- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|X| SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|_| SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ___________ TO ___________.
COMMISSION FILE NUMBER 1-11794
E. W. BLANCH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1741779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3500 WEST 80TH STREET, MINNEAPOLIS, MINNESOTA 55431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 835-3310
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required 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] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
As of March 19, 1998, 12,620,000 shares of Common Stock were
outstanding and the aggregate market value of the Common Stock held by
non-affiliates of the Registrant on that date was approximately $479,560,000
DOCUMENTS INCORPORATED BY REFERENCE.
1. Portions of Registrant's 1997 Annual Report to Shareholders are
incorporated into Parts I, II and IV.
2. Portions of Registrant's Proxy Statement dated March 20, 1998 are
incorporated into Part III.
- --------------------------------------------------------------------------------
<PAGE>
PART I
Item 1.
BUSINESS
GENERAL
a) Development of Business
E. W. Blanch Holdings, Inc. (the "Company") was incorporated in the
State of Delaware on March 1, 1993 as a holding company for the capital stock of
E. W. Blanch Co., Inc. ("EWBCo"). EWBCo was incorporated in the State of
Delaware on March 2, 1993 and was formed for the purpose of being the successor
to the business of E. W. Blanch Co. Limited Partnership, a Delaware limited
partnership (the "Partnership"). The Company issued shares of Common Stock to
the partners of the Partnership in exchange for their partnership interests and
the Partnership was merged with and into EWBCo, which was the surviving entity.
The Company, through predecessor organizations, was originally founded in 1957.
The Company's principal business is that of integrated risk management
and distribution services, including reinsurance intermediary services, risk
management consulting and administration services and primary insurance
distribution services.
In February 1997, the Company purchased a 70% interest in Swire Fraser
Insurance (Holdings) Limited ("Swire Fraser") resulting in an additional 20%
interest in the Swire Blanch Holdings Ltd. ("Swire Blanch") joint venture. The
combined operations of Swire Fraser and Swire Blanch were merged into a single
operation under the Swire Blanch name, which is owned 70% by the Company and 30%
by Swire Pacific Limited ("Swire Pacific"). The consideration for the purchase
included the assumption of certain existing indebtedness of (pound)6.2 million
($10.2 million at purchase date) and a cash payment of (pound)1.8 million ($2.9
million). As part of the purchase agreement, after a minimum of three years
either party has the option to request the purchase by the Company of the 30%
minority interest at a price defined by formula. This transaction is expected to
provide increased opportunities for international growth.
In December 1996, the Company recorded a $19.5 million write-down of
goodwill associated with the Elton George Companies acquisition in 1994 and a
$3.25 million reserve for the restructuring of the Company's wholesale
operations and its related lease expense. Also, as part of the restructuring of
the wholesale operations, in February 1997 the Company completed the sale of its
premium finance business, originally acquired in 1994 as part of the Elton
George Companies acquisition. The Company received $15.2 million in exchange for
all of the outstanding stock of the premium finance subsidiaries, whose assets
included $14.9 million of premium finance notes. The net sales proceeds equaled
the Company's investment in the business, resulting in no gain or loss on the
sale.
In October 1997, the Company has signed an agreement to acquire the
assets and business of Buenos Aires based Walbaum Americana, S.A. ("Walbaum"), a
leading provider of insurance and reinsurance
<PAGE>
intermediary services in Latin America. Walbaum had $3.5 million of revenues in
1996. This transaction is expected to be completed in the second quarter of
1998.
Unless otherwise indicated, reference to the "Company" hereinafter
includes all operating subsidiaries.
b) Financial Information About Industry Segments
Due to the integrated nature of the Company's risk management and
distribution business, and because the primary insurance distribution operations
after restructuring are no longer significant, the Company has discontinued its
financial reporting by business segment. At December 31, 1997, the Company
categorizes its business operations into two geographic areas, domestic and
foreign operations. Current year results reflect the operations from the Swire
Blanch acquisition discussed above on a consolidated basis from the date of
acquisition, due to the Company's 70% controlling interest. Prior year results
of foreign operations include only the equity or loss in the earnings of the
Swire Blanch international reinsurance intermediary, jointly owned 50% by the
Company and 50% by Swire Fraser.
Financial information about the Company's industry segments is
incorporated by reference to "Management's Discussion and Analysis" on pages
21-26, and Note 15 of the Notes to the Consolidated Financial Statements on
page 38 of the Company's 1997 Annual Report to Shareholders.
c) Narrative Description of Business
DOMESTIC OPERATIONS
Domestic operations include reinsurance intermediary services, risk
management consulting and administration services, program distribution
services, policy distribution services, and the general agency operations. All
of these services, except general agency operations, are focused on providing
solutions for the management and distribution of risk to a client base which is
primarily comprised of property and casualty insurance companies. These services
are generally recurring and, due to the Company's expertise and the value-added
nature of its services, have been able to operate at relatively higher operating
margins. General agency operations are focused on the primary distribution of
insurance to property and casualty insurance companies, largely through
independent insurance agents. Due to the competitive nature of the general
agency business, the Company's profit margins for these services are relatively
lower. Additionally, domestic operations include the operations of the holding
company.
The Company provides intermediary services to a diverse group of
insurance, reinsurance and related businesses located throughout the United
States. During 1997, no domestic client accounted for more than 10% of
consolidated revenues earned by the Company and the Company's ten largest
domestic clients accounted for 25% of consolidated revenues earned by the
Company.
INTERMEDIARY SERVICES
As a reinsurance intermediary, the Company structures and arranges
reinsurance between insurers seeking to cede insurance risks and reinsurers
willing to assume such risks. Reinsurance is a form of insurance in which a
reinsurance company indemnifies a primary insurance company against all or a
portion of the risk assumed by the ceding company under an insurance policy.
<PAGE>
The Company places reinsurance with approximately 500 reinsurers
located throughout the world. During 1997, the Company's domestic operations
placed $3.2 billion of reinsurance premiums, 82% of which went to reinsurers
located in the United States and the remainder to international reinsurance
markets, primarily Bermuda and London. In 1997, no single reinsurer used by
domestic operations accounted for more than 10% of consolidated revenues earned
by the Company and the top ten reinsurers used by domestic operations accounted
for 21% of consolidated revenues.
The Company earns reinsurance brokerage from the placement and
servicing of reinsurance, primarily on a treaty basis for property and casualty
exposures. The majority of the Company's property reinsurance is in the form of
catastrophe reinsurance. Catastrophe reinsurance indemnifies the ceding company
for the amount of property loss in excess of a specified retention with respect
to an accumulation of individual policy losses resulting from a single
catastrophic event such as a hurricane, earthquake, or tornado. Casualty
reinsurance indemnifies a ceding company for all or a specified portion of the
losses caused by injuries to third persons and the resulting legal liability
imposed on the insured. The majority of the Company's casualty reinsurance
relates to professional liability, workers' compensation, and specialized
casualty exposures underwritten by excess and surplus lines insurance carriers.
The Company also places multiple lines reinsurance that covers both property and
casualty exposures, as well as life, accident and health, and facultative
reinsurance.
Reinsurance brokerage rates, which vary by line of business, are
generally standard throughout the industry. Brokerage rates are typically based
upon a percentage of the reinsurance premium placed. In recent years, price
competition among reinsurance intermediaries has increased and there have been
instances of fee-based compensation arrangements between certain large insurers
and intermediaries such as the Company. As a result, the compensation received
by the Company relative to premium volume has in certain instances decreased in
recent years. The introduction of fee-based compensation arrangements may have
the effect of reducing the variability of the reinsurance intermediary's
compensation due to changes in external market factors such as changes in the
price of reinsurance.
The Company's reinsurance intermediary business is highly competitive.
The Company competes with a number of reinsurance intermediaries, direct writers
of reinsurance and other financial institutions, some of which have greater
financial and other resources than the Company. The Company competes on the
basis of the quality and extent of services offered and the ability to provide
solutions that meet the needs of ceding companies, including price and capacity
requirements. In certain situations, the Company competes for reinsurance with
financial institutions which offer alternative products which attempt to
securitize or finance insurance exposures. Among the Company's competitors are
Aon Risk Services, Guy Carpenter and Co., Inc., Employers Re, General Re and
Munich Re. There is also competition within the reinsurance market for
experienced and productive reinsurance professionals that are essential in
delivering the Company's services. The inability of the Company to recruit and
retain such reinsurance professionals could have a material adverse effect upon
its business.
Fiduciary funds and amounts of reinsurance premiums payable by the
ceding company to the reinsurer and loss payments payable by the reinsurer to
the ceding company pursuant to a
<PAGE>
reinsurance agreement, which amounts represent receivables of the intermediary,
are known as "fiduciary assets". Consistent with industry practice, interest on
the fiduciary funds accrues to the reinsurance intermediary. Fiduciary funds are
maintained in segregated accounts for the benefit of ceding companies or
reinsurers are not commingled with other assets of a reinsurance intermediary
and are not subject to the claims of the intermediary's creditors. At December
31, 1997, the Company had domestic fiduciary assets and liabilities of $580.4
million. Fiduciary assets at December 31, 1997 included $85.7 million of
fiduciary funds. In recent years, although the volume of fiduciary funds
processed through the Company's domestic fiduciary accounts have increased due
to business growth, the period of time for which the funds are held has declined
due to advances in technology, including electronic transfers of funds and data.
As this trend continues, the amount of investment income earned by the Company
on these funds may diminish.
The Company's reinsurance intermediary business is subject to some
government regulation. In 1990, the National Association of Insurance
Commissioners developed the Reinsurance Intermediary Model Act (the "Model Act")
which has been adopted by most states. The Company currently is licensed or is
in the process of becoming licensed in all states where it is required to be
licensed as a reinsurance intermediary. Government regulation of the Company's
business has not been a significant commercial barrier.
RISK MANAGEMENT CONSULTING AND ADMINISTRATION SERVICES
The Company seeks to provide risk management consulting and
administration services to insurance and reinsurance companies, government
entities, underwriting facilities and other interested parties. Such services
are generally provided as part of the Company's core reinsurance intermediary
services, as well as directly to third parties. Services include product
development, facility administration, strategic reinsurance program reviews,
actuarial services, catastrophe exposure management and analysis, run-off
management and insurance policy issuing services. The Company earns fees for
providing these services directly to third parties.
The Company also seeks to provide financial consulting services and
tailored reinsurance and capital markets products designed to assist its clients
in capital preservation and risk management. These services may include risk
evaluation, strategy formation and strategy implementation.
The Company competes with a number of competitors in its risk
management consulting and administration services business, including primary
insurance brokers, reinsurance intermediaries, management consultants,
accounting firms, and financial services firms. Some of these competitors may
have or be affiliated with entities that have greater financial and other
resources than the Company. The Company competes with these entities on the
basis of the quality, price, innovation, and range of products and services.
OTHER SERVICES
The Company provides program policy and distribution and general agency
services. In its program and policy distribution business, the Company also
distributes insurance products for insurance companies on a direct marketing
basis and provides alternative distribution services for the redirection and
placement of targeted insurance exposures. Through its general agency
operations, the Company earns commissions and fees from the distribution of
insurance products on
<PAGE>
a wholesale basis. The Company distributes personal and commercial property and
casualty coverages, specializing in program and surplus lines business. These
products are distributed to a network of retail insurance agent clients located
throughout the United States, primarily in the State of Texas.
These other services accounted for less than 10% of the Company's
consolidated revenues in 1997.
FOREIGN OPERATIONS
The Company's foreign operations include Swire Blanch, an international
insurance and reinsurance broker headquartered in London. Swire Blanch includes
a registered Lloyd's of London insurance and reinsurance broking operation and
international reinsurance intermediary operations. The Company also provides
financial services through the sale of pension plan products for insurance
companies. Insurance brokerage services include the retail operations located in
northern England and Hong Kong. Approximately 75% of Swire Blanch's revenues are
generated in the United Kingdom with the remainder primarily from the Pacific
Rim. The Company's foreign operations currently do not benefit from the
relatively higher profit margins of the Company's domestic risk management and
distribution services. This is due to a number of factors, including competitive
market conditions for Lloyd's brokers, the small, start-up nature of many of the
international offices, the competitiveness of the insurance brokerage business,
and the amortization of goodwill associated with the purchase of Swire Fraser.
The Company seeks to grow its international profitability through the
integration of systems, services and expertise in order to increase revenue
production and processing efficiencies.
The Company's foreign operations provide intermediary services to a
diverse client base, including original insureds and insurance companies located
throughout the world. During 1997, no foreign client accounted for more than 10%
of consolidated revenues earned by the Company and the Company's ten
international largest clients accounted for 7% of consolidated revenues earned
by the Company.
INTERMEDIARY SERVICES
During 1997, the Company's foreign operations placed $246.4 million of
insurance and reinsurance premiums. In 1997, no single insurer or reinsurer used
by foreign operations accounted for more than 10% of consolidated revenue earned
by the Company during 1997 and the top ten insurance or reinsurance markets used
by foreign operations accounted for 1.7% of consolidated revenue.
Like the Company's domestic operations, the Company's international
intermediary business is highly competitive. The Company competes with a number
of reinsurance intermediaries, direct writers of reinsurance and other financial
institutions, some of which have greater financial and other resources than the
Company. The Company competes on the basis of the quality and extent of services
offered and the ability to provide solutions that meet the needs of ceding
companies, including price and capacity requirements. In certain situations, the
Company competes for reinsurance with financial institutions which offer
alternative products which attempt to securitize or finance insurance exposures.
The Company has similar types of competitive issues internationally and
domestically. The Company's primary foreign competitors are other Lloyd's
brokers, in addition to the Company's domestic competitors or affiliates of
those companies. The Company also competes for experienced professionals to
deliver the Company's services internationally and could be adversely effected
if the Company is unable to recruit and retain such employees.
The Company's foreign operations brokerage rates are similar to those
for domestic operations.
<PAGE>
The Company's foreign operations also have fiduciary assets, similar to
its domestic operations, and earns investment income on the funds it holds for
insurance and reinsurance companies. At December 31, 1997, the Company had
foreign fiduciary assets and liabilities of $200.0 million. Fiduciary assets at
December 31, 1997 included $31.5 million of fiduciary funds.
The Company's foreign intermediary business is subject to varying
amounts of government regulation in each of the countries where it has
operations. The Company currently is licensed or is in the process of becoming
licensed in all countries where it is required to be licensed as a insurance or
reinsurance intermediary. Government regulation of the Company's business has
not been a significant commercial barrier.
FINANCIAL PENSION AND CONSULTANCY SERVICES
Through Swire Blanch, the Company provides independent advice on
various aspects of the financial services industry, including the design,
administration and financial control of employee benefits packages, personal
financial planning and pension fund administration. These services are provided,
outside of the United States, to individuals, professional intermediaries,
owner-managed businesses and corporations of all sizes. The Company plans to
continue to develop these services.
The Company competes with other financial service and insurance
companies in providing these services. Some of these competitors may have, or be
affiliated with, entities that have greater financial and other resources than
the Company. The Company competes with these entities on the basis of the
quality, price, innovation, and range of products and services.
EMPLOYEES
As of December 31, 1997, the Company had 1,130 employees. The table
below reflects the number of Company employees by industry segment at December
31 of the respective year:
1997 1996
---------------- ----------------
Domestic operations 761 648
Foreign operations 369 -
---------------- ----------------
Total 1,130 648
================ ================
The Company believes its relationship with its employees is excellent. The
Company is not a party to any collective bargaining agreement.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
<PAGE>
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company expresses caution that the
following important risk factors, among others, could cause the Company's actual
results to differ materially from those projected in forward-looking statements,
both written and verbal, about the Company made by or on behalf of the Company:
COMPETITION
The reinsurance intermediary business, the Company's primary source of
revenue, is highly competitive. The Company competes with a number of
reinsurance intermediaries in the broker reinsurance market. The consolidation
of reinsurance intermediary competitors through mergers and acquisitions, has
continued in 1997 with the result that certain of the Company's principal
competitors have increased substantially in size and potential resources, which
may make them more formidable competitors. Results of the Company's operations
may also be affected by competition for reinsurance business between broker
reinsurers and direct reinsurance writers. Broker reinsurers compete with direct
writers based primarily upon the price of reinsurance, reinsurance capacity,
contract terms and conditions, quality and extent of services offered, financial
strength, reputation and experience. The Company competes with other reinsurance
intermediaries and direct writers on the basis of the quality and extent of
services offered to ceding companies and the ability to provide solutions that
meet the needs of ceding companies, including price and capacity requirements.
Finally, in certain situations, the Company finds itself in competition for
reinsurance business with other financial institutions which offer alternative
products which attempt to securitize or finance insurance exposures using
various capital market products.
The Company also faces substantial competition in its efforts to
generate revenues by offering unbundled risk management consulting, financial
consulting and administration services to its clients and prospects.
In addition, the Company competes with other entities with respect to
the employment of personnel, including reinsurance brokers. The Company's
competitors include entities which have, or are affiliated with entities that
have, greater financial and other resources than the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's business depends, and will continue to depend, on the
services of its executive officers, senior reinsurance brokers, senior
consultants and other key employees. Such persons may from time to time leave
the Company due to, among other things, retirement, health, personal and
professional reasons. The Company has entered into employment agreements with
most of its executive officers and senior reinsurance brokers. The employment
agreements contain provisions under which the employees have agreed not to
compete with the Company for specified periods of time following termination of
employment. There can be no assurance that the Company will be able to retain
its existing personnel or to find and attract additional qualified employees.
MARKET CONDITIONS IN THE INSURANCE AND REINSURANCE INDUSTRIES
The Company's business is affected by market conditions in the
insurance and reinsurance industries, which historically have been subject to
significant volatility in demand, supply and price.
<PAGE>
Insurance companies generally purchase reinsurance in order to, among
other things, manage their exposures on insured risks, maintain acceptable
financial ratios and protect their underwriting results from catastrophic
events. The propensity of insurers to purchase, as well as the propensity of
reinsurers to supply, reinsurance is affected by a variety of factors, including
the level of surplus capacity in the insurance and reinsurance markets,
prevailing premium rates for insurance and reinsurance, underwriting experience,
regulatory considerations, changes in the investment environment and general
economic conditions and business trends.
To the extent that these factors influence the need for, availability
of and price of insurance and reinsurance, they may also affect the amount of
reinsurance brokerage, normally a function of the ceded premium, received by the
Company. For example, when reinsurance premium rates rise, brokerage associated
with a particular amount of coverage placed may increase. The Company's ability
to earn increased brokerage in this instance may, however, be limited if
insurers purchase less reinsurance which has been an increasing trend among the
Company's clients, or if the supply of certain reinsurance coverage is
curtailed. Conversely, declining prices for reinsurance would generally reduce
the brokerage associated with a particular placement. A reduction in brokerage
may, however, be limited if insurers purchase more reinsurance at the lower
premium rates or if more or larger placements of coverages are achieved due to
increases in the supply of reinsurance. The Company's reinsurance brokerage
revenues can also be negatively influenced by clients who choose to increase
their retentions of risk, thereby purchasing less reinsurance, and by
acquisitions of the Company's clients where the acquirer does not purchase
reinsurance, purchases less reinsurance or purchases reinsurance elsewhere.
Price competition among reinsurance intermediaries has increased in
recent years, and there have been instances of fee-based compensation
arrangements between certain large insurers and reinsurance intermediaries such
as the Company. As a result, the compensation received by the Company relative
to premium volume has in certain instances decreased in recent years and there
can be no assurance that these arrangements will not become more prevalent in
the future.
In addition, the development of state or federal underwriting
facilities, pools, or other alternate coverage mechanisms for catastrophic risks
such as earthquakes or hurricanes may, in the future, lead to a reduction in the
amount of such risks insured by primary insurers, and may consequently reduce
such insurers' needs for reinsurance of the type traditionally brokered by the
Company.
