, and (ii) preferred shares, par value $1.00 per share. Pursuant to
the Bye-Laws and Bermuda law, the Board by resolution may issue preferred
shares in series without the approval of the shareholders of the Company. In
connection with any such issuance, the Board may establish the number of
preferred shares to be included in each series and may fix the designation,
powers, preferences and rights of the preferred shares of each series,
including but not limited to such matters as dividends, voting rights,
redemption, conversion and liquidation rights. On February 27, 1997 the Board
authorized the issuance of 3,000,000 Series A Preferred Shares in connection
with the Offering.
When issued and paid for pursuant to the Offering, the Series A Preferred
Shares will be duly authorized, validly issued, fully paid and nonassessable.
The holders of the Series A Preferred Shares will have no preemptive rights
with respect to any shares of the capital stock of the Company or any other
securities of the Company convertible into or carrying rights or options to
purchase any such shares. The Series A Preferred Shares will not be subject to
any sinking fund or other obligation of the Company to redeem or retire the
Series A Preferred Shares. Unless redeemed by the Company, the Series A
Preferred Shares will have a perpetual term, with no maturity.
The transfer agent, registrar and dividend disbursing agent for the Series A
Preferred Shares will be First Chicago Trust Company of New York.
DIVIDENDS
Holders of the Series A Preferred Shares shall be entitled to receive, when,
as and if declared by the Board, out of funds legally available for the
payment of dividends, cumulative preferential cash dividends in an amount per
share equal to % of the liquidation preference per annum (equivalent to $
per share). Such dividends shall begin to accrue and shall be cumulative from
the date of original issuance and shall be payable quarterly, when, as and if
declared by the Board, in arrears on the first day of March, June, September
and December of each year or, if such date is not a business day, on the
business day immediately before such date (each, a "Dividend Payment Date").
The first dividend, which will be payable on June 1, 1997, will represent the
period from the original issue date until the Dividend Payment Date of June 1,
1997. The dividend for such partial dividend period and any other dividend
payable on the Series A Preferred Shares for any other partial dividend period
will be computed on the basis of a 360-day year consisting of twelve 30-day
months. Dividends will be payable to holders of record as they appear in the
Register of Members of the Company at the close of business on the applicable
record date, which shall be on such date designated by the Board for the
payment of dividends that is not more than 60 nor less than 30 days prior to
such Dividend Payment Date (each, a "Dividend Record Date").
No dividends on Series A Preferred Shares shall be declared by the Board or
paid or set apart for payment by the Company at such time as the terms and
provisions of any agreement of the Company, including any agreement relating
to its indebtedness, prohibits such declaration, payment or setting apart for
payment or provides that such declaration, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
declaration, payment or setting apart for payment shall be restricted or
prohibited by law. Notwithstanding the foregoing, dividends on the Series A
Preferred Shares will accrue whether or not there are funds legally available
for the payment of such dividends and whether or not such dividends are
declared. Holders of the Series A Preferred Shares will not be entitled to any
dividends in excess of full
32
<PAGE>
cumulative dividends as described above. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payment or payments on
the Series A Preferred Shares which may be in arrears.
If there shall be any change in the law, regulation or official directive
(whether or not having the force of law) or in the interpretation by any
Bermuda Government authority or court of competent jurisdiction which imposes
on the Company any condition with respect to the Series A Preferred Shares as a
result of which any dividend payment is reduced, the Company shall give notice
to the holders of Series A Preferred Shares of such event and all such
reductions shall be borne in full by the holders of Series A Preferred Shares
(but only to the extent permitted by law).
If any Series A Preferred Shares are outstanding, no dividends or other
distributions shall be declared or paid or set apart for payment on any class
or series of Parity Shares for any period unless either (i) full cumulative
dividends have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for such payments on the
Series A Preferred Shares for all dividend periods terminating on or prior to
the dividend payment date on such Parity Shares, or (ii) all dividends declared
upon the Series A Preferred Shares and any class or series of Parity Shares are
declared pro rata so that the amount of dividends declared per share on the
Series A Preferred Shares and any class or series of Parity Shares shall in all
cases bear to each other the same ratio that accrued and unpaid dividends per
share on the Series A Preferred Shares and such class or series of Parity
Shares bear to each other.
