<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 1-12823
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LaSalle Re Holdings Limited
(Exact name of registrant as specified in its charter)
Bermuda Not applicable
------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Continental Building, 25 Church Street, Hamilton HM12, Bermuda
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(Address of principal executive offices)
441-292-3339
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] Not applicable [ ]
The number of the Registrant's Common Shares (par value $1.00 per share)
outstanding as of February 7, 2000 was 15,610,348.
<PAGE>
LaSalle Re Holdings Limited
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ITEM 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1999 and September 30, 1999........................................... 3
Consolidated Statements of Operations and Comprehensive Income
Three Months ended December 31, 1999 and 1998...................................... 4
Consolidated Statements of Changes in Shareholders' Equity
Three Months ended December 31, 1999 and 1998...................................... 5
Consolidated Statements of Cash Flows
Three Months ended December 31, 1999 and 1998...................................... 6
Notes to Unaudited Consolidated Financial Statements............................... 7
ITEM 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition...................................... 9
ITEM 2A. Quantitative and Qualitative Disclosure about Market Risk.......................... 14
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................................. 15
ITEM 2. Changes in Securities and Use of Proceeds.......................................... 15
ITEM 3. Defaults upon Senior Securities.................................................... 15
ITEM 4. Submission of Matters to a Vote of Security Holders................................ 15
ITEM 5. Other information.................................................................. 15
ITEM 6. Exhibits and Reports on Form 8-K................................................... 15
Signatures.................................................................................... 16
</TABLE>
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2
<PAGE>
LaSalle Re Holdings Limited
Consolidated Balance Sheets
(Expressed in thousands of United States Dollars,
except share and per share data)
Unaudited
<TABLE>
<CAPTION>
======================================================================================
December 31, 1999 September 30, 1999
<S> <C> <C>
Assets
Cash and cash equivalents $147,885 $193,151
Investments held as available for sale at
fair value 411,706 363,825
(amortized cost $421,546; $369,179)
Accrued investment income 12,215 10,075
Reinsurance balances receivable 78,424 93,163
Deferred acquisition costs 8,470 11,911
Prepaid reinsurance premiums 11,137 17,310
Outstanding losses recoverable from
reinsurers 17,776 9,100
Other assets 38,555 37,572
-------- --------
Total assets $726,168 $736,107
======== ========
Liabilities
Reserve for losses and loss expenses $190,352 $146,552
Unearned premium reserve 49,895 77,049
Other liabilities 37,055 37,254
Dividend payable 0 0
-------- --------
Total liabilities 277,302 260,855
-------- --------
Minority interest 86,906 93,055
-------- --------
Shareholders' equity
Share capital authorised in the aggregate
100,000,000 shares, par value $1
Preferred shares
(issued & outstanding, 3,000,000 Series A
preferred shares par value $1,
liquidation preference $25 per share) 3,000 3,000
Common shares
(issued & outstanding, 15,603,652;
15,600,262 par value $1) 15,604 15,600
Additional paid in capital 293,305 293,709
Accumulated other comprehensive income
Unrealized loss on investments (7,542) (4,113)
Deferred compensation (447) (516)
Retained earnings 58,040 74,517
-------- --------
Total shareholders' equity 361,960 382,197
-------- --------
Total liabilities, minority interest and
shareholders' equity $726,168 $736,107
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
LaSalle Re Holdings Limited
Consolidated Statements of Operations and Comprehensive Income
(Expressed in thousands of United States Dollars, except share and per
share data)
Unaudited
================================================================================
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1999 December 31, 1998
<S> <C> <C>
Revenues
Gross premiums written $ 10,307 $11,811
Premiums ceded (897) (983)
-------- -------
Net premiums written 9,410 10,828
Change in unearned premiums 20,981 24,302
-------- -------
Net premiums earned 30,391 35,130
Net investment income 8,588 7,954
Net realized gains on investments 0 2,192
-------- -------
Total revenues 38,979 45,276
-------- -------
Expenses
Net losses and loss expenses incurred 46,642 30,586
Underwriting expenses 6,812 5,664
Operational expenses 3,599 2,436
Corporate expenses 1,383 71
Interest expense 346 465
Exchange loss (gain) 28 (805)
-------- -------
Total expenses 58,810 38,417
-------- -------
(Loss) income before minority interest (19,831) 6,859
Minority interest (4,990) 1,155
-------- -------
Net (loss) income (14,841) 5,704
Other comprehensive income
Unrealized (losses) gains on securities (3,429) (3,945)
Less: reclassification adjustments
for (losses) included in net income 0 (2,057)
-------- -------
Total other comprehensive (loss) income (3,429) (6,002)
-------- -------
Comprehensive (loss) income $(18,270) $ (298)
======== =======
(Losses) earnings per common share $ (1.06) $ 0.26
======== =======
(Losses) earnings per common share - assuming dilution $ (1.06) $ 0.25
======== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
LaSalle Re Holdings Limited
Consolidated Statements of Changes in Shareholders' Equity
(Expressed in thousands of United States Dollars,
except share and per share data)
Unaudited
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<TABLE>
<CAPTION>
Three Months Ended
December 31, 1999 December 31, 1998
<S> <C> <C>
Preferred shares par value $1
Balance at beginning and end of period $ 3,000 $ 3,000
========== ===========
Common shares par value $1
Balance at beginning of period $ 15,600 $ 15,179
Exercise of share options 0 6
Issue of shares 4 660
Share repurchase 0 (65)
----------- ------------
Balance at end of period $ 15,604 $ 15,780
========== ===========
Additional paid in capital
Balance at beginning of period $293,709 $295,578
Issue of shares 55 427
Share repurchase 0 (1,015)
Change in minority interest 10 2,145
Equity put option premium (469) 0
----------- ------------
Balance at end of period $293,305 $297,135
========== ===========
Accumulated other comprehensive income
Balance at beginning of period $ (4,113) $ 13,838
Unrealized (loss) profit in period (3,429) (6,135)
Change in minority interest 0 133
----------- ------------
Balance at end of period $ (7,542) $ 7,836
========== ===========
Deferred compensation
Balance at beginning of period $ (516) $ 0
Amortization 69 0
Change in minority interest 0 0
----------- ------------
Balance at end of period $ (447) $ 0
========== ===========
Retained earnings
Balance at beginning of period $ 74,517 $102,458
Net Income (14,841) 5,704
Common share dividends 0 (5,916)
Preferred share dividends (1,641) (1,641)
Exercise of share options 0 (509)
Share repurchase 0 (272)
Change in minority interest 5 992
----------- ------------
Balance at end of period $ 58,040 $100,816
========== ===========
Total shareholders' equity $361,960 $424,567
========== ===========
See accompanying notes to unaudited financial statements
</TABLE>
<PAGE>
LaSalle Re Holdings Limited
Consolidated Statements of Cash Flows
(Expressed in thousands of United States Dollars)
Unaudited
===============================================================================
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1999 December 31, 1998
<S> <C> <C>
Cash flows from operating activities
Net income $(14,841) $ 5,704
Adjustments to reconcile net income to
cash provided by operating activities:
Minority interest in net income (4,990) 1,155
Amortization of investment premium 81 190
Net gain on sale of investments 0 (2,192)
Unrealized loss (gain) on foreign exchange 193 10
Changes in:
Accrued investment income (2,139) (929)
Reinsurance balances receivable 14,770 19,702
Deferred acquisition costs 3,441 3,313
Prepaid reinsurance premiums 6,172 1,682
Outstanding losses recoverable from reinsurers (8,676) 0
Other assets (1,000) (3,960)
Reserve for losses and loss expenses 43,593 2,676
Unearned premium reserve (27,154) (25,985)
Other liabilities (199) (4,894)
--------- ---------
Cash provided by operating activities 9,251 (3,528)
--------- ---------
Cash flows from investing activities
Purchase of investments (62,430) (69,707)
Proceeds on the sale of investments 10,000 103,478
Proceeds on the maturity of investments 0 0
--------- ---------
Cash provided by investing activities (52,430) 33,771
--------- ---------
Cash flows from financing activities
Issue of shares 23 1,165
Dividends paid (1,641) (16,384)
Share repurchases 0 (1,346)
Equity put option premium (469) (660)
--------- ---------
Cash applied to financing activities (2,087) (17,225)
--------- ---------
Net increase in cash and cash equivalents (45,266) 13,018
Cash and cash equivalents at beginning of period 193,151 85,281
--------- ---------
Cash and cash equivalents at end of period $147,885 $ 98,299
========= =========
</TABLE>
See accompanying notes to unaudited consolidated
financial statements
<PAGE>
LaSalle Re Holdings Limited
Notes to Unaudited Consolidated Financial Statements
(Expressed in thousands of United States Dollars,
except share and per share data)
================================================================================
1. General
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included herein.
The interim financial statements should be read in conjunction with the LaSalle
Re Holdings Limited Annual Report on Form 10-K for the fiscal year ended
September 30, 1999.
Interim statements are subject to possible adjustments in connection with the
annual audit of the Company's financial statements for the full year; in the
Company's opinion, all adjustments necessary for a fair presentation of these
interim statements have been included and are of a normal and recurring nature.
Unless the context otherwise requires, references herein to the "Company"
include LaSalle Re Holdings Limited and its subsidiary, LaSalle Re Limited
("LaSalle Re") and its subsidiaries LaSalle Re Corporate Capital Ltd. ("LaSalle
Re Capital") and LaSalle Re (Services) Limited. The consolidated financial
statements include the results of the Company and the Company's share of LaSalle
Re and its subsidiaries for all periods presented.
2. Earnings per Share
Earnings per share have been calculated in accordance with SFAS No. 128:
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Net (loss)/income $ (14,841) $ 5,704
Add back: minority interest (4,990) 1,155
Less: Series A preferred share dividends (1,641) (1,641)
----------- -----------
(Loss) income available to common shareholders $ (21,472) $ 5,218
----------- -----------
Weighted average number of shares outstanding:
Common shares 15,603,503 15,346,215
Exchangeable Non-Voting Shares 4,725,546 4,472,646
----------- -----------
Weighted average number of shares outstanding: 20,329,049 19,818,861
(Loss) earnings per share $ (1.06) $ 0.26
=========== ===========
(Loss) income available to common shareholders $ (21,472) $ 5,218
----------- -----------
Weighted average number of common shares
Outstanding: 20,329,049 19,818,861
Plus: incremental shares from assumed:
exercise of options Note 1 874,603
exercise of stock appreciation rights Note 1 65,818
contingently issuable shares Note 1 100,623
----------- -----------
Adjusted weighted average number of common shares
Outstanding 20,329,049 20,859,905
(Loss) earnings per share assuming dilution $ (1.06) $ 0.25
=========== ===========
</TABLE>
<PAGE>
LaSalle Re Holdings Limited
Notes to Unaudited Consolidated Financial Statements
(Expressed in thousands of United States Dollars,
except share and per share data)
================================================================================
Note 1 Anti dilutive therefore not included.
As of December 31, 1999, the Company had 1,022,514 options outstanding and had
granted 340,872 stock appreciation rights. As of December 31, 1998, the Company
had 1,072,982 options outstanding and had granted 340,872 stock appreciation
rights.
3. Reinsurance
The effect of reinsurance on premiums written and earned is as follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
December 31, 1999 December 31, 1998
------------------------ ------------------------
Written Earned Written Earned
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Assumed $10,307 $37,460 $11,811 $37,796
Ceded (897) (7,069) (983) (2,666)
------- ------- ------- -------
Net premiums $ 9,410 $30,391 $10,828 $35,130
======= ======= ======= =======
</TABLE>
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<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
================================================================================
The following is a discussion and analysis of the Company's results of
operations for the three months ended December 31, 1999 and 1998 and financial
condition as of December 31, 1999. This discussion and analysis should be read
in conjunction with the attached unaudited consolidated financial statements and
notes thereto of the Company and the audited consolidated financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1999.
General
The Company primarily writes property catastrophe reinsurance on a worldwide
basis through its subsidiary, LaSalle Re. Property catastrophe reinsurance
contracts cover unpredictable events such as hurricanes, windstorms, hailstorms,
earthquakes, fires, industrial explosions, freezes, riots, floods and other man-
made or natural disasters. Therefore, there can be significant volatility in the
Company's results from fiscal quarter to quarter and fiscal year to year.
Through LaSalle Re Capital, the Company also provides capital support to
selected Lloyd's syndicates which individually write the following lines of
business: direct and facultative property insurance; marine reinsurance; and
professional indemnity, directors and officers insurance and bankers blanket
bond business. Due to the nature of the business written by the Company, the
financial data included herein is not necessarily indicative of the results of
operations or financial condition of the Company in the future.
Results of Operations - for the three months ended December 31, 1999 and 1998
Traditionally, premiums written in the quarter ended December 31 are
significantly lower than premiums written in other quarters in the fiscal year,
as no major renewal date occurs during the quarter. Total gross premiums
written, before reinstatement premiums, adjustment premiums and no claims
bonuses, were $6.0 million for the three months ended December 31, 1999 compared
to $9.2 million for the three months ended December 31, 1998. Gross premiums on
the Company's property catastrophe book for the quarter ended December 31, 1999
were consistent with the amount written in the quarter ended December 31, 1998.
The decrease of $3.2 million in gross premiums written was principally due to a
casualty contract that was written in 1998, on a multi-year basis and therefore
was not written in the quarter ended December 31, 1999. Gross premiums written
by LaSalle Re Capital were consistent for the quarters ended December 31, 1999
and 1998.
In addition, for the quarter ended December 31, 1999, the Company experienced a
net increase of $1.6 million with respect to amounts booked for reinstatement
premiums, premium adjustments and no claims bonuses. The increase was
principally due to increased reinstatement premiums following an increase in
loss activity during the quarter ended December 31, 1999 compared to the quarter
ended December 31, 1998.
Premiums ceded for the quarter ended December 31, 1999 were $0.9 million
compared to $1.0 million in the quarter ended December 31, 1998.
As a result of the above, net premiums written for the quarter ended December
31, 1999 were $9.4 million compared to $10.8 million for the quarter ended
December 31, 1998.
Net premiums earned decreased from $35.1 million for the quarter ended December
31, 1998 to $30.4 million for the same quarter in 1999. The decrease of 13.4%
was caused primarily by an increase in the level of ceded premiums amortized due
to the increased level of reinsurance protections bought during the year ended
September 30, 1999. For the quarter ended December 31, 1999, ceded premiums
amortized were $7.1 million compared to $2.7 million for the quarter ended
December 31, 1998.
================================================================================
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
================================================================================
Net investment income increased 7.5% to $8.6 million for the quarter ended
December 31, 1999 from $8.0 million for the quarter ended December 31, 1998. The
increase in net investment income was attributable to an increase in market
yields and additional income generated on an equity account maintained in
accordance with the terms of the Company's multi-year excess of loss reinsurance
program. Annualized investment income as a percentage of the average market
value of invested assets was 6.0% for the quarter ended December 31, 1999
compared to 5.4% for the quarter ended December 31, 1998.
There were no realized gains or losses on investments during the quarter ended
December 31, 1999. During the quarter ended December 31, 1998 the Company
realized $2.2 million of investment gains. Due to the continued interest rate
uncertainties during the quarter ended December 31, 1998, the Company reduced
the duration of the portfolio by selling longer dated bonds that produced
realized gains and moved the proceeds into short-term holdings.
The following table sets forth the Company's combined ratios for the quarters
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Loss and loss expense ratio 153.5% 87.1%
Expense ratio 34.3% 23.1%
Combined ratio 187.8% 110.2%
</TABLE>
Losses and loss expenses incurred represents losses paid and reserves
established in respect of specific losses and loss expenses reported by cedants
and expected loss development and additions to incurred-but-not-reported loss
reserves.
The Company incurred net losses and loss expenses of $46.6 million during the
quarter ended December 31, 1999 compared with $30.6 million during the quarter
ended December 31, 1998. A significant portion of the net losses incurred during
the quarter ended December 31, 1999 related to two storms which struck northwest
Europe, including France and Germany, on December 26 and 27, 1999. The Company
established net loss reserves of $23.5 million for Storm Lothar and $5.6 million
for Storm Martin, based on current industry estimates of the market loss. In
addition, the Company established $7.0 million of loss reserves for a
significant storm that hit Denmark on December 3, 1999. The remaining $10.5
million principally related to smaller losses and the establishment of reserves
for other events that occurred during the quarter but have not yet been reported
to the Company. Losses incurred during the quarter ended December 31, 1998
related primarily to the strengthening of reserves in respect of Hurricane
Georges and to events covered under political risk contracts, a satellite
failure, various international and US storms and a loss on a risk excess surplus
treaty.
The expense ratio includes underwriting expenses and operational expenses.
Underwriting expenses include brokerage, commissions, excise taxes and other
costs related to underwriting reinsurance contracts.
Underwriting expenses as a percentage of net premiums earned were 22.4% for the
quarter ended December 31, 1999 compared to 16.1% for the quarter ended December
31, 1998. The increase in the ratio of 6.3% was partly due to the increased
amount of amortized ceded reinsurance that reduced net premiums earned. For the
quarter ended December 31, 1999 underwriting expenses as a percentage of gross
premiums earned were 18.2% compared to 15.0% for the quarter ended December 31,
1998.
================================================================================
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
As a percentage of gross earned premiums, fees accrued pursuant to the
Underwriting Support Services Agreement together with underwriters' compensation
costs decreased from 2.5% for the quarter ended December 31, 1998 to 2.3% for
the quarter ended December 31, 1999. This decrease was primarily due to the run
off of the costs associated with the former Underwriting Services Agreement. The
Company's level of brokerage fees and ceding commissions increased by 3.4% from
12.5% for the quarter ended December 31, 1998 to 15.9% for the quarter ended
December 31, 1999. The increase was principally due to an increase in the
provision accrued for profit commission with respect to one specific contract.
Operational expenses increased by $1.2 million to $3.6 million for the quarter
ended December 31, 1999 from $2.4 million for the quarter ended December 31,
1998. As a percentage of net earned premiums, operational expenses were 11.8%
for the quarter ended December 31, 1999 compared with 6.9% for the quarter ended
December 31, 1998. The increase in operational expenses was primarily due to a
change in the value of stock appreciation rights, which increased during the
quarter ended December 31, 1999 due to an increase in the Company's stock price.
During the quarter ended December 31, 1998 the value of the stock appreciation
rights decreased as the price of the Company's stock fell.
Corporate expenses for the quarter ended December 31, 1999 were $1.4 million
compared with $0.01 million in the quarter ended December 31, 1998. These
expenses related primarily to the business combination agreement signed on
December 19, 1999 with Trenwick Group Inc.
Interest expense was $0.3 million during the quarter ended December 31, 1999
compared with $0.5 million in the quarter ended December 31, 1998. The interest
expense was primarily due to financing charges associated with the deposit
portion of LaSalle Re's ceded reinsurance contract. Other interest expenses
related to the ongoing commitment fees payable on the Company's credit facility.
As at December 31, 1999, there were no borrowings under this facility.
The Company's losses per share were ($1.06) for the quarter ended December 31,
1999 compared to earnings per share of $0.26 for the quarter ended December 31,
1998. Losses per share assuming dilution were ($1.06) for the quarter ended
December 31, 1999 compared earnings per share assuming dilution $0.25 for the
quarter ended December 31, 1998.
Liquidity and Capital Resources
As a holding company, the Company's assets consist primarily of all of the
outstanding voting stock of LaSalle Re. The Company's cash flows depend
primarily on dividends and other permitted payments from LaSalle Re and its
subsidiaries.