The insurance brokerage industry in general is experiencing a period of
low growth due to competitive pricing of underlying insurance and reinsurance
premiums, and competitive pressures on brokerage and commission rates. Although
the Company seeks to achieve growth in this market through its business
strategies, there can be no assurance that these strategies will be successful
to achieve growth in a difficult market environment.
GOVERNMENT REGULATION
Certain countries and states in which the Company operates require the
licensing of certain components of the Company's operations. Reinsurance
intermediary licensing statutes generally require, among other things, a written
contract between the ceding company and the reinsurance intermediary which is
terminable at will by the ceding company. The Company's general agency
operations also require licensing as a managing general agent in the states in
which it does business.
<PAGE>
Insurance regulation, including the regulation of intermediaries, has
been subject to increased scrutiny by the National Association of Insurance
Commissioners (the "NAIC") and legislative and regulatory bodies. The NAIC and
state insurance regulators have been reexamining existing laws and regulations,
with an emphasis on insurance company investment and solvency issues. From time
to time members of Congress have raised the possibility of federal regulation
that could result in the federal government assuming some role in the monitoring
of the insurance industry. No assurance can be given as to future legislative or
regulatory changes or as to their effect upon the Company.
FIDUCIARY FUNDS
As an intermediary, the Company acts as a conduit for insurance and
reinsurance premiums and loss payments which are paid to and remitted from
fiduciary accounts. The Company could be liable if it were to mishandle such
funds in violation of its fiduciary obligations.
The Company earns investment income on the fiduciary funds it holds on
behalf of insurance and reinsurance companies. In recent years, although the
volume of funds processed through the Company's fiduciary accounts have
increased due to business growth, the period of time for which the funds are
held has declined due to advances in technology, including electronic transfers
of funds and data. As this trend continues, the amount of investment income
earned by the Company on these funds may diminish. The Company's investment
income on the fiduciary funds also is impacted by fluctuating and potentially
falling interest rates.
SPECIFIC ENGAGEMENTS AND NEW OPPORTUNITIES
The Company has been engaged and is pursuing a variety of specific
engagements and opportunities, in addition to its traditional reinsurance
intermediary and wholesale brokerage lines of business. In its efforts to expand
its revenues, the Company is exploring a variety of potential initiatives and
opportunities that are related to the Company's traditional core business, but
that will require the Company in some instances to operate in areas where the
Company does not have historical experience.
These specific engagements and opportunities give rise to certain risks
and uncertainties. For example, alternative distribution opportunities are
subject to significant negotiations among the Company, the primary insurance
company transferring the insurance risks at issue, the alternative insurance
companies assuming those risks, and the reinsurance marketplace providing the
capacity to support the risk transfer. These alternative distribution
transactions also generally require approval of terms and rates by relevant
state insurance departments. As a result, there can be no assurance these
transactions will be consummated, and the timing of the transactions is
difficult to predict, which can reduce or delay the revenues the Company expects
to receive.
These specific engagements also can result in increased fluctuations in
the Company's earnings. While the revenues in the Company's core reinsurance and
insurance intermediary lines of business also are subject to fluctuation, as
described above, the revenues from these core lines of business do tend to recur
each year, as the reinsurance or insurance contracts are renewed by the
Company's customers. For certain of these specific engagements and new
opportunities, however, the potential revenues may not recur each year.
<PAGE>
Also, as the Company expands into new (though related) lines of
business, there likely will be increased unpredictability as to whether the
Company will be successful in those new endeavors. These new opportunities
generally involve technological capabilities and personnel skill sets that the
Company must acquire externally and/or build internally. The demand and revenue
potential for some of these opportunities are unknown or uncertain. For these
reasons, it is possible the Company may invest substantial resources into these
potential specific engagements and opportunities, without achieving the revenues
it anticipates in return.
INTERNATIONAL OPERATIONS
Through Swire Blanch, the Company is significantly increasing its
reinsurance intermediary and wholesale brokerage activities outside of its
traditional territory in the United States. The Company, through this 70%
subsidiary, has offices in the United Kingdom, Copenhagen, Hong Kong, Singapore,
Australia, and Mexico, with additional international offices likely in the
future. The Company has representative offices in Vietnam and China. With these
international operations come increased risks, including the potential that the
Company will not successfully integrate its international operations with its
domestic operations, currency exchange risks, legal and regulatory constraints
and liabilities in jurisdictions where the Company does not have significant
experience, and political risks, especially in third-world countries.
FOREIGN CURRENCY
The Company's primary functional currency is the U.S. dollar. The
functional currency of the Company's foreign operations is the applicable local
currency. Therefore, fluctuations in foreign currency rates can have an impact
on the Company's results of operations. Although many Pacific Rim financial
markets have recently experienced some unusual changes in value, the Company
does not anticipate a significant impact to its business in that area of the
world, but the risk of an adverse impact is inherent in doing business in that
part of the world.
HEADQUARTERS CONSOLIDATION
Starting in April of 1998, the Company is consolidating its
headquarters in Dallas, Texas. This will result in the move of some key
employees to Dallas, Texas from other parts of the country, and the replacement
of some employees with new hires in Dallas. This move could result in added
expenses and some disruption in activities during the near term. While the
Company does not anticipate that the added expenses will be material or the
disruption significant, there is risk in any move or consolidation of corporate
headquarters that is difficult to quantify or project.
YEAR 2000 COMPLIANCE
The Company has performed an assessment of its Year 2000 compliance and
is in the process of implementing steps to ensure Year 2000 compliance. The
Company expects to complete the Year 2000 compliance process for its current
software by December 31, 1998. Any investment in new software made by the
Company includes the requirements associated with Year 2000 compliance. The
additional investment to ensure all current software is Year 2000 compliant is
not expected to be material. The Company faces the risk that the Company and its
subsidiaries fail to achieve Year 2000 compliance or may incur material expense
in connection with such compliance. The Company could also be adversely affected
by the Year 2000 issue if clients or vendors not affiliated with the Company do
not adequately address their own Year 2000 compliance issues.
<PAGE>
Item 2.
PROPERTIES
The Company's physical properties consist primarily of leases of
commercial office space. At December 31, 1997, the Company leased 497,000 square
feet of office space, including 330,000 square feet at its four primary
locations, Dallas, London, Minneapolis, and San Antonio. The Company considers
its properties to be adequate for its present and reasonably foreseeable
requirements.
Item 3.
LEGAL PROCEEDINGS
The Company is engaged in legal proceedings in the ordinary course of
business, none of which, either individually or in the aggregate, will, in the
opinion of management, have a material adverse effect on the consolidated
financial position of the Company or the results of its operations.
<PAGE>
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the Company's fourth quarter.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF MARCH 24, 1998)
DATES NEED TO BE ADDED HERE
<TABLE>
<CAPTION>
DATES
ELECTED TO
NAME AND AGE OFFICE PRESENT POSITION AND BUSINESS EXPERIENCE
- ------------ ------ ----------------------------------------
<S> <C> <C> <C>
Edgar W. Blanch, Jr. (61) 3/03/93 Chairman and Chief Executive Officer
Prior to General Partner of E. W. Blanch Limited Partnership
3/03/93
Chris L. Walker (40) 10/27/94 President and Chief Operating Officer
3/03/93- Executive Vice President
10/27/94
Prior to General Partner of E. W. Blanch Limited Partnership
3/03/93
Frank S. Wilkinson, Jr. (58) 3/03/93 Executive Vice President
Prior to General Partner of E. W. Blanch Limited Partnership
3/03/93
Ian D. Packer (32) 7/01/96 Executive Vice President and Chief Financial Officer
1993- President and Chief Executive Officer - MarketLink, Inc.
1996 (Communications technology company)
1990- Vice President and General Partner -
1993 IAI Capital Group/Great Northern Capital (Merchant
banking group)
David L. Samuel (34) 1/22/98 Senior Vice President and Chief Accounting Officer
11/04/94- Group Finance Director - Swire Fraser
1/22/98 Group/Swire Blanch Group
Prior to Group Financial Controller - Swire Fraser
11/04/94 Group
James E. Erickson (47) 2/03/97 Senior Vice President and Chief Information Officer
1995-1997 Senior Vice President - GCC Networks (Developer of
software)
1992-1995 Vice President - Nordictrak (Manufacturer of exercise
equipment)
Daniel P. O'Keefe (45) 4/01/96 Senior Vice President, General Counsel and Corporate Secretary
Prior to Partner - Dorsey & Whitney LLP (law firm)
4/01/96
Arthur C. Schmalbach (50) 10/16/94 Senior Vice President
<PAGE>
3/03/93- Vice President
10/16/94
Prior to Vice President - E. W. Blanch Limited Partnership
3/03/93
</TABLE>
<PAGE>
PART II
Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS.
The information required by Item 5 is incorporated herein by reference
to the section entitled "Stocklisting and Trading Information" on the Inside
Back Cover of the Company's 1997 Annual Report to Shareholders.
Item 6.
SELECTED FINANCIAL DATA
The information on page 20 of the Company's 1997 Annual Report to
Shareholders is incorporated herein by reference.
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information on pages 21 through 26 of the Company's 1997 Annual
Report to Shareholders is incorporated herein by reference.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information on pages 28 through 39 of the Company's 1997 Annual
Report to Shareholders is incorporated herein by reference.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
<PAGE>
Not Applicable.
PART III
Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by Item 10 with regard to Directors is
incorporated herein by reference to the section entitled "Election of Directors"
on page 2 in the Company's proxy statement for its Annual Meeting of
Shareholders in 1998. The information required by Item 10 with regard to
executive officers is set forth in Item 4A hereof. The information required by
Item 10 with regard to Section 16 reporting is incorporated by reference to the
section entitled "Section 16(a) Beneficial Ownership Reporting Requirements" on
page 5 of the Company's proxy statement for its Annual Meeting of Shareholders
in 1998.
Item 11.
EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the sections entitled "Directors Compensation" and "Executive Compensation"
on pages 7 and 8 respectively, in the Company's proxy statement for its Annual
Meeting of Shareholders in 1998.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in Item 12 is incorporated herein by reference
to the section entitled "Security Ownership of Certain Beneficial Owners" on
page 5 in the Company's proxy statement for its Annual Meeting of Shareholders
in 1998.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the section entitled "Certain Relationships and Related Transactions" on page
14 in the Company's proxy statement for its Annual Meeting of Shareholders in
1998.
<PAGE>
PART IV
Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of E. W. Blanch
Holdings, Inc. included in the 1997 Annual Report to Shareholders are
incorporated by reference into this Report by Item 8 hereof:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996, and 1995
Notes to Consolidated Financial Statements
(a)(2) All schedules to the consolidated financial statements listed in
Article 5 of Regulation S-X are not required under the related
instructions or are inapplicable and therefore have been omitted.
(a)(3) The Exhibits required to be a part of this Report are listed in the
Index to Exhibits on page 19 hereof.
Pursuant to Item 601 (b) (4) (iii) of Regulation S-K, copies of certain
instruments defining the rights of holders of certain long-term debt of
the Company are not filed, and in lieu thereof, the Company agrees to
furnish copies thereof to the Securities and Exchange Commission upon
request.
(b) Reports on Form 8-K
The registrant filed no Current Reports on Form 8-K during the quarter
ended December 31, 1997.
(c) Exhibits
Included in Item 14(a)(3) above.
(d) Financial Statement Schedules
Included in Item 14(a)(2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, E. W. Blanch Holdings, Inc. has duly caused this annual
report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, on March 25, 1998.
E. W. BLANCH HOLDINGS, INC.
(Registrant)
By: /s/ Edgar W. Blanch, Jr.
--------------------------------------------
Edgar W. Blanch, Jr., Chairman of the Board,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of E. W.
Blanch Holdings, Inc. and in the capacities indicated on March 25, 1998.
Signature Title
--------- -----
/s/ Edgar W. Blanch, Jr. Chairman of the Board, Chief Executive
- ----------------------------------- Officer and Director
Edgar W. Blanch, Jr.
/s/ Ian D. Packer Executive Vice President and Chief
- ----------------------------------- Financial Officer
Ian D. Packer
/s/ David L. Samuel Senior Vice President and Chief Accounting
- ----------------------------------- Officer
David L. Samuel
Edgar W. Blanch, Jr., pursuant to powers of attorney which are being
filed with this Annual Report on Form 10-K, has signed below on March 25, 1998
as attorney-in-fact for the following directors of the Registrant:
James N. Land, Jr. William B. Madden
Steven G. Rothmeier Joseph D. Sargent
Paul B. Ingrey Chris L. Walker
Frank S. Wilkinson, Jr.
/s/ Edgar W. Blanch, Jr.
-------------------------------------
Edgar W. Blanch, Jr.
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation of the Company (5)
3.2 By-Laws of the Company (2)
4.1 Specimen Common Stock Certificate (2)
4.2 Rights Agreement, dated as of January 24, 1997, between the
Registrant and Norwest Bank Minnesota, N.A., as Rights Agent
(3)
10.1* Non-Employee Directors Stock Plan (2)
10.2* Directors' Stock Option Plan (1)
10.3* 1993 Stock Incentive Plan, as amended (2)
10.4* 1997 Stock Incentive Plan (1)
10.5* Executive Restricted Stock Incentive Plan (1)
10.6* 1997 Management Incentive Plan (1)
10.7* Employment Agreement between the Company and Edgar W. Blanch, Jr.
(4)
10.8* Employment Agreement between the Company and Frank S. Wilkinson,
Jr. (2)
10.9* Employment Agreement between the Company and Chris L. Walker (2)
10.10* Employment Agreement between the Company and Daniel P. O'Keefe
(1)
10.11* Agreement of Limited Partnership of Conning Insurance Capital
Limited Partnership III (5)
10.12* Stock Purchase Agreement, dated as of February 10, 1997, between
the Registrant and Edgar W. Blanch, Jr. (5)
10.13* Specimen Severance Agreement (7)
10.14* Schedule of Executives Receiving Severance Agreements (7)
11 Computation of Earnings Per Share (8)
13 Portions of the 1997 Annual Report to Shareholders incorporated
by reference in this Form 10-K (1)
21 Subsidiaries of the Company (1)
23 Consent of Ernst & Young LLP (1)
<PAGE>
24 Powers of Attorney (1)
27.1 Financial Data Schedule for the year ended December 31, 1997 (1)
27.2 Restated Financial Data Schedule for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997 (1)
27.3 Restated Financial Data Schedule for the quarters ended
March 31, 1996, June 30, 1996, September 30, 1996 and the
twelve months ended December 31, 1996 (1)
- -------------------------------------
(1) Filed with this Annual Report on Form 10-K
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 33-59198.
(3) Incorporated by reference to the Company's Registration Statement on
Form 8-A, dated January 24, 1997.
(4) Filed with the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997.
(5) Filed with the Company and Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
(6) Filed with the Company's Annual Report on Form 10-K, as amended, for
the fiscal year ended December 31, 1994.
(7) Filed with the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997.
(8) The information required by Exhibit 11 is incorporated by reference to
Note 8 to the Company's Consolidated Financial Statements for the year
ended December 31, 1997 included in Exhibit 13 with this Annual Report
on Form 10-K.
* Management contract and compensatory plan or arrangement required to
be filed pursuant to Item 601 (b)
(10)(iii)(A) of Regulation S-K.
EXHIBIT 10.2
E. W. BLANCH HOLDINGS, INC.
DIRECTORS' STOCK OPTION PLAN
1. Purpose of the Plan. The purpose of this E. W. Blanch Holdings, Inc.
Directors' Stock Option Plan is to attract and retain the best available
individuals for service as Directors of the Company and provide additional
incentive to the Outside Directors of the Company to serve as Directors.
None of the Options granted hereunder shall be "incentive stock options" within
the meaning of Section 422 of the Code (as hereinafter defined).
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean E. W. Blanch Holdings, Inc., a Delaware corporation.
(e) "Continuous Status as a Director" shall mean the absence of any interruption
or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and Directors, employed
by the Company or any parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(i) "Fair Market Value" of a Share shall mean the closing price of the Common
Stock on the date of determination.
(j) "Option" shall mean a stock option granted pursuant to the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an Option.
(l) "Optionee" shall mean an Outside Director who receives an Option.
(m) "Outside Director" shall mean a Director who is not an Employee.
(n) "Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 425(e) of the Code.
(o) "Plan" shall mean this Directors' Stock Option Plan.
(p) "Shares" shall mean shares of the Common Stock, as adjusted in accordance
with Section 10 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 300,000 Shares of Common Stock. The Shares shall be issued
from the Company's treasury stock. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan. If
Shares which were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not in any event be returned
to the Plan and shall not become available for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan shall be
administered by the Board.
(b) Procedurefor Grants. The provisions set forth in this Section 4(b) shall not
be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. All grants of Options
hereunder shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside Directors shall
be granted Options or to determine the number of Shares to be covered by
Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an Option (an "Initial
Grant") to purchase 5,000 Shares upon the date on which such person
first becomes a Director, whether through election by the shareholders
of the Company or appointment by the Board of Directors to
<PAGE>
fill a vacancy. All Outside Directors as of the date this Plan is
approved by the Board shall be automatically granted an Initial Grant
Option to purchase 5,000 Shares upon the date when this Plan is approved
by the Board. Options granted under this Section 4(b)(ii) shall become
vested and thereby exercisable with respect to 33 1/3% of the Optioned
Stock on the date of such Initial Grant, with respect to 33 1/3% of the
Optioned Stock on the twelve month anniversary date of such Initial
Grant and with respect to 33 1/3% of the Optioned Stock on the date of
the second twelve month anniversary date; provided, however, an unvested
portion of an Initial Grant shall only vest so long as the Outside
Director remains a Director on the date such portion vests.
(iii) Each Outside Director shall automatically receive, on the date of each
Annual Meeting of Shareholders of the Company, an Option to purchase
2,000 Shares, such Option to become exercisable six months subsequent to
the date of grant; provided, however, that such Option shall only be
granted to Outside Directors who have served since the date of the last
Annual Meeting of Shareholders and who will continue to serve as Outside
Directors after the date of grant of such Option.
(iv) The terms of an Option granted hereunder shall be as follows:
(A)The term of the Option shall be ten (10) years.
(B) The Option shall be exercisable only while the Outside Director remains a
Director of the Company, except as set forth in Section 8 hereinof.
(C) The exercise price per Share shall be 100% of the Fair Market Value per
Share on the date of grant of the Option.
(D) A Director shall be entitled to receive Options to purchase a total of no
more than 100,000 Shares pursuant to the terms of this Plan.
(c) Powers of the Board. Subject to the provisions and restrictions of the Plan,
the Board shall have the authority, in its discretion: (i) to determine,
upon review of relevant information, the Fair Market Value of the Common
Stock; (ii) to determine the exercise price per share of Options to be
granted, which exercise price shall be determined in accordance with
Section 4(b)(iv)(C) of the Plan; (iii) to interpret the Plan; (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan;
(v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously
granted hereunder and (vi) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees
and any other holders of any Options granted under the Plan.
5. Eligibility. Options may be granted only to Outside Directors. All Options
shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate his directorship at any time.
6. Term of Plan. The Plan shall become effective upon its adoption by the
Board. and shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 12 of the Plan.
7. Consideration. Subject to compliance with provisions of
applicable law the consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of (i) cash, (ii)
check, (iii) other Shares which have a Fair Market Value on the date of
exercise equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised, (iv) authorization for the Company to
retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date
of exercise equal to the exercise price for the total number of Shares
as to which the Option is exercised, (v) delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (vi) delivery of an irrevocable
subscription agreement for the Shares which irrevocably obligates the
Option holder to take and pay for the Shares not more than twelve months
after the date of delivery of the subscription agreement, (vii) any
combination
<PAGE>
of the foregoing methods of payment or (vii) such other consideration
and method of payment for the issuance of Shares as may be permitted
under applicable laws. In making its determination as to the type of
consideration to accept, the Board shall consider whether acceptance of
such consideration may be reasonably expected to benefit the Company.
