<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
-------------------------
For the fiscal year ended December 31, 1999 Commission File Number 1-15259
PXRE GROUP LTD.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
BERMUDA 98-0214719
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
99 FRONT STREET SUITE 231
HAMILTON HM 12 12 CHURCH STREET
BERMUDA HAMILTON HM 11
(ADDRESS, INCLUDING ZIP CODE, BERMUDA
OF PRINCIPAL EXECUTIVE OFFICES) (MAILING ADDRESS)
(441) 296-5858
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act: COMMON SHARES, PAR VALUE $1.00 PER SHARE
NEW YORK STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X * No
----- -----
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 24, 2000 computed by reference to
the closing price of such common equity as of the close of business on March 24,
2000 was $151,427,255. As of March 24, 2000, 11,758,174 of the registrant's
common shares were issued and outstanding.
*PXRE Group Ltd. ("PXRE") is the parent corporation of PXRE Corporation
("PXRE Delaware") (Commission File No. 001-12595; I.R.S. Employer
Identification No. 06-1183996) which became an indirect wholly owned subsidiary
of PXRE at the close of business on October 5, 1999 in connection with the
reorganization of PXRE Delaware. Simultaneously therewith, holders of PXRE
Delaware common stock, $.01 par value per share, automatically became holders of
the same number of PXRE common shares, $1.00 par value per share, which
shares continue to trade under the same New York Stock Exchange ticker symbol
PXT. In connection with the reorganization, PXRE has become subject to the
reporting requirements of the Securities Exchange Act of 1934 and has filed all
reports required to be filed thereafter.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of PXRE's definitive Proxy Statement for the Annual
General Meeting of Shareholders to be held on May 16, 2000.
Part IV Portions of PXRE Corporation's Proxy Statement dated April 12, 1991.
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
PXRE Group Ltd. ("PXRE" or the "Company") -- with operations
principally in Bermuda, Barbados, the United States, the United Kingdom and
Europe -- provides reinsurance products and services to a worldwide market
place. The Company primarily emphasizes commercial and personal property and
casualty reinsurance risks, and it offers both broker-based and direct-writing
distribution capabilities. PXRE also provides marine and aerospace reinsurance
products and services. The Company's shares trade on the New York Stock Exchange
under the symbol PXT. On October 5, 1999 PXRE Corporation, a Delaware holding
company ("PXRE Delaware") completed a reorganization that resulted in the
Company becoming the ultimate parent holding company of PXRE Delaware. Holders
of PXRE Delaware common stock automatically became holders of the same number
of PXRE common shares. The reorganization also involved the establishment of a
Bermuda based reinsurance company, PXRE Reinsurance Ltd. ("PXRE Bermuda"), and
operations in Barbados through PXRE (Barbados) Ltd. ("PXRE Barbados").
The Company conducts its business primarily through its principal
operating subsidiaries, PXRE Delaware, PXRE Reinsurance Company ("PXRE
Reinsurance"), PXRE Solutions Inc. ("PXRE Solutions"), PXRE Bermuda, PXRE
Barbados, PXRE Managing Agency Limited ("PXRE Managing Agency"), PXRE Limited,
the sole member of PG Butler Syndicate 1224 ("PXRE Lloyd's Syndicate") and
Transnational Insurance Company ("Transnational Insurance"). The term "PXRE," as
used herein, refers to one or more of PXRE Delaware, PXRE Reinsurance, PXRE
Solutions, PXRE Bermuda, PXRE Barbados, PXRE Managing Agency, PXRE Lloyd's
Syndicate and Transnational Insurance in discussions of these entities' business
and refers to PXRE Group Ltd. in all other circumstances.
PXRE Reinsurance is both a brokerage market reinsurer and a direct
writing reinsurer, with approximately $399 million of statutory capital and
surplus, which principally underwrites treaty and facultative reinsurance for
property (including marine and aerospace) and casualty risks. PXRE Reinsurance
is licensed or authorized to transact business in 46 states and the District of
Columbia, Puerto Rico, Columbia and Mexico and operates a branch in Belgium
("PXRE's Brussels Branch").
PXRE Bermuda is a quota share reinsurer of PXRE Reinsurance (30% in the
fourth quarter of 1999) and PXRE Reinsurance provides aggregate excess of loss
reinsurance protection for PXRE Bermuda. PXRE Bermuda, with approximately $25.2
million of statutory capital and surplus, also provides structured/finite
coverages. PXRE Bermuda is not licensed or admitted as an insurer in any
jurisdiction other than Bermuda. PXRE Solutions performs certain limited
reinsurance intermediary activities on behalf of a number of Bermuda reinsurers,
including PXRE Bermuda.
PXRE Managing Agency manages PXRE Lloyd's Syndicate, which has an
underwriting capacity of approximately 'L'35 million ($57 million at
December 31, 1999 exchange rates), and manages, on a fee basis, other syndicates
at Lloyd's of London ("Lloyds") with an aggregate underwriting capacity of
approximately 'L'250 million ($402 million at December 31, 1999 exchange
rates). PXRE Limited, which carries on business as a corporate member of
Lloyd's, is the sole member of PXRE Lloyd's Syndicate. PXRE Lloyd's Syndicate
underwrites specialty types of property and casualty insurance and reinsurance
(including certain accident and health coverages as well as catastrophe-type
coverages, aerospace reinsurance and facultative reinsurance) on a worldwide
basis. Underwriting premium volume and loss experience related to the business
of PXRE Lloyd's Syndicate is included in PXRE's consolidated results on a one
quarter lag basis, from 1997 through the third quarter of 1999. Beginning with
the fourth quarter of 1999, PXRE Lloyd's Syndicate reports its results
currently.
-4-
<PAGE>
Transnational Insurance is an excess and surplus lines carrier which
has specialized in non-standard and excess property insurance risks.
Transnational Insurance, which is a wholly-owned subsidiary of PXRE Reinsurance,
has approximately $99 million of capital and is eligible to write business on a
surplus lines basis in 45 states and the District of Columbia, Guam and the U.S.
Virgin Islands.
The property and casualty reinsurance industry has been experiencing an
extended period of soft market conditions characterized by inadequate pricing.
The industry is also consolidating through mergers and other acquisitions. PXRE
competes with numerous companies, many of which have substantially greater
financial, marketing and management resources.
PXRE has specialized in property reinsurance, including a strong focus
on catastrophe-type products. Coverage terms for these products have
deteriorated in recent years, and PXRE has reduced commitments on marginally
priced business.
Meanwhile, PXRE has adopted an ambitious diversification strategy
involving:
the establishment of a direct presence in the Lloyd's market;
the addition of a reinsurance platform offering primarily casualty
products directly to customers;
the enhancement of its international broker market reinsurance
platform to include additional lines of business including casualty
risks;
the start-up of an excess and surplus lines insurance company;
an acceleration of business offerings to one of its managed business
participants;
the formation of a finite reinsurance unit; and
the establishment of a direct presence in the Bermuda market.
At December 31, 1999, PXRE was a party to retrocessional arrangements
with a number of insurers and reinsurers. Under these arrangements, PXRE cedes
some of its underwritten risks to the participants, subject to maximum aggregate
liabilities per reinsurance program. PXRE receives a management fee or
commission, initially based on premium volume, adjusted in some cases through
contingent profit commissions related to underwriting results measured over a
period of years. Future management fee income is dependent upon the amount of
business ceded to the participants and the profitability of that business.