LaSalle Re's sources of funds consist of net premiums written, investment income
and proceeds from sales and redemptions of investments. Cash is used primarily
to pay losses and loss expenses, brokerage, commissions, excise taxes,
administrative expenses and dividends. Under the Insurance Act, 1978, amendments
thereto and related regulations of Bermuda (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 Bermuda
Minister of Finance if it failed to meet its required margins in the previous
fiscal year. The Insurance Act also requires LaSalle Re to maintain a minimum
solvency margin and minimum liquidity ratio and prohibits dividends, which would
result in a breach of these requirements. In addition, LaSalle Re is prohibited
under the Insurance Act from reducing its total opening statutory capital by
more than 15% without the approval of the Minister of Finance. LaSalle Re
currently meets these requirements. The payment of dividends by LaSalle Re is
also subject to the rights of holders of the Exchangeable
- --------------------------------------------------------------------------------
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
Non-Voting Shares to receive a pro rata share of any dividend and to LaSalle
Re's need to maintain shareholders' equity adequate to support the level of its
insurance operations.
Operating activities produced a net cash inflow of $9.3 million for the quarter
ended December 31, 1999 compared to a net cash outflow of $3.5 million for the
quarter ended December 31, 1998. Cash flows from operations in future years may
differ substantially from net income. Cash flows are affected by loss payments,
which, due to the nature of the reinsurance coverage provided by LaSalle Re, are
generally expected to comprise large loss payments on a limited number of claims
and can therefore fluctuate significantly from year to year. The irregular
timing of these large loss payments can create significant variations in
operating cash flows between periods. LaSalle Re funds such payments from cash
flows from operations and sales of investments.
As a result of the potential for large loss payments, LaSalle Re maintains a
substantial portion of its assets in cash and investments. As of December 31,
1999, 77.1% of its total assets were held in cash and investments. To further
mitigate the uncertainty surrounding the amount and timing of potential
liabilities and to minimize interest rate risk, LaSalle Re maintains a short
average duration for its investment portfolio. The modified average duration of
the portfolio was 2.2 years at December 31, 1999. At December 31, 1999, the fair
value of the Company's total investment portfolio, including cash, was $559.6
million.
At December 31, 1999, 72.8% of the securities held in the Company's investment
portfolio were fixed-income securities rated "AA" or better and 95.8% were
fixed-income securities rated "A" or better by S&P or Moody's. No single
investment comprised more than 5% of the overall portfolio. As at December 31,
1999, issuers from the Far East and Asia represented 2.4% of the investment
portfolio. These securities had a market value of $9.9 million and an aggregate
unrealized loss of $0.1 million. All of these securities had a credit rating of
AAA as assigned by S&P or Moody's, as at December 31, 1999.
The Company has adopted the Statement of Financial Accounting Standard No. 115
("SFAS 115") to account for its marketable securities with all of the Company's
investments classified as "available for sale". Under this classification,
investments are recorded at fair market value and any unrealized gains or losses
are reported as "Accumulated other comprehensive income", a separate component
of shareholders' equity. In accordance with SFAS No. 130 "Reporting of
Comprehensive Income", the movement in unrealized gains or losses on these
investments are disclosed as part of other comprehensive income. The unrealized
loss on the investment portfolio net of amounts attributable to minority
interest was $7.5 million at December 31, 1999 compared to a loss of $4.1
million at September 30, 1999.
Reinsurance balances receivable were $78.4 million at December 31, 1999 compared
to $93.2 million at September 30, 1999. This reduction reflected the seasonality
of premiums written, with the Company traditionally writing a low level of
premiums in the quarter ended December 31 compared to other calendar quarters.
This also explains the decrease in unearned premiums and deferred acquisition
costs from $77.0 million and $11.9 million, respectively, as at September 30,
1999 to $49.9 million and $8.5 million, respectively, at December 31, 1999.
Included within reinsurance balances receivable at December 31, 1999 was $48.7
million, which related to the business written by LaSalle Re Capital, compared
to $46.0 million as at September 30, 1999. Given the three-year accounting
methodology utilized by Lloyd's, these balances will only start to be received
by the Company in the year 2000.
Prepaid reinsurance premiums decreased from $17.3 million as at September 30,
1999 to $11.1 million as at December 30, 1999, due to the amortization of the
premiums. At December 31, 1999, the Company had $17.8 million of losses
recoverable from reinsurers compared to $9.1 million at September 30, 1999.
- --------------------------------------------------------------------------------
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
- --------------------------------------------------------------------------------
At December 31, 1999, the liability for unpaid losses and loss expenses was
$190.4 million compared to a liability of $146.6 million at September 30, 1999.
During the quarter ended December 31, 1999, the Company established significant
reserves for the storms that hit northwest Europe. At December 31, 1999 the
Company had recorded loss reserves of $21.5 million in respect of the business
underwritten by LaSalle Re Capital which, given the three-year accounting
methodology, will only start to be paid by the Company during the year 2000.
Other liabilities remained consistent at $37.1 million as at December 31, 1999
compared with $37.3 million at September 30, 1999.
On December 1, 1999, the Company paid a dividend of $.5469 per share to holders
of record of Series A preferred shares on November 1, 1999. As of December 31,
1999, dividends due but not yet paid on the Series A preferred shares amounted
to $0.5 million.
In accordance with the terms of certain reinsurance contracts, the Company has
posted letters of credit in the amount of $22.6 million, as compared to $21.6
million as of September 30, 1999, to support outstanding loss reserves. In
connection with LaSalle Re Capital's support of three Lloyd's syndicates, the
Company posted letters of credit in the amount of $15.8 million (equivalent to
(Pounds)9.8 million). In addition, in connection with a swap agreement, the
Company has posted a letter of credit of $3.0 million. All letters of credit are
secured by a lien on the Company's investment portfolio equal to 115% of the
amount of the outstanding letters of credit.
LaSalle Re Capital is committed to provide capital support for the 2000
underwriting year to the same syndicates as it supported in 1999. The level of
support is not expected to change materially from that provided in 1999. The
Company has no material commitments for capital expenditures.
The Company has in place a $100 million committed line of credit from a
syndicate of banks. The proceeds from the credit facility may only be used to
buy preferred shares of LaSalle Re that, in turn, may use the proceeds of such
purchase to meet current cash requirements. The facility matures December 1,
2000, and is secured by a pledge ("legal mortgage") of all the capital stock of
LaSalle Re held by the Company, including any preferred shares that may be
issued by LaSalle Re to the Company. The line of credit contains various
covenants, including limitations on incurring additional indebtedness;
restrictions on the sale or lease of assets not in the ordinary course of
business; maintenance of a ratio of consolidated total debt to consolidated
tangible net worth of no more than 0.40 to 1.00; maintenance of tangible net
worth at the end of each fiscal year of the greater of $300 million or 70% of
net premiums written; maintenance of statutory capital of LaSalle Re of at least
$400 million at the end of calendar year 1999 and thereafter; and maintenance of
a ratio of net premiums written to statutory capital at the end of any fiscal
quarter for the four fiscal quarters then ended of no more than 1.00 to 1.00 in
each case. The Company may pay dividends and make other restricted payments so
long as, after giving effect to such restricted payments, no event of default
has occurred. Dividends and restricted payments are limited to 50% of
consolidated net income for its immediately preceding fiscal year less amounts
paid on the Series A preferred shares. In order for the Company to pay dividends
in excess of 50% of consolidated net income, the Company would have to
renegotiate certain terms of its credit facility. As of December 31, 1999, there
were no outstanding borrowings under the credit facility.
The Company's financial condition and results of operations are influenced by
both internal and external forces. Loss payments, investment returns and
premiums may be impacted by changing rates of inflation and other economic
conditions. Cash flows from operations and the liquidity of its
- --------------------------------------------------------------------------------
<PAGE>
LaSalle Re Holdings Limited
Management's Discussion and Analysis of Results of Operations
and Financial Condition
================================================================================
investment portfolio are, in the Company's opinion, adequate to meet the
Company's expected cash requirements over the next 12 months.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. Given the limited number of transactions currently entered into by the
Company that are covered by the Statement, the Company does not anticipate any
significant changes to its current financial reporting.
Quantitative and Qualitative Disclosure about Market Risk
The Company made disclosure relating to its market risks in the Form 10-K for
the year ended September 30, 1999. The Company believes there have been no
material changes with respect to its market risks during the quarter ended
December 31, 1999.
Cautionary Statement Regarding Forward-Looking Statements
This report includes forward-looking statements. Forward-looking statements are
statements other than historical information or statements of current condition.
These forward-looking statements are based on the Company's current plans and
objectives for future operations, including the Company's dividend policy. Some
forward-looking statements may be identified by the use of words or phrases such
as "believes," "anticipates," "intends," "may," "estimates," "expects" and
similar expressions. Forward-looking statements are subject to risks and
uncertainties and actual results may vary materially from those included within
the forward-looking statements. Many factors could cause actual results to
differ materially from those in the forward-looking statements, including the
following: catastrophic events of unanticipated frequency or severity; changes
in the demand for or supply of property catastrophe reinsurance; actions of
competitors; decisions or actions of rating agencies; changes in insurance or
tax laws or regulations or governmental interpretations thereof; fluctuations in
foreign currency exchange rates or the failure of a counterparty to perform
under any of our foreign exchange contracts or swap agreements; and a major
decrease in the cession of business to the Company from CNA or termination of
the existing quota share reinsurance arrangement with CNA. 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.
================================================================================
<PAGE>
================================================================================
LaSalle Re Holdings Limited
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - The following exhibits are filed as part of this report on
Form 10-Q:
3.1 Memorandum of Association (Incorporated by reference to
Exhibit 3.1 to Registration Statement on Form S-1
(File No. 33-97304)).
3.2 Bye-Laws (Incorporated by reference to Exhibit 3.2 to Form 10-Q
for the quarterly period ended March 31, 1998
(File No. 1-12823)).
10.1 Amended and Restated Employment Agreement dated October 1, 1999
between Guy D. Hengesbaugh and LaSalle Re.
10.2 Employment Agreement dated October 1, 1998 between Clare Moran
and LaSalle Re.
10.3 Amendment, dated June 1, 1999, of Employment Agreement between
Clare Moran and LaSalle Re.
10.4 Termination, effective as of July 1,1999, of Catastrophe Equity
Securities Issuance Option Agreement, dated as of July 1, 1997
between the Company on the one hand and European Reinsurance
Company of Zurich, Allianz Aktiengesellschaft, Continental
Casualty Company and CIC-Hilldale, Inc. on the other hand.
10.5 Catastrophe Equity Securities Issuance Option Agreement, dated
as of July 1, 1999 between the Company on the one hand and
European Reinsurance Company of Zurich and Allianz Risk Transfer
on the other hand.
27 Financial Data Schedule.
(b) Reports on Form 8-K--
================================================================================
<PAGE>
===============================================================================
The following report on Form 8-K was filed during the quarter ended
December 31, 1999:
<TABLE>
<CAPTION>
Item Reported Date of Report
<S> <C>
LaSalle Re Holdings Limited and December 19, 1999
Trenwick Group Inc to Merge
</TABLE>
===============================================================================
<PAGE>
LaSalle Re Holdings Limited
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 2/7/2000 LASALLE RE HOLDINGS LIMITED
----------------- /s/ Guy D. Hengesbaugh
----------------------
Name: Guy D. Hengesbaugh
Title: President & Chief Executive Officer
Date: 2/7/2000 /s/ Clare E. Moran
----------------- ------------------
Name: Clare E. Moran
Title: Interim Chief Financial Officer & Treasurer
<PAGE>
Exhibit 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AGREEMENT, made and entered into as of October 1, 1999 (the
"Effective Date"), amends and restates the agreement entered into as of October
1, 1998 by and between Guy Hengesbaugh (the "Executive") and LaSalle Re Limited
(the "Company");
WITNESSETH THAT:
---------------
WHEREAS, the parties desire to enter into this Agreement pertaining to
the employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, it is hereby covenanted and agreed by the Executive and the
Company as follows:
1. Performance of Services. The Executive's employment with the Company
------------------------
shall be subject to the following:
(a) Subject to the provisions of this Agreement, the Company hereby agrees
to employ the Executive as the President and Chief Executive Officer of
the Company and the President and Chief Operating Officer of LaSalle Re
Holdings Limited (the "Holding Company") during the Agreement Term (as
defined below), and the Executive hereby agrees to remain in the employ
of the Company during the Agreement Term.
(b) During the Agreement Term, while the Executive is employed by the
Company, the Executive shall devote, subject to paragraph 1(f), his
full time, energies and talents to performing his duties under this
Agreement.
(c) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the directions of the Board of Directors of the
Company (the "Board"). The Executive's duties may include providing
services for the Company, the Holding Company, and the Subsidiaries (as
defined below), as determined by the Board; provided that the Executive
shall not, without his consent, be assigned tasks that would be
inconsistent with his position at the Company. The Executive will have
such authority and power as are inherent to the undertakings applicable
to his position and necessary to carry out his responsibilities and the
duties required of him hereunder.
(d) While the Executive is employed by the Company, he shall be subject to
the duties that reasonably apply to the Company's officers and
employees (including, without limitation, the duty of loyalty to the
Company).
(e) The Company may change the Executive's title and duties in the event of
reorganization, restructuring, or similar circumstances, except that
the Executive shall have a senior
1
<PAGE>
executive position at all times during the Agreement Term while he is
employed by the Company.
(f) Notwithstanding the foregoing provisions of this paragraph 1, during
the Agreement Term, the Executive may devote reasonable time to
activities other than those required under this Agreement, including
the supervision of his personal investments, and activities involving
professional, charitable, educational, religious and similar types of
organizations, speaking engagements, membership of the boards of
directors of other organizations, and similar type of activities, to
the extent that such other activities do not inhibit or prohibit the
performance of the Executive's duties under this Agreement, or conflict
in any material way with the business of the Company, the Holding
Company, or any Subsidiary; provided, however, that except as otherwise
expressly provided in this Agreement, the Executive shall not serve on
the board of any business, or hold any position with any business
without the consent of the Board of the Company.
(g) The Executive will be required to maintain a residence in Bermuda while
employed by the Company.
(h) The Company will use its reasonable best efforts to maintain a Bermuda
work permit for the Executive. The Executive shall cooperate with the
Company and the appropriate authorities in maintaining such permit. The
Executive's employment by the Company is conditioned upon the Company's
ability to keep current all required work permits, and except as
provided in this paragraph 1(h), the Company shall have no further
obligation to the Executive if, after employing its reasonable best
efforts, it is unable to maintain such permits. If despite the
Company's best efforts to maintain the Bermuda work permit, the work
permit is terminated or revoked by the Government of Bermuda through no
fault of the Executive, then the Executive shall be deemed to have
received written notice from the Company that his Date of Termination
is the date on which the termination or revocation of his or her work
permit is effective, and the Executive shall be entitled to the
benefits provided for Termination by the Company under Section 3(g). In
addition, the Company shall reimburse the Executive for reasonable
costs actually incurred by the Executive and the members of his or her
immediate family to relocate to the nation in which the Executive
maintains citizenship; provided, however, that such reimbursement shall
be made only if such relocation occurs within a reasonable time
following such Date of Termination. The reasonableness of the cost and
time of relocation shall be determined by the Board of Directors of the
Company.
(i) Subject to the provisions of this Agreement, the Executive shall not be
required to perform services under this Agreement during any period
that he is Disabled. The Executive shall be considered "Disabled"
during any period in which he has a physical or mental disability which
renders him incapable, after reasonable accommodation, of performing
his duties under this Agreement. In the event of a dispute as to
whether the Executive is Disabled, the Company may refer the same to a
licensed practicing
2
<PAGE>
physician of the Company's choice, and the Executive agrees to submit
to such tests and examination as such physician shall deem appropriate.
(j) The "Agreement Term" shall be the period beginning on the Effective
Date and ending on the second anniversary of the Effective Date;
provided, however, that beginning on the Effective Date, such Agreement
Term shall automatically be renewed daily, such that at any time on or
after the Effective Date, the remaining term shall equal two years.
However, such additional day-to-day renewals may be terminated by
either party be delivering written notice of such termination to the
other party, in accordance with the requirements of paragraph 18. The
cessation of the automatic renewals shall be effective on the date such
written notice is deemed to be given to the other party in accordance
with paragraph 18, such that the Agreement term shall end on the
two-year anniversary of the date such written notice is deemed given to
the other party. For purposes of this Agreement, a Notice of
Termination, as described in paragraph 3(i), shall be deemed to be a
notice to terminate day-to-day renewals.
(k) For purposes of this Agreement, the term "Subsidiary" shall mean any
company (regardless of whether incorporated) during any period in which
50% or more of the total combined voting power of all classes of stock
(or other ownership interest) entitled to vote is owned, directly or
indirectly, by the Company.
2. Compensation. Subject to the provisions of this Agreement, during
------------
the Agreement Term, while he is employed by the Company, the Company shall
compensate the Executive for the Executive's services as follows:
(a) Salary. The Executive shall receive, for each 12-consecutive month
------
period beginning on the Effective Date and each anniversary thereof, in
substantially equal monthly or more frequent installments, an annual
base salary of $450,000 (the "Salary"); provided that an additional
amount of $12,500 shall be paid to the Executive in a lump sum as soon
as practicable following the Effective Date, so that the annual base
salary of the Executive will have effectively been $450,000 retroactive
to July 1, 1999. In no event shall the Salary of the Executive be
reduced to an amount that is less than the amount specified in this
paragraph (a), or to an amount that is less than the amount that he was
previously receiving, except to the extent that reductions of the same
percentage are being made at the same time to the salaries of all other
Company officers in the corporate office at or above the vice-president
level, and such Salary shall be restored to its prior level when, and
to the same extent, as the restoration that applies to the other
officers.
(b) Bonus. The Executive shall be entitled to receive bonuses from the
-----
Company in accordance with the provisions of Exhibit A, which is
attached to and forms a part of this Agreement.
(c) Disability. The Executive shall receive from the Company disability
----------
income replacement coverage which will provide for replacement of
income at a commercially reasonable rate
3
<PAGE>
during any period in which the Executive is Disabled if the disability
arose during the Agreement Term and prior to the Executive's Date of
Termination. During any period while the Executive is Disabled, and is
otherwise entitled to receive Salary under this Agreement, any Salary
payments to the Executive shall be reduced by the amount of any
benefits paid for the same period of time under the Company's
disability income replacement coverage.
(d) Pension. The Company will provide the Executive with a defined
-------
contribution savings plan, into which the Company will make a
contribution for each fiscal year equal to 10% of the Salary paid to
the Executive for such fiscal year. The plan will also provide that the
Executive may make annual contributions equal to or less than the
Company's contribution.
(e) Automobile. The Company will provide the Executive with an allowance
----------
toward the cost of an automobile in Bermuda, the amount of which will
be approved by the Compensation Committee. The Company will assume
responsibility for the cost of insurance, maintenance and similar
items. The Executive's personal use of the automobile will be
permitted. This perquisite shall be governed by the rules and
limitations set down from time to time by the Company.
(f) Club. The Company will reimburse the Executive for periodic dues for
----
his membership in clubs located in Bermuda in an amount not to exceed
$2,400 per fiscal year. The Company will not reimburse initiation fees
for club membership under this Agreement, in light of reimbursements
made by the Company to the Executive's prior employer with respect to
initiation fees for club membership for the period during which the
Executive performed services for the Company but was employed by the
prior employer.
(g) Housing/Living Allowance. The Company shall provide the Executive with
------------------------
a housing and living expense allowance at the annual rate of $120,000
for the Agreement Term, with such allowance to be payable to the
Executive in monthly instalments.
