As filed with the Securities and Exchange Commission on August 9, 2004
Registration Nos. 333-
333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PXRE Group Ltd. Bermuda 98-0214719
(Exact name of Registrant as specified in
charter)
PXRE Capital Trust IV Delaware 51-6538948
(Exact name of Registrant as specified in (State of incorporation or organization) (I.R.S. Employer Identification Number)
certificate of trust)
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PXRE House
110 Pitts Bay Rd.
Pembroke HM 08
Bermuda
(441) 296-5858
(Address, including zip code, and telephone number, including area code, of
registrant's executive offices)
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CT Corporation
111 Eight Avenue
13th Floor
New York, New York 10011
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
NANCY H. CORBETT, ESQ.
Sidley Austin Brown & Wood LLP
787 Seventh Avenue
New York, New York 10019
(212) 839-5300
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Approximate Date of Commencement of Proposed Sale to the Public: From
time to time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering. |X| Registration
Statements 333-105589 and 333-105589-01
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. |X| Registration Statements
333-105589 and 333-105589-01
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. |_|
CALCULATION OF REGISTRATION FEE
==================================== ========================= ===================== ===================== ======================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE AGGREGATE PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
------------------------------------ ------------------------- --------------------- --------------------- ----------------------
Secondary Offering by Selling
Shareholders.................
PXRE Group Ltd.'s
convertible Series A
Preferred Shares........ 8,957.34 shares(3) ---
PXRE Group Ltd.'s
convertible Series B
Preferred Shares........ 5,971.56 shares(4) ---
PXRE Group Ltd.'s
convertible Series C
Preferred Shares........ 2,985.78 shares(5) ---
PXRE Group Ltd.'s
convertible Class A
Common Shares........... 6,490,824 shares(6) ---
PXRE Group Ltd.'s
convertible Class B
Common Shares........... 4,327,215 shares(7) ---
PXRE Group Ltd.'s
convertible Class C
Common Shares........... 2,163,607 shares(8) ---
PXRE Group Ltd. Common
Shares(1)............... 12,981,646 shares(9) $22.93(10) $297,669,142.78(10) $37,715(11)
==================================== ========================= ===================== ===================== ======================
(1) Represents convertible preferred shares, convertible common shares into
which the convertible preferred shares convert, and common shares into
which the convertible common shares convert, being registered hereunder
held directly by the selling shareholders, or to be held by the selling
shareholders upon conversion of their convertible preferred shares into
convertible common shares and conversion of the convertible common shares
into common shares. Pursuant to Rule 416 of the Securities Act of 1933, as
amended, this registration statement also includes additional shares of
convertible preferred stock, convertible common stock and common stock
issuable upon stock splits, stock dividends or similar transactions.
(2) Estimated solely for the purposes of computing the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
(3) Represents PXRE Group Ltd.'s convertible Series A Preferred Shares. The
8,957.34 outstanding convertible Series A Preferred Shares, which
includes 5,971.56 A1 Preferred Shares and 2,985.78 A2 Preferred Shares,
being registered hereunder are held directly by certain selling
shareholders who purchased such Series A Preferred Shares on April 4, 2002
pursuant to a private placement under Section 4(2) of the Securities Act of
1933, as amended, or received such shares as dividends. Each holder of the
Series A Preferred Shares has the same rights, preferences and privileges
as the other holders of Series A Preferred Shares and, except as
specifically described in the description of stock for convertible
preferred shares and convertible common shares, which has been filed as an
exhibit to this registration statement, the holders of the Series B
Preferred Shares and Series C Preferred Shares.
(4) Represents PXRE Group Ltd.'s convertible Series B Preferred Shares. The
5,971.56 outstanding convertible Series B Preferred Shares, which
includes 3,981.04 B1 Preferred Shares and 1,990.52 B2 Preferred Shares,
being registered hereunder are held directly by certain selling
shareholders who purchased such Series B Preferred Shares on April 4, 2002
pursuant to a private placement under Section 4(2) of the Securities Act of
1933, as amended, or received such shares as dividends. Each holder of the
Series B Preferred Shares has the same rights, preferences and privileges
as the other holders of Series B Preferred Shares and, except as
specifically described in the description of stock for convertible
preferred shares and convertible common shares, which has been filed as an
exhibit to this registration statement, the holders of the Series A
Preferred Shares and Series C Preferred Shares.
(5) Represents PXRE Group Ltd.'s convertible Series C Preferred Shares. The
2,985.78 outstanding convertible Series C Preferred Shares, which
includes 1,990.52 C1 Preferred Shares and 995.26 C2 Preferred Shares,
being registered hereunder, are held directly by certain selling
shareholders who purchased such Series C Preferred Shares on April 4, 2002
pursuant to a private placement under Section 4(2) of the Securities Act of
1933, as amended, or received such shares as dividends. Each holder of the
Series C Preferred Shares has the same rights, preferences and privileges
as the other holders of Series C Preferred Shares and, except as
specifically described in the description of stock for convertible
preferred shares and convertible common shares, which has been filed as an
exhibit to this registration statement, the holders of the Series A
Preferred Shares and Series B Preferred Shares.
(6) Represents PXRE Group Ltd.'s convertible Class Common Shares issuable upon
conversion of the convertible Class A Preferred Shares. The 6,490,824
convertible Class A Common Shares being registered hereunder, will be held
directly by certain selling shareholders upon conversion of the Series A
Preferred Shares. Each holder of the Class A Common Shares has the same
rights, preferences and privileges as the other holders of Class A Common
Shares and, except as specifically described in the description of stock
for convertible preferred shares and convertible common shares, which has
been filed as an exhibit to this registration statement, the holders of the
Class B Common Shares, the Class C Common Shares and the PXRE Group Ltd.
Common Shares. The Class A Common Shares shall automatically convert into
PXRE Group Ltd. Common Shares on a one-for-one basis upon the transfer of
record ownership to any person other than a selling shareholder, an
affiliate or limited partner of a selling shareholder or any other person
with the consent of the Board of Directors.
(7) Represents PXRE Group Ltd.'s convertible Class B Common Shares issuable
upon conversion of the convertible Class B Preferred Shares. The
4,327,215 convertible Class B Common Shares being registered hereunder,
will be held directly by certain selling shareholders upon conversion of
the Series B Preferred Shares. Each holder of the Class B Common Shares has
the same rights, preferences and privileges as the other holders of Class B
Common Shares and, except as specifically described in the description of
stock for convertible preferred shares and convertible common shares, which
has been filed as an exhibit to this registration statement, the holders of
the Class A Common Shares, the Class C Common Shares and the PXRE Group
Ltd. Common Shares. The Class B Common Shares shall automatically convert
into PXRE Group Ltd. Common Shares on a one-for-one basis upon the transfer
of record ownership to any person other than a selling shareholder, an
affiliate or limited partner of a selling shareholder or any other person
with the consent of the Board of Directors.
(8) Represents PXRE Group Ltd.'s convertible Class C Common Shares issuable
upon conversion of the convertible Class C Preferred Shares. The
2,163,607 convertible Class C Common Shares, being registered hereunder,
will be held directly by certain selling shareholders upon conversion of
the Series C Preferred Shares. Each holder of the Class C Common Shares has
the same rights, preferences and privileges as the other holders of Class C
Common Shares and, except as specifically described in the description of
stock for convertible preferred shares and convertible common shares, which
has been filed as an exhibit to this registration statement, the holders of
the Class A Common Shares, the Class B Common Shares and the PXRE Group
Ltd. Common Shares. The Class C Common Shares shall automatically convert
into PXRE Group Ltd. Common Shares on a one-for-one basis upon the transfer
of record ownership to any person other than a selling shareholder, an
affiliate or limited partner of a selling shareholder or any other person
with the consent of the Board of Directors.
(9) Represents PXRE Group Ltd.'s common shares issuable upon conversion of the
convertible common shares into which the convertible preferred shares
convert, for which no additional registration fee is payable pursuant to
Rule 457(i) under the Securities Act of 1933, as amended. The number of
PXRE Group Ltd.'s common shares listed represents the aggregate number of
common shares issuable upon conversion of or otherwise in respect of the
12,981,646 shares of PXRE Group Ltd.'s convertible common shares, which
includes 6,490,824 convertible Class A Common Shares, 4,327,215
convertible Class B Common Shares and 2,163,607 convertible Class C
Common Shares, which convertible common shares are issuable upon conversion
of the 17,914.672 shares of PXRE Group Ltd.'s convertible preferred
shares, which includes 8,957.337 convertible Series A Preferred Shares,
5,971.557 convertible Series B Preferred Shares and 2,985.778
convertible Series C Preferred Shares, respectively, held by the selling
shareholders. The holders of PXRE Group Ltd.'s convertible preferred shares
and convertible common shares into which they convert do not intend to
offer for sale any of such convertible preferred shares or convertible
common shares, and have agreed with PXRE Group Ltd. that they will not do
so.
(10) Based on the high and low prices reported of the common shares on The New
York Stock Exchange on August 2, 2004.
(11) Does not include an additional $94,972,500.00 of securities previously
registered by the Registrant of under its Registration Statement on Form
S-3 (File No. 333-105589 and 333-105589-01) which are being carried forward
pursuant to Rule 429 under the Securities Act of 1933. A registration fee
of $16,481.90 was previously paid in connection with that Registration
Statement (File No. 333-105589 and 333-105589-01), of which $10,435.40-
related to $94,972,500.00 of those securities. In the event that any such
previously registered securities are offered and sold prior to the
effective date of this Registration Statement, the amount of such
securities so offered and sold will not be included in a prospectus
hereunder.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus
included in this registration statement also relates to $47,850.00 of remaining
unsold securities that were previously registered by the registrant under
Registration Statement 333-105589 and 333-105589-01 on Form S-3.
EXPLANATORY NOTE
This registration statement contains:
o a prospectus to be used by PXRE in connection with offerings of its
debt securities, common shares, preferred shares, depositary shares
and warrants and by any selling shareholders in connection with
offerings of convertible preferred shares, convertible common shares
or common shares of PXRE, although the selling shareholders do not
intend to offer for sale any of the convertible preferred shares or
convertible common shares, and have agreed with PXRE not to do so; and
o a prospectus to be used in connection with offerings of:
o the capital securities of PXRE Capital Trust IV (the "Capital
Securities");
o the junior subordinated debentures of PXRE; and
o the guarantee of PXRE of the Capital Securities.
We may sell these securities either separately or in units. We may issue
debt securities convertible into common shares or preferred shares. The
preferred shares issued may also be convertible into common shares or another
series of preferred shares. The prospectus provides a general description of the
securities that may be offered.
Each time we or the selling shareholders sell securities pursuant to the
prospectus, to the extent required by applicable law, we will describe in a
prospectus supplement, which we or the selling shareholders will deliver with
the prospectus, specific information about the offering and the terms of the
particular securities offered. In each prospectus supplement we will include the
following information, to the extent applicable:
o the type and amount of securities proposed to be sold;
o the initial public offering price of the securities;
o the names of any underwriters or agents through or to which we or they
will sell the securities;
o any compensation of those underwriters or agents; and
o information about any securities exchanges or automated quotation
systems on which the securities will be listed or traded.
In addition, the prospectus supplement may also add, update or change the
information contained in the prospectus. If there is an inconsistency between
the information in the prospectus and the prospectus supplement, you should rely
on the prospectus supplement. We encourage you to read the prospectus and any
prospectus supplement together with the additional information described under
the heading "Where You Can Find More Information."
We may not sell these securities or accept any offer to buy these
securities until we deliver the prospectus and an accompanying prospectus
supplement in final form. We are not using the prospectus and any accompanying
prospectus supplement to offer to sell these securities or to solicit offers to
buy these securities in any place where the offer or sale is not permitted.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in the prospectus and any accompanying prospectus
supplement and, if given or made, such information or representations must not
be relied upon as having been authorized by us. The prospectus and any
accompanying prospectus supplement do not constitute any offer or solicitation
by anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
The information in this preliminary prospectus is not complete and may be
changed. PXRE Group Ltd. may not sell these securities until the Securities and
Exchange Commission declares the registration statement effective. This
preliminary prospectus is not an offer to sell or the solicitation of an offer
to buy these securities in any jurisdiction where the offer or the sale is not
permitted.
SUBJECT TO COMPLETION, DATED AUGUST 9, 2004
PROSPECTUS
PXRE GROUP LTD.
DEBT SECURITIES
COMMON SHARES
PREFERRED SHARES
DEPOSITARY SHARES
WARRANTS
PXRE Group Ltd. may offer from time to time debt securities, common
shares, preferred shares, depositary shares and warrants, together or
separately, in one or more series, and the selling shareholders may from time to
time offer up to 12,981,646 common shares, issuable upon conversion of Class
A Common Shares, Class B Common Shares and Class C Common Shares, which are
issuable upon the conversion of issued and outstanding Series A Preferred
Shares, Series B Preferred Shares and Series C Preferred Shares held by the
selling shareholders with an aggregate offering price of $297,669,142.78. We
will not receive any proceeds from sales of common shares by the selling
shareholders. This prospectus describes the general terms of these securities
and the general manner in which we and the selling shareholders will offer the
securities. The specific terms of any securities we or the selling shareholders
offer will be included in a supplement to this prospectus. The prospectus
supplement will also describe the specific manner in which we and the selling
shareholders will offer the securities. This prospectus may not be used to sell
securities unless accompanied by a prospectus supplement.
As used in this prospectus, except as otherwise specified, the terms
"PXRE," "we," "us" and "our" refer to PXRE Group Ltd. Our common shares are
listed on the New York Stock Exchange, Inc. under the symbol "PXT." The closing
price of our common shares was $23.00 per share on August 3, 2004.
INVESTING IN OUR SECURITIES INVOLVES RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 7 AND THE ADDITIONAL RISK FACTORS, IF ANY, INCLUDED IN THE ACCOMPANYING
PROSPECTUS SUPPLEMENT.
-----------------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------------------
This prospectus is dated , 2004.
NO OFFERED SECURITIES MAY BE OFFERED OR SOLD IN BERMUDA AND OFFERS MAY ONLY BE
ACCEPTED FROM PERSONS RESIDENT IN BERMUDA, FOR BERMUDA EXCHANGE CONTROL
PURPOSES, WHERE SUCH OFFERS HAVE BEEN DELIVERED OUTSIDE BERMUDA. PERSONS
RESIDENT IN BERMUDA, FOR BERMUDA EXCHANGE CONTROL PURPOSES, MAY REQUIRE THE
PRIOR APPROVAL OF THE BERMUDA MONETARY AUTHORITY IN ORDER TO ACQUIRE ANY OFFERED
SECURITIES.
TABLE OF CONTENTS
Page
Summary...........................................................................................................1
Where You Can Find More Information...............................................................................5
Risk Factors......................................................................................................7
Cautionary Statement Regarding Forward-Looking Statements........................................................22
Consolidated Ratios of Earnings to Fixed Charges and Earnings to Fixed Charges and Preferred Share
Dividends.................................................................................................23
Use of Proceeds..................................................................................................24
PXRE Group Ltd...................................................................................................24
Description of Debt Securities...................................................................................25
Description of Warrants..........................................................................................36
Description of Share Capital.....................................................................................37
Description of the Depositary Shares.............................................................................49
Forms of Securities..............................................................................................53
Selling Shareholders.............................................................................................55
Plan of Distribution.............................................................................................57
Legal Matters....................................................................................................58
Experts..........................................................................................................58
Certain ERISA Considerations.....................................................................................59
Bermuda Monetary Authority.......................................................................................60
Unenforceability of Certain United States Judgments..............................................................61
Difference in Corporate Laws.....................................................................................62
ii
SUMMARY
We may offer any of the following securities: debt securities, common
shares, preferred shares, depositary shares and warrants. In addition, the
selling shareholders may offer common shares from time to time in one or more
offerings. The following summary describes these securities in general terms
only. You should read the summary together with the more detailed information
contained in the rest of this prospectus and the applicable prospectus
supplement.
PXRE GROUP LTD................................. PXRE Group Ltd. is a holding company organized in Bermuda. We
provide reinsurance products and services to a worldwide
marketplace through subsidiary operations in the United States,
Europe, Bermuda and Barbados. Our primary focus is providing
property catastrophe reinsurance and retrocessional coverage to a
worldwide group of clients. Our common shares, par value $1.00 per
share, are listed on the New York Stock Exchange, Inc. under the
symbol "PXT." Our principal executive offices are located at Swan
Building, PXRE House, 110 Pitts Bay Rd, Pembroke HM 208, Bermuda,
telephone: (441) 296-5858.
DEBT SECURITIES................................ Our debt securities offered by this prospectus may be senior or
subordinated in priority of payment to our existing and future debt
obligations. We will provide a prospectus supplement that
describes the ranking, whether senior or subordinated, the specific
designation, the aggregate principal amount, the purchase price,
the maturity, the redemption terms, the interest rate or manner of
calculating the interest rate, the time of payment of interest, if
any, the terms for any conversion or exchange, including the terms
relating to the adjustment of any conversion or exchange mechanism,
the listing, if any, on a securities exchange and any other
specific terms of the offered debt securities.
The senior and subordinated debt securities will be issued under
separate indentures between us and a U.S. banking institution as
trustee. The senior and subordinated debt indentures will not
limit the amount of other indebtedness or debt securities, other
than certain secured indebtedness, that we or our subsidiaries may
issue. We have summarized the general features of the indentures
under the heading "Description of Debt Securities." We encourage
you to read the indentures, which are exhibits to the
registration statement of which this prospectus forms a part.
COMMON SHARES.................................. We may sell our common shares, par value $1.00 per share, in one or
more offerings. In a prospectus supplement, we will describe the
specific terms of the offering of common shares including, where
applicable, the number of shares to be offered, the offering price
or prices to the extent permitted by applicable law, whether the
common shares will be issued in certificated or book entry form,
information with respect to any book-entry procedures, and any
additional terms of the common shares which are not consistent with
the provisions of our bye-laws.
1
In addition, up to 12,981,646 common shares may be sold from time
to time in one or more offerings pursuant to the registration
statement of which this prospectus forms a part by the selling
shareholders. Such common shares are common shares to be issued
upon conversion of the convertible preferred shares issued and
outstanding prior to August 3, 2004. We will not receive any
proceeds from sales of common shares sold by the selling
shareholders.
Each time a selling shareholder sells common shares, we will
provide, if required, a supplement to this prospectus that contains
specific information about the offering.
In accordance with the requirements of the Securities and Exchange
Commission, we also are registering outstanding convertible
preferred shares and convertible common shares into which the
convertible preferred shares convert. The convertible preferred
shares are held by the selling shareholders. The selling
shareholders do not intend to offer for resale either the
convertible preferred shares or any convertible common shares, and
have entered into an agreement with us not to do so.
WARRANTS....................................... We may sell warrants to purchase our common shares or preferred
shares. In a prospectus supplement, we will specify the type of
warrant and inform you of the exercise price and other specific
terms of the warrants.
PREFERRED SHARES............................... We may sell our preferred shares, par value $1.00 per share, in one
or more series. In a prospectus supplement, we will describe the
specific designation, the aggregate number of shares offered, the
dividend rate or manner of calculating the dividend rate, the
dividend periods or manner of calculating the dividend periods, the
stated value of the shares of the series, the voting rights, if
any, of the shares of the series, whether or not and on what terms
the shares of the series will be convertible or exchangeable,
whether and on what terms we can redeem the shares of the series,
whether we will offer depositary shares representing shares of the
series and, if so, the fraction or multiple of a preferred share
represented by each depositary share, whether we will list the
preferred shares or depositary shares on a securities exchange and
any other specific terms of the series of preferred shares.
CONVERTIBLE PREFERRED SHARES................... The selling shareholders hold convertible preferred shares,
comprised of Series A Preferred Shares, Series B Preferred Shares
and Series C Preferred Shares, which they purchased through a
private placement or received as dividends. The convertible
preferred shares convert upon sale into convertible common shares,
which convert into common shares of the Company. The selling
shareholders are not offering for resale any of the convertible
preferred shares (or the convertible common shares issuable upon
conversion thereof) in accordance with the terms of an agreement
with us.
2
CONVERTIBLE COMMON SHARES...................... Upon the conversion of convertible preferred shares which they
hold, the selling shareholders will hold convertible common
shares. The convertible common shares are comprised of three
classes, Class A Common Shares, Class B Common Shares and Class C
Common Shares. The convertible common shares convert upon sale
into common shares of the Company. The selling shareholders are
not offering for resale any of the convertible common shares they
will hold in accordance with the terms of an agreement with us.
TERMS SPECIFIED IN PROSPECTUS SUPPLEMENTS...... When we decide to sell particular securities, or when one or more
of the selling shareholders decides to sell common shares
hereunder, we will prepare a prospectus supplement describing the
securities offering and the specific terms of the securities. You
should carefully read this prospectus and the applicable prospectus
supplement.
We will offer our debt securities, common shares, preferred shares,
depositary shares and warrants to investors on terms determined by
market and other conditions. Our securities may be sold for U.S.
dollars or foreign currency. Principal of, and any premium or
interest on, debt securities and cash amounts payable under
warrants may be payable in U.S. dollars or foreign currency, as we
specifically designate in the related prospectus supplement.
In any prospectus supplement we prepare, we will provide the name
of and compensation to each dealer, underwriter or agent, if any,
involved in the sale of the securities being offered and the
managing underwriters for any securities sold to or through
underwriters. Any underwriters, including managing underwriters,
dealers or agents in the United States may include affiliates of
ours.
STRUCTURAL SUBORDINATION;
OUR RECEIPT OF CASH FROM
OUR SUBSIDIARIES MAY BE
RESTRICTED..................................... The debt securities, preferred shares and warrants that may be
offered under this prospectus are unsecured senior or subordinated
obligations of ours, but our assets consist primarily of equity in
our subsidiaries. As a result, our ability to make payments on our
debt securities and/or pay dividends on our preferred shares
depends upon our receipt of dividends, loan payments and other
funds from our subsidiaries. In addition, if any of our
subsidiaries becomes insolvent, the direct creditors of that
subsidiary will have a prior claim on its assets, and our rights
and the rights of our creditors, including your rights as an owner
of our debt securities, warrants, or preferred shares, will be
subject to that prior claim, unless we are also a direct creditor
of that subsidiary. This subordination of creditors of a parent
company to prior claims of creditors of its subsidiaries is
commonly referred to as structural subordination.
In addition, various statutes and regulations restrict some of our
subsidiaries from paying dividends or making loans or advances to
us. These restrictions could prevent those subsidiaries from
paying the cash to us that we need in order to pay you. These
restrictions include:
3
o insurance laws and regulations restricting the maximum
amount of dividends or other distributions that PXRE
Reinsurance (Barbados) Ltd., which we call "PXRE
Barbados," PXRE Reinsurance Company, which we call "PXRE
Reinsurance," and PXRE Reinsurance Ltd., which we call
"PXRE Bermuda," may declare or pay within a certain period
without regulatory approval, and
o the minimum capital requirements under the laws of Bermuda
and Barbados, and state laws of certain U.S.
jurisdictions, and the rules of some exchanges and other
regulatory bodies, which apply to some of our principal
subsidiaries, such as PXRE Barbados, PXRE Bermuda and PXRE
Reinsurance.
4
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference room at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. In addition, the SEC maintains a
website that contains reports, proxy statements and other information that we
electronically file. The address of the SEC's website is http://www.sec.gov.
This prospectus is part of a registration statement we filed with the
SEC. This prospectus omits some information contained in the registration
statement in accordance with SEC rules and regulations. You should review the
information and exhibits in the registration statement for further information
on us and our consolidated subsidiaries and the securities we and the selling
shareholders are offering. Statements in this prospectus concerning any document
we filed as an exhibit to the registration statement or that we otherwise filed
with the SEC are summaries and do not contain all the information that may be
important to you. You should review the complete document to evaluate these
statements.
Our common shares, par value $1.00 per share, are listed on the New
York Stock Exchange, Inc. under the symbol "PXT." You may inspect reports, proxy
statements and other information concerning us and our consolidated subsidiaries
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
The SEC allows us to incorporate by reference much of the information
we file with it, which means that we can disclose important information to you
by referring you to those publicly available documents. The information that we
incorporate by reference in this prospectus is considered to be part of this
prospectus. Because we are incorporating by reference future filings with the
SEC, this prospectus is continually updated and those future filings may modify
or supersede some of the information included or incorporated by reference in
this prospectus. This means that you must look at all of the SEC filings that we
incorporate by reference to determine if any of the statements in this
prospectus or in any document previously incorporated by reference have been
modified or superseded. This prospectus incorporates by reference the documents
listed below and any future filings we make with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act (other than information in the documents
that is deemed not to be filed) after the date of this prospectus until we
complete our offering of the securities to be issued under the registration
statement or, if later, the date on which any of our affiliates cease offering
and selling these securities:
(a) Annual Report on Form 10-K for the fiscal year ended December
31, 2003 (SEC file number 1-15259);
(b) Quarterly Reports on Form 10-Q for the quarters ended March
31, 2004 and June 30, 2004;
(c) Current Reports on Form 8-K filed on March 26, 2004,
May 18, 2004, July 1, 2004 and August 4, 2004 (SEC file
number 1-15259 regarding Items 5 and 7); and
(d) The description of the common shares contained in our
registration statement on Form 8-A filed on August 23, 1999
pursuant to Section 12 of the Exchange Act, including any
amendment or report filed for the purpose of updating the
description.
We are not, however, incorporating by reference any documents or
portions thereof that are not deemed "filed" with the SEC, including any
information furnished pursuant to Items 9 or 12 of Form 8-K. You can request a
copy of these documents, excluding exhibits, at no cost, by writing or
telephoning us at the following address:
PXRE House
110 Pitts Bay Rd
Pembroke HM 208
Bermuda
5
Attention: Treasurer
(441) 296-5858
6
RISK FACTORS
An investment in our securities involves a number of risks. You should
carefully consider the following information about these risks, together with
the other information contained or incorporated by reference in this prospectus,
before investing in our securities. The risks and uncertainties described below
are not the only ones we face. However, these are the risks our management
believes are material. Additional risks not presently known to us or that we
currently deem immaterial may also impair our business or results of operations.
Any of the risks described below could result in a significant or material
adverse effect on our results of operations or financial condition, and a
corresponding decline in the market price of our securities. You could lose all
or part of your investment. The prospectus supplement applicable to each type or
series of securities we offer will contain a discussion of the risks applicable
to an investment in the particular securities we are offering under the
prospectus supplement.
BECAUSE OF EXPOSURE TO CATASTROPHES, OUR FINANCIAL RESULTS MAY VARY
SIGNIFICANTLY FROM PERIOD TO PERIOD.
As a reinsurer of property catastrophe-type coverages in the worldwide
marketplace, our operating results in any given period depend to a large extent
on the number and magnitude of natural and man-made catastrophes such as
hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions, fires,
industrial explosions, freezes, riots and floods. For example, the terrorist
attacks on September 11, 2001 resulted in a $35.3 million net loss, after tax,
in the third quarter of 2001, which subsequently decreased to a $34.4 million
net loss, after tax, by June 30, 2004. While we may, depending on market
conditions, purchase catastrophe retrocessional coverage for our own protection,
the occurrence of one or more major catastrophes in any given period could
nevertheless have a material adverse impact on our results of operations and
financial condition and result in substantial liquidation of investments and
outflows of cash as losses are paid.
WE MAY BE OVEREXPOSED TO LOSSES IN CERTAIN GEOGRAPHIC AREAS FOR CERTAIN TYPES OF
CATASTROPHE EVENTS.
As we underwrite risks from a large number of insurers based on
information generally supplied by reinsurance brokers, we may develop a
concentration of exposure to loss in certain geographic areas prone to specific
types of catastrophes. For example, we are significantly exposed to losses
arising from hurricanes in the southeastern United States, earthquakes in
California, the midwest United States and Japan, and to windstorms in northern
Europe. We have developed systems and software tools to monitor and manage the
accumulation of our exposure to such losses and have established guidelines for
maximum tolerable losses from a single event or multiple catastrophic events
based on historical data. However, no assurance can be given that these maximums
will not be exceeded in some future catastrophe.
WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT.
The reinsurance industry has been consolidating in recent years through
mergers and other acquisitions. We compete with numerous companies, many of
which have substantially greater financial, marketing and management resources.
The level of competition has increased in the wake of the September 11, 2001
terrorist attacks with the formation of a number of large and well-capitalized
Bermuda reinsurance companies. In addition, a number of our pre-existing
competitors were successful in raising substantial levels of additional capital.
Although we increased our capital as well, we remain smaller than most of our
competitors.