If any Series A Preferred Shares are outstanding, unless full cumulative
dividends on the Series A Preferred Shares and any Parity Shares have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than those paid in Common
Shares or other capital shares ranking junior to the Series A Preferred Shares
as to dividends and as to the distribution of assets upon any liquidation,
dissolution or winding up (together with the Common Shares, "Fully Junior
Shares")) shall be declared or paid or set apart for payment and no other
distribution shall be declared or paid or set apart for payment upon the Common
Shares or any other capital shares ranking junior to the Series A Preferred
Shares as to dividends or as to the distribution of assets upon any
liquidation, dissolution or winding up (together with the Common Shares,
"Junior Shares"), nor shall any Common Shares or any other Junior Shares be
redeemed, purchased or otherwise acquired (other than a redemption, purchase or
other acquisition of Common Shares made for purposes of an employee incentive
or benefit plan of the Company or any subsidiary) for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption of
any Common Shares or any other Junior Shares) by the Company (except by
conversion into or exchange for Fully Junior Shares).
Any dividend payment made on Series A Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
Series A Preferred Shares which remains payable.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any dividend or payment shall be made
or set apart for payment to the holders of any Common Shares or any other class
or series of Junior Shares, the holders of Series A Preferred Shares shall be
entitled to receive out of assets of the Company legally available for
distribution to shareholders, liquidating distributions in the amount of the
liquidation preference ($25.00 per share), plus an amount equal to all
dividends accrued and unpaid thereon. After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Series A
Preferred Shares will have no right or claim to any of the remaining assets of
the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Series A Preferred Shares and the corresponding amounts payable on
all classes or series of Parity Shares, then the holders of the Series A
Preferred Shares and all such classes or series of Parity Shares shall share
ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
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<PAGE>
If liquidating distributions shall have been made in full to all holders of
Series A Preferred Shares and all classes or series of Parity Shares, the
remaining assets of the Company shall be distributed among the holders of
Common Shares or any other classes or series of Junior Shares, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation,
amalgamation or merger of the Company with or into any other entity, the sale,
lease or conveyance of all or substantially all of the shares of capital stock
or the property or business of the Company or a statutory share exchange shall
not be deemed to constitute a liquidation, dissolution or winding up of the
Company.
REDEMPTION
Except under certain special circumstances as described below, the Series A
Preferred Shares are not redeemable prior to March , 2007. On and after
such date, the Company, at its option upon not less than 30 nor more than 90
days' written notice, may redeem the Series A Preferred Shares, in whole at
any time or from time to time in part, for cash at a redemption price of
$25.00 per share, plus all accrued and unpaid dividends, if any, thereon to
the date fixed for redemption, without interest. Holders of Series A Preferred
Shares to be redeemed shall surrender certificates for such Series A Preferred
Shares at the place designated in such notice and shall be entitled to the
redemption price and any accrued and unpaid dividends payable upon such
redemption following such surrender.
If fewer than all of the outstanding Series A Preferred Shares are to be
redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares), by lot or by any
other method determined by the Company in its sole discretion to be equitable.
Unless full cumulative dividends on all Series A Preferred Shares and all
Parity Shares shall have been declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no Series A Preferred Shares or
any Parity Shares shall be redeemed, purchased or otherwise acquired by the
Company unless all outstanding Series A Preferred Shares and any Parity Shares
are redeemed; provided, however, that the foregoing shall not prevent the
purchase or acquisition by the Company of fewer than all of the outstanding
Series A Preferred Shares or Parity Shares pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Series A Preferred
Shares and Parity Shares or pursuant to a repurchase of Excess Preferred
Shares as described below.
At any time prior to March , 2007, if the Company shall have submitted to
the holders of its Common Shares a proposal for amalgamation, consolidation,
merger or statutory share exchange, or any proposal for any other matter that
requires for its validation or effectuation an affirmative vote of the holders
of the Series A Preferred Shares at the time outstanding, acting as a single
class, the Company, at its option upon not less than 30 nor more than 90 days'
written notice, may redeem all of the outstanding Series A Preferred Shares at
a redemption price of $26.00 per share, plus accrued and unpaid dividends, if
any, to the date of redemption.