(h) Tax, Accounting and Financial Planning. The Company will reimburse the
--------------------------------------
Executive for reasonable expenses, not to exceed $5,000 per fiscal
year, for tax, accounting, and financial planning services.
(i) Other Benefits. Except as otherwise specifically provided to the
--------------
contrary in this Agreement, the Executive shall be provided with the
welfare benefits and other fringe benefits to the same extent and on
the same terms as those benefits are provided by the Company from time
to time to the Company's other senior management employees. However,
the Company shall not be required to provide a benefit or perquisite
under this paragraph 2(i) if such benefit or perquisite would duplicate
(or otherwise be the same type as) a benefit or perquisite specifically
required to be provided under another provision of this Agreement.
4
<PAGE>
(j) Expenses. The Company will reimburse the Executive for reasonable
--------
expenses for entertainment, traveling, meals, lodging and similar items
in promoting the Company's business which the Executive documents on a
form used by the Company to report business expenses.
(k) Indemnification. The Company shall maintain officers liability
---------------
insurance in commercially reasonable amounts (as reasonably determined
by the Board), and the Executive shall be covered under such insurance
to the same extent as other senior management employees of the Company.
The Executive shall be eligible for indemnification by the Company
under the Company's bye-laws as currently in effect. The Company agrees
that it shall not take any action that would impair the Executive's
rights to indemnification under the Company's bye-laws, as currently in
effect.
(l) Holiday/Vacation. The Executive shall be subject to the holiday and
----------------
vacation policy that applies to other senior executives of the Company.
(m) Dollar Amounts. As used in this Agreement, "dollars" or numbers
--------------
preceded by the symbol "$" shall mean amounts in United States Dollars.
3. Termination. The Executive's employment during the Agreement Term
-----------
may be terminated by the Company or the Executive without any breach of this
Agreement only under the circumstances described in paragraphs 3(a) through
3(g):
(a) Death. The Executive's employment will terminate upon his death.
-----
(b) Permanently Disabled. The Company may terminate the Executive's
--------------------
employment if he is Permanently Disabled. "Permanently Disabled" means
that the Executive is eligible for benefits under the Company's
long-term disability plan.
(c) Cause. The Company may terminate the Executive's employment at any time
-----
for Cause. "Cause" shall mean:
(i) the wilful and continued failure by the Executive to
substantially perform his duties with the Company (other than
any such failure resulting from the Executive's being
Disabled), within a reasonable period of time after a written
demand for substantial performance is delivered to the
Executive by the Board, which demand specifically identifies
the manner in which the Board believes that the Executive has
not substantially performed his duties;
(ii) the wilful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company or the
Holding Company, monetarily or otherwise; or
5
<PAGE>
(iii) the engaging by the Executive in egregious misconduct
involving serious moral turpitude to the extent that, in the
reasonable judgment of the Compensation Committee, the
Executive's credibility and reputation no longer conform to
the standard of the Company's executives.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be deemed "wilful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief
that the Executive's action or omission was in the best interest of the
Company or the Holding Company.
(d) Constructive Discharge. If the Executive (i) provides written notice to
----------------------
the Company of the occurrence of a material breach of this Agreement by
the Company, which specifically identifies the manner in which the
Executive believes that the breach has occurred; (ii) the Company fails
to correct such breach within a reasonable time after such notice; and
(iii) the Executive resigns within the 60-day period following the
occurrence of such breach, then the Executive shall be considered to
have been constructively discharged.
(e) Resignation by Executive. The Executive may resign for any reason by
------------------------
giving the Company ninety (90) days prior written notice, except the
Executive will be treated as having resigned under this paragraph 3(e)
only if he has not been constructively discharged under paragraph 3(d).
(f) Mutual Agreement. This Agreement may be terminated at any time by the
----------------
mutual agreement of the parties. Any termination of the Executive's
employment by mutual agreement of the parties will be memorialized by
an agreement which is reduced in writing and signed by the Executive
and the Chairman of the Compensation Committee.
(g) Termination by Company. The Company may terminate the Executive's
----------------------
employment at any time for any reason by giving the Executive prior
written notice, except the Executive's employment will not be treated
as having been terminated under this paragraph 3(g) if the termination
is for reasons of being Permanently Disabled or for Cause.
(h) Date of Termination. "Date of Termination" means the last day the
-------------------
Executive is employed by the Company, provided that the Executive's
employment is terminated in accordance with the foregoing provisions of
this paragraph 3.
(i) Notice of Termination. Any termination of the Executive's employment by
---------------------
the Company or the Executive (other than a termination pursuant to
paragraph 3(a) or paragraph 3(f)) must be communicated by a written
Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" means a dated notice which
indicates the specific termination provision in this Agreement relied
on and which sets forth in reasonable detail the facts and
circumstances, if any, claimed to
6
<PAGE>
provide a basis for termination of the Executive's employment under the
provision so indicated.
4. Rights Upon Termination. This paragraph 4 describes the payments and
-----------------------
benefits to be provided to the Executive after his Date of Termination:
(a) Payment of Previously Earned Amounts. The Executive shall receive
------------------------------------
payment of accrued but unpaid Salary, vacation pay and, if expressly
provided for in paragraph 4(d), a pro rata portion of his bonus (if
any), in each case for the period ending with the Executive's Date of
Termination.
(b) No Severance Payments. If the Executive's Date of Termination occurs
---------------------
during or after the end of the Agreement Term, or because of (i) the
Executive's death, (ii) his being Permanently Disabled (paragraph
3(b)), (iii) his termination for Cause (paragraph 3(c)), or (iv) his
resignation (paragraph 3(e)), then, except as otherwise expressly
provided for in this Agreement, no payments shall be due to the
Executive under this Agreement for periods after the Date of
Termination.
(c) Salary Continuation. If the Executive's Date of Termination occurs
-------------------
during the Agreement Term because of (i) his discharge by the Company
for reasons other than Cause (described in paragraph 3(c)), or (ii) his
constructive discharge (described in paragraph 3(d)), the Executive
shall continue to receive Salary payments (at the rate in effect on the
Date of Termination) in monthly or more frequent instalments through
the earliest of: (i) the last day of the Agreement Term; (ii) the date
of the Executive's death, or (iii) the date, if any, of the breach by
the Executive of the non-competition requirements of paragraph 7, the
confidentiality requirements of paragraph 8 or the non- disparagement
requirements of paragraph 9.
(d) Pro rata Bonus. Except as otherwise provided in this paragraph 4(d),
--------------
the Executive shall not receive a bonus for the fiscal year in which
the Executive's Date of Termination occurs. If the Executive's Date of
Termination occurs during the Agreement Term as a result of (i) the
Executive's death (ii) his being Permanently Disabled (paragraph 3(b)),
(iii) his discharge by the Company for reasons other than Cause
(described in paragraph 3(c)), or (iv) his constructive discharge
(described in paragraph 3(d)), the Executive shall receive a pro rata
portion of the bonus which would have been paid pursuant to Exhibit A
for the fiscal year in which the Executive's Date of Termination
occurs. Such portion, if any, shall be calculated for the period ending
on the Date of Termination and shall be paid to the Executive (or his
estate) within a reasonable period of time after the Company calculates
the bonus amount, if any, for all employees for the fiscal year.
(e) Housing/Living Expenses, Medical Benefits. If the Executive is entitled
-----------------------------------------
to Salary Continuation payments pursuant to paragraph 4(c), the
Executive shall receive a housing and living expense allowance
(described in paragraph 2(g)) and may continue to participate in the
medical and dental plans in which he participated on the day before his
7
<PAGE>
Date of Termination through the earlier of: (i) the last day for which
the Executive receives Salary Continuation payments pursuant to
paragraph 4(c); or (ii) three (3) months after the Executive's Date of
Termination. Participation in the medical and dental plans is subject
to the Executive's payment of the applicable employee portion of the
monthly premium cost, if any. If the Company ceases offering the
medical and dental plans in which the Executive participated on the day
before his Date of Termination to Company employees during this time,
the Executive may elect to participate in any other medical or dental
plan offered by the Company to its employees, provided however, that
the Executive shall be responsible for paying the applicable employee
portion of the monthly premium cost.
(f) Other Programs. No benefits shall be payable to the Executive under any
--------------
other severance pay arrangement or similar arrangement maintained by
the Company or any Subsidiary. Except as otherwise expressly provided
in this Agreement, no other payments or benefits shall be due to the
Executive following the Date of Termination (except as otherwise
specifically provided under the terms of an employee benefit plan or
arrangement).
5. Duties on Termination. Subject to the provisions of this Agreement,
---------------------
during the period beginning on the date of delivery of a Notice of Termination,
and ending on the Date of Termination, the Executive shall continue to perform
his duties as set forth in this Agreement, and shall also perform such services
for the Company and the Holding Company as are necessary and appropriate for a
smooth transition to the Executive's successor, if any. Notwithstanding the
foregoing provisions of this paragraph 5, the Company may suspend the Executive
from performing his duties under this Agreement following the delivery of a
Notice of Termination providing for the Executive's resignation, or delivery by
the Company of a Notice of Termination providing for the Executive's termination
of employment for any reason; provided, however, that during the period of
suspension (which shall end on the Date of Termination), the Executive shall
continue to be treated as employed by the Company for other purposes, and his
rights to compensation or benefits shall not be reduced by reason of the
suspension.
6. Non-competition. While the Executive is employed by the Company, and
---------------
during the Non-Competition Period (as defined below)
(A) the Executive agrees that he will not directly or indirectly:
(i) perform services in a senior management-related position
for a direct competitor of the Company (or any successor
corporation into which the Company and Holding Company may be
merged or consolidated); for purposes of this paragraph 6, a
related position shall include, but not be limited to, a chief
executive officer or president;
8
<PAGE>
(ii) except in connection with any duties as on officer or
employee of the Company or Holding Company (or any successor
corporation into which they may be merged or consolidated),
solicit, divert or attempt to solicit or divert any party who
is, was, or was solicited to become, a customer or of the
Company at any time during the Agreement Term, provided that
this restriction shall not apply to any activity on behalf of
a business that does not actually or potentially compete with
the activities of the Company (or any successor corporation
into which the Company and Holding Company may be merged or
consolidated);
(iii) employ, solicit for employment or encourage to leave
their employment, in each case, either as an employee, agent
or representative, any person who was during the two-year
period prior to such employment, solicitation or encouragement
or is an officer, employee, agent or representative of the
Company (or any successor corporation into which the Company
and Holding Company may be merged or consolidated);
(B) If at any time any of the provisions of this paragraph 6 shall
be determined to be invalid or unenforceable by reason of
being vague or unreasonable as to duration, area, scope of
activity or otherwise, then this paragraph 6 shall be
considered divisible (with the other provisions to remain in
full force and effect) and the invalid or unenforceable
provisions shall become and be deemed to be immediately
amended to include only such time, area, scope of activity and
other restrictions, as shall be determined to be reasonable
and enforceable by the court or other body having jurisdiction
over the matter, and Executive expressly agrees that this
Agreement, as so amended, shall be valid and binding as though
any invalid or unenforceable provision had not been included
herein.
(C) For purposes of this paragraph 6, "Non-Competition Period"
shall be determined as follows:
(i) If the Executive's Date of Termination occurs under
circumstances described in paragraph 3(e) (relating
to the Executive's resignation), the Non-Competition
Period shall be the period beginning on the Date of
Termination, and ending on the twelve-month (12)
anniversary of the Date of Termination.
(ii) If the Executive's Date of Termination occurs under
circumstances other than those described in paragraph
3(e) (relating to the Executive's resignation), the
Non-Competition Period shall be the period beginning
on the Date of Termination and ending on the last day
of the Agreement Term; provided, however, that if the
Executive is entitled to salary continuation payments
in accordance with
9
<PAGE>
paragraph 4(c), and if such salary continuation
payments are discontinued prior to the last day of
the Agreement Term, then the Non-Competition Period
will end on the date that the last salary
continuation payment is made to the Executive (unless
such discontinuance is as a result of the Executive's
breach of this paragraph 6, paragraph 7, or paragraph
8).
Nothing in this paragraph 6, paragraph 7 or paragraph 8 shall be construed as
limiting the Executive's duty of loyalty to the Company while he is employed by
the Company or any other duty he may otherwise have to the Company while he is
employed by the Company.
7. Confidential Information. Except as may be required by the lawful
------------------------
order of a court or agency of competent jurisdiction, or except to the extent
that the Executive has express authorization from the Company, the Executive
agrees to keep secret and confidential indefinitely all non-public information
(including, without limitation, information regarding litigation and pending
litigation) concerning the Company, the Holding Company, and the Subsidiaries
which was acquired by or disclosed to the Executive during the course of his
employment with the Company, or during the course of his consultation with the
Company following his termination of employment (regardless of whether
consultation is pursuant to paragraph 9), and not to disclose the same, either
directly or indirectly, to any other person, firm, or business entity, or to use
it in any way. To the extent that the Executive obtains information on behalf of
the Company, the Holding Company, or any of the Subsidiaries that may be subject
to attorney-client privilege as to the Company's attorneys, the Executive shall
take reasonable steps to maintain the confidentiality of such information and to
preserve such privilege. Nothing in the foregoing provisions of this paragraph 7
shall be construed so as to prevent the Executive from using, in connection with
his employment for himself or an employer other than the Company, the Holding
Company, or any of the Subsidiaries, knowledge which was acquired by him during
the course of his employment with the Company, the Holding Company, and the
Subsidiaries, and which is generally known to persons of his experience in other
companies in the same industry.
8. Non-Disparagement. The Executive agrees that, while he is employed
-----------------
by the Company, and after his Date of Termination, he shall not make any false,
defamatory or disparaging statements about the Company, the Holding Company, the
Subsidiaries, or the officers or directors of the Company, the Holding Company,
or the Subsidiaries that are reasonably likely to cause material damage to the
Company, the Holding Company, the Subsidiaries, or their officers or directors.
While the Executive is employed by the Company, and after his Date of
Termination, the Company agrees, on behalf of itself, the Holding Company, and
the Subsidiaries, that neither the officers nor the directors of the Company,
the Holding Company, or the Subsidiaries shall make any false, defamatory or
disparaging statements about the Executive that are reasonably likely to cause
material damage to Executive.
9. Defense of Claims. The Executive agrees that, for the period
-----------------
beginning the Effective Date, and continuing for a reasonable period after the
Executive's termination of employment
10
<PAGE>
with the Company, the Executive will cooperate with the Company, the Holding
Company and the Subsidiaries in defense of any claims that may be made against
the Company, the Holding Company and the Subsidiaries, and will cooperate with
the Company, the Holding Company or the Subsidiaries in the prosecution of any
claims that may be made by the Company, the Holding Company or the Subsidiaries,
to the extent that such claims may relate to services performed by the Executive
for the Company. The Executive agrees to promptly inform the Company if he
becomes aware of any lawsuits involving such claims that may be filed against
the Company, the Holding Company or the Subsidiaries. The Company agrees to
reimburse the Executive for all of the Executive's reasonable out-of-pocket
expenses associated with such cooperation, including travel expenses. For
periods after the Executive's employment with the Company terminates, the
Company agrees to provide reasonable compensation to the Executive for such
cooperation. The determination of the reasonableness of such compensation shall
take into account information provided to the Company by the Executive or
otherwise known to the Company, which may include, without limitation, (a) the
Executive's rate of compensation at the time he ceased employment with the
Company, and whether he is then receiving other compensation payments from the
Company; (b) the Executive's rate of compensation at the time of such
cooperation; (c) the amount of time required of the Executive for such
cooperation; (d) difficulty of the issues as to which the cooperation is
required; (e) the amount of inconvenience to the Executive resulting from such
cooperation (including consideration of factors such as the amount of travel
required of the Executive, the effect on other commitments of the Executive, and
the amount of advance notice provided to the Executive); and (f) whether such
cooperation would be legally required in the absence of the requirements of this
paragraph 9. The Executive also agrees to promptly inform the Company if he is
asked to assist in any investigation of the Company, the Holding Company or the
Subsidiaries (or their actions) that may relate to services performed by the
Executive for the Company, regardless of whether a lawsuit has then been filed
against the Company, the Holding Company or the Subsidiaries with respect to
such investigation.
10. Excise Tax Gross-Up. If the Executive becomes entitled to payment
-------------------
in accordance with paragraph 4, then with respect to such payment under
paragraph 4 (and with respect to any other payment made to the Executive,
including without limitation, the vesting of an option or other cash or non-cash
benefit or property, whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company) (the "Total Payments"),
if such Total Payments are or become subject to the tax imposed by Section 4999
of the United States Internal Revenue Code of 1986, as amended (the "Code") (or
any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company
shall pay to Employee as soon as practicable after such Excise Tax becomes due,
an additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and after any reduction for any federal, state and local
income or employment tax and Excise Tax on the Gross-up Payment provided for by
this paragraph 10, but before reduction for any federal, state, or local income
or employment tax on the Total Payments, shall be equal to the sum of (a) and
(b), where (a) is the Total Payments, and (b) is an amount equal to the product
of any deductions disallowed for federal, state, or local income tax purposes
because of the inclusion of the Gross-
11
<PAGE>
up Payment in Employee's adjusted gross income multiplied by the highest
applicable marginal rate of federal, state, or local income taxation,
respectively, for the calendar year in which the Gross-up Payment is to be made.
11. Remedies. The Executive acknowledges that the Company or the
--------
Holding Company would be irreparably injured by a violation of paragraph 6,
paragraph 7, or paragraph 8, and he agrees that the Company, in addition to any
other remedies available to it for such breach or threatened breach, shall be
entitled to a preliminary injunction, temporary restraining order, or other
equivalent relief, restraining the Executive from any actual or threatened
breach of either paragraph 6, paragraph 7 or paragraph 8. The Company
acknowledges that the Executive would be irreparably injured by a violation of
paragraph 8, and the Company agrees that the Executive, in addition to any other
remedies available to him for such breach or threatened breach, shall be
entitled to a preliminary injunction, temporary restraining order, or other
equivalent relief, restraining the Company from any actual or threatened breach
of paragraph 8. If a bond is required to be posted in order for the Company or
the Executive to secure an injunction or other equitable remedy, the parties
agree that said bond need not be more than a nominal sum.
12. Nonalienation. The interests of the Executive under this Agreement
-------------
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
13. Amendment. This Agreement may be amended or canceled only by mutual
---------
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.
14. Applicable Law. The provisions of this Agreement shall be construed
--------------
in accordance with the laws of Bermuda, without regard to the conflict of law
provisions of any jurisdiction. All disputes shall be arbitrated or litigated
(whichever is applicable) in Bermuda.
15. Severability. The invalidity or unenforceability of any provision
------------
of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
16. Waiver of Breach. No waiver by any party hereto of a breach of any
----------------
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
12
<PAGE>
17 Successors. This Agreement shall be binding upon, and inure to the
----------
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
18 Notices. Notices and all other communications provided for in this
-------
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or sent
by facsimile or prepaid overnight courier to the parties at the addresses set
forth below (or such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims and other communications shall be
deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified, registered or similar mail delivery, five
days after deposit in the local mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that are
to be delivered by the mail or by overnight service are to be delivered to the
addresses set forth below:
to the Company:
LaSalle Re Limited
25 Church Street
Hamilton HMFX, Bermuda
or to the Executive:
Guy Hengesbaugh
25 Church Street
Hamilton, HMFX, Bermuda
All notices to the Company shall be directed to the attention of the chief
executive officer of the Company, with a copy to the Secretary of the Company.
Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt.