In particular, we compete with reinsurers that provide property-based
lines of reinsurance, such as ACE Tempest Reinsurance Ltd., Arch Reinsurance
Ltd., Aspen Insurance Holdings Limited, AXIS Reinsurance Company, Converium
Reinsurance (North America), Inc., Endurance Specialty Insurance Ltd., Everest
Reinsurance Company, IPC Re Limited, Lloyd's of London syndicates, Montpelier
Reinsurance Ltd., Munich Reinsurance Company, Partner Reinsurance Company Ltd.,
Platinum Underwriters Reinsurance, Inc., Renaissance Reinsurance Ltd., Swiss
Reinsurance Company and XL Re Ltd. Competition varies depending on the type of
business being insured or reinsured and whether we are in a leading position or
acting on a following basis.
7
REINSURANCE PRICES MAY DECLINE, WHICH COULD AFFECT OUR PROFITABILITY.
Demand for reinsurance depends on numerous factors, including the
frequency and severity of catastrophic events, levels of capacity, general
economic conditions and underwriting results of primary property insurers. The
supply of reinsurance is related to prevailing prices, recent loss experience
and levels of surplus capacity. All of these factors fluctuate and may
contribute to price declines generally in the reinsurance industry. Our recent,
and anticipated, growth relates in part to improved industry pricing. Premium
rates or other terms and conditions of trade may vary in the future. If any of
these factors were to cause the demand for reinsurance to fall or the supply to
rise, our profitability could be adversely affected.
UNDERWRITING REINSURANCE INCLUDES THE APPLICATION OF JUDGMENT, THE ASSESSMENT OF
PROBABILITIES AND OUTCOMES, AND ASSUMPTION OF CORRELATIONS, WHICH ARE SUBJECT TO
INHERENT UNCERTAINTIES; RESERVING FOR LOSSES INCLUDES SIGNIFICANT ESTIMATES,
WHICH ARE ALSO SUBJECT TO INHERENT UNCERTAINTIES.
Our success is dependent upon our ability to assess accurately the
risks associated with the businesses that we insure and reinsure. Claim reserves
represent estimates involving actuarial and statistical projections, at a given
point in time, of our expectations of the ultimate settlement and administration
costs of claims incurred. We utilize actuarial models as well as historical
insurance industry loss development patterns to assist in the establishment of
appropriate claim reserves. In our casualty and finite business, given our
limited experience we do not have established historical loss development
patterns that can be used to establish these loss liabilities. For these lines
of business, we rely on loss development patterns that have been estimated from
industry or client data, which may not accurately represent the true development
pattern for the business we wrote. For property lines of business, reserves may
differ from ultimate settlement values dues to the infrequency of some types of
catastrophe losses, the incompleteness of information in the wake of a major
catastrophe and delay in receiving that information. Actual claims and claim
expenses paid may deviate, perhaps substantially, from the reserve estimates
reflected in our financial statements.
If our claim reserves are determined to be inadequate, we will be
required to increase claim reserves at the time of such determination with a
corresponding reduction in our net income in the period in which the deficiency
is rectified. It is possible that claims in respect of events that have occurred
could exceed our claim reserves and have a material adverse effect on our
results of operations, in a particular period, or our financial condition in
general. As a compounding factor, although most insurance contracts have policy
limits, the nature of property and casualty insurance and reinsurance is that
losses can exceed policy limits for a variety of reasons and could significantly
exceed the premiums received on the underlying policies, thereby further
adversely affecting our financial condition.
A DECLINE IN THE RATING ASSIGNED TO OUR CLAIMS-PAYING ABILITY MAY IMPACT OUR
POTENTIAL TO WRITE NEW AND RENEWAL BUSINESS.
The property catastrophe reinsurance market is highly sensitive to the
ratings assigned by the rating agencies. If either of Standard & Poor Ratings
Services, a division of the McGraw-Hill Companies, Inc., which we refer to as
"S&P," or A.M. Best Company, an independent insurance industry rating
organization, were to downgrade us, such downgrade would likely have a material
negative impact on our ability to expand our reinsurance portfolio and renew all
of our existing reinsurance agreements, especially if we were to be downgraded
more than one level from the "A" category to the "B" category. In 1999, we were
downgraded from A+ to A, which downgrade was considered by us to have no
material effect on our core short tail property business. Although impossible to
quantify, we believe the downgrade did have some impact on our ability to expand
the direct casualty reinsurance business that we have since discontinued.
A DECLINE IN OUR RATINGS MAY REQUIRE US TO TRANSFER PREMIUMS RETAINED BY US INTO
A BENEFICIARY TRUST.
Certain of our ceded excess of loss reinsurance contracts require us to
transfer premiums currently retained by us on a funds withheld basis into a
trust for the benefit of the reinsurers if A.M. Best were to downgrade us below
"A-." In addition, certain of our other ceded excess of loss reinsurance
contracts contain provisions that give the reinsurer the right to cancel the
contract and require us to pay a termination fee. The amount of the termination
fee would be dependent upon various factors, including level of loss activity.
8
A DECLINE IN OUR RATINGS MAY ALLOW CLIENTS TO TERMINATE THEIR CONTRACTS WITH US.
It is increasingly common for our assumed reinsurance contracts to
contain terms that would allow our clients to cancel the contract if we are
downgraded below various rating levels by one or more rating agencies and a
majority of our contracts now contain such clauses. Typically such cancellation
clauses are triggered if A.M. Best or S&P were to downgrade us below "A-."
Currently our rating is "A" by A.M. Best and S&P. Whether a client would
exercise such rights would depend, among other things, on the reasons for such a
downgrade, the extent of the downgrade, the prevailing market conditions, the
degree of unexpired coverage, and the pricing and availability of replacement
reinsurance coverage. We cannot predict in advance whether and how many of our
clients would actually exercise such rights or what effect such cancellations
would have on our financial condition or future prospects, but such an effect
could potentially be materially adverse. A downgrade, therefore, could result in
a substantial loss of business if insurers, ceding companies and brokers that
place such business move to other insurers and reinsurers with higher ratings.
With respect to new or renewed contracts, at January 1, 2004, 54% (by premium
volume) contain provisions allowing clients additional rights upon a decline in
our ratings.
OUR INVESTMENT PORTFOLIO IS SUBJECT TO SIGNIFICANT MARKET AND CREDIT RISKS WHICH
COULD RESULT IN AN ADVERSE IMPACT ON OUR FINANCIAL POSITION OR RESULTS.
Our invested assets consist primarily of debt instruments with fixed
maturities, short-term investments, a diversified portfolio of hedge funds and,
to a lesser extent, interests in mezzanine bond and equity limited partnerships,
and short-term investments. At June 30, 2004, 87% of the Company's investment
portfolio consisted of fixed maturities and short-term investments and 13%
consisted of hedge funds and other investments. These investments are subject to
market- wide risks and fluctuations as well as to risks inherent in particular
securities. Although we seek to preserve our capital, we have invested in a
portfolio of hedge funds and other privately held securities. These investments
are designed to provide diversification of risk; however, such investments
entail substantial risks. There can be no assurance that our investment
objectives will be achieved, and results may vary substantially over time. In
addition, although we seek to employ investment strategies that are not
correlated with our reinsurance exposures, losses in our investment portfolio
may occur at the same time as underwriting losses and, therefore, exacerbate
such losses' adverse effect on us.
Risks Related to our Fixed Maturity Investments. We are exposed to
potential losses from the risks inherent in our fixed maturity investments. The
two most significant risks inherent in our fixed income portfolio are interest
rate risk and credit risk:
o Interest Rate Risk
Our principal fixed maturity market risk exposure is to changes in U.S.
interest rates. Changes in interest rates may affect the fair value of our fixed
maturity portfolio, borrowings (in the form of trust preferred securities) and a
related interest rate swap. Our holdings subject us to exposures in the
treasury, municipal, and various asset-backed sectors. Changes in interest rates
could also cause a potential underperformance in our finite coverages and
shortfalls in cash flows necessary to pay fixed rate amounts due to finite
contract counterparties.
o Credit Risk
We are also exposed to potential losses from changes in probability of
default and from defaulting counter-parties with respect to our investments. A
majority of our investment portfolio consists of fixed maturities and short-
term investments rated "A2" or "A" or better by Moody's Investors Service, Inc.,
or S&P. Our investment portfolio also contains privately held fixed maturities
that are not traded on a recognized exchange. A deterioration in the credit
quality of our investments or our inability to liquidate any of our privately
held investments promptly could have an adverse effect on our financial
condition.
Risks Related to our Hedge Fund Investments. We are exposed to
potential losses from the risks inherent in our portfolio of hedge funds. Our
investment policies with respect to our hedge fund investments generally do not
restrict us from participating in particular markets, strategies or investments.
Further, our hedge fund investments may generally be deployed and redeployed in
whatever investment strategies are deemed appropriate under
9
prevailing economic and market conditions in an attempt to achieve capital
appreciation, including, if appropriate, a concentration of investments in a
relatively small group of strategies or hedge fund managers.
THE THREE MOST SIGNIFICANT RISKS INHERENT IN OUR HEDGE FUND PORTFOLIO ARE
LIQUIDITY RISK, CREDIT RISK AND MARKET RISK:
o Liquidity Risk
Liquidity risk exists in the hedge fund portfolio in that there are
delays between giving notice to redeem a hedge fund investment and receiving
proceeds. The redemption terms are defined in the offering documents and
generally require notice periods and time scales for settlement. We remain at
risk during the notice period, which typically specifies a month or quarter end
reference point at which to calculate redemption proceeds. The risk also exists
that a hedge fund may be unable to meet its redemption obligations. A hedge fund
may be faced with excessive redemption notices and illiquid underlying
investments.
o Credit Risk
Credit risk exists in the hedge fund portfolio where hedge funds are
net long in a particular security, or group of correlated securities. Where a
hedge fund is net long in a security that defaults, or suffers an adverse credit
event, we are exposed to loss. Our exposure to any individual hedge fund is
limited to the carrying value of the investment, and we invest in a diversified
portfolio of hedge funds that utilize different strategies and markets, to
reduce this risk. However, different hedge funds in the portfolio may be net
long in the same or correlated securities at the same time, which could have an
adverse effect on the value of the portfolio and thus our financial condition.
o Market Risk
We invest in hedge funds that trade in securities using strategies that
are generally market neutral. The hedge fund investments do not generally
benefit from rising equity or bond markets, and have demonstrated historically
low correlation of returns to equity market indices. However, the hedge funds
may maintain leveraged net long positions, and this can expose us to market
risks.
BECAUSE WE DEPEND ON A FEW REINSURANCE BROKERS FOR A LARGE PORTION OF REVENUE,
LOSS OF BUSINESS PROVIDED BY THEM COULD ADVERSELY AFFECT US.
We market our reinsurance products worldwide exclusively through
reinsurance brokers. Four, five and four brokerage firms accounted for
approximately 78%, 84% and 60%, of our gross premiums written for the years
ended December 31, 2003, 2002, and 2001, respectively. Approximately 27%, 21%,
16%, and 15% of gross premiums written in fiscal year 2003 were arranged through
Benfield Greig Ltd., the worldwide branch offices of Guy Carpenter & Company,
Inc. (a subsidiary of Marsh & McLennan Companies, Inc.), Willis Re. Inc. and Aon
Group Ltd., respectively. Loss of all or a substantial portion of the business
provided by these brokers could have a material adverse effect on our business.
OUR RELIANCE ON REINSURANCE BROKERS EXPOSES US TO THEIR CREDIT RISK.
In accordance with industry practice, we frequently pay amounts owed on
claims under our policies to reinsurance brokers, and these brokers, in turn,
pay these amounts over to the insurers that have reinsured a portion of their
liabilities with us (we refer to these insurers as ceding insurers). In some
jurisdictions, if a broker fails to make such a payment, we might remain liable
to the ceding insurer for the deficiency. Conversely, in certain jurisdictions,
when the ceding insurer pays premiums for these policies to reinsurance brokers
for payment over to us, these premiums are considered to have been paid and the
ceding insurer will no longer be liable to us for those amounts, whether or not
we have actually received the premiums. We are aware of one instance in recent
years, involving an insignificant amount in which a broker did not forward
premiums to us. Consequently, in connection with the settlement of reinsurance
balances, we assume a degree of credit risk associated with brokers around the
world.
10
WE MAY BE ADVERSELY AFFECTED BY FOREIGN CURRENCY FLUCTUATIONS.
Although our functional currency is the U.S. dollar, premium
receivables and loss reserves include business denominated in currencies other
than U.S. dollars. We are exposed to the possibility of significant claims in
currencies other than U.S. dollars. We may, from time to time, experience losses
resulting from fluctuations in the values of these non-U.S. currencies, which
could adversely affect our operating results. While we hold positions
denominated in foreign currencies to mitigate, in part, the effects of currency
fluctuations on our results of operations, we currently do not hedge our
currency exposures before a catastrophic event that may produce a claim.
RETROCESSIONAL REINSURANCE SUBJECTS US TO CREDIT RISK AND MAY BECOME UNAVAILABLE
ON ACCEPTABLE TERMS.
In order to limit the effect of large and multiple losses upon our
financial condition, we buy reinsurance for our own account. This type of
insurance is known as retrocessional reinsurance. From time to time, market
conditions have limited, and in some cases have prevented reinsurers from
obtaining, the types and amounts of reinsurance which they consider adequate for
their business needs. Accordingly, we may not be able to obtain our desired
amounts of retrocessional reinsurance. In addition, even if we are able to
obtain such retrocessional reinsurance, we may not be able to negotiate terms as
favorable to us as in prior years. In difficult market conditions, pricing for
our retrocessional reinsurance products may improve, but conversely, obtaining
retrocessional reinsurance for our own account on favorable terms can become
more difficult.
A retrocessionaire's insolvency or its inability or unwillingness to
make payments under the terms of a retrocessional reinsurance treaty with us
could have a material adverse effect on us. Therefore our retrocessions subject
us to credit risks because the ceding of risk to retrocessionaires does not
relieve us of our liability to our clients. In the event that we cede business
to a retrocessionaire, we must still pay on claims of our cedent even if we are
not paid by the retrocessionaire.
OUR INABILITY TO PROVIDE THE NECESSARY COLLATERAL COULD AFFECT OUR ABILITY TO
OFFER REINSURANCE IN CERTAIN MARKETS.
PXRE Bermuda is not licensed or admitted as an insurer in any
jurisdiction other than Bermuda. Because many jurisdictions do not permit
insurance companies to take credit for reinsurance obtained from unlicensed or
non-admitted insurers on their statutory financial statements unless
appropriate security mechanisms are in place, we anticipate that our reinsurance
clients will typically require PXRE Bermuda to post a letter of credit or other
collateral. If we are unable to arrange for security on commercially reasonable
terms, PXRE Bermuda could be limited in its ability to write business for
certain of our clients.
THE INSURANCE AND REINSURANCE BUSINESS IS HISTORICALLY CYCLICAL, AND WE MAY
EXPERIENCE PERIODS WITH EXCESS UNDERWRITING CAPACITY AND UNFAVORABLE PREMIUM
RATES; CONVERSELY, WE MAY HAVE A SHORTAGE OF UNDERWRITING CAPACITY WHEN PREMIUM
RATES ARE STRONG.
Historically, insurers and reinsurers have experienced significant
fluctuations in operating results due to competition, frequency and severity of
catastrophic events, levels of capacity, general economic conditions and other
factors. The supply of insurance and reinsurance is related to prevailing
prices, the level of insured losses and the level of industry surplus which, in
turn, may fluctuate in response to changes in rates of return on investments
being earned in the insurance and reinsurance industry. As a result, the
insurance and reinsurance business historically has been a cyclical industry
characterized by periods of intense price competition due to excessive
underwriting capacity as well as periods when shortages of capacity permitted
favorable premium levels. Our recent, and anticipated, growth relates in part to
improved industry pricing, but the supply of insurance and reinsurance may
increase, either by capital provided by new entrants or by the commitment of
additional capital by existing insurers or reinsurers, which may cause prices to
decrease. Any of these factors could lead to an adverse effect on our profits.
In addition to these considerations, changes in the frequency and severity of
losses suffered by insureds and insurers may affect the cycles of the insurance
and reinsurance business significantly, and we expect to experience the effects
of such cyclicality.
11
RISKS RELATED TO REGULATION
REGULATORY CONSTRAINTS MAY RESTRICT OUR ABILITY TO OPERATE OUR BUSINESS.
General. Our insurance and reinsurance subsidiaries may not be able to
obtain or maintain necessary licenses, permits, authorizations or accreditations
in locales where we currently engage in business or in new locales, or may be
able to do so only at significant cost. In addition, we may not be able to
comply fully with, or obtain appropriate exemptions from, the wide variety of
laws and regulations applicable to insurance or reinsurance companies or holding
companies. Failure to comply with or to obtain appropriate authorizations and/or
exemptions under any applicable laws could result in restrictions on our ability
to do business or certain activities that are regulated in one or more of the
jurisdictions in which we operate and could subject us to fines and other
sanctions, which could have a material adverse effect on our business.
PXRE Bermuda. PXRE Bermuda is a registered Class 3 Bermuda insurance
and reinsurance company. Among other matters, Bermuda statutes, regulations and
policies of the Bermuda Monetary Authority, or "BMA" require PXRE Bermuda to
maintain minimum levels of statutory capital, surplus and liquidity, to meet
solvency standards, to obtain prior approval of ownership and transfer of shares
and to submit to certain periodic examinations of its financial condition. These
statutes and regulations may, in effect, restrict PXRE Bermuda's ability to
write insurance and reinsurance policies, to make certain investments and to
distribute funds.
The offshore insurance and reinsurance regulatory environment has
become subject to increased scrutiny in many jurisdictions, including the United
States and various states within the United States. Compliance with any new laws
or regulations regulating offshore insurers or reinsurers could have a material
adverse effect on our business. In addition, although PXRE Bermuda does not
believe it is or will be in violation of insurance laws or regulations of any
jurisdiction outside Bermuda, inquiries or challenges to PXRE Bermuda's
insurance or reinsurance activities may still be raised in the future.
PXRE U.S. Subsidiaries.
PXRE Corp. ("PXRE Delaware") and PXRE Reinsurance are subject to
regulation under the insurance statutes of various U.S. states, including
Connecticut, the domiciliary state of PXRE Reinsurance. The regulation and
supervision to which PXRE Reinsurance is subject relates primarily to the
standards of solvency that must be met and maintained, licensing requirements
for reinsurers, the nature of and limitations on investments, deposits of
securities for the benefit of a reinsured, methods of accounting, periodic
examinations of the financial condition and affairs of reinsurers, the form and
content of reports of financial condition required to be filed, reserves for
losses and other matters. In general, such regulation is for the protection of
the reinsureds and policyholders, rather than investors.
In recent years, the U.S. insurance regulatory framework has come under
increased federal scrutiny, and some state legislators have considered or
enacted laws that may alter or increase state regulation of insurance and
reinsurance companies and holding companies. Moreover, the National Association
of Insurance Commissioners ("NAIC"), which is an association of the insurance
commissioners of all 50 states and the District of Columbia, and state insurance
regulators regularly reexamine existing laws and regulations.
Barbados. PXRE Barbados is subject to regulation under Barbados'
Insurance Act, 1996. Under the Barbados Act, PXRE Barbados may only pay a
dividend out of the realized profits of the company and may not pay a dividend
unless (a) after payment of the dividend it is able to pay its liabilities as
they become due, and (b) the realizable value of its assets is greater than the
aggregate value of its liabilities and (c) the stated capital accounts are
maintained in respect of all classes of shares.
PXRE Barbados is also required to maintain assets in an amount that
permits it to meet the prescribed minimum solvency margin for the net premium
income level of its business. In respect of its general insurance business, PXRE
Barbados is required to maintain margins of solvency. PXRE Barbados is not
required at the present time to maintain any additional statutory deposits or
reserves relative to its business.
12
Changes in the laws and regulations to which our insurance and
reinsurance subsidiaries are subject or the interpretation of these laws and
regulations could have a material adverse effect on our business or results of
operations.
IF PXRE BERMUDA BECOMES SUBJECT TO INSURANCE STATUTES AND REGULATIONS IN
JURISDICTIONS OTHER THAN BERMUDA OR THERE IS A CHANGE TO BERMUDA LAW OR
REGULATIONS OR APPLICATION OF BERMUDA LAW OR REGULATIONS, THERE COULD BE A
SIGNIFICANT AND NEGATIVE IMPACT ON OUR BUSINESS.
As a registered Bermuda Class 3 insurer, PXRE Bermuda is subject to
regulation and supervision in Bermuda. Bermuda insurance statutes, regulations
and policies of the BMA require PXRE Bermuda to, among other things:
o maintain a minimum level of capital, surplus and liquidity;
o satisfy solvency standards;
o restrict dividends and distributions;
o obtain prior approval of ownership and transfer of shares;
o maintain a principal office and appoint and maintain a
principal representative in Bermuda; and
o provide for the performance of certain periodic examinations
of PXRE Bermuda and its financial condition.
These statutes and regulations may, in effect, restrict our ability to
write reinsurance policies, to distribute funds and to pursue our investment
strategy.
We do not presently intend that PXRE Bermuda will be admitted to do
business in any jurisdiction in the United States, the United Kingdom or
elsewhere (other than Bermuda). However, we cannot assure you that insurance
regulators in the United States, the United Kingdom or elsewhere will not review
the activities of PXRE Bermuda, or related companies or its agents and claim
that PXRE Bermuda is subject to such jurisdiction's licensing requirements. If
any such claim is successful and PXRE Bermuda must obtain a license, we may be
subject to taxation in such jurisdiction. In addition PXRE Bermuda is subject to
indirect regulatory requirements imposed by jurisdictions that may limit its
ability to provide insurance or reinsurance. For example, PXRE Bermuda's ability
to write insurance or reinsurance may be subject, in certain cases, to
arrangements satisfactory to applicable regulatory bodies. Proposed legislation
and regulations may have the effect of imposing additional requirements upon, or
restricting the market for, alien insurers or reinsurers with whom domestic
companies place business.
Generally, Bermuda insurance statues and regulations applicable to PXRE
Bermuda are less restrictive than those that would be applicable if it were
governed by the laws of any state in the United States. In the past, there have
been congressional and other initiatives in the United States regarding
proposals to supervise and regulate insurers domiciled outside the United
States. If in the future PXRE Bermuda becomes subject to any insurance laws of
the United States or any state thereof or of any other jurisdiction, we cannot
assure you that PXRE Bermuda would be in compliance with those laws or that
coming into compliance with those laws would not have a significant and negative
effect on PXRE Bermuda's business.
The process of obtaining licenses is very time consuming and costly,
and we may not be able to become licensed in a jurisdiction other than Bermuda,
should we choose to do so. The modification of the conduct of our business
resulting from our becoming licensed in certain jurisdictions could
significantly and negatively affect our business. In addition our inability to
comply with insurance statutes and regulations could significantly and adversely
affect our business by limiting our ability to conduct business as well as
subjecting us to penalties and fines.
Because we are incorporated in Bermuda, we are subject to changes of
Bermuda law and regulation that may have an adverse impact on our operations,
including imposition of tax liability or increased regulatory supervision. In
addition, we will be exposed to changes in the political environment in Bermuda.
The Bermuda insurance and reinsurance regulatory framework recently has become
subject to increased scrutiny in many
13
jurisdictions, including in the United States and in various states within the
United States. We cannot predict the future impact on our operations of changes
in the laws and regulations to which we are or may become subject.
WE MAY BE UNABLE TO OBTAIN EXTENSIONS OF WORK PERMITS FOR OUR EMPLOYEES, WHICH
MAY CAUSE OUR BUSINESS TO BE ADVERSELY AFFECTED.
Under Bermuda law, non-Bermudians (other than spouses of Bermudians)
may not engage in any gainful occupation in Bermuda without the specific
permission of the appropriate government authority. The Bermuda government will
issue a work permit for a specific period of time, which may be extended upon
showing that, after proper public advertisements, no Bermudian (or spouse of a
Bermudian) is available who meets the minimum standards for the advertised
position. The Bermuda government has a policy that limits the duration of work
permits to six years, subject to certain exemptions for key employees.
Substantially all of our key officers, including our Chief Executive Officer,
Chief Financial Officer, and key reinsurance underwriters are working in Bermuda
under work permits that will expire over the next two years. The Bermuda
government could refuse to extend these work permits. If any of our senior
executive officers were not permitted to remain in Bermuda, our operations could
be disrupted and our financial performance could be adversely affected.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE AND TRADING VOLUME MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
WE ARE UNCERTAIN AS TO WHETHER A MORE ACTIVE TRADING MARKET IN OUR COMMON STOCK
WILL DEVELOP FOLLOWING ANY OFFERING OF OUR COMMON SHARES. OUR STOCK PRICE AND
TRADING VOLUME MAY FLUCTUATE IN RESPONSE TO A NUMBER OF EVENTS AND FACTORS,
INCLUDING:
o quarterly variations in our operating results;
o changes in the market's expectations about our future
operating results;
o changes in financial estimates and recommendations by
securities analysts concerning us or the reinsurance industry
generally;
o operating and stock price performance of other companies that
investors may deem comparable;
o news reports relating to our business and trends in our
markets;
o changes in the laws and regulations affecting our business;
o acquisitions and financings by us or others in our industry;
and
o sales or acquisitions of substantial amounts of our common
stock by our directors and executive officers or principal
shareholders, or the perception that such sales could occur.
In addition, in recent years the stock market has experienced extreme
price and volume fluctuations. This volatility has had a significant effect on
the market prices of securities issued by many companies for reasons unrelated
to their operating performance. These broad market fluctuations may materially
adversely affect our stock price, regardless of our operating results.
WE ARE A HOLDING COMPANY AND IF OUR SUBSIDIARIES DO NOT MAKE DIVIDEND PAYMENTS
TO US, WE MAY NOT BE ABLE TO PAY DIVIDENDS OR OTHER OBLIGATIONS.
We are a holding company with no operations or significant assets other
than the capital stock of our subsidiaries. We rely primarily on cash dividends
and net tax allocation payments from PXRE Reinsurance, PXRE Bermuda and PXRE
Barbados to pay our operating expenses, including debt service payments,
shareholder dividends, if any, income taxes and other obligations that may arise
from time to time. We expect future dividends and other permitted payments from
these subsidiaries to be our principal source of funds to pay expenses and
dividends. The payment of dividends by our reinsurance subsidiaries to us is
limited under Bermuda law and under certain insurance statutes of various U.S.
states in which they are licensed to transact business. PXRE Reinsurance is
subject to state regulatory restrictions that limit the maximum amount of annual
dividends or other distributions, including loans or cash advances, available to
stockholders without prior approval of the Insurance Commissioner of
14
the State of Connecticut. Bermuda insurance laws require PXRE Bermuda to
maintain certain measures of solvency and liquidity, and further limit the
amount by which we can reduce surplus without prior regulatory approval. Under
Barbados law, PXRE Barbados may only pay a dividend out of its realized profits
and may not pay a dividend unless (a) it is able to pay its liabilities as they
become due after payment of the dividend, (b) the realizable value of its assets
is greater than the aggregate value of its liabilities, and (c) the stated
capital accounts are maintained in respect of all classes of shares. The
securities to be offered under this prospectus are unsecured subordinated
obligations and, therefore cash dividend payments to be made by us on our
preferred shares and common shares or interest payments on our debt securities
may also be affected by any inability to rely on payments from our subsidiaries.
SOME ASPECTS OF OUR CORPORATE STRUCTURE AND INSURANCE REGULATIONS MAY DISCOURAGE
THIRD-PARTY TAKEOVERS AND TRANSACTIONS AND MAY RESULT IN THE ENTRENCHMENT OF
INCUMBENT MANAGEMENT.
Under our bye-laws, subject to certain exceptions and to waiver by our
board of directors on a case by case basis, no transfer of our shares is
permitted if such transfer would result in a shareholder owning, directly or
indirectly, more than 9.9% of the voting power of our outstanding shares,
including our common shares, or more than 9.9% of the outstanding shares of any
class of our share capital. Ownership is broadly defined in our bye-laws. We may
refuse to register any such transfer on our share transfer records. A transferee
will be permitted to promptly dispose of any of our shares purchased which
violate the restriction and as to the transfer of which registration is refused.
The transferor of such shares will be deemed to own such shares for dividend,
voting and reporting purposes until a transfer of such shares has been so
registered.
Our bye-laws provide for a classified board of directors. The directors
of the class elected at each annual general meeting hold office for a term of
three years, with the term of each class expiring at successive annual general
meetings of shareholders. Under our bye-laws, the vote of 66 2/3% of the
outstanding shares entitled to vote and the approval of a majority of the board
is required to amend bye-laws regarding appointment and removal of directors,
remuneration, powers and duties of the board, indemnification of directors and
officers, director's interests and the procedures for amending bye-laws.