Another arrangement with Select Reinsurance Ltd. ("Select Re"), a Bermuda
reinsurer, formerly Investors Reinsurance Ltd., involves a multi-year fee based
undertaking by PXRE through the year ending December 31, 2003 to produce and
underwrite business with Select Re. Gerald Radke (Chairman, President and Chief
Executive Officer of PXRE) and Jeffrey Radke (Executive Vice President of PXRE
and President of PXRE Bermuda) are on the Board of Directors of Select Re and
are shareholders of Select Re. Gerald Radke is Co-Vice Chairman of Select Re and
Jeffrey Radke was formerly the President of Select Re.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE significantly increased its
purchases of such coverage in 1998 and 1999 in light of the continued general
deterioration in catastrophe reinsurance pricing and the opportunity to buy
protection at more favorable terms than in previous years.
HISTORY
PXRE Delaware was organized in July 1986 by Phoenix Home Life Mutual
Insurance Company ("Phoenix Home Life") to succeed, through PXRE Reinsurance, to
the property and casualty reinsurance business carried on since 1982 by Phoenix
General Insurance Company, formerly a wholly-owned subsidiary of Phoenix Home
Life. As of February 29, 2000, Phoenix Home Life owned 1,131,700 PXRE common
shares.
-5-
<PAGE>
In November 1993, PXRE Delaware sponsored the initial public offering
of Transnational Re Corporation ("TREX") to raise capital and take advantage of
favorable conditions in the worldwide retrocessional reinsurance market. PXRE
Delaware, through PXRE Reinsurance, retained a 21% ownership position in TREX
and had responsibility for the day-to-day operations of TREX, including all the
reinsurance operations of its subsidiary, Transnational Reinsurance Company
("Transnational Reinsurance").
On December 11, 1996, TREX merged into PXRE Delaware (the "Merger"),
and each share of common stock of TREX was converted into the right to receive
1.0575 shares of PXRE Delaware common stock. Following the Merger, Transnational
Reinsurance became a wholly-owned subsidiary of PXRE Reinsurance and was
re-named Transnational Insurance Company. The Merger has been accounted for
using the purchase method of accounting; therefore net income of TREX (including
Transnational Reinsurance/Transnational Insurance) has been included in PXRE
Delaware's consolidated results of operations from the date of the Merger.
In December 1996, PXRE Delaware completed the organization of PXRE
Managing Agency and PXRE Lloyd's Syndicate, thereby establishing a direct
presence in the Lloyd's market. In 1999, PXRE Managing Agency expanded its
operations to managing for a fee other syndicates at Lloyd's.
In June 1998, PXRE Delaware added direct writing and international
teams, composed of eight direct writing reinsurance professionals and three
international reinsurance executives, respectively. The direct writing team
operates as the Direct Treaty Division of PXRE Reinsurance which provides
reinsurance on a direct basis (directly with the primary company) primarily on
casualty and, to a lesser extent, non-catastrophe type property business.
-6-
<PAGE>
The international team's focus is property and casualty reinsurance in
the brokerage market. Subsequently in 1998, PXRE Delaware further strengthened
its Direct Treaty Division, and has also strengthened PXRE Managing Agency with
the recruitment of additional reinsurance professionals.
In mid 1999, PXRE Reinsurance formed a finite reinsurance unit to
provide structured/finite coverages combining elements of risk transfer and
managing the impact of such risks on a cedent's financial statements and cash
flow.
On October 5, 1999, PXRE Delaware completed a reorganization that
resulted in the Company becoming the ultimate parent holding company of PXRE
Delaware. The reorganization also involved the establishment of PXRE Bermuda,
a Bermuda based reinsurance company, operations in Barbados through PXRE
(Barbados) Ltd., and PXRE Solutions, a reinsurance intermediary.
RATINGS
PXRE Reinsurance is rated "A" (Excellent) by A.M. Best Company ("A.M.
Best"), an independent insurance industry rating organization. Transnational
Insurance also is rated "A" (Excellent) by A.M. Best. PXRE Bermuda is not
rated by A.M. Best, although it and PXRE Reinsurance and Transnational
Insurance have been assigned an A+ financial strength rating by Standard &
Poor's Corporation ("S&P"). PXRE Lloyd's Syndicate enjoys the benefit of ratings
of Lloyd's, which has been rated "A" (Excellent) by A.M. Best and has been
assigned an A+ financial strength rating by S&P. These ratings are based upon
factors that may be of concern to policyholders, agents and intermediaries, but
may not reflect the considerations applicable to an investment in a reinsurance
or insurance company. A change in any such rating is at the discretion of the
respective rating agencies.
-7-
<PAGE>
GENERAL
Reinsurance is an arrangement in which a reinsurer agrees to indemnify
a primary insurer or another reinsurer (also known as a ceding company) against
all or a portion of the insurance risks underwritten by the ceding company under
one or more insurance contracts. Reinsurance can provide a ceding company with
several benefits, including a reduction in exposure on individual risks,
protection against catastrophic losses and assistance in maintaining acceptable
financial ratios. Reinsurance, however, does not legally discharge the ceding
company from its liability to policyholders.
There are two basic types of reinsurance arrangements: treaty and
facultative reinsurance. In treaty reinsurance, the reinsurer and the ceding
company negotiate a contractual arrangement which reinsures a specified portion
of a type or category of risk. Treaty reinsurers, including PXRE, do not
separately evaluate each individual risk assumed, and, consequently, after a
review of the ceding company's underwriting practices, are largely dependent on
the original underwriting decisions made by the ceding company. Such dependence
subjects reinsurers in general, including PXRE, to the risk that the primary
insurer has not adequately determined the risks to be reinsured and,
accordingly, that the premium ceded to the reinsurer in connection therewith may
not adequately compensate the reinsurer for the risk assumed. Treaty reinsurance
contributed approximately 97.4% of PXRE's gross premiums written in 1999.
Treaty reinsurance can be written on either a pro rata basis or an
excess of loss basis. In pro rata reinsurance, the reinsurer agrees, in return
for a percentage of the premiums, to share in a proportional amount of the
losses up to the limit, if any, of the reinsurance agreement. Premiums that the
ceding company pays to the reinsurer are proportional to the premiums that the
ceding company receives, and the reinsurer generally pays the ceding company a
ceding commission to reimburse the ceding company for the expenses incurred in
obtaining the business. In excess of loss treaty reinsurance, the reinsurer
indemnifies the ceding company for a portion of the losses and expenses on
underlying policies which exceed a specified dollar amount (known as the ceding
company's retention or the reinsurer's attachment point) generally subject to a
negotiated reinsurance contract limit. Premiums paid by the ceding company for
excess of loss coverage may not be directly proportional to the premiums on the
underlying policies because the reinsurer does not assume a proportional share
of the underlying risk.
Excess of loss treaty reinsurance can, in turn, be written on a per
risk or catastrophe basis. Per risk excess of loss reinsurance protects the
ceding company against a loss resulting from a single risk or location.
Catastrophe excess of loss reinsurance protects a ceding company from an
accumulation of a large number of related losses resulting from a variety of
risks which may occur in a given catastrophe, and hence is a highly volatile
business. Catastrophe-type coverages include catastrophe coverage provided to
ceding insurance companies and retrocessional catastrophe coverage provided to
other reinsurers. Catastrophe-type coverages have represented the majority of
PXRE's net premiums written during the past three fiscal years, although they
have declined in percentage terms from 84% in 1997 to 52% in 1999. See
"Underwriting Operations."
Facultative reinsurance is the reinsurance of individual risks; rather
than an agreement to reinsure a specified portion of a type or category of risk,
the reinsurer separately rates and underwrites each risk. In some cases, risks
covered by facultative reinsurance are those excluded from coverage by treaty
reinsurance. Facultative reinsurance contributed only approximately 2.6% of
PXRE's net premiums written in 1999.
Reinsurers typically purchase reinsurance to cover their own risk
exposure. Reinsurance of a reinsurer's business is called a retrocession.
Reinsurance companies cede risks under retrocessional agreements to other
reinsurers, known as retrocessionaires, for reasons similar to those that cause
ceding companies to purchase reinsurance.