Notice of any redemption will be mailed at least 30 days but not more than
90 days before the redemption date to each holder of record of Series A
Preferred Shares to be redeemed at the address shown in the Register of
Members of the Company. Each notice shall state, as appropriate: (i) the
redemption date; (ii) the number of Series A Preferred Shares to be redeemed;
(iii) the redemption price; (iv) the place or places where certificates for
Series A Preferred Shares are to be surrendered for payment of the redemption
price; and (v) that, where applicable, dividends on the Series A Preferred
Shares to be redeemed will cease to accrue on such redemption date. If fewer
than all Series A Preferred Shares are to be redeemed, the notice mailed to
each such holder thereof shall also specify the number of Series A Preferred
Shares to be redeemed from such holder. If notice of redemption of any Series
A Preferred Shares has been given and if the funds necessary for such
redemption have been set apart by the Company in trust for the benefit of the
holders of Series A Preferred Shares so called for redemption, then from and
after the redemption date, dividends will cease to accrue on the Series A
Preferred
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<PAGE>
Shares being redeemed, such Series A Preferred Shares shall no longer be deemed
to be outstanding and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
The holders of Series A Preferred Shares at the close of business on a
Dividend Record Date will be entitled to receive the dividend payable with
respect to such Series A Preferred Shares on the corresponding Dividend Payment
Date notwithstanding the redemption thereof between such Dividend Record Date
and the corresponding Dividend Payment Date or the Company's default in the
payment of the dividend due. Except as provided above, the Company will make no
payment or allowance for unpaid dividends, whether or not in arrears, on Series
A Preferred Shares which have been called for redemption.
SPECIAL REPRESENTATION AND VOTING RIGHTS; RELATIONSHIP TO PREFERRED SHARES OF
LASALLE RE
Except as indicated below, or except as otherwise from time to time required
by applicable law, the holders of Series A Preferred Shares will have no voting
rights.
Whenever dividends payable on Series A Preferred Shares or any class or
series of Parity Shares shall be in arrears (whether or not such dividends have
been earned or declared) in an amount equivalent to dividends for six full
dividend periods (whether or not consecutive), then, immediately upon the
happening of such event, the holders of Series A Preferred Shares, together
with the holders of shares of every other class or series of Parity Shares (all
such other classes or series, the "Voting Preferred Shares"), voting as a
single class regardless of class or series, shall have the right to elect two
Special Representatives to the Board of the Company. The Special
Representatives shall not be directors or officers of the Company but shall be
entitled to receive notice of all Board meetings and to take part in such Board
meetings, with the privilege of voice but not vote. In addition, at all times
when the holders of the Series A Preferred Shares and the Voting Preferred
Shares have the right to be represented by such Special Representatives at the
Company Board level, the Company shall be obligated to cause, to the extent
permitted under Bermuda law, the election of two additional directors to the
LaSalle Re board (which currently includes thirteen members) who shall be
designated by the Special Representatives (the "Subsidiary Voting Right"). The
Subsidiary Voting Right will allow the holders of the Company's Series A
Preferred Shares and the Voting Preferred Shares to have the right to exercise,
in effect, voting rights through board members at the LaSalle Re board level
under such circumstances. Whenever all arrearages in dividends on the Series A
Preferred Shares and the Voting Preferred Shares then outstanding shall have
been paid and dividends thereon for the current quarterly dividend period shall
have been paid or declared and set apart for payment, then the right of holders
of the Series A Preferred Shares and the Voting Preferred Shares to be
represented by Special Representatives and the Subsidiary Voting Right shall
cease (but subject always to the same provision for the vesting of such rights
in the case of any future arrearages in an amount equivalent to dividends for
six full dividend periods), and the positions of the Special Representatives
and the additional directors elected at the LaSalle Re board level shall
forthwith terminate.
Contemporaneously with the issuance of the 3,000,000 Series A Preferred
Shares by the Company pursuant to the Offering, LaSalle Re will issue an
equivalent number of its own Series A Preferred Shares, par value $1.00 per
share ("the Subsidiary Preferred Shares"). All of the Subsidiary Preferred
Shares will be owned by the Company. The Subsidiary Preferred Shares will have
identical dividend rights and liquidation rights to the Series A Preferred
Shares, but will be redeemable at any time at the option of LaSalle Re,
provided that the Company shall make alternative arrangements to provide a
means for it to continue to have adequate resources to meet its dividend
obligations to the holders of its Series A Preferred Shares.