In the event that we become aware of a shareholder owning more than
9.9% of the voting power of our outstanding shares after a transfer of shares
has been registered, our bye-laws provide that, subject to the same exceptions
and waiver procedures, the voting rights with respect to our shares owned by any
such shareholder will be limited to a voting power of 9.9%, subject only to the
further limitation that no shareholder allocated any such voting rights may
exceed the 9.9% limitation as a result of such limitation. The board of
directors may waive this limitation, and has determined to waive this limitation
with respect to Capital Z Financial Services Fund II, L.P., Capital Z Financial
Services Private Fund II, L.P. (which, together with Capital Z Financial
Services Fund II, L.P., we refer to as "Capital Z") and certain of Capital Z's
affiliates.
In addition, our ownership of U.S. subsidiaries can, under applicable
state insurance company laws and regulations, delay or impede a change of
control of us. Under applicable insurance regulations, any proposed purchase of
10% or more of our voting securities would require the prior approval of the
relevant insurance regulatory authorities.
The provisions described above may have the effect of making more
difficult or discouraging unsolicited takeover bids from third parties. To the
extent that these effects occur, shareholders could be deprived of opportunities
to realize takeover premiums for their shares and the market price of their
shares could be depressed. In addition, these provisions could also result in
the entrenchment of incumbent management.
U.S. PERSONS WHO OWN OUR COMMON SHARES MAY HAVE MORE DIFFICULTY IN PROTECTING
THEIR INTERESTS THAN U.S. PERSONS WHO ARE SHAREHOLDERS OF A U.S. CORPORATION.
The Bermuda Companies Act of 1981, as amended (the "Companies Act"),
which applies to us, differs in certain material respects from laws generally
applicable to U.S. corporations and their shareholders. Set forth below is a
summary of certain significant provisions of the Companies Act which includes,
where relevant, information on modifications thereto adopted pursuant to our
bye-laws, applicable to us, which differ in certain respects from
15
provisions of Delaware corporate law. Because the following statements are
summaries, they do not discuss all aspects of Bermuda law that may be relevant
to us and our shareholders.
Interested Directors. Under Bermuda law and our bye-laws, a transaction
entered into by us, in which a director has an interest, will not be voidable by
us, and such director will not be liable to us for any profit realized pursuant
to such transaction, provided the nature of the interest is disclosed at the
first opportunity at a meeting of directors, or in writing to the directors. In
addition, our bye-laws allow a director to be taken into account in determining
whether a quorum is present and to vote on a transaction in which that director
has an interest following a declaration of the interest pursuant to the
Companies Act provided that the director is not disqualified from doing so by
the chairman of the meeting. Under Delaware law, such transaction would not be
voidable if:
o the material facts as to such interested director's
relationship or interests were disclosed or were known to the
board of directors and the board of directors in good faith
authorized the transaction by the affirmative vote of a
majority of the disinterested directors;
o such material facts were disclosed or were known to the
shareholders entitled to vote on such transaction and the
transaction was specifically approved in good faith by vote of
the majority of shares entitled to vote thereon; or
o the transaction was fair as to the corporation as of the time
it was authorized, approved or ratified. Under Delaware law,
such interested director could be held liable for a
transaction in which such director derived an improper
personal benefit.
Certain Transactions with Significant Shareholders. As a Bermuda
company, we may enter into certain business transactions with our significant
shareholders, including asset sales, in which a significant shareholder
receives, or could receive, a financial benefit that is greater than that
received, or to be received, by other shareholders with prior approval from our
board of directors but without obtaining prior approval from our shareholders.
Amalgamations require the approval of the board of directors and, except in the
case of amalgamations with and between wholly-owned subsidiaries, a resolution
of shareholders approved by the affirmative vote of shareholders holding a
majority of the voting power of the then outstanding shares entitled to vote. If
we were a Delaware corporation, we would need, subject to certain exceptions,
prior approval from shareholders holding at least two-thirds of our outstanding
common stock not owned by such interested shareholder to enter into a business
combination (which, for this purpose, includes mergers and asset sales of
greater than 10% of our assets that would otherwise be considered transactions
in the ordinary course of business) with an interested shareholder for a period
of three years from the time the person became an interested shareholder, unless
we opted out of the relevant Delaware statute.
Shareholders' Suits. The rights of shareholders under Bermuda law are
not as extensive as the rights of shareholders in many U.S. jurisdictions. Class
actions and derivative actions are generally not available to shareholders under
the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to
follow English case law precedent, which would permit a shareholder to commence
an action in our name to remedy a wrong done to us where an act is alleged to be
beyond our corporate power, is illegal or would result in the violation of our
memorandum of association or bye-laws. Furthermore, consideration would be given
by the court to acts that are alleged to constitute a fraud against the minority
shareholders or where an act requires the approval of a greater percentage of
our shareholders than actually approved it. The winning party in such an action
generally would be able to recover a portion of attorneys' fees incurred in
connection with such action. Our bye-laws provide that shareholders waive all
claims or rights of action that they might have, individually or in our right,
against any director or officer for any act or failure to act in the performance
of such director's or officer's duties, except with respect to any fraud or
dishonesty of such director or officer. Class actions and derivative actions
generally are available to shareholders under Delaware law for, among other
things, breach of fiduciary duty, corporate waste and actions not taken in
accordance with applicable law. In such actions, the court has discretion to
permit the winning party to recover attorneys' fees incurred in connection with
such action.
Indemnification of Directors and Officers. Under Bermuda law and our
bye-laws, we may indemnify our directors, officers or any other person appointed
to a committee of the board of directors (and their respective heirs, executors
or administrators) to the full extent permitted by law against all actions,
costs, charges, liabilities, loss, damage or expense incurred or sustained by
such person by reason of any act done, concurred in or omitted in the
16
conduct of our business or in the discharge of his/her duties; provided that
such indemnification shall not extend to any matter in which any of such persons
is found, in a final judgement or decree not subject to appeal, to have
committed fraud or dishonesty. Under Delaware law, a corporation may indemnify a
director or officer of the corporation against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in defense of an action, suit or proceeding by reason of such position
if (i) such director or officer acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii) with respect to any criminal action or proceeding, such
director or officer had no reasonable cause to believe his conduct was unlawful.
To further understand the risks associated with U.S. persons who own our common
shares, see "Difference In Corporate Laws" on page 62 of this prospectus for
more information on the differences between Bermuda and Delaware corporate laws.
Committees of the Board of Directors. Our bye-laws provide, as
permitted by Bermuda law, that the board of directors may delegate any of its
powers to committees that the board appoints, and those committees may consist
partly or entirely of non-directors. Delaware law allows the board of directors
of a corporation to delegate many of its powers to committees, but those
committees may consist only of directors.
YOU MAY HAVE DIFFICULTY EFFECTING SERVICE OF PROCESS ON US OR ENFORCING
JUDGMENTS AGAINST US IN THE UNITED STATES.
We are incorporated pursuant to the laws of Bermuda and our business is
based in Bermuda. In addition, certain of our directors and officers reside
outside the United States, and all or a substantial portion of our assets and
the assets of such persons are located in jurisdictions outside the United
States. As such, we have been advised that there is doubt as to whether:
o A holder of our common shares would be able to enforce, in the
courts of Bermuda, judgments of United States courts against
persons who reside in Bermuda based upon the civil liability
provisions of the United States federal securities laws;
o A holder of our common shares would be able to enforce, in the
courts of Bermuda, judgments of United States courts based
upon the civil liability provisions of the United States
federal securities laws;
o A holder of our common shares would be able to bring an
original action in the Bermuda courts to enforce liabilities
against us or our directors or officers, as well as the
experts named in this prospectus, who reside outside the
United States based solely upon United States federal
securities laws.
Further, we have been advised that there is no treaty in effect between
the United States and Bermuda providing for the enforcement of judgments of
United States courts, and there are grounds upon which Bermuda courts may not
enforce judgments of United States courts. Because judgments of United States
courts are not automatically enforceable in Bermuda, it may be difficult for you
to recover against us based on such judgments.
THE ANTI-DILUTION PROTECTION AFFORDED TO THE HOLDERS OF OUR OUTSTANDING
PREFERRED SHARES COULD CAUSE SUBSTANTIAL DILUTION TO THE HOLDERS OF OUR COMMON
SHARES. THE SALE, FOLLOWING CONVERSION, OF SUBSTANTIAL AMOUNTS OF OUR COMMON
SHARES BY THE HOLDERS OF THE PREFERRED SHARES COULD CAUSE THE MARKET PRICE OF
OUR COMMON SHARES TO DECLINE SIGNIFICANTLY.
In April 2002, we privately placed Series A, Series B and Series C
convertible preferred shares with several private equity investors. These
investors, sometimes referred to herein as the selling shareholders, have the
right to nominate four directors for election to the board of directors, and
were granted demand and other registration rights. The interest of the preferred
share investors may differ materially from the interests of our common
shareholders, and these investors could take actions or make decisions that are
not in the best interests of our common shareholders.
The anti-dilution protections afforded to the preferred shareholders
could have a material dilutive effect on our common shareholders. Each preferred
share, in whole or in part, is convertible at any time at the option of the
holder into convertible common shares for that series according to a formula set
forth in the description of stock
17
filed as an exhibit to the registration statement of which this prospectus forms
a part. The convertible common shares are, in turn, convertible into common
shares on a one-for-one basis. The number of convertible common shares per
preferred shares issuable upon any conversion will be determined by dividing a
liquidation preference for the series equal to the aggregate original purchase
price of the preferred shares plus accrued but unpaid dividends thereon, by the
conversion price then in effect. The conversion price is subject to adjustment
to avoid dilution in the event of recapitalization, reclassification, stock
split, consolidation, merger, amalgamation or other similar event or an issuance
of additional common shares in a private placement below the fair market value
or in a registered public offering below 95% of fair market value or without
consideration. In addition, the conversion price is subject to adjustment for
certain loss and loss expense development on reserves for losses incurred on or
before September 30, 2001 and for any liability or loss arising out of pending
material litigation on December 10, 2001. As of August 3, 2004, the outstanding
preferred shares were ultimately convertible into 12,981,646 common shares, or
47.4% of our outstanding common shares on a fully converted basis and using
the adjusted conversion price of $13.80 in effect as of June 30, 2004. However,
because the conversion price for the preferred shares is subject to adjustment
for a variety of reasons, including if we have certain types of adverse loss
development, the number of our common shares into which the preferred shares are
ultimately convertible and, accordingly, the amount of dilution experienced by
our common shareholders, could increase. For a detailed discussion of the
conversion features of the preferred shares and the convertible common shares,
including adjustments to the conversion price, see "Description of Share
Capital-Outstanding Preferred Shares-Conversion" and "Description of Share
Capital-Convertible Common Shares" in this prospectus.
Furthermore, upon conversion, sales of substantial amounts of common
shares by these investors, or the perception that these sales could occur, could
adversely affect the market price of the common shares, as well as our ability
to raise additional capital in the public equity markets at a desirable time and
price.
RISKS RELATED TO TAXATION
WE AND OUR BERMUDA SUBSIDIARIES MAY BECOME SUBJECT TO BERMUDA TAXES AFTER 2016.
Bermuda currently imposes no income tax on corporations. We have
obtained an assurance from the Bermuda Minister of Finance, under The Exempted
Undertakings Tax Protection Act 1966 of Bermuda, that if any legislation is
enacted in Bermuda that would impose tax computed on profits or income, or
computed on any capital asset, gain or appreciation, or any tax in the nature of
estate duty or inheritance tax, then the imposition of any such tax will not be
applicable to our Bermuda subsidiaries until March 28, 2016. We cannot assure
you that we or our Bermuda subsidiaries will not be subject to any Bermuda tax
after that date.
WE AND OUR NON-U.S. SUBSIDIARIES MAY BE SUBJECT TO U.S. TAX, WHICH MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATION.
We and our non-U.S. subsidiaries intend to operate our business in a
manner that will not cause us to be treated as engaged in a trade or business in
the United States (and, in the case of those non-U.S. companies qualifying for
treaty protection, in a manner that will not cause us to be doing business
through a permanent establishment in the United States) and, thus, will not
subject us to U.S. federal corporate income taxes or branch profits tax (other
than withholding taxes on certain U.S. source investment income, dividends from
PXRE Delaware to PXRE Barbados and excise taxes on insurance or reinsurance
premiums). However, because there is uncertainty as to the activities that
constitute being engaged in a trade or business within the United States, and
what constitutes a permanent establishment under the applicable tax treaties,
there can be no assurances that the U.S. Internal Revenue Service ("IRS") will
not contend successfully that we or our non-U.S. subsidiary is engaged in a
trade or business, or carrying on business through a permanent establishment in
the United States.
We and/or our subsidiaries could be subject to U.S. tax on a portion of
our income that is earned from U.S. sources if we or our subsidiaries are
considered to be a personal holding company, or a PHC, for U.S. federal income
tax purposes. This status will depend on whether more than 50% of our shares
could be deemed to be owned by five or fewer individuals and the percentage of
our income, or that of our subsidiaries, that consists of "personal holding
company income," ("PHCI threshold"), as determined for U.S. federal income tax
purposes. We believe, based upon information made available to us regarding our
existing shareholder base, that neither we nor
18
any of our subsidiaries should be considered a PHC. Additionally, we intend to
operate our business to minimize the possibility that we will meet the PHCI
threshold. However, due to the lack of complete information regarding our
ultimate share ownership, we cannot be certain that we will not be characterized
as a PHC, or that the amount of U.S. tax that would be imposed if it were not
the case would be minimal.
UNDER A RECENTLY SIGNED PROTOCOL TO THE US-BARBADOS INCOME TAX TREATY, DIVIDENDS
PAID BY PXRE DELAWARE TO PXRE BARBADOS WILL NOT BE ELIGIBLE FOR A U.S.
WITHHOLDING TAX RATE REDUCTION UNDER THE TREATY.
PXRE Delaware is a Delaware corporation wholly owned by PXRE Barbados.
Under U.S. federal income tax law, dividends paid by a U.S. corporation to a
non-U.S. shareholder are generally subject to a 30% withholding tax, unless
reduced by treaty.
In its current form, the income tax treaty between Barbados and the
United States reduces the rate of withholding tax to 5%. Were the IRS to
successfully contend that PXRE Delaware and/or PXRE Barbados are not eligible
for benefits under the Barbados Treaty in its current form, dividends paid by
PXRE Delaware to PXRE Barbados would be subject to the 30% withholding tax. Such
tax may be applied retroactively to all previous tax years for which the statute
of limitations has not expired, with interest and penalties. Such a result may
have a material adverse effect on our financial condition and results of
operation.
The US and Barbados recently signed a protocol to the Barbados Treaty
which, when rendered effective through ratification by appropriate governmental
authorities, will modify the current Barbados Treaty to cause any future
dividends paid by PXRE Delaware to PXRE Barbados to be subject to a U.S.
withholding tax of 30%. The imposition of withholding tax at such rate could
have a material adverse effect on our financial condition and results of
operations.
IF WE ARE CLASSIFIED AS A FOREIGN PERSONAL HOLDING COMPANY ("FPHC"), YOUR TAXES
WOULD INCREASE.
Although it is not anticipated that we or any of our non-U.S.
subsidiaries are classified as a FPHC for U.S. federal income tax purposes, if
we or any of our non-U.S. subsidiaries are classified as a FPHC, a United States
person that directly or indirectly owns our common shares would be subject to
adverse tax consequences.
IF YOU ACQUIRE MORE THAN 10% OF OUR SHARES AND WE OR OUR NON-U.S. SUBSIDIARIES
ARE CLASSIFIED AS A CONTROLLED FOREIGN CORPORATION ("CFC"), YOUR TAXES WOULD
INCREASE.
Each U.S. Holder (as defined in Section 7701(a)(30) of the Internal
Revenue Code of 1986, as amended (the "Code")) of a foreign corporation that is
a CFC for an uninterrupted period of 30 days or more during a taxable year, and
who owns, directly or indirectly through foreign entities on the last day of the
CFC's taxable year, at least 10% of the total combined voting power of all
classes of shares of the CFC entitled to vote, must include in its gross income
for U.S. federal income tax purposes its pro rata share of the CFC's "subpart F
income," even if the subpart F income is not distributed. A foreign corporation
is considered a CFC if "10% U.S. Shareholders" own (directly, indirectly through
foreign entities or by attribution by application of the constructive ownership
rules (i.e., "constructively")) more than 50% of the total combined voting power
of all classes of voting stock of such foreign corporation, or the total value
of all stock of such corporation. A "10% U.S. Shareholder" is a U.S. Holder who
owns (directly, indirectly through foreign entities or constructively) at least
10% of the total combined voting power of all classes of stock entitled to vote
of the foreign corporation. For purposes of taking into account insurance
income, a CFC also includes a foreign insurance company in which more than 25%
of the total combined voting power of all classes of stock (or more than 25% of
the total value of the stock) is owned by 10% U.S. Shareholders, on any day
during the taxable year of such corporation, if the gross amount of premiums or
other consideration for the reinsurance or the issuing of insurance or annuity
contracts exceeds 75% of the gross amount of all premiums or other consideration
in respect of all risks.
We believe that because of the anticipated dispersion of our share
ownership, provisions in our organizational documents that limit voting power
and other factors, no U.S. person who owns our shares directly or indirectly
through one or more foreign entities should be treated as owning (directly,
indirectly through foreign entities or constructively) 10% or more of the total
voting power of all classes of our shares.
19
However, due to the attribution provisions of the Code regarding
determination of beneficial ownership, there is a risk that the IRS could assert
that one or more of our non-U.S. subsidiaries are CFCs and that U.S. holders of
our common shares who own 10% or more of the value of our common shares should
be treated as owning 10% or more of the total voting power of all classes of our
shares notwithstanding the reduction of voting power discussed above.
IF WE OR A NON-U.S. SUBSIDIARY IS DETERMINED TO HAVE "RELATED PARTY INSURANCE
INCOME" ("RPII"), YOU MAY BE SUBJECT TO U.S. TAXATION ON YOUR PRO RATA SHARE OF
SUCH INCOME.
If the RPII of any of our non-U.S. insurance subsidiaries were to equal
or exceed 20% of such company's gross insurance income in any taxable year and
direct or indirect insureds (and persons related to such insureds) own (or are
treated as owning directly or indirectly through entities) 20% or more of our
voting power or value, then a U.S. person who owns our shares (directly or
indirectly through foreign entities) on the last day of the taxable year would
be required to include in its income for U.S. federal income tax purposes such
person's pro rata share of such non-U.S. insurance subsidiary's RPII for the
entire taxable year, determined as if such RPII were distributed proportionately
only to U.S. persons at that date regardless of whether such income is
distributed. In addition, any RPII that is includible in the income of a U.S.
tax-exempt organization may be treated as unrelated business taxable income. The
amount of RPII earned by the non-U.S. insurance subsidiaries (generally, premium
and related investment income from the direct or indirect insurance or
reinsurance of any direct or indirect U.S. holder of common shares or any person
related to such holder) will depend on a number of factors, including the
geographic distribution of the non-U.S. insurance subsidiaries' business and the
identity of persons directly or indirectly insured or reinsured by the non-U.S.
insurance subsidiaries. We believe that the gross RPII of each non-U.S.
insurance subsidiary did not in prior years of operation and is not expected in
the foreseeable future to equal or exceed 20% of such subsidiary's gross
insurance income, and we do not expect the direct or indirect insureds of the
non-U.S. insurance subsidiaries (and related persons) to directly or indirectly
own 20% or more of either the voting power or value of our common shares, but we
cannot be certain that this will be the case because some of the factors that
determine the existence or extent of RPII may be beyond our knowledge and/or
control.
The RPII rules provide that if a U.S. person disposes of shares in a
foreign insurance corporation in which U.S. persons own 25% or more of the
shares (even if the amount of RPII is less than 20% of the corporation's gross
insurance income and the ownership of its shares by direct or indirect insureds
and related persons is less than the 20% threshold), any gain from the
disposition will generally be treated as ordinary income to the extent of the
holder's share of the corporation's undistributed earnings and profits that were
accumulated during the period that the holder owned the shares (whether or not
such earnings and profits are attributable to RPII). In addition, such a holder
will be required to comply with certain reporting requirements, regardless of
the amount of shares owned by the holder. These RPII rules should not apply to
dispositions of our common shares because we will not ourselves be directly
engaged in the insurance business. The RPII provisions, however, have never been
interpreted by the courts or the U.S. Treasury Department in final regulations,
and regulations interpreting the RPII provisions of the Code exist only in
proposed form. It is not certain whether these regulations will be adopted in
their proposed form or what changes or clarifications might ultimately be made
thereto or whether any such changes, as well as any interpretation or
application of RPII by the IRS, the courts or otherwise, might have retroactive
effect. The U.S. Treasury Department has authority to impose, among other
things, additional reporting requirements with respect to RPII. Accordingly, the
meaning of the RPII provisions and the application of those provisions to us and
our subsidiaries is uncertain.
IF WE ARE CLASSIFIED AS A PASSIVE FOREIGN INVESTMENT COMPANY ("PFIC"), YOUR
TAXES WOULD INCREASE.
Although it is not anticipated that we will be classified as a PFIC for
U.S. income tax purposes, if we are classified as a PFIC, it would have material
adverse tax consequences for U.S. persons that directly or indirectly own our
common shares, including subjecting such U.S. persons to a greater tax liability
than might otherwise apply and subjecting such U.S. persons to tax on amounts in
advance of when tax would otherwise be imposed. There are currently no
regulations regarding the application of the PFIC provisions to an insurance
company. New regulations or pronouncements interpreting or clarifying these
rules may be forthcoming. We cannot predict what impact, if any, such guidance
would have on persons subject to U.S. federal income tax that directly or
indirectly own our common shares.
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CHANGES IN U.S. FEDERAL INCOME TAX LAW COULD BE RETROACTIVE AND MAY SUBJECT US
OR OUR NON-U.S. SUBSIDIARIES TO U.S. FEDERAL INCOME TAXATION.
The tax laws and interpretations regarding whether a company is engaged
in a U.S. trade or business or whether a company is a CFC, PHC, FPHC, or PFIC,
or has RPII are subject to change, possibly on a retroactive basis. There are
currently no regulations regarding the application of the PFIC rules to an
insurance company. The IRS recently announced that it intends to scrutinize
insurance companies domiciled outside the U.S. and apply the PFIC rules to
companies that are not active insurance companies, and to the portion of a
non-U.S. insurance company's income not derived in the active conduct of an
insurance business. Additionally, the regulations regarding RPII are still in
proposed form. New regulations or pronouncements interpreting or clarifying such
rules will likely be forthcoming from the IRS. We are not able to predict if,
when or in what form such guidance will be provided and whether such guidance
will be applied on a retroactive basis.
Legislation has been proposed in the U.S. Congress which would continue
to treat certain U.S. corporations which reincorporate in non-U.S. jurisdictions
as U.S. corporations for U.S. federal income tax purposes or would, among other
things, require such corporations to obtain pre-approval for certain related
party transactions from the IRS. In addition, legislation has been proposed that
would allow the IRS to reallocate the amount of income between related persons
who are parties to a reinsurance transaction. As proposed, certain of these
provisions would apply on a retroactive basis and could cause us or our U.S.
subsidiaries to be subject to increased taxation in the U.S. We cannot predict
whether or not these or similar proposals will be enacted in the future.
THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT AND THE EUROPEAN UNION
ARE CONSIDERING MEASURES THAT MIGHT INCREASE OUR TAXES AND REDUCE OUR NET
INCOME.
A number of multinational organizations, including the European Union,
the Organization for Economic Cooperation and Development, also referred to in
this prospectus as OECD, the Financial Action Task Force and the Financial
Stability Forum, also referred to in this prospectus as FSF, have all recently
identified some countries as not participating in adequate information exchange,
engaging in harmful tax practices or not maintaining adequate controls to
prevent corruption, such as money laundering activities. Recommendations to
limit such harmful practices are under consideration by these organizations, and
a report published on November 27, 2001 by the OECD at the behest of FSF titled
"Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes,"
contains an extensive discussion of specific recommendations. The OECD has
threatened non-member jurisdictions that do not agree to cooperate with the OECD
with punitive sanctions by OECD member countries, though specific sanctions have
yet to be adopted by OECD member countries. It is as yet unclear what these
sanctions will be, who will adopt them and when or if they will be imposed. In a
June 26, 2000 report, Bermuda was not listed as a tax haven jurisdiction by the
OECD because it previously signed a letter committing itself to eliminating
harmful tax practices by the end of 2005 and to embrace international tax
standards for transparency, exchange of information, and the elimination of
regimes for financial and other services that attract businesses with no
substantial domestic activity. We cannot assure you, however, that the action
taken by Bermuda would be sufficient to preclude all effects of the measures or
sanctions described above, which, if ultimately adopted, could adversely affect
Bermuda companies such as us.
21
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain
various forward-looking statements and include assumptions concerning our
operations, future results and prospects. Statements included in this
prospectus, as well as statements made by or on our behalf in press releases,
written statements or other documents filed with the Securities and Exchange
Commission, which we refer to in this prospectus as the "SEC," or in our
communications and discussions with investors and analysts in the normal course
of business through meetings, phone calls and conference calls, which are not
historical in nature are intended to be, and are identified as, "forward-looking
statements" for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended, which we refer to as the Exchange
Act. These forward-looking statements, identified by words such as "intend,"
"believe," "anticipate," or "expects" or variations of such words or similar
expressions are based on current expectations and are subject to risk and
uncertainties. In light of the risks and uncertainties inherent in all future
projections, the inclusion of forward-looking statements in this report should
not be considered as a representation by us or any other person that our
objectives or plans will be achieved. We caution investors and analysts that
actual results or events could differ materially from those set forth or implied
by the forward-looking statements and related assumptions, depending on the
outcome of certain important factors including, but not limited to, the
following:
(i) because of exposure to catastrophes, our financial results
may vary significantly from period to period;
(ii) we may be overexposed to losses in certain geographic
areas for certain types of catastrophic events;
(iii) we operate in a highly competitive environment;
(iv) reinsurance prices may decline, which could affect our
profitability;
(v) underwriting reinsurance includes the application of
judgment, the assessment of probabilities and outcomes, and the
assumption of correlations, which are subject to inherent
uncertainties;
(vi) reserving for losses includes significant estimates,
which are also subject to inherent uncertainties;
(vii) a decline in the credit rating assigned to our
claims-paying ability may impact our potential to write new or renewal
business;
(viii) a decline in our ratings may require us to transfer
premiums retained by us into a beneficiary trust or may allow clients
to terminate their contract with us;
(ix) our investment portfolio is subject to market and credit
risks, which could result in a material adverse impact on our financial
position or results;
(x) because we depend on a few reinsurance brokers for a large
portion of our revenue, loss of business provided by them could
adversely affect us; and our reliance on reinsurance brokers exposes us
to their credit risk;
(xi) we may be adversely affected by foreign currency
fluctuations;
(xii) retrocessional reinsurance subjects us to credit risk
and may become unavailable on acceptable terms;
(xiii) the impairment of our ability to provide collateral to
cedents could affect our ability to offer reinsurance in certain
markets;
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(xiv) the reinsurance business is historically cyclical, and
we may experience periods with excess underwriting capacity and
unfavorable premium rates; conversely, we may have a shortage of
underwriting capacity when premium rates are strong;
(xv) regulatory constraints may restrict our ability to
operate our business;
(xvi) contention by the United States Internal Revenue Service
that we or our offshore subsidiaries are subject to U.S. taxation could
result in a material adverse impact on our financial position or
results; and
(xvii) changes in tax laws, tax treaties, tax rules and
interpretations could result in a material adverse impact on our
financial position or results.
In addition to the factors outlined above that are directly related to
our business, we are also subject to general business risks, including, but not
limited to, adverse state, federal or foreign legislation and regulation,
adverse publicity or news coverage, changes in general economic factors and the
loss of key employees. The factors listed above should not be construed as
exhaustive.
We undertake no obligation to release publicly the results of any
future revisions we may make to forward looking statements to reflect events or
circumstances after the date of this prospectus or to reflect the occurrence of
unanticipated events.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
The following table sets forth our consolidated ratios of earnings to
fixed charges and earnings to fixed charges and preferred share dividends for
the periods indicated.