-8-
<PAGE>
Reinsurance can be written through professional reinsurance brokers or
directly for ceding companies. From a ceding company's perspective, both the
broker market and the direct market have advantages and disadvantages. A ceding
company's decision to select one market over the other will be influenced by its
perceptions of such advantages and disadvantages relative to the reinsurance
coverage being placed. PXRE writes property and casualty treaty and property
facultative business both through professional reinsurance brokers and on a
direct basis.
UNDERWRITING OPERATIONS
PXRE, through its subsidiaries, is principally engaged in providing
treaty and facultative reinsurance to primary insurers and other reinsurers of
commercial and personal property and casualty risks. PXRE also provides marine
and aerospace reinsurance products and services. PXRE has specialized in
property reinsurance, including a strong focus on catastrophe-type products. In
mid-1998, PXRE added new reinsurance lines and expanded its capabilities in
existing areas, including establishing a direct-writing reinsurance unit to
complement its existing brokerage-based reinsurance operations and offering
excess of loss casualty products (including general liability, commercial auto
and personal auto) for casualty markets in which PXRE had not previously had a
significant presence. In late 1999, PXRE established Bermuda underwriting
operations.
PXRE operates in four reportable property and casualty segments --
catastrophe and risk excess, casualty, structured/finite business and all
other lines -- based on the Company's method of internal management reporting.
In addition, the Company operates in two geographic segments -- North American
representing North American based risks written by North American based
reinsureds and International (principally the United Kingdom, Continental
Europe, Australia and Asia) representing all other premiums written. The
reportable segments were redefined during 1999 once the platform for the
diversification strategy was largely in place. The prior year segment
information has been restated to be consistent with the 1999 segments. The
following tables present the distribution of PXRE's net premiums written, net
premiums earned and underwriting operations for the years ended December 31,
1999, 1998 and 1997:
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<PAGE>
Net Premiums Written (1)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------ ------ -----
Amount Percent Amount Percent Amount Percent
---------------------------------------------------------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Catastrophe and Risk Excess
North American $ 26,704 $ 12,795 $ 21,724
International 63,957 58,595 63,154
Excess of loss cessions (18,883) (3,938) (409)
--------- --------- ---------
Subtotal 71,778 52% 67,452 76% 84,469 84%
--------- --------- ---------
Casualty
North American 13,148 650 --
International 12,851 4,433 --
--------- --------- ---------
25,999 19% 5,083 6% --
--------- --------- ---------
Structured/Finite Business
North American -- -- --
International -- -- --
--------- --------- ---------
-- -- --
--------- --------- ---------
Other Lines
North American 12,073 2,054 4,848
International 28,995 14,105 10,738
--------- --------- ---------
41,068 29% 16,159 18% 15,586 16%
--------- --- --------- --- --------- ---
Total $ 138,845 100% $ 88,694 100% $ 100,055 100%
========= === ========= === ========= ===
</TABLE>
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<PAGE>
Net Premiums Earned (1)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------ ------ -------
Amount Percent Amount Percent Amount Percent
----------------------------------------------------------------------------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Catastrophe and Risk Excess
North American $ 26,155 $ 13,561 $ 21,877
International 61,241 63,830 60,148
Excess of loss cessions (14,958) (2,869) (353)
--------- -------- --------
Subtotal 72,438 56% 74,522 81% 81,672 89%
--------- -------- --------
Casualty
North American 11,593 (152) --
International 9,794 2,207 --
--------- -------- --------
21,387 17% 2,055 2% --
--------- -------- --------
Structured/Finite Business
North American -- -- --
International -- -- --
--------- -------- --------
-- -- --
--------- -------- --------
Other Lines
North American 11,296 3,234 5,650
International 23,383 12,575 4,093
--------- -------- --------
34,679 27% 15,809 17% 9,743 11%
--------- --- -------- --- -------- ---
Total $ 128,504 100% $ 92,386 100% $ 91,415 100%
========= === ======== === ======== ===
</TABLE>
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<PAGE>
Underwriting Operations (2)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------ ------ -------
Amount Percent Amount Percent Amount Percent
----------------------------------------------------------------------------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Catastrophe and Risk Excess
North American $ (31,591) $ 6,970 $ 13,655
International (32,039) 7,081 48,197
Excess of loss cessions 15,476 8,372 2,407
--------- -------- --------
Subtotal (48,154) 87% 22,423 141% 64,259 102%
--------- -------- --------
Casualty
North American (279) (409) --
International (242) 87 --
--------- -------- --------
(521) 1% (322) (2)% --
--------- -------- --------
Structured/Finite Business
North American -- -- --
International 411 -- --
--------- -------- --------
411 (1)% -- -- --
--------- -------- --------
Other Lines
North American (715) (1,442) (2,075)
International (6,166) (4,794) 573
--------- -------- --------
(6,881) 13% (6,236) (39)% (1,502) (2)%
--------- --- -------- --- -------- ---
Total $ (55,145) 100% $ 15,865 100% $ 62,757 100%
========= === ======== === ======== ===
</TABLE>
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(1) Premiums written and earned are expressed on a net basis (after
deduction for ceded reinsurance premiums) to reflect more accurately
business written for PXRE's own account.
(2) Underwriting operations include premiums earned, losses incurred and
commission and brokerage net of management fees, but do not include
investment income, realized gains or losses, interest expense,
operating expenses, unrealized foreign exchange gains or losses on
losses incurred or management fees on weather contracts.
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<PAGE>
The catastrophe and risk excess portfolio consists principally of
property catastrophe excess of loss, property retrocessional, property risk
excess, property London Market Excess ("LMX") and marine and aerospace excess
reinsurance coverages. This portfolio can be characterized on a longer term
basis as being comprised of coverages involving higher margins and greater
volatility than other coverages written by the Company. In 1999, $90,661,000 of
net premiums written were attributable to the catastrophe and risk excess
portfolio, or $71,778,000 net of excess of loss retrocessional reinsurance ceded
to other reinsurers. Over the periods indicated pricing and other coverage terms
deteriorated and in response PXRE moved to layers of risk less affected by
competitive pressures, or reduced commitments. Notwithstanding these moves, in
1999 this portfolio produced an underwriting loss of $48,154,000 as a
consequence of major events. In contrast, this portfolio produced underwriting
profits of $22,423,000 and $64,259,000 in 1998 and 1997, respectively. The
increase in premium volume for catastrophe and risk excess coverages in 1999 was
attributable to reinstatement premiums on 1999 catastrophe activity, offset, in
part, by the purchase of increased amounts of retrocessional protection. The
exposures underlying the North American portion of this portfolio emanate from
East Coast and Gulf hurricanes, Midwest and West Coast earthquakes, major oil
rig explosions, cruise ship disasters, satellite failures, commercial airplane
crashes and similar risks. The exposures underlying the International portion of
this portfolio emanate from European, Japanese and Carribbean windstorm, flood
and earthquake.
The casualty portfolio consists principally of North American general
liability, commercial and personal auto liability risk excess and other
liability coverages and International pro rata casualty coverages. This
portfolio can be characterized on a longer term basis as being comprised of
coverages involving lower margins and less volatility than the Company's
catastrophe and risk excess portfolio. Casualty accounted for $25,999,000 of net
premiums written in 1999, split approximately equally between the Company's
North American and International geographical segments. Premiums written in 1999
represented a substantial increase over 1998, when PXRE entered the market in
the latter half of the year. In 1999, the casualty portfolio produced an
underwriting loss of $521,000 before investment income, realized gains and
losses and overhead expenses.
PXRE entered the structured/finite business in the latter part of 1999
with products combining elements of risk transfer and managing the impact of
such risk on a cedent's financial statements and cash flow. Premiums in this
segment are expected to vary widely from period to period.