Whenever dividends payable on Subsidiary Preferred Shares or shares ranking
on a parity with such shares shall be in arrears (whether or not such dividends
have been earned or declared) in an amount equivalent to dividends for six full
dividend periods (whether or not consecutive), then, immediately upon the
happening of such event, the Company as holder of the Subsidiary Preferred
Shares (along with the holders of any parity shares) shall acquire the right
(the "Subsidiary Preferred Voting Right") to elect two additional members of
the board of directors of LaSalle Re. The Subsidiary Preferred Voting Right
shall correlate to the Subsidiary
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Voting Right described above such that there shall be no more than a total of
two additional directors elected to the board of LaSalle Re at any time
pursuant to such rights. The Company shall be obligated under such
circumstances to exercise the Subsidiary Preferred Voting Right for the
election of such additional directors in such manner as the Special
Representatives elected at the Company Board level as described above shall
direct. The Subsidiary Preferred Voting Right will allow the holders of the
Company's Series A Preferred Shares and the Voting Preferred Shares to have
the right to exercise, in effect, voting rights through board members at the
LaSalle Re board level under such circumstances. Whenever all arrearages in
dividends on the Subsidiary Preferred Shares and any parity shares shall have
been paid and dividends thereon for the current quarterly dividend period
shall have been paid or declared and set apart for payment, then the
Subsidiary Preferred Voting Right shall cease (but subject always to the same
provision for the vesting of such rights in the case of any future arrearages
in an amount equivalent to dividends for six full dividend periods), and the
terms of office of all persons elected pursuant to the Subsidiary Preferred
Voting Right as additional members of the board of directors of LaSalle Re
shall forthwith terminate.
As to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Company, the Subsidiary
Preferred Shares shall rank junior to the preferred stock of LaSalle Re
authorized in connection with the Company's credit facility but currently
unissued.
So long as any Series A Preferred Shares are outstanding, in addition to any
other vote or consent of shareholders required by law or by the Company's Bye-
Laws, as amended, the affirmative vote of the holders of at least 75% of the
Series A Preferred Shares at the time outstanding, acting as a single class,
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating (i) any amendment, alteration or repeal of any of the provisions of
the Company's Memorandum of Association, Bye-Laws or the Certificate of
Designation that would vary the rights, preferences or voting powers of the
holders of the Series A Preferred Shares; (ii) any amalgamation,
consolidation, merger or statutory share exchange that affects the Series A
Preferred Shares, unless in each such case each Series A Preferred Share shall
remain outstanding with no variation in its rights, preferences or voting
powers or shall be converted into or exchanged for preferred shares of the
surviving entity having rights, preferences and voting powers identical to
that of a Series A Preferred Share; (iii) the authorization, creation or any
increase in the authorized amount of, any shares of any class or series or any
security convertible into shares of any class or series ranking prior to the
Series A Preferred Shares in the payment of dividends or the distribution of
assets on any liquidation, dissolution or winding up of the Company; or (iv)
any other transaction or action which would amount to a variation of the
rights, preferences or voting powers of the holders of the Series A Preferred
Shares. However, no such vote of the holders of Series A Preferred Shares is
required if, prior to the time when any of the foregoing actions is to take
effect, all Series A Preferred Shares at the time outstanding shall have been
redeemed. See "--Redemption." The Company may also create and issue additional
classes or series of Parity Shares and Fully Junior Shares without the consent
of any holder of Series A Preferred Shares. The holders of Series A Preferred
Shares are not entitled to vote on any sale of all or substantially all of the
assets of the Company.
CONVERSION
The Series A Preferred Shares are not convertible into or exchangeable for
any other securities of the Company.