(Unaudited)
Six Months Ended Year Ended
June 30, December 31,
------------------- -------- -------------------------- --------
2004 2003 2003 2002 2001 2000 1999
---- ---- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges(1)............ 6.43 4.89 5.22 4.64 - - -
Ratio of earnings to combined fixed charges and
preferred dividends(2)........................... 4.03 3.14 3.32 3.07 - - -
-----------------
(1) The ratios of earnings to fixed charges were determined by dividing
consolidated earnings by total fixed charges. For purposes of the
ratios of earnings to fixed charges, (i) earnings consist of
consolidated income before considering income taxes, fixed charges and
minority interest and (ii) fixed charges consist of interest on
indebtedness, interest expense on premiums withheld under certain ceded
reinsurance contracts and that portion of rentals which is deemed by
our management to be an appropriate interest factor. Earnings were
inadequate to cover fixed charges by $22.5 million, $22.8 million and
$55.3 million for the years ended December 31, 2001, 2000, and 1999
respectively.
(2) The ratios of earnings to combined fixed charges and preferred
dividends were determined by dividing consolidated earnings by total
fixed charges and preferred dividends. For purposes of the ratios of
earnings to combined fixed charges and preferred dividends, (1)
earnings consist of consolidated income before considering income
taxes, fixed charges and minority interest and (2) fixed charges
consist of interest on indebtedness, interest expense on premiums
withheld under certain ceded reinsurance contracts and that portion of
rentals which is deemed by our management to be an appropriate interest
factor. Earnings were inadequate to cover fixed charges and preferred
dividends by $22.5 million, $22.8 million and $55.3 million for the
years ended December 31, 2001, 2000, and 1999 respectively.
23
USE OF PROCEEDS
Unless otherwise set forth in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities we offer by this
prospectus for general corporate purposes, which may include, among other
things:
o additions to working capital;
o repurchase of outstanding common shares; and
o repayment of indebtedness.
We anticipate that we will raise additional funds from time to time
through equity or debt financing, including borrowings under revolving
credit agreements, to finance our businesses worldwide.
We will not receive any proceeds from the sales of common shares by the
selling shareholders.
PXRE GROUP LTD.
We provide reinsurance products and services to a worldwide marketplace
through subsidiary operations in the United States, Europe, Bermuda and
Barbados. Our primary focus is providing property catastrophe reinsurance and
retrocessional coverage to a worldwide group of clients. Property catastrophe
reinsurance generally covers claims arising from large catastrophes such as
hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions, fires,
industrial explosions, freezes, riots, floods and other man-made or natural
disasters. Substantially all of our non-finite reinsurance products have been,
and will continue to be, offered on an excess-of-loss basis with aggregate
limits on our exposure to losses. This means that we do not begin to pay our
clients' claims until their claims exceed a certain specified amount and our
obligation to pay those claims is limited to a specified aggregate amount.
We also offer our clients property-per-risk, marine and aviation
reinsurance and retrocessional products. Unlike property catastrophe
reinsurance, which protects against the accumulation of a large number of
related losses arising out of one catastrophe, per-risk excess of loss
reinsurance protects our clients against a large loss arising from a single risk
or location. Substantially all of our property-per-risk and marine and aviation
reinsurance and retrocessional business is also written on an excess-of-loss
basis with aggregate limits on our exposure to losses.
We also provide our clients with finite reinsurance products. Finite
reinsurance contracts are highly customized for each transaction. If the loss
experience with respect to the risks assumed by us is as expected or better than
expected, our finite clients may share in the profitability of the underlying
business through premium adjustments or profit commissions. If the loss
experience is worse than expected, our finite clients may participate in this
negative outcome to a certain extent. In addition, we offer finite reinsurance
products where investment returns on the funds transferred to us affect the
profitability of the contract and the magnitude of any premium or commission
adjustments.
We conduct our business primarily through our principal operating
subsidiaries, PXRE Reinsurance, PXRE Bermuda, PXRE Solutions, S.A., which we
call "PXRE Europe," PXRE Solutions Inc., which we call "PXRE Solutions," and
PXRE Barbados.
o PXRE Reinsurance is a broker-market reinsurer which
principally underwrites treaty reinsurance for property
(including marine and aerospace) risks.
o PXRE Bermuda is a broker-market reinsurer which principally
underwrites treaty reinsurance for property (including marine
and aerospace) risks.
o PXRE Europe, a Belgian reinsurance intermediary, and PXRE
Solutions, a U.S. reinsurance intermediary, perform
reinsurance intermediary activities on behalf of PXRE Bermuda,
PXRE Reinsurance and PXRE Barbados.
24
o PXRE Barbados provides finite reinsurance coverages to clients
and provides reinsurance coverage to other PXRE entities.
Our principal executive offices are at PXRE House, 110 Pitts Bay Rd,
Pembroke HM 208, Bermuda, and its telephone number is (441) 296-5858. Under the
heading, "Consolidated Ratios of Earnings to Fixed Charges and Earnings to Fixed
Charges and Preferred Share Dividends" the term "PXRE" includes PXRE Group Ltd.
and its consolidated subsidiaries.
DESCRIPTION OF DEBT SECURITIES
The following description of our debt securities sets forth the
material terms and provisions of the debt securities to which any prospectus
supplement may relate. The senior debt securities are to be issued under an
indenture (the "senior indenture") between PXRE and a U.S. banking institution
as trustee, the form of which is filed as an exhibit to the registration
statement of which this prospectus forms a part. The subordinated debt
securities are to be issued under an indenture (the "subordinated indenture")
between PXRE and a U.S. banking institution as trustee, the form of which is
filed as an exhibit to the registration statement of which this prospectus forms
a part. The senior indenture and the subordinated indenture are sometimes
referred to in this prospectus collectively as the "indentures" and each
individually as a "indenture." The particular terms of the debt securities
offered by any prospectus supplement, including additional covenants, if any,
and the extent to which the general provisions described below may apply to the
offered debt securities, will be described in the prospectus supplement.
The description below is a summary of the material terms and provisions
of the indentures and the debt securities, and does not contain all of the
information that may be important to you. You should carefully review the
applicable indenture, the debt securities and the information in the applicable
prospectus supplement before you decide to invest in our debt securities. The
indentures are substantially identical, except for provisions relating to
subordination and certain of our covenants that may be described in a prospectus
supplement.
GENERAL
The indentures will not limit the aggregate principal amount of debt
securities that we may issue thereunder and will provide that we may issue debt
securities thereunder from time to time in one or more series. (Section 3.1) The
indentures will not limit the amount of other Indebtedness (as defined below) or
debt securities, other than certain secured Indebtedness as described below,
which we or our subsidiaries may issue.
Unless otherwise provided in a prospectus supplement, the senior debt
securities will be our unsecured obligations and will rank equally with all of
our other unsecured and unsubordinated indebtedness. The subordinated debt
securities of each series will be our unsecured obligations, subordinated in
right of payment to the prior payment in full of all our Senior Indebtedness
(which term includes senior debt securities) with respect to such series, as
described below under "Subordination of Subordinated Debt Securities" and in the
applicable prospectus supplement.
Because we are a holding company, our rights and the rights of our
creditors (including the holders of debt securities) and shareholders to
participate in any distribution of assets of any of our subsidiaries upon that
subsidiary's liquidation or reorganization or otherwise would be subject to the
prior claims of that subsidiary's creditors, except to the extent that we,
ourselves, may be a creditor with recognized claims against the subsidiary. The
right of our creditors (including the holders of debt securities) to participate
in the distribution of shares that we own in certain of our subsidiaries,
including our insurance subsidiaries, may also be subject to approval by certain
insurance regulatory authorities having jurisdiction over those subsidiaries.
The prospectus supplement relating to the particular debt securities
offered will describe the following terms of the offered debt securities:
o the title of those debt securities and the series in which
those debt securities will be included;
o any limit upon the aggregate principal amount of those debt
securities;
25
o the date or dates, or the method or methods, if any, by which
the date or dates will be determined, on which the principal
of those debt securities will be payable;
o the rate or rates at which those debt securities will bear
interest, if any, which rate may be zero in the case of
certain debt securities issued at an issue price representing
a discount from the principal amount payable at maturity, or
the method by which the rate or rates will be determined
(including, if applicable, any remarketing option or similar
method), and the date or dates from which the interest, if
any, will accrue or the method by which the date or dates will
be determined;
o the date or dates on which interest, if any, on those debt
securities will be payable and any regular record dates
applicable to the date or dates on which interest will be so
payable;
o whether and on what terms we will have the option to redeem
those debt securities in lieu of paying additional amounts in
respect of certain Bermuda taxes, fees, duties, assessments or
governmental charges that might be imposed on holders of those
debt securities (and the terms of that option);
o the place or places where the principal of, any premium or
interest on or any additional amounts with respect to those
debt securities will be payable, any of those debt securities
may be surrendered for registration of transfer or exchange,
and any of those debt securities may be surrendered for
conversion or exchange;
o whether any of those debt securities are to be redeemable at
our option and, if so, the date or dates on which, the period
or periods within which, the price or prices at which and the
other terms and conditions upon which those debt securities
may be redeemed, in whole or in part, at our option;
o whether we will be obligated to redeem or purchase any of
those debt securities pursuant to any sinking fund or
analogous provision or at the option of any holder and, if so,
the date or dates on which, the period or periods within
which, the price or prices at which and the other terms and
conditions upon which those debt securities will be redeemed
or purchased, in whole or in part, pursuant to that
obligation, and any provisions for the remarketing of those
debt securities so redeemed or purchased;
o if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which any debt
securities will be issuable;
o whether the debt securities will be convertible into common
shares and/or exchangeable for other securities, whether or
not issued by us and, if so, the terms and conditions upon
which those debt securities will be so convertible or
exchangeable;
o if other than the principal amount, the portion of the
principal amount (or the method by which such portion will be
determined) of those debt securities that will be payable upon
declaration of acceleration of the maturity thereof;
o if other than United States dollars, the currency, including
composite currencies, of payment of the principal of, any
premium or interest on or any additional amounts with respect
to any of those debt securities;
o whether the principal of, any premium or interest on or any
additional amounts with respect to those debt securities will
be payable, at our election or a holder, in a currency, other
than that in which those debt securities are stated to be
payable and the date or dates on which, the period or periods
within which, and the other terms and conditions upon which,
that election may be made;
o any index, formula or other method used to determine the
amount of payments of principal of, any premium or interest on
or any additional amounts with respect to those debt
securities;
o those debt securities are to be issued in the form of one or
more global securities and, if so, the identity of the
depositary for such global security or securities;
o whether those debt securities are senior debt securities or
subordinated debt securities and, if subordinated debt
securities, the specific subordination provisions applicable
thereto;
26
o in the case of subordinated debt securities, the relative
degree, if any, to which those subordinated debt securities of
the series will be senior to or be subordinated to other
series of subordinated debt securities or other indebtedness
of ours in right of payment, whether those other series of
subordinated debt securities or other indebtedness is
outstanding or not;
o whether the provisions described below under "Discharge,
Defeasance and Covenant Defeasance" will be applicable to
those debt securities;
o whether any of those debt securities are to be issued upon the
exercise of warrants, and the time, manner and place for those
debt securities to be authenticated and delivered; and
o any other terms of those debt securities and any other
deletions from or modifications or additions to the applicable
indenture in respect of those debt securities. (Section 3.1)
In the event that we make any deletions from, modifications of or
additions to the Events of Default or convenants described in this prospectus,
we will set forth the deletions, modifications or additions in a post-effective
amendment to the registration statement of which this prospectus forms a part.
We will have the ability under the indentures to "reopen" a previously
issued series of debt securities and issue additional debt securities of that
series or establish additional terms of that series. We are also permitted to
issue debt securities with the same terms as previously issued debt securities.
(Section 3.1)
Unless otherwise provided in the related prospectus supplement,
principal, premium, interest and additional amounts, if any, with respect to any
debt securities will be payable at the office or agency maintained by us for
those purposes (initially the corporate trust office of the trustee). Interest
may be paid by check mailed to the persons entitled thereto at their addresses
appearing on the security register or by transfer to an account maintained by
the payee with a bank located in the United States. Interest on debt securities
will be payable on any interest payment date to the persons in whose names the
debt securities are registered at the close of business on the regular record
date with respect to the interest payment date. All paying agents, initially
designated by us for the debt securities will be named in the related prospectus
supplement. We may at any time designate additional paying agents or rescind the
designation of any paying agent or approve a change in the office through which
any paying agent acts, except that we will be required to maintain a paying
agent in each place where the principal of, any premium or interest on or any
additional amounts with respect to the debt securities are payable. (Sections
3.7 and 10.2)
Unless otherwise provided in the related prospectus supplement, the
debt securities may be presented for transfer (duly endorsed or accompanied by a
written instrument of transfer, if so required by us or the security registrar)
or exchanged for other debt securities of the same series (containing identical
terms and provisions, in any authorized denominations, and of a like aggregate
principal amount) at the office or agency maintained by us for those purposes
(initially the corporate trust office of the trustee). This transfer or exchange
will be made without service charge, but we may require payment of a sum
sufficient to cover any tax or other governmental charge and any other expenses
then payable. We will not be required to (1) issue, register the transfer of, or
exchange, debt securities during a period beginning at the opening of business
15 days before the day of mailing of a notice of redemption of any of those debt
securities and ending at the close of business on the day of such mailing or (2)
register the transfer of or exchange any debt security so selected for
redemption in whole or in part, except the unredeemed portion of any debt
security being redeemed in part. (Section 3.5) We will appoint the trustee as
security registrar. Any transfer agent (in addition to the security registrar)
initially designated by us for any debt securities will be named in the related
prospectus supplement. We may at any time designate additional transfer agents
or rescind the designation of any transfer agent or approve a change in the
office through which any transfer agent acts, except that we will be required to
maintain a transfer agent in each place where the principal of, any premium or
interest on or any additional amounts with respect to the debt securities are
payable. (Section 10.2)
The debt securities will be issued only in fully registered form
without coupons in minimum denominations of $1,000 and any integral multiple
thereof, unless otherwise provided in the related prospectus supplement.
(Section 3.2) The debt securities may be represented in whole or in part by one
or more global debt securities registered in the name of a depositary or its
nominee and, if so represented, interests in the global debt security will be
shown on, and transfers thereof will be effected only through, records
maintained by the designated depositary and its participants as described below.
27
The debt securities may be issued as original issue discount securities
(bearing no interest or bearing interest at a rate which at the time of issuance
is below market rates) to be sold at a substantial discount below their
principal amount. United States Federal income tax and other considerations
applicable to original issue discount securities will be described in the
related prospectus supplement.
If the purchase price of any debt securities is payable in one or more
foreign currencies or currency units or if any debt securities are denominated
in one or more foreign currencies or currency units or if the principal of, or
any premium or interest on, or any additional amounts with respect to, any debt
securities is payable in one or more foreign currencies or currency units, the
restrictions, elections, certain United States Federal income tax
considerations, specific terms and other information with respect to the debt
securities and the foreign currencies or currency units will be set forth in the
related prospectus supplement.
We will comply with Section 14(e) under the Exchange Act, and any other
tender offer rules under the Exchange Act which may then be applicable, in
connection with any obligation of ours to purchase debt securities at the option
of the holders. Any such obligation applicable to a series of debt securities
will be described in the related prospectus supplement.
Unless otherwise described in a prospectus supplement relating to any
debt securities, the indentures will not contain any provisions that would limit
our ability to incur indebtedness or that would afford holders of debt
securities protection in the event of a sudden and significant decline in our
credit quality or a takeover, recapitalization or highly leveraged or similar
transaction involving us. Accordingly, we could in the future enter into
transactions that could increase the amount of indebtedness outstanding at that
time or otherwise affect our capital structure or credit rating. You should
refer to the prospectus supplement relating to a particular series of debt
securities for information regarding to any deletions from, modifications of or
additions to the Events of Default described below or covenants of ours
contained in the indentures, including any addition of a covenant or other
provisions providing event risk or similar protection.
CONVERSION AND EXCHANGE
The terms, if any, on which debt securities of any series are
convertible into or exchangeable for common shares, preferred shares or other
securities, whether or not issued by us, property or cash, or a combination of
any of the foregoing, will be set forth in the related prospectus supplement.
The terms may include provisions for conversion or exchange, either mandatory,
at the option of the holder, or at our option, in which the securities, property
or cash to be received by the holders of the debt securities would be calculated
according to the factors and at such time as described in the related prospectus
supplement.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in
the form of one or more global debt securities that will be deposited with, or
on behalf of, a depositary identified in the prospectus supplement relating to
the series.
The specific terms of the depositary arrangement with respect to a
series of debt securities will be described in the prospectus supplement
relating to the series. We anticipate that the following provisions will apply
to all depositary arrangements.
Upon the issuance of a global security, the depositary for the global
security or its nominee will credit, on its book-entry registration and transfer
system, the respective principal amounts of the debt securities represented by
the global security. These accounts will be designated by the underwriters or
agents with respect to the debt securities or by us if the debt securities are
offered and sold directly by us. Ownership of beneficial interests in a global
security will be limited to persons that may hold interests through
participants.
Ownership of beneficial interests in such global security will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by the depositary or its nominee (with respect to interests of
participants) and on the records of participants (with respect to interests of
persons other than
28
participants). The laws of some states require that certain purchasers of
securities take physical delivery of the securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a global security.
So long as the depositary for a global security, or its nominee, is the
registered owner of the global security, the depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the debt securities
represented by the global security for all purposes under the applicable
indenture. Except as described below, owners of beneficial interests in a global
security will not be entitled to have debt securities of the series represented
by the global security registered in their names and will not receive or be
entitled to receive physical delivery of debt securities of that series in
definitive form.
Principal of, any premium and interest on, and, any additional amounts
with respect to, debt securities registered in the name of a depositary or its
nominee will be made to the depositary or its nominee, as the case may be, as
the registered owner of the global security representing the debt securities.
Neither we, the trustee, any paying agent nor the security registrar will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the global
security for the debt securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
We expect that the depositary for a series of debt securities or its
nominee, upon receipt of any payment with respect to such debt securities, will
credit immediately participant's accounts with payments in amounts proportionate
to their respective beneficial interest in the principal amount of the global
security for the debt securities as shown on the records of the depositary or
its nominee. We also expect that payments by participants to owners of
beneficial interests in the global security held through such participants will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in "street name,"
and will be the responsibility of such participants.
The indentures will provide that if (1) the depositary for a series of
debt securities notifies us that it is unwilling or unable to continue as
depositary or if the depositary ceases to be eligible under the applicable
indenture and a successor depositary is not appointed by us within 90 days of
written notice, (2) we determine that debt securities of a particular series
will no longer be represented by global securities and executes and delivers to
the trustee a company order to this effect or (3) an Event of Default with
respect to a series of debt securities has occurred and is continuing; the
global securities will be exchanged for debt securities of such series in
definitive form of like tenor and of an equal aggregate principal amount, in
authorized denominations. The definitive debt securities will be registered in
such name or names as the depositary shall instruct the trustee. (Section 3.5)
It is expected that such instructions may be based upon directions received by
the depositary from participants with respect to ownership of beneficial
interests in global securities.
PAYMENT OF ADDITIONAL AMOUNTS
We will make all payments of principal of and premium, if any, interest
and any other amounts on, or in respect of, the debt securities of any series
without withholding or deduction at source for, or on account of, any present or
future taxes, fees, duties, assessments or governmental charges of whatever
nature imposed or levied by or on behalf of Bermuda or any other foreign
jurisdiction (each, a "taxing jurisdiction") or any political subdivision or
taxing authority thereof or therein, unless such taxes, fees, duties,
assessments or governmental charges are required to be withheld or deducted by
(x) the laws (or any regulations or rulings promulgated thereunder) of a taxing
jurisdiction or any political subdivision or taxing authority thereof or therein
or (y) an official position regarding the application, administration,
interpretation or enforcement of any such laws, regulations or rulings
(including, without limitation, a holding by a court of competent jurisdiction
or by a taxing authority in a taxing jurisdiction or any political subdivision
thereof). If a withholding or deduction at source is required, we will, subject
to certain limitations and exceptions described below, pay to the holder of any
such debt security such additional amounts as may be necessary so that every net
payment of principal, premium, if any, interest or any other amount made to the
holder, after the withholding or deduction, will not be less than the amount
provided for in the debt security and the applicable indenture to be then due
and payable.
We will not be required to pay any additional amounts for or on account
of:
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1. any tax, fee, duty, assessment or governmental charge of whatever
nature which would not have been imposed but for the fact that such
holder (a) was a resident, domiciliary or national of, or engaged in
business or maintained a permanent establishment or was physically
present in, the relevant taxing jurisdiction or any political
subdivision thereof or otherwise had some connection with the relevant
taxing jurisdiction other than by reason of the mere ownership of, or
receipt of payment under, the debt security, (b) presented the debt
security for payment in the relevant taxing jurisdiction or any
political subdivision thereof, unless the debt security could not have
been presented for payment elsewhere, or (c) presented the debt
security for payment more than 30 days after the date on which the
payment in respect of the debt security became due and payable or
provided for, whichever is later, except to the extent that the holder
would have been entitled to such additional amounts if it had presented
the debt security for payment on any day within that 30-day period;
2. any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge;
3. any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by the holder or the beneficial owner
of the debt security to comply with any reasonable request by us
addressed to the holder within 90 days of such request (a) to provide
information concerning the nationality, residence or identity of the
holder or such beneficial owner or (b) to make any declaration or other
similar claim or satisfy any information or reporting requirement,
which in either case is required or imposed by statute, treaty,
regulation or administrative practice of the relevant taxing
jurisdiction or any political subdivision thereof as a precondition to
exemption from all or part of such tax, assessment or other
governmental charge; or
4. any combination of items (1), (2) and (3).
In addition, we will not pay additional amounts with respect to any
payment of principal of, or premium, if any, interest or any other
amounts on, any debt security to any holder who is a fiduciary or
partnership or other than the sole beneficial owner of the debt
security to the extent such payment would be required by the laws of
the relevant taxing jurisdiction (or any political subdivision or
relevant taxing authority thereof or therein) to be included in the
income for tax purposes of a beneficiary or partner or settlor with
respect to the fiduciary or a member of that partnership or a
beneficial owner who would not have been entitled to those additional
amounts had it been the holder of the debt security. (Section 10.4)
EVENTS OF DEFAULT
The applicable prospectus supplement will contain the Events of Default
with respect to the series of debt securities issued under the applicable
indenture (whatever the reason for the Event of Default and whether it will be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body). We expect that the Events of Default that
may apply to each series of debt securities may include:
(1) default in the payment of any interest on any debt security of a
series, or any additional amounts payable with respect thereto, when
the interest becomes or the additional amounts become due and payable,
and continuance of the default for a period of 30 days;
(2) default in the payment of the principal of or any premium on any
debt security of a series, or any additional amounts payable with
respect thereto, when the principal or premium becomes or the
additional amounts become due and payable either at maturity, upon any
redemption, by declaration of acceleration or otherwise;
(3) default in the deposit of a sinking fund payment, if any, when and
as due by the terms of a debt security of the series;
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(4) default in the performance, or breach, of any of our covenants or
warranties contained in the applicable indenture for the benefit of
such series or in the debt securities of such series, and the
continuance of the default or breach for a period of 60 days after
there has been given written notice as provided in the indenture;
(5) if any event of default as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may be
secured or evidenced, any Indebtedness of ours (including an Event of
Default under any other series of debt securities), whether the
Indebtedness now exists or is hereafter created or incurred, happens
and consists of default in the payment of more than $50,000,000 in
principal amount of the Indebtedness at the maturity thereof (after
giving effect to any applicable grace period) or results in the
Indebtedness in principal amount in excess of $50,000,000 becoming or
being declared due and payable prior to the date on which it would
otherwise become due and payable, and the default is not cured or such
acceleration is not rescinded or annulled within a period of 30 days
after there has been given written notice as provided in the applicable
indenture;
(6) we shall fail within 60 days to pay, bond or otherwise discharge
any uninsured judgment or court order for the payment of money in
excess of $50,000,000, which is not stayed on appeal or is not
otherwise being appropriately contested in good faith;
(7) certain events in our bankruptcy, insolvency or reorganization; and
(8) any other Event of Default provided in or pursuant to the
applicable indenture with respect to debt securities of the series.
(Section 5.1)
If an Event of Default with respect to the debt securities of any
series (other than an Event of Default described in (7) of the preceding
paragraph) occurs and is continuing, either the trustee or the holders of not
less than 25% in principal amount of the outstanding debt securities of that
series by written notice as provided in the applicable indenture may declare the
principal amount (or such lesser amount as may be provided for in the debt
securities of the series) of all outstanding debt securities of that series to
be due and payable immediately. At any time after a declaration of acceleration
has been made, but before a judgment or decree for payment of money has been
obtained by the trustee, and subject to applicable law and certain other
provisions of the applicable indenture, the holders of not less than a majority
in principal amount of the debt securities of that series may, under certain
circumstances, rescind and annul such declaration of acceleration. An Event of
Default described in (7) of the preceding paragraph will cause the principal
amount and accrued interest (or such lesser amount as provided for in the debt
securities of such series) to become immediately due and payable without any
declaration or other act by the trustee or any holder. (Section 5.2)
Each indenture provides that, within 90 days after the occurrence of
any event which is, or after notice or lapse of time or both would become, an
Event of Default with respect to the debt securities of any series (a
"default"), the trustee will transmit, in the manner set forth in the indenture,
notice of the default to the holders of the debt securities of that series
unless such default has been cured or waived; provided, however, that except in
the case of a default in the payment of principal of, or premium, if any, or
interest, if any, on, or additional amounts or any sinking fund or purchase fund
installment with respect to, any debt security of that series, the trustee may
withhold the notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or responsible officers of the
trustee in good faith determine that the withholding of such notice is in the
best interest of the holders of debt securities of that series; and provided,
further, that in the case of any default of the character described in (5) of
the second preceding paragraph, no such notice to holders will be given until at
least 30 days after the default occurs. (Section 6.2)
If an Event of Default occurs and is continuing with respect to the
debt securities of any series, the trustee may in its discretion proceed to
protect and enforce its rights and the rights of the holders of debt securities
of that series by all appropriate judicial proceedings. (Section 5.3) Each
indenture provides that, subject to the duty of the trustee during any default
to act with the required standard of care, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request or direction of any of the holders of debt securities, unless the
holders shall have offered to the trustee reasonable indemnity. (Section 6.1)
Subject to such provisions for the indemnification of the trustee, and subject
to applicable law and certain other provisions of the applicable
31
indenture, the holders of a majority in principal amount of the outstanding debt
securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee, with respect to the debt
securities of such series. (Section 5.12)
MODIFICATION AND WAIVER
We and the trustee may modify or amend either indenture with the
consent of the holders of not less than a majority in principal amount of the
outstanding debt securities of each series affected thereby; provided, however,
that no such modification or amendment may, without the consent of the holder of
each outstanding debt security affected thereby,
o change the stated maturity of the principal of, or any premium
or installment of interest on, or any additional amounts with
respect to, any debt security,
o reduce the principal amount of, or the rate (or modify the
calculation of such rate) of interest on, or any additional
amounts with respect to, or any premium payable upon the
redemption of, any debt security,
o change our obligation to pay additional amounts with respect
to any debt security,
o reduce the amount of the principal of an original issue
discount security that would be due and payable upon a
declaration of acceleration of the maturity thereof or the
amount thereof provable in bankruptcy,
o change the redemption provisions of any debt security or
adversely affect the right of repayment at the option of any
holder of any debt security,
o reduce the amount of, or postpone the date fixed for, the
payment of any sinking fund or analogous obligation or modify
the payment terms of any sinking fund or similar obligation,
o change the place of payment or the coin or currency in which
the principal of, any premium or interest on or any additional
amounts with respect to any debt security is payable,
o impair the right to institute suit for the enforcement of any
payment on or after the stated maturity of any debt security
(or, in the case of redemption, on, or after the redemption
date or, in the case of repayment at the option of any holder,
on or after the repayment date),
o reduce the percentage in principal amount of the outstanding
debt securities, the consent of whose holders is required in
order to take specific actions,
o reduce the requirements for quorum or voting by holders of
debt securities in Section 15.4 of each indenture,
o modify any of the provisions in the applicable indenture
regarding the waiver of past defaults and the waiver of
certain covenants by the holders of debt securities except to
increase any percentage vote required or to provide that other
provisions of the indenture cannot be modified or waived
without the consent of the holder of each debt security
affected thereby,
o make any change that adversely affects the right to convert or
exchange any debt security into or for our common shares or
other securities (whether or not issued by us), cash or
property in accordance with its terms,
o modify any of the provisions of the subordinated indenture
relating to the subordination of the subordinated debt
securities in a manner adverse to holders of subordinated debt
securities, or
o modify any of the above provisions. (Section 9.2)
In addition, no supplemental indenture may directly or indirectly
modify or eliminate the subordination provisions of the subordinated indenture
in any manner which might terminate or impair the subordination of the
subordinated debt securities of any series to Senior Indebtedness with respect
to such series without the prior written consent of each holder of such Senior
Indebtedness. (Section 9.7 of the subordinated indenture)
32
We and the trustee may modify or amend either indenture and the debt
securities of any series without the consent of any holder in order to, among
other things;
o provide for a successor to PXRE pursuant to a consolidation,
amalgamation, merger or sale of assets in accordance with the
terms of the applicable indenture;
o add to our covenants for the benefit of the holders of all or
any series of debt securities or to surrender any right or
power conferred upon us by the applicable indenture;
o provide for a successor trustee with respect to the debt
securities of all or any series;
o cure any ambiguity or correct or supplement any provision in
either indenture which may be defective or inconsistent with
any other provision, or to make any other provision with
respect to matters or questions arising under either indenture
which will not adversely affect the interests of the holders
of debt securities of any series;
o change the conditions, limitations and restrictions on the
authorized amount, terms or purposes of issue, authentication
and delivery of debt securities under either indenture;
o add any additional Events of Default with respect to all, or
any series of debt securities;
o secure the debt securities;
o provide for conversion or exchange rights of the holders of
any series of debt securities; or
o make any other change that does not materially adversely
affect the interests of the holders of any debt securities
then outstanding under the applicable indenture. (Section 9.1)
The holders of at least a majority in principal amount of the
outstanding, debt securities of any series may, on behalf of the holders of all
debt securities of that series, waive compliance by us with certain covenants of
the applicable indenture. (Section 10.8 of the senior indenture; Section 10.6 of
the subordinated indenture) The holders of not less than a majority in principal
amount of the outstanding debt securities of any series may, on behalf of the
holders of all debt securities of that series, waive any past default and its
consequences under the applicable indenture with respect to the debt securities
of that series, except a default (1) in the payment of principal of, any premium
or interest on or any additional amounts with respect to debt securities of that
series or (2) in respect of a covenant or provision of the applicable indenture
that cannot be modified or amended without the consent of the holder of each
outstanding debt security of any series affected. (Section 5.13)
Under each indenture, we are required to furnish the trustee annually a
statement as to our performance of certain obligations under the indenture and
as to any default in our performance. We are also required to deliver to the
trustee, within five days after occurrence thereof, written notice of any Event
of Default, or any event which after notice or lapse of time or both would
constitute an Event of Default, resulting from the failure to perform or breach
of any covenant or warranty contained in the applicable indenture or the debt
securities of any series. (Section 10.9 of the senior indenture; Section 10.7 of
the subordinated indenture)
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
We may discharge certain obligations to holders of any series of debt
securities that have not already been delivered to the trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or scheduled for redemption within one year) by depositing with
the trustee, in trust, funds in U.S. dollars or in the Foreign Currency (as
defined below) in which the debt securities are payable in an amount sufficient
to pay the entire indebtedness on those debt securities with respect to
principal and any premium, interest and additional amounts to the date of such
deposit (if such debt securities have become due and payable) or to the maturity
thereof, as the case may be. (Section 4.1)
Each indenture provides that, unless the provisions of defeasance and
covenant defeasance are made inapplicable to the debt securities of or within
any series pursuant to Section 3.1 of each indenture, we may elect either (1) to
defease and be discharged from any and all obligations with respect to the debt
securities (except for, among other things, the obligation to pay additional
amounts, if any, upon the occurrence of certain events of
33
taxation, assessment or governmental charge with respect to payments on the debt
securities and other obligations to register the transfer or exchange of the
debt securities, to replace temporary or mutilated, destroyed, lost or stolen
debt securities, to maintain an office or agency with respect to such the
securities and to hold moneys for payment in trust) ("defeasance") or (2) to be
released from its obligations with respect to the debt securities under certain
covenants as described in the related prospectus supplement, and any omission to
comply with the obligations will not constitute a default or an Event of Default
with respect to the debt securities ("covenant defeasance"). Defeasance or
covenant defeasance, as the case may be, will be conditioned upon the
irrevocable deposit by PXRE with the Trustee, in trust, of an amount in U.S.