8. Exercise of Option.
(a) Procedure for Exercise: Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such exercise
has been given to the Company in accordance with the terms of the Option
by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received
by the Company. Full payment may consist of any consideration and method
of payment allowable under Section 7 of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. A share certificate
for the number of Shares so acquired shall be issued to the Optionee as
soon as practicable after exercise of the Option. No adjustment will be
made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section
10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of
Shares which thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. If an Outside Director ceases to serve
as a Director, he may, but only within three (3) years after the date he
ceases to be a Director of the Company, or by the date of termination of
the Option, whichever is earlier, exercise his Option to the extent that
he was entitled to exercise it at the date he ceases to be a Director.
To the extent that he was not entitled to exercise an Option at the date
of such termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option
shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section 8(b)
above, in the event an Optionee is unable to continue his service as a
Director with the Company as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code) he may, but only within
three (3) years from the date he ceases to be a Director, or by the date
of termination of the Option, whichever is earlier, exercise his Option
to the extent he was entitled to exercise it at the date he ceases to be
a Director. To the extent that he was not entitled to exercise the
Option at the date of termination, or if he does not exercise such
Option (which he was entitled to exercise) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section 8(b) above, in
the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death a Director of
the Company and who has been in Continuous Status as a Director since
the date of grant of the Option, the Option may be exercised, at any
time within twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as a Director for twelve (12) months after
the date of death; or
(ii) within thirty (30) days after the termination of Continuous Status as a
Director, the Option may be exercised, at any time within twelve (12)
months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had
accrued at the date of termination of Continuous Status as a Director.
<PAGE>
9. Non-Transferability of Options. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than
by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution or Merger.
(a) In the event that the number of outstanding shares of Common Stock of the
Company is changed by a stock dividend, stock split, reverse stock
split, combination, reclassification or similar change in the capital
structure of the Company without consideration, the number of Shares
available under this Plan and the number of Shares, subject to
outstanding Options and the exercise price per share of such Options,
shall be proportionately adjusted, subject to any required action by the
Board or shareholders of the Company and compliance with applicable
securities laws; provided, however, that no certificate or scrip
representing fractional shares shall be issued upon exercise of any
Option and any resulting fractions of a Share shall be ignored. Such
adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive.
(b) In the event of a dissolution or liquidation of the Company, a merger in
which Company is not the surviving corporation, a transaction or series
of related transactions in which 20% or more of the then outstanding
voting stock is sold or otherwise transferred, or the sale of
substantially all of the assets of the Company, any or all outstanding
Options shall, notwithstanding any contrary terms of the written
agreement governing such Option, accelerate and become exercisable in
full at least ten days prior to (and shall expire on) the consummation
of such dissolution, liquidation, merger or sale of stock or sale of
assets on such conditions as the Board shall determine unless the
successor corporation assumes the outstanding Options or substitutes
substantially equivalent options.
11. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom
an Option is so granted within a reasonable time after the date of such
grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter, suspend,
or discontinue the Plan, but no amendment, alteration, suspension, or
discontinuance shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent.
In addition, to the extent necessary and desirable to comply with any
applicable law or regulation or the requirements of any stock exchange
upon which the Shares may then be listed, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such
a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or termination of the
Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee
and the Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, state securities laws and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
<PAGE>
14. Reservation of Shares. The Company, during the term of this Plan, will at
all times reserve and keep available from its treasury stock such number of
Shares for issuance pursuant to this Plan as shall be sufficient to satisfy
the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option agreements in
such form as the Board shall approve.
16. Information to Optionees. The Company shall provide to each Optionee, during
the period for which such Optionee has one or more Options outstanding,
copies of all annual reports to shareholders, proxy statements and other
information provided to all shareholders of the Company.
EXHIBIT 10.4
E. W. BLANCH HOLDINGS, INC.
1997 STOCK INCENTIVE PLAN
Section 1. Purpose.
The purpose of the Plan is to promote the interests of the
Company and its stockholders by aiding the Company in attracting and retaining
key management personnel capable of assuring the future success of the Company,
to offer such personnel incentives to put forth maximum efforts for the success
of the Company's business and to afford such personnel an opportunity to acquire
a proprietary interest in the Company.
Section 2. Definitions.
As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or
indirectly through one or more intermediaries, is controlled by the Company and
(ii) any entity in which the Company has a significant equity interest, in each
case as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award or Other Stock-Based
Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement,
contract or other instrument or document evidencing any Award granted under the
Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of
Directors of the Company designated by such Board to administer the Plan, which
shall consist of members appointed from time to time by the Board of Directors.
(f) "Company" shall mean E. W. Blanch Holdings, Inc., a
Delaware corporation, and any successor corporation.
(g) "Disability" means the complete and permanent inability by
reason of illness or accident to perform the duties of the occupation at which a
Participant was employed when such disability commenced or, if the Participant
was retired when such
<PAGE>
disability commenced, the inability to engage in any substantial gainful
activity, as determined by the Committee based upon medical evidence acceptable
to it.
(h) "Eligible Person" shall mean any officer, consultant or
independent contractor providing services to the Company or any Affiliate who
the Committee determines to be an Eligible Person.
(i) "Fair Market Value" shall mean, with respect to any
property (including, without limitation, any Shares or other securities), the
fair market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee. Notwithstanding the
foregoing, unless otherwise determined by the Committee, the Fair Market Value
of Shares on a given date for purposes of the Plan shall be the last reported
sale price for the Shares on that date (or, if there were no such sales on that
date, on the next most recent date on which there were such sales) as reported
on the Composite Tape for the New York Stock Exchange.
(j) "Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) of the Plan that is not intended to be an incentive stock
option within the meaning of Section 422 of the Code or any successor provision.
(k) "Option" shall mean a Non-Qualified Stock Option.
(l) "Other Stock-Based Award" shall mean any right granted
under Section 6(f) of the Plan.
(m) "Participant" shall mean an Eligible Person designated to
be granted an Award under the Plan.
(n) "Performance Award" shall mean any right granted under
Section6(d) of the Plan.
(o) "Person" shall mean any individual, corporation,
partnership, association or trust.
(p) "Plan" shall mean this Stock Incentive Plan, as amended
from time to time.
(q) "Restricted Stock" shall mean any Share granted under
Section6(c) of the Plan.
(r) "Restricted Stock Unit" shall mean any unit granted under
Section6(c) of the Plan evidencing the right to receive a Share (or a cash
payment equal to the Fair Market Value of a Share) at some future date.
(s) "Shares" shall mean the Common Shares, $0.01 par value, of
the Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.
<PAGE>
(t) "Stock Appreciation Right" shall mean any right granted
under Section 6(b) of the Plan.
Section 3. Administration.
(a) Power and Authority of the Committee. The Plan shall be
administered by the Committee. Subject to the express provisions of the Plan and
to applicable law, the Committee shall have full power and authority to: (i)
designate Participants; (ii)determine the type or types of Awards to be granted
to each Participant under the Plan; (iii) determine the number of Shares to be
covered by (or with respect to which payments, rights or other matters are to be
calculated in connection with) each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v)amend the terms and conditions of
any Award or Award Agreement and accelerate the exercisability of Options or the
lapse of restrictions relating to Restricted Stock, Restricted Stock Units or
other Awards; (vi)determine whether, to what extent and under what circumstances
Awards may be exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited or suspended; (vii) determine whether, to what
extent and under what circumstances cash, Shares, other securities, other
Awards, other property and other amounts payable with respect to an Award under
the Plan shall be deferred either automatically or at the election of the holder
thereof or the Committee; (viii)interpret and administer the Plan and any
instrument or agreement relating to, or Award made under, the Plan; (ix)
establish, amend, suspend or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
and (x) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of the
Company or any Affiliate.
(b) Delegation. The Committee may delegate its powers and
duties under the Plan to one or more officers of the Company or any Affiliate or
a committee of such officers, subject to such terms, conditions and limitations
as the Committee may establish in its sole discretion.
(c) Power and Authority of the Board of Directors.
Notwithstanding anything to the contrary contained herein, the Board of
Directors may, at any time and from time to time, without any further action of
the Committee, exercise the powers and duties of the Committee under the Plan.
Section 4. Shares Available for Awards.
<PAGE>
(a) Shares Available. Subject to adjustment as provided in
Section 4(c), the aggregate number of Shares which may be issued under all
Awards under the Plan shall be 1,000,000. Shares to be issued under the Plan
shall be treasury shares. If any Shares covered by an Award or to which an Award
relates are not purchased or are forfeited, or if an Award otherwise terminates
without delivery of any Shares, then the number of Shares counted against the
aggregate number of Shares available under the Plan with respect to such Award,
to the extent of any such forfeiture or termination, shall again be available
for granting Awards under the Plan.
(b) Accounting for Awards. For purposes of this Section 4, if
an Award entitles the holder thereof to receive or purchase Shares, the number
of Shares covered by such Award or to which such Award relates shall be counted
on the date of grant of such Award against the aggregate number of Shares
available for granting Awards under the Plan.
(c) Adjustments. In the event that the Committee shall
determine that any dividend or other distribution (whether in the form of cash,
Shares, other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and type of Shares (or other securities or other property) which
thereafter may be made the subject of Awards, (ii) the number and type of Shares
(or other securities or other property) subject to outstanding Awards and (iii)
the purchase or exercise price with respect to any Award; provided, however,
that the number of Shares covered by any Award or to which such Award relates
shall always be a whole number.
Section 5. Eligibility.
Any Eligible Person, including any Eligible Person who is an
officer of the Company or any Affiliate, shall be eligible to be designated a
Participant. In determining which Eligible Persons shall receive an Award and
the terms of any Award, the Committee may take into account the nature of the
services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors as
the Committee, in its discretion, shall deem relevant.
Section 6. Awards.
(a) Non-Qualified Stock Options. The Committee is hereby
authorized to grant Non-Qualified Stock Options to Participants with the
following terms and
<PAGE>
conditions and with such additional terms and conditions not inconsistent with
the provisions of the Plan as the Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable
under a Non-Qualified Stock Option shall be determined by the
Committee; provided, however, that such purchase price shall not be
less than 100% of the Fair Market Value of a Share on the date of grant
of such Non-Qualified Stock Option.
(ii) Option Term. The term of each Non-Qualified Stock Option
shall be fixed by the Committee.
(iii) Time and Method of Exercise. The Committee shall
determine the time or times at which a Non-Qualified Stock Option may
be exercised in whole or in part and the method or methods by which,
and the form or forms (including, without limitation, cash, Shares,
promissory notes, other securities, other Awards or other property, or
any combination thereof, having a Fair Market Value on the exercise
date equal to the relevant exercise price) in which, payment of the
exercise price with respect thereto may be made or deemed to have been
made.
(b) Stock Appreciation Rights. The Committee is hereby
authorized to grant Stock Appreciation Rights to Participants subject to the
terms of the Plan and any applicable Award Agreement. A Stock Appreciation Right
granted under the Plan shall confer on the holder thereof a right to receive
upon exercise thereof the excess of (i) the Fair Market Value of one Share on
the date of exercise (or, if the Committee shall so determine, at any time
during a specified period before or after the date of exercise) over (ii) the
grant price of the Stock Appreciation Right as specified by the Committee, which
price shall not be less than 100% of the Fair Market Value of one Share on the
date of grant of the Stock Appreciation Right. Subject to the terms of the Plan
and any applicable Award Agreement, the grant price, term, methods of exercise,
dates of exercise, methods of settlement and any other terms and conditions of
any Stock Appreciation Right shall be as determined by the Committee. The
Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units. The Committee
is hereby authorized to grant Awards of Restricted Stock and Restricted Stock
Units to Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the Plan
as the Committee shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted
Stock Units shall be subject to such restrictions as the Committee may
impose (including, without limitation, any limitation on the right to
vote a Share of Restricted Stock or the right to receive any dividend
or other right or property with respect thereto), which restrictions
may lapse separately or in combination at such time or times, in such
installments or otherwise as the Committee may deem appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under
the Plan shall be evidenced by issuance of a stock certificate or
certificates, which certificate or
<PAGE>
certificates shall be held by the Company. Such certificate or
certificates shall be registered in the name of the Participant and
shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock. In the case of
Restricted Stock Units, no Shares shall be issued at the time such
Awards are granted.
(iii) Forfeiture; Delivery of Shares. Except as otherwise
determined by the Committee, upon termination of employment (as
determined under criteria established by the Committee) during the
applicable restriction period, all Shares of Restricted Stock and all
Restricted Stock Units at such time subject to restriction shall be
forfeited and reacquired by the Company; provided, however, that the
Committee may, when it finds that a waiver would be in the best
interest of the Company, waive in whole or in part any or all remaining
restrictions with respect to Shares of Restricted Stock or Restricted
Stock Units. Any Share representing Restricted Stock that is no longer
subject to restrictions shall be delivered to the holder thereof
promptly after the applicable restrictions lapse or are waived. Upon
the lapse or waiver of restrictions and the restricted period relating
to Restricted Stock Units evidencing the right to receive Shares, such
Shares shall be issued and delivered to the holders of the Restricted
Stock Units.
(d) Performance Awards. The Committee is hereby authorized to
grant Performance Awards to Participants subject to the terms of the Plan and
any applicable Award Agreement. A Performance Award granted under the Plan (i)
may be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such performance
periods as the Committee shall establish. Subject to the terms of the Plan and
any applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award granted, the amount of any payment or transfer to be made
pursuant to any Performance Award and any other terms and conditions of any
Performance Award shall be determined by the Committee.
(e) Other Stock-Based Awards. The Committee is hereby
authorized to grant to Participants such other Awards that are denominated or
payable in, valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities convertible into
Shares), as are deemed by the Committee to be consistent with the purpose of the
Plan; provided, however, that such grants must comply with applicable law.
Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of such Awards. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(e) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including without limitation,
cash, Shares, promissory notes, other securities, other Awards or other property
or any combination thereof), as the Committee shall determine, the value of
which consideration, as established by the Committee, shall not be less than
100% of the Fair Market Value of such Shares or other securities as of the date
such purchase right is granted.
<PAGE>
(g) General.
(i) No Cash Consideration for Awards. Awards shall be granted
for no cash consideration or for such minimal cash consideration as may
be required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may,
in the discretion of the Committee, be granted either alone or in
addition to, in tandem with or in substitution for any other Award or
any award granted under any plan of the Company or any Affiliate other
than the Plan. Awards granted in addition to or in tandem with other
Awards or in addition to or in tandem with awards granted under any
such other plan of the Company or any Affiliate may be granted either
at the same time as or at a different time from the grant of such other
Awards or awards.
(iii) Forms of Payment under Awards. Subject to the terms of
the Plan and of any applicable Award Agreement, payments or transfers
to be made by the Company or an Affiliate upon the grant, exercise or
payment of an Award may be made in such form or forms as the Committee
shall determine (including, without limitation, cash, Shares,
promissory notes, other securities, other Awards or other property or
any combination thereof), and may be made in a single payment or
transfer, in installments or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee. Such
rules and procedures may include, without limitation, provisions for
the payment or crediting of reasonable interest on installment or
deferred payments or the grant or crediting of dividend equivalents
with respect to installment or deferred payments.
(iv) Limits on Transfer of Awards. No Award and no right under
any such Award shall be transferable by a Participant otherwise than by
will or by the laws of descent and distribution; provided, however,
that, if so determined by the Committee, a Participant may, in the
manner established by the Committee, designate a beneficiary or
beneficiaries to exercise the rights of the Participant and receive any
property distributable with respect to any Award upon the death of the
Participant. Each Award or right under any Award shall be exercisable
during the Participant's lifetime only by the Participant or, if
permissible under applicable law, by the Participant's guardian or
legal representative. No Award or right under any such Award may be
pledged, alienated, attached or otherwise encumbered, and any purported
pledge, alienation, attachment or encumbrance thereof shall be void and
unenforceable against the Company or any Affiliate.
(v) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee.
(vi) Restrictions; Securities Exchange Listing. All
certificates for Shares or other securities delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such
stop transfer orders and other restrictions as the
<PAGE>
Committee may deem advisable under the Plan or the rules, regulations
and other requirements of the Securities and Exchange Commission and
any applicable federal or state securities laws, and the Committee may
cause a legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions. If the Shares or other
securities are traded on a securities exchange, the Company shall not
be required to deliver any Shares or other securities covered by an
Award unless and until such Shares or other securities have been
admitted for trading on such securities exchange.
Section 7. Amendment and Termination; Adjustments.
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the
Company may amend, alter, suspend, discontinue or terminate the Plan; provided,
however, that, notwithstanding any other provision of the Plan or any Award
Agreement, without the approval of the stockholders of the Company, no such
amendment, alteration, suspension, discontinuation or termination shall be made
that, absent such approval would violate the rules or regulations of the New
York Stock Exchange or any other stock exchange that are applicable to the
Company.
(b) Amendments to Awards. The Committee may waive any
conditions of or rights of the Company under any outstanding Award,
prospectively or retroactively. The Committee may not amend, alter, suspend,
discontinue or terminate any outstanding Award, prospectively or retroactively,
without the consent of the Participant or holder or beneficiary thereof, except
as otherwise herein provided.
(c) Correction of Defects, Omissions and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
Section 8. Income Tax Withholding.
In order to comply with all applicable federal or state income
tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of a
Participant, are withheld or collected from such Participant. In order to assist
a Participant in paying all or a portion of the federal and state taxes to be
withheld or collected upon exercise or receipt of (or the lapse of restrictions
relating to) an Award, the Committee, in its discretion and subject to such
additional terms and conditions as it may adopt, may permit the Participant to
satisfy such tax obligation by (i)electing to have the Company withhold a
portion of the Shares otherwise to be delivered upon exercise or receipt of (or
the lapse of restrictions relating
<PAGE>
to) such Award with a Fair Market Value equal to the amount of such taxes or
(ii)delivering to the Company Shares other than Shares issuable upon exercise or
receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value equal to the amount of such taxes. The election, if any, must be
made on or before the date that the amount of tax to be withheld is determined.
Section 9. General Provisions.
(a) No Rights to Awards. No Eligible Person, Participant or
other Person shall have any claim to be granted any Award under the Plan, and
there is no obligation for uniformity of treatment of Eligible Persons,
Participants or holders or beneficiaries of Awards under the Plan. The terms and
conditions of Awards need not be the same with respect to any Participant or
with respect to different Participants.
(b) Award Agreements. No Participant will have rights under an
Award granted to such Participant unless and until an Award Agreement shall have
been duly executed on behalf of the Company.
(c) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
(d) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate, nor will it affect in any way the right of the Company
or an Affiliate to terminate such employment at any time, with or without cause.
In addition, the Company or an Affiliate may at any time dismiss a Participant
from employment free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction and effect of
the Plan or any Award, and any rules and regulations relating to the Plan or any
Award, shall be determined in accordance with the laws of the State of
Minnesota.
(f) Severability. If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended
to conform to applicable laws, or if it cannot be so construed or deemed amended
without, in the determination of the Committee, materially altering the purpose
or intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction or Award, and the remainder of the Plan or any such Award shall
remain in full force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the
<PAGE>
extent that any Person acquires a right to receive payments from the Company or
any Affiliate pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash shall be paid in lieu of any fractional Shares or whether
such fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(i) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of the Plan or any provision thereof.
Section 10. Effective Date of the Plan.
The Plan shall be effective as of October 23, 1997.
Section 11. Term of the Plan.
Unless the Plan shall have been discontinued or terminated as
provided in Section7(a), the Plan shall terminate on October 23, 2007. No Award
shall be granted after the termination of the Plan. However, unless otherwise
expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond the termination of the Plan, and the
authority of the Committee provided for hereunder with respect to the Plan and
any Awards, and the authority of the Board of Directors of the Company to amend
the Plan, shall extend beyond the termination of the Plan.