LIMITATIONS ON TRANSFER AND OWNERSHIP
The Certificate of Designation provides that no person may acquire ownership
of more than 9.9% of the outstanding Series A Preferred Shares. Any Series A
Preferred Shares owned by a person in excess of such 9.9% shall be deemed
"Excess Preferred Shares." Within 10 days of becoming aware of the existence
of Excess Preferred Shares (whether by notice on Schedule 13D or otherwise),
the Company shall initiate the repurchase of any and all Excess Preferred
Shares by giving notice of repurchase to the holder or holders thereof. The
repurchase shall be completed on a closing date not more than 10 days after
the date on which the Company
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mails the repurchase notice. The Company will be entitled to assign its
repurchase right to a third party or parties, who may be other shareholders of
the Company, with the consent of any such assignee. The repurchase price of
each Excess Preferred Share called for repurchase shall be the average daily
per share closing price of the Series A Preferred Shares, if the Series A
Preferred Shares are listed on a national securities exchange or are reported
on the Nasdaq National Market System, and if the Series A Preferred Shares are
not so listed or reported, shall be the mean between the average per share
closing bid prices and the average per share closing asked prices of the
Series A Preferred Shares, in each case during the 30-day period ending on the
business day prior to the mailing date of the repurchase notice, or if there
have been no sales on a national securities exchange or the Nasdaq National
Market System and no published bid quotations and no published asked
quotations with respect to Series A Preferred Shares during such 30-day
period, the repurchase price shall be the price determined by the Board in
good faith. The foregoing limitation on ownership shall not apply to the
acquisition of Series A Preferred Shares by an underwriter in a public
offering of Series A Preferred Shares and shall not apply to the ownership of
Series A Preferred Shares by a managing underwriter in the initial public
offering of Series A Preferred Shares. The Board, in its sole and absolute
discretion, may exempt from the 9.9% ownership limitation certain designated
Series A Preferred Shares owned by a person who has provided the Board with
evidence and assurances acceptable to the Board that ownership of such shares
will cause no adverse tax, legal or regulatory consequences to the Company,
any of its subsidiaries or any of its shareholders.
Under the Bye-Laws, any transfer of Series A Preferred Shares that results
in a shareholder (other than an Investment Company) beneficially owning more
than 5.0% of the outstanding capital stock of Holdings or any shareholder
holding Controlled Shares in excess of 9.9% of the outstanding capital stock
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. 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 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.
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 exempted company 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
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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 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 its Memorandum of Association or
the 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 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.
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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.
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' Series A Preferred 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 Series A
Preferred 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 Series A Preferred 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 Offering 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, Series A Preferred 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 as to such tax laws
(subject to the qualifications and assumptions set forth in such opinion).
Statements below as to the United Kingdom tax law are based on the opinion of
Clyde & Co., U.K. counsel to the Company as to such tax laws (subject to the
qualifications and assumptions set forth in such opinion). 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 as to such tax laws
(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.
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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 any property leased to Holdings, LaSalle
Re and LaSalle Re Capital. Holdings, LaSalle Re and LaSalle Re Capital, under
current rates, each pay annual Bermuda government fees of $15,000, $15,000 and
$1,680, respectively, and each of LaSalle Re and LaSalle Re Capital currently
pays annual insurance fees of $1,155. In addition, all entities employing
individuals in Bermuda are required to pay a payroll tax to the Bermuda
government.
United Kingdom
LaSalle Re Services is subject to tax in the United Kingdom on its income
and is also required to charge and account to the U.K. Inland Revenue for
value added tax on chargeable supplies of services. However, the Company
believes that the taxable income of LaSalle Re Services will be modest, and
that its tax liability is and will continue to be small. LaSalle Re Capital is
a corporate member of Lloyd's and is subject to U.K. corporation tax on any
profits and gains, net of deductible expenditure, deriving from its
participation in any Lloyd's syndicates. 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 relating to the taxation of insurance
enterprises (the "Bermuda Treaty"). Pursuant to the Bermuda Treaty business
profits earned by an insurance company that is a resident 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, an insurance enterprise resident in Bermuda 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
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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
the 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 Holdings 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
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 is a corporate member of Lloyd's. Pursuant to a Closing
Agreement between Lloyd's and the IRS, LaSalle Re Capital will be treated as
engaged in business in the U.S. and is 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
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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
Series A Preferred 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 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, except to the extent that LaSalle Re
Capital's income qualifies for an exception from the subpart F rules as
described below. "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 (i) 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 and
(ii) certain income subject to high foreign taxes.