PXRE's other lines portfolio consists of many different coverages,
principally accident and health coverages, of which North American and
International accounted for $6,980,000 and $13,324,000, respectively, of net
premiums written in 1999, property pro rata business and binding and lineslip
authorities written through PXRE Lloyd's Syndicate. The Company's other lines
portfolio produced a North American underwriting loss of $715,000 and
International underwriting loss of $6,166,000, up modestly in the aggregate from
1998.
See Note 10 of Notes to Consolidated Financial Statements for
additional information regarding PXRE's reportable segments and geographic
areas.
PXRE's treaty underwriting process emphasizes a team approach among the
Company's underwriters, actuaries and claims staff. Treaties are reviewed for
compliance with PXRE's general underwriting standards and certain treaties are
evaluated in part based upon actuarial analyses conducted by the Company. PXRE's
facultative underwriters operate within guidelines specifying acceptable types
of risks, limits and maximum risk exposure. The Company manages its risk of loss
through a combination of aggregate exposure limits, underwriting guidelines that
take into account risks, prices and coverage and retrocessional agreements. As
PXRE underwrites risks from a large number of insurers based on information
generally supplied by reinsurance brokers, there is a risk of developing a
concentration of exposure to loss in certain geographic areas prone to specific
types of catastrophes. The Company has developed systems and software tools to
monitor and manage the accumulation of its exposure to such losses. Management
has established guidelines for maximum tolerable losses from a single or
multiple catastrophic event based on historical data. However, no assurance can
be given that these maximums will not be exceeded in some future catastrophe.
-13-
<PAGE>
MARKETING
PXRE provides reinsurance for international insurance and reinsurance
companies principally headquartered in the United Kingdom, Continental Europe,
Australia and Asia. In the United States, PXRE currently reinsures both national
and regional insurance and reinsurance companies and specialty insurance
companies.
Historically, PXRE has obtained most of its facultative and
substantially all of its treaty reinsurance business through reinsurance
intermediaries which represent reinsureds in negotiations for the purchase of
reinsurance. None of the reinsurance intermediaries through which PXRE obtains
this business are authorized to arrange any business in the name of PXRE without
PXRE's approval. PXRE pays such intermediaries or brokers commissions based on
the amount of premiums and type of business ceded. These payments constitute
part of PXRE's total acquisition costs and are included in its underwriting
expenses. PXRE generally pays reinsurance brokerage fees believed to be
comparable to industry norms.
Approximately 19.1%, 10.7% and 13.2% of gross premiums written in
fiscal year 1999 were arranged through the worldwide branch offices of Aon Group
Ltd., Guy Carpenter & Company, Inc. (subsidiary of Marsh & McLennan Companies,
Inc.) and Benfield Greig Ltd., respectively. The commissions paid by PXRE to
these intermediaries are generally at the same rates as those paid to other
intermediaries.
In mid-1998 PXRE established a U.S. based direct writing reinsurance
unit to complement its existing brokerage-based reinsurance operations.
Approximately 88.1% and 11.9% of PXRE's 1999 net premiums written were written
in the broker and direct markets, respectively. PXRE's U.S. based direct
writings are comprised principally of casualty business. PXRE's ability to write
reinsurance both through brokers and directly with ceding companies gives it the
flexibility to pursue business regardless of the ceding company's preferred
reinsurance purchasing method.
COMPETITION
Competitive forces in the property and casualty reinsurance and
insurance business are substantial. PXRE operates in a reinsurance industry
which is highly competitive and is undergoing a variety of challenging
developments. The industry has in recent years moved toward greater
consolidation as ceding companies have placed increased importance on size and
financial strength in the selection of reinsurers. Additionally, reinsurers are
tapping new markets and complementing their range of traditional reinsurance
products with innovative new products which bring together capital markets and
reinsurance experience. PXRE competes with numerous major reinsurance and
insurance companies. These competitors, many of which have substantially
greater financial, marketing and management resources than PXRE, include
independent reinsurance companies, subsidiaries or affiliates of established
worldwide insurance companies, reinsurance departments of certain commercial
insurance companies, and underwriting syndicates. PXRE also may face competition
from new market entrants or from market participants that determine to devote
greater amounts of capital to the types of business written by PXRE.
Although PXRE historically has obtained most of its facultative and
substantially all of its treaty reinsurance business through reinsurance
intermediaries or brokers, it competes indirectly with reinsurers who obtain
business directly from primary insurers because PXRE's brokers must compete with
direct reinsurers for business to be forwarded to PXRE. PXRE's recently
established direct writing reinsurance unit competes directly with other direct
reinsurers. PXRE therefore competes both with reinsurers that obtain business
directly from reinsureds and with reinsurers that obtain their business through
intermediaries and brokers.
Competition in the types of reinsurance business which PXRE underwrites
is based on many factors, including the perceived overall financial strength of
the reinsurers, premiums charged, other terms and conditions,
-14-
<PAGE>
ratings of A.M. Best, S&P and Moody's Investors Service, Inc. ("Moody's"),
service offered, speed of service (including claims payment), and perceived
technical ability and experience of staff. The number of jurisdictions in which
a reinsurer is licensed or authorized to do business is also a factor. PXRE
Reinsurance is licensed, accredited, or otherwise authorized or permitted to
conduct reinsurance business in all states (except Arkansas, Minnesota, Oklahoma
and Washington) and the District of Columbia, Puerto Rico, Columbia and Mexico,
and PXRE's Brussels Branch operates from Belgium. PXRE Bermuda is licensed to
do business only in Bermuda.
RETROCESSIONAL AGREEMENTS
The following table sets forth certain information regarding the volume
of premiums PXRE has ceded to other reinsurers pursuant to retrocessional
agreements for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
(in thousands)
<S> <C> <C> <C>
Gross premiums written $221,349 $136,215 $126,232
Reinsurance premiums ceded:
Managed business participants 42,549 21,542 16,534
Catastrophe coverage and other
reinsurance 39,955 25,979 9,643
Total reinsurance premiums
ceded 82,504 47,521 26,177
-------- -------- --------
Net premiums written $138,845 $ 88,694 $100,055
======== ======== ========
</TABLE>
PXRE has been able to increase its underwriting commitments and to
generate management fee income by retroceding some of its underwritten risks to
other reinsurers through various retrocessional arrangements whereby it manages
business for such participants. In 1999, PXRE was a party to three such
arrangements. The first such arrangement, which is subject to renewal each
January 1 and which has been renewed effective January 1, 2000, is referred to
as the AMA. The AMA is a pool consisting of a number of insurance companies (the
"Pool"), for which PXRE acts as reinsurance manager. In 1999, the Pool was
comprised of Merrimack Mutual Fire Insurance Company, Pennsylvania Lumbermens
Mutual Insurance Company, NRMA Insurance Limited, Auto-Owners Insurance Company
and the Kyoei Mutual Fire & Marine Insurance Company. It is PXRE's policy that
in order to join the Pool, companies must have a rating by A.M. Best of "A-" or
better, other than foreign companies, most of which (including the foreign
participants in the AMA) are not rated by A.M. Best. Under the terms of the
agreements governing the Pool, if a participating company's rating falls below
"A-", it generally will be required to withdraw from the Pool in the following
year. PXRE receives, as reinsurance manager, a commission based on premiums
ceded, as well as a contingent profit commission equal to a percentage of any
ultimate underwriting profits in connection with the reinsurance ceded. The
contingent profit commission is paid after a three-year period and is subject to
adjustment based on cumulative experience.