EXHIBIT 10.5
THE E.W. BLANCH HOLDINGS, INC. EXECUTIVE RESTRICTED
STOCK INCENTIVE PLAN
Section 1. Purposes.
The E.W. Blanch Holdings, Inc. Executive Restricted Stock
Incentive Plan (the "Plan") was established by the Board of Directors of E.W.
Blanch Holdings, Inc. (the "Company"), effective as of February 18, 1997,
subject to approval by the Shareholders of the Company. The purpose of the Plan
is to provide incentivized, at-risk compensation for a select group of
management or highly compensated employees of the Company or its Subsidiaries
whom the Company believes can contribute materially to the continued growth,
development and success of the Company.
Section 2. Definitions.
As used in this Plan, the following terms shall have the
meanings indicated and other capitalized terms not defined below shall have the
meanings as defined in the 1993 Stock Incentive Plan of E.W. Blanch Holdings,
Inc.:
(a) "Base Compensation" shall mean the Participant's base
salary payable by the Company or its Subsidiaries, determined on an annualized
basis, without regard to any bonuses or incentive plan compensation, and prior
to the Elective Deferral the Participant agrees to under the terms of this Plan.
(b) "Committee" shall mean the Personnel and Compensation
Committee of the Company's Board of Directors.
(c) "Designated Beneficiary" shall mean a beneficiary
designated by a Participant, in accordance with the terms and conditions of
Section 15 of the Plan, to receive the Participant's Plan Account in the event
of the Participant's death, or in the absence of an effective designation by the
Participant, the Participant's surviving spouse, or if there is no servicing
spouse, the Participant's estate.
(d) "Election to Defer Base Compensation" shall mean that
written election form adopted from time-to-time by the Company's management or
the Committee, which documents a Participant's annual and irrevocable election
to participate in the Plan and to defer his or her Base Compensation in
accordance with the terms and conditions of the Plan.
(e) "Elective Deferral" shall mean the portion of a
Participant's Base Compensation that the Participant elects to forego in
accordance with the terms and conditions of the Plan.
<PAGE>
(f) "Participant" shall mean any managerial or highly
compensated employee of the Company or its Subsidiaries who is eligible to
participate in the Plan and has filed a written Election to Defer Base
Compensation in accordance with the terms and conditions of this Plan.
(g) "Performance Period" shall mean the period during which
the achievement of the Target Performance Goals selected by the Committee with
respect to any award pursuant to the Plan is to be measured.
(h) "Plan Account" shall mean a general ledger account
established for a Participant in accordance with the terms and conditions of
Section 11 of the Plan.
(i) "Restricted Stock" shall mean "Restricted Stock" as
defined in the 1993 Stock Incentive Plan of E.W. Blanch Holdings, Inc..
(j) "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
(k) "Subsidiaries" shall mean those corporations, more than
50% of whose outstanding securities the Company has the right, directly or
indirectly, to vote for the elections of directors, and who are identified by
the Committee to be covered by this Plan.
(l) "Target Performance Goal(s)" shall mean a performance goal
established by the Committee, at any time ending on or before the 90th day of
the applicable Performance Period, based on any or all of the following business
criteria, which may apply to the individual in question, an identifiable
business unit or the Company as a whole: stock price, market share, sales,
earnings per share, return on equity or costs, return on invested capital or net
assets employed, cumulative total return to shareholders, whether compared to
preselected peer groups or not, consolidated pre-tax earnings, net revenues, net
earnings, operating income, earnings before interest and taxes, and cash flow,
for the applicable performance period, all as computed in accordance with
generally accepted accounting principles as in effect from time to time and as
applied by the Company in the preparation of its financial statements and
subject to such other special rules and conditions as the Committee may
establish at any time ending on or before the 90th day of the applicable
Performance Period. The foregoing shall constitute the sole business criteria
upon which the performance goals under this Plan shall be based.
Section 3. Eligibility and Participation.
Employees of the Corporation and its Subsidiaries shall be
eligible to participate in the Plan if they hold an officer position of Senior
Vice President or higher in the Corporation or its subsidiaries. For purposes of
the Swire Blanch Insurance (Holdings) Limited and its Subsidiaries, eligible
employees shall be those holding the position of Director or higher. An eligible
employee may participate in the Plan for a specified Performance Period by
timely filing with the Company an Election to Defer Base Compensation for that
Performance Period.
Section 4. Plan Benefits.
Every Performance Period, in conjunction with filing the
Election to Defer Base Compensation, each Participant will designate a
percentage of his or her Base Compensation
<PAGE>
that constitutes his or her Elective Deferral for that Performance Period. The
Participant may elect to forego 5%, 10%, 15% or 20% of his or her Base
Compensation, or such other percent as may be permitted by the Committee. The
period of time in which the Participant actually foregoes the designated percent
of his or her Base Compensation need not coincide exactly with the Performance
Period.
In exchange, the Participant shall receive the right to an
award of Restricted Stock, subject to the award, vesting and forfeitures
provisions of this Plan. The amount of Restricted Stock awarded will depend on
whether the Company achieves the Target Performance Goal(s) designated by the
Committee for the Performance Period in issue. If the Company does achieve the
designated Target Performance Goal(s), the Participant will be awarded
Restricted Stock valued at two-times the amount of Base Compensation the
Participant elected to forego that year, based on the Fair Market Value of the
Company's stock as of the close of trading on April 1 of that Performance Period
(to the next full share). If the Company does not achieve the designated Target
Performance Goal, each Participant will be awarded Restricted Stock valued at
50% of the amount of Base Compensation the Participant elected to forego that
Performance Period, based on the trading price of the Company's stock as of the
close of trading on April 1 of that Performance Period (to the next full share).
Section 5. Provisions Related to ss.162(m)
(a) The maximum number of shares of Restricted Stock which may
be granted to any Participant with respect to any Performance Period shall not
exceed 100,000 shares.
(b) Not later than 90 days after the beginning of each
Performance Period selected by the Committee it shall:
1) designate all Participants for such Performance Period
and;
2) establish the Target Performance Goals for each
Participant for that Performance Period on the basis of one or more of the
business criteria set forth herein.
c) Following the close of each Performance Period and prior to
payment of any amount to any Participant under the Plan, the Committee must
certify in writing as to the attainment of all factors (including the
performance factors for a Participant) upon which any payments to a Participant
for that Performance Period are to be based.
d) Each of the foregoing provisions and all of the other terms
and conditions of the Plan shall be interpreted in such a fashion so as to
qualify all compensation paid hereunder as "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code.
e) No shares of Restricted Stock shall be awarded under the
Plan and this Plan shall be null and void and have no effect whatsoever unless
the Plan shall have been approved by the stockholders of the Company at the 1997
annual meeting of stockholders.
<PAGE>
Section 6. Termination of Participation
An eligible employee's participation in the Plan shall
terminate as of the end of each Performance Period, unless he or she elects to
enroll as a Participant for the subsequent Performance Period in accordance with
the terms and conditions of this Plan. An eligible employee's participation
shall terminate before the end of the Performance Period, in the event of
termination of employment, death or disability. When an eligible employee's
participation terminates before the end of the Performance Period due to
involuntary termination of employment, death or disability, the amount of any
Base Compensation foregone by that employee that year shall be reimbursed by the
Company to the employee or his / her Designated Beneficiary.
Section 7. Award of Restricted Stock
(a) When Restricted Stock is awarded pursuant to Section 4 of
this Plan, the Committee shall then cause stock certificates registered in the
name of the Participant to be issued and deposited with an escrow agent to be
designated by the Committee. The Committee shall cause the escrow agent to issue
to the Participant a receipt evidencing any stock certificate held by it
registered in the name of the Participant.
(b) The Holder of a Restricted Stock Award shall execute and
deliver to the Secretary of the Company an agreement with respect to the
Restricted Stock and an escrow agreement satisfactory to the Committee, and the
appropriate blank stock powers with respect to the Restricted Stock covered by
such agreements. Subject to the restrictions set forth in the following
paragraph, the Holder shall generally have the rights and privileges of a
stockholder as to such Restricted Stock, including the right to vote such
Restricted Stock. At the discretion of the Committee, cash and stock dividends
with respect to the Restricted Stock may be either currently paid or withheld by
the Company for the Holder's Plan Account, and interest may be paid on the
amount of cash dividends withheld at a rate and subject to such terms as
determined by the Committee. Cash or stock dividends so withheld by the
Committee shall not be subject to forfeiture.
(c) Restricted Stock awarded to a Participant shall be subject
to the following restrictions until the expiration of the Restricted Period: (1)
the Participant shall not be entitled to delivery of the stock certificate; (2)
the shares shall be subject to the restrictions on transferability set forth in
the Grant; (3) the shares shall be subject to forfeiture to the extent provided
in Section 9 of this Plan, and to the extent such shares are forfeited, the
stock certificates shall be returned to the Company, and all rights of the
Participant to such shares shall terminate without further obligation on the
part of the Company.
(d) Upon the expiration of the Restricted Period with respect
to any shares of Stock covered by a Restricted Stock Award, a stock certificate
evidencing the shares of Restricted Stock which have not then been forfeited and
with respect to which the Restricted Period has expired (to the nearest full
share) shall be delivered without charge to the Participant, or his Designated
Beneficiary, free of all restrictions under the Plan.
Section 8. Restricted Period
<PAGE>
The Restricted Period of Restricted Stock shall expire in
accordance with the following schedules:
(a) If the Target Performance Goal for the Performance Period
in issue is not achieved, the full number of shares awarded under Section 4 of
the Plan for that Performance Period shall vest on the next April 1 following
the end of the Performance Period.
(b) If the Target Earnings Per Share for the Plan year in
issue is achieved, one-third of shares awarded under Section 4 of this Plan
shall vest on the next April 1 following the end of the Performance Period, and
one-third shall vest on April 1 of each of the following two years.
Section 9. Forfeiture Provisions
In the event a Participant terminates employment during a
Restricted Period, that portion of the Award with respect to which restrictions
have not expired ("Non-Vested Portion") shall be treated as follows.
(a) Resignation or discharge:
-- The Non-Vested Portion of the Award would be
completely forfeited.
(b) Death, Disability or Retirement (excluding
early retirement):
-- The Non-Vested Portion of the Award shall become fully vested
and be paid to the Participant or his Designated Beneficiary
as soon as practicable following death, disability, or
retirement.
Section 10. Payment for Restricted Stock
Except as provided in Section 7(b) of this Plan, a Participant
shall not be required to make any payment for Restricted Stock awarded under
this Plan.
Section 11. SEC Restrictions
Each certificate representing Restricted Stock shall bear such
legends as the Committee determines appropriate under the Securities Act and any
related legislation or regulations. The Company agrees, however, to take those
steps necessary to register such shares under the Securities Act, prior to the
vesting of those shares under Section 8 of this Plan.
Section 12. Plan Account
A separate Plan Account shall be established on the Company's
books for each Participant for the purpose of accounting for all Elective
Deferrals made and Restrictive Stock rights earned pursuant to the terms and
conditions of this Plan.
<PAGE>
Neither the Plan nor any award shall create or be construed to
create a trust or separate fund of any kind or a fiduciary relationship between
the Company and a Participant or any other person. To the extent that any person
acquires a right to receive payments of cash or restricted stock from the
Company or any Subsidiary pursuant to the Plan, such right shall be no greater
than the right of any unsecured general creditor of the Company. None of the
rights or benefits provided under the Plan shall be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of during the time in which the
requirement of continued employment or attainment of performance objectives has
not been achieved.
Section 13. Tax Withholding
Notwithstanding any other provision of the Plan, the Company
or a Subsidiary, as appropriate, shall have the right to deduct from all
Restricted Stock Awards all federal, state or local taxes as required by law to
be withheld with respect to such Awards, and the Participant or other person
receiving such Stock may be required to pay to the Company or a Subsidiary, as
appropriate prior to delivery of such Stock, the amount of any such taxes which
the Company or Subsidiary is required to withhold, if any, with respect to such
Stock. If such payment is not received, the Company may withhold an appropriate
number of shares in payment of such withholding tax obligations.
Section 14. Cross Reference to Stock Plan
Any shares of Restricted Stock issued under the Plan shall be
deemed issued pursuant to an in accordance with the relevant terms and
conditions of the 1993 Stock Incentive Plan of E.W. Blanch Holdings, Inc., as
amended, modified or interpreted by the Committee.
Section 15. Designation and Change of Designated Beneficiary
Each participant may file with the Committee a written
designation of one or more persons as the Designated Beneficiary who shall be
entitled to receive the Restricted Stock, if any, due under the Plan upon his
death. A Participant may, from time to time, revoke or change his beneficiary
designation without the consent of any prior beneficiary by filing a new
designation with the Committee. The last such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall it be
effective as of a date prior to such receipt.
Section 16. No Guarantee of Employment
Nothing contained in the Plan shall be interpreted as a
contract of employment between the Company, or any of its Subsidiaries, and a
Participant, as establishing the right of a Participant to be continued in the
employment of the Company or any of its Subsidiaries or as a limitation of the
right of the Company or any of its Subsidiaries to discharge a Participant, with
or without cause.
Section 17. Other Benefit Programs
<PAGE>
Participation in the Plan is in addition to and not in lieu of
any other qualified or non-qualified employee benefit plans or programs in which
a Participant is or may become eligible to participate by reason of employment
with the Company. Except as otherwise provided herein or in such other plans or
programs, participation in the Plan and receipt of any benefits hereunder shall
be disregarded under such other plans or programs. Notwithstanding the
foregoing, a Participant's benefits under all non-qualified employee benefit
plans or programs maintained by the Company shall be determined as if the
Participant had not made an Election To Defer Base Compensation. With respect to
the Company's qualified retirement plan, in the event that a Participant's
contribution to that plan, or benefits or account balance therein, is affected
in any manner by the Participant having made an Election to Defer Base
Compensation pursuant to the Plan, then such Participant shall receive an
additional current payment in an amount equal to that percentage of the
compensation deferred pursuant to the Participant's Election to Defer Base
Compensation that would have otherwise been taken into account as a contribution
to, benefit or credit to an account balance pursuant to such qualified
retirement plan.
Section 18. Amendment and Termination
Notwithstanding any provision of the Plan, the Company
reserves the right, in its sole and absolute discretion, to modify, amend,
suspend or terminate the Plan at any time and for any reason, with or without
notice; provided, however that no such modification, amendment, suspension or
termination shall reduce the balance of any Participant's Plan Account
determined as of the date any such action is taken.
ELECTION TO DEFER
BASE COMPENSATION
To: E.W. Blanch Holdings, Inc. (the "Company") or its Subsidiaries
Pursuant to The E.W. Blanch Holdings, Inc. Executive
Restricted Stock Incentive Plan, effective as of February 18, 1997 (the "Plan"),
I hereby make an irrevocable election to forego____ percent (__%) of my Base
Compensation for the twelve month period from April 1997 through March 1998. I
understand that, to be effective, this election form must be received by the
Company before April 1, 1997.
I understand that:
* my decisions on this form are irrevocable and legally binding,
and
* the Restricted Stock and other benefits I may receive are
subject to and governed by the terms and conditions of the
Plan, a copy of which has been provided to me.
Date:________________________ _________________________________
<PAGE>
Employee
This election form was received and accepted on _____________, 19____.
E.W. Blanch Holdings, Inc.
By
------------------------------------
Its
--------------------------------
(After this form is accepted, the original should be kept by
the Company and a copy should be given to the employee.)
EXHIBIT 10.6
E. W. BLANCH HOLDINGS, INC.
MANAGEMENT INCENTIVE PLAN
This document explains the terms of the Management Incentive Plan (the Plan) of
E. W. Blanch Holdings, Inc. (the Company, Holdings, or Holdings Company).
Participants
E. W. Blanch, Jr. Chris L. Walker
Tom S. Nelson Frank S. Wilkinson, Jr.
Ian D. Packer
Funding
The sum of the following two components equals the total amount of the Plan
pool:
1. 20% of the 1997 pre-tax profits in excess of 20% growth over 1996
pre-tax profits, adjusted for the 1996 Plan expense and the $22.75
million Wholesale restructuring charge.
1996 pre-tax profits $33,011,000
add back 1996 Plan expense 0
-----------
$33,011,000
times Growth Goal 120%
---
1997 pre-tax profit goal $39,613,000
===========
2. 37.5% of the aggregate amount awarded to the E. W. Blanch Holdings,
Inc. Incentive Plan (for all other employees) will be allocated to the
bonus pool.
Any stock acquisitions or stock offerings may require adjustment to the
measurement of earnings to ensure that the cost of capital is recognized.
Allocation and Payment
Mr. Blanch shall be paid 50% of the Plan pool. The Committee may not increase
this percentage allocation, but may, at its discretion, reduce it. Awards will
be allocated to the other participants from the remaining funds in the Plan
pool, based upon the Committee's judgment of their performance and contributions
during the year. Additionally, individual bonuses paid to the participants may
not exceed 100% of their respective base salaries.
Funds available for distribution shall be paid no later than March 15, 1998. In
order to be eligible to receive an award, a participant must be an employee of
the Company on the date such award is to be paid.
Administration and Amendments
The Company's shareholders must approve the Plan. The Plan shall then be
administered, construed and interpreted by the Committee. The Plan shall be
effective for the Company's 1997 fiscal year.
The Committee may require that Plan participants enter into written
participation agreements, in such form or forms as the Committee shall deem
appropriate.
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
AGREEMENT between E. W. Blanch Holdings, Inc., a Delaware corporation
(hereinafter called the "Company"), and Daniel P. O'Keefe (hereinafter called
the "Employee").
1. EFFECTIVE DATE. The effective date of this Agreement shall be the
date of execution hereof.
2. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment upon the terms and conditions hereinafter set forth.
3. TERM. The term of this Agreement shall be from the effective date of
this Agreement to March 31, 2001, and shall automatically renew for annual
periods thereafter unless the Company gives notice of its intention not to
renew, not less than 30 days prior to the end of the current annual period. This
Agreement is also subject to early termination by the Company for "Cause."
For purposes of this Agreement, the Company shall have Cause to
terminate Employee's employment hereunder upon (A) the Employee having been
convicted of any felony under any state or federal law; (B) an act or acts of
personal dishonesty committed by Employee and intended to result in substantial
personal enrichment of Employee at the expense of the Company; (C) the willful
malfeasance or gross negligence by the Employee in the performance of his duties
hereunder; or (D) gross misconduct by the Employee materially injurious to the
Company. In the event that this Agreement shall be terminated for Cause, the
Company shall continue to make payments hereunder for all services rendered by
the Employee up to the date of termination but shall have no further obligations
to make payments after that date.
The Company may terminate the Employee's employment hereunder if (i)
the Employee becomes disabled, as such term is defined in the group disability
insurance policy of Employer or (ii) the Employee dies. In any such case, the
Company shall have no further obligation or liability under this Agreement.
4. COMPENSATION. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee at a salary rate of not less than
$265,000 per year, payable in accordance with the Company's payroll practice as
from time to time in effect. This salary rate shall be effective as of April 1,
l998.
Employee will participate in the Company's bonus and incentive
compensation plans as may exist from time to time at the discretion of the
Company, subject to the eligibility and other provisions of those plans.
Employee also will receive an additional, one time moving bonus of $50,000.00,
payable upon relocation to Dallas, and will receive such additional benefits as
are set forth in the Company's executive relocation policy, except for the
relocation allowance described at page 4 of that policy.
<PAGE>
5. DUTIES. The Employee is engaged as an executive of the Company
located in Dallas, Texas and hereby promises to perform and discharge faithfully
and efficiently the duties which may be assigned to him from time to time.