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
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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 that is held
indirectly by U.S. persons through Holdings or any other non-U.S. entity is
treated as held by United States persons. A holder of Series A Preferred
Shares will be treated as owning indirectly a proportion of the capital stock
of LaSalle Re and LaSalle Re Capital corresponding to the ratio that the
Series A Preferred Shares owned by such person bears to the value of all the
capital stock of Holdings. The Certificate of Designation provides that no
person may acquire ownership of more than 9.9% of the outstanding Series A
Preferred Shares, and that the Company shall repurchase any shares owned by a
person in excess of such 9.9% within 20 days of becoming aware of such excess
ownership. The Board may exempt from the foregoing requirement any person who
has provided evidence that such ownership will cause no adverse tax, legal or
regulatory consequences to the Company, any of its subsidiaries or any of its
shareholders. In addition, the Bye-Laws require prior Board approval for any
transfer of shares that results in any shareholder (other than an Investment
Company) beneficially owning more than 5.0% of the outstanding capital stock
of Holdings or any shareholder holding actually, indirectly through foreign
entities or constructively more than 9.9% of the outstanding capital stock of
Holdings. 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 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. See "Description of
Series A Preferred Shares--Limitations on Transfer and Ownership." Because of
the foregoing provisions, the Company believes that neither Holdings, LaSalle
Re nor LaSalle Re Capital is a CFC under the general rules described above.
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 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 Series A Preferred 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 Series A
Preferred 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
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indirectly through foreign 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
(the "RPII 20% Ownership Exception"), or the RPII of each of LaSalle Re
Capital, determined on a gross basis, is less than 20% of such corporation's
gross insurance income for such taxable year (the "RPII 20% Gross Income
Exception"), 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 taxable 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 LaSalle Re's 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 taxable 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 Series A Preferred 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 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, Series A Preferred Shares, 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 or LaSalle Re Capital does not meet either the
RPII 20% Ownership Exception or the RPII 20% Gross Income Exception 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 Series A Preferred Shares, 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. The
aggregate amount of RPII allocable to U.S. Holders of Series A
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Preferred Shares who are required to include RPII of LaSalle Re or LaSalle Re
Capital in income for a given taxable year normally is the amount of RPII
which bears the same ratio to the total RPII of such corporation for that
taxable year as the amount of earnings and profits which would be distributed
indirectly through Holdings with respect to the Series A Preferred Shares if
all earnings and profits of such corporation were distributed on the last day
of that taxable year bears to the total earnings and profits of such
corporation for that taxable year which would be distributed with respect to
all shares of such corporation owned, directly or indirectly through Holdings,
by U.S. Holders. If LaSalle Re or LaSalle Re Capital has RPII and Holdings
makes a distribution of such RPII to a U.S. Holder with respect to the Series
A Preferred Shares, such dividends will not be taxable to the extent of any
RPII that has been included in the gross income of such holders for the
taxable year in which the distribution was paid or for any prior year.
Basis Adjustments. A RPII shareholder's tax basis in its Series A Preferred
Shares, Common Shares or shares of LaSalle Re will be increased by the amount
of any RPII that the shareholder includes in income. The RPII shareholder's
tax basis in its Series A Preferred Shares, 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 taxable 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 Series A Preferred Shares, 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 taxable
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, LaSalle Re or LaSalle Re Capital, 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 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.
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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 Series A Preferred 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
Series A Preferred 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
Series A Preferred Shares and the amount realized on the sale, exchange or
other disposition. If a U.S. Holder's holding period for the Series A
Preferred 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 such
corporation meets either the RPII 20% Ownership Exception or the RPII 20%
Gross Income Exception. 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 Series A Preferred 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
Series A Preferred 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 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 Series A Preferred Shares should
consult his tax advisor as to the effects of these uncertainties.
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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 Series A Preferred 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.
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 Series A Preferred 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.
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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 Series A Preferred Shares to holders of Series A Preferred Shares or to
paying agents or custodians located in the United States. In addition, a
holder of Series A Preferred 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 Series A Preferred 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
Series A Preferred Shares should consult their own tax advisors regarding the
possible applicability of the back-up withholding provisions to sales of their
Series A Preferred Shares.
If a non-U.S. holder sells Series A Preferred 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 Series A Preferred
Shares, or of a person treated as a holder of Series A Preferred 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 Series A
Preferred 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 SERIES A PREFERRED SHARES.
48
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof, each Underwriter named below, 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 Company has agreed to sell to such Underwriter, the number
of Series A Preferred Shares set forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Smith Barney Inc................................................
Lazard Freres & Co. LLC.........................................
Morgan Stanley & Co. Incorporated...............................