The second such retrocessional arrangement, which was not renewed upon
its expiration December 31, 1999, was with Trenwick America Reinsurance
Corporation ("Trenwick Group"). Under this arrangement PXRE receives, as
reinsurance manager, a management fee based on premiums ceded, as well as a
contingent profit commission equal to a percentage of any ultimate underwriting
profits in connection with the reinsurance ceded. The contingent profit
commission is paid after a three-year period and is subject to adjustment based
on cumulative experience. Trenwick Group is currently rated "A" (Excellent) by
A.M. Best.
-15-
<PAGE>
The third such retrocessional arrangement is with Select Re. This
arrangement involves a multi-year fee based undertaking by PXRE through the year
ending December 31, 2003 to produce and underwrite business with Select Re. The
undertaking, which is subject to adjustment based on Select Re's shareholders'
equity, was approximately $29.5 million in aggregate premium for 1999. PXRE
receives an override commission on premiums ceded to Select Re. Because Select
Re is not licensed in any jurisdiction in the United States, the retrocessional
arrangement provides that a trust fund and/or letter of credit be established by
Select Re for the benefit of PXRE to secure Select Re's obligations. Net assets
due from Select Re at December 31, 1999 of $14,932,000 is secured by a trust
agreement and letter of credit. As previously discussed, the Chief Executive
Officer and an Executive Officer of PXRE are on the Board of Directors and are
shareholders of Select Re. The Chief Executive Officer of PXRE is Co-Vice
Chairman of Select Re and the Executive Officer of PXRE was formerly the
President of Select Re.
The following table sets forth PXRE's earned commissions from
retrocessionaires pursuant to its three managed business arrangements for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
--------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Commission $3,851 $2,247 $ 879
Contingent profit commission(1) (761) (75) 2,127
------ ------ ------
Total $3,090 $2,172 $3,006
====== ====== ======
</TABLE>
- -------------------
(1) Contingent profit commission is paid after a three-year period and is
subject to adjustment based on cumulative experience under the AMA and
Trenwick Group arrangements and prior to 1998 under the arrangement with
Select Re.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE significantly increased its
purchases of such coverage in 1998 and 1999. In 1999 and 1998, catastrophe and
other reinsurance ceded premiums written increased due to additional coverage
associated with new operations and to opportunistic purchases of catastrophe
retrocessional protection. Certain business fronted on behalf of other
reinsurers also contributed to the 1999 increase in catastrophe and other
reinsurance ceded premiums written. PXRE's property business is protected by a
series of retrocessional agreements which currently provide protection
principally against unusual severity of loss and are not designed to protect
PXRE's exposure to smaller, more frequent loss occurrences.
PXRE has a committee consisting of its chief executive officer and
senior underwriting executives responsible for the selection of reinsurers as
managed business participants or as participating reinsurers in the catastrophe
coverage protecting PXRE. Proposed reinsurers are evaluated at least annually
based on consideration of a number of factors including the management,
financial statements and the historical experience of the reinsurer. This
procedure is followed whether or not a rating has been assigned to a proposed
reinsurer by any rating organization. All reinsurers, whether obtained through
direct contact or the use of reinsurance intermediaries, are subject to approval
by PXRE.
At December 31, 1999, estimated losses recoverable (including incurred
but not reported losses ("IBNR")) from retrocessionaires were $106,702,000
including $5,667,000 of paid loss recoverables. Although management carefully
selects its retrocessionaires, PXRE is subject to credit risk with respect to
its retrocessions because the ceding of risk to retrocessionaires does not
relieve the Company of its liability to ceding companies.
LOSS LIABILITIES AND CLAIMS
PXRE establishes loss and loss expense liabilities (to cover expenses
related to settling claims, including legal and other fees) to provide for the
ultimate cost of settlement and administration of claims for losses, including
claims that have been reported to it by its reinsureds and claims for losses
that have occurred but have not yet been
-16-
<PAGE>
reported to PXRE. Under United States generally accepted accounting principles
("GAAP"), PXRE is not permitted to establish loss reserves until an event which
may give rise to a claim occurs.
For reported losses, PXRE establishes liabilities when it receives
notice of the claim. It is PXRE's general policy to establish liabilities for
reported losses in an amount equal to the liability set by the reinsured. In
certain instances, PXRE will conduct an investigation to determine if the amount
established by the reinsured is appropriate or if it should be adjusted.
For incurred but not reported losses, a variety of methods have been
developed in the insurance industry for use in determining such liabilities. In
general, these methods involve the extrapolation of reported loss data to
estimate ultimate losses. PXRE's loss calculation methods generally rely upon a
projection of ultimate losses based upon the historical patterns of reported
loss development. Additionally, PXRE makes provision through its liabilities for
incurred but not reported losses for any identified deficiencies in the
liabilities for reported losses set by its reinsureds.
PXRE's management believes that its overall liability for losses and
loss expenses maintained as of December 31, 1999 is adequate. Because of the
inherent uncertainty in the reserving process, however, there is a risk that
PXRE's liability for losses and loss expenses could prove to be greater than
expected in any year, with a consequent adverse impact on future earnings and
shareholders' equity. Estimating the ultimate liability for losses and loss
expenses is an imprecise science subject to variables that are influenced by
both internal and external factors. Historically, PXRE has focused on property
related coverages. In contrast to casualty losses, which frequently are slow to
be reported and may be determined only through the lengthy, unpredictable
process of litigation, property losses tend to be reported more promptly and
usually are settled within a shorter time period. However, the estimation of
losses for catastrophe reinsurers is inherently less reliable than for
reinsurers of risks which have an established historical pattern of losses. In
addition, insured events which occur near the end of a reporting period, as well
as, with respect to PXRE's retrocessional book of business, the significant
delay in losses being reported to insurance carriers, reinsurers and finally
retrocessionaires, require PXRE to make estimates of losses based on limited
information from ceding companies and based on its own underwriting data.
Although historically PXRE has written a small amount of casualty
reinsurance, in 1998 PXRE began underwriting new casualty lines of business and
PXRE substantially expanded its casualty business in 1999. With respect to
casualty business, significant delay, ranging up to several years or more, can
be expected between the reporting of a loss to PXRE and the settlement of PXRE's
liability for that loss. As a result, such future claim settlements could be
influenced by changing rates of inflation and other economic conditions,
changing legislative, judicial and social environments and changes in PXRE's
claims handling procedures. While the reserving process is difficult and
subjective for ceding companies, the inherent uncertainties of estimating such
reserves are even greater for a reinsurer, due primarily to the longer time
between the date of the occurrence and the reporting of any attendant claims to
the reinsurer, the diversity of development patterns among different types of
reinsurance treaties or facultative contracts, the necessary reliance on the
ceding companies for information regarding reported claims and differing
reserving practices among ceding companies.
-17-
<PAGE>
PXRE's difficulty in accurately predicting casualty losses may also be
exacerbated by the limited amount of statistically significant historical data
regarding losses on PXRE's new casualty lines of business. PXRE must therefore
rely on the inherently less reliable historical loss patterns reported by ceding
companies and industry loss standards in calculating its casualty reserves.
Thus, the actual casualty losses and loss expenses may deviate, perhaps
substantially, from estimates of liabilities reflected in PXRE's consolidated
financial statements.