19. Arbitration of All Disputes. In the event of any dispute,
---------------------------
controversy or claim arising out of or in relation to this Agreement, or the
breach, termination or invalidity thereof, the parties hereto agree to proceed
to arbitration. The number of arbitrators shall be three (3), to be
13
<PAGE>
appointed in the absence of the parties agreement by the Appointment Committee
of the Chartered Institute of Arbitrators Bermuda Branch. The procedure to be
followed shall be that as laid down in the Arbitration Act of 1986. The place of
arbitration shall be Bermuda and the language of the arbitration shall be
English. The decision and award of the arbitral tribunal is final and binding on
the parties. For the avoidance of doubt, the parties agree that judgment may be
entered and any award made by the Tribunal in any Federal Court in the United
States (or any other jurisdiction where a party to this agreement is located).
20. Survival of Agreement. Except as otherwise expressly provided in
---------------------
this Agreement, the rights and obligations of the parties to this Agreement
shall survive the termination of the Executive's employment with the Company.
21. Entire Agreement. Except as otherwise noted herein, this Agreement,
----------------
including any Exhibit(s) attached hereto, constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior and contemporaneous agreements, if any, between the parties relating to
the subject matter hereof. The enforceability of this Agreement shall not cease
or otherwise be adversely affected by the termination of the Executive's
employment with the Company.
22. Acknowledgment by Executive. The Executive represents to the
---------------------------
Company that he is knowledgeable and sophisticated as to business matters,
including the subject matter of this Agreement, that he has read this Agreement
and that he understands its terms. The Executive acknowledges that, prior to
assenting to the terms of this Agreement, he has been given a reasonable time to
review it, to consult with counsel of his choice, and to negotiate at arm's-
length with the Company as to the contents. The Executive and the Company agree
that the language used in this Agreement is the language chosen by the parties
to express their mutual intent, and that no rule of strict construction is to be
applied against any party hereto. The Executive represents and warrants that he
is not, and will not become a party to any agreement, contract, arrangement or
understanding, whether of employment or otherwise, that would in any way
restrict or prohibit him from undertaking or performing his duties in accordance
with this Agreement.
23. Titles and Headings. Titles and headings in this Agreement are for
-------------------
ease of reference and convenience only, and shall not be construed to affect the
meaning of any provision of this Agreement.
14
<PAGE>
IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
/s/ Guy Hengesbaugh
-------------------------------------
Guy Hengesbaugh
LASALLE RE LIMITED
By: /s/ Clement S. Dwyer, Jr.
---------------------------------
Clement S. Dwyer, Jr.
Chairman, Compensation Committee
15
<PAGE>
EXHIBIT A
---------
BONUS COMPUTATION
-----------------
A-1. Purpose. This Exhibit A is attached to and forms a part of the
-------
employment agreement (the "Agreement") between Guy Hengesbaugh (the "Executive")
and LaSalle Re Limited (the "Company"). The purpose of this Exhibit A is to set
forth the terms of the bonus program described in paragraph 2(b) of the
Agreement.
A-2. Guidelines. The bonus shall be determined in accordance with the
----------
following guidelines:
. A discretionary bonus may be awarded annually by the Board of the
Company after considering the recommendation of the Compensation
Committee of the Company.
. A non-discretionary bonus shall be earned and paid annually based upon
the Company's Return on Equity (defined below) achieved for each fiscal
year of the Company, while the Executive is employed by the Company.
. The non-discretionary annual bonus calculation will be based on the
Company's Return on Equity earned each year. If the Company's Return on
Equity for any year exceeds 10%, the bonus will be paid according to
the following formula:
. For each 1% improvement in Return on Equity above 10%, an
amount equal to 10.0 % of The Executive's Salary will be paid.
. For each 1% improvement in Return on Equity above 22.5%, an
amount equal to 15.0 % of The Executive's Salary will be paid.
. For Return on Equity results between whole percentages (but
above 10%), the percentage of Salary awarded will be increased
by interpolation.
. The "Return on Equity" for any fiscal year shall be equal to
the net income of the Company for the fiscal year, divided by
shareholders' equity at the beginning of the period (as
determined on the basis of U.S. generally accepted accounting
principles). For purposes of this calculation any unrealized
appreciation or depreciation of the Company's investments
shall be disregarded (both as to the numerator and the
denominator). Payments made to CNA Financial Corporation or
its affiliates under the Underwriting Support Services
Agreement will not reduce net income in determining the Return
on Equity.
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of October 1, 1998 (the
"Effective Date"), by and between Clare Moran (the "Executive") and LaSalle Re
Limited (the "Company");
WITNESSETH THAT:
---------------
WHEREAS, the parties desire to enter into this Agreement pertaining to
the continued employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, it is hereby covenanted and agreed by the Executive and the
Company as follows:
1. Performance of Services. The Executive's continued employment with
-----------------------
the Company shall be subject to the following:
(a) Subject to the provisions of this Agreement, the Company hereby agrees
to employ the Executive as a Vice President of the Company during the
Agreement Term (as defined below), and the Executive hereby agrees to
remain in the employ of the Company during the Agreement Term.
(b) During the Agreement Term, while the Executive is employed by the
Company, the Executive shall devote, subject to paragraph 1(f), his
full time, energies and talents to performing his duties under this
Agreement.
(c) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the directions of the Board of Directors (the
"Board") and the Chief Executive Officer (the "CEO") of the Company.
The Executive's duties may include providing services for the Company,
LaSalle Re Holdings Limited (the "Holding Company"), and the
Subsidiaries (as defined below), as determined by the CEO; provided
that the Executive shall not, without his consent, be assigned tasks
that would be inconsistent with his position at the Company. The
Executive will have such authority and power as are inherent to the
undertakings applicable to his position and necessary to carry out his
responsibilities and the duties required of him hereunder.
(d) While the Executive is employed by the Company, he shall be subject to
the duties that reasonably apply to the Company's officers and
employees (including, without limitation, the duty of loyalty to the
Company).
(e) The Company may change the Executive's title and duties in the event of
reorganization, restructuring, or similar circumstances, except that
the Executive shall have a senior executive position at all times
during the Agreement Term while he is employed by the Company.
1
<PAGE>
(f) Notwithstanding the foregoing provisions of this paragraph 1, during
the Agreement Term, the Executive may devote reasonable time to
activities other than those required under this Agreement, including
the supervision of his personal investments, and activities involving
professional, charitable, educational, religious and similar types of
organizations, speaking engagements, membership of the boards of
directors of other organizations, and similar type of activities, to
the extent that such other activities do not inhibit or prohibit the
performance of the Executive's duties under this Agreement, or conflict
in any material way with the business of the Company, the Holding
Company, or any Subsidiary; provided, however, that except as otherwise
expressly provided in this Agreement, the Executive shall not serve on
the board of any business, or hold any position with any business
without the consent of the Board and the CEO of the Company.
(g) The Executive will be required to maintain a residence in Bermuda while
employed by the Company.
(h) The Company will use its reasonable best efforts to maintain a Bermuda
work permit for the Executive. The Executive shall cooperate with the
Company and the appropriate authorities in maintaining such permit. The
Executive's employment by the Company is conditioned upon the Company's
ability to keep current all required work permits, and except as
otherwise provided in this paragraph 1(h), the Company shall have no
further obligation to the Executive if, after employing its reasonable
best efforts, it is unable to maintain such permits. If despite the
Company's best efforts to maintain the Bermuda work permit, the work
permit is terminated or revoked by the Government of Bermuda through no
fault of the Executive, then the Executive shall be deemed to have
received written notice from the Company that his Date of Termination
is the date on which the termination or revocation of his or her work
permit is effective, and the Executive shall be entitled to the
benefits provided for Termination by the Company under Section 3(g). In
addition, the Company shall reimburse the Executive for reasonable
costs actually incurred by the Executive and the members of his or her
immediate family to relocate to the nation in which the Executive
maintains citizenship; provided, however, that such reimbursement shall
be made only if such relocation occurs within a reasonable time
following such Date of Termination. The reasonableness of the cost and
time of relocation shall be determined by the Board of Directors of the
Company.
(i) Subject to the provisions of this Agreement, the Executive shall not be
required to perform services under this Agreement during any period
that he is Disabled. The Executive shall be considered "Disabled"
during any period in which he has a physical or mental disability which
renders him incapable, after reasonable accommodation, of performing
his duties under this Agreement. In the event of a dispute as to
whether the Executive is Disabled, the Company may refer the same to a
licensed practicing physician of the Company's choice, and the
Executive agrees to submit to such tests and examination as such
physician shall deem appropriate.
(j) The "Agreement Term" shall be the period beginning on the Effective
Date and ending on the first anniversary of the Effective Date;
provided, however, that such Agreement Term shall automatically be
renewed daily, such that at any time on or after the Effective
2
<PAGE>
Date, the remaining term shall equal one year. However, such additional
day-to-day renewals may be terminated by either party be delivering
written notice of such termination to the other party, in accordance
with the requirements of paragraph 18. The cessation of the automatic
renewals shall be effective on the date such written notice is deemed
to be given to the other party in accordance with paragraph 18, such
that the Agreement term shall end on the one-year anniversary of the
date such written notice is deemed given to the other party. For
purposes of this Agreement, a Notice of Termination, as described in
paragraph 3(i), shall be deemed to be a notice to terminate day-to-day
renewals.
(k) For purposes of this Agreement, the term "Subsidiary" shall mean any
company (regardless of whether incorporated) during any period in which
50% or more of the total combined voting power of all classes of stock
(or other ownership interest) entitled to vote is owned, directly or
indirectly, by the Company.
2. Compensation. Subject to the provisions of this Agreement, during
------------
the Agreement Term, while he is employed by the Company, the Company shall
compensate the Executive for the Executive's services as follows:
(a) Salary. The Executive shall receive, for each 12-consecutive month
------
period beginning on the Effective Date and each anniversary thereof, in
substantially equal monthly or more frequent installments, an annual
base salary of $125,000 (the "Salary"). In no event shall the Salary of
the Executive be reduced to an amount that is less than the amount
specified in this paragraph (a), or to an amount that is less than the
amount that he was previously receiving, except to the extent that
reductions of the same percentage are being made at the same time to
the salaries of all other Company officers in the corporate office at
or above the vice-president level, and such Salary shall be restored to
its prior level when, and to the same extent, as the restoration that
applies to the other officers.
(b) Bonus. The Executive shall be entitled to receive bonuses from the
-----
Company as determined in the discretion of the Board.
(c) Disability. The Executive shall receive from the Company disability
----------
income replacement coverage which will provide for replacement of
income at a commercially reasonable rate during any period in which the
Executive is Disabled if the disability arose during the Agreement Term
and prior to the Executive's Date of Termination. During any period
while the Executive is Disabled, and is otherwise entitled to receive
Salary under this Agreement, any Salary payments to the Executive shall
be reduced by the amount of any benefits paid for the same period of
time under the Company's disability income replacement coverage.
(d) Pension. The Company will provide the Executive with a defined
-------
contribution savings plan, into which the Company will make a
contribution for each fiscal year equal to 10% of the Salary paid to
the Executive for such fiscal year. The plan will also provide that the
Executive may make annual contributions equal to or less than the
Company's contribution.
3
<PAGE>
(e) Automobile. The Company will provide the Executive with an allowance
----------
toward the cost of an automobile in Bermuda, the amount of which will
be approved by the CEO. The Company will assume responsibility for the
cost of insurance, maintenance and similar items. The Executive's
personal use of the automobile will be permitted. The perquisite shall
be governed by the rules and limitations set down from time to time by
the Company.
(f) Housing/Living Allowance. The Company shall provide the Executive with
------------------------
a housing and living expense allowance at the annual rate of $36,000
for the Agreement Term, with such allowance to be payable to the
Executive in monthly instalments.
(g) Professional Dues. The Company will reimburse the Executive for
-----------------
reasonable professional dues to maintain her professional standing as a
Chartered Accountant.
(h) Other Benefits. Except as otherwise specifically provided to the
--------------
contrary in this Agreement, the Executive shall be provided with the
welfare benefits and other fringe benefits to the same extent and on
the same terms as those benefits are provided by the Company from time
to time to the Company's other senior management employees. However,
the Company shall not be required to provide a benefit or perquisite
under this paragraph 2(h) if such benefit or perquisite would duplicate
(or otherwise be the same type as) a benefit or perquisite specifically
required to be provided under another provision of this Agreement.
(i) Expenses. Upon approval by the CEO, the Company will reimburse the
--------
Executive for reasonable expenses for entertainment, traveling, meals,
lodging and similar items in promoting the Company's business which the
Executive documents on a form used by the Company to report business
expenses.
(j) Indemnification. The Company shall maintain officers liability
---------------
insurance in commercially reasonable amounts (as reasonably determined
by the Board), and the Executive shall be covered under such insurance
to the same extent as other senior management employees of the Company.
The Executive shall be eligible for indemnification by the Company
under the Company's bye-laws as currently in effect. The Company agrees
that it shall not take any action that would impair the Executive's
rights to indemnification under the Company's bye-laws, as currently in
effect.
(k) Holiday/Vacation. The Executive shall be subject to the holiday and
----------------
vacation policy that applies to other senior executives of the Company.
(l) Dollar Amounts. As used in this Agreement, "dollars" or numbers
--------------
preceded by the symbol "$" shall mean amounts in United States Dollars.
3. Termination. The Executive's employment during the Agreement Term
------------
may be terminated by the Company or the Executive without any breach of this
Agreement only under the circumstances described in paragraphs 3(a) through
3(g):
4
<PAGE>
(a) Death. The Executive's employment will terminate upon his death.
-----
(b) Permanently Disabled. The Company may terminate the Executive's
--------------------
employment if he is Permanently Disabled. "Permanently Disabled" means
that the Executive is eligible for benefits under the Company's
long-term disability plan.
(c) Cause. The Company may terminate the Executive's employment at any time
-----
for Cause. "Cause" shall mean:
(i) the wilful and continued failure by the Executive to
substantially perform his duties with the Company (other than
any such failure resulting from the Executive's being
Disabled), within a reasonable period of time after a written
demand for substantial performance is delivered to the
Executive by the CEO, which demand specifically identifies the
manner in which the CEO believes that the Executive has not
substantially performed his duties;
(ii) the wilful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company or the
Holding Company, monetarily or otherwise; or
(iii) the engaging by the Executive in egregious misconduct
involving serious moral turpitude to the extent that, in the
reasonable judgment of the CEO, the Executive's credibility
and reputation no longer conform to the standard of the
Company's executives.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be deemed "wilful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief
that the Executive's action or omission was in the best interest of the
Company or the Holding Company.
(d) Constructive Discharge. If the Executive (i) provides written notice to
----------------------
the Company of the occurrence of a material breach of this Agreement by
the Company, which specifically identifies the manner in which the
Executive believes that the breach has occurred; (ii) the Company fails
to correct such breach within a reasonable time after such notice; and
(iii) the Executive resigns within the 60-day period following the
occurrence of such breach, then the Executive shall be considered to
have been constructively discharged.
(e) Resignation by Executive. The Executive may resign for any reason by
------------------------
giving the Company ninety (90) days prior written notice, except the
Executive will be treated as having resigned under this paragraph 3(e)
only if he has not been constructively discharged under paragraph 3(d).
(f) Mutual Agreement. This Agreement may be terminated at any time by the
----------------
mutual agreement of the parties. Any termination of the Executive's
employment by mutual agreement of the parties will be memorialized by
an agreement which is reduced in
5
<PAGE>
writing and signed by the Executive and the CEO or other duly appointed
officer of the Company.
(g) Termination by Company. The Company may terminate the Executive's
----------------------
employment at any time for any reason by giving the Executive prior
written notice, except the Executive's employment will not be treated
as having been terminated under this paragraph 3(g) if the termination
is for reasons of being Permanently Disabled or for Cause.
(h) Date of Termination. "Date of Termination" means the last day the
-------------------
Executive is employed by the Company, provided that the Executive's
employment is terminated in accordance with the foregoing provisions of
this paragraph 3.
(i) Notice of Termination. Any termination of the Executive's employment by
---------------------
the Company or the Executive (other than a termination pursuant to
paragraph 3(a) or paragraph 3(f)) must be communicated by a written
Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" means a dated notice which
indicates the specific termination provision in this Agreement relied
on and which sets forth in reasonable detail the facts and
circumstances, if any, claimed to provide a basis for termination of
the Executive's employment under the provision so indicated.
4. Rights Upon Termination. This paragraph 4 describes the payments and
-----------------------
benefits to be provided to the Executive after his Date of Termination:
(a) Payment of Previously Earned Amounts. The Executive shall receive
------------------------------------
payment of accrued but unpaid Salary, vacation pay and, if expressly
provided for in paragraph 4(d), a pro rata portion of his bonus (if
any), in each case for the period ending with the Executive's Date of
Termination.
(b) No Severance Payments. If the Executive's Date of Termination occurs
---------------------
during or after the end of the Agreement Term, or because of (i) the
Executive's death, (ii) his being Permanently Disabled (paragraph
3(b)), (iii) his termination for Cause (paragraph 3(c)), or (iv) his
resignation (paragraph 3(e)), then, except as otherwise expressly
provided for in this Agreement, no payments shall be due to the
Executive under this Agreement for periods after the Date of
Termination.
(c) Salary Continuation. If the Executive's Date of Termination occurs
-------------------
during the Agreement Term because of (i) his discharge by the Company
for reasons other than Cause (described in paragraph 3(c)), or (ii) his
constructive discharge (described in paragraph 3(d)), the Executive
shall continue to receive Salary payments (at the rate in effect on the
Date of Termination) in monthly or more frequent instalments through
the earliest of: (i) the last day of the Agreement Term; (ii) the date
of the Executive's death, or (iii) the date, if any, of the breach by
the Executive of the non-competition requirements of paragraph 7, the
confidentiality requirements of paragraph 8 or the non- disparagement
requirements of paragraph 9.
6
<PAGE>
(d) Pro rata Bonus. Except as otherwise provided in this paragraph 4(d),
--------------
the Executive shall not receive a bonus for the fiscal year in which
the Executive's Date of Termination occurs. If the Executive's Date of
Termination occurs during the Agreement Term as a result of (i) the
Executive's death (ii) his being Permanently Disabled (paragraph 3(b)),
(iii) his discharge by the Company for reasons other than Cause
(described in paragraph 3(c)), or (iv) his constructive discharge
(described in paragraph 3(d)), the Executive shall receive a pro rata
portion of the bonus, if any, which would have been paid pursuant to
paragraph 2(b) for the fiscal year in which the Executive's Date of
Termination occurs. Such portion, if any, shall be calculated for the
period ending on the Date of Termination and shall be paid to the
Executive (or his estate) within a reasonable period of time after the
Company calculates the bonus amount, if any, for all employees for the
fiscal year.
(e) Housing/Living Expenses, Medical Benefits. If the Executive is entitled
-----------------------------------------
to Salary Continuation payments pursuant to paragraph 4(c), the
Executive shall receive a housing and living expense allowance
(described in paragraph 2(g)) and may continue to participate in the
medical and dental plans in which he participated on the day before his
Date of Termination through the earlier of: (i) the last day for which
the Executive receives Salary Continuation payments pursuant to
paragraph 4(c); or (ii) three (3) months after the Executive's Date of
Termination. Participation in the medical and dental plans is subject
to the Executive's payment of the applicable employee portion of the
monthly premium cost, if any. If the Company ceases offering the
medical and dental plans in which the Executive participated on the day
before his Date of Termination to Company employees during this time,
the Executive may elect to participate in any other medical or dental
plan offered by the Company to its employees, provided however, that
the Executive shall be responsible for paying the applicable employee
portion of the monthly premium cost.