---------
Total....................................................... 3,000,000
=========
</TABLE>
The Underwriters initially propose to offer part of the Series A Preferred
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 Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share to the other Underwriters or to
certain other dealers. After the initial offering of the Series A Preferred
Shares to the public, the public offering price and such concessions may be
changed by the Underwriters.
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Series A Preferred 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
Series A Preferred Shares offered hereby if any such Series A Preferred Shares
are taken.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
The Series A Preferred Shares are a new issue of securities with no
established trading market. The Company intends to make application to list
the Series A Preferred Shares on the New York Stock Exchange. There can be no
assurance that the Series A Preferred Shares will be so listed or will
continue to be listed; however, it is expected that the Series A Preferred
Shares will commence trading on the New York Stock Exchange within a 30-day
period after the initial delivery of the Series A Preferred Shares. The
Company has been advised by the Representatives that they presently intend to
make a market in the Series A Preferred Shares, although they are under no
obligation to do so and they may discontinue any such market making at any
time in their sole discretion. Accordingly, no assurance can be given as to
the liquidity of, or the trading markets for, the Series A Preferred Shares.
The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. Over-
allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
Series A Preferred Shares in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when
the Series A Preferred Shares originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Series A Preferred Shares to be higher
than it would otherwise be in the absence of such transactions. These
transactions may be effected on the New York Stock Exchange or otherwise 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.
49
<PAGE>
LEGAL MATTERS
The validity of the Series A Preferred Shares under Bermuda law will be
passed upon for the Company by Conyers Dill & Pearman, Hamilton, Bermuda.
Certain legal matters in connection with the Offering will be passed upon for
the Company 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 incorporated by reference herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick, independent
auditors, incorporated by reference herein and in the Registration Statement
of which this Prospectus is a part, and upon the authority of said firm as
experts in accounting and auditing.
50
<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").
51
<PAGE>
Layer. See "Excess of loss reinsurance."
Lloyd's. Lloyd's of London, the formal name of which is "Underwriters at
Lloyd's, London," refers to a marketplace located in London, England at which
collections of individuals (referred to as "Names") and corporate members
supply the capital support to individual syndicates to underwrite risks
through policies of insurance and reinsurance. The policy liabilities are
assumed by the Names and corporate members on a several and not a joint basis.
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.
52
<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.
53
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO
WHICH IT RELATES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH OFFER IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforcement of Civil Liabilities under United States Federal Securities
Laws..................................................................... 3
Available Information..................................................... 3
Incorporation of Certain Documents by
Reference................................................................ 4
Note on Forward-Looking Statements........................................ 5
Prospectus Summary........................................................ 6
Risk Factors.............................................................. 14
Use of Proceeds........................................................... 22
Ratio of Earnings to Combined Fixed
Charges and Preferred Share Dividends.................................... 22
Pro Forma Condensed Consolidated Financial Data........................... 23
Capitalization............................................................ 28
Business.................................................................. 29
Description of Series A Preferred Shares.................................. 32
Certain Tax Considerations................................................ 39
Underwriting.............................................................. 49
Legal Matters............................................................. 50
Experts................................................................... 50
Glossary of Selected Insurance and
Reinsurance Terms........................................................ 51
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
LASALLE RE
HOLDINGS LIMITED
SERIES A PREFERRED SHARES
--------
PROSPECTUS
MARCH , 1997
--------
SMITH BARNEY INC.
LAZARD FRERES & CO. LLC
MORGAN STANLEY & CO.
INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. 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. All amounts shown are estimates, except the Commission registration
fee and the NYSE listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 22,728
NYSE listing fee ............................................... *
Printing and engraving.......................................... *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Custodian fees and expenses..................................... *
Blue sky fees and expenses...................................... 6,000
Miscellaneous................................................... *
--------
Total....................................................... $ *
========
</TABLE>
- --------
*To be filed by amendment
ITEM 15. 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 in
certain circumstances and specifically to indemnify its directors and officers
against all amounts actually and reasonably incurred to Holdings or its
shareholders 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 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
The following documents are filed with this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
------- ---
<C> <S> <C>
1.1* Form of Underwriting Agreement.
4.1 Memorandum of Association (Incorporated by reference to
Exhibit 3.1 to Registration Statement on Form S-1 (No. 33-
97304)).
4.2 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)).