The following table provides a reconciliation of beginning and ending
loss and loss expense liabilities under GAAP for the fiscal years ended December
31, 1999, 1998 and 1997. PXRE does not discount such liabilities; that is, it
does not calculate them on a present value basis.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Gross GAAP liability for losses and
loss expenses at beginning of year................................. $ 102,592 $ 57,189 $ 70,978
Add: Gross provision for losses and loss expenses--
Occurring in current year.......................................... 200,132 94,003 19,344
Occurring in prior years........................................... 57,129 90 (4,721)
-------- -------- --------
Total gross provision(1)......................................... 257,261 94,093 14,623
-------- -------- --------
Less: Gross payments for losses and loss expenses--
Occurring in current year.......................................... 17,508 19,582 4,705
Occurring in prior years........................................... 80,794 29,108 23,707
-------- -------- --------
Total gross payments............................................. 98,302 48,690 28,412
-------- -------- --------
Gross GAAP liability for losses
and loss expenses at end of year................................... $ 261,551 $102,592 $ 57,189
========= ======== ========
Ceded GAAP liability for losses
and loss expenses at end of year................................... (101,035) (33,350) (12,734)
-------- -------- --------
Net GAAP liability for losses
and loss expenses at end of year................................... $ 160,516 $ 69,242 $ 44,455
========= ======== ========
Foreign currency adjustment.......................................... 249 (193) 482
========= ======== ========
Gross SAP liability for losses and
loss expenses at end of year(2).................................... $ 261,800 $102,399 $ 57,671
========= ======== ========
</TABLE>
- ----------------
(1) The GAAP provision for losses and loss expenses includes net foreign
currency exchange (losses) gains of $442,000, ($675,000) and $627,000 for
1999, 1998 and 1997, respectively.
(2) SAP is U.S. statutory accounting principles.
The following table presents the development of PXRE's GAAP balance
sheet liability for losses and loss expenses for the period 1989 through 1999.
The top line of the table shows the liabilities at the balance sheet date for
each of the indicated years. This reflects the estimated amount of losses and
loss expenses for claims arising in that year and all prior years that are
unpaid at the balance sheet date, including losses incurred but not yet
reported to PXRE. The upper portion of the table shows the cumulative amounts
subsequently paid as of successive years with respect to the liability. The
lower portion of the table shows the reestimated amount of previously recorded
liability based on experience as of the end of each succeeding year. The
estimates change as more information becomes known about the frequency and
severity of claims for individual years. A redundancy (deficiency) exists when
the reestimated liability at each December 31 is less (greater) than the prior
liability estimate. The "cumulative redundancy (deficiency)" depicted in the
table, for any particular calendar year, represents the aggregate change in the
initial estimates over all subsequent calendar years.
Each amount in the table below includes the effects of all changes in
amounts for prior periods. For example, if a loss determined in 1992 to be
$150,000 was first reserved in 1989 at $100,000, the $50,000 deficiency (actual
loss minus original estimate) would be included in the cumulative redundancy
(deficiency) in each of the years 1989-1991 shown below. This table does not
present accident or policy year development data.
-18-
<PAGE>
Loss and loss expense liabilities for fiscal years 1991 through 1999
are presented on a gross basis (excluding the effects of losses recoverable from
retrocessionaires). Loss and loss expense liabilities for December 31, 1990 and
prior periods are stated on a net basis (after deduction for losses recoverable
from retrocessionaires) because gross incurred but not reported liability data
were not developed by PXRE at any date prior to December 31, 1991 as it was not
required for reporting purposes. Furthermore, it is not practicable for PXRE
currently to reconstruct this information.
-19-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities for losses and
loss expenses................. $261,551 $102,592 $57,189 $61,389 $72,719 $81,836 $71,442 $88,668 $62,664 $31,632 $37,963
Cumulative amount of
liability paid through:
One year later................ 75,814 29,108 23,708 42,698 41,601 37,820 59,773 35,575 15,688 18,421
Two years later............... 39,853 40,673 55,620 58,968 54,400 79,926 48,393 25,466 28,178
Three years later............. 46,545 67,296 67,630 60,850 89,519 52,301 29,066 31,852
Four years later.............. 70,676 76,762 64,566 94,261 55,022 30,117 33,980
Five years later.............. 79,433 69,414 96,895 56,976 31,528 34,434
Six years later............... 70,392 99,864 58,822 32,137 35,408
Seven years later............. 100,724 61,235 33,202 36,003
Eight years later............. 62,130 33,624 36,980
Nine years later.............. 33,956 37,301
Ten years later............... 37,485
Liabilities reestimated as of:
One year later................ 135,227 57,280 66,257 83,228 87,818 78,188 101,423 67,165 33,874 37,211
Two years later............... 55,271 63,292 85,162 87,750 76,902 103,632 62,262 33,726 37,800
Three years later............. 61,178 83,178 90,409 74,683 105,165 62,827 33,488 36,588
Four years later.............. 82,129 89,284 75,392 103,801 63,032 33,682 36,881
Five years later.............. 88,326 74,880 104,330 62,593 34,310 37,023
Six years later............... 74,173 104,222 63,632 33,777 37,667
Seven years later............. 103,854 63,792 34,714 37,166
Eight years later............. 63,633 34,815 37,998
Nine years later.............. 34,777 38,124
Ten years later............... 38,084
Gross reserves of TREX at date
of merger..................... 9,589 5,242 2,067 26
Gross reserves for elimination
of one quarter lag for
U.K. subsidiary............... (1,191)
Gross cumulative redundancy
(deficiency) through
December 31, 1999:
Amount........................ (33,826) 1,918 9,800 (4,168) (4,423) (2,705) (15,186) (969) NA NA
Percentage.................... (33%) 3% 14% (5%) (5%) (4%) (17%) (2%) NA NA
Retrocessional recoveries....... 14,045 (749) (1,517) 6,796 2,500 726 2,689 1,936 NA NA
Net cumulative redundancy
(deficiency) through
December 31, 1999:
------- ----- ------ ------ ------ ------ ------ ----- ------ -----
Amount....................... (19,781) 1,169 8,283 2,628 (1,923) (1,979) (12,497) (2,905) (3,145) (111)
Percentage................... (29%) 3% 15% 5% (4%) (5%) (35%) (8%) (10%) 0%
</TABLE>
-20-
<PAGE>
During 1999, PXRE incurred development from prior year losses amounting
to $19,781,000 net as a result of changes in estimates of insured events in
prior years, primarily Hurricanes Georges and Mitch and accident and health and
facultative reserve strengthening in PXRE Lloyd's Syndicate.
During 1998, PXRE experienced savings of $532,000 net, for prior year
losses and loss expenses primarily related to the triggering of a retrocessional
recovery on a 1994 aviation loss offset in part by adverse development due to
the 1997 German, Polish and Czech floods.
During 1997, PXRE experienced savings of $3,917,000 net, for prior-year
losses and loss expenses primarily related to the Eurotunnel fire and Hurricane
Fran where redundant reserves were recognized in 1997 of approximately
$1,644,000 and $1,440,000, respectively. In addition, included in the savings of
$3,917,000 were prior-year losses originally thought to have triggered market
loss coverage thresholds which proved to be redundant by approximately
$1,800,000 offset, in part, by development on prior-year facultative losses.
During 1996, PXRE incurred development from prior year losses amounting
to $3,249,000 primarily due to Hurricanes Marilyn and Luis. During 1995, PXRE
incurred development from prior year losses amounting to $4,311,000 primarily as
a result of losses from the Northridge earthquake. During 1994, PXRE incurred
development from prior year losses amounting to $3,261,000 primarily as a result
of marine pro rata losses and 1993 Midwest flood activity. During 1993, PXRE's
management strengthened the liability for incurred but not reported losses
occurring in prior years by $10,499,000, of which approximately $5,394,000 was
the result of additional information received with respect to Hurricanes Andrew
and Iniki and approximately $3,330,000 was the result of losses under a number
of pro rata reinsurance treaties. During 1992, PXRE's management strengthened
the liability for incurred but not reported losses occurring in prior years by
$2,355,000 of which $2,036,000 was the result of additional information received
with respect to losses under a number of pro rata reinsurance treaties. In 1991,
PXRE's management strengthened the liability for losses and loss expenses
occurring in prior years by $2,242,000, of which $1,196,000 was due to
unfavorable development experienced on PXRE's marine and aerospace reinsurance
business. PXRE commenced writing marine and aerospace reinsurance in 1988 and
estimated the amounts of losses and loss expenses for claims on such business
during 1988 and subsequent periods based on cumulative experience as of such
time. As more information became available, prior estimates were revised.