6. EXTENT OF SERVICES. The Employee shall devote substantially his full
time, attention and energies to the business of the Company and shall not during
the term of this Agreement be engaged in any other substantial business
activity, whether or not such business activity is pursued for gain, profit or
other pecuniary advantage; but this shall not be construed as preventing the
Employee from investing his personal assets in businesses which do not compete
with the Company in such form or manner as will not require any substantial
services on the part of the Employee in the operation of the affairs of the
companies in which such investments are made and in which his participation is
solely that of an investor and except that the Employee may purchase securities
in any corporation whose securities are regularly traded, provided that such
purchases shall not result in him collectively owning beneficially at any time
more than 1% of any class of securities of any corporation engaged in a business
competitive with that of the Company.
7. COVENANTS NOT TO INTERFERE. For a period of two (2) years from and
after the termination of Employee's employment hereunder for any reason,
Employee will not, directly or indirectly, as a sole proprietor, member of a
partnership, or stockholder, investor, officer or director of a corporation, or
as an employee, agent, associate or consultant of any person, firm or
corporation:
(a) Solicit, or assist anyone else in the solicitation of, any of the
Company's employees to terminate their employment with the Company and to become
employed by any business enterprise with which the Employee may then be
associated, affiliated, or connected; or
As used in this paragraph 7 and in paragraph 8, "affiliate" shall mean
any person, firm or corporation that, directly or indirectly, controls, is
controlled by, or is under common control with, the Company, whether such
control is through stock ownership, contract or otherwise, and shall expressly
include the Company's predecessor, E. W. Blanch Co. Limited Partnership; and
"prospect" shall mean any person or organization to whom a proposal for services
was rendered by the Company or its affiliates during the 12-month period
immediately preceding the Employee's date of termination; and "solicit" includes
but is not limited to any contact or communication of any nature with a prospect
or existing client for the purpose of or having the effect of maintaining or
establishing goodwill as a basis for any present, future or expanded business,
or otherwise furthering a business goal.
It is the desire and intent of the parties that the provisions of this
paragraph 7 shall be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular portion of this paragraph 7 shall be adjudicated
to be invalid or unenforceable, this paragraph 7 shall be deemed amended to
permit a court to modify the portion thus adjudicated to be invalid or
unenforceable, so that this paragraph shall be legally enforceable to the full
extent permitted in the law of the particular jurisdiction in which such
adjudication is made.
8. NONDISCLOSURE OF INFORMATION. Employee recognizes and acknowledges
that the Company's trade secrets and confidential or proprietary information,
including such trade secrets or information as may exist from time to time, and
information as to the identity of clients of the
<PAGE>
Company, reinsurance contract data and other similar items, are valuable,
special and unique assets of the Company's business, access to and knowledge of
which are essential to the performance of the duties of Employee hereunder.
Employee will not, during or after the term hereof, in whole or in part,
disclose such secrets or confidential or proprietary information to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever, nor shall Employee make use of any such property for his own
purposes or for the benefits of any person, firm, corporation or other entity
(except the Company) under any circumstances, during or after the term hereof,
provided that after the term hereof these restrictions shall not apply to such
secrets or information which are then in the public domain (provided that
Employee was not responsible, directly or indirectly, for such secrets or
information entering the public domain without the Company's consent).
9. INJUNCTIVE RELIEF. If there is a breach or threatened breach of the
provisions of paragraphs 7 or 8 of this Agreement, the Company shall be entitled
to an injunction restraining Employee from such breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies for such
breach or threatened breach including recovery of and damages incurred by the
Company and any profits made by Employee as a result of such breach or
threatened breach. The Company shall be entitled to recovery of its legal fees
and related costs in the event of a breach or threatened breach of this
Agreement by Employee.
10. EMPLOYEE BENEFITS. During the term of this Agreement, Employee
shall participate in all employee benefit plans of the Company, subject to the
eligibility, enrollment and other requirements of such plans.
11. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been duly given or
delivered if delivered personally or mailed by registered or certified mail,
return receipt requested, with first class postage prepaid, to his residence in
the case of Employee and to its principal office in the case of the Company.
12. BREACH, WAIVER OF BREACH. The waiver by the Company of a breach of
any provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee.
13. GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and the
rights and obligations of the parties hereunder, shall be governed by the
substantive laws of the State of Texas (without regard to the conflict of laws
rules or statutes of any jurisdiction), and any and every legal proceeding
arising out of or in connection with this Agreement shall be brought in the
appropriate courts of the State of Texas, each of the parties hereby consenting
to the exclusive jurisdiction of said courts for this purpose.
14. ASSIGNMENT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
of the Company and may be assigned, for all or any part of the term hereof, by
the Company to any corporation, (i) which at the time controls the capital stock
of the Company, (ii) which succeeds to substantially all the assets of the
Company or (iii) the controlling capital stock of which is at the time owned by
the Company; provided, however, that in the event of any transaction specified
in (i), (ii) or (iii) above, the Company shall remain liable with respect to the
obligations of the Company under this Agreement.
<PAGE>
In the event of such assignment, any and all references to the "Company" in
other paragraphs of this Agreement shall be deemed to mean and include such
assignee corporation.
15. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties with respect to employment. It may not be changed orally but only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
16. SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement, which by their express or implied terms extend
beyond the termination of Employee's employment hereunder (including, without
limitation, the provisions of paragraphs 7 and 8 relating to noncompetition and
nondisclosure of information), shall continue in full force and effect
notwithstanding Employee's termination of employment hereunder or the
termination of this Agreement, respectively.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates below.
E.W. Blanch Holdings, Inc.
By:
----------------------------------- -----------------------------------
Its: Date
----------------------------------
- -------------------------------------- -----------------------------------
Daniel P. O'Keefe
Date
EXHIBIT 13
1997 ANNUAL REPORT
STOCK LISTING AND TRADING INFORMATION
The common stock of E.W. Blanch Holdings, Inc. is traded on the New York Stock
Exchange under the symbol "EWB". The following table sets forth the high, low
and closing prices and the amounts of cash dividends per common share for E.W.
Blanch Holdings, Inc. common stock for each quarter of 1997 and 1996.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1997 MARKET PRICE DIVIDENDS
QUARTER ENDED HIGH LOW CLOSE PER SHARE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31 23 1/4 19 3/4 22 3/8 $0.10
June 30 27 1/8 22 26 11/16 $0.10
September 30 31 7/8 26 3/4 30 15/16 $0.10
December 31 35 9/16 30 34 7/16 $0.10
Year $0.40
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
1996 MARKET PRICE DIVIDENDS
QUARTER ENDED HIGH LOW CLOSE PER SHARE
- ----------------------------------------------------------------------------------------
March 31 25 1/2 19 20 $0.10
June 30 22 5/8 19 1/2 19 7/8 $0.10
September 30 21 1/4 17 3/4 19 1/4 $0.10
December 31 21 1/8 18 20 1/8 $0.10
Year $0.40
- ----------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1997 there were 266 registered shareholders of E.W. Blanch
Holdings, Inc. common stock.
SIX YEAR FINANCIAL SUMMARY
Year Ended December 31
<TABLE>
<CAPTION>
(dollars in thousands, except per share 1997 1996 1995 1994 1993 1992
amounts)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues:
Brokerage commissions and fees $158,103 $101,905 $ 87,203 $ 75,917 $ 59,993 $ 51,792
Investment income 8,694 7,133 7,733 4,801 4,681 3,696
- --------------------------------------------------------------------------------------------------------------------------
Total revenues 166,797 109,038 94,936 80,718 64,674 55,488
Expenses:
Salaries and benefits 75,908 44,762 39,738 32,458 27,401 24,956
Travel and marketing 13,681 7,569 6,112 4,914 4,102 3,509
General and administrative 29,711 20,387 15,965 12,964 10,404 10,406
Amortization of goodwill 3,009 3,078 2,980 1,307 734 623
Interest and other expense 1,326 231 351 397 437 702
Restructuring charge (4) - 22,750 - - - -
- --------------------------------------------------------------------------------------------------------------------------
Total expenses 123,635 98,777 65,146 52,040 43,078 40,196
- --------------------------------------------------------------------------------------------------------------------------
<PAGE>
Income before taxes (4) 43,162 10,261 29,790 28,678 21,596 15,292
Income taxes (1) 17,008 3,970 11,584 11,615 8,623 6,055
- --------------------------------------------------------------------------------------------------------------------------
Net income before minority interest 26,154 6,291 18,206 17,063 12,973 9,237
Minority interest, net of tax 451 - - - - -
- --------------------------------------------------------------------------------------------------------------------------
Net income (1) (4) $ 25,703 $ 6,291 $ 18,206 $ 17,063 $ 12,973 $ 9,237
- --------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Net income - basic (1) (2) (4) (5) $2.03 $ 0.48 $ 1.34 $ 1.22 $ 0.97 $0.75
Net income - assuming dilution (1) (2) (4) (5) 1.99 0.48 1.34 1.22 0.97 0.75
Cash dividends (3) 0.40 0.40 0.40 0.32 0.08 -
Book value (2) 6.08 5.16 5.05 3.88 4.13 1.25
- --------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET:
Current assets 51,381 $ 35,840 $ 25,055 $ 17,836 $ 11,962 $ 4,699
Long-term investments 14,939 9,793 7,035 15,837 37,519 550
Goodwill, net (4) 34,916 17,490 38,939 41,575 10,596 9,973
Total assets 919,767 514,756 497,413 529,897 432,055 394,161
Current liabilities 37,033 13,154 13,620 21,107 5,286 8,605
Long-term debt,
less current portion 13,675 1,188 350 665 946 3,288
Shareholders' equity 76,452 68,453 66,679 52,908 58,276 15,343
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS:
Profit margin (pre-tax) (4) 26% 9% 31% 36% 33% 28%
Return on average
shareholders' equity (1) (4) 35 9 30 31 35 74
- --------------------------------------------------------------------------------------------------------------------------
OTHER:
Weighted average number of
shares outstanding (000) (2) (5)
Basic 12,656 13,220 13,558 14,007 13,436 12,300
Asssuming dilution 12,945 13,230 13,590 14,007 13,436 12,300
Number of shares outstanding
at year-end (000) (2) 12,580 13,260 13,208 13,647 14,115 12,300
Number of employees at year-end 1,130 648 566 603 349 329
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Prior to the May 1993 initial public offering, the Company operated as a
partnership and therefore was not liable for corporate income taxes. Pro forma
income taxes (unaudited) of $3.5 million, and $6.1 million have been included
in income taxes for the years ended December 31, 1993 and 1992, respectively
to illustrate what the tax consequences would have been had the partnership
been subject to corporate income taxes.
(2) Assumes 12.3 million shares of common stock issued and outstanding prior to
the May 1993 reorganization from a partnership to a corporation.
(3) Regular quarterly cash dividend of $0.08 per share initiated fourth quarter
1993; increased to $0.10 first quarter 1995. Cash dividends were declared and
paid in the same fiscal year.
(4) A $22.75 million charge was recognized in 1996 to reflect the restructuring
of the San Antonio based managing general agency operation. The charge
includes a $19.5 million write-down of goodwill as well as a $3.25 million
reserve for office lease and other related restructuring expenses. Prior to
the restructuring charge, certain 1996 operating results were: Income before
taxes, $33.0 million; Net income, $20.2 million; Net income per share, $1.53;
Profit margin (pre-tax), 30%; and Return on average shareholders' equity, 27%.
(5) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Standards No. 128, EARNINGS PER SHARE.
For further discussion of earnings per share and the impact of Statement No.
128, see the notes to the consolidated financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Recent Developments
<PAGE>
E.W. Blanch Holdings, Inc and subsidiaries ("the Company") is a leading provider
of integrated risk management and distribution services including reinsurance
and insurance intermediary services, risk management consulting and
administration services, primary insurance distribution services, and financial
and pension consultancy services.
In February 1997, the Company purchased a 70% interest in Swire Fraser
Insurance (Holdings) Limited ("Swire Fraser") resulting in an additional 20%
interest in the Swire Blanch joint venture. The combined operations of Swire
Fraser and Swire Blanch operate under the Swire Blanch name, which is owned 70%
by the Company and 30% by Swire Pacific Limited ("Swire Pacific"). The
consideration for the purchase included the assumption of certain existing
indebtedness of (pound)6.2 million ($10.2 million at purchase date) and a cash
payment of (pound)1.8 million ($2.9 million).
In February 1997, the Company purchased 750,000 shares of its common
stock, at a negotiated price of $19.40 per share, from its Chairman and Chief
Executive, E.W. Blanch, Jr. Total consideration was $14.6 million. As part of
the stock repurchase agreement, Mr. Blanch has agreed that he will not make any
open market or private sales of his remaining stock for at least a two-year
period, except with the approval of a select committee of the Company's outside
directors.
As part of the restructuring of its primary insurance distribution
operations, the Company completed the sale of its premium finance business in
February 1997. The Company received $15.1 million in exchange for the
outstanding stock of the premium finance subsidiaries. The net proceeds equaled
the Company's investment in the business, resulting in no gain or loss from the
transaction.
The Company has signed an agreement to purchase Walbaum Americana, S.A.
("Walbaum") a leading provider of insurance and reinsurance intermediary
services in Latin America, based in Buenos Aires, Argentina. Walbaum had $3.5
million of revenues in 1996. The Company expects this transaction to be
completed in the second quarter of 1998.
During 1998, the Company will begin consolidating its international
corporate headquarters in Dallas, Texas. Currently senior management is located
in Minneapolis, Dallas and London. The Company believes the costs associated
with this change will not be material.
NATURE OF BUSINESS
Risk Management Services
As a reinsurance intermediary, the Company structures and arranges reinsurance
between insurers seeking to cede insurance risk and reinsurers willing to assume
such risk. The Company's revenue is comprised primarily of reinsurance brokerage
which is generally based either upon a percentage of reinsurance premiums placed
or a negotiated fee. In either case, the remuneration varies with the level of
ceded premium, the type of reinsurance contract, the expected frequency of loss,
and the effective date and duration of the contract.
Reinsurance continues to be an important part of the strategy of
insurance companies to manage exposure on insured risks in order to achieve
their financial objectives. Market factors, including the level of surplus
capacity in the insurance and reinsurance markets, prevailing premium rates,
underwriting experience, regulatory considerations, changes in the investment
environment, and general economic conditions and business trends, affect the
amount of reinsurance brokerage
<PAGE>
received by the Company. The Company seeks to mitigate the effect of these
market factors by diversifying its products available for its clients, along
with establishing long-term relationships with a diverse group of insurance
companies, and providing these insurance companies with solutions to their risk
management problems and the best possible reinsurance services. The Company
believes it is well positioned to take advantage of opportunities to grow its
reinsurance intermediary business.
The Company provides reinsurance intermediary services to both domestic
and international insurance companies. As discussed above, in February 1997, the
Company purchased 70% of Swire Fraser and increased its ownership in the Swire
Blanch joint venture to 70%. This transaction is expected to provide increased
opportunities for international growth.
The Company provides risk management consulting and administration
services to insurance and reinsurance companies, government entities,
underwriting facilities and other interested parties. The Company also licenses
a reinsurance software system. Such services are generally provided as part of
the Company's core reinsurance intermediary services, as well as directly to
third parties.
The Company plans to continue to expand the development of its risk
management capabilities through the continued expansion of its catastrophe
consulting and modeling services and other technology-based services.
Primary Insurance Distribution Services
The Company provides wholesale insurance services to retail insurance
agents on behalf of primary insurance companies through its domestic operations.
These services, reported as program policy and distribution fees and general
agency operations, include underwriting and claims processing, and enable the
Company's independent insurance agent clients to access a variety of insurance
companies and products. In addition, the Company develops, markets, quotes, and
processes specialized insurance programs for targeted insurance companies and
its independent insurance agent clients. Through the wholesale distribution
mechanism, the Company believes that insurance companies are able to produce new
lines of business in various geographic locations without incurring high
start-up costs.
Financial and Pension Consultancy Services
Through Swire Blanch, the Company provides independent advice on various aspects
of the financial services industry, including the design, administration and
financial control of employee benefits packages, personal financial planning and
pension fund administration. These services are provided, outside of the United
States, to individuals, professional intermediaries, owner-managed businesses
and corporations of all sizes. The Company plans to continue to develop these
services.
Investment Income
The Company's investment income is derived from two sources: fiduciary
investments and corporate investments. As an intermediary, the Company acts as a
conduit for insurance and reinsurance premiums and loss payments which are paid
to and remitted from fiduciary accounts. Under applicable regulations, the
Company is required to hold fiduciary funds in appropriate bank and investment
accounts subject to restrictions on withdrawals and prohibitions on commingling.
The Company earns investment income on funds held in these accounts. Corporate
investment income represents interest and dividends earned on the investment of
the Company's capital, which is primarily generated through cash from
operations. Capital gains and losses may be realized from
<PAGE>
sales of the Company's investments. The Company sold its premium finance
business, previously a part of the Company's primary insurance distribution
operation, in February 1997.
Year 2000 Compliance
The Company has performed an assessment of its Year 2000 issues and is in the
process of implementing steps to ensure Year 2000 compliance. The Company
expects to complete the Year 2000 compliance process for its current software by
December 31, 1998. The Company's investment in new software includes the
requirements associated with Year 2000 compliance. Certain costs associated with
the purchase or development of new software which is Year 2000 compliant are
being capitalized. All other costs are being expensed as incurred. The
additional investment to ensure all current software is Year 2000 compliant is
not expected to be material. The Company could be adversely affected by the Year
2000 issue if other entities (i.e., clients and vendors) not affiliated with the
Company do not adequately address their own Year 2000 compliance issues.
Seasonality
The Company historically has tended to realize a greater amount of its annual
brokerage revenue and net income in the first and third quarters due primarily
to semi-annual deposits on property catastrophe reinsurance contracts and the
prevalence of January and July effective dates on such contracts. In 1997, due
to softer market conditions, quarterly deposits became more frequent, which
should have a smoothing effect on the Company's quarterly results. The Company's
risk management consulting and administration, wholesale, and financial and
pension consulting businesses, as well as certain larger transactions, are
generally not seasonal in nature. Based upon these factors and current business
opportunities, and given the increased significance of these non-seasonal
revenue sources to the Company's business, management believes that historical
quarterly results may not be indicative of future period results.
Geographic Segment Information
Due to the integrated nature of the Company's risk management and distribution
business, and because the primary insurance distribution operations after
restructuring are no longer significant, the Company has discontinued its
financial reporting by business segment. Current year operations reflect the
operations from the Swire Blanch acquisition discussed above on a consolidated
basis from the date of acquisition, due to the Company's 70% controlling
interest. Prior year results of foreign operations include only the equity in
the income of the Swire Blanch international reinsurance intermediary, jointly
owned 50% by the Company and 50% by Swire Pacific. The following is a summary of
revenues and income before taxes by geographic area for the years ended December
31:
Income
(in thousands) Revenues Before Taxes
- -----------------------------------------------------------------
1997
Domestic operations $128,959 $ 38,390
Foreign operations 37,912 4,772
Eliminations (74) --
$166,797 $ 43,162
<PAGE>
Income
(in thousands) Revenues Before Taxes
- -----------------------------------------------------------------
1996
Domestic operations $108,955 $ 10,178
Foreign operations 83 83
$109,038 $ 10,261
Domestic operations include reinsurance intermediary services, risk
management consulting and administration services, program distribution
services, policy distribution capabilities, and the general agency operations.
All of these services, except general agency operations, are focused on
providing solutions for the management and distribution of risk to a client base
which is primarily comprised of property and casualty insurance companies. These
services are generally recurring and, due to the Company's expertise and the
value-added nature of its services, have been able to operate at relatively
higher operating margins. General agency operations are focused on the primary
distribution of insurance to property and casualty insurance companies, largely
through independent insurance agents. Due to the competitive nature of the
general agency business, the Company's profit margins for these services are
relatively lower. Additionally, domestic operations includes the operations of
the holding company.
Foreign operations include Swire Blanch, the Company's international
insurance and reinsurance broker headquartered in London. Swire Blanch includes
a Lloyd's insurance and reinsurance broking operation and international
reinsurance intermediary operations. The Company also provides financial
services through the sale of pension plan products for insurance companies.