(f) Other Programs. No benefits shall be payable to the Executive under any
--------------
other severance pay arrangement or similar arrangement maintained by
the Company or any Subsidiary. Except as otherwise expressly provided
in this Agreement, no other payments or benefits shall be due to the
Executive following the Date of Termination (except as otherwise
specifically provided under the terms of an employee benefit plan or
arrangement).
5. Duties on Termination. Subject to the provisions of this Agreement,
---------------------
during the period beginning on the date of delivery of a Notice of Termination,
and ending on the Date of Termination, the Executive shall continue to perform
his duties as set forth in this Agreement, and shall also perform such services
for the Company and the Holding Company as are necessary and appropriate for a
smooth transition to the Executive's successor, if any. Notwithstanding the
foregoing provisions of this paragraph 5, the Company may suspend the Executive
from performing his duties under this Agreement following the delivery of a
Notice of Termination providing for the Executive's resignation, or delivery by
the Company of a Notice of Termination providing for the Executive's termination
of employment for any reason; provided, however, that during the period of
suspension (which shall end on the Date of Termination), the Executive shall
continue to be treated as employed by the Company for other purposes, and his
rights to compensation or benefits shall not be reduced by reason of the
suspension.
7
<PAGE>
6. Set-Off. If the Executive's employment with the Company is
-------
terminated for any reason and, under the terms of this Agreement, the Executive
is otherwise entitled to receive Salary and bonus payments, such payments will
be reduced by the amount of any salary and bonus payments the Executive receives
in connection with other employment.
7. Non-competition. While the Executive is employed by the Company, and
---------------
during the Non-Competition Period (as defined below), the Executive agrees that
he will not directly or indirectly perform services in a financial-related
position in Bermuda for a direct competitor of the Company. A financial-related
position shall include, but is not limited to, a financial officer or
comptroller.
For purposes of this paragraph 7:
"Non-Competition Period" shall be determined as follows:
(A) If the Executive's Date of Termination occurs under
circumstances other than those described in paragraph 3(d)
(relating to constructive discharge) or paragraph 3(g)
(relating to certain terminations by the Company), the Non-
Competition Period shall be the period beginning on the Date
of Termination, and ending on the twenty-four-month (24)
anniversary of the Date of Termination.
(B) If the Executive's Date of Termination occurs under
circumstances described in paragraph 3(d) (relating to
constructive discharge) or paragraph 3(g) (relating to certain
terminations by the Company), the Non-Competition Period shall
be the period beginning on the Date of Termination, and ending
on the earlier to occur of the last day of the Agreement Term
or the twenty-four-month (24) anniversary of the Date of
Termination. However, under this paragraph (B), the Company,
in its discretion, by notice provided to the Executive not
later than fifteen (15) days after the Date of Termination,
may extend the Non-Competition Period beyond the end of the
Agreement Term, to a date specified in such notice (but not
later than the twenty-four-month anniversary of the Date of
Termination), but only if the Company agrees to provide the
salary continuation payments described in paragraph 4(c)
during such Non-Competition Period.
Nothing in this paragraph 7, paragraph 8 or paragraph 9 shall be construed as
limiting the Executive's duty of loyalty to the Company while he is employed by
the Company or any other duty he may otherwise have to the Company while he is
employed by the Company.
8. Confidential Information. Except as may be required by the lawful
------------------------
order of a court or agency of competent jurisdiction, or except to the extent
that the Executive has express authorization from the Company, the Executive
agrees to keep secret and confidential indefinitely all non-public information
(including, without limitation, information regarding litigation and pending
litigation) concerning the Company, the Holding Company, and the Subsidiaries
which was acquired by or disclosed to the Executive during the course of his
employment with the Company, or during the course of his consultation with the
Company following his termination of employment (regardless of whether
consultation is pursuant to paragraph 10), and not to disclose the same, either
directly or indirectly, to any other person,
8
<PAGE>
firm, or business entity, or to use it in any way. To the extent that the
Executive obtains information on behalf of the Company, the Holding Company, or
any of the Subsidiaries that may be subject to attorney-client privilege as to
the Company's attorneys, the Executive shall take reasonable steps to maintain
the confidentiality of such information and to preserve such privilege. Nothing
in the foregoing provisions of this paragraph 8 shall be construed so as to
prevent the Executive from using, in connection with his employment for himself
or an employer other than the Company, the Holding Company, or any of the
Subsidiaries, knowledge which was acquired by him during the course of his
employment with the Company, the Holding Company, and the Subsidiaries, and
which is generally known to persons of his experience in other companies in the
same industry.
9. Non-Disparagement. The Executive agrees that, while he is employed
-----------------
by the Company, and after his Date of Termination, he shall not make any false,
defamatory or disparaging statements about the Company, the Holding Company, the
Subsidiaries, or the officers or directors of the Company, the Holding Company,
or the Subsidiaries that are reasonably likely to cause material damage to the
Company, the Holding Company, the Subsidiaries, or their officers or directors.
While the Executive is employed by the Company, and after his Date of
Termination, the Company agrees, on behalf of itself, the Holding Company, and
the Subsidiaries, that neither the officers nor the directors of the Company,
the Holding Company, or the Subsidiaries shall make any false, defamatory or
disparaging statements about the Executive that are reasonably likely to cause
material damage to Executive.
10. Defense of Claims. The Executive agrees that, for the period
-----------------
beginning the Effective Date, and continuing for a reasonable period after the
Executive's termination of employment with the Company, the Executive will
cooperate with the Company, the Holding Company and the Subsidiaries in defense
of any claims that may be made against the Company, the Holding Company and the
Subsidiaries, and will cooperate with the Company, the Holding Company or the
Subsidiaries in the prosecution of any claims that may be made by the Company,
the Holding Company or the Subsidiaries, to the extent that such claims may
relate to services performed by the Executive for the Company. The Executive
agrees to promptly inform the Company if he becomes aware of any lawsuits
involving such claims that may be filed against the Company, the Holding Company
or the Subsidiaries. The Company agrees to reimburse the Executive for all of
the Executive's reasonable out-of-pocket expenses associated with such
cooperation, including travel expenses. For periods after the Executive's
employment with the Company terminates, the Company agrees to provide reasonable
compensation to the Executive for such cooperation. The determination of the
reasonableness of such compensation shall take into account information provided
to the Company by the Executive or otherwise known to the Company, which may
include, without limitation, (a) the Executive's rate of compensation at the
time he ceased employment with the Company, and whether he is then receiving
other compensation payments from the Company; (b) the Executive's rate of
compensation at the time of such cooperation; (c) the amount of time required of
the Executive for such cooperation; (d) difficulty of the issues as to which the
cooperation is required; (e) the amount of inconvenience to the Executive
resulting from such cooperation (including consideration of factors such as the
amount of travel required of the Executive, the effect on other commitments of
the Executive, and the amount of advance notice provided to the Executive); and
(f) whether such cooperation would be legally required in the absence of the
requirements of this paragraph 10. The Executive also agrees to promptly inform
the Company
9
<PAGE>
if he is asked to assist in any investigation of the Company, the Holding
Company or the Subsidiaries (or their actions) that may relate to services
performed by the Executive for the Company, regardless of whether a lawsuit has
then been filed against the Company, the Holding Company or the Subsidiaries
with respect to such investigation.
11. Remedies. The Executive acknowledges that the Company or the
--------
Holding Company would be irreparably injured by a violation of paragraph 7,
paragraph 8, or paragraph 9, and he agrees that the Company, in addition to any
other remedies available to it for such breach or threatened breach, shall be
entitled to a preliminary injunction, temporary restraining order, or other
equivalent relief, restraining the Executive from any actual or threatened
breach of either paragraph 7, paragraph 8 or paragraph 9. The Company
acknowledges that the Executive would be irreparably injured by a violation of
paragraph 9, and the Company agrees that the Executive, in addition to any other
remedies available to him for such breach or threatened breach, shall be
entitled to a preliminary injunction, temporary restraining order, or other
equivalent relief, restraining the Company from any actual or threatened breach
of paragraph 9. If a bond is required to be posted in order for the Company or
the Executive to secure an injunction or other equitable remedy, the parties
agree that said bond need not be more than a nominal sum.
12. Nonalienation. The interests of the Executive under this Agreement
-------------
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
13. Amendment. This Agreement may be amended or canceled only by mutual
---------
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.
14. Applicable Law. The provisions of this Agreement shall be construed
--------------
in accordance with the laws of Bermuda, without regard to the conflict of law
provisions of any jurisdiction. All disputes shall be arbitrated or litigated
(whichever is applicable) in Bermuda.
15. Severability. The invalidity or unenforceability of any provision
------------
of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
16. Waiver of Breach. No waiver by any party hereto of a breach of any
----------------
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
10
<PAGE>
17. Successors. This Agreement shall be binding upon, and inure to the
----------
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
18. Notices. Notices and all other communications provided for in this
-------
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or sent
by facsimile or prepaid overnight courier to the parties at the addresses set
forth below (or such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims and other communications shall be
deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified, registered or similar mail delivery, five
days after deposit in the local mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that are
to be delivered by the mail or by overnight service are to be delivered to the
addresses set forth below:
to the Company:
LaSalle Re Limited
25 Church Street
Hamilton HMFX - Bermuda
or to the Executive:
Clare Moran
25 Church Street
Hamilton, HMFX, Bermuda
All notices to the Company shall be directed to the attention of the chief
executive officer of the Company, with a copy to the Secretary of the Company.
Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt.
19. Arbitration of All Disputes. Any controversy or claim arising out
---------------------------
of or relating to this Agreement (or the breach thereof) shall be settled by
final, binding and non-appealable arbitration in Bermuda by three arbitrators.
Except as otherwise expressly provided in this paragraph 19, the arbitration
shall be conducted in accordance with the Arbitration Act 1986 as then in
effect. One of the arbitrators shall be appointed by the Company, one shall be
appointed by the Executive, and the third shall be appointed by the first two
arbitrators. If the first two
11
<PAGE>
arbitrators cannot agree on the third arbitrator within 30 days of the
appointment of the second arbitrator, then the third arbitrator shall be
appointed by the President of the Bermuda Bar Council.
20. Survival of Agreement. Except as otherwise expressly provided in
---------------------
this Agreement, the rights and obligations of the parties to this Agreement
shall survive the termination of the Executive's employment with the Company.
21. Entire Agreement. Except as otherwise noted herein, this Agreement,
----------------
including any Exhibit(s) attached hereto, constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior and contemporaneous agreements, if any, between the parties relating to
the subject matter hereof. The enforceability of this Agreement shall not cease
or otherwise be adversely affected by the termination of the Executive's
employment with the Company.
22. Acknowledgment by Executive. The Executive represents to the
---------------------------
Company that he is knowledgeable and sophisticated as to business matters,
including the subject matter of this Agreement, that he has read this Agreement
and that he understands its terms. The Executive acknowledges that, prior to
assenting to the terms of this Agreement, he has been given a reasonable time to
review it, to consult with counsel of his choice, and to negotiate at arm's-
length with the Company as to the contents. The Executive and the Company agree
that the language used in this Agreement is the language chosen by the parties
to express their mutual intent, and that no rule of strict construction is to be
applied against any party hereto. The Executive represents and warrants that he
is not, and will not become a party to any agreement, contract, arrangement or
understanding, whether of employment or otherwise, that would in any way
restrict or prohibit him from undertaking or performing his duties in accordance
with this Agreement.
23. Titles and Headings. Titles and headings in this Agreement are for
-------------------
ease of reference and convenience only, and shall not be construed to affect the
meaning of any provision of this Agreement.
IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
/s/ Clare Moran
-----------------------------
Clare Moran
LASALLE RE LIMITED
By:/s/ Guy Hengesbaugh
--------------------------
Guy Hengesbaugh
Chief Executive Officer
12
<PAGE>
Exhibit 10.3
AMENDMENT OF EMPLOYMENT AGREEMENT
---------------------------------
THIS AGREEMENT, made and entered into as of June 1, 1999 (the
"Effective Date"), by and between Clare Moran (the "Executive") and LaSalle Re
Limited (the "Company");
WITNESSETH THAT:
---------------
WHEREAS, the parties have previously entered into an employment
agreement dated as of October 1, 1998, (the "Employment Agreement"); and
WHEREAS, amendment of the Employment Agreement is now desirable to
reflect certain recommendations of the Compensation Committee;
NOW, THEREFORE, it is hereby agreed by and between the Company and the
Executive that the following is substituted for paragraph 7 of the Employment
Agreement, effective June 1, 1999:
"7. Non-competition. While the Executive is employed by LaSalle Re
---------------
Limited, and for a period of twelve months following the Executive's termination
of employment with LaSalle Re Limited, the Executive agrees that he or she will
not directly or indirectly perform services in a financial-related position in
Bermuda for a direct specialist reinsurance competitor of LaSalle Re Limited,
which competitor writes similar business to that of LaSalle Re Limited that is
of a predominantly property catastrophe nature. Nothing in this paragraph 7,
paragraph 8, or paragraph 9 shall be construed as limiting the Executive's duty
of loyalty to LaSalle Re Limited and the Holding Company while he or she is
employed by LaSalle Re Limited or any other duty he or she may otherwise have to
LaSalle Re Limited or the Holding Company while he or she is employed by LaSalle
Re Limited."
IN WITNESS THEREOF, the Executive has hereunto set her hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
/s/ Clare Moran
---------------------------
Clare Moran
LASALLE RE LIMITED
By: /s/ Guy Hengesbaugh
-----------------------
Guy Hengesbaugh
Chief Executive Officer
<PAGE>
Exhibit 10.4
TERMINATION OF CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION AGREEMENT
This termination ("Termination") is entered into with respect to that
certain Catastrophe Equity Securities Issuance Option Agreement (the
"Agreement") entered into as of July 1, 1997 between LaSalle Re Holdings
Limited, a Bermuda company ("Company"), on the one hand, and European
Reinsurance Company of Zurich, a corporation organized under the laws of
Switzerland; Allianz Risk Transfer, a corporation organized under the laws of
Switzerland; Continental Casualty Company, a stock insurance company organized
under the laws of Illinois, U.S.; and CIC-Hilldale, Inc., a corporation
organized under the laws of Illinois, U.S. (each an "Option Writer" and
collectively, "Option Writers"), on the other hand. Terms used but not defined
in this Termination shall have the respective meanings ascribed to them in the
Agreement.
RECITALS
WHEREAS, Company and Option Writers have previously entered into, and now
wish to terminate, the Agreement in accordance with the terms and conditions set
forth below;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Company and Option Writers agree as follows:
AGREEMENT
1. Termination. In accordance with Section 7.1 of the Agreement, the
Company and Option Writers hereby terminate the Agreement as of 12:00
a.m. midnight Bermuda time on July 1, 1999.
2. Effect of Termination. By virtue of this Termination, each of Company
and the Option Writers are released from any and all liabilities,
duties and obligations under the Agreement as of the date and time
specified in Section 1 above.
3. Option Fee Refund. The Option Writers shall refund to the Company, no
later than December 15, 1999, any Option Fee payments previously
received with respect to time periods on or after July 1, 1999.
Notwithstanding the foregoing, to the extent that the Company has, as
of the date of this Termination, entered into any agreement similar to
the Agreement with any Option Writer with respect to periods on or
after July 1, 1999 the Company hereby consents to the application by
such Option Writer of any Option Fee previously paid under the
1
<PAGE>
Agreement for periods on or after July 1, 1999, to any option fees due
and payable under such similar agreement.
4. Counterparts. This Termination may be executed in separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
5. Governing Law. This Termination shall be governed by and construed in
accordance with the laws of Bermuda (without regard to any choice of
law or conflict of law rules that would cause the application of any
laws or rules of any jurisdiction other than Bermuda.
2
<PAGE>
IN WITNESS WHEREOF, the parties to this Termination have caused it to be duly
executed as of the date first written above.
LaSalle Re Holdings Limited
By: /s/ Mark C. Stockton By: /s/ Clare Moran
--------------------------------- ---------------------------------
Title: Senior Vice President Title: Senior Vice President
and Chief Underwriting Officer Treasurer and Interim CFO
-------------------------------- ------------------------------
European Reinsurance Company of Zurich
By: /s/ Scott Bradley By: /s/ D. Whiting
--------------------------------- ---------------------------------
Title: Member of Senior Management Title: Member of Senior Management
------------------------------ ------------------------------
Allianz Risk Transfer
By: /s/ M. Markoff By: /s/ Thomas Bruendler
--------------------------------- ---------------------------------
Title: Executive Vice President Title: Executive Vice President
------------------------------ ------------------------------
Continental Casualty Company
By: /s/ William B. Heberton, Jr. By: /s/ M. J. Laughlin
--------------------------------- ---------------------------------
Title: Vice President Title: Assistant Vice President
------------------------------ ------------------------------
CIC-Hilldale, Inc.
By: /s/ Michael A. Conway By:
--------------------------------- ---------------------------------
Title: President Title:
------------------------------ ------------------------------
3
<PAGE>
Exhibit 10.5
CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION AGREEMENT
This Catastrophe Equity Securities Issuance Option Agreement (this
"Agreement") is entered into as of July 1, 1999 between LaSalle Re Holdings
Limited, a Bermuda company ("Company"), on the one hand, and European
Reinsurance Company of Zurich, a corporation organized under the laws of
Switzerland; and Allianz Risk Transfer, a corporation organized under the laws
of Switzerland (each an "Option Writer" and collectively, "Option Writers"), on
the other hand.
RECITALS
WHEREAS, Company is a holding company with direct and indirect subsidiaries
which insure and/or reinsure, directly or through syndicates, property and
casualty insurance risks;
WHEREAS, Option Writers are companies in the business of insuring and/or
reinsuring certain property/casualty insurance risks;
WHEREAS, Company and Option Writers wish to enter into an arrangement under
which, during a specified time period, Company shall have the option (the
"Securities Issuance Option", as defined in Article 1) to require Option Writers
to purchase up to 4,000,000 of the Series B Preferred Shares of Company (the
"Preferred Shares", as defined in Article 1) in the event that Company
Subsidiaries experience a Qualifying Catastrophic Event (as defined in Article
1); and
WHEREAS, Company and Option Writers desire to memorialize their agreement
with respect to the Securities Issuance Option on the terms and conditions set
forth below;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Company and Option Writers agree as follows:
AGREEMENT
1. Definitions. Terms used in this Agreement shall have the respective
meanings ascribed to them below.
"A.M. Best Rating" means a rating of financial condition and
performance, as published from time to time, by A.M. Best Company.
"Affiliate" of, or Person "affiliated" with, a specified Person means a
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled, by, or is under common control with, such specified Person.
1
<PAGE>
"Agreement Year" means a one (1) year period, during the Exposure Period,
as follows: (a) the initial Agreement Year shall run from 12:00 a.m. midnight on
July 1, 1999 through 12:00 a.m. midnight on July 1, 2000. After 12:00 a.m. on
July 1, 2000, the initial Agreement Year shall automatically shift to the period
from 12:00 a.m. midnight on October 1, 1999 through 12:00 a.m. midnight on
October 1, 2000; provided, however, that with respect to any series of events
constituting a Qualifying Catastrophic Event which occurs during the period from
12:00 a.m. midnight on July 1, 1999 through 12:00 a.m. midnight on July 1, 2000,
Company shall retain the right to exercise the Securities Issuance Option during
the Exercise Term for such period (which Exercise Term shall end at 12:00 a.m.
midnight on July 1, 2001), and (b) subsequent Agreement Years shall begin at
12:00 a.m. midnight on October 1 and end at 12:00 a.m. midnight on the next
following October 1, provided, however, that at the end of the final Agreement
Year at 12:00 a.m. on October 1, 2002, the Option Writers shall have the option
to extend the Agreement, upon the unanimous consent of all Option Writers, for
the Extension Period (upon payment of the Option Fee for the Extension Period as
set forth in Section 2.2), in which case the final Agreement Year shall
automatically shift to the period from 12:00 a.m. midnight on July 1, 2002
through the end of the Extension Period, but Company shall retain the right to
exercise the Securities Issuance Option with respect to any series of events
constituting a Qualifying Catastrophic Event which occurs during the period from
12:00 a.m. midnight on October 1, 2001 through 12:00 a.m. midnight on October 1,
2002. All times listed above are Bermuda time.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in any of Hamilton, Bermuda; Zurich, Switzerland;
Munich, Germany; or London, England, are not required to be open.