dollars or in the Foreign Currency in which the debt securities are payable at
stated maturity, or Government Obligations (as defined below), or both,
applicable to the debt securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of, any premium and interest on, and any
additional amounts with respect to, the debt securities on the scheduled due
dates. (Section 4.2)
Such a trust may only be established if, among other things, (1) the
applicable defeasance or covenant defeasance does not result in a breach or
violation of, or constitute a default under, the applicable indenture or any
other material agreement or instrument to which we are a party or by which we
are bound; (2) no Event of Default or event which with notice or lapse of time
or both would become an Event of Default with respect to the debt securities to
be defeased will have occurred and be continuing on the date of establishment of
such a trust and, with respect to defeasance only, at any time during the period
ending on the 123rd day after such date and (3) we have delivered to the trustee
an opinion of counsel (as specified in the applicable indenture) to the effect
that the holders of the debt securities will not recognize income, gain or loss
for United States Federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to United States Federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred, and such
opinion of counsel, in the case of defeasance, must refer to and be based upon a
letter ruling of the Internal Revenue Service received by us, a Revenue Ruling
published by the Internal Revenue Service or a change in applicable United
States Federal income tax law occurring after the date of the applicable
indenture. (Section 4.2)
"Foreign Currency" means any currency, currency unit or composite
currency, including, without limitation, the euro, issued by the government of
one or more countries other than the United States of America or by any
recognized confederation or association of such governments. (Section 1.1)
"Government Obligations" means debt securities which are (1) direct
obligations of the United States of America or the government or the governments
which issued the Foreign Currency in which the debt securities of a particular
series are payable, for the payment of which its full faith and credit is
pledged or (2) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America or such government
or governments which issued the Foreign Currency in which the debt securities of
such series are payable, the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of America
or such other government or governments, and which, in the case of clauses (1)
and (2), are not callable or redeemable at the option of the issuer or issuers
thereof, and will also include a depository receipt issued by a bank or trust
company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of or any other amount with respect
to any such Government Obligation held by the custodian for the account of the
holder of such depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of the depository receipt from any amount received by the
custodian with respect to the Government Obligation or the specific payment of
interest on or principal of or any other amount with respect to the Government
Obligation evidenced by the depository receipt. (Section 1.1)
If after PXRE has deposited funds and/or Government Obligations to
effect defeasance or covenant defeasance with respect to debt securities of any
series, (1) the holder of a debt security of, that series is entitled to, and
does, elect pursuant to Section 3.1 of the applicable indenture or the terms of
the debt security to receive payment in a currency other than that in which such
deposit has been made in respect of the debt security, or (2) a Conversion Event
(as defined below) occurs in respect of the Foreign Currency in which such
deposit has been made, the indebtedness represented by the debt security will be
deemed to have been, and will be, fully discharged and satisfied through the
payment of the principal of, any premium and interest on, and any additional
amounts with respect to, the debt security as the debt security becomes due out
of the proceeds yielded by converting the amount
34
or other properties so deposited in respect of the debt security into the
currency in which the debt security becomes payable as a result of the election
or the Conversion Event based on (a) in the case of payments made pursuant to
clause (1) above, the applicable market exchange rate for such currency in
effect on the second business day prior to the payment, date, or (b) with
respect to a Conversion Event, the applicable market exchange rate for the
Foreign Currency in effect (as nearly as feasible) at the time of the Conversion
Event. (Section 4.2)
"Conversion Event" means the cessation of use of (1) a Foreign Currency
both by the government of the country or countries which issued the Foreign
Currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community or (2) any
currency unit or composite currency for the purposes for which it was
established. All payments of principal of, any premium and interest on and any
additional amounts with respect to any debt security that are payable in a
Foreign Currency that ceases to be used by the government or governments of
issuance will be made in U.S. dollars. (Section l.l)
In the event we effect covenant defeasance with respect to any debt
securities and those debt securities are declared due and payable because of the
occurrence of any Event of Default other than an Event of Default with respect
to any covenant as to which there has been covenant defeasance, the amount in
such Foreign Currency in which those debt securities are payable, and Government
Obligations on deposit with the trustee, will be sufficient to pay amounts due
on those debt securities at the time of the stated maturity but may not be
sufficient to pay amounts due on those securities at the time of the
acceleration resulting from that Event of Default. However, we would remain
liable to make payment of such amounts due at the time of acceleration.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
The subordinated debt securities of each series will, to the extent set
forth in the subordinated indenture, be subordinate in right of payment to the
prior payment in full of all Senior Indebtedness with respect to that series.
(Section 16.1 of the subordinated indenture). Upon any payment or distribution
of our assets of any kind or character, whether in cash, property or securities
to creditors upon our dissolution, winding-up, liquidation or reorganization,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due upon all Senior Indebtedness with respect to
the subordinated debt securities of any series will first be paid in full, or
payment thereof provided for in money in accordance with its terms, before the
holders of subordinated debt securities of that series are entitled to receive
or retain any payment on account of principal of, or any premium or interest on,
or any additional amounts with respect to, the subordinated debt securities of
that series, and to that end the holders of that Senior Indebtedness will be
entitled to receive, for application to the payment thereof, any payment or
distribution of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other of our Indebtedness being subordinated to
the payment of subordinated debt securities of such series, which may be payable
or deliverable in respect of the subordinated debt securities of that series
upon any such dissolution, winding-up, liquidation or reorganization or in any
bankruptcy, insolvency, receivership or other proceeding. (Section 16.3 of the
subordinated indenture)
By reason of this subordination, in the event of liquidation or
insolvency of PXRE, holders of Senior Indebtedness with respect to the
subordinated debt securities of any series and holders of our other obligations
that are not subordinated to that Senior Indebtedness may recover more, ratably,
than the holders of the subordinated debt securities of such series.
Subject to the payment in full of all Senior Indebtedness with respect
to the subordinated debt securities of any series, the rights of the holders of
the subordinated debt securities of such series will be subrogated to the rights
of the holders of that Senior Indebtedness to receive payments or distributions
of our cash, property or securities applicable to that Senior Indebtedness until
the principal of, any premium and interest on, and any additional amounts with
respect to, the subordinated debt securities of that series have been paid in
full. (Section 16.4 of the subordinated indenture)
No payment of principal (including redemption and sinking fund
payments) of or any premium or interest on or any additional amounts with
respect to the subordinated debt securities of any series may be made (1) if any
Senior Indebtedness with respect to that series is not paid when due and any
applicable grace period with respect to a default has ended and that default has
not been cured or waived or ceased to exist, or (2) if the maturity of any
35
Senior Indebtedness with respect to such series has been accelerated because of
a default. (Section 16.2 of the subordinated indenture)
The subordinated indenture does not limit or prohibit us from incurring
additional Senior Indebtedness, which may include Indebtedness that is senior to
the subordinated debt securities of any series, but subordinate to our other
obligations. The senior debt securities will constitute Senior Indebtedness with
respect to the subordinated debt securities of each series under the
subordinated indenture.
The term "Senior Indebtedness" means, with respect to the subordinated
debt securities of any particular series, all our Indebtedness outstanding at
any time, except (1) the subordinated debt securities of such series, (2)
Indebtedness as to which, by the terms of the instrument creating or evidencing
the same, it is provided that such Indebtedness is subordinated to or ranks
equally with the subordinated debt securities of such series, (3) Indebtedness
of PXRE to an Affiliate of PXRE, (4) interest accruing after the filing of a
petition initiating any bankruptcy, insolvency or other similar proceeding
unless such interest is an allowed claim enforceable against us in a proceeding
under federal or state bankruptcy laws and (5) trade accounts payable. Senior
Indebtedness with respect to the subordinated debt securities of any particular
series will continue to be Senior Indebtedness with respect to the subordinated
debt securities of such series and be entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of such Senior Indebtedness. (Sections 1.1 and 16.8 of the
subordinated indenture)
The subordinated indenture provides that the foregoing subordination
provisions, insofar as they relate to any particular series of subordinated debt
securities, may be changed prior to the issuance. Any such change would be
described in the related prospectus supplement.
NEW YORK LAW TO GOVERN
The indentures and the debt securities will be governed by, and
construed in accordance with, the laws of the State of New York applicable to
agreements made or instruments entered into and, in each case, performed in that
state. (Section 1.13)
INFORMATION CONCERNING THE TRUSTEE
We may from time to time borrow from, maintain deposit accounts with
and conduct other banking transactions with the indenture trustees and
affiliates of the indenture trustees in the ordinary course of business.
Under each indenture, each indenture trustee is required to transmit
annual reports to all holders regarding eligibility and qualifications as
trustee under the applicable indenture and related matters. (Section 7.3)
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of our preferred shares or
common shares. Warrants may be issued independently or together with preferred
shares or common shares and may be attached to or separate from these
securities. Each series of warrants will be issued under a separate warrant
agreement. We will distribute a prospectus supplement with regard to each issue
or series of warrants.
WARRANTS TO PURCHASE PREFERRED SHARES OR COMMON SHARES
Each prospectus supplement for warrants to purchase preferred shares or
common shares, will describe:
o the title of the warrants;
o the securities for which the warrants are exercisable;
o the price or prices at which the warrants will be issued;
36
o if applicable, the number of the warrants issued with a
specified principal amount of our debt securities or each
preferred share or common share;
o if applicable, the date on and after which such warrants and
the related securities will be separately transferable;
o any provisions for adjustment of the number or amount of
preferred shares or common shares receivable upon exercise of
the warrants or the exercise price of the warrants;
o if applicable, a discussion of material federal income tax
considerations; and
o any other material terms of the warrants, including terms,
procedures and limitations relating to the exchange and
exercise of the warrants.
EXERCISE OF WARRANTS
Each warrant will entitle the holder of the warrant to purchase the
principal amount of preferred shares or common shares at the exercise price as
shall in each case be set forth in, or be determinable as set forth in, the
prospectus supplement relating to the warrants offered in the applicable
prospectus supplement. Warrants may be exercised at any time up to the close of
business on the expiration date set forth in the applicable prospectus
supplement. After the close of business on the expiration date, unexercised
warrants will become void.
Upon receipt of payment and the warrant certificate properly completed
and duly executed at the corporate trust office of the warrant agent or any
other office indicated in the prospectus supplement, we will, as soon as
practicable, forward the preferred shares or common shares to be purchased upon
such exercise. If less than all of the warrants represented by a warrant
certificate are exercised, a new warrant certificate will be issued for the
remaining warrants.
Prior to the exercise of any warrants to purchase preferred shares or
common shares, holders of the warrants will not have any of the rights of
holders of the preferred shares or common shares purchasable upon exercise,
including the right to vote or to receive any payments of dividends on the
preferred shares or common shares purchasable upon exercise.
DESCRIPTION OF SHARE CAPITAL
We were incorporated as an exempted company under the Companies Act
1981 of Bermuda, as amended. Accordingly, the rights of our shareholders are
governed by Bermuda law and our memorandum of association and bye-laws.
Our authorized share capital consists of 50,000,000 common shares,
20,000,000 convertible common shares and 10,000,000 preferred shares.
Under the consent of the Bermuda Monetary Authority, persons who are not
residents of Bermuda may freely hold, vote and transfer the shares that we are
offering in this prospectus, provided that our common shares remain listed on
the New York Stock Exchange.
COMMON SHARES
As of August 3, 2004 there were issued and outstanding:
o 14,416,571 common shares; and
o 17,914.672 preferred shares convertible into 12,981,646.37
convertible common shares, which are convertible into
12,981,646.37 common shares, based on the adjusted conversion
price of $13.80 as of June 30, 2004.
Our outstanding preferred shares are convertible into convertible
common shares and the convertible common shares are convertible into common
shares on the terms described under "Outstanding Preferred Shares" below. All
of the outstanding common shares are fully paid and nonassessable and the common
shares when issued
37
upon conversion of the preferred shares and the convertible common shares will
be fully paid and nonassessable. Our common shares are traded on the New York
Stock Exchange under the symbol "PXT."
Our board of directors may issue, grant options exercisable for or
otherwise dispose of our authorized common shares to any persons and on any
terms they deem appropriate, provided the issuance does not violate Bermuda law
or our bye-laws and we obtain Bermuda Monetary Authority approval in applicable
circumstances.
THE TRANSFER AGENT AND REGISTRAR FOR THE COMMON SHARES IS AMERICAN STOCK
TRANSFER & TRUST COMPANY.
The common shares have the dividend, voting, liquidation and preemptive
rights set forth below unless otherwise specified in the prospectus supplement
being used to offer the common shares. The applicable prospectus supplement will
describe the terms of the common shares including, where applicable, the
following:
o the number of shares to be offered;
o the offering price or prices;
o to the extent permitted by applicable law, whether the common
shares will be issued in certificated or book-entry form;
o information with respect to any book-entry procedures; and
o any additional terms of the common shares which are not
inconsistent with the provisions of our bye-laws.
The common shares will be, when issued against payment therefor, fully
paid and nonassessable. Holders of our common shares have no preemptive,
redemption, conversion or sinking fund rights. The rights of holders of common
shares will be subject to, and may be adversely affected by, the rights of
holders of any preferred shares that have been issued and may be issued in the
future and any convertible common shares that may be issued in the future. See
"Description of Share Capital-Outstanding Preferred Shares" for a description of
those preferred shares. The board of directors of PXRE may issue additional
preferred shares to obtain additional financing, in connection with
acquisitions, to officers, directors and employees of PXRE and its subsidiaries
pursuant to benefit plans or otherwise and for other proper corporate purposes.
LIQUIDATION RIGHTS
In the event of our liquidation, dissolution, or winding-up, the
holders of common shares are entitled to share equally and ratably in our
assets, if any, remaining after the payment of all our debts and liabilities and
the liquidation preference of any outstanding preferred shares. Additional
authorized but unissued common shares may be issued by our board of directors
without the approval of the shareholders.
Because we are a holding company, our rights, and the rights of holders
of our securities, including the holders of common shares, to participate in the
distribution of assets of any of our subsidiaries upon that subsidiary's
liquidation or recapitalization will be subject to the prior claims of that
subsidiary's creditors and preferred shareholders, except to the extent we may
be a creditor with recognized claims against the subsidiary or a holder of
preferred shares, as the case may be, of the subsidiary.
VOTING RIGHTS AND SHAREHOLDER MEETINGS
Each common share has one vote, except that if, and so long as, the
shares controlled (as described below) by any person constitute more than 9.9%
of the voting power of our outstanding shares, including common shares, the
voting rights with respect to the "controlled shares" owned by that person will
be limited, in the aggregate, to a voting power of 9.9%. Our board of directors
may in its discretion waive the 9.9% limitation on a case by case basis. Our
board of directors has waived the 9.9% limitation with respect to Capital Z
Financial Services Fund II, L.P. and Capital Z Financial Services Private Fund
II, L.P., which we refer to collectively as "Capital Z," and certain of their
affiliates.
38
Under our bye-laws, "controlled shares" include, among other things,
(i) all shares of PXRE that a person owns within the meaning of Section 958(a)
of the Internal Revenue Code of 1986, as amended, which we call the "Code," or
is considered as owning by applying the rules of Section 958(b) of the Code,
(ii) all shares of PXRE that a person owns by applying the rules of Sections 544
or 554 of the Code, and (iii) all shares of PXRE that a person owns directly,
indirectly or beneficially as a result of the possession of sole or shared
voting power within the meaning of Section 13(d)(3) of the Exchange Act and the
rules and regulations promulgated thereunder. These voting reallocation
provisions could make it difficult or impossible for any person or group of
persons acting in concert to acquire control of us without agreement by our
board of directors.
Our bye-laws provide that the quorum required for a general meeting of
shareholders is a majority of the outstanding shares entitled to vote at the
meeting present in person or by proxy. In general, matters are determined by a
simple majority of votes cast by our common shareholders, except as otherwise
required by law and our bye-laws.
Under our bye-laws, the vote of 66 2/3% of the outstanding shares
entitled to vote and the approval of a majority of the board is required to
amend our bye-laws regarding the appointment and removal of directors,
remuneration, powers and duties of the board, indemnification of directors and
officers, director's interests and the procedures for amending bye-laws. Any
share entitled to vote may be voted by written proxy and proxies may be valid
for all general meetings. There are no limitations under Bermuda law on the
voting rights of non-resident or foreign shareholders.
Under Bermuda law, a company is required to convene at least one
general shareholders' meeting per calendar year. Under Bermuda law and our
bye-laws, general meetings of shareholders may either be annual or special.
Under Bermuda law, special general meetings must be called upon the request of
shareholders holding not less than 10% of the paid up share capital of the
company carrying the right to vote at general meetings. Directors may also
convene special general meetings as they deem necessary.
Bermuda law requires that shareholders be given at least five days'
advance notice of a general meeting, although the accidental omission of notice
to any person does not invalidate the proceedings at a meeting. Under our
bye-laws, notice of annual general meetings and special general meetings must be
made in writing at least 21 days before the meeting.
ELECTION OR REMOVAL OF DIRECTORS
Under Bermuda law and our bye-laws, directors are elected at the annual
general meeting to serve until their successors are elected or appointed, unless
they are earlier removed or resign.
The election of our Class I, II and III directors is determined by a
simple majority of votes cast by our common shareholders, except as otherwise
required by law. Our shareholders do not have cumulative voting rights.
Accordingly, holders of a majority of the common shares entitled to vote in any
election of directors may elect all Class I, II and III directors. Our Class IV
directors are designated and elected solely by holders of our preferred shares
and convertible common shares.
Under Bermuda law and our bye-laws, a director may be removed at a
special general meeting of shareholders specifically called for that purpose,
provided that the director was served with at least 14 days' notice. The
director has a right to be heard at the meeting. Any vacancy created by the
removal of a director at a special general meeting may be filled at that meeting
by the election of another director in his or her place or, in the absence of
any election, by the board of directors.
DUTIES OF DIRECTORS AND OFFICERS
Under the Companies Act 1981, the duties of directors and officers are
to act honestly and in good faith with a view to the best interests of the
company and to exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances. Every director and officer of
a Bermuda company is also required to comply with the provisions of a Bermuda
Companies Act 1981, all related regulations and the relevant company's bye-
39
laws. In addition, the directors are subject to common law fiduciary duties.
These duties include the duty to act bona fide in the best interests of the
company, and not for any collateral purpose.
Under Bermuda law, the directors' duties are owed to the company
itself, not to its shareholders or members, creditors, or any class of either
shareholders, members or creditors. In discharging his or her duties, a director
is required to exercise the care and skill which may be reasonably expected of a
person with the director's skills and experience.
Bermuda law renders void any provision in the bye-laws or in any
contract between a company and any director exempting him or her from or
indemnifying him or her against any liability in respect of any fraud or
dishonesty of which he or she may be guilty in relation to the company. In
addition, the Companies Act 1981 provides that where a director, officer or
auditor of a company is found liable to any person for damages arising out of
the performance of any function of his or her duties, he will only be held
jointly and severally liable if it is proved that he or she knowingly engaged in
fraud or dishonesty. In any other case, the court will determine the percentage
of responsibility of all parties it determines have contributed to the loss or
liability of the plaintiff, and the liability of any one director, officer or
auditor shall be equal to the total loss suffered by the plaintiff multiplied by
the director's, officer's or auditor's percentage of responsibility as
determined by the court.
Our board of directors is currently divided into four classes and
comprised of 11 directors. The specific number of directors constituting the
board of directors is determined from time to time by resolution of our
shareholders at a general meeting. The directors of the class elected at each
annual general meeting hold office for a term of three years, with the term of
each class expiring at successive annual general meetings of shareholders. A
total of four Class IV directors are elected solely by the holders of our Series
A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares in
accordance with our bye-laws and the terms of the Description of Stock for
Series A Convertible Voting Preferred Shares, Series B Convertible Voting
Preferred Shares, Series C Convertible Voting Preferred Shares, Class A
Convertible Voting Common Shares, Class B Convertible Voting Common Shares and
Class C Convertible Voting Common Shares adopted by our board of directors on
December 9, 2001, which we refer to as the "outstanding preferred description of
stock".
DIVIDENDS
The holders of common shares will receive such dividends, if any, as
may be declared by our board of directors out of funds legally available for
that purpose. Under Bermuda law, we may not declare or pay a dividend, or make a
distribution out of contributed surplus, if there are reasonable grounds for
believing that (i) we are, or after the payment would be, unable to pay our
liabilities as they fall due, or (ii) the realizable value of our assets after
the payment or distribution would be less than the aggregate amount of our
liabilities and our issued share capital and share premium accounts. All
dividends unclaimed for a period of six years after having been declared will be
forfeited and revert to us. Except as noted in this paragraph, there are no
limitations under Bermuda law on the rights of non-resident or foreign
shareholders to receive dividends.
Under the terms of the Series A Preferred Shares, Series B Preferred
Shares and Series C Preferred Shares, so long as the preferred shareholders
maintain certain ownership thresholds during certain time periods, we may not
increase dividends paid upon our common shares above a permitted amount or make
distributions upon our common shares above a permitted amount without approval
of certain of our shareholders.
As of August 3, 2004 our subsidiaries have issued approximately
$167.1 million of subordinated debt securities. Of this amount, approximately
$5.2 million have been purchased by certain subsidiaries of ours for
investment purposes. From time to time, our affiliates may issue, in private
placements, additional subordinated debt securities. In connection with the
issuance of subordinated debt securities, we have agreed, among other things,
that if full distributions on the subordinated debt securities have not been
paid or set apart for payment or we are in default of its related guarantee
obligations, PXRE, with certain exceptions, will not declare or pay dividends,
make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to any of its share capital, including the
common shares.
40
CHANGES IN CAPITAL
We may from time to time by shareholder resolution passed by a simple
majority of our common shares, convertible common shares (on a fully converted
basis) and preferred shares (on a fully converted basis):
o increase our share capital to be divided into shares in the
amount that the resolution prescribes;
o divide our shares into several classes with different rights;
o consolidate and divide any or all of our share capital into
shares of a larger amount than our existing shares;
o sub-divide any of our shares into shares of a smaller amount
than that fixed by our memorandum of association, as long as
the proportion between the amount paid and the amount, if any,
unpaid on each reduced share be the same as on the share from
which the reduced share is derived;
o cancel shares which, at the date of the passing of the
resolution, have not been taken or agreed to be taken by any
person, and diminish the amount of our share capital by the
amount of the cancelled shares;
o change the currency denomination of our share capital; and
o authorize the reduction of issued share capital or any share
premium.
TRANSFER OF SHARES
Transfer of shares must be in writing. The instrument of transfer of a
share may be in any form which our board of directors approves.
MODIFICATION OF RIGHTS
Our bye-laws provide that, subject to Bermuda law and the limitation on
controlled shares, the rights attached to any class of common shares may be
modified by a resolution passed at a separate general meeting of the holders
representing at least 66 2/3% of the votes cast of that class. For purposes of
this meeting, one or more shareholders present in person or by proxy
representing at least a majority of the issued and outstanding shares of that
class and entitled to vote will be a quorum.
BORROWING POWER
Neither Bermuda law nor our memorandum of association nor our bye-laws
restrict in any way our power to borrow and raise funds. The decision to borrow
funds is passed by or under direction of our board of directors, with no
shareholders' resolution being required.
CONVERTIBLE COMMON SHARES
As of August 3, 2004 there were no convertible common shares
outstanding.
Except as otherwise provided, each class of convertible common shares
(which includes the Class A Common Shares, Class B Common Shares and Class C
Common Shares) has the same voting rights as common shares. Each class of
convertible common shares has the same rights, preferences and privileges as
each other class of convertible common shares, except as described in the
outstanding description of preferred stock which has been filed as an exhibit to
the registration statement of which this prospectus forms a part. The
convertible common shares automatically convert into common shares on a one-
for-one basis upon a transfer of record ownership to any person other than the
original purchasers, or any of their respective affiliates or limited partners
(including, without limitation, in connection with a public offering of the
shares), or a person approved by our board of directors in its sole discretion.
Convertible common shares may be converted at the option of the holder into
common shares on a one-for-one basis at any time that the holder would be
entitled to vote preferred shares generally in the election of directors in
accordance with the outstanding preferred description of stock. Our Class IV
directors are designated
41
solely by holders of our convertible common shares and preferred shares. The
holders of convertible common shares do not vote for any other directors.
In accordance with the requirements of the Securities and Exchange
Commission, under the registration statement of which this prospectus forms a
part, we are registering convertible common shares into which convertible
preferred shares held by certain of our selling shareholders may be converted.
The selling shareholders do not intend to sell either the convertible preferred
shares or the convertible common shares, and have entered into an agreement with
us not to do so.
OUTSTANDING PREFERRED SHARES
As of August 3, 2004, there were approximately 17,914.672 preferred
shares outstanding.