Insurance brokerage services include the retail operations, located in northern
England and Hong Kong. Approximately 75% of foreign operations revenues are
generated in the United Kingdom with the remainder primarily from the Pacific
Rim. Although many Pacific Rim financial markets have recently experienced some
unusual changes in value, the Company does not anticipate a significant impact
to its business in that area of the world. The Company's foreign operations
currently do not benefit from the relatively higher profit margins of the
Company's domestic risk management and distribution services. This is due to a
number of factors, including competitive market conditions for Lloyd's brokers,
the small, start-up nature of many of the international offices, the
competitiveness of insurance brokerage business, and the amortization of
goodwill associated with the purchase of Swire Fraser. The Company seeks to grow
its international profitability through the integration of systems, services and
expertise in order to increase revenue production and processing efficiencies.
1997 COMPARED TO 1996
Brokerage Commissions and Fees
The following are the components of brokerage commissions and fees for the years
ended December 31:
(in thousands) 1997 1996
- -----------------------------------------------------------------------------
Domestic Operations:
Reinsurance brokerage $101,393 $ 86,065
Risk management fees 7,276 3,833
Program and policy distribution fees 3,705 1,402
General agency commissions 10,054 10,522
122,428 101,822
<PAGE>
Foreign Operations:
Reinsurance brokerage 10,000 83
Specialty insurance lines 10,585 --
Financial and pension services fees 9,068 --
Insurance brokerage 6,022 --
35,675 83
$158,103 $101,905
For the year ended December 31, 1997, domestic operations reinsurance
brokerage increased $15.3 million, or 17.8%, from the prior year primarily as a
result of growth in existing accounts and new production. Risk management fees
include the consulting and administration services and software licensing and
maintenance business, a business which began July 1, 1996. These fees were $7.3
million for the year ended December 31, 1997 compared to $3.8 million the prior
year, an increase of $3.5 million, or 89.8%. This increase is attributable to
fees related to a full year of operations of its software licensing and
maintenance business, $2.5 million, and additional administrative services, $1.0
million. Program and policy distribution fees increased $2.3 million, or 164.3%,
to $3.7 million for the year ended December 31. This increase is primarily the
result of new production which commenced in late 1996. General agency
commissions decreased $0.4 million, or 4.4%, to $10.1 million for the year ended
December 31, 1997 compared to $10.5 million the prior year.
International operations had $35.7 million of brokerage commissions and
fees in the year ended December 31, 1997. Reinsurance intermediary services,
which include those in London and other international offices, had $10.0 million
in brokerage. Specialty lines, which includes the specialty insurance
distribution services based in London, contributed $10.6 million of revenues.
Financial services fees, generated from the sale of various pension plan
products for insurance companies, were $9.1 million. Finally, insurance
brokerage generated $6.0 million from offices in northern England and Hong Kong.
For the year ended December 31, 1996 foreign revenues were $0.1 million and
comprised only the Company's 50% equity in the net income of the Swire Blanch
joint venture.
Investment Income
The following are the components of investment income for the years ended
December 31:
(in thousands) 1997 1996
- -----------------------------------------------------------------------------
Domestic Operations:
Fiduciary investment income $5,603 $4,527
Corporate investment income 741 377
Premium finance interest and fees 187 2,229
6,531 7,133
Foreign Operations:
Fiduciary investment income 1,633 --
Corporate investment income 530 --
2,163 --
$8,694 $7,133
<PAGE>
Fiduciary investment income from domestic operations was $5.6 million
for the year ended December 31, 1997 compared to$4.5 million the prior year, an
increase of $1.1 million or 23.8%. The average balance of domestic funds for the
year ended December 31, 1997 was $104.9 million (compared to $85.0 million for
the prior year), at an average yield of 5.3% (compared to 5.3% the prior year).
Swire Blanch also earned $1.6 million of fiduciary investment income in
the year ended December 31, 1997. The average balance for the year ended
December 31, 1997 international funds was $32.7 at an average rate of 5.5%.
Corporate investment income from domestic operations increased as a
result of larger invested balances in 1997.
Premium finance interest and fees decreased as a result of the sale of
the premium finance business in February 1997.
Expenses
Domestic operating expenses decreased $8.3 million to $90.5 million, or 8.4%,
for the year ended December 31, 1997 compared to $98.8 million the prior year.
The decrease in expenses is primarily the result of the $22.75 million
restructuring charge recorded in the fourth quarter of fiscal 1996. This
decrease is offset by increases in salaries and benefits expenses including
normal salary progression, increased employee benefit cost and an increase of
employees as of December 31, 1997 compared to the prior year. The increase in
employees is due to increased business levels and businesses acquired or started
in 1996. Domestic operations also experienced increases in travel and marketing
and general and administrative expenses offset by a reduction in goodwill
amortization, the result of the goodwill writedown recorded in fiscal 1996.
Operating expenses for the eleven months of international operations
included in the year ended December 31, 1997 were $33.1 million. Similar to the
Company's domestic operations, approximately two-thirds of these expenses relate
to salaries and benefits for employees.
Profit Margins
Operating profit margins, calculated as income before taxes as a percentage of
total revenues, were 29.8% for domestic operations for the year ended December
31, 1997, compared to 9.3% for the same period in the prior year. Gross profit
margins, calculated as income before corporate services expenses and before
taxes, were a loss of 10.6% for the Company's general agency operations for the
year ended December 31, 1997, compared to a loss of 188.3% for the same period
in the prior year. The Company's remaining domestic risk management and
distributions services earned a gross profit margin of 51.8% for the year ended
December 31, 1997, compared to a gross profit margin of 48.5% for the same
period in the prior year. The increase in the domestic risk management and
distribution services group is primarily a result of revenue growth. The
improvement in the Company's general agency operations and overall profit
margins is the result of the restructuring charge recorded in the fourth quarter
of fiscal 1996.
Operating profit margins were 12.6% for foreign operations for the
eleven months ended December 31, 1997. Gross profit margins for the eleven
months ended December 31, 1997 were 2.5% for the insurance brokerage operations
and 14.1% for the remaining foreign reinsurance and specialty risk management
and distribution services, including a number of start-up operations around the
globe. The majority of operating profit from insurance brokerage operations is
recorded in the first half of the year.
Income Taxes
<PAGE>
The Company's combined federal and state effective tax rate for
domestic operations continues to be 39%. The effective tax rate provided for the
Company's foreign operations is expected to be 35%. The Company expects its tax
rate to increase to approximately 40% in 1998, due to changes in the
apportionment of state taxes and taxes on foreign operations.
1996 COMPARED TO 1995
Brokerage Commissions and Fees
The following are the components of brokerage commissions and fees for the years
ended December 31:
(in thousands) 1996 1995
- -----------------------------------------------------------------------------
Domestic Operations:
Reinsurance brokerage $ 86,065 $74,473
Risk management fees 3,833 1,717
Program and policy distribution fees 1,402 --
General agency commissions 10,522 10,927
101,822 87,117
Foreign Operations:
Reinsurance brokerage 83 86
83 86
$101,905 $87,203
Reinsurance brokerage increased $11.6 million or 15.6% to $86.1 million
for the year ended December 31, 1996 compared to $74.5 million the prior year.
The net increase is primarily the result of new account production and growth in
existing accounts offset by non-continuing business and declines on existing
business.
Risk management fees were $3.8 million for the year ended December 31,
1996 compared to $1.7 million the prior year. The increase from the prior period
is primarily the result of sales and maintenance fees associated with the new
reinsurance software business started on July 1, 1996, which contributed $1.0
million of fees, and $0.7 million of revenue from other administrative services.
Wholesale commissions and fees decreased $0.4 million, or 3.7% to $10.5
million for the year ended December 31, 1996 compared to $10.9 million for the
year ended December 31, 1995. Commissions and fees from the general agency
declined due to decreases in commercial lines and NAFTA/Mexican National
business. These decreases were offset by increases in both personal lines and
special risks. Although the premiums and related revenues in personal lines
increased as a result of lower rates, this line of business experienced
unfavorable loss ratios. As of January 1, 1997, the Company discontinued the
non-standard auto portion of its personal lines business. In January 1997, the
Company assumed a book of commercial lines business which management expects
will generate revenues similar to those lost in the reduction of personal lines.
Foreign operations for the year ended December 31, 1996 and 1995 comprised only
the Company's 50% equity in the net income or loss of the previous Swire Blanch
joint venture.
Investment Income
The following are the components of investment income for the years ended
December 31:
<PAGE>
(in thousands) 1996 1995
- -----------------------------------------------------------------------------
Domestic Operations:
Fiduciary investment income $4,527 $5,177
Corporate investment income 377 555
Premium finance interest and fees 2,229 2,001
7,133 7,733
Foreign Operations:
Fiduciary investment income -- --
Corporate investment income -- --
-- --
$7,133 $7,733
Fiduciary investment income declined $0.7 million, or 12.6%, to $4.5
million for the year ended December 31, 1996 compared to $5.2 million the prior
year. The average invested balance for the year ended December 31, 1996 was
$85.4 million at a weighted average rate of 5.3% compared to an average balance
of $87.7 million at a weighted average rate of 5.9% the prior year.
Premium finance interest and fees increased $0.2 million, or 11.3%, to
$2.2 million for the year ended December 31, 1996 compared to $2.0 million the
prior year primarily due to an increase in the premium finance note portfolio.
The outstanding balance of premium finance notes was $14.9 million at a weighted
average rate of 12.5% at December 31, 1996 and $12.2 million at 13.5% at
December 31, 1995.
Corporate investment income declined due to smaller invested balances
as a result of sales of investments to fund a treasury stock purchase in October
1995.
Prior to 1997, the Company's international operations did not have investment
income.
Expenses
Expenses increased $33.6 million, or 51.6%, to $98.8 million for the year ended
December 31, 1996 compared to $65.1 million the prior year. The increase is
primarily the result of a $22.75 million restructuring charge related to the
Company's wholesale operation in San Antonio in the fourth quarter of fiscal
1996. This charge included $19.5 million for the write-down of the goodwill
associated with the 1994 Elton George acquisition, and a $3.25 million reserve
for the restructuring of the Company's wholesale operations and its related
lease. In addition, salaries and benefits expense increased as a result of key
additions in the risk management services, alternative distribution and direct
marketing businesses, normal salary progressions, along with other increases.
Travel and marketing expense and general and administrative expenses also
increased as a result of increased catastrophe modeling expenses, expenses
associated with the acquired reinsurance software system, office rent, and other
increases resulting from growth of operations.
Profit Margins
Operating profit margins, calculated as income before taxes as a percentage of
total revenues, were 9.3% for domestic operations for the year ended December
31, 1996, compared to 31.4% for the same period in the prior year. Gross profit
margins, calculated as income before corporate services expenses and before
taxes, were a loss of 188.3% for the Company's general agency operations for the
year ended December 31, 1996, compared to a loss of 29.2% for the same period in
the prior
<PAGE>
year. The Company's remaining domestic risk management and distributions
services earned a gross profit margin of 48.5% for the year ended December 31,
1996, compared to a gross profit margin of 46.1% for the same period in the
prior year. The decline in the Company's general agency operations and overall
profit margins is the result of the restructuring charge discussed above. The
profit margin for international operations for 1996 and 1995 is not meaningful.
Income Taxes
The Company's effective tax rate was approximately 39% in 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of funds consist primarily of brokerage commissions and
fees and investment income. Funds are applied generally to the payment of
operating expenses, the purchase of equipment used in the ordinary course of
business, the repayment of outstanding indebtedness and the distribution of
earnings.
The Company generated $33.2 million of cash from operations in 1997,
compared with $15.6 million in 1996. The increase in operating cash flow in 1997
is primarily due to the increase in net income compared to the prior year and
the timing of changes in operating assets and liabilities.
In 1997, the primary uses of cash in investing activities were the
purchase of $5.9 million of investments and the purchase of $12.9 million of
property and equipment, primarily computerized systems. The Company intends to
continue to increase its investment in such systems. These uses of cash in
investing activities were offset by the sale of investments and the sale of the
Company's premium finance operations. In 1996, in addition to similar uses of
cash to increase investments, premium finance notes and equipment, the Company
sold $11.1 million of investments to fund both the purchase of treasury stock
and the settlement of a $4.9 million pre-acquisition liability from the Elton
George transaction.
The increase in cash used in financing activities in 1997 is primarily
due to a $14.6 million purchase of treasury stock from its Chairman and Chief
Executive.
The Company's cash and cash equivalents were $11.6 million at December
31, 1997, compared with $1.1 million in the prior year. The Company's long-term
investment portfolio at December 31, 1997 was $14.9 million, which is comprised
of equity and debt investments. These investments are classified as available
for sale. The market value of the Company's investment portfolio at December 31,
1997 was $0.3 million above cost. Cash, investments and the Company's lines of
credit are available and managed for the payment of its operating and capital
expenditures. The Company is not subject to any regulatory capital requirements
in connection with its business.
In February 1997, the Company sold its premium finance operation for
$15.1 million, purchased 750,000 common shares from its Chairman for $14.6
million, and purchased 70% of Swire Fraser for consideration of (pound)1.8 ($2.9
million) in cash and the assumption of (pound)6.2 million in debt ($10.2 million
at acquisition date). The Company believes the operations of Swire Fraser will
provide sufficient cash flows to service its debt obligation. The net funds used
in these transactions were from existing cash.
<PAGE>
The Company continues to have available a $30.0 million credit facility
with a syndicate of banks expiring in April 1999. The facility includes two
borrowing methods: short term based on a floating rate, generally equal to the
prime rate less a margin, and longer term at a stated rate over the LIBOR rate.
Additionally, the Company pays a commitment fee on unused balances. Covenants
contained in the agreement require the Company to exceed minimum levels of net
worth and meet a fixed charge ratio. The Company had $1.2 million outstanding,
under this credit facility at December 31, 1997. The Company previously had an
additional credit facility with Ranger Funding Corporation ("Ranger"), a special
purpose corporation established by NationsBank, N.A., pursuant to which Ranger
issued commercial paper for the benefit of the Company. The above line of credit
functioned as a backup liquidity facility whose capacity was reduced by any
amounts borrowed from Ranger. This facility expired in the third quarter of
1997.
The Company paid a quarterly dividend of $0.10 per share during 1997
and 1996. The Company intends to continue paying quarterly dividends subject to
declaration by the Board of Directors. On January 22, 1998, the Board of
Directors declared a cash dividend of $0.10 per share payable March 2, 1998 to
shareholders of record as of February 9, 1998.
The Company believes that its cash and investments, combined with its
borrowing facilities and internally generated funds, will be sufficient to meet
its present and reasonably foreseeable long-term capital needs.
FORWARD-LOOKING STATEMENTS
Statements other than historical information contained in this Annual Report are
considered forward-looking and involve a number of risks and uncertainties.
Forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. There are certain
important factors that could cause results to differ materially from those
anticipated by some of the statements made above. In addition to the risk
factors discussed, among the other factors that could cause actual results to
differ materially are the following: market dynamics, interest rate changes,
regulatory changes, competition, and the failure of the Company and its
subsidiaries or significant third parties to achieve Year 2000 compliance or
material expense in connection with such compliance. Additional information
concerning those and other factors are contained in the Company's Securities and
Exchange Commission filings, including but not limited to the current Form 10-k,
copies of which are available from the Company without charge.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
E. W. Blanch Holdings, Inc.
We have audited the accompanying consolidated balance sheets of E. W. Blanch
Holdings, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
<PAGE>
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of E. W.
Blanch Holdings, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 15, 1998
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands, except per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Brokerage commissions and fees $158,103 $101,905 $ 87,203
Investment income 8,694 7,133 7,733
Total revenues 166,797 109,038 94,936
EXPENSES
Salaries and benefits 75,908 44,762 39,738
Travel and marketing 13,681 7,569 6,112
General and administrative 29,711 20,387 15,965
Amortization of goodwill 3,009 3,078 2,980
Interest and other expense 1,326 231 351
Restructuring charge -- 22,750 --
Total expenses 123,635 98,777 65,146
Income before taxes 43,162 10,261 29,790
Income taxes 17,008 3,970 11,584
Net income before minority interest 26,154 6,291 18,206
Minority interest, net of tax 451 -- --
Net income $ 25,703 $ 6,291 $ 18,206
<PAGE>
Net income per common share $ 2.03 $ 0.48 $ 1.34
Net income per common share- assuming dilution $ 1.99 $ 0.48 $ 1.34
</TABLE>
SEE ACCOMPANYING NOTES.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31,
(in thousands) 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,608 $ 1,069
Due from fiduciary accounts 30,874 13,624
Premium finance notes -- 14,931
Prepaid insurance 1,471 1,749
Other current assets 7,428 4,467
Total current assets 51,381 35,840
Long-term investments 14,939 9,793
Property and equipment, net 26,309 13,001
Goodwill, net 34,916 17,490
Other assets 11,772 9,452
Fiduciary accounts -- assets 780,450 429,180
Total assets $919,767 $514,756
LIABILITIES, MINORITY INTEREST AND SHAREHOLDER'S EQUITY
Current liabilities:
Accrued compensation $ 6,628 $ 4,176
Accounts payable 1,379 3,939
Notes payable to banks 14,420 1,340
Current portion of long-term liabilities 2,586 1,685
Other current liabilities 12,020 2,014
Total current liabilities 37,033 13,154
Long-term debt, less current portion 13,675 1,188
Other liabilities, less current portion 10,536 2,781
Commitments and contingencies -- --
Fiduciary accounts -- liabilities 780,450 429,180
Total liabilities 841,694 446,303
Minority interest 1,621 --
Shareholders' equity 76,452 68,453
Total liabilities, minority interest and shareholders' equity $919,767 $514,756
</TABLE>
<PAGE>
SEE ACCOMPANYING NOTES.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands, except per share amounts) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK, $0.01 PAR VALUE -- -- --
COMMON STOCK $0.01 PAR VALUE
Balance, beginning of year $ 141 $ 141 $ 141
Issuance of common stock -- -- --
Balance, end of year 141 141 141
COMMON SHARES SUBJECT TO REDEMPTION
Balance, beginning of year -- -- (7,791)
Exercise of put option byformer executive -- -- 7,791
Balance, end of year -- -- --
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 52,769 52,723 52,531
Issuance of common stock -- -- 188
Other -- 46 4
Balance, end of year 52,769 52,769 52,723
TREASURY STOCK
Balance, beginning of year (16,366) (17,370) (9,575)
Issuance of treasury stock under
employee benefit plans 1,353 1,004 --
Purchase of treasury stock (14,550) -- (7,795)
Balance, end of year (29,563) (16,366) (17,370)
UNREALIZED GAIN(LOSS) ON INVESTMENTS
Balance, beginning of year (329) (59) (853)
Change in net unrealized gain(loss) on investment 629 (270) 794
Balance, end of year 300 (329) (59)
CUMULATIVE TRANSLATION ADJUSTMENT
Balance, beginning of year -- -- --
Translation adjustments (37) -- --
Balance, end of year (37) -- --
RETAINED EARNINGS
Balance, beginning of year 32,238 31,244 18,455
Net income 25,703 6,291 18,206
Dividends (5,099) (5,297) (5,417)
<PAGE>
Balance, end of year 52,842 32,238 31,244
Total Shareholders' Equity $ 76,452 $ 68,453 $ 66,679
</TABLE>
THERE ARE 10 MILLION PREFERRED SHARES AUTHORIZED; NONE ISSUED.
THERE ARE 30 MILLION COMMON SHARES AUTHORIZED. THE NUMBER OF SHARES ISSUED AND
OUTSTANDING WERE 12,680,000, 13,260,000, AND 13,208,000 AT DECEMBER 31, 1997,
1996, AND 1995 RESPECTIVELY.