"Certificate of Designation" means the Certificate of Designation,
Preferences and Rights of Series B Preferred Shares of LaSalle Re Holdings
Limited, in the form attached as Exhibit 1.1.
"Change of Control" means the earlier to occur of (a) the date of a public
announcement that a Person or group of affiliated Persons (an "Acquiring
Person") has acquired, or has obtained the right to acquire, legal or beneficial
ownership of fifty percent (50%) or more of the voting power of the issued and
outstanding shares of Company or any Company Subsidiary, (b) the date an
Acquiring Person acquires fifty percent (50%) or more of the assets of Company,
or (c) the date of any amalgamation, consolidation or merger of Company with any
Acquiring Person. For purposes hereof, the term "Acquiring Person" shall not
include (i) Company, any of its Subsidiaries or any employee benefit plan (or
related trust) sponsored or maintained by Company or any of its Subsidiaries, or
(ii) any other person where sixty percent (60%) or more of the combined voting
power of such Person's issued and outstanding shares or capital stock is
beneficially owned, directly or indirectly, by the Persons who were the holders
of the voting shares of Company immediately prior to such acquisition,
amalgamation, consolidation or merger (as the case may be).
2
<PAGE>
"Company" means LaSalle Re Holdings Limited, a Bermuda company.
"Company Common Stock" means the common shares of Company, par value
US$1.00 per share.
"Company Financial Statements" means the financial statements of Company
specified in Section 3.7.
"Company Subsidiaries" means any or all of LaSalle Re Limited, an insurance
company formed under the laws of Bermuda, LaSalle Re Corporate Capital Ltd., a
company formed under the laws of Bermuda, and such other direct or indirect
Subsidiaries of Company as may be agreed in writing between Company and Option
Writers.
"Credit Agreement" means that certain credit agreement, as amended, dated
as of December 1, 1995, among Company, several banks and The Chase Manhattan
Bank (formerly known as Chemical Bank), as administrative agent, or any
substitute or replacement credit agreement.
"Effective Date" means July 1, 1999.
"Event" means a "loss occurrence" as defined in any excess of loss property
catastrophe reinsurance agreement under which any Company Subsidiary incurs an
Ultimate Loss.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.
"Exercise Date" means the date of purchase and sale of Preferred Shares
pursuant to an exercise of the Securities Issuance Option which date shall be
specified in the Notice of Exercise and shall be the later of thirty (30) days
following the delivery of the Notice of Exercise or ten (10) days following
receipt of all regulatory approvals applicable to Company in connection with
such purchase and sale of Preferred Shares (including without limitation any
necessary approvals by the Bermuda Monetary Authority or Registrar of
Companies), provided that the Exercise Date shall not be later than the one
hundred eightieth (180th) day after delivery of the Notice of Exercise, or such
later date, if any, as may be determined by alternative dispute resolution under
Article 8 of this Agreement, which date shall be ten (10) days after the
rendering of a final decision under Article 8.
"Exercise Term" means (a) with respect to a single Event which (i) is a
windstorm, the one (1) year period commencing upon the occurrence of a
Qualifying Catastrophic Event and ending at 12:00 a.m. midnight Bermuda Time on
the first anniversary of such occurrence (as the same may be extended under
Section 2.4) during which Company has the right to exercise the Securities
Issuance Option, or (ii) is other than a windstorm, the eighteen (18) month
period commencing upon the occurrence of a Qualifying Catastrophic
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Event and ending at 12:00 a.m. midnight Bermuda Time on the date which is
eighteen (18) months following such occurrence (as the same may be extended
under Section 2.4) during which Company has the right to exercise the Securities
Issuance Option, or (b) with respect to a series of Events, the period
commencing upon the occurrence of a Qualifying Catastrophic Event and ending one
(1) year following the end of the Agreement Year during which such series of
Events occurs, which one (1) year period ends at 12:00 a.m. midnight Bermuda
Time on the July 1 or October 1, as applicable, next following the end of such
Agreement Year (as the same may be extended under Section 2.4), during which
Company has the right to exercise the Securities Issuance Option.
"Exposure Period" means the three (3) year and three (3) month period
beginning at 12:00 a.m. midnight Bermuda Time on July 1, 1999 and ending at
12:00 a.m. midnight Bermuda Time on October 1, 2002, provided, however that the
Exposure Period may be extended for the Extension Period as set forth in this
Agreement.
"Extension Period" means the nine (9) month period from 12:00 a.m. midnight
Bermuda time on October 1, 2002 through 12:00 a.m. midnight Bermuda time on July
1, 2003.
"GAAP" means U.S. generally accepted accounting principles, consistently
applied.
"GAAP Net Worth" means the amount equal to Company's consolidated
shareholders' equity plus minority interest, as determined in accordance with
GAAP.
"Majority Option Interest" means more than fifty percent (50%) of the total
percentage interest in the Securities Issuance Option as set forth in Schedule
1.1, as the same may be amended.
"Mean Risk of Ruin" means Company's mean probability of incurring aggregate
Ultimate Losses in excess of one hundred percent (100%) of Company's GAAP Net
Worth during any one (1) year period, calculated using the Proprietary Model.
"Non-assessable" means, with respect to shares of the Company, that no
further sums are required to be paid by the registered holders thereof in
connection with the issue of such shares.
"Non-Property Catastrophe Business" means Company's insurance and
reinsurance business other than: property-risk excess and prorata business;
property catastrophe prorata business; and property catastrophe excess of loss
business.
"Notice of Exercise" means the written notice of Company's intent to
exercise the Securities Issuance Option as described in Section 2.3.
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"Notice of Objection" means Option Writers' written notice of objection to
a Notice of Exercise, as described in Section 2.3.
"Option Fee" means the amounts paid by Company to Option Writers as
consideration for the Securities Issuance Option, as set forth in Section 2.1.
"Option Writers" means, collectively, European Reinsurance Company of
Zurich, a corporation organized under the laws of Switzerland; and Allianz Risk
Transfer, a corporation organized under the laws of Switzerland; each of which
individually shall be (a) entitled to the financial benefits and privileges, and
subject to the financial burdens and obligations, of Option Writers under this
Agreement in accordance with its respective percentage interest as set forth in
the attached Schedule 1.1, (b) obligated to fully comply with all
representations, warranties, conditions, covenants and agreements applicable to
Option Writers under this Agreement (despite the fact that it may hold only a
percentage interest in the financial benefits, privileges, burdens and
obligations of Option Writers under this Agreement), and (c) referred to in this
Agreement as an "Option Writer".
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Share Purchase Price" means the higher of US$25 or par value per
Preferred Share payable by Option Writers to Company as set forth in Section
2.3.
"Preferred Shares" means the Series B Preferred Shares of LaSalle Re
Holdings Limited, current par value US$1.00 per share.
"Proprietary Model" means the probability and risk analysis model developed
by the Company in the form utilized by the Company at the Effective Date,
subject to material modifications as agreed by the Company and Option Writers.
"Qualifying Catastrophic Event" means (a) with respect to any single Event,
an Event occurring during the Exposure Period pursuant to which the Company
Subsidiaries incur an Ultimate Loss in excess of US$140,000,000 (the "Single
Event Attachment Point"), or (b) with respect to any series of Events during any
Agreement Year within the Exposure Period, a series of Events that, when
considered in the aggregate, cause the Company Subsidiaries to incur an Ultimate
Loss in excess of US$220,000,000 (the "Multiple Event Attachment Point"). The
Single Event Attachment Point and the Multiple Event Attachment Point shall be
modified as of the beginning of each new Agreement Year based on the projected
Company loss, as shown by the Proprietary Model, of (i) a U.S. overall loss
(with respect to the Single Event Attachment Point) for which the probability of
exceedence is 7.9%, and (ii) an aggregate loss (with respect to the Multiple
Event Attachment Point) for which the probability of exceedence is 14.5%.
Notwithstanding the foregoing, in no case shall (A) the Single Event Attachment
Point be less than US$140,000,000 or greater than US$200,000,000, and (B) the
Multiple
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Event Attachment Point be less than US$220,000,000 or greater than
US$250,000,000. No loss shall be included in the calculation of Ultimate Loss
for more than one Qualifying Catastrophic Event. Any Qualifying Catastrophic
Event that commences during the Exposure Period, whether or not it terminates
within the Exposure Period, shall be deemed to have occurred within the Exposure
Period. A single Event that has occurred during the Exposure Period but which
has not developed into a Qualifying Catastrophic Event prior to the first
anniversary of the Event (or eighteen (18) months following the date of the
Event if the Event is other than a windstorm) shall not constitute a Qualifying
Catastrophic Event for purposes of this Agreement. A single Event that has
occurred during the Exposure Period and which develops into a Qualifying
Catastrophic Event prior to the first anniversary of the Event (or eighteen (18)
months following the date of the Event if the Event is other than a windstorm),
but after expiration of the Exposure Period (as the same may be extended), shall
constitute a Qualifying Catastrophic Event for purposes of this Agreement. With
respect to a single Event which develops into a Qualifying Catastrophic Event,
such Qualifying Catastrophic Event shall be deemed to have occurred as of the
date such single Event occurred. A series of Events that has occurred during any
Agreement Year within the Exposure Period but which has not developed into a
Qualifying Catastrophic Event prior to the end of one (1) year following the end
of such Agreement Year shall not constitute a Qualifying Catastrophic Event for
purposes of this Agreement. A series of Events that has occurred during any
Agreement Year within the Exposure Period and which develops into a Qualifying
Catastrophic Event prior to the end of one (1) year following the end of such
Agreement Year, but after expiration of the Exposure Period, shall constitute a
Qualifying Catastrophic Event for purposes of this Agreement. With respect to a
series of Events which develops into a Qualifying Catastrophic Event, such
Qualifying Catastrophic Event shall be deemed to have occurred during the
Agreement Year in which such series of Events occurred.
"Registration Rights Agreement" means the Registration Rights Agreement
described in Section 6.2.
"Rule 144A" means Rule 144A of the General Regulations of the Securities
Act.
"S&P Rating" means a claims payment ability rating or credit rating, as
applicable, as published from time to time, by the Standard & Poor's Division of
The McGraw-Hill Companies.
"SEC" means the U.S. Securities and Exchange Commission.
"SEC Filings" means all documents and reports filed by Company with the SEC
from November of 1995 through the date of this Agreement.
"Securities Act" means the U.S. Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
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"Securities Issuance Option" means Company's option to obligate Option
Writers to purchase up to 4,000,000 Preferred Shares, subject to the terms and
conditions set forth in this Agreement.
"Subsidiary" means, with respect to any Person, any corporation or other
entity (including, without limitation, partnerships, joint ventures, and
associations) regardless of its jurisdiction of organization or formation, at
least a majority of the total combined voting power of all classes of voting
stock or other ownership interests of which shall, at the time of which any
determination is being made, be owned by such Person, either directly or
indirectly through one or more other Subsidiaries.
"Transaction Agreements" means this Agreement, its schedules and exhibits,
the Registration Rights Agreement and the Certificate of Designation.
"Ultimate Loss" means the actual direct losses (including all paid
losses, all reserves for unpaid losses (including without limitation outstanding
loss reserves and incurred but not reported loss reserves), loss adjustment
expense and coinsurance paid by the Company Subsidiaries) incurred by the
Company Subsidiaries after accounting for that certain U.S. Property Catastrophe
Quota Share Reinsurance Agreement effective April 1, 1999 which is maintained by
the Company with affiliates of the CNA Financial Corporation as if such
agreement were in force at all relevant times, but prior to accounting for any
other retrocessional reinsurance.
"U.S." or "US" means the United States of America.
"US$" means United States Dollars. To the extent any losses, liabilities
or other amounts described or referred to in this Agreement are stated or
denominated in currencies other than United States Dollars, such losses,
liabilities or amounts shall be stated, for purposes of this Agreement, in their
respective United States Dollar equivalents as shown on the books of Company.
2. Securities Issuance Option.
--------------------------
2.1 Option Fee. To acquire the right to exercise the Securities
Issuance Option during the Exercise Term with respect to a Qualifying
Catastrophic Event, Company shall pay to Option Writers a fee (the "Option Fee")
as set forth on the attached Schedule 2.1. The first Option Fee payment shall
be delivered upon the later of the Effective Date or the date of execution of
this Agreement, the second and third Option Fee payments shall be delivered on
October 1, 2000 and October 1, 2001, respectively, and the Option Fee for the
Extension Period, if any, shall be delivered on October 1, 2002 (or if any such
date is not a Business Day, on the Business Day immediately following such
date). In consideration of the payment of the Option Fee as may be required
under this Agreement, Option Writers hereby grant to
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Company the right to exercise the Securities Issuance Option on the terms set
forth in this Agreement.
2.2 Exercise Rights. Company shall have the right to exercise the
Securities Issuance Option one or more times with respect to any one Qualifying
Catastrophic Event, subject to the following limitations:
a. The Securities Issuance Option must be exercised with respect to
Preferred Shares having a minimum aggregate Preferred Share Purchase Price of
US$10,000,000 or an integral multiple of US$1,000,000 above such amount.
b. In no case shall the Preferred Shares issued pursuant to all
exercises of the Securities Issuance Option have an aggregate Preferred Share
Purchase Price of greater than US$100,000,000.
c. In no case shall the Securities Issuance Option be exercised more
than one time in any calendar quarter.
2.3 Method of Exercise. In the event that Company desires to exercise the
Securities Issuance Option with respect to a Qualifying Catastrophic Event,
Company shall provide written notice to each Option Writer during the Exercise
Term of its intent to exercise the Securities Issuance Option (a "Notice of
Exercise"). The Notice of Exercise shall specify (a) the aggregate Preferred
Share Purchase Price for the Preferred Shares to be issued pursuant to the
exercise of the Securities Issuance Option and the proposed Exercise Date, and
(b) with respect to the applicable Qualifying Catastrophic Event, the amount of
the Ultimate Loss relating to such Qualifying Catastrophic Event, including the
amount of (i) paid losses, (ii) losses reported but not yet then paid, and (iii)
losses incurred but not yet then reported, including assumptions underlying the
calculation of item (iii). Following delivery of a Notice of Exercise in
accordance with Section 10.2, Option Writers shall have until the end of the
thirty (30) day period following delivery of the Notice of Exercise to
investigate whether the conditions to exercise of the Securities Issuance Option
set forth in Section 5.2 have been satisfied and shall, by the end of such
thirty (30) day period, if any Option Writer determines that such conditions
have not been satisfied, issue a Notice of Objection (as defined below);
provided, however, that if the Exercise Date is extended for more than an
additional thirty (30) days (beyond the initial thirty (30) day notice period)
as described in the definition of Exercise Date in Article 1 above, such Option
Writer shall have a period of ten (10) business days to update its
investigation, which ten (10) business day period shall commence on the date
which is the later of (a) the date that Company certifies to such Option Writer
that all conditions to exercise of the Securities Issuance Option set forth in
Section 5.2 have been satisfied, or (b) the thirtieth (30th) day preceding the
actual Exercise Date. In connection with such investigation, Company shall
provide or procure for such Option Writer, or its designated agent, reasonable
access to loss records of the applicable Company Subsidiaries relating to the
Qualifying Catastrophic Event in question (including, without limitation, policy
files, claim files, and loss and loss reserve files or information), during
normal business hours of the applicable Company
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Subsidiaries, in order to allow such Option Writer to undertake such
investigation. In the event that such Option Writer determines that the
conditions for exercise of Securities Issuance Option have not been met, such
Option Writer shall deliver a written notice of objection to exercise of the
Securities Issuance Option (the "Notice of Objection") to Company within such
thirty (30) day period or the ten (10) business day update period described
above, as applicable. Such Notice of Objection shall specify in reasonable
detail the reason(s) for such Option Writer's objection to the exercise of the
Securities Issuance Option. If, within twenty (20) days following delivery of
the Notice of Objection to Company, Company and such Option Writer cannot reach
an agreement regarding the exercise of the Securities Issuance Option, their
dispute shall be submitted to dispute resolution in accordance with Article 8
below. With respect to each Option Writer, in the event that such Option Writer
has not issued a Notice of Objection in accordance with this Section 2.3, such
Option Writer shall deliver, on the Exercise Date (or the next following
Business Day if the Exercise Date is not a Business Day), by wire transfer of
immediately available funds, in U.S. dollars, its percentage interest (as stated
in Schedule 1.1) of the aggregate Preferred Share Purchase Price specified in
the Notice of Exercise, against the delivery by Company of the corresponding
number of Preferred Shares.
2.4 Extension of Exercise Term. Notwithstanding anything in this
Agreement to the contrary, in the event that Company files, prior to the end of
any Exercise Term, preliminary proxy materials with the SEC relating to a
submission to registered holders of Company Common Stock for approval of the
issuance of the Preferred Shares (or the issuance of shares of Company Common
Stock upon conversion of the Preferred Shares), as required by any exchange
listing or other regulatory requirements, the Exercise Term shall be extended by
a period of ninety (90) days plus, if any such materials are not reviewed by the
staff at the SEC within thirty (30) days, an additional number of days (not to
exceed fifteen (15) days in any event) equal to the number of days in excess of
thirty (30) between the filing of such preliminary materials with the SEC and
the initial receipt by Company of written comments from the SEC staff.
3. Representations and Warranties of Company. Company represents and
warrants to Option Writers as follows (it being understood that, subject to the
terms of Section 10.11, the representations and warranties contained in Sections
3.1, 3.2, 3.3, 3.4, 3.5(a), 3.6, 3.7, 3.8 and 3.9 shall be deemed to be repeated
by Company on each Exercise Date):
3.1 Existence and Qualifications. Company is a company duly organized,
validly existing and in compliance with filing requirements and payment of
government fees required under the laws of Bermuda, and each of the Company
Subsidiaries is a company duly organized, validly existing and in compliance
with filing requirements and payment of government fees required under the laws
of its respective place of domicile specified in Article 1 above. Subject to
obtaining Bermuda governmental approvals for issuance of the Preferred Shares,
Company has the full corporate power and authority to execute and deliver the
Transaction Agreements, and to perform its obligations under, and to consummate
the
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transactions contemplated by, the Transaction Agreements, including, without
limitation, the delivery of the Preferred Shares pursuant to the exercise of the
Securities Issuance Option as described in this Agreement.
3.2 No Violation or Conflict. The execution and delivery by Company of
the Transaction Agreements, and the performance of Company under the Transaction
Agreements, do not violate or conflict with any applicable law, any provision of
Company's memorandum of association or Bye-laws or any order or judgment of any
court or other government agency applicable to Company or any of its assets or
any of the Company Subsidiaries, or any contractual restriction binding upon or
affecting Company or any of the Company Subsidiaries or their respective assets
(other than as set forth in the Credit Agreement).