On April 4, 2002, in a private placement, we issued 15,000 shares of
our preferred shares in a private placement under Section 4(2) of the 1933 Act
not involving any public offering. We sold the preferred shares to a limited
number of sophisticated investors through direct negotiation without general
solicitation or general advertising. We issued 7,500 shares of Series A
Preferred Shares, allocated to two sub-series of shares, 5,000 shares allocated
to sub-series Al (Al Preferred Shares) and 2,500 shares allocated to sub-series
A2 (A2 Preferred Shares); the issuance of 5,000 shares of Series B Preferred
Shares, allocated to two sub-series of shares, 3,333.333 shares allocated to
Series B1 (B1 Preferred Shares) and 1,666.667 shares allocated to Series B2 (B2
Preferred Shares); and 2,500 shares of Series C Preferred Shares, allocated to
two sub-series of shares, 1,666.667 shares allocated to Series Cl (Cl Preferred
Shares) and 833.333 shares allocated to Series C2 (C2 Preferred Shares). The
material terms and provisions of the rights, preferences and privileges of the
preferred shares and convertible common shares are contained in the outstanding
preferred description of stock, which has been filed as an exhibit to the
registration statement of which this prospectus forms a part.
PRIORITY
The respective rights of each series of preferred shares to receive
dividends rank pari passu with each other, junior only to the Junior
Subordinated Deferrable Interest Debentures due 2027 of PXRE Delaware, capital
securities issued by our subsidiaries and the guarantees with respect to those
capital securities, and senior to common shares, convertible common shares and
all other classes and series of our capital shares, including without limitation
other classes and series of preferred shares. Upon our dissolution, liquidation
or winding up, the respective holders of each series of preferred shares would
have, pari passu, the right to receive, subject to remaining funds, cash equal
to the liquidation preference for the respective series of preferred shares and
prior to the junior shares. If the remaining funds distributable upon our
liquidation, dissolution or winding-up are insufficient to permit payment to the
respective holders of each series of preferred shares of the full preferential
amounts, then the remaining funds shall be distributed ratably among the
preferred shares.
VOTING
The preferred shares vote on a fully converted basis with the common
shares and other voting securities, together as a single class, on all matters
which are submitted to a vote of the shareholders, other than the election of
directors, except that in no event will purchasers and their respective
affiliates be permitted to exercise voting rights, collectively through our
securities, in excess of 49.9% of our aggregate voting power on any shareholder
matter. In addition as described above under "Common Shares- Voting Rights and
Shareholder Meetings," our bye-laws provide that, subject to the sole discretion
of the board of directors, no person is entitled to exercise voting power in
excess of a maximum limitation of 9.9% of the votes conferred on all our issued
and outstanding shares. Our board of directors may in its discretion waive the
9.9% limitation on a case by case basis. Our board of directors has waived the
9.9% limitation with respect to Capital Z and certain of their affiliates. Our
Class IV directors are designated solely by holders of our preferred shares and
convertible common shares. The holders of preferred shares do not vote for any
other directors.
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For each series of preferred shares, for so long as any preferred
shares remain issued and outstanding, unless otherwise provided by law, the
affirmative vote of at least 50% of all the preferred shares issued and
outstanding for that series will be necessary to permit us to:
o authorize, create, designate, issue or sell any securities
with rights that rank pari passu with or senior to the
preferred shares of that series or adversely affect the
holders of those preferred shares or convertible common shares
for such series, or amend any existing capital shares if the
effect is to rank such capital shares pari passu with those
preferred shares; in any manner alter or change the rights or
other terms of the preferred shares or convertible common
shares for such series as set forth in the outstanding
preferred description of stock;
o reclassify any capital shares into shares that are either
senior to or pari passu with the preferred shares for that
series in terms of dividends and other distributions or that
would adversely affect the rights appertaining to common
shares or convertible common shares, as the case may be, which
those holders of preferred shares would have after conversion
of the preferred shares into convertible common shares for
that series or conversion of the convertible common shares
into common shares;
o amend, alter or repeal any provision of our memorandum of
association or bye-laws if such action would have an adverse
effect on the rights of the holders of preferred shares for
the series or those rights appertaining to convertible common
shares or common shares which those holders would have after
conversion of those preferred shares into convertible common
shares or convertible common shares into common shares; or
o make any change to the authorized number of preferred shares
or convertible common shares or issuance of any additional
preferred shares or convertible common shares except that the
consent of the Series C Preferred Shares is not necessary in
order to change the authorized number of or issuance of
preferred shares or convertible common shares.
Additionally, consent will be required in order for us to take certain
acts for so long as the initial purchasers of the preferred shares, their
respective affiliates and limited partners meet certain ownership thresholds.
The acts which require consent include:
o involving, at any time before April 4, 2005, one or more
redemptions, offers to purchase, tender offers or other
acquisitions of common shares by or on behalf of us
collectively involving the payment by or on behalf of us of
cash or other consideration having an aggregate fair market
value in excess of an amount equal to 20% of the cumulative
amount by which our consolidated net income in any calendar
year commencing with the year ending December 31, 2002 exceeds
$50,000,000 minus the sum of all cash and the fair market
value of all non-cash consideration paid in respect of
redemptions, offers to purchase, tender offers or other
acquisitions of our share capital on or after December 10,
2001;
o resulting in our sale where the per share consideration paid
to holders of preferred shares on an as converted basis is
less than 200% of the current conversion price of the
preferred shares;
o resulting in the sale or transfer of 25% or more of our
assets;
o resulting in a voluntary delisting of our common shares from
the New York Stock Exchange;
o involving or resulting in the incurrence of additional
indebtedness in excess of $50,000,000 in the aggregate at any
time before April 4, 2005, not including the first $55,000,000
of any refinancing of the First Amended and Restated Credit
Agreement, dated August 31, 1999, among PXRE Delaware, PXRE
Group Ltd., PXRE (Barbados) Ltd., certain lenders and First
Union National Bank or resulting in a ratio of indebtedness to
total capital in excess of 0.25 to 1.00 at any time on or
after April 4, 2005;
o effecting or attempting to effect our voluntary liquidation,
dissolution or winding-up;
o resulting in an expansion by us into lines of business other
than continuing lines of business in which we are currently
involved;
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o increasing the amount of dividends paid with respect to common
shares, at a cumulative annualized rate of more than 10% at
any time before April 4, 2005;
o involving the purchase or renewal of retrocessional or
reinsurance coverage from companies that are below certain
standards, with certain exceptions for coverages consistent
with past practice;
o effecting any acquisition by us at any time before April 4,
2005 involving aggregate consideration in excess of
$50,000,000;
o increasing investment in any hedge funds beyond amounts held
at September 30, 2001 without the prior unanimous approval of
the investment committee of the board of directors; and
o at any time on or after April 4, 2005, resulting in payment of
any dividend or other distribution with respect to common
shares or resulting in a redemption, offer to purchase, tender
offer or other acquisition of our share capital involving
consideration having an aggregate fair market value in excess
of the greater of the permitted tender offer amount and the
permitted dividend amount described in the first and eighth
bullets list above.
DIVIDENDS
The preferred shares are entitled to receive, when, as and if declared
by the board of directors and to the extent of funds legally available for the
payment of dividends, cumulative dividends per share at the rate per annum of 8%
of the sum of the stated value on each share plus any accrued and unpaid
dividends on the preferred shares, payable on a quarterly basis. To the extent
dividends are not paid when due, dividends will be payable and accrue at the
rate of 10% per annum compounded quarterly until paid. These dividends, if
declared by the board of directors, will be payable in shares of preferred
shares prior to April 4, 2005 and cash thereafter. We, in our sole election, may
decide, in substitution in whole or in part for dividends payable in preferred
shares, to pay dividends in cash to the extent of any dividends that, if paid in
additional shares of preferred shares, would otherwise cause the initial
purchasers of the preferred shares and their affiliates to own more than 49.9%
of our share capital on a fully-diluted and fully-converted basis.
CONVERSION
For each series, each preferred share, in whole or in part, is
convertible at any time at the option of the holder into convertible common
shares for the series. The number of convertible common shares per preferred
share issuable upon any conversion will be determined by dividing a liquidation
preference for the series equal to the aggregate original purchase price of the
preferred shares plus accrued but unpaid dividends, by the conversion price then
in effect.
The initial conversion price was $15.69. The conversion price is
subject to adjustment to avoid dilution in the event of recapitalization,
reclassification, stock split, consolidation, merger, amalgamation or other
similar event or an issuance of additional common shares in a private placement
below the fair market value or in a registered public offering below 95% of fair
market value (in each case, fair market value being the value immediately prior
to the date of announcement of issuance) or without consideration. In addition,
the conversion price is subject to adjustment, for certain loss and loss expense
development on reserves for losses incurred on or before September 30, 2001 (and
loss adjustment expenses related thereto), on an after-tax basis, equal to an
amount computed in accordance with a formula as set forth in the outstanding
preferred description of stock. The conversion price is also subject to
adjustment if we experience adverse loss development in excess of a $7 million
after-tax threshold. As of June 30, 2004, we had incurred $28.2 million of net
after-tax adverse development above this $7 million threshold, resulting in an
adjusted conversion price of $13.80.
Al Preferred Shares, Bl Preferred Shares and Cl Preferred Shares will
be mandatorily convertible into Class A Convertible Common Shares, Class B
Convertible Common Shares and Class C Convertible Common Shares, respectively,
on April 4, 2005, and] all remaining preferred shares will be mandatorily
convertible into convertible common shares on April 4, 2008. The conversion
price used in connection with the mandatory conversion of Al Preferred Shares,
B1 Preferred Shares and Cl Preferred Shares includes price protection.
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Notwithstanding the foregoing, on any conversion date, to the extent
necessary to prevent the initial purchasers of preferred shares and their
affiliates from owning more than 49.9% of our share capital upon conversion, we
shall have the right (but not the obligation) to make a cash payment in lieu of
convertible common shares equal to the fair market value of the convertible
common shares that would have been received in excess of the 49.9% limitation in
connection with any conversion, plus, in certain circumstances, an additional
tax gross-up amount to take into account the difference between the federal
income tax rate on long-term capital gains and the federal ordinary income tax
rate that might apply to the recipient on the receipt of a cash payment in lieu
of convertible common shares. The outstanding preferred description of stock
does not provide for redemption of the preferred shares.
In accordance with the requirements of the Securities and Exchange
Commission, under the registration statement of which this prospectus forms a
part, we are registering outstanding preferred shares held by certain of our
selling shareholders that may be converted into common shares that may be sold
from time to time. The selling shareholders do not intend to sell either the
convertible preferred shares or the convertible common shares into which the
preferred are convertible, and have entered into an agreement with us not to do
so.
OFFERED PREFERRED SHARES
The following summary of the terms of the offered preferred shares does
not contain all of the information that may be important to you. You should
carefully review the applicable description of stock, our bye-laws and the
information in the applicable prospectus supplement before you decide to invest
in our preferred shares.
The rights of holders of preferred shares offered by this prospectus
will be subject to, and may be adversely affected by, issuances of preferred
shares in the future. Under some circumstances, alone or in combination with
certain provisions of our memorandum of association and bye-laws, described
below under "--Additional Provisions of our Memorandum of Association and
Bye-laws," our issuances of preferred shares may discourage or make more
difficult an acquisition of PXRE that the board of directors deems undesirable.
Our board of directors has the power, without further action by our
shareholders, unless action is required by applicable laws or regulations or by
the terms of outstanding preferred shares, to issue preferred shares in one or
more series and to fix the voting rights, designations, preferences and other
terms applicable to the preferred shares to be issued. The board of directors
may issue preferred shares to obtain additional financing, in connection with
acquisitions, as compensation to our officers, directors or employees and our
subsidiaries in accordance with benefit plans or otherwise and for other proper
corporate purposes. We must obtain consent from the holders of a majority of the
outstanding preferred shares of a series before certain securities that rank
pari passu or senior to that series, in terms of the payment of dividends or
distribution of assets, may be issued.
Our board of directors has authorized the issuance of one or more
series of additional preferred shares and has authorized a committee of the
board of directors to establish and designate series and to fix the number of
shares and the relative rights, preferences and limitations of the respective
series of the preferred shares offered by this prospectus and the applicable
prospectus supplement. The offered preferred shares, if and when issued and
sold, will be fully paid and nonassessable.
TERMS SPECIFIED IN PROSPECTUS SUPPLEMENT
The following description sets forth some general terms and provisions
of the offered preferred shares. The number of shares and all of the relative
rights, preferences and limitations of the respective series of offered
preferred shares that the board of directors or the committee establishes will
be described in the applicable prospectus supplement. The terms of particular
series of offered preferred shares may differ, among other things, in:
o designation;
o number of shares that constitute the series;
o dividend rate, or the method of calculating the dividend rate;
o dividend periods, or the method of calculating the dividend
periods;
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o redemption provisions, including whether or not, on what terms
and at what prices the shares will be subject to redemption at
our option;
o voting rights;
o preferences and rights upon liquidation or winding-up;
o whether or not and on what terms the shares will be
convertible into or exchangeable for our shares of any other
class, series or security or those of any other corporation or
any other property;
o whether depositary shares representing the offered preferred
shares will be offered and, if so, the fraction or multiple of
a share that each depositary share will represent; and
o the other rights and privileges and any qualifications,
limitations or restrictions of those rights or privileges.
We have summarized below the material provisions of a series of offered
preferred shares. The board of directors or a duly authorized committee of the
board of directors will adopt the resolutions to be included in a description of
stock prior to the issuance of a series of offered preferred shares.
Any series or class of preferred shares could, as determined by our
board of directors at the time of issuance, rank senior to our common shares
with respect to dividends, voting rights, redemption and liquidation rights. The
preferred shares authorized are of the type commonly known as blank-check
preferred shares.
The prospectus supplement relating to the new series will specify
whether the series of preferred shares will be issued separately, as part of
warrant units or upon exercise of warrants.
RANKING
Each new series of preferred shares will rank equally with each other
series of preferred shares and prior to our common shares regarding the
distribution of dividends or disposition of other assets, unless otherwise
specified in the applicable prospectus supplement.
DIVIDENDS
Unless otherwise specified in the applicable prospectus supplement,
holders of each new series of preferred shares will be entitled to
receive cash dividends, if declared by the board of directors or a duly
authorized committee out of funds legally available for cash dividends.
For each series, we will specify in the applicable prospectus
supplement:
o the dividend rates;
o whether the rates will be fixed or variable or both;
o the dates of distribution of the cash dividends; and
o whether the dividends on any series of preferred shares will
be cumulative or non-cumulative.
We will pay dividends to holders of record of preferred shares as they
appear on our records, on the record dates fixed by the board of directors or a
duly authorized committee.
We cannot declare or pay full dividends on funds set apart for the
payment of dividends on any series of preferred shares unless dividends have
been paid or set apart for payment on a proportionate basis with other equity
securities that rank equally with the preferred shares regarding the
distribution of dividends. If we do not pay full dividends on all equity
securities that rank equally, then each series of preferred shares will share
dividends in proportion with our other equity securities that rank equally with
that series.
46
CONVERSION AND EXCHANGE
The prospectus supplement for any new series of preferred shares will
state the terms and other provisions, if any, on which shares of the new series
of preferred shares are convertible into common shares or exchangeable for
securities of a third party.
REDEMPTION
We will specify in the prospectus supplement applicable to each new
series of preferred shares:
o whether it will be redeemable at any time, in whole or in
part, at our option or the holder of the preferred shares;
o whether it will be subject to mandatory redemption pursuant to
a sinking fund or on other terms; and
o the redemption prices.
In the event that preferred shares are partially redeemed, the shares
to be redeemed will be determined by lot, on a proportionate basis or any other
method determined to be equitable by the board of directors.
Dividends will cease to accrue on preferred shares called for
redemption, and all rights of holders of redeemed shares will terminate, on and
after a redemption date, except for the right to receive the redemption price,
unless we default in the payment of the redemption price.
LIQUIDATION PREFERENCE
Upon our voluntary or involuntary liquidation, dissolution or winding
up, holders of each series of preferred shares will be entitled to receive:
o distributions upon liquidation in the amount set forth in the
applicable prospectus supplement; plus
o any accrued and unpaid dividends.
These payments will be made to holders of preferred shares out of our
assets available for distribution to shareholders before any distribution is
made on any securities ranking junior to the preferred shares regarding
liquidation rights.
In the event that holders of preferred shares are not paid in full upon
our liquidation, dissolution or winding up, then these holders will share, on a
proportionate basis, any future distribution of our assets with holders of our
other securities that rank equally with them.
After payment of the full amount of the liquidation preference to which
they are entitled, the holders of each series of preferred shares will not be
entitled to any further participation in any distribution of our assets.
VOTING RIGHTS
The holders of preferred shares will have no voting rights except as
indicated in the certificate of designations relating to the series, the
applicable prospectus supplement or as required by applicable law.
TRANSFER AGENT AND REGISTRAR
We will specify each of the transfer agent, registrar, dividend
disbursing agent and redemption agent for each new series in the applicable
prospectus supplement.
47
RESERVATION OF COMMON SHARES
We have reserved for issuance the full number of convertible common
shares issuable on conversion of the preferred shares and the full number of
common shares issuable on conversion of the convertible common shares out of the
total of our authorized but unissued convertible common shares and common shares
to permit the conversion of the preferred shares into common shares including
the preferred shares that may be converted by our selling shareholders.
ADDITIONAL PROVISIONS OF OUR MEMORANDUM OF ASSOCIATION AND BYE-LAWS
ACCESS TO BOOKS AND RECORDS AND DISSEMINATION OF INFORMATION
Members of the general public have the right to inspect our public
documents available at the office of the Registrar of Companies in Bermuda.
These documents include our certificate of incorporation, memorandum of
association, including its objects and powers, and any alteration to our
memorandum of association.
Our shareholders have the additional right to inspect our bye-laws,
minutes of general meetings and our audited financial statements, which must be
presented at the annual general meeting. As a company whose shares are listed on
an appointed stock exchange, we may prepare and send our shareholders summarized
financial statements instead of audited financial statements. If we choose to
prepare summarized financial statements, we must make a copy of the summarized
financial statements available for inspection by the public at our registered
office in Bermuda. Our register of shareholders is also open to inspection by
shareholders without charge and to members of the general public on the payment
of a fee. We are required to maintain our share register in Bermuda but may,
subject to the provisions of the Companies Act 1981, establish a branch register
outside Bermuda. Our current branch register outside Bermuda is maintained
at American Stock Transfer & Trust Company.
We are required to keep at our registered office a register of our
directors and officers that is open for inspection for not less than two hours
in each day by members of the public without charge. Bermuda law does not,
however, provide a general right for shareholders to inspect or obtain copies of
any other corporate records.
AMENDMENT OF MEMORANDUM OF ASSOCIATION AND BYE-LAWS
Bermuda law provides that the memorandum of association of a company
may be amended by a special resolution passed at a general meeting of
shareholders of which due notice has been given. In certain circumstances, an
amendment to the memorandum of association also requires the approval of the
Bermuda Minister of Finance, who may grant or withhold approval at his or her
discretion. However, approval of the Bermuda Minister of Finance is not required
for an amendment that alters or reduces a company's share capital as provided in
the Companies Act 1981. Except as set forth in our bye-laws, our bye-laws may be
amended by a special resolution passed by a majority of votes cast at a general
meeting.
Under Bermuda law, the holders of an aggregate of no less than 20% in
par value of a company's issued share capital have the right to apply to the
Bermuda Court for an annulment of any amendment of the memorandum of association
adopted by shareholders at any general meeting. This does not apply to an
amendment that alters or reduces a company's share capital as provided in the
Companies Act 1981. Where an application is made, the amendment becomes
effective only to the extent that it is confirmed by the Bermuda Court. An
application for amendment of the memorandum of association must be made within
21 days after the date on which the resolution altering a company's memorandum
is passed. Application may be made on behalf of the persons entitled to make the
application by one or more of their number as they may appoint in writing for
the purpose. The application may not be made by persons voting in favor of the
amendment.
APPRAISAL RIGHTS AND SHAREHOLDER SUITS
Under Bermuda law, in the event of an amalgamation of two Bermuda
companies, a shareholder who did not vote in favor of the amalgamation and is
not satisfied that fair value has been paid for his or her shares may apply to
the Bermuda Court to appraise the fair value of the shares. The amalgamation of
a company with another company requires the amalgamation agreement to be
approved by:
48
o a meeting of the holders of shares of the amalgamating
company;
o a meeting of the holders of each class of shares of the
amalgamating company; and
o in certain circumstances, the consent of the Bermuda Minister
of Finance (who may grant or withhold consent at his or her
discretion).
Class actions and derivative actions are generally not available to
shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be
expected to permit a shareholder to commence an action in the name of a company
to remedy a wrong done to the company where the act complained of:
o is alleged to be beyond the corporate power of the company;
o is illegal; or
o would result in the violation of the company's memorandum of
association or bye-laws.
Furthermore, consideration would be given by the Bermuda courts to acts
that are alleged to constitute a fraud against the minority shareholders or, for
instance, where an act requires the approval of a greater percentage of the
company's shareholders than those who actually approved it.
When the affairs of a company are being conducted in a manner
oppressive or prejudicial to the interests of some part of the shareholders, one
or more shareholders may apply to the Bermuda courts for an order regulating the
company's conduct of affairs in the future or ordering the purchase of the
shares of any shareholder by other shareholders or by the company.
Bermuda Monetary Authority consent will be required for the issuance
and or transfer of any preferred shares and for any common shares that do not
currently benefit from the existing Bermuda Monetary Authority permission.
Pursuant to our bye-laws, we and each of our members have agreed to
waive any claim or right of action we might have against any of our directors or
officers with respect to any action taken by the director or officer or the
failure of the director or officer to take any action in the performance of his
or her duties or supposed duties with or for the company. This waiver does not,
however, extend to any matter in respect of any fraud or dishonesty that may
attach to the director or officer.
DESCRIPTION OF THE DEPOSITARY SHARES
We may, at our option, elect to offer fractional shares or some
multiple of offered preferred shares, rather than individual offered preferred
shares. If we choose to do so, we will issue depositary receipts for depositary
shares, each of which will represent a fraction or a multiple of a share of a
particular series of offered preferred shares as described below.
The following description of the depositary shares, depositary receipts
and the deposit agreement is a summary of the material terms and provisions of
those documents and does not contain all of the information that may be
important to you. You should carefully review the depositary shares, depositary
receipts, the deposit agreement and the information in the applicable prospectus
supplement before you decide to invest in our depositary shares.
The offered preferred shares of any series represented by depositary
shares will be deposited under a deposit agreement among us, a depositary
selected by us, which we refer to as the "Preferred Share Depositary," and the
holders from time to time of depositary receipts issued under the agreement. The
depositary will be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least $50,000,000.
Subject to the terms of the deposit agreement, each holder of a depositary share
will be entitled, in proportion to the fraction or multiple of an offered
preferred share represented by that depositary share, to all the rights and
preferences of the offered preferred shares represented by that depositary
share, including dividend, voting and liquidation rights.
49
The depositary shares will be evidenced by depositary receipts issued
under the deposit agreement. Depositary receipts will be distributed to those
persons purchasing the fractional or multiple shares of the related series of
offered preferred shares. Immediately following the issuance of shares of a
series of offered preferred shares, we will deposit those shares with the
Preferred Share Depositary, which will then issue and deliver the depositary
receipts to the purchasers. Depositary receipts will only be issued evidencing
whole depositary shares. A depositary receipt may evidence any number of whole
depositary shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Share Depositary will distribute all cash dividends or
other cash distributions received on the related series of offered preferred
shares to the record holders of depositary receipts relating to those series in
proportion to the number of the depositary shares evidenced by depositary
receipts those holders own.
If we make a distribution other than in cash, the Preferred Share
Depositary will distribute the property it receives to the record holders of
depositary receipts in proportion to the number of depositary shares evidenced
by depositary receipts those holders own, unless the Preferred Share Depositary
determines that the distribution cannot be made proportionately among those
holders or that it is not feasible to make the distribution. In that event, the
Preferred Share Depositary may, with our approval, sell the property and
distribute the net proceeds to the holders in proportion to the number of
depositary shares evidenced by depositary receipts they own.
The amount distributed to holders of depositary shares will be reduced
by any amounts required to be withheld by us or the Preferred Share Depositary
on account of taxes or other governmental charges.
WITHDRAWAL OF SHARES
Upon surrender of the depositary receipts at the corporate trust office
of the Preferred Share Depositary and upon payment of the taxes, charges and
fees provided for in the deposit agreement and compliance with any other
requirement of the deposit agreement, the holder of the depositary shares
evidenced by those depositary receipts is entitled to delivery of the number of
whole shares of the related series of offered preferred shares and all money or
other property, if any, represented by those shares. Holders of depositary
receipts representing any number of whole offered preferred shares will be
entitled to receive whole shares of the related series of offered preferred
shares, but those holders of whole offered preferred shares will not thereafter
be entitled to deposit those offered preferred shares with the Preferred Share
Depositary or to receive depositary shares therefor. If the depositary receipts
delivered by the holder evidence a number of depositary shares in excess of the
number representing whole shares of the related series of offered preferred
shares to be withdrawn, the Preferred Share Depositary will deliver to the
holder at the same time a new depositary receipt evidencing the excess number of
depositary shares.
VOTING THE OFFERED PREFERRED SHARES
Upon receiving notice of any meeting at which the holders of any series
of the offered preferred shares are entitled to vote, the Preferred Share
Depositary will mail the information contained in the notice of the meeting to
the record holders of the depositary receipts relating to that series of offered
preferred shares. Each record holder of the depositary receipts on the record
date, which will be the same date as the record date for the related series of
offered preferred shares, may instruct the Preferred Share Depositary how to
exercise his or her voting rights. The Preferred Share Depositary will endeavor,
insofar as practicable, to vote or cause to be voted the maximum number of whole
offered preferred shares represented by those depositary shares in accordance
with those instructions received sufficiently in advance of the meeting, and we
will agree to take all reasonable action that may be deemed necessary by the
Preferred Share Depositary in order to enable the Preferred Share Depositary to
do so. The Preferred Share Depositary will abstain from voting offered preferred
shares for which it does not receive specific instructions from the holder of
the depositary shares representing them.
REDEMPTION OF DEPOSITARY SHARES
Depositary shares will be redeemed from any proceeds received by the
Preferred Share Depositary resulting from the redemption, in whole or in part,
of the series of the offered preferred shares represented by those
50
depositary shares. The redemption price per depositary share will equal the
applicable fraction or multiple of the redemption price per share payable with
respect to the series of the offered preferred shares. If we redeem shares of a
series of offered preferred shares held by the Preferred Share Depositary, the
Preferred Share Depositary will redeem as of the same redemption date the number
of depositary shares representing the offered preferred shares that we redeem.
If less than all the depositary shares will be redeemed, the depositary shares
to be redeemed will be selected by lot or substantially equivalent method
determined by the Preferred Share Depositary.
After the date fixed for redemption, the depositary shares called for
redemption will no longer be deemed to be outstanding, and all rights of the
holders of the depositary shares will cease, except the right to receive the
monies payable and any other property to which the holders were entitled upon
the redemption upon surrender to the Preferred Share Depositary of the
depositary receipts evidencing the depositary shares. Any funds deposited by us
with the Preferred Share Depositary for any depositary shares that the holders
fail to redeem will be returned to us after a period of two years from the date
the funds are deposited.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
We may amend the form of depositary receipt evidencing the depositary
shares and any provision of the deposit agreement at any time and from time to
time by agreement with the Preferred Share Depositary. However, any amendment
that materially and adversely alters the rights of the holders of depositary
receipts will not be effective unless it has been approved by the holders of at
least a majority of the depositary shares then outstanding, and no amendment may
impair the right of any holder of any depositary receipts, described above under
"-Withdrawal of Shares," to receive shares of the related series of offered
preferred shares and any money or other property represented by those depositary
shares, except in order to comply with mandatory provisions of applicable law.
We may terminate the deposit agreement at any time with at least 60 days' prior
written notice to the Preferred Share Depositary. Within 30 days of the date of
the notice, the Preferred Share Depositary will deliver or make available for
delivery to holders of depositary receipts, upon surrender of the depositary
receipts evidencing the depositary shares, the number of whole shares of the
related series of offered preferred shares as are represented by the depositary
receipts. The deposit agreement will automatically terminate after there has
been a final distribution on the related series of offered preferred shares in
connection with our liquidation, dissolution or winding up and that distribution
has been made to the holders of depositary shares.
CHARGES OF PREFERRED SHARE DEPOSITARY
We will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. We will pay
all charges of the Preferred Share Depositary in connection with the initial
deposit of the related series of offered preferred shares, the initial issuance
of the depositary shares, all withdrawals of shares of the related series of
offered preferred shares by holders of depositary shares and the registration of
transfers of title to any depositary shares. However, holders of depositary
shares will pay other transfer and other taxes and governmental charges and the
other charges expressly provided in the deposit agreement to be for their
accounts.