THE SHARES OUTSTANDING AT DECEMBER 31, 1997, 1996, AND 1995 ARE NET OF
1,562,000, 882,000, AND 932,000 TREASURY SHARES, RESPECTIVELY.
SEE ACCOMPANYING NOTES.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 25,703 $ 6,291 $ 18,206
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,718 6,073 5,119
Deferred income tax provision (benefit) 233 (8,176) 126
Restructuring charge -- 22,750 --
Changes in operating assets and liabilities:
Due from fiduciary accounts (11,171) (9,087) 3,150
Other current assets (2,009) (2,687) (1,165)
Accrued compensation 2,452 746 --
Accounts payable and othercurrent liabilities 8,931 406 630
Other, net 297 (703) (72)
Net cash provided by operating activities 33,154 15,613 25,994
INVESTING ACTIVITIES
Purchases of investments (5,919) (3,627) (1,600)
Purchases of property and equipment, net (12,907) (4,654) (3,918)
Issuance of finance notes receivable, net (14) (2,756) (5,773)
Acquisition of subsidiary, net of cash acquired 480 -- (4,874)
Sale of subsidiary 15,092 -- --
Sales of investments 1,118 596 11,122
Other, net (147) (82) (308)
Net cash used in investing activities (2,297) (10,523) (5,351)
FINANCING ACTIVITIES
Dividends paid (5,099) (5,297) (5,417)
Proceeds from issuance of treasury shares 1,353 1,004 --
Purchase of treasury stock (14,550) -- (7,795)
<PAGE>
Net (repayments) borrowings on lines of credit (140) (3,203) (3,175)
Payments on long-term debt (2,353) (1,288) (281)
Other financing activities, net 471 (214) (336)
Net cash used in financing activities (20,318) (8,998) (17,004)
Net increase (decrease) in cash and cash equivalents 10,539 (3,908) 3,639
Cash and cash equivalents at beginning of year 1,069 4,977 1,338
Cash and cash equivalents at end of year $ 11,608 $ 1,069 $ 4,977
</TABLE>
SEE ACCOMPANYING NOTES.
1 ORGANIZATION AND BASIS OF PRESENTATION
E. W. Blanch Holdings, Inc. and its subsidiaries ("the Company") and its
predecessor organizations have been in operation since 1957. The consolidated
financial statements include the accounts of the Company and its wholly and
majority owned subsidiaries. In 1997, the Company purchased a 70% interest in
Swire Fraser Insurance (Holdings) Limited ("Swire Fraser") resulting in an
additional 20% interest in the Swire Blanch joint venture. The combined
operations of Swire Fraser and Swire Blanch were merged into a single operation
under the Swire Blanch name, which is owned 70% by the Company and 30% by Swire
Pacific Limited ("Swire Pacific"). The Company categorizes its business
operations into two geographic areas, domestic and international operations.
As part of the restructuring of its primary insurance distribution
operations, the Company completed the sale of its premium finance business in
February 1997. The Company received $15.1 million in exchange for the
outstanding stock of the premium finance subsidiaries. The net proceeds equaled
the Company's investment in the business, resulting in no gain or loss from the
transaction.
Nature of Business
The Company is a provider of integrated risk management services including
reinsurance and insurance intermediary services, risk management consulting and
administration services, and primary insurance distribution services. The
Company also provides financial and pension consultancy services outside of the
United States. In its capacity as a reinsurance intermediary, the Company
structures and arranges reinsurance between insurers seeking to cede insurance
risks and reinsurers willing to assume such risks. The Company receives and
disburses funds for premium and loss transactions under reinsurance contracts on
behalf of insurance and reinsurance companies and provides reinsurance
transaction reporting and reinsurance consulting services. The Company receives
brokerage revenue for its reinsurance intermediary services, which is generally
based upon either a percentage of the related contract premiums or a negotiated
fee. In addition, the Company earns commissions and fees in its primary
insurance distribution business from the distribution of primary insurance
policies and from providing financial and pension consultancy services. The
Company also earns fees from providing risk management consulting and
administration services.
Investment income is earned from the temporary investment of fiduciary
funds held by the Company, and from investments owned by the Company.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
<PAGE>
Principles of Consolidation
The accompanying consolidated financial statements include the accounts and
operations of the Company and its wholly and majority owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Revenue Recognition
Reinsurance and insurance brokerage is recognized as premium reports or deposit
premiums are due. Any subsequent adjustments, including cancellations, are
recognized upon notification from the ceding companies, unless these amounts are
subject to reasonable estimation by the Company.
Primary insurance distribution commissions and fees are recognized when
the underlying premiums are invoiced, provided that substantially all services
relating to the placement of the insurance are complete, the policy premium is
known or can be reasonably estimated and coverage is provided under the
insurance policy. Any adjustments to commissions, primarily from cancellations,
are estimated when the initial commission on the policy is recognized.
Risk management fees and financial and pension consultancy commissions
and fees are recognized during the period when services are provided or
according to the terms specified in the contract.
Financial Instruments
Management has classified its investments in debt and equity securities as
available for sale. As a result, the investment portfolio is carried at fair
value and the corresponding unrealized gains or losses, net of applicable
deferred taxes, are recognized as a separate component of equity. Fair values
are generally based on quoted market prices. Where an active market does not
exist, fair values of debt securities and equity securities are based on the
most recent financial statements. Realized gains and losses on sales of
investments are determined using the specific identification method.
Financial instruments held by the Company other than investments
include notes receivable, notes payable to banks, and long-term debt. These
instruments are carried at their net unpaid principal balances which approximate
fair value.
Cash and Cash Equivalents
The Company considers investments in money market funds to be cash equivalents.
The carrying amount of cash and cash equivalents reported in the balance sheet
approximates fair value.
Depreciation and Amortization
Fixed assets are recorded at cost and are depreciated on a straight-line basis
over the estimated useful lives of the respective assets. Leasehold improvements
are amortized on a straight-line basis
<PAGE>
over the life of the improvement or the remaining term of the respective lease,
whichever is shorter. Amortization of amounts capitalized under capital leases
is included with depreciation expense.
Intangibles
The excess of cost over the fair value of net assets acquired (or goodwill) is
amortized on a straight-line basis over its estimated useful life. Amortization
periods range from 5 to 40 years. Accumulated amortization of goodwill at
December 31, 1997 and 1996 was $36.8 million and $29.2 million, respectively,
including amounts attributable to Swire Blanch minority interest. Management
annually reviews the recoverability of intangibles using undiscounted cash flow
modeling. A write-down is recorded when the sum of the expected future net cash
flows is less than the book value (See Note 3).
Fiduciary Accounts
As an intermediary, the Company acts as a conduit for insurance and reinsurance
premiums and loss payments which are paid to and remitted from fiduciary
accounts. Receivables and payables for premiums and losses under reinsurance
contracts are recorded in the fiduciary accounts when due or reported.
Receivables for premiums under wholesale insurance products are recorded when
the policy is invoiced. The majority of the fiduciary account assets and
represent receivables and offsetting payables between insurers and reinsurers.
Reinsurance and insurance brokerage, primary distribution commissions and fees,
fiduciary investment income and reimbursement of loss advances by the Company
are transferred periodically from the fiduciary accounts to the Company's bank
accounts.
In accordance with applicable regulations, the Company maintains cash
resulting from fiduciary transactions in separate bank and investment accounts.
The balances and weighted average interest rates in these accounts were $117.2
million and 5.65%, and $41.9 million and 5.07% at December 31, 1997 and 1996,
respectively.
Foreign Currency Translation
The Company's primary functional currency is the U.S. dollar. The functional
currency of the Company's foreign operations is the applicable local currency.
The Company translates income and expense accounts at the average rate in effect
for the period. Balance sheet accounts are translated at the period end exchange
rate. Adjustments resulting from the balance sheet translation are reflected in
Shareholder's Equity. The cumulative translation adjustment at December 31, 1997
is a $37,000 loss.
Income Taxes
Deferred taxes are recognized for all temporary differences between the tax and
financial reporting basis of the Company's assets and liabilities using tax
rates in effect for the year in which the differences are expected to reverse.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings per Share". SFAS No.128 replaced
the calculation of primary and fully diluted earnings per share with basic and
earnings per share assuming dilution. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Earnings per share assuming dilution is very similar to
the
<PAGE>
previously reported fully diluted earnings per share. Earnings per share amounts
for all periods have been restated to conform to the SFAS No. 128 requirements.
Stock Based Compensation
In accordance with SFAS No. 123, "Accounting for Stock Based Compensation" the
Company continues to follow Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees", and the related interpretations in
accounting for its stock options. The disclosures required by SFAS No. 123 have
been included in the accompanying notes to the Company's financial statements.
Other New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 defines the financial statement
presentation for "all changes in a company's equity during a period except those
resulting from investments by owners and distributions to owners." SFAS No. 130
is effective for fiscal years beginning after December 31, 1997 and will be
adopted by the Company in the first quarter of 1998. Because this statement is
merely an adjustment of presentation, the Company does not expect the adoption
of this statement to have any impact on the amount of net income, earnings per
share or total shareholders' equity reported.
Also in 1997 the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 supercedes SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise"and defines financial and descriptive information about a Company's
operating segments that is to be disclosed in financial statements. The Company
is developing allocation methods to assess performance on a business segment
basis. Once completed, additional disclosures will be provided in accordance
with this Statement. SFAS No. 131 is required for fiscal years beginning after
December 15, 1997.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3 RESTRUCTURING CHARGE
During the fourth quarter of 1996, the Company recorded a $22.75 million
restructuring charge for its San Antonio based managing general agency
operations. The charge included a $19.5 million write-down of goodwill
associated with the 1994 acquisition of the Elton George Companies and a $3.25
million reserve for restructuring of the San Antonio operation and its related
lease expense. This charge reduced earnings per share for the quarter and year
by $1.05.
4 LONG-TERM INVESTMENTS
The Company's investments at December 31 are summarized as follows:
Gross Unrealized Fair
(in thousands) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
1997
Debt investments $ 4,826 $ 3 $ (7) $ 4,822
Equity investments 9,713 637 (233) 10,117
$14,539 $ 640 $ (240) $ 14,939
1996
Debt investments $ 5,458 $ 5 $ (24) $ 5,439
Equity investments 4,664 4 (314) 4,354
$10,122 $ 9 $ (338) $ 9,793
Gross gains realized on the sales of investments were $10,000 for the
year ended December 31, 1996. Gross losses realized on the sales of investments
were $0.2 million, $48,000, and $0.1 million for the years ended December 31,
1997, 1996, and 1995, respectively.
The cost and fair values of debt securities at December 31, 1997, by
contractual maturity, are summarized as follows:
Fair
(in thousands) Cost Value
- --------------------------------------------------------------------
Due in one year or less $ 1,390 $ 1,392
Due after one year through five years 2,924 2,919
Due after five years 512 511
$ 4,826 $4,822
5 PROPERTY AND EQUIPMENT
The Company's property and equipment at December 31 are summarized as follows:
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
Office computer hardware and software $ 30,974 $ 15,576
Office furniture and equipment 12,759 7,201
Leasehold improvements 3,940 1,559
47,673 24,336
Less accumulated depreciationand amortization (21,364) (11,335)
$ 26,309 $ 13,001
6 LONG-TERM DEBT
The Company's long-term debt at December 31 is summarized as follows:
(in thousands) 1997 1996
- -------------------------------------------------------------------------
Notes payable with annual payments
through January 1999,
variable rate $12,661 $ --
Loan stock with annual payments
through January 1999,
variable rate 1,494 --
Note payable with annual payments
through January 1997,
interest at 11.78% -- 300
Capital lease obligations 1,184 1,465
15,339 1,765
Less current portion (1,664) (577)
$13,675 $1,188
Maturities of long-term debt are summarized as follows:
(in thousands)
- -----------------------------------
1998 $ 1,664
1999 13,181
2000 313
2001 181
2002 --
7 LINES OF CREDIT
The Company has a $30.0 million credit facility with a syndicate of banks,
expiring in April 1999. The facility includes two borrowing methods: short term
based on a floating rate and longer term (30, 60, or 90 days) at 75 basis points
over the LIBOR rate. For the floating rate portion, interest is generally
calculated at 75 basis points less than the base rate. The base rate is defined
as the greater of the prime rate or 150 basis points over the federal funds
rate. Additionally, the Company pays a commitment fee of 25 basis points on
unused balances. Covenants contained in the agreement require the Company to
exceed minimum levels of net worth and meet a fixed charge ratio. The Company
had $1.2 million outstanding under this credit facility at December 31, 1997 at
a rate of 7.75%.
8 SHAREHOLDER'S EQUITY
Preferred Stock
The Board of Directors may from time to time direct the issuance of preferred
stock in one or more series and may, at the time of issuance, determine the
rights, preferences, and limitations of each series. The issuance of preferred
stock may adversely affect various rights, including dividend and voting rights,
of the common shareholders and may be used as an anti-takeover device.
On January 24, 1997, the Board of Directors approved a shareholder
rights plan, which provides protection against hostile takeovers and market
activities that could result in a sale of the Company. The Board of Directors
retains the right to approve a sale of the Company or redeem the rights under
certain circumstances. The Company paid a dividend of one right for each common
share outstanding on February 7, 1997. Each right will entitle a shareholder to
buy 1/100 of a share of the Company's newly created Series A Junior
Participating Preferred Stock at an exercise price of $100. The rights will
become exercisable in the event that a person or group acquires, or makes a
tender offer for, 15% or more of the Company's common shares, subject to certain
exceptions.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share, for the years ended December 31:
1997 1996 1995
- --------------------------------------------------------------------------------
Numerator for earnings per
share - basic and assuming dilution
Net income $25,703 $ 6,291 $18,206
<PAGE>
Denominator:
Denominator for per
share, basic - weighted
average shares 12,656 13,220 13,558
Effect of dilutive securities:
Employee stock options 289 10 32
Denominator for earnings
per share, assuming
dilution - adjusted
weighted-average
shares and assumed
conversions 12,945 13,230 13,590
Earnings per share - basic $ 2.03 $ 0.48 $ 1.34
Earnings per share -
assuming dilution $ 1.99 $ 0.48 $ 1.34
Dividends
The Company initiated the payment of a quarterly cash dividend during the fourth
quarter of 1993. In January 1995, the Board of Directors increased the quarterly
cash dividend to $0.10 per share from $0.08 per share. The Company intends to
continue paying quarterly dividends subject to declaration by the Board of
Directors. The Company is not subject to any regulatory or capital requirements
that restrict its ability to pay dividends, except for the minimum net worth
requirement in its credit facility (see Note 7).
Treasury Shares
The Company uses treasury shares to fund its equity-based contributions to the
employee benefit plans.
9 INCOME TAXES
Income taxes for the years ended December 31 are summarized as follows:
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------
Current:
Federal $ 12,592 $10,702 $ 9,986
State 1,864 1,444 1,472
Foreign 2,319 -- --
16,775 12,146 11,458
Deferred taxes:
Federal 745 (7,226) 50
State 16 (950) 76
Foreign (528) -- --
233 (8,176) 126
$ 17,008 $ 3,970 $11,584
<PAGE>
The reconciliation between income tax expense and the amount computed
by applying the statutory federal income tax rate for the years ended December
31 is summarized as follows:
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------
Income tax at the federal
statutory rate $ 15,107 $ 3,592 $10,427
State taxes, net of federal
tax benefit 1,212 321 957
Foreign taxes at rate
other than U.S. rate 252 -- --
Goodwill amortization 526 257 257
Other (89) (200) (57)
$ 17,008 $ 3,970 $11,584
The components of the deferred income tax provision for the years ended
December 31 are summarized as follows:
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------
Prepaid expense $(104) $ 495 $ (147)
Depreciation 132 (38) 412
Goodwill amortization (49) (6,900) --
Deferred compensation (376) -- --
Accrued lease expense 731 (1,100) 67
Other (101) (633) (206)
Total $233 $ (8,176) $ 126
Pre-tax income attributed to domestic operations was $38.4 million, and
pre-tax income attributable to foreign operations was $4.8 million for the year
ended December 31, 1997.
Gross deferred tax assets and liabilities at December 31 are summarized
as follows:
(in thousands) Current Non-current
- ------------------------------------------------------------
1997
Deferred tax liabilities $(519) $(2,114)
Deferred tax assets 747 8,758
Valuation allowance -- --
Total $ 228 $ 6,644
1996
Deferred tax liabilities $(658) $(1,733)
Deferred tax assets 461 8,896
Valuation allowance (128) --
Total $(325) $ 7,163
Management recorded a valuation allowance against the deferred tax
asset related to unrealized losses in the Company's investment portfolio.
Management has determined some uncertainty exists regarding the Company's
ability to utilize the tax benefits associated with the realization of the
capital losses. In 1997, the market value of the Company's investment portfolio
exceeded cost. Therefore, there is no valuation allowance recorded at December
31, 1997.
10 STOCK PLANS
<PAGE>
The Company adopted the E. W. Blanch Holdings, Inc. Employee Stock Purchase Plan
("the ESPP") in May 1994. Pursuant to the ESPP, eligible employees of the
Company may purchase shares of the Company's common stock at 90% of fair market
value, subject to certain limitations and qualifications. The Company has
reserved 300,000 shares of common stock for issuance under the ESPP. At December
31, 1997, approximately 21,500 shares had been issued under the ESPP.
The Company adopted the 1993 Stock Incentive Plan ("the 1993 Stock
Plan") in May 1993. Pursuant to the 1993 Stock Plan, key employees of the
Company who have been selected as participants are eligible to receive awards of
various forms of equity-based incentive compensation including stock options,
stock appreciation rights, stock bonuses, restricted stock awards, performance
units, phantom stock, and awards consisting of combinations of such incentives.
The Company has reserved 2,400,000 shares of common stock for issuance under the
1993 Stock Plan.
Outstanding grants of shares under the 1993 Stock Plan were 1,793,000
and 785,333 at December 31, 1997 and 1996, respectively. In addition, the
Company had reserved 396,000 and 446,000 shares at December 31, 1997 and 1996,
respectively, for future grant, resulting in 211,000 and 1,168,667 shares
available for grant under the Stock Plan at December 31, 1997 and 1996,
respectively. The original term of such options is 10 years and options become
exercisable over the first five years of the term.
The following is a summary of options outstanding under the 1993 Stock
Plan by range of grant price:
$ 17.50- $26.32-
$ 26.25 $31.38
- --------------------------------------------------------------
Options outstanding 1,225,500 567,500
Average option price per share $ 21.01 $31.38
Weighted average contractual life 7.5 9.8
Options exercisable 224,167 --
Average option price per share $ 18.85 --
The Company adopted the 1997 Stock Incentive Plan ("1997 Stock Plan"),
in October 1997. Pursuant to the Stock Incentive Plan, employees who have been
selected as participants are eligible to receive awards of various forms of
equity-based incentive compensation including stock options, stock appreciation
rights, restricted stock, restricted stock units, performance awards, or other
stock-based awards. The Company has reserved 1,000,000 treasury shares for
issuance under the 1997 Stock Plan.
Outstanding grants under the 1997 Stock Plan were 250,000 at December
31, 1997, with an exercise price of $31.38 and a weighted average contractual
life of 9.8 years. The original term of all stock options is 10 years and the
options become exercisable over the first three years of the term. There were no
options exercisable at December 31, 1997.