3.3 Consents. All Bermuda governmental and other consents that are
required to have been obtained by Company with respect to the execution and
delivery of this Agreement have been obtained and are in full force and effect
and all conditions of any such consents have been complied with or, will have
been obtained or complied with (as the case may be) as of the applicable
Exercise Date or prior to any conversion of Preferred Shares into Company Common
Stock, provided always that any information requested from the Option Writers
necessary in connection with such consent or obtaining the same shall have been
supplied in a timely manner (as the circumstances may warrant).
3.4 Licenses and Permits. The Company Subsidiaries have all requisite
material licenses, permits and authority (collectively, "Licenses") that are
necessary for the conduct of their respective insurance businesses, such
Licenses are in full force and effect, and no proceeding is pending or, to
Company's knowledge, threatened to suspend, revoke or limit any License which is
material to the operations of any such Company Subsidiaries.
3.5 Absence of Litigation.
---------------------
a. There is not pending or to its knowledge threatened, against
Company or the Company Subsidiaries, any action, suit or proceeding before any
court, tribunal, governmental body, agency or official or any arbitrator or
mediator that would reasonably be expected to materially and adversely affect
the legality, validity and enforceability against Company of any Transaction
Agreement.
b. There is not pending or to its knowledge threatened, against the
Company or the Company Subsidiaries, any action, suit or proceeding before any
court, tribunal, governmental body, agency or official or any arbitrator or
mediator that, if adversely determined, could reasonably be expected to
materially and adversely affect the financial condition of the Company or any
Company Subsidiary.
3.6 Options or Other Rights. Except for this Agreement, there is no
outstanding right, subscription, warrant, call, unsatisfied preemptive right,
option or other
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agreement of any kind to purchase or otherwise to receive from Company any
Preferred Shares, except as set forth in the Credit Agreement with respect to
the preferred shares of LaSalle Re Limited.
3.7 Financial Statements. Company has furnished, or will upon request
furnish, Option Writers with true and complete copies of its audited
consolidated balance sheets as of September 30, 1996, 1997 and 1998 and audited
consolidated statements of operations for the periods ended September 30, 1996,
1997 and 1998 (collectively the "Company Financial Statements"). The Company
Financial Statements have been prepared in accordance with GAAP and present
fairly in all material respects the financial position of Company and the
results of its operations as of the dates indicated and for the periods then
ended.
3.8 Binding Obligations. The execution of the Transaction Agreements has
been duly authorized by all necessary corporate action of Company, and such
Transaction Agreements (a) have been duly executed and delivered by Company, (b)
constitute legal, valid and binding obligations of Company, and (c) are
enforceable against Company in accordance with their terms (subject to
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general application).
3.9 Preferred Shares. Company has, or will have as of the applicable
Exercise Date, authority to issue Preferred Shares with an aggregate Preferred
Share Purchase Price of US$100,000,000, and such Preferred Shares, when issued
pursuant to the exercise of the Securities Issuance Option, shall, upon delivery
of payment therefor, be validly issued, fully paid and Non-assessable. Upon
issuance pursuant to this Agreement, the Preferred Shares shall be free and
clear of any lien, encumbrance or other restriction (except as otherwise set
forth in the Transaction Agreements and in any consent issued by the Bermuda
Monetary Authority, provided always that Company shall use reasonable efforts to
have removed any restriction contained in such consent affecting the
transferability of the Preferred Shares), and upon delivery of and payment for
the Preferred Shares as provided in this Agreement, Option Writers will acquire
good title to the Preferred Shares purchased under this Agreement, free and
clear of any lien, encumbrance or other restriction (except as otherwise set
forth in the Transaction Agreements and in any consent issued by the Bermuda
Monetary Authority, provided always that Company shall use reasonable efforts to
have removed any restriction contained in such consent affecting the
transferability of the Preferred Shares to persons not designated as being
resident in Bermuda for foreign exchange control purposes).
3.10 Company Common Stock. The shares of Company Common Stock into which
the Preferred Shares may be converted, as set forth in the Certificate of
Designation, shall, upon conversion, be validly issued, fully paid and Non-
assessable. Such shares of Company Common Stock shall be free and clear of any
lien, encumbrance or other restriction (except as otherwise set forth in the
Transaction Agreements and in any consent issued by the Bermuda Monetary
Authority, provided always that Company shall use reasonable efforts to
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have removed any restriction contained in such consent affecting the
transferability of the Preferred Shares), and upon conversion as provided in the
Certificate of Designation, Option Writers will acquire good title to the number
of shares of Company Common Stock into which such Preferred Shares are
converted, free and clear of any lien, encumbrance or other restriction (except
as otherwise set forth in the Transaction Agreements and in any consent issued
by the Bermuda Monetary Authority, provided always that Company shall use
reasonable efforts to have removed any restriction contained in such consent
affecting the transferability of the Preferred Shares to persons not designated
as being resident in Bermuda for foreign exchange control purposes). Such shares
of Company Common Stock shall be subject to the Registration Rights Agreement
described in Section 6.2.
3.11 No Insolvency or Bankruptcy. Neither Company nor LaSalle Re Limited
(a) is the subject of any voluntary or involuntary petition under any
bankruptcy, insolvency or similar law affecting creditors generally, (b) is the
subject of any liquidation, transformation or rehabilitation proceeding, or (c)
has had a receiver or similar person or entity appointed for any of its
property.
Notwithstanding the foregoing, (a) a breach of the representations and
warranties contained in Section 3.1, 3.2, 3.3, 3.4, 3.8 or 3.9 at any Exercise
Date shall prevent exercise of the Securities Issuance Option unless and until
such breach is cured in accordance with Section 10.11, and (b) a breach of the
representations and warranties contained in Sections 3.5(a), 3.6 or 3.7 at any
Exercise Date shall not in any way prevent or delay exercise of the Securities
Issuance Option. Notwithstanding the preceding sentence, each party shall have
the right to recover damages that may be available at law from any other party
for any loss or injury that is caused by any inaccuracy or breach of any
representation or warranty made by such other party.
4. Representations and Warranties of Option Writers. Each Option Writer
represents and warrants to Company as follows (it being understood that, subject
to the terms of Section 10.11, the representations contained in Sections 4.1,
4.2, 4.3, 4.4 and 4.5 shall be deemed to be repeated by each Option Writer on
each Exercise Date:
4.1 Existence and Qualifications of Option Writers. Each Option Writer is
a corporation duly organized, validly existing and in compliance with filing
requirements and payment of government fees required under the laws of its
respective domicile as set forth on Schedule 1.1, and each Option Writer has the
full corporate power and authority to execute and deliver the Transaction
Agreements, and to perform its obligations under, and consummate the
transactions contemplated by, the Transaction Agreements, including, without
limitation, the purchase of the Preferred Shares pursuant to the exercise of the
Securities Issuance Option by Company as described in this Agreement.
4.2 No Violation or Conflict. The execution and delivery of the
Transaction Agreements by each Option Writer, and the performance of each Option
Writer under the
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Transaction Agreements, do not violate or conflict with any applicable law, any
provision of such Option Writer's organizational documents or any order or
judgment of any court or other government agency applicable to such Option
Writer (or any of its assets or subsidiary or affiliated companies to the extent
any such order or judgment would have a material adverse effect on the rights or
privileges of Company under this Agreement), or any contractual restriction
binding upon or affecting such Option Writer (or any of its subsidiary or
affiliated companies or its assets to the extent any such restriction would have
a material adverse effect on the rights or privileges of Company under this
Agreement).
4.3 Consents. All governmental and other consents that are required to
have been obtained by each Option Writer with respect to the execution and
delivery of this Agreement have been obtained by such Option Writer and are in
full force and effect and all conditions of any such consents have been complied
with.
4.4 Absence of Litigation. There is not pending or to its knowledge,
threatened against any Option Writer or any of its Subsidiaries or Affiliates,
any action, suit or proceeding before any court, tribunal, governmental body,
agency or official or any arbitrator or mediator that would reasonably be
expected to materially and adversely affect the legality, validity and
enforceability against such Option Writer of any Transaction Agreement.
4.5 Investment Representation. Each Option Writer understands that the
issuance of Preferred Shares under this Agreement and the issuance of Company
Common Stock upon conversion of Preferred Shares have not been and will not
(except as set forth in the Registration Rights Agreement) be registered under
the Securities Act and such Preferred Shares and Company Common Stock will be
issued in reliance upon the exemption afforded by Section 4(2) of the Securities
Act for transactions by an issuer not involving any public offering. Each Option
Writer represents that (a) it is acquiring the Preferred Shares and such Company
Common Stock solely for its own account, for investment purposes only, and not
with a view to distribution, fractionalization or resale thereof, (b) it will
not sell or otherwise dispose of the Preferred Shares or such Company Common
Stock except in compliance with the registration requirements or exemption
provisions of applicable securities laws including the Securities Act, (c) it
has not relied on Company for any explanation of the application of the various
U.S. state and federal securities laws with regard to the acquisition of the
Preferred Shares and such Company Common Stock, (d) it has access to complete
information regarding the business and finances of Company, and has received,
read and understood the contents of the SEC Filings, (e) it has such knowledge
and experience in business and financial matters that it has been able to fully
understand and completely evaluate the risks and merits of holding the Preferred
Shares and such Company Common Stock as provided in this Agreement, and (f) it
is able to bear the economic risk and limitation in liquidity of an investment
in the Preferred Shares and such Company Common Stock.
4.6 Binding Obligations. The execution of the Transaction Agreements has
been duly authorized by all necessary corporate action of each Option Writer,
and such Transaction Agreements (a) have been duly executed and delivered by
each Option Writer, (b)
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constitute legal, valid and binding obligations of each Option Writer, and (c)
are enforceable against each Option Writer in accordance with their terms
(subject to applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application).
Notwithstanding the foregoing, each party shall have the right to recover
damages that may be available at law from any other party for any loss or injury
that is caused by any inaccuracy or breach of any representation or warranty
made by such other party.
5. Conditions.
----------
5.1 Conditions to Effectiveness of Agreement. The effectiveness of
this Agreement shall be subject to the satisfaction by Company at, or waiver by
Option Writers at or prior to its execution and delivery, of the following
conditions (it being understood that unless Option Writers make an objection at
or prior to such execution and delivery, this Agreement shall be deemed
effective for all purposes upon such execution and delivery):
a. Registration Rights Agreement. Company and Option Writers
shall have entered into the Registration Rights Agreement as described in
Section 6.2.
b. Compliance with Laws and Consents. Company shall have
complied with all laws and regulations applicable to the authorization and
issuance of the Preferred Shares and, subject to the following sentence, the
conversion of Preferred Shares into Company Common Stock, including the adoption
or authorization by the Board of Directors of Company of the Certificate of
Designation. Company and Option Writers shall have obtained all consents and
approvals (whether shareholder, regulatory, contractual or otherwise) necessary
for the authorization and issuance of the Preferred Shares (other than as set
forth in the Credit Agreement), the conversion of the Preferred Shares into
Company Common Stock, and the authorization and issuance of such Company Common
Stock, including without limitation the approval of any applicable insurance
regulatory body or agency, and the approval of any filing or application
required under applicable securities laws (whether of Bermuda, the U.S., any
state of the U.S., or any other applicable jurisdiction), provided, however,
that if any insurance regulator shall for any reason decline to approve the
conversion of the Preferred Shares and/or the issuance of Company Common Stock
pursuant to such conversion, but shall approve the authorization and issuance of
the Preferred Shares, then such approval of the conversion of the Preferred
Shares and/or the issuance of Company Common Stock pursuant to such conversion,
as applicable, shall not be a condition to exercise of the Securities Issuance
Option, provided further, however, that Company has reasonably cooperated with
Option Writers to obtain such approvals. Notwithstanding the foregoing, if any
consent, approval or other matter necessary for conversion of the Preferred
Shares into Company Common Stock is of such a nature that it cannot be obtained
or achieved until at or about the time of such conversion (including without
limitation the approvals of any members of the Board of Directors of Company
required under the Bermuda Companies Act of 1981, as
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amended, or other applicable law), then such consent, approval or other matter
shall not be a condition to exercise of the Securities Issuance Option.
c. No Insolvency or Bankruptcy. Neither Company nor LaSalle Re
Limited (a) is the subject of any voluntary or involuntary petition under
bankruptcy, insolvency or similar law affecting creditors generally (provided,
however, that Company or LaSalle Re Limited, as applicable, shall not be in
breach of this condition with respect to an involuntary petition unless such
involuntary petition is not dismissed within sixty (60) days following Company's
or LaSalle Re Limited's receipt of notice of the filing of such petition), (b)
is the subject of any liquidation, transformation or rehabilitation proceeding,
or (c) has had a receiver or similar person or entity appointed for any of its
property.
5.2 Conditions to Exercise of Securities Issuance Option. The right of
Company to exercise the Securities Issuance Option (or any increment of the
Securities Issuance Option) shall be subject to the satisfaction by Company at,
or waiver by Option Writers at or prior to, the Exercise Date, of the following
conditions:
a. Occurrence of Event. A Qualifying Catastrophic Event shall
have occurred with respect to the Company Subsidiaries.
b. Company Net Worth. After accounting for the applicable
Qualifying Catastrophic Event, Company's GAAP Net Worth shall not be less than
US$175,000,000, provided, however, that in no case will Preferred Shares
previously issued or proposed to be issued be included in such GAAP Net Worth
calculation.
c. Review of Financial Statements by Auditor. Company's regular
outside auditor or accounting firm shall have reviewed Company's consolidated
balance sheet and statement of operations for the most recent quarter ending
prior to the date of the applicable Notice of Exercise, and shall have issued a
review report solely to the Option Writers on such quarterly financial
statements. In addition, Company shall have provided an adjusted consolidated
balance sheet for Company as at the applicable Exercise Date, and Company shall
have represented and warranted, as of such Exercise Date, that such adjusted
consolidated balance sheet presents fairly, in all material respects, the
financial position of Company as of the date indicated.
d. No Insolvency or Bankruptcy. Neither Company nor LaSalle Re
Limited shall (a) be the subject of any voluntary or involuntary petition under
bankruptcy, insolvency or similar law affecting creditors generally (provided,
however, that Company or LaSalle Re Limited, as applicable, shall not be in
breach of this condition with respect to an involuntary petition unless such
involuntary petition is not dismissed within sixty (60) days following Company's
or LaSalle Re Limited's receipt of notice of the filing of such petition), (b)
be the subject of any liquidation, transformation or rehabilitation proceeding,
or (c) has had a receiver or similar person or entity appointed for any of its
property.
15
<PAGE>
e. Payment of Fees. All Option Fee payments then due shall have
been paid in full.
f. Certification. With respect to any exercise of the Securities
Issuance Option, Company shall deliver to Option Writers, at or prior to the
applicable Exercise Date, a certificate, in the form attached as Exhibit 5.2(f),
executed by a duly authorized officer of Company and dated as of such Exercise
Date, provided, however, that in accordance with Article 3, the failure to
include, in such certificate, references to truth and accuracy of the
representations and warranties in any or all of Sections 3.5, 3.6 or 3.7 shall
not in any way prevent or delay such exercise of the Securities Issuance Option.
g. Legal Opinion. With respect to the first exercise of the
Securities Issuance Option only, Option Writers shall have received, from
special counsel for Company, an opinion of counsel, dated on or about the
Exercise Date, which is substantially in the form attached as Exhibit 5.2(g).
h. Credit Agreement. Company shall have satisfied its obligation
under Section 6.15 below.
i. Amendment of Certain Documents. Company shall not, without the
prior approval of the holders of at least seventy-five percent (75%) of the
total percentage interest in the Securities Issuance Option as set forth in
Schedule 1.1, have amended the Bye-Laws in any manner which would materially and
adversely affect the ability of any Option Writer to purchase, transfer or
convert Preferred Shares as described in this Agreement.
6. Covenants and Agreements.
6.1 Preferred Shares. In the event of the issuance of Preferred
Shares pursuant to an exercise of the Securities Issuance Option, such Preferred
Shares shall be subject to, and governed by, the provisions of the Certificate
of Designation and the Bye-laws of Company.
6.2 Registration Rights. Concurrently with this Agreement, Company
and Option Writers shall enter into the Registration Rights Agreement,
substantially in the form attached as Exhibit 6.2.
6.3 Preferred Share Resale Rights.
a. The Preferred Shares will be freely transferable subject only
to the following sentence and to restrictions imposed by U.S. federal and state
securities laws, Bermuda regulatory authorities and the Bye-laws of Company.
Subject to the provisions of Section 6.14 below, (1) any transfer of Preferred
Shares during the first three (3) years following issuance of such Preferred
Shares shall require the prior written consent of the
16
<PAGE>
Company, which consent shall not be unreasonably withheld, and (2) any transfer
of Preferred Shares after the first three (3) years following issuance of such
Preferred Shares shall require at least ten (10) days prior written notice to
the Company, and the Company shall have five days following receipt of such
notice to provide the proposed transferor with a list, not to exceed ten (10)
Persons, of "Prohibited Transferees" to which the proposed transferor will be
prohibited from transferring any Preferred Shares. For purposes of this Section
6.3(a), Prohibited Transferees shall include each of the up to ten (10) Persons
whose names are set forth on the list described above and all Affiliates of each
such Person. The provisions of this Section 6.3(a) shall apply to all transfers
of Preferred Shares, whether by an Option Writer or otherwise.
The certificates evidencing the Preferred Shares shall bear
legends on the front and back which evidences restrictions upon transferability
of the Preferred Shares. The legend on the front of each certificate shall read
as follows:
THIS CERTIFICATE IS RESTRICTED FROM TRANSFER AS INDICATED ON THE REVERSE
SIDE.
The legend on the reverse side of each certificate shall read as follows:
ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO ALL OF THE PROVISIONS OF THE
BYE-LAWS OF THE COMPANY AS THEY MAY BE AMENDED FROM TIME TO TIME, AND THE
CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION AGREEMENT DATED AS OF JULY 1,
1999 BETWEEN THE COMPANY AND EUROPEAN REINSURANCE COMPANY OF ZURICH, A
CORPORATION ORGANIZED UNDER THE LAWS OF SWITZERLAND; AND ALLIANZ RISK
TRANSFER, A CORPORATION ORGANIZED UNDER THE LAWS OF SWITZERLAND; WHICH ARE
AVAILABLE FOR EXAMINATION BY HOLDERS OF SHARES AT THE REGISTERED OFFICE OF
THE COMPANY. IN ADDITION TO THE FOREGOING RESTRICTIONS, THESE SHARES HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
OR ANY UNITED STATES SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF UNLESS (I) A REGISTRATION STATEMENT IS IN EFFECT
UNDER THE SECURITIES ACT WITH RESPECT TO SUCH SHARES OR A WRITTEN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY IS OBTAINED TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED AND (II) EXCEPT IN THE CASE OF PUBLICLY TRADED
17
<PAGE>
SHARES, THE TRANSFEREE IS OTHERWISE APPROVED BY APPLICABLE BERMUDA
REGULATORY AUTHORITIES.
The legends shall be removed from any Preferred Share Certificates as to which,
in an opinion of counsel reasonably satisfactory to Company (which opinion shall
be paid for solely by the registered holder of such Preferred Shares), such
registration described in the legends is not necessary or required, and that the
transfer will not otherwise violate this Agreement, the Securities Act, the
Exchange Act, or applicable securities laws, and does not require the approval
of any Bermuda regulatory authorities; and any stop transfer instructions
previously given to Company's transfer agent shall be revoked as to such
Preferred Shares upon the delivery of the opinion of counsel described above.
b. The shares of Company Common Stock into which the Preferred
Shares may be convertible may be subject to registration as contemplated by the
Registration Rights Agreement.