LIMITATION ON LIABILITY OF COMPANY AND PREFERRED SHARE DEPOSITARY
Neither we nor the Preferred Share Depositary will be liable if
prevented or delayed by law, by any provision of our bye-laws or of the
depositary shares or by any circumstance beyond its control from performing its
obligations under the deposit agreement. Our obligations and those of the
Preferred Share Depositary under the deposit agreement will be limited to
performance with best judgment and in good faith of their duties thereunder,
except that they will be liable for negligence or willful misconduct in the
performance of their duties thereunder, and they will not be obligated to appear
in, prosecute or defend any legal proceeding related to any depositary receipts,
depositary shares or related series of offered preferred shares unless
satisfactory indemnity is furnished.
51
PREFERRED SHARE DEPOSITARY AS TRANSFER AGENT AND REGISTRAR
The Preferred Share Depositary will act as transfer agent and registrar
for depositary receipts, and, if offered preferred shares of a series are
redeemable, the Preferred Share Depositary will act as redemption agent for the
corresponding depositary receipts.
RESIGNATION AND REMOVAL OF PREFERRED SHARE DEPOSITARY
The Preferred Share Depositary may resign at any time by delivering to
us written notice of its election to do so, and we may at any time remove the
Preferred Share Depositary. Any resignation or removal will take effect upon the
appointment of a successor Preferred Share Depositary. A successor must be
appointed by us within 60 days after delivery of the notice of resignation or
removal and must be a bank or trust company having its principal office in the
United States and a combined capital and surplus of at least $50,000,000.
REPORTS TO HOLDERS
We will deliver all required reports and communications to holders of
the offered preferred shares to the Preferred Share Depositary, and it will
forward those reports and communications to the holders of depositary shares.
52
FORMS OF SECURITIES
Each debt security or warrant will be represented either by a
certificate issued in definitive form to a particular investor or by one or more
global securities representing the entire issuance of securities. Both
certificated securities in definitive form and global securities will be issued
in registered form, where our obligation runs to the holder of the security
named on the face of the security. Definitive securities name you or your
nominee as the owner of the security, and, in order to transfer or exchange
these securities or to receive payments other than interest or other interim
payments, you or your nominee must physically deliver the securities to the
trustee, registrar, paying agent or other agent, as applicable. Global
securities name a depositary or its nominee as the owner of the debt securities
or warrants represented by these global securities. The depositary maintains a
computerized system that will reflect each investor's beneficial ownership of
the securities through an account maintained by the investor with its
broker/dealer, bank, trust company or other representative, as we explain more
fully below.
GLOBAL SECURITIES
We may issue the registered debt securities or warrants in the form of
one or more fully registered global securities that will be deposited with a
depositary or its nominee identified in the applicable prospectus supplement and
registered in the name of that depositary or its nominee. In those cases, one or
more registered global securities will be issued in a denomination or aggregate
denominations equal to the portion of the aggregate principal or face amount of
the securities to be represented by registered global securities.
Unless and until it is exchanged in whole for securities in definitive
registered form, a registered global security may not be transferred except as a
whole by and among the depositary for the registered global security, the
nominees of the depositary or any successors of the depositary or those
nominees.
If not described below, any specific terms of the depositary
arrangement with respect to any securities to be represented by a registered
global security will be described in the prospectus supplement relating to those
securities. We anticipate that the following provisions will apply to all
depositary arrangements.
Ownership of beneficial interests in a registered global security will
be limited to persons, called participants, that have accounts with the
depositary or persons that may hold interests through participants. Upon the
issuance of a registered global security, the depositary will credit, on its
book-entry registration and transfer system, the participants' accounts with the
respective principal or face amounts of the securities beneficially owned by the
participants. Any dealers, underwriters or agents participating in the
distribution of the securities will designate the accounts to be credited.
Ownership of beneficial interests in a registered global security will be shown
on, and the transfer of ownership interests will be effected only through,
records maintained by the depositary, with respect to interests of participants,
and on the records of participants, with respect to interests of persons holding
through participants. The laws of some states may require that some purchasers
of securities take physical delivery of these securities in definitive form.
These laws may impair your ability to own, transfer or pledge beneficial
interests in registered global securities.
So long as the depositary, or its nominee, is the registered owner of a
registered global security, that depositary or its nominee, as the case may be,
will be considered the sole owner or holder of the securities represented by the
registered global security for all purposes under the applicable indenture or
warrant agreement. Except as described below, owners of beneficial interests in
a registered global security will not be entitled to have the securities
represented by the registered global security registered in their names, will
not receive or be entitled to receive physical delivery of the securities in
definitive form and will not be considered the owners or holders of the
securities under the applicable indenture or warrant agreement. Accordingly,
each person owning a beneficial interest in a registered global security must
rely on the procedures of the depositary for that registered global security
and, if that person is not a participant, on the procedures of the participant
through which the person owns its interest, to exercise any rights of a holder
under the applicable indenture or warrant agreement. We understand that under
existing industry practices, if we request any action of holders or if an owner
of a beneficial interest in a registered global security desires to give or take
any action that a holder is entitled to give or take under the applicable
indenture or warrant agreement, the depositary for the registered global
security would authorize the participants holding the relevant beneficial
interests to give or take that action, and the participants would authorize
53
beneficial owners owning through them to give or take that action or would
otherwise act upon the instructions of beneficial owners holding through them.
Payments of principal of, and premium, if any, and interest on, debt
securities, and any payments to holders with respect to warrants represented by
a registered global security registered in the name of a depositary or its
nominee will be made to the depositary or its nominee, as the case may be, as
the registered owner of the registered global security. Neither we, the
trustees, the warrant agents nor any of our other agents, agents of the trustees
or agents of the warrant agents will have any responsibility or liability for
any aspect of the records relating to payments made on account of beneficial
ownership interests in the registered global security or for maintaining,
supervising or reviewing any records relating to those beneficial ownership
interests.
We expect that the depositary for any of the securities represented by
a registered global security, upon receipt of any payment of principal, premium,
interest or other distribution of underlying securities or other property to
holders on that registered global security, will immediately credit
participants' accounts in amounts proportionate to their respective beneficial
interests in that registered global security as shown on the records of the
depositary. We also expect that payments by participants to owners of beneficial
interests in a registered global security held through participants will be
governed by standing customer instructions and customary practices, as is now
the case with the securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of those
participants.
If the depositary for any of these securities represented by a
registered global security is at any time unwilling or unable to continue as
depositary or ceases to be a clearing agency registered under the Exchange Act,
and a successor depositary registered as a clearing agency under the Exchange
Act is not appointed by us within 90 days, we will issue securities in
definitive form in exchange for the registered global security that had been
held by the depositary. In addition, we may at any time and in our sole
discretion decide not to have any of the securities represented by one or more
registered global securities. If we make that decision, we will issue securities
in definitive form in exchange for all of the registered global security or
securities representing those securities. Any securities issued in definitive
form in exchange for a registered global security will be registered in the name
or names that the depositary gives to the relevant trustee, warrant agent, or
other relevant agent of ours or theirs. It is expected that the depositary's
instructions will be based upon directions received by the depositary from
participants with respect to ownership of beneficial interests in the registered
global security that had been held by the depositary.
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SELLING SHAREHOLDERS
Up to 12,981,646 common shares may be sold from time to time in one
or more offerings by the selling shareholders. Such common shares will be issued
upon conversion of preferred shares issued and outstanding prior to August 3,
2004. We will not receive any proceeds from sales of common shares by the
selling shareholders.
In accordance with the requirements of the Securities and Exchange
Commission, we are registering convertible preferred shares and convertible
common shares into which the convertible preferred shares convert. The selling
shareholders do not intend to sell either the convertible preferred shares nor
the convertible common shares, and have entered into an agreement with us not to
do so. None of the selling shareholders has committed to sell any shares under
this prospectus. The common shares offered by this prospectus may be offered
from time to time by the selling shareholders named below.
All expenses related to the registration of the shares owned by the
selling shareholders will be paid by us; provided, however, that the selling
shareholders are obligated to pay any underwriting fees, discounts or
commissions in connection with the registration.
The following table sets forth information relating to the selling
shareholders' beneficial ownership of our common stock as of August 3, 2004:
Common Shares Beneficially Common Shares Beneficially
Owned Prior to the Offering Owned After the Offering
--------------------------- Maximum Maximum ------------------------
Percent of Number of Number of Number of Percent of
Common Convertible Convertible Common Common
Shares Preferred Common Shares Shares
Selling Shareholders Number(1) Outstanding(2) Shares(3) Shares(4) Offered(5) Number(6) Outstanding
-------------------- --------- ------------- ----------- -------------- -------------- --------- ------------
Capital Z Partners, Ltd.., &
Affiliates (7).............. 6,501,656.91 23.7% 8,957.34 6,490,823.91 6,490,823.91 10,833 0.04%
Reservoir Capital Management
L.L.C. & Affiliates (8)..... 3,411,081.94 12.4% 4,490.61 3,254,065.94 3,254,065.94 157,016 0.57%
RER Reinsurance Holdings,
L.P.(9)..................... 2,077,063.04 7.6% 2,866.35 2,077,063.04 2,077,063.04 0 0.00%
SAB Capital Advisors, L.L.C.
and Affiliates (10)......... 2,231,649.28 8.2% 1,480.95 1,073,149.28 1,073,149.28 1,158,500 4.23%
Robert Stavis (11).......... 100,766.20 0.4% 119.43 86,544.20 86,544.20 14,222 0.05%
------------- ----- --------- ------------- ------------- --------- -----
Total....................... 14,322,217.37 52.3% 17,914.68 12,981,646.37 12,981,646.37 1,340,571 4.89%
============= ===== ========= ============= ============= ========= =====
-----------------
(1) Includes common shares held on the date hereof, plus common shares
issuable upon conversion of preferred shares, plus common shares
issuable upon exercise of options and/or warrants exercisable within 60
days of the date hereof, plus restricted common shares.
(2) Applicable percentage ownership is based on 14,416,571 common shares
outstanding as of August 3, 2004 plus 12,981,646 common shares
issuable upon conversion of the preferred shares, plus 13,221 common
shares issuable upon exercise of options held by the selling
shareholders exercisable within 60 days, plus 18,500 restricted common
shares held by the selling shareholders and 1,308,850 common shares
beneficially owned by the selling shareholders.
(3) Includes issued and outstanding Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares.
(4) Assumes all of the preferred shares are converted into convertible
common shares, although the selling shareholders may sell all, part or
none of their preferred shares covered by the registration statement of
which this prospectus forms a part. Includes Class A Common Shares,
Class B Common Shares and Class C Common Shares issuable upon
conversion of the Series A Preferred Shares, Series B Preferred Shares
and Series C Preferred Shares, respectively.
(5) Includes only common shares issuable upon conversion of the convertible
common shares into which the issued and outstanding preferred shares
convert.
(6) Assumes all of the common shares issuable upon conversion of preferred
shares are sold, although the selling shareholders may sell all, part
or none of their common shares covered by the registration statement of
which this prospectus forms a part.
55
(7) According to the Company's Share Register, Capital Z holds 8,957.337
preferred shares, which includes 5,939.918 A1 Preferred Shares and
2,969.959 A2 Preferred Shares owned by Capital Z Fund and 31.640 A1
Preferred Shares and 15.820 A2 Preferred Shares owned by Capital Z
Private Fund. The 8,957.337 preferred shares held by Capital Z are
convertible into 6,490,823.913 common shares. In addition, Capital Z
Management, LLC holds 7,500 common shares, 5,834 of which are
restricted common shares, and options exercisable within 60 days to
purchase 3,333 common shares that were granted to it under our Director
Stock Plan as the designee of Susan Fleming and Bradley Cooper, members
of our board of directors.
(8) According to the Company's Share Register, Reservoir Capital Partners
Master Fund, L.P. ("Reservoir Master Fund") and Reservoir Capital
Partners, L.P. ("Reservoir Partners" and, together with Reservoir
Master Fund and their various affiliates, "Reservoir") hold the
4,490.611 preferred shares, which includes 2,562.641 B1 Preferred
Shares and 1,281.322 B2 Preferred Shares owned by Reservoir Partners
and 431.099 B1 Preferred Shares and 215.549 B2 Preferred Shares owned
by Reservoir Master Fund. The 4,490.611 preferred shares held by
Reservoir are convertible into 3,254,065.942 common shares. According
to an Amended Schedule 13D filed on July 15, 2002 by Reservoir,
Reservoir holds 150,350 common shares. In addition, Reservoir holds
5,000 common shares, 4,167 of which are restricted common shares, and
options exercisable within 60 days to purchase 1,666 common shares that
were granted to it under our Director Stock Plan as a designee of Craig
Huff, a member of our board of directors.
(9) According to the Company's Share Register, RER holds the 2,866.347
preferred shares, consisting of 1,910.898 C1 Preferred Shares and
955.449 C2 Preferred Shares owned by Rainwater. The 2,866.347 preferred
shares held by RER are convertible into 2,077,063.043 common shares.
Based on the Amended Schedule 13D filed on July 15, 2002, we believe
Richard Rainwater, as the sole general partner of RER, has the sole
voting and dispositive power with respect to the 2,866.347 preferred
shares held by RER.
(10) According to amendment number three to the Schedule 13G filed with the
Commission on February 17, 2004 by SAB Capital Advisors, L.L.C. and the
other entities and person named therein (collectively, the "SAB
Entities"), the SAB Entities beneficially own 1,158,500 of the common
shares indicated opposite their name in the above table by virtue of:
SAB Capital Partners, L.P.'s beneficial ownership of 541,699 common
shares; SAB Capital Partners II, L.P.'s beneficial ownership of 13,630
common shares; SAB Capital Advisors, L.L.C.'s beneficial ownership of
555,329 common shares; and the beneficial ownership of 603,171 common
shares by SAB Capital Management, L.L.C. and SAB Overseas Capital
Management, L.P. The amended Schedule 13G reports that each of the SAB
Entities share voting and dispositive power with respect to the common
shares reported as beneficially owned. The amended Schedule 13G also
reports that Mr. Scott A. Bommer beneficially owns, and shares voting
and dispositive power with respect to, all 1,158,500 common shares
beneficially owned by the other SAB Entities. According to the
Company's Share Register, as of August 3, 2004, the various SAB
entities also collectively held 1,480.946 Series B Preferred Shares as
follows: SABCPI held 473.744 B1 Preferred Shares and 236.871 B2
Preferred Shares, SABCPII held 15.128 B1 Preferred Shares and 7.564 B2
Preferred Shares, and SABOF held 498.426 B1 Preferred Shares and
249.213 B2 Preferred Shares. The Preferred Shares held by the SAB
Entities are convertible into 1,073,149.275 common shares.
(11) Includes 6,000 common shares, 4,501 of which are restricted common
shares, and options exercisable within 60 days to purchase 8,222 common
shares. Mr. Stavis also holds 119.431 preferred shares, consisting of
79.621 C1 preferred shares and 39.810 C2 preferred shares, which,
119.431 preferred shares are ultimately convertible into 86,544.202
common shares.
56
PLAN OF DISTRIBUTION
The securities being offered by this prospectus may be sold by us or
the selling shareholders:
o through agents,
o to or through one or more underwriters on a firm commitment or
best efforts basis,
o through put or call option transactions relating to the
securities,
o through broker-dealers (acting as agent or principal),
o directly by us or the selling shareholders to purchasers,
through a specific bidding or auction process or otherwise, or
o through a combination of any such methods of sale.
The distribution of securities may be effected from time to time in one
or more transactions, including block transactions and transactions on the New
York Stock Exchange or any other organized market where the securities may be
traded. The securities may be sold at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices relating
to the prevailing market prices or at negotiated prices. The consideration may
be cash or another form negotiated by the parties. Agents, underwriters or
broker-dealers may be paid compensation for offering and selling the securities.
That compensation may be in the form of discounts, concessions or commissions to
be received from us or the selling shareholders or from the purchasers of the
securities. The selling shareholders and dealers and agents participating in the
distribution of the securities may be deemed to be underwriters, and
compensation received by them on resale of the securities may be deemed to be
underwriting discounts. If the selling shareholders or such dealers or agents
were deemed to be underwriters, they may be subject to statutory liabilities
under the Securities Act of 1933, as amended, which we refer to as the
Securities Act.
Agents may from time to time solicit offers to purchase the securities.
If required, we will name in the applicable prospectus supplement any agent
involved in the offer or sale of the securities and set forth any compensation
payable to the agent. Unless otherwise indicated in the prospectus supplement,
any agent will be acting on a best efforts basis for the period of its
appointment. Any agent selling the securities covered by this prospectus may be
deemed to be an underwriter, as that term is defined in the Securities Act, of
the securities.
If underwriters are used in a sale, securities will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale, or under delayed
delivery contracts or other contractual commitments. Securities may be offered
to the public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more firms acting as underwriters.
If an underwriter or underwriters are used in the sale of securities, an
underwriting agreement will be executed with the underwriter or underwriters at
the time an agreement for the sale is reached. The applicable prospectus
supplement will set forth the managing underwriter or underwriters, as well as
any other underwriter or underwriters, with respect to a particular underwritten
offering of securities, and will set forth the terms of the transactions,
including compensation of the underwriters and dealers and the public offering
price, if applicable. The prospectus and prospectus supplement will be used by
the underwriters to resell the securities.
If a dealer is used in the sale of the securities, we, the selling
shareholders or an underwriter will sell the securities to the dealer, as
principal. The dealer may then resell the securities to the public at varying
prices to be determined by the dealer at the time of resale. To the extent
required, we will set forth in the prospectus supplement the name of the dealer
and the terms of the transactions.
We and the selling shareholders may directly solicit offers to purchase
the securities and we or the selling shareholders may make sales of securities
directly to institutional investors or others. These persons may be deemed to be
underwriters within the meaning of the Securities Act with respect to any resale
of the securities. To the extent required, the prospectus supplement will
describe the terms of any such sales, including the terms of any bidding or
auction process, if used.
57
Agents, underwriters and dealers may be entitled under agreements which
may be entered into with us or the selling shareholders to indemnification by us
or the selling shareholders against specified liabilities, including liabilities
incurred under the Securities Act, or to contribution by us and/or the selling
shareholders to payments they may be required to make in respect of such
liabilities. If required, the prospectus supplement will describe the terms and
conditions of the indemnification or contribution. Some of the agents,
underwriters or dealers, or their affiliates may be customers of, engage in
transactions with or perform services for us or our subsidiaries in the ordinary
course of business.
Under the securities laws of some states, the securities offered by
this prospectus may be sold in those states only through registered or licensed
brokers or dealers.
Any person participating in the distribution of common shares
registered under the registration statement that includes this prospectus will
be subject to applicable provisions of the Exchange Act, and the applicable SEC
rules and regulations, including, among others, Regulation M, which may limit
the timing of purchases and sales of any of our common shares by that person.
Furthermore, Regulation M may restrict the ability of any person engaged in the
distribution of our common shares to engage in market-making activities with
respect to our common shares. These restrictions may affect the marketability of
our common shares and the ability of any person or entity to engage in
market-making activities with respect to our common shares.
Certain persons participating in an offering may engage in
over-allotment, stabilizing transactions, short-covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act that
stabilize, maintain or otherwise affect the price of the offered securities. For
a description of these activities, see the information under the heading
"Underwriting" in the applicable prospectus supplement.
In connection with the sales of the common shares, the selling
shareholders may enter into hedging transactions with broker-dealers. These
broker-dealers may in turn engage in short sales of the common shares in the
course of hedging their positions. The selling shareholders may also sell short
the common shares and deliver common shares to close out short positions, or
loan or pledge the common shares to broker-dealers that, in turn, may sell the
securities.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling shareholder and any underwriter,
broker-dealer or agent regarding the sale of the common shares by any selling
shareholder. The selling shareholders may decide not to sell all or a portion of
the common shares offered by them pursuant to this prospectus or may decide not
to sell common shares under this prospectus. However, the selling shareholders
do not intend to offer for resale either the convertible preferred shares or any
convertible common shares and have entered into an agreement with us not to do
so. In addition, the selling shareholders may transfer, devise or give the
common shares by other means not described in this prospectus. Any common shares
that qualify for sale pursuant to Rule 144 of the Securities Act, or Regulation
S under the Securities Act, may be sold under Rule 144 or Regulation S rather
than pursuant to this prospectus.
LEGAL MATTERS
Certain legal matters with respect to Bermuda law will be passed upon
for us by Conyers Dill & Pearman, Hamilton, Bermuda. Certain legal matters with
respect to United States and New York law will be passed upon for us by Sidley
Austin Brown & Wood LLP. Sidley Austin Brown & Wood LLP will rely on the opinion
of Conyers Dill & Pearman with respect to Bermuda law.
EXPERTS
The consolidated financial statements and financial statement schedules
of PXRE Group Ltd. as of December 31, 2003 and 2002, and for each of the years
in the three-year period ended December 31, 2003, have been incorporated by
reference herein and in the registration statement in reliance upon the reports
of KPMG LLP, independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and
58
auditing. The audit reports refer to the adoption of the provisions of FAS 133
"Accounting for Derivative Instruments and Hedging Activities," during 2001.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit
plan subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which we refer to as a "plan," should consider the fiduciary
standards of ERISA in the context of the plan's particular circumstances before
authorizing an investment in these securities. Accordingly, among other factors,
the fiduciary should consider whether the investment would satisfy the prudence
and diversification requirements of ERISA and would be consistent with the
documents and instruments governing the plan.
ERISA Section 406 and Code Section 4975 generally prohibit transactions
between plans, individual retirement accounts and other arrangements including
individual retirement accounts and Keogh plans that are subject to ERISA and/ or
Section 4975 of the Code (also "plans"), and "parties in interest" within the
meaning of ERISA or "disqualified persons" within the meaning of the Code.
Prohibited transactions within the meaning of ERISA or the Code could arise, for
example, if these securities are acquired by or with the assets of a plan with
respect to which we or one of our subsidiaries or affiliates is a service
provider, unless the securities are acquired pursuant to an exemption from the
"prohibited transaction" rules. A violation of these "prohibited transaction"
rules may result in an excise tax or other liabilities under ERISA and/or
Section 4975 of the Code for those persons, unless exemptive relief is available
under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions ("PTCEs") that may provide exemptive relief for direct or
indirect prohibited transactions resulting from the purchase or holding of these
securities. Those class exemptions are PTCE 96-23 (for certain transactions
determined by in-house asset managers), PTCE 95-60 (for certain transactions
involving insurance company general accounts), PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE 90-1 (for certain
transactions involving insurance company separate accounts) and PTCE 84-14 (for
certain transactions determined by independent qualified asset managers).
Unless otherwise specified in the applicable prospectus supplement,
these securities may not be purchased or held by any plan, any entity whose
underlying assets include "plan assets" by reason of any plan's investment in
the entity (a "Plan Asset Entity") or any person investing "plan assets" of any
plan, unless such purchase and holding will not constitute a non-exempt
prohibited transaction. Unless otherwise specified in the applicable prospectus
supplement, any purchaser, including any fiduciary purchasing on behalf of a
plan, or holder of these securities will be deemed to have represented, in its
corporate and fiduciary capacity, by its purchase and holding thereof that it
either (a) is not a plan or a Plan Asset Entity and is not purchasing such
securities on behalf of or with "plan assets" of any plan or (b) or such
purchase and holding will not constitute a non-exempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code.
Under ERISA, assets of a plan may include assets held in the general
account of an insurance company which has issued an insurance policy to such
plan or assets of an entity in which the plan has invested. Accordingly,
insurance company general accounts that include assets of a plan must ensure
that one of the foregoing exemptions is available. Due to the complexity of
these rules and the penalties that may be imposed upon persons involved in
non-exempt prohibited transactions, it is particularly important that
fiduciaries or other persons considering purchasing these securities on behalf
of or with "plan assets" of any plan consult with their counsel regarding the
availability of exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14.
Purchasers of these securities have exclusive responsibility for
ensuring that their purchase and holding of the securities do not violate the
prohibited transaction rules of ERISA or the Code.
59
BERMUDA MONETARY AUTHORITY
The Bermuda Monetary Authority has classified us as a non-resident of
Bermuda for exchange control purposes. Accordingly, the Bermuda Monetary
Authority does not restrict our ability to convert currency, other than Bermuda
dollars, held for our account to any other currency, to transfer funds in and
out of Bermuda or to pay dividends or other forms of payment to non- Bermuda
residents who are shareholders or holders of our other securities, other than in
Bermuda dollars.
We have obtained the permission of the Bermuda Monetary Authority for
the issuance and free transferability of our share capital that we may offer as
described in this document to and between non-residents of Bermuda for exchange
control purposes. This permission is subject to the condition that our common
shares be listed on an appointed stock exchange, which includes the New York
Stock Exchange. No further permission from the Bermuda Monetary Authority will
be required to issue our shares or to transfer our shares between persons
regarded as non-resident in Bermuda for exchange control purposes. Approvals or
permissions received from the Bermuda Monetary Authority do not constitute a
guaranty by the Bermuda Monetary Authority as to our performance or our
creditworthiness. Accordingly, in giving those approvals or permissions, the
Bermuda Monetary Authority will not be liable for our performance or default or
for the correctness of any opinions or statements expressed in this document.
SUPERVISION, INVESTIGATION AND INTERVENTION
The Bermuda Monetary Authority may appoint an inspector with extensive
powers to investigate the affairs of an insurer if the Bermuda Monetary
Authority believes that such an investigation is in the best interests of the
insurer's policyholders or persons who may become policyholders. In order to
verify or supplement information otherwise provided to the Bermuda Monetary
Authority, the Bermuda Monetary Authority may direct an insurer to produce
documents or information relating to matters connected with its business. In
addition, the Bermuda Monetary Authority has the power to require the production
of documents from any person who appears to be in possession of such documents
as the Authority may reasonably require for the performance of its functions
under the Insurance Act. The Bermuda Monetary Authority has the power in respect
of a person registered under the Insurance Act, to appoint a professional person
to prepare a report on any aspect of any matter about which the Bermuda Monetary
Authority has required or could require information. If it appears to the
Bermuda Monetary Authority to be desirable in the interests of the clients of a
person registered under the Insurance Act, the Bermuda Monetary Authority may
also exercise these powers in relation to any company that is or has at any
relevant time been (a) a parent company, subsidiary company or related company
of that registered person, (b) a subsidiary company of a parent company of that
registered person, (c) a parent company of a subsidiary company of that
registered person or (d) a company in the case of which a shareholder controller
of that registered person, either alone or with any associate or associates,
holds 50 per cent or more of the shares or is entitled to exercise, or control
the exercise of more than 50 per cent of the voting power at a general meeting.
If it appears to the Bermuda Monetary Authority that there is a risk of
an insurer becoming insolvent, or that the insurer is in breach of the Insurance
Act or any conditions imposed upon its registration, the Bermuda Monetary
Authority may, among other things, direct the insurer (i) not to take on any new
insurance business, (ii) not to vary any insurance contract if the effect would
be to increase its liabilities, (iii) not to make certain investments, (iv) to
liquidate certain investments, (v) to maintain in, or transfer to the custody of
a specified bank, certain assets, (vi) not to declare or pay any dividends or
other distributions or to restrict the making of such payments and/or (vii) to
limit its premium income. The Bermuda Monetary Authority intends to meet with
each Class 4 insurance company on a voluntary basis, every two years.
DISCLOSURE OF INFORMATION
In addition to powers under the Insurance Act to investigate the
affairs of an insurer, the Bermuda Monetary Authority may require certain
information from an insurer (or certain other persons) to be produced to them.
The Bermuda Monetary Authority has the power to assist other regulatory
authorities, including foreign insurance regulatory authorities, with their
investigations involving insurance and reinsurance companies in Bermuda but
subject to restrictions. For example, the Bermuda Monetary Authority must be
satisfied that the assistance being requested is in connection with the
discharge of regulatory responsibilities of the foreign regulatory
60
authority. Further, the Bermuda Monetary Authority must consider whether
cooperation is in the public interest. The grounds for disclosure are limited
and the Insurance Act provides sanctions for breach of the statutory duty of
confidentiality.
Under the Companies Act, the Minister of Finance has been given powers
to assist a foreign regulatory authority that has requested assistance in
connection with inquiries being carried out by it in the performance of its
regulatory functions. The Minister's powers include requiring a person to
furnish information, to produce documents, to attend and to give assistance and
answer questions in connection with inquiries. The Minister must be satisfied
that the assistance requested by the foreign regulatory authority is for the
purpose of its regulatory functions and that the request is in relation to
information in Bermuda that a person possesses or controls. The Minister must
consider, amongst other things, whether it is in the public interest to give the
information.