Approximately $740,000 of the balance of the liability strengthening in 1991 was
attributable to changes in 1991 in the loss amounts applicable to catastrophes
which occurred in 1989 and 1990, years impacted by high levels of catastrophe
loss activity.
Management of PXRE believes that the cumulative reserve redundancies in
1995, 1996 and 1997 demonstrated by the above table, and that the strengthening
of reserves in 1989-1994 and 1998, is attributable to the factors described
above and not to any material changes in reserving methods or assumptions.
-21-
<PAGE>
Conditions and trends that have affected reserve development in the
past may not necessarily occur in the future. Accordingly, it would not be
appropriate to extrapolate future redundancies or deficiencies based on the
foregoing.
INVESTMENTS
PXRE's management has established general procedures and guidelines for
its investment portfolio and oversees investment management carried out by
Phoenix Investment Partners, Limited (formerly Phoenix Duff & Phelps
Corporation), a public majority-owned subsidiary of Phoenix Home Life, and by
Mariner Investment Group, Inc. ("Mariner") the sole shareholder of which is the
Chairman of the Board and a founding shareholder of Select Re. PXRE's invested
assets consist primarily of fixed maturities and limited partnerships, but also
include equities, real estate investment trusts ("REITS") and short-term
investments. PXRE's investments are subject to market-wide risks and
fluctuations, as well as to risk inherent in particular securities. As at
December 31, 1999, PXRE had $26,214,000 in equity securities (at cost) and
$93,147,000 in various limited partnerships (at cost). The limited partnerships
primarily include a fund of funds investing in a multiple number of hedge
strategies. Short-term investments includes one limited partnership which
invests primarily in marketable fixed income securities and provides for fund
withdrawals upon 30 days' notice. Limited partnership investments are accounted
for under the equity method, whereby both the investment income and any change
in the market value are recorded through the investment income line of the
income statement. Included in investments in limited partnerships are
investments (at cost) aggregating $55,517,000 in various limited partnerships
affiliated with Mariner, including an investment of $17,517,000 in Mariner
Select, L.P., which provided approximately $10,618,000 of investment income for
PXRE in 1999. See Note 3 of Notes to Consolidated Financial Statements. The
investment policies of PXRE stress conservation of principal, diversification of
risk and liquidity.
-22-
<PAGE>
The following table summarizes the investments of PXRE at December 31,
1999 and 1998:
ANALYSIS OF INVESTMENTS
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------------------- ---------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Fixed maturities (at amortized cost):
United States government securities $104,034 21.1 $113,030 23.9
Foreign government securities 10,116 2.0 43,815 9.3
United States government agency
mortgage and asset-backed securities 25,417 5.1 1,087 0.2
Other mortgage and asset-backed
securities 69,105 14.0 43,175 9.1
Obligations of states and political
subdivisions 94,692 19.2 97,470 20.6
Public utilities, industrial and
miscellaneous securities 26,598 5.4 10,081 2.1
-------- ----- -------- ----
Total fixed maturities 329,962 66.8 308,658 65.2
Equity securities (at cost) 26,214 5.3 41,146 8.7
Short-term investments (at cost) 44,384 9.0 57,244 12.1
Limited Partnership assets (at cost) 93,147 18.9 66,588 14.0
-------- ---- -------- ----
Total investments $493,707 100 $473,636 100
======== ==== ======== ====
</TABLE>
At December 31, 1999, the fair value of PXRE's investment portfolio
exceeded its amortized cost by $15,861,000 due to equity accounting on the
limited partnerships amounting to $25,949,000, offset in part by unrealized
depreciation on fixed maturities and equity securities amounting to $10,088,000.
At December 31, 1998, the fair value of PXRE's investment portfolio exceeded its
amortized cost by $841,000.
-23-
<PAGE>
The following table indicates the composition of PXRE's fixed maturity
investments (at amortized cost), including short-term investments (at cost), by
time to maturity at December 31, 1999 and 1998:
COMPOSITION OF INVESTMENTS BY MATURITY
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------ --------------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Maturity(1)
One year or less $ 50,963 13.6 $73,955 20.2
Over 1 year through 5 years 118,566 31.7 121,627 33.2
Over 5 years through 10 years 79,630 21.3 65,077 17.8
Over 10 years through 20 years 10,659 2.8 27,777 7.6
Over 20 years 18,929 5.1 33,204 9.1
-------- ---- -------- -----
278,747 74.5 321,640 87.9
United States government agency
and other mortgage and asset-backed
securities 95,599 25.5 44,262 12.1
-------- ---- -------- ----
Total $374,346 100 $365,902 100
======== ==== ======== ====
</TABLE>
- ------------------------
(1) Based on stated maturity dates with no prepayment assumptions.
The average market yield to maturity of PXRE's fixed maturities
portfolio at December 31, 1999 and December 31, 1998 was 6.6% and 5.9%,
respectively. At December 31, 1999, the fair value of PXRE's fixed maturities
portfolio was less than its amortized cost by $8,714,000. At December 31, 1998,
the fair value of PXRE's fixed maturities portfolio exceeded its amortized cost
by $819,000.
-24-
<PAGE>
The following table indicates the composition of PXRE's fixed maturities
portfolio (at amortized cost), excluding short-term investments, by rating at
December 31, 1999 and 1998:
COMPOSITION OF FIXED MATURITIES PORTFOLIO BY RATING
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
Ratings(1)
- -----------
<S> <C> <C> <C> <C>
United States government securities $104,034 31.5 $113,030 36.6
United States government agency
mortgage and asset-backed securities 25,416 7.7 1,087 0.4
Other mortgage and asset-backed securities
Aaa and/or AAA 57,321 17.4 34,558 11.2
Aa2 and/or AA 3,168 1.0 -- --
A2 and/or A 8,000 2.4 8,000 2.6
Baa2 and/or BBB 615 0.1 616 0.2
Obligations of states and political
subdivisions
Aaa and/or AAA 70,053 21.2 64,883 21.0
Aa2 and/or AA 24,639 7.5 32,587 10.6
Public utilities and industrial and
miscellaneous securities
Aaa and/or AAA 2,499 0.8 -- --
Aa2 and/or AA 5,871 1.8 -- --
A2 and/or A 3,379 1.0 749 0.2
Baa2 and/or BBB 4,549 1.4 4,226 1.4
Ba2 and/or BB 7,444 2.3 3,117 1.0
B2 and/or B 2,856 0.9 1,989 0.6
Foreign government securities
Baa2 and/or BBB 2,908 0.9 3,820 1.2
Ba2 and/or BB 4,873 1.5 30,196 9.8
B2 and/or B 2,337 0.6 8,618 2.8
Ca and/or CC -- -- 1,182 0.4
-------- --- -------- ---
Total $329,962 100 $308,658 100
======== === ======== ===
</TABLE>
- ----------------------------
(1) Ratings as assigned by Moody's and S&P, respectively. Such ratings are
generally assigned upon the issuance of the securities, subject to
revision on the basis of ongoing evaluations.
PXRE's management continually evaluates the composition of the
investment portfolio and repositions the portfolio in response to market
conditions in order to improve total returns while maintaining liquidity and
superior credit quality. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources -- Market
Risk."