4.3* Form of Certificate of Designation, Preferences and Rights
of Series A Preferred Shares of LaSalle Re Holdings Limited.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
------- ---
<C> <S> <C>
5.1* Opinion of Conyers Dill & Pearman regarding the validity of
the Series A Preferred Shares.
8.1 Opinion of Conyers Dill & Pearman regarding certain Bermuda
tax matters (included in Exhibit 5.1).
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.
12.1 Statement Re: Computation of Ratios.
23.1 Consent of Conyers Dill & Pearman (included in Exhibit 5.1).
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.
24.1 Powers of Attorney (included in signature pages).
</TABLE>
- --------
*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 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) For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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.
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.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN HAMILTON, BERMUDA ON THE 13TH DAY OF MARCH, 1997.
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, IVAN P. BERK AND CLARE MORAN, 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 INDICATED AND ON THE 13TH DAY OF MARCH, 1997.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<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
/s/ William J. Adamson, Jr. 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
/s/ Jonathan H. Kagan Director
___________________________________________
Jonathan H. Kagan
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<S> <C>
/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-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
------- --------------------------------------------------------------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
4.1 Memorandum of Association (Incorporated by reference to
Exhibit 3.1 to Registration State-
ment on Form S-1 (No. 33-97304)).
4.2 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)).
4.3* Form of Certificate of Designation, Preferences and Rights of
Series A Preferred Shares of LaSalle Re Holdings Limited.
Opinion of Conyers Dill & Pearman regarding the validity of
5.1* the Series A Preferred Shares.
8.1 Opinion of Conyers Dill & Pearman regarding certain Bermuda
tax matters (included in
Exhibit 5.1).
Opinion of Mayer, Brown & Platt regarding certain U.S. tax
8.2* matters.
8.3* Opinion of Clyde & Co regarding certain U.K. tax matters.
12.1 Statement Re: Computation of Ratios.
23.1 Consent of Conyers Dill & Pearman (included in Exhibit 5.1).
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.
24.1 Powers of Attorney (included in signature pages).
</TABLE>
- --------
* To be filed by amendment
<PAGE>
Exhibit 12.1
LaSalle Re Holdings Limited
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
(Expressed in thousands of United States Dollars, except for ratios)
<TABLE>
<CAPTION>
Period from
Three months Fiscal year Fiscal year October 26,
ended ended ended 1993 to
December 31, September 30, September 30, September 30,
1996 1996 1995 1994
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Earnings available for fixed charges and
preferred share dividends
Income from operations before
minority interest 28,047 129,451 104,448 29,899
Interest expense 67 222 0 0
Preferred share dividends 0 0 0 0
------ ------- ------- ------
Total earnings available for
fixed charges and preferred
share dividends 28,114 129,673 104,448 29,899
====== ======= ======= ======
Fixed charges and preferred share dividends
Interest expense 67 222 0 0
------ ------- ------- ------
Total fixed charges 67 222 0 0
====== ======= ======= ======
Preferred share dividends 0 0 0 0
------ ------- ------- ------
Combined fixed charges and
preferred share dividends 67 222 0 0
====== ======= ======= ======
Ratio of earnings to combined fixed charges
and preferred share dividends 419.6 584.1 -- --
</TABLE>
<PAGE>
Pro Forma Computation to Give Effect to the Issuance of
the Series A Preferred Shares
<TABLE>
<CAPTION>
Three months Fiscal year
ended ended
December 31, September 30,
1996 1996
------------ -------------
<S> <C> <C>
Earnings available for fixed charges and
preferred share dividends
Income from operations before
minority interest 27,378 127,801
Interest expense 67 222
------ -------
Total earnings available for
fixed charges and preferred
share dividends 27,445 128,023
====== =======
Fixed charges and preferred share dividends
Interest expense 67 222
------ -------
Total fixed charges 67 222
====== =======
Preferred share dividends 1,594 6,375
------ -------
Combined fixed charges and
preferred share dividends 1,661 6,597
====== =======
Ratio of earnings to combined fixed charges
and preferred share dividends 16.5 19.4
</TABLE>
<PAGE>
Consent of Independent Chartered Accountants Exhibit 23.4
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 incorporated by reference 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 incorporated by reference herein and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick
Chartered Accountants
Hamilton, Bermuda
March 4, 1997