UNENFORCEABILITY OF CERTAIN UNITED STATES JUDGMENTS
PXRE Group Ltd. is organized under the laws of Bermuda. In addition,
some of our directors and officers, as well as the experts named in this
prospectus reside outside of the United States. A substantial portion of our and
their assets are or may be located outside the United States. As a result it may
not be possible for the holders of our common or preferred shares or holders of
other securities to effect service of process within the United States upon us
and them or to enforce against us and them in U.S. courts judgments based on the
civil liability provisions of the securities laws of the United States. However,
investors may serve us with process in the United States with respect to actions
against us arising out of or in connection with violations of securities laws of
the United States, relating to offers and sales of the securities covered by
this prospectus, by serving CT Corporation, our United States agent irrevocably
appointed for that purpose.
In addition, there is significant doubt as to whether the courts of
Bermuda would recognize or enforce judgments of U.S. courts obtained against us
or our directors or officers based on the liability provisions of the securities
laws of the United States or any state or hear actions brought in Bermuda
against us or those persons based on those laws. We have been advised by our
Bermuda legal counsel, Conyers Dill & Pearman, that the United States and
Bermuda do not currently have as treaty providing for reciprocal recognition and
enforcement of judgments in civil and commercial matters. As a result, whether a
U.S. judgment would be enforceable in Bermuda against us or our directors and
officers depends on whether the U.S. court that entered the judgment is
recognized by the Bermuda Court as having jurisdiction over us or our directors
or officers, as determined by reference to the Bermuda conflict of law rules. A
judgment debt from a U.S. court that is final and for a sum certain based on
U.S. federal securities laws may not be enforceable in Bermuda. A Bermuda court
may, however, impose civil liability on us or our directors and officers if the
facts alleged in a complaint constitute or give rise to a cause of action under
Bermuda law.
U.S. statutory law and related regulations are not enforceable by
original action in Bermuda and investors could not rely upon U.S. federal
securities laws to assert a cause of action in the Bermuda courts. There are,
however, remedies available under Bermuda common law, equity and under Bermuda
statutes that would be available to investors in the Bermuda courts against the
registrant, affiliates of the registrant, underwriters, or any named expert.
These remedies will not be identical to the remedies available under U.S.
statutory law and may not be as extensive.
61
DIFFERENCE IN CORPORATE LAWS
The Companies Act 1981 of Bermuda, which applies to us, differs in
material respects from laws generally applicable to U.S. corporations and their
shareholders. Set forth below is a summary of significant provisions of the
Companies Act, including modifications adopted pursuant to the bye-laws,
applicable to us which differ in some respects from provisions of Delaware
corporate law. Because the following statements are summaries, they do not
purport to deal with all aspects of Bermuda law that may be relevant to us and
our shareholders.
ALTERNATE DIRECTORS
Bermuda law provides that each director may appoint an alternate
director, who shall have the power to attend and vote at any meeting of the
board of directors or committee at which that director is not personally present
and to sign written consents in place of that director. Delaware law does not
provide for alternate directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Our bye-laws provide, as permitted by Bermuda law, that the board of
directors may delegate any of its powers to committees that the board appoints,
and those committees may consist partly or entirely of non- directors. Delaware
law allows the board of directors of a corporation to delegate many of its
powers to committees, but those committees may consist only of directors.
FIDUCIARY DUTIES OF DIRECTORS AND OFFICERS
In addition to common law fiduciary duty to us, the Companies Act 1981
of Bermuda imposes the following fiduciary duties on each director and officer:
Duty to act honestly and in good faith with a view to the best
interests of the company. In conflict of interest situations, a director or
officer must place the best interests of the company above the director's own
personal interests. A director or officer may not use his or her position as a
director or officer to make a personal profit from opportunities that rightfully
belong to the company.
Duty to exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances. A director or officer
must act reasonably in accordance with the level of skill expected from a person
of his or her knowledge and experience. A director must attend diligently to the
company's affairs, but may, in doing so, act on an intermittent, rather than a
continuous, basis. A director or officer may delegate management functions to
suitably qualified persons, although the director or officer will not avoid duty
by delegation to others.
These two duties are similar to the duty of loyalty and the duty of
care that directors and officers have under Delaware law. Delaware courts
generally presume that directors have fulfilled their duty of care so long as
their conduct does not involve fraud, illegality, conflict of interest, lack of
a rational business purpose or gross negligence. A Bermuda court is likely to
interfere with decisions of directors only if the directors acted in bad faith
or exceeded the powers granted to them under a company's bye-laws, or it the
court finds that no reasonable board of directors could have come to the
decision that was reached.
Under Bermuda law, directors and officers owe fiduciary duties to the
company as a whole and not to shareholders individually. If a company suffers
any losses due to acts or omissions of its directors or officers that constitute
a breach of their duties to the company, then the company may be able to recover
its losses from those directors or officers. Examples of this type of situation
would be misappropriation of the company's assets or transactions undertaken on
behalf of the company for an unlawful purpose. Under Delaware law, directors and
officers owe fiduciary duties to both the corporation and its shareholders.
62
INTERESTED DIRECTOR TRANSACTIONS
Bermuda law and our bye-laws provide that any transaction entered into
by us in which a director has an interest is not voidable by us nor can the
director be liable to us for any profit realized pursuant to the transaction
provided the nature of the interest is disclosed at the first opportunity at a
meeting of directors or in writing to the directors. Under Delaware law, this
type of transaction would not be voidable if:
o the material facts as to the director's relationship or
interest and as to the transaction are disclosed or are known
to the board of directors, and the board, in good faith,
authorizes the transaction by the affirmative vote of a
majority of the disinterested directors;
o the material facts as to the director's relationship or
interest and as to the transaction are specifically approved,
in good faith, by vote of the shareholders; or
o the transaction is fair as to the corporation as of the time
it is authorized, approved or ratified by the board of
directors or the shareholders.
Under Delaware law, the interested director could be held liable for a
transaction in which the director derived an improper personal benefit.
BUSINESS COMBINATIONS
A Bermuda company may not enter into business combinations with its
large shareholders or affiliates, without obtaining prior approval from its
board of directors and, in certain instances, its shareholders. Examples of
business combinations include mergers, asset sales and other transactions in
which a large shareholder or affiliate receives or could receive a financial
benefit that is greater than that received or to be received by other
shareholders. A Delaware company may not enter into a business combination with
an interested shareholder for a period of three years from the time the person
became an interested shareholder unless it obtained either:
o prior approval from its board of directors of the business
combination or transaction, which resulted in the person
becoming an interested shareholder; or
o simultaneous or subsequent approval by its board of directors
and a supermajority of its shareholders.
Notwithstanding the previous sentence, the prior approval of its board
of directors and/or a supermajority of its shareholders would not be required
if, upon consummation of the transaction which resulted in the person becoming
an interested shareholder, the interested shareholder owned at least 85% of the
outstanding voting shares at the time the transaction commenced or if the
company expressly opted out of this statute in its articles of incorporation.
Under Delaware law, an interested shareholder is someone who, together with its
affiliates and associates, owns 15% or more of our outstanding voting shares.
MERGERS AND SIMILAR ARRANGEMENTS
We may acquire the business of another Bermuda exempted company or a
company incorporated outside Bermuda of which the business is within the
business purposes as set forth in our memorandum of association. We may, with
the approval of a majority of votes cast at a general meeting of our
shareholders at which a quorum is present, amalgamate with another Bermuda
company or with a body incorporated outside of Bermuda. In the case of an
amalgamation, a shareholder may apply to a Bermuda court for a proper valuation
of the shareholder's shares if the shareholder is not satisfied that fair value
has been paid for the shares. The court ordinarily would not disapprove the
transaction on that ground absent evidence of fraud or bad faith. Under Delaware
law, with some exceptions, a merger, consolidation or sale of all or
substantially all of the assets of a corporation must be approved by the board
of directors and a majority of the outstanding shares entitled to vote on the
transaction (rather than, as in Bermuda, a majority of votes cast). Delaware law
also provides that a parent corporation, by resolution of its board of directors
and without any shareholder vote, may merge with any subsidiary of which it owns
at least 90% of the outstanding shares of each class of share capital. Upon this
type of merger and unless the parent corporation owns 100% of the subsidiary's
shares, dissenting shareholders of the subsidiary would have appraisal rights
for the shares of the subsidiary.
63
TAKEOVERS
Bermuda law provides that where an offer is made for shares of a
company and within four months of the offer the holders of not less than 90% of
the shares which are the subject of the offer accept the offer, the company may,
by notice, require the nontendering shareholders to transfer their shares on the
terms of the offer. Dissenting shareholders may apply to the court within one
month of the notice objecting to the transfer. The burden is on the dissenting
shareholders to show that the court should exercise its direction to enjoin the
required transfer, which the court will be unlikely to do unless there is
evidence of fraud or bad faith or collusion between the offeror and the holders
of the shares who have accepted the offer as a means of unfairly forcing out
minority shareholders. There are no directly comparable provisions under
Delaware law, although as set forth above under "Mergers and Similar
Arrangements," a parent corporation holding 90% of a subsidiary's shares could
cause a merger of that subsidiary, which would give any minority shareholders
dissenter rights.
SHAREHOLDER'S SUIT
The rights of shareholders under Bermuda law are not as extensive as
the rights of shareholders under legislation or judicial precedent in many
United States jurisdictions. Class actions and derivative actions are generally
not available to shareholders under the laws of Bermuda. However, the Bermuda
courts ordinarily would be expected to follow English case law precedent, which
would permit a shareholder to commence an action in the name of the company to
remedy a wrong done to a company where the act complained of is alleged to be
beyond the corporate power of the company, is illegal or would result in the
violation of the company's memorandum of association or bye-laws. Furthermore,
consideration would be given by the court to acts that are alleged to constitute
a fraud against the minority shareholders or where any act requires the approval
of a greater percentage of our shareholders than actually approved it. The
winning party in this type of an action generally would be able to recover a
portion of attorneys' fees incurred in connection with the action. Our bye-laws
provide that shareholders waive all claims or rights of action that they might
have, individually or in the right of the company, against any director or
officer for any act or failure to act in the performance of the director's or
officer's duties, except with respect to any fraud or dishonesty of the director
or officer. Class actions and derivative actions generally are available to
shareholders under Delaware law for, among other things, breach of fiduciary
duty, corporate waste and actions not taken in accordance with applicable law.
In these types of actions, the court has discretion to permit the winning party
to recover its attorneys' fees.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Bermuda law and our bye-laws provide that a company and its
shareholders may waive all claims or rights of action that it or they might
have, individually or in the right of the company, against any director or
officer for any act or failure to act in the performance of that director's or
officer's duties. However, this waiver does not apply to claims involving fraud
or dishonesty. This waiver may have the effect of barring claims arising under
U.S. federal securities laws. Under Delaware law, a corporation may include in
its certificate of incorporation provisions limiting the personal liability of
its directors to the corporation or its shareholders for monetary damages for
many types of breach of fiduciary duty. However, these provisions may not limit
liability for any breach of the duty of loyalty, acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law, the
authorization of unlawful dividends, share repurchases or share redemptions, or
any transaction from which a director derived an improper personal benefit.
Moreover, these provisions would not be likely to bar claims arising under U.S.
federal securities laws. Our bye-laws do not provide for these specific types of
limitation of liability of our directors and officers.
INDEMNIFICATION OF DIRECTORS
In accordance with Bermuda law, we may indemnify our directors or
officers in their capacity as directors or officers against all civil
liabilities for any loss arising out of, or liability attaching to them by
virtue of, any rule of law in respect of any negligence, default, breach of duty
or breach of trust of which a director or officer may be guilty in relation to
the company other than in respect of the director's or officer's fraud or
dishonesty. Under Delaware law, a corporation may indemnify a director or
officer of the corporation against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with an action, suit or proceeding by reason of his or her
position if:
64
o the director or officer acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the
best interests of the corporation; and
o with respect to any criminal action or proceeding, the
director or officer had no reasonable cause to believe his or
her conduct was unlawful.
ENFORCEMENT OF JUDGMENTS AND OTHER MATTERS
We have been advised by Conyers Dill & Pearman, our Bermuda counsel,
that there is doubt as to whether:
o an investor would be able to enforce, in the courts of
Bermuda, judgments of United States courts against us or our
directors or officers, as well as the experts name in this
prospectus, based on the civil liability provisions of the
United States federal securities laws; or
o an investor would be able to bring an original action in the
courts of Bermuda to enforce liabilities against us or our
directors and officers, as well as the experts name in this
prospectus, based solely on United States federal securities
laws.
We also have been advised by Conyers Dill & Pearman that there is no
treaty in effect between the United States and Bermuda providing for enforcement
of judgments based on securities laws, and there are grounds upon which Bermuda
courts may decide not to enforce judgments of Unites States courts. Certain
remedies available under the laws of United States jurisdictions, including some
remedies available under the United federal securities laws, may not be allowed
in Bermuda courts as contrary to Bermuda public policy. See also
"Unenforceability of Certain United States Judgments".
INSPECTION OF CORPORATE RECORDS
Members of the general public have the right to inspect our public
documents at the office of the Registrar of Companies in Bermuda, which will
include our memorandum of association, including its objects and powers, and any
alteration to our memorandum of association and documents relating to any
increase or reduction of authorized share capital. Our shareholders have the
additional right to inspect our bye-laws, minutes of general meetings and
audited financial statements (and, if applicable, summarized financial
statements), which must be presented to the general meeting of shareholders. The
register of our shareholders is also open to inspection by shareholder without
charge, and to members of the public for a fee. We are required to maintain our
share register in Bermuda but may establish a branch register outside Bermuda.
We are required to keep at our registered office a register of our directors and
officers, which is open for inspection by members of the public without charge.
Bermuda law does not, however, provide a general right for shareholders to
inspect or obtain copies of any other corporate records. Delaware law permits
any shareholder to inspect or obtain copies of a corporation's shareholder list,
share ledger and its other books and records for any purpose reasonably related
to the person's interest as a shareholder.
65
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66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the securities, all of which will be paid by the registrant:
Securities and Exchange Commission filing fee........ $37,715
Rating agency fees................................... **
Legal fees and expenses.............................. **
Accounting fees and expenses......................... **
Trustees' fees and expenses.......................... **
Printing and engraving............................... **
Miscellaneous........................................ **
-------
Total........................................... $ **
**To be included by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Indemnification. PXRE Group Ltd. is a Bermuda company. Section 98
of the Companies Act 1981 of Bermuda (the "Act") provides generally that a
Bermuda company may indemnify its directors, officers and auditors against any
liability which by virtue of Bermuda law otherwise would be imposed on them,
except in cases where such liability arises from fraud or dishonesty of which
such director, officer or auditor may be guilty in relation to the company.
Section 98 further provides that a Bermudian company may indemnify its
directors, officers and auditors against any liability incurred by them in
defending any proceedings, whether civil or criminal, in which judgment is
awarded in their favor or they are acquitted or in which they are acquitted or
granted relief by the Supreme Court of Bermuda in certain proceedings arising
under Section 281 of the Act.
We have adopted provisions in our bye-laws that provide that we shall
indemnify our officers and directors to the maximum extent permitted under the
Act.
(b) Insurance.
There is in effect a Claim-Made and Reported Directors, Officers and
Company Liability Policy ("Policy") with Twin City Fire Insurance Company, a
subsidiary of The Hartford, which insures losses incurred as a result of claims
alleging wrongful acts committed by the directors and officers of PXRE Group
Ltd. and its subsidiaries (with "subsidiary" defined as any corporation in which
more than 50% of the outstanding securities or voting rights for election of
directors is owned by the PXRE Group Ltd.), hereinafter collectively referred to
as "the Company".
II-1
The Policy coverages fall into the following three categories, each of
which is described further below: (A) Directors' and Officers' Liability; (B)
Company Reimbursement; and (C) Company Securities Claim Liability. By way of
endorsement the Policy also covers certain employment practices claims.
The term "loss" is defined as sums which directors and officers or,
with respect to Coverage C (Securities Claim Liability), the Company, are liable
to pay as a result of a covered claim insured by the Policy, including claims
expenses, compensatory damages, settlement amounts, legal fees and costs, but
excluding fines, penalties, taxes or matters uninsurable by law. The Policy does
contain an endorsement making clear that the parties intend that the Policy
cover punitive damages and prohibits the insurer from contending that such
punitive damages are uninsurable.
As a "Claims Made and Reported" type coverage, the Policy covers claims
only if one or more directors or officers of the Company reports the claim to
the insurer within 60 days after termination of the Policy Period (November 20,
2003 to November 20, 2004) or during the "Discovery Period" (12 months after the
cancellation or non-renewal of the Policy) and the alleged wrongful act takes
place during or prior to the Policy Period.
I. POLICY COVERAGES
(A) Directors' and Officers' Liability:
The Policy insures the directors and officers of the Company against
loss arising from any claim made against such directors or officers for a
wrongful act (such as any actual or alleged error or misstatement or misleading
statement or act, omission, neglect or breach of duty) committed or attempted by
such officer or director in his or her capacity as such, or in an "outside
position" (an executive position held by a director or officer in a nonprofit
entity provided such service is with the consent of the Company). By way of
endorsement, coverage is also provided to employees of the Company if the claim
against the employee is also made against one or more directors and officers,
and the claim does not allege failure to render services to persons other than
the Company.
(B) Company Reimbursement:
The Policy insures the Company against loss for which the Company has,
to the extent permitted or required by law, indemnified the directors and
officers, and which the directors and officers are legally obligated to pay as a
result of a claim first made during the Policy Period or Discovery Period.
(C) Company Securities Claim Liability:
The Policy provides coverage to the Company against losses resulting
from a securities claim. "Securities claim" is defined as a claim: (a) alleging
a violation of the Securities Act, Exchange Act or any similar statutes, common
law or rules or regulations; or (b) arising from the purchase or sale of, or
offer to purchase or sell, any securities issued by the Company.
(D) Employment Practice Claims:
By way of endorsement, coverage is extended to cover employment
practice claims, including wrongful dismissal, discharge or termination of
employment, sexual harassment of employees, employment discrimination, wrongful
failure to hire or promote, or failure to grant tenure.
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II. POLICY EXCLUSIONS
Among other exclusions, the Policy does not provide coverage for loss
in connection with claims relating to (1) any deliberately dishonest, malicious
or fraudulent act or omission, any willful violation of law; or (2) a director
or officer's gaining in fact any personal profit, remuneration or advantage to
which they were not legally entitled. In the event that a factual dispute arises
with respect to such claims, the Company has the right to refer the dispute to
binding arbitration. Also excluded are claims for any accounting for profits for
the purchase or sale of securities of the Company within the meaning of Section
16(b) of the Exchange Act or similar provision of any federal, state, local or
common law.
Claims brought by or on behalf of the Company (or any director or
officer) are excluded from coverage, except for claims involving derivative
actions by security holders who are not directors and officers, wrongful
termination or discrimination claims brought by a former director or officer, a
claim for contribution or indemnity resulting from a claim covered under the
Policy; and a covered claim by an employee of the Company. The Policy excludes
"Errors and Omissions" from coverage (i.e., claims alleging mishandling of
insurance and reinsurance policies, including cancellation, failure to renew or
make payment under a policy).
III. POLICY LIMITS AND COVERAGE LAYERS
The aggregate limit of liability is $10,000,000 per policy year,
including claims expenses. Excess coverage over this primary layer is provided
as follows: Travelers Casualty and Surety Company of America ($10,000,000 excess
of $10,000,000), Ace American Insurance Company ($10,000,000 excess of
$20,000,000) and Liberty International Underwriters ($10,000,000 excess of
$30,000,000).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The attached index to exhibits is incorporated by reference in this
Item 16.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
PXRE's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a registrant
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, such registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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(3) The undersigned registrants hereby undertake:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in this registration statement or any material change to such
information in this registration statement;
provided, however, that paragraphs (3)(a)(i) and (3)(a)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
this registration statement.
(b) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) The undersigned registrants (other than PXRE) hereby undertake to
provide to the underwriter at the closing specified in the underwriting
agreements, certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each purchaser.
(5) The undersigned registrants hereby undertake that:
(a) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the forms of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new
II-4
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(6) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the SEC under Section 305(b)(2) of the Act.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in Hamilton, Bermuda, on the 9th day of August, 2004.
PXRE GROUP LTD.
(Registrant)
By: /s/ Jeffrey L. Radke
-----------------------------------------------
Name: Jeffrey L. Radke
Title: President and Chief Executive Officer
PXRE CAPITAL TRUST IV
(Registrant)
By: PXRE Group Ltd., as sponsor
By: /s/ Jeffrey L. Radke
-----------------------------------------------
Name: Jeffrey L. Radke
Title: President and Chief Executive Officer
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POWERS OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Jeffrey L. Radke and John M. Modin, and
each of them, with full power to act without the other, such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this registration statement, any and all amendments thereto
(including post-effective amendments), any subsequent registration statements
pursuant to Rule 462 of the Securities Act of 1933, as amended, and any
amendments thereto and to file the same, with exhibits and schedules thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the date indicated.
SIGNATURE TITLE
--------- -----
/s/ Jeffrey L. Radke
------------------------------------
Jeffrey L. Radke President and Chief Executive Officer
(Principal Executive Officer)
/s/ John M. Modin
------------------------------------
John M. Modin Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
/s/ Gerald L. Radke
------------------------------------
Gerald L. Radke Chairman and Director
/s/ F. Sedgwick Browne
------------------------------------
F. Sedgwick Browne Director
/s/ Bradley E. Cooper
------------------------------------
Bradley E. Cooper Director
/s/ Robert W. Fiondella
------------------------------------
Robert W. Fiondella Director
/s/ Susan S. Fleming
------------------------------------
Susan S. Fleming Director
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SIGNATURE TITLE
--------- -----
/s/ Franklin D. Haftl
------------------------------------
Franklin D. Haftl Director
/s/ Craig A. Huff
------------------------------------
Craig A. Huff Director
/s/ Mural R. Josephson
------------------------------------
Mural R. Josephson Director
/s/ Wendy Luscombe
------------------------------------
Wendy Luscombe Director
/s/ Philip R. McLoughlin
------------------------------------
Philip R. McLoughlin Director
/s/ Robert M. Stavis
------------------------------------
Robert M. Stavis Director
By: /s/ John M. Modin
--------------------------------------------------------
John M. Modin
Authorized U.S. Representative
Dated: August 9, 2004
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1*** Form of Underwriting Agreement for Debt Securities and Warrants
1.2*** Form of Underwriting Agreement for Common Shares, Preferred Shares and Depositary Shares
1.3*** Form of Underwriting Agreement for Capital Securities.
4.1+ Bye-laws of PXRE Group Ltd., as amended through September 22, 1999 (incorporated by
reference to Exhibit No. 3.2 to PXRE Group Ltd.'s Form S-4 Registration Statement dated
August 18, 1999 (File No. 333-85451)).
4.2+ Memorandum of Association of PXRE Group Ltd. (incorporated by reference to Exhibit No.
3.1 to PXRE Group Ltd.'s Form S-4 Registration Statement dated August 18, 1999 (File No.
333-85451)).
4.3+ Form of Specimen Certificate for PXRE's Common Shares (incorporated by reference to
Exhibit No. 4.1 to PXRE Group Ltd.'s Form S-4 Registration Statement dated August 18,
1999 (File No. 333-85451)).
4.4+ Description of Stock for Series A Convertible Voting Preferred Shares, Series B
Convertible Voting Preferred Shares, Series C Convertible Voting Preferred Shares, Class
A Convertible Voting Common Shares, Class B Convertible Voting Common Shares and Class C
Convertible Voting Common Shares (incorporated by reference to Appendix II to PXRE Group
Ltd.'s Proxy Statement for the February 12, 2002 Special Meeting of Shareholders).
4.5*** Description of Offered Preferred Stock.
4.6*** Form of Deposit Agreement (including Form of Depositary Receipt).
4.7*** Form of Warrant Agreement (including Form of Warrant Certificate).
4.8+ Certificate of Trust of PXRE Capital Trust IV (incorporated by reference to Exhibit No.
4.8 to PXRE Group Ltd.'s Registration Statement on Form S-3, File No.333-105589).
4.9+ Trust Agreement, with respect to PXRE Capital Trust IV, among PXRE, the Trustee, and the
Administrators named therein (incorporated by reference to Exhibit No. 4.9 to PXRE Group
Ltd.'s Registration Statement on Form S-3, File No.333-105589).
4.10+ Form of Amended and Restated Trust Agreement with respect to PXRE Capital Trust
(incorporated by reference to Exhibit No. 4.10 to PXRE Group Ltd.'s Registration
Statement on Form S-3, File No.333-105589).
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.11+ Form of Guarantee Agreement (incorporated by reference to Exhibit No. 4.11 to PXRE
Group Ltd.'s Registration Statement on Form S-3, File No.333-105589).
4.12+ Form of Senior Indenture (including Form of Senior Debt Security)(incorporated by
reference to Exhibit No. 4.12 to PXRE Group Ltd.'s Registration Statement on Form S-3,
File No.333-105589).
4.13+ Form of Subordinated Indenture (including Form of Subordinated Debt Security)
(incorporated by reference to Exhibit No. 4.13 to PXRE Group Ltd.'s Registration
Statement on Form S-3, File No.333-105589).
4.14+ Form of Junior Subordinated Indenture (including Form of Junior Subordinated Debt
Security)(incorporated by reference to Exhibit No. 4.14 to PXRE Group Ltd.'s Registration
Statement on Form S-3, File No.333-105589).
4.15+ Form of Capital Security (including Capital Securities Guarantee) (incorporated by
reference to Exhibit No. 4.15 to PXRE Group Ltd.'s Registration Statement on Form S-3,
File No.333-105589).
4.16* Letter Agreement dated August 4, 2004 by and among Capital Z Financial Services Fund II, L.P.,
Capital Z Financial Services Private Fund II, L.P., Reservoir Capital Partners, L.P., Reservoir
Capital Master Fund, L.P., RER Reinsurance Holdings, L.P., SAB Capital Advisors, L.L.C. and
Robert M. Stavis.
5.1** Opinion of Sidley Austin Brown & Wood LLP as to the legality of the Debt Securities and
Guarantee to be issued by PXRE.
5.2* Opinion of Conyers Dill & Pearman as to the legality of the Common Shares, Preferred
Shares and Depositary Shares to be issued by PXRE.
5.3** Opinion of Delaware Trust Counsel, with respect to PXRE Capital Trust IV.
8.1*** Opinion of Sidley Austin Brown & Wood LLP as to the U.S. federal tax consequences of the
securities.
12.1* Computation of Consolidated Ratio of Earnings to Fixed Charges.
23.1* Consent of KPMG LLP.
23.2** Consent of Sidley Austin Brown & Wood LLP (included in Exhibit 5.1).
23.3* Consent of Conyers Dill & Pearman (included in Exhibit 5.2).
23.4** Consent of Delaware Trust Counsel with respect to the Capital Securities (included in
Exhibit 5.3).
24.1* Powers of Attorney for PXRE (included on signature page).
24.2* Power of Attorney for PXRE, as sponsor, to sign the Registration Statement on behalf of
PXRE Capital Trust IV (included in Exhibit 4.9).
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
25.4+ Form T-1 Statement of Eligibility and Qualification under Trust Indenture Act of 1939 of
the Trustee under the Senior Indenture (incorporated by reference to Exhibit No. 25.4 to
PXRE Group Ltd.'s Registration Statement on Form S-3, File No.333-105589).
25.5+ Form T-1 Statement of Eligibility and Qualification under Trust Indenture Act of 1939 of
the Trustee under the Subordinated Indenture (incorporated by reference to Exhibit No.
25.5 to PXRE Group Ltd.'s Registration Statement on Form S-3, File No.333-105589).
25.6+ Form T-1 Statement of Eligibility and Qualification under Trust Indenture Act of 1939 of
the Trustee under the Junior Subordinated Indenture (incorporated by reference to Exhibit
No. 25.6 to PXRE Group Ltd.'s Registration Statement on Form S-3, File No.333-105589).
25.7+ Form T-1 Statement of Eligibility and Qualification under Trust Indenture Act of 1939 of
the Property Trustee under the Amended and Restated Trust Agreement for PXRE Capital
Trust IV (incorporated by reference to Exhibit No. 25.7 to PXRE Group Ltd.'s Registration
Statement on Form S-3, File No.333-105589).
25.8+ Form T-1 Statement of Eligibility and Qualification under Trust Indenture Act of 1939 of
the Guarantee Trustee under the Guarantee of PXRE Group (incorporated by reference to
Exhibit No. 25.8 to PXRE Group Ltd.'s Registration Statement on Form S-3, File
No.333-105589).
------------
+ Filed previously.
* Filed herewith.
** To be filed by amendment.
*** To be filed by a Current Report on Form 8-K and incorporated herein by
reference.
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