Prior to the registration of any shares of Company Common Stock
into which the Preferred Shares are converted, pursuant to the Registration
Rights Agreement or otherwise, the certificates representing such shares of
Company Common Stock shall bear legends on both the front and back which
evidence restrictions upon transferability of such shares of Company Common
Stock. The legend on the front of each certificate shall read as follows:
THIS CERTIFICATE IS RESTRICTED FROM TRANSFER AS INDICATED ON THE REVERSE
SIDE.
The legend on the reverse side of each certificate shall read as follows:
ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO ALL OF THE PROVISIONS OF THE
BYE-LAWS OF THE COMPANY AS THEY MAY BE AMENDED FROM TIME TO TIME, WHICH ARE
AVAILABLE FOR EXAMINATION BY HOLDERS OF SHARES AT THE REGISTERED OFFICE OF
THE COMPANY. IN ADDITION TO THE FOREGOING RESTRICTIONS, THESE SHARES HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
OR ANY UNITED STATES SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF UNLESS (I) A REGISTRATION STATEMENT IS IN EFFECT
UNDER THE SECURITIES ACT WITH RESPECT TO SUCH SHARES OR A WRITTEN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY IS OBTAINED TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED AND (II) EXCEPT IN THE CASE OF
18
<PAGE>
PUBLICLY TRADED SHARES, THE TRANSFEREE IS OTHERWISE APPROVED BY
APPLICABLE BERMUDA REGULATORY AUTHORITIES.
The legends shall be removed from any certificate representing either (a) shares
of Company Common Stock sold under an effective registration statement under the
Securities Act in a sale approved by applicable Bermuda regulatory authorities,
or (b) shares of Company Common Stock as to which, in an opinion of counsel
reasonably satisfactory to Company (which opinion shall be paid for solely by
the registered holder of such shares of Company Common Stock), such registration
is not necessary or required, and that the transfer will not otherwise violate
the Securities Act, the Exchange Act, or applicable securities laws, and does
not require the approval of any Bermuda regulatory authorities; and stop
transfer instructions previously given to Company's transfer agent shall be
revoked as to such shares of Company Common Stock upon the occurrence of (a) or
(b) above.
6.4 Preferred Share Liquidation Preference. The liquidation preference
of the Preferred Shares shall be at least equal to the highest liquidation
preference of any other class of shares of Company issued and outstanding at the
time of liquidation. During the period that the Securities Issuance Option
remains exercisable under this Agreement, and during any period when Preferred
Shares remain issued and outstanding following issuance under this Agreement,
Company shall not issue any debt securities convertible into equity securities
of Company or any preferred shares or other class of shares of Company which
ranks senior to the Preferred Shares with respect to dividend or distribution
rights or rights to distributions on liquidation without the prior written
approval, which approval shall not be unreasonably withheld, of (a) the holders
of the Majority Option Interest if no Preferred Shares are issued or
outstanding, or (b) if Preferred Shares are then issued and outstanding, the
registered holders of more than fifty percent (50%) of such Preferred Shares.
6.5 Restrictions on Company. During the period when any Preferred
Shares remain issued and outstanding, without the prior written consent of the
registered holders of more than fifty percent (50%) of such Preferred Shares,
which consent shall not be unreasonably withheld, (a) Company shall not dispose
of any of its interest in any of its Subsidiaries, and (b) Company and the
Company Subsidiaries shall not (i) except in the ordinary course of business,
make any loan or advance to, or investment in, any person or entity, or (ii)
enter into related party transactions at other than arm's length.
6.6 Option Writers' Securities Filings. Notwithstanding anything in
the Agreement to the contrary, each Option Writer shall be responsible for
making any regulatory filing required of it under Section 13(d) or Section 16 of
the Exchange Act, but the making of any such filings shall not be a condition to
the exercise of the Securities Issuance Option.
6.7 Regulatory Filings for Conversion. Company, Option Writers and
their respective Affiliates shall make all regulatory filings which are
necessary or desirable to permit Option Writers to convert any Preferred Shares
into shares of Company Common Stock in
19
<PAGE>
accordance with the terms of the Certificate of Designation as promptly as
possible following any request by Option Writers. Option Writers and Company
shall cooperate and use reasonable efforts to obtain any insurance and other
regulatory approvals for such conversion which have not previously been
obtained.
6.8 Change of Control. In the event of a Change of Control:
a. If all or any portion of the Securities Issuance Option
remains unexercised, this Agreement shall automatically be terminated in
accordance with Section 7.2 unless such Change of Control shall have received
the prior approval of the holders of the Majority Option Interest. In the event
such Change of Control is so approved, this Agreement shall remain in full force
and effect.
b. If any Preferred Shares are then issued and outstanding,
unless such Change of Control is approved by the registered holders of such
Preferred Shares as set forth in the Certificate of Designation, or unless such
Change of Control involves a sale of all or substantially all Company's assets
(in which case holders of the Preferred Shares shall have no voting or approval
rights as stated in the Certificate of Designation), the respective rights,
privileges and obligations of Company and such registered holders shall, subject
to the provisions of Section 42 of the Bermuda Companies Act of 1981 being
satisfied (if applicable), be as set forth in the Certificate of Designation.
Notwithstanding the foregoing, the termination of this Agreement shall
not affect any rights or obligations arising out of or relating to events
occurring or circumstances existing prior to such termination.
6.9 Information Supplied by Company. Company shall provide Option
Writers with such information as Option Writers may reasonably request in order
to determine whether Company has satisfied the conditions to exercise set forth
in Section 5.2 of this Agreement.
6.10 [Untitled.]
[This Section Intentionally Left Blank.]
6.11 Operational Covenant. Company shall comply with the operational
covenant set forth in the attached Exhibit 6.11.
20
<PAGE>
6.12 Option Writer Credit Support. An Option Writer shall, promptly
upon request by Company, in the event that the S&P Rating of such Option Writer
falls below AA- or the A.M. Best Rating of such Option Writer falls below A-
during any period in which Company has the ability to exercise the Securities
Issuance Option, (a) purchase at such Option Writer's sole expense an
irrevocable standby letter of credit, from a financial institution reasonably
acceptable to Company, which letter of credit secures the performance of such
Option Writer under this Agreement and is issued by a bank which maintains an
S&P Rating of AA-, or (b) otherwise obtain credit support reasonably approved by
and acceptable to Company with respect to the obligations of such Option Writer
under this Agreement, which credit support may include a guaranty, in form and
substance reasonably acceptable to Company, from an affiliate of Option Writer
which maintains, throughout the period such guaranty is effective, an S&P Rating
of at least AA- or an A.M. Best Rating of at least A-. Such letter of credit
shall remain in effect until the earlier of (a) five (5) days following the end
of the period during which Company has the ability to exercise the Securities
Issuance Option, or (b) the date that the rating(s) whose fall triggered the
credit support obligation in the first sentence of this Section 6.12 returns to
the requisite minimum level so that the S&P Rating of such Option Writer shall
again be at least AA-, and/or the A.M. Best Rating of such Option Writer shall
again be at least A-. Such letter of credit shall initially be in a principal
amount equal to such Option Writer's percentage interest in the aggregate
Preferred Share Purchase Price of the Preferred Shares covered by any then
unexercised portion of the Securities Issuance Option, if any, and shall
subsequently be adjusted from time to time based on the aggregate Preferred
Share Purchase Price of the Preferred Shares subject to exercise under the
Securities Issuance Option.
6.13 Indebtedness. Company shall comply with the covenants regarding
indebtedness set forth on the attached Schedule 6.13.
6.14 Additional Covenants. Company shall comply with the additional
covenants set forth on the attached Exhibit 6.14.
6.15 Credit Agreement. To the extent the Credit Agreement contains
provisions which would materially and adversely affect Company's ability to
perform under this Agreement (including without limitation its ability to issue,
and pay dividends on, any Preferred Shares), or any Option Writer's ability to
purchase, transfer or convert Preferred Shares as described in this Agreement,
Company shall, prior to any Exercise Date, either (a) obtain an amendment to the
Credit Agreement which modifies or deletes any such Credit Agreement provisions
(provided that any such amendment does not create any new provisions which would
materially and adversely affect Company's ability to perform under this
Agreement, or any Option Writer's ability to purchase, transfer or convert
Preferred Shares as described in this Agreement), or (b) otherwise take action
reasonably acceptable to such Option Writer to ensure that such Credit Agreement
provisions are then no longer applicable. If Company provides Option Writers
with a copy of an amended Credit Agreement or any substitute or replacement
credit agreement pursuant to this Section 6.15, and an Option Writer
21
<PAGE>
shall not have objected in writing to any provision of such amended Credit
Agreement or substitute or replacement credit agreement as being inconsistent
with Company's obligation under this Section 6.15 within thirty (30) days after
delivery by Company, Company shall be deemed to have satisfied its obligation
under this Section 6.15 with respect to such Option Writer.
6.16 Notices. Company shall promptly give notice to the Option Writers
of (a) any material breach of the representations and warranties contained in
Article 3 above of which the Chairman, President, Chief Financial Officer or the
Chief Underwriting Officer of Company become aware, and (b) any action, suit or
proceeding before any court, tribunal, governmental body, agency or official or
any arbitrator or mediator that is not covered by insurance or in which
injunctive or similar relief is sought which, if adversely determined, could
reasonably be expected to materially and adversely affect the financial
condition of the Company or any Company Subsidiary.
7. Termination. This Agreement and the transactions contemplated by
this Agreement shall be terminated:
7.1 By mutual written consent signed by Company and Option Writers at
any time prior to the end of the Exposure Period, in which case Option Writers
shall refund to Company a prorata portion of the annual Option Fee previously
paid for the then current year;
7.2 Upon a Change of Control occurring while all or any portion of the
Securities Issuance Option remains unexercised, which Change of Control has not
received the prior approval of the Option Writers as set forth in Section
6.8(a), in which case Option Writers shall refund to Company a prorata portion
of the percentage of the annual Option Fee previously paid for the then current
year which is allocable to any then unexercised portion of the Securities
Issuance Option (provided, however, that the provision in the last paragraph of
Section 6.8 shall apply with respect to any Preferred Shares then outstanding);
or
7.3 Upon the latest of:
a. Expiration of the Exposure Period;
b. Expiration of the Exercise Term for the latest Qualifying
Catastrophic Event (including an Event that develops into a Qualified
Catastrophic Event outside the Exposure Period);
c. The Exercise Date for which a Notice of Exercise was properly
delivered during the Exercise Term, as such date may be extended pursuant to the
submission of any matter to alternative dispute resolution under Article 8; or
22
<PAGE>
d. The first day on which no Preferred Shares issued pursuant to
this Agreement (including without limitation Preferred Shares issued on the
Exercise Date specified in paragraph (c) of Section 7.3) remain issued and
outstanding.
8. Alternative Dispute Resolution. Any dispute arising out of or in
connection with this Agreement, including any question regarding its existence,
validity or termination shall be referred to and finally resolved by arbitration
under the UNCITRAL model law. There shall be a panel of three arbitrators.
Company shall appoint one arbitrator and the applicable Option Writer shall
appoint one arbitrator and the two arbitrators thus appointed shall appoint the
third. If a party fails to appoint the arbitrator within thirty (30) days of
receipt of a request to do so from the other party, or if the two arbitrators
fail to agree on the third arbitrator within thirty (30) days of their
appointment, the appointment shall be made, upon request of a party, by the
Supreme Court of Bermuda. The place of arbitration shall be Bermuda at the
Bermuda International Commercial Arbitration Centre and the language of the
arbitration shall be English. Judgment upon the award entered by the
arbitrators may be entered in any court having jurisdiction thereof. The costs
and expenses of the arbitration shall be borne equally by the parties involved,
and any interest and fees and expenses of counsel shall be borne as the
arbitrators consider just under the circumstances, as directed in the award. In
the event that a Notice of Objection specifies failure to satisfy the condition
in Section 5.2(a) as a reason for such Notice of Objection, then any dispute
over satisfaction of such Section 5.2(a) condition shall be subject to separate
arbitration pursuant to this paragraph, provided, however, that all three
arbitrators shall be independent Fellows of the Casualty Actuarial Society, and
such arbitrators shall review applicable loss data solely for the purpose of
determining whether the condition in Section 5.2(a) has been satisfied.
9. Intermediary. Company and Option Writers represent and acknowledge
that Aon Re (Bermuda) Ltd. (with respect to Option Writers domiciled outside the
U.S.) and Aon Securities Corporation (with respect to Option Writers domiciled
within the U.S.) have acted as the sole intermediaries for all purposes with
respect to the negotiation of this Agreement, and that none of Company or Option
Writers has engaged any other broker or finder in connection with the
transactions contemplated by this Agreement. Company and Option Writers agree
that all fees or commissions payable to Aon Re (Bermuda) Ltd. (with respect to
Option Writers domiciled outside the U.S.) and/or Aon Securities Corporation
(with respect to Option Writers domiciled within the U.S.) in connection with
this transaction shall be the sole responsibility of Option Writers.
10. Miscellaneous.
10.1 Amendments. The provisions of this Agreement may not be waived,
altered, amended or repealed, in whole or in part, except by the written consent
of all parties to this Agreement.
23
<PAGE>
10.2 Notices. Any notice or other communication required or
permitted under this Agreement shall be in writing and shall be deemed to have
been given (a) on the date of delivery if delivered personally or by facsimile
transmission, receipt confirmed, (b) twenty-four (24) hours after sending if
sent by reputable overnight delivery service, or (c) seventy-two (72) hours
after mailing if sent by certified, registered or express mail, postage prepaid,
if properly addressed or directed to such party at the appropriate address or
facsimile number set forth below, or such address or facsimile number as such
party may designate by written notice to the other parties:
(i) if to Company to:
LaSalle Re Holdings Limited
Continental Building
25 Church Street
Hamilton HM 12 Bermuda
Attention: Guy Hengesbaugh
Fax No.: (441) 292-2656
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603-3441
Attention: Richard Shepro
Fax No.: (312) 701-7711
and a copy to:
Aon Re (Bermuda) Ltd.
Dorchester House
7 Church Street
P.O. Box HM 2020
Hamilton HM HX Bermuda
Attention: Paul Markey
Fax No.: (441) 296-5130
24
<PAGE>
and a copy to:
Aon Securities Corporation
123 N. Wacker Drive
Chicago, Illinois 60606
Attention: Garrett P. Shumway
Fax No.: (312) 701-2174
(ii) if to Option Writers to the respective addresses set forth on the
attached Schedule 1.1.
10.3 Entire Agreement. This Agreement (including the Exhibits and the
Schedules) contains the entire agreement between the parties, and supersedes all
prior agreements, written or oral, with respect to the Securities Issuance
Option.
10.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of Bermuda (without regard to any choice of law or
conflict of law rules that would cause the application of any laws or rules of
any jurisdiction other than Bermuda).
10.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns
and legal representatives, and any references to a specific party in this
Agreement shall include such party's permitted successors or assigns. Neither
party shall have the right to assign or otherwise transfer its rights or
obligations under this Agreement without the prior written consent of the other
party. The covenant of Company contained in Section 6.14 is personal to the
Option Writers, and, except as otherwise specifically stated in Section 6.14, in
no case shall the rights and privileges of Option Writers under Section 6.14 be
assignable or transferrable.
10.6 Severability. Each term, covenant, condition or provision of this
Agreement shall be viewed as separate and distinct, and in the event that any
such term, covenant, condition or provision shall be deemed by a court of
competent jurisdiction to be invalid, the remaining provisions shall continue in
full force and effect.
10.7 Necessary Acts. Each party to this Agreement shall perform any
further acts and execute and deliver any additional agreements, assignments,
documents or instruments that may be reasonably necessary or desirable to carry
out the provisions or effectuate the purposes of this Agreement.
10.8 Legal Expenses. Subject to the provisions of Article 8, if any
legal action or any arbitration or other proceeding is brought to enforce the
provisions of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in
25
<PAGE>
connection with any of the provisions of this Agreement, the successful or
prevailing party or parties, whether such party or parties have instituted the
action, shall be entitled to recover all attorneys' fees and other costs
incurred in such action or proceeding, in addition to any other relief to which
it or they may be entitled.
10.9 Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
10.10 Headings. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
10.11 Right to Cure. In the event of a breach (a) by Company of any of
the representations and warranties set forth in Article 3, (b) by any Option
Writer of any of the representations and warranties set forth in Article 4, or
(c) by either Company or any Option Writer of its respective covenants and
agreements under Article 6, the entity committing such breach shall have sixty
(60) days following its receipt of notice of such breach in which to cure such
breach, unless such sooner cure is necessary in order to effect the terms of
this Agreement. Except as specifically set forth in Article 3 above, the
inability or failure of Company or any Option Writer to cure such breach shall
neither (i) give Company or any Option Writer the right to terminate this
Agreement nor (ii) excuse Company or any Option Writer from the performance of
their respective obligations hereunder. Notwithstanding the preceding sentence,
Company or any Option Writer shall have the right to recover any damages that
may result from any breach of this Agreement.
10.12 Specific Performance. Each of the parties to this Agreement
acknowledges and agrees that in the event of any breach of this Agreement, the
non-breaching parties would be irreparably harmed and could not be made whole by
monetary damages. Accordingly, each of the parties to this Agreement agrees that
the other parties, in addition to any other remedies to which they may be
entitled at law or in equity, shall be entitled to compel specific performance
of this Agreement.
26
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly
executed as of the date first written above.
LaSalle Re Holdings Limited
By: /s/ Mark C. Stockton By: /s/ Clare Moran
--------------------------------- ---------------------------------
Title: Senior Vice President Title: Senior Vice President
and Chief Underwriting Officer Treasurer and Interim CFO
-------------------------------- ------------------------------
European Reinsurance Company of Zurich
By: /s/ Scott Bradley By: /s/ D. Whiting
--------------------------------- ---------------------------------
Title: Member of Senior Management Title: Member of Senior Management
------------------------------ ------------------------------
Allianz Risk Transfer
By: /s/ M. Markoff By: /s/ Thomas Bruendler
--------------------------------- ---------------------------------
Title: Executive Vice President Title: Executive Vice President
------------------------------ ------------------------------
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 411,706
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 411,706
<CASH> 147,885
<RECOVER-REINSURE> 17,776
<DEFERRED-ACQUISITION> 8,470
<TOTAL-ASSETS> 726,168
<POLICY-LOSSES> 190,352
<UNEARNED-PREMIUMS> 49,895
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
3,000
<COMMON> 15,604
<OTHER-SE> 343,356
<TOTAL-LIABILITY-AND-EQUITY> 726,168
30,391
<INVESTMENT-INCOME> 8,588
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 46,642
<UNDERWRITING-AMORTIZATION> 6,812
<UNDERWRITING-OTHER> 5,356
<INCOME-PRETAX> (19,831)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,831)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (19,831)
<EPS-BASIC> (1.06)
<EPS-DILUTED> (1.06)
<RESERVE-OPEN> 0<F1>
<PROVISION-CURRENT> 0<F1>
<PROVISION-PRIOR> 0<F1>
<PAYMENTS-CURRENT> 0<F1>
<PAYMENTS-PRIOR> 0<F1>
<RESERVE-CLOSE> 0<F1>
<CUMULATIVE-DEFICIENCY> 0<F1>
<FN>
<F1> Amounts for Securities Act Industry Guide 6 and Exchange Act Industry
Guide 4 disclosures are not provided because of the Company's loss
reserves do not exceed one half of the consolidated common shareholders
equity.
</FN>
</TABLE>