Option activity during 1997, 1996 and 1995 was as follows:
Average
Option
Price per
Shares Share
- -------------------------------------------------------------------
<PAGE>
Outstanding at December 31, 1994 472,500 $ 19.13
Granted 215,000 18.88
Canceled (61,000) 22.01
Outstanding at December 31, 1995 626,500 $ 18.76
Granted 239,000 22.01
Canceled (80,167) 18.26
Outstanding at December 31, 1996 785,333 $ 19.80
Granted 1,296,500 28.20
Canceled (37,165) 20.22
Exercised (1,668) 18.50
Outstanding at December 31, 1997 2,043,000 $ 25.16
As permitted under SFAS No. 123, the Company continues to apply APB
Opinion No. 25 and related interpretations and, accordingly, does not recognize
compensation expense for grants under its stock plans. If the Company had
elected to recognize compensation expense based on the fair value of the stock
on the grant date as prescribed by SFAS No. 123, net income and earnings per
share would have been reduced to the pro forma amounts indicated in the table
below:
(in thousands except per share amounts) 1997 1996 1995
- -------------------------------------------------------------------------------
Net income -- as reported $25,703 $6,291 $18,206
Net income -- pro forma 24,470 5,864 18,013
Earnings per share, basic
-- as reported 2.03 0.48 1.34
Earnings per share, basic
-- pro forma 1.93 0.44 1.33
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
1997 1996 1995
- -------------------------------------------------------------------------------
Expected dividend yield 1.20% 1.80% 1.80%
Expected stock price volatility 20.85% 21.80% 19.90%
Expected life of options 7 years 7 years 7 years
The Company used the seven year United States Treasury Note rate at the
date of grant for the risk-free interest rate assumption. The range of these
rates was 6.0% to 6.9% in 1997, 5.6% to 6.6% in 1996 and 6.4% to 7.9% in 1995.
The weighted average fair value of options granted during 1997, 1996 and 1995
was $11.28, $7.49 and $7.33 per share, respectively.
The Company has a Non-Employee Directors' Stock Plan ("the Directors'
Plan"). The Directors' Plan permits each participant to elect to receive or
defer all or a portion of the Director's fees in common stock of the Company.
The Company has reserved 25,000 shares of Common Stock for issuance under the
Directors' Plan. At December 31, 1997, approximately 2,100 shares of stock have
been earned under this plan at an average cost of $19.47 per share.
<PAGE>
The Company has also reserved an additional 191,000 shares of common
stock for issuance under its Incentive Plan (see Note 11).
The Company adopted the Restricted Stock Incentive Plan ("the
Restricted Stock Plan") in April 1997. Pursuant to the Restricted Stock Plan,
eligible participants may elect to forego a specified percentage of eligible
base compensation, in exchange for the right to receive a restricted stock
grant. This election is irrevocable for the performance period. The amount of
the restricted stock received is tied to the achievement of certain objective
performance goals established by the Compensation Committee of the Board of
Directors. The goals may be based on various business criteria including stock
price, market share, sales, earnings per share, return on equity, return on
invested capital or net assets employed, cumulative total return to
shareholders, consolidated pre-tax earnings, net earnings, operating income, net
earnings, operating income, earnings before interest and taxes, and cash flow
all as computed in accordance with generally accepted accounting principles. If
target performance goals are achieved and the Compensation Committee so
certifies, the participant is awarded restricted stock equal to two times the
amount of base compensation foregone, subject to a three-year vesting schedule.
If target performance is not achieved the participant is awarded restricted
stock equal in value to 50% of base compensation foregone, fully vesting on
April 1 following the end of the performance period. The Company achieved its
target performance goal in 1997 and will award 168,845 shares of restricted
stock to participants subject to a three-year vesting period.
11 EMPLOYEE BENEFITS AND INCENTIVE PLANS
The Company has a defined contribution retirement plan ("the Plan") for most of
its employees. Employees of EWB Wholesale became participants in the Plan
effective January 1, 1996. Contributions to the Plan are discretionary and
generally are equal to 7.5% of the employee's base salary. Employees with
salaries that exceed the Internal Revenue Service limit for qualified plans
receive the difference between 7.5% of their salary and the IRS allowable plan
contribution in cash. Total Plan expense for 1997, 1996, and 1995 was $2.3
million, $2.0 million, and $1.6 million, respectively. Of those amounts, $0.3
million, $0.3 million, and $0.3 million were paid in cash in 1997, 1996 and
1995, respectively.
The Company has a cash bonus incentive plan ("the Incentive Plan")
designed to reward employees for exceptional performance in the production of
new business, servicing of existing business, and management of expenses. Awards
for employees are based on the achievement of goals set for the growth of
revenues and profits. A portion of the awards earned under the Incentive Plan
may be paid in grants of restricted common stock. The Company has reserved
191,000 shares of common stock for issuance under the Incentive Plan; none have
been issued. Total Incentive Plan expense for the years ended December 31, 1997,
1996, and 1995 was $1.8 million, $1.7 million, and $1.7 million, respectively.
The Company has a cash bonus management incentive plan ("the Management
Incentive Plan") designed to reward senior executives of the Company for
exceptional performance based on achievement of annual Company financial goals.
A portion of the Management Incentive Plan is based on the aggregate awards
earned under the Incentive Plan. Total Management Incentive Plan expense for
1997 was $1.3 million. No Management Incentive Plan expense was recorded in 1996
or 1995.
<PAGE>
12 RELATED PARTY TRANSACTIONS
The Company has invested in Conning Insurance Capital Limited Partnership III
("the Fund"), a private equity fund that invests in the insurance industry. One
of the Company's independent directors was Vice Chairman of Conning and Company,
the general partner of the Fund, at the time of the commitment. The Company's
Chairman and Chief Executive Officer is a current member of the Advisory Board
of the Fund. At December 31, 1997, the Company had paid its entire commitment of
$4.0 million. The amounts have been recorded as a long-term investment.
The Company had outstanding notes receivable from employees totaling
$0.8 million and $0.7 million at December 31, 1997 and 1996, respectively. The
majority of these notes are interest bearing and are payable over ten years
beginning in 1999.
In February 1997, the Company purchased 750,000 shares of its common
stock, at a negotiated price of $19.40 per share, from its Chairman. Total
consideration was $14.6 million.
13 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of cash flow information for the years ended December 31
is as follows:
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
Cash paid during the period for:
Interest $1,178 $ 223 $ 342
Income taxes
(federal, state, and city) 9,391 12,873 12,179
Non-cash investing activities:
Equipment acquired
under capital leases -- 2,149 --
Purchase of real estate in
satisfaction of
note receivable -- -- 392
Non-cash financing activities:
Write-offs of notes receivable 26 103 266
14 COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company has operating leases for its headquarters, branch office facilities,
and certain equipment, including a corporate jet. Total rent expense for such
operating leases was $6.8 million, $5.2 million, and $4.6 million for 1997,
1996, and 1995, respectively.
Future minimum rental payments required under these leases are
summarized as follows:
(in thousands)
- ---------------------------------
1998 $ 8,181
1999 7,088
2000 5,149
2001 4,841
<PAGE>
2002 3,625
Thereafter 25,110
$53,994
Common Stock Repurchase Agreement
Effective October 6, 1994, Michael W. Cashman, Sr. retired from his
responsibilities as President, Chief Operating Officer and Director of E. W.
Blanch Holdings, Inc. In conjunction with this event, the Company entered into a
Common Stock Repurchase Agreement (the Agreement) with Mr. Cashman.
During the third quarter of 1995, Mr. Cashman participated with other
selling shareholders in a managed sale of common shares. Per the Agreement, this
transaction reduced the Company's commitment to purchase common shares from Mr.
Cashman by 500,000 shares. In October 1995, the Company purchased 449,978 shares
of common stock for an aggregate price of $7.8 million, or $17.325 per share,
from Mr. Cashman representing 90% of the average market price during September
1995. This transaction fulfilled the Company's commitments which arose when Mr.
Cashman retired.
Acquisition
As a component of the purchase price for the 1994 purchase of the Elton George
Companies, the Company agreed to assume responsibility for up to $5.8 million of
certain pre-acquisition liabilities of the Elton George Companies. To the extent
the liabilities settled for less than $5.8 million, any remaining amounts would
be remitted to the Georges. As of December 31, 1996, the pre-acquisition
liabilities had settled for $5.6 million, and $0.2 million was remitted to the
Georges. The Company has no remaining liability under the terms of the Elton
George Companies purchase agreement.
Legal Proceedings
In the normal course of business, the Company and its subsidiaries are parties
to a number of lawsuits. Management believes that these suits will be resolved
with no material financial impact on the Company.
15 BUSINESS SEGMENT INFORMATION
The business segment information located on page 22 is incorporated herein by
reference. The following is additional business segment information for the year
ended December 31:
Identifiable Depreciation Capital
(in thousands) Assets & Amortization Expenditures
- ------------------------------------------------------------------------------
1997
Domestic $ 677,439 $ 6,499 $ 11,116
International 254,706 2,219 1,791
Eliminations (12,378) -- --
$ 919,767 $ 8,718 $ 12,907
1996
Domestic $ 514,746 $ 25,573 $ 4,654
International 10 -- --
$ 514,756 $ 25,573 $ 4,654
<PAGE>
16.QUARETERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
Quarter Ended, (in thousands, except
per share amounts) March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1997
REVENUES:
Brokerage commissions and fees $ 35,244 $ 37,842 $ 43,009 $ 42,008
Investment income 1,785 2,222 2,361 2,326
Total revenues 37,029 40,064 45,370 44,334
Expenses:
Salaries and benefits 16,478 19,430 20,613 19,387
Travel and marketing 2,699 3,746 3,020 4,216
General and administrative 6,577 7,589 7,109 8,436
Amortization of goodwill 590 688 689 1,042
Interest and other expense 276 321 365 364
Total expenses 26,620 31,774 31,796 33,445
Income before taxes 10,409 8,290 13,574 10,889
Income taxes 4,006 3,340 5,311 4,351
Net income before minority interest 6,403 4,950 8,263 6,538
Minority interest, net of tax (41) 130 282 80
Net income $ 6,444 $ 4,820 $ 7,981 $ 6,458
Net income per share - basic $ 0.50 $ 0.38 $ 0.63 $ 0.51
Net income per share - assuming dilution
$ 0.50 $ 0.38 $ 0.62 $ 0.49
1996
Revenues:
Brokerage commissions and fees $ 24,135 $ 21,112 $ 27,948 $ 28,710
Investment income 1,743 1,759 1,880 1,751
Total revenues 25,878 22,871 29,828 30,461
Expenses:
Salaries and benefits 10,468 10,622 10,985 12,687
Travel and marketing 1,712 1,866 1,735 2,256
General and administrative 4,587 4,726 5,091 5,983
Amortization of goodwill 768 768 784 758
Interest and other expense 66 44 62 59
Restructuring charge -- -- -- 22,750
Total expenses 17,601 18,026 18,657 44,493
Income before taxes 8,277 4,845 11,171 (14,032)
Income taxes 3,171 1,910 4,312 (5,423)
Net income $ 5,106 $ 2,935 $ 6,859 ($ 8,609)
Net income per share - basic $ 0.39 $ 0.22 $ 0.52 ($ 0.65)
Net income per share - assuming dilution $ 0.39 $ 0.22 $ 0.52 ($ 0.65)
</TABLE>
<PAGE>
The 1996 and the first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards No.
128, EARNINGS OER SHARE.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or other jurisdiction of
Name of Subsidiary incorporation or organization
- ---------------------------- -----------------------------
E. W. Blanch Co., Inc. Delaware
Paragon Reinsurance Risk Management Services, Inc. Delaware
E. W. Blanch International, Inc. Delaware
E. W. Blanch Wholesale Insurance Services, Inc. Delaware
E. W. Blanch Capital Risk Solutions, Inc. Delaware
Blanch Catastrophe Services, Inc. Delaware
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-62336) pertaining to the E.W. Blanch Co. Retirement Plan, the
Registration (Form S-8 No. 33-78300) pertaining to the Employee Stock Purchase
Plan of E.W. Blanch Holdings, Inc., the Registration Statement (Form S-8 No.
333-40441) pertaining to the 1993 Stock Incentive Plan, and the Registration
Statement (Form S-8 No. 333-45261) pertaining to the Non-Employee Director's
Stock Plan, Executive Restricted Stock Incentive Plan, 1997 Stock Incentive Plan
and Retirement Plan, of our report dated January 15, 1998, with respect to the
consolidated financial statements of E.W. Blanch Holdings, Inc. incorporated by
reference in the Annual Report (Form 10-K) for the year ended December 31, 1997.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 24, 1997
EXHIBIT 24
POWER OF ATTORNEY
I, James N. Land, Jr., the undersigned, of P. O. Box 822, Short Hills,
New Jersey 07078, make, constitute, and appoint Edgar W. Blanch, Jr., of 4300
Centerview Drive, San Antonio, Texas 78265, my true and lawful attorney-in-fact,
in my name, place and stead sign the E. W. Blanch Holdings, Inc. Annual Report
to the Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1997.
/s/ James N. Land, Jr.
(Acknowledgment)
STATE OF New Jersey)
) SS.
COUNTY OF Morris)
The foregoing instrument was acknowledged before me this 4th day of
February, 1998, by James N. Land, Jr.
/s/ Percy Pacheco
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, Paul B. Ingrey, the undersigned, of 2000 Royal Marco Point,
#710, Marco Island, Florida 34145, make, constitute, and appoint Edgar W.
Blanch, Jr., of 4300 Centerview Drive, San Antonio, Texas 78265, my true and
lawful attorney-in-fact, in my name, place and stead sign the E. W. Blanch
Holdings, Inc. Annual Report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended December 31, 1997.
/s/ Paul B. Ingrey
(Acknowledgment)
STATE OF Florida)
) SS.
COUNTY OF Collier)
The foregoing instrument was acknowledged before me this 1st day of
March, 1998, by Paul B. Ingrey.
/s/ Ellen L. Palmer
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, William B. Madden, the undersigned, of 4520 Belfort, Dallas, Texas
75205, make, constitute, and appoint Edgar W. Blanch, Jr., of 4300 Centerview
Drive, San Antonio, Texas 78265, my true and lawful attorney-in-fact, in my
name, place and stead sign the E. W. Blanch Holdings, Inc. Annual Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1997.
/s/ William B. Madden
(Acknowledgment)
STATE OF Texas)
) SS.
COUNTY OF Dallas)
The foregoing instrument was acknowledged before me this 5th day of
March, 1998, by William B. Madden.
/s/ Anne Rush
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, Steven G. Rothmeier, the undersigned, of P. O. Box 11901, St. Paul,
Minnesota 55111-0901, make, constitute, and appoint Edgar W. Blanch, Jr., of
4300 Centerview Drive, San Antonio, Texas 78265, my true and lawful
attorney-in-fact, in my name, place and stead sign the E. W. Blanch Holdings,
Inc. Annual Report to the Securities and Exchange Commission on Form 10-K for
the fiscal year ended December 31, 1997.
/s/ Steven G. Rothmeier
(Acknowledgment)
STATE OF Minnesota)
) SS.
COUNTY OF Ramsey)
The foregoing instrument was acknowledged before me this 3rd day of
March, 1998, by Steven G. Rothmeier.
/s/ Sally A. Taverna
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, Joseph D. Sargent, the undersigned, of 25 Colony Road, West
Hartford, Connecticut 06117, make, constitute, and appoint Edgar W. Blanch, Jr.,
of 4300 Centerview Drive, San Antonio, Texas 78265, my true and lawful
attorney-in-fact, in my name, place and stead sign the E. W. Blanch Holdings,
Inc. Annual Report to the Securities and Exchange Commission on Form 10-K for
the fiscal year ended December 31, 1997.
/s/ Joseph D. Sargent
(Acknowledgment)
STATE OF Connecticut)
) SS.
COUNTY OF Hartford)
The foregoing instrument was acknowledged before me this 27th day of
February, 1998, by Joseph D. Sargent.
/s/ Robert P. Martin
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, Chris L. Walker, the undersigned, of 6546 Kingfisher Lane, Eden
Prairie, Minnesota 55346, make, constitute, and appoint Edgar W. Blanch, Jr., of
4300 Centerview Drive, San Antonio, Texas 78265, my true and lawful
attorney-in-fact, in my name, place and stead sign the E. W. Blanch Holdings,
Inc. Annual Report to the Securities and Exchange Commission on Form 10-K for
the fiscal year ended December 31, 1997.
/s/ Chris L. Walker
(Acknowledgment)
STATE OF Minnesota)
) SS.
COUNTY OF Hennepin)
The foregoing instrument was acknowledged before me this 4th day of
March, 1998, by Chris L. Walker.
/s/ Mary K. Wright
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, Frank W. Wilkinson, Jr., the undersigned, of 2240 W. Lake Isles
Parkway, Minneapolis, Minnesota 55405, make, constitute, and appoint Edgar W.
Blanch, Jr., of 4300 Centerview Drive, San Antonio, Texas 78265, my true and
lawful attorney-in-fact, in my name, place and stead sign the E. W. Blanch
Holdings, Inc. Annual Report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended December 31, 1997.
/s/ Frank S. Wilkinson, Jr.
(Acknowledgment)
STATE OF Minnesota)
) SS.
COUNTY OF Hennepin)
The foregoing instrument was acknowledged before me this 4th day of
March, 1998, by Frank S. Wilkinson, Jr.
/s/ Mary K. Wright
Signature of Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary data extracted from the Consolidated Balance
Sheet as of December 31, 1997 and the Consolidated Statement of Income for the
twelve months ended December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,608
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,381
<PP&E> 47,673
<DEPRECIATION> 21,364
<TOTAL-ASSETS> 919,767
<CURRENT-LIABILITIES> 37,033
<BONDS> 0
0
0
<COMMON> 141
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 919,767
<SALES> 158,103
<TOTAL-REVENUES> 166,797
<CGS> 0
<TOTAL-COSTS> 123,635
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,326
<INCOME-PRETAX> 43,162
<INCOME-TAX> 17,008
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,703
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 1.99
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary data extracted from the Consolidated Balance
Sheet as of March 31, 1997, June 30, 1997 and September 30, 1997 and the
Consolidated Statement of Income for the three months ended March 31, 1997, June
30, 1997, and September 30, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 6,254 6,545 16,366
<SECURITIES> 0 0 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 29,495 36,003 45,641
<PP&E> 37,954 41,161 43,666
<DEPRECIATION> 18,019 19,154 20,009
<TOTAL-ASSETS> 816,586 823,048 901,204
<CURRENT-LIABILITIES> 25,919 25,173 25,196
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 141 141 141
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 816,586 823,048 901,204
<SALES> 35,243 73,086 116,095
<TOTAL-REVENUES> 37,029 77,093 122,463
<CGS> 0 0 0
<TOTAL-COSTS> 26,620 58,394 91,190
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 276 597 962
<INCOME-PRETAX> 10,409 18,699 32,273
<INCOME-TAX> 4,006 7,346 12,657
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 6,444 11,264 19,245
<EPS-PRIMARY> .50 .88 1.51
<EPS-DILUTED> .50 .88 1.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary data extracted from the Consolidated Balance
Sheet as of March 31, 1996, June 30, 1996, September 30, 1996 and December
31, 1996 and the Consolidated Statement of Income for the three months ended
March 31, 1996, the six months ended June 30, 1996, nine months ended September
30, 1996, and twelve months ended December 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 2,372 1,478 1,775 1,069
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 0 0 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 10,558 27,150 35,827 35,840
<PP&E> 18,827 19,714 22,928 24,336
<DEPRECIATION> 9,306 9,985 10,751 11,335
<TOTAL-ASSETS> 521,457 520,619 529,458 514,756
<CURRENT-LIABILITIES> 14,129 9,356 14,194 13,154
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 141 141 141 141
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 521,457 520,619 529,458 514,756
<SALES> 24,135 45,248 73,196 101,905
<TOTAL-REVENUES> 25,878 48,749 78,577 109,038
<CGS> 0 0 0 0
<TOTAL-COSTS> 17,601 35,627 54,284 98,777
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 66 110 172 231
<INCOME-PRETAX> 8,277 13,122 24,293 10,261
<INCOME-TAX> 3,171 5,081 9,393 3,970
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 5,106 8,041 14,900 6,291
<EPS-PRIMARY> .39 .51 1.13 .48
<EPS-DILUTED> .39 .51 1.13 .48
</TABLE>