-25-
<PAGE>
REGULATION
PXRE, PXRE Reinsurance and Transnational Insurance are subject to
regulation under the insurance statutes of various U.S. states, including
Connecticut, the domiciliary state of PXRE Reinsurance and Transnational
Insurance. The regulation and supervision to which PXRE Reinsurance and
Transnational Insurance are subject relate primarily to the standards of
solvency that must be met and maintained, licensing requirements for reinsurers
and insurers, the nature of and limitations on investments, restrictions on the
size of risks which may be insured, deposits of securities for the benefit of a
reinsured or insured, methods of accounting, periodic examinations of the
financial condition and affairs of reinsurers and insurers, the form and content
of reports of financial condition required to be filed, reserves for losses, and
other purposes. In general, such regulation is for the protection of the
reinsureds and policyholders, rather than investors.
In addition, PXRE, PXRE Reinsurance and Transnational Insurance are
subject to regulation by U.S. state insurance authorities under the insurance
holding company statutes of various states, including Connecticut. These laws
and regulations vary from state to state, but generally require an insurance
holding company and insurers and reinsurers that are subsidiaries of an
insurance holding company to register with the state regulatory authorities and
to file with those authorities certain reports including information concerning
their capital structure, ownership, financial condition, and general business
operations. Moreover, PXRE Reinsurance and Transnational Insurance may not enter
into certain transactions, including certain reinsurance agreements, management
agreements, and service contracts, with members of their insurance holding
company system, unless they have first notified the Connecticut Insurance
Commissioner of their intention to enter into any such transaction and the
Connecticut Insurance Commissioner has not disapproved of such transaction
within the period specified by the Connecticut insurance statute. Among other
things, such transactions are subject to the requirements that their terms be
fair and reasonable, charges or fees for services performed be reasonable and
the interests of policyholders not be adversely affected.
U.S. state laws also require prior notice or regulatory agency approval
of direct or indirect changes in control of an insurer, reinsurer, or its
holding company, and of certain significant intercorporate transfers of assets
within the holding company structure. An investor who acquires shares
representing or convertible into more than 10% of the voting power of the
securities of PXRE would become subject to at least some of such regulations,
would be subject to approval by the Connecticut Insurance Commissioner prior to
acquiring such shares, and would be required to file certain notices and reports
with the Commissioner prior to such acquisition. See "Market for Registrant's
Common Equity and Related Stockholder Matters" for a discussion of other
limitations on voting and ownership of PXRE securities contained in PXRE's
Bye-Laws.
The principal sources of cash for the payment of operating expenses and
income taxes, debt service obligations, and dividends by PXRE are the receipt of
dividends and net tax allocation payments from PXRE Reinsurance, Transnational
Insurance and PXRE Bermuda. Under the Connecticut insurance laws, the maximum
amount of dividends or other distributions that PXRE Reinsurance may declare or
pay, and that Transnational Insurance may declare or pay to PXRE Reinsurance,
within any twelve-month period, without regulatory approval, is limited to the
lesser of (a) earned surplus or (b) the greater of 10% of policyholder surplus
at December 31 of the preceding year, or 100% of net income for the twelve-month
period ended December 31 of the preceding year, all determined in accordance
with U.S. statutory accounting principles ("SAP"). Accordingly, the Connecticut
insurance laws could limit the amount of dividends available for distribution by
PXRE Reinsurance or Transnational Insurance without prior regulatory approval,
depending upon a variety of factors outside the control of PXRE, including the
frequency and severity of catastrophe and other loss events and changes in the
reinsurance market, in the insurance regulatory environment and in general
economic conditions. The maximum amount of dividends or distributions that PXRE
Reinsurance may declare and pay during 2000, without regulatory approval, is
limited to approximately $39,901,000. Transnational Insurance may not declare or
pay any dividend to PXRE Reinsurance in 2000, without regulatory approval.
During 1999, $35,525,695 in dividends were paid by PXRE Reinsurance, including
extraordinary dividends and $10,000,000 was paid by Transnational Insurance to
PXRE Reinsurance, including extraordinary dividends. In both cases authorization
was obtained from the Insurance Department of the State of Connecticut. See
below for a discussion of Bermuda dividend restrictions applicable to PXRE
Bermuda.
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See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Additionally, Connecticut has adopted regulations respecting certain
minimum capital requirements for property and casualty companies, based upon a
model adopted by the National Association of Insurance Commissioners (the
"NAIC"). The risk-based capital regulations provide for the use of a formula to
measure statutory capital and surplus needs based on the risk characteristics of
a company's products and investment portfolio to identify weakly capitalized
companies. As at December 31, 1999, PXRE Reinsurance's surplus and Transnational
Insurance's surplus substantially exceeded their respective calculated
risk-based capital.
In addition, from time to time various regulatory and legislative
changes have been proposed in the U.S. insurance industry, some of which could
have an effect on reinsurers and insurers. Among the proposals that have in the
past been or are at present being considered are the possible introduction of
federal regulation in addition to, or in lieu of, the current system of state
regulation of insurers, the initiative to create a federally guaranteed disaster
reinsurance pool prefunded by insurers, and proposals in various state
legislatures (some of which proposals have been enacted) to conform portions of
their insurance laws and regulations to various model acts adopted by the NAIC.
Furthermore, the NAIC has commenced a project to codify statutory accounting
practices, the result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which is
expected to take affect in 2001, will likely change the definitions of what
constitutes prescribed versus permitted statutory accounting practices and will
likely result in changes to the accounting policies that insurance enterprises
use to prepare their statutory financial statements. The NAIC is an organization
which assists state insurance supervisory officials in achieving insurance
regulatory objectives, including the maintenance and improvement of state
regulation. See also, "Taxation of PXRE and its Subsidiaries -- Legislation"
PXRE is unable to predict what effect, if any, the foregoing developments may
have on its operations and financial condition in the future.
The NAIC's Insurance Regulatory Information System ("IRIS") was
developed by a committee of state insurance regulators and is primarily intended
to assist state insurance departments in executing their statutory mandates to
oversee the financial condition of insurance companies operating in their
respective states. IRIS identifies eleven industry ratios and specifies "usual
values" for each ratio. Departure from the usual values on four or more of the
ratios can lead to inquiries from individual state insurance commissioners as to
certain aspects of an insurer's business. For the years ended December 31, 1999,
1998 and 1997, PXRE Reinsurance's results were within the usual values for each
of the eleven ratios, except for one ratio in each of 1999 and 1998. PXRE's
management believes that the ratio fell outside the usual range in 1999 due to
the unusual level of catastrophe losses in 1999 and in 1998 due to the
substantial turmoil in global securities markets and the resulting decline in
the value of certain limited partnership investments. In 1999, Transnational
Insurance's results were within the usual values for each of the eleven ratios
except for one due to the increase in net writings arising from an intercompany
pooling agreement in 1999 with its parent PXRE Reinsurance. In 1998 one ratio
was outside the usual range due primarily to the change in net writings
associated with business written in 1994 to 1996. In 1997, two ratios were
outside the usual range, when Transnational Insurance did not write any business
and paid a dividend, including an extraordinary dividend, of $58,877,000 to PXRE
Reinsurance, affecting the change in net writings ratio and change in surplus
ratio.
PXRE Limited, PXRE Managing Agency and PXRE Lloyd's Syndicate are
subject to regulation by Lloyd's. The form of that regulation is prescribed by
the Lloyd's Act of 1982 and Lloyd's internal regulatory by-laws and directions.
The regulation and supervision to which PXRE Limited is subject relates
primarily to the maintenance of a risk based capital requirement (by way of a
deposit of securities and a letter of credit with Lloyd's to support its
underwriting) and methods of accounting. PXRE Managing Agency must satisfy a
solvency requirement, methods of accounting and periodic examinations of
compliance with Lloyd's by-laws and other purposes. PXRE Lloyd's Syndicate has
to comply with accounting regulation, internal reporting and periodic
examinations of compliance. The Lloyd's market is regulated externally by the
Financial Services Authority, although the day to day regulation of the market
remains the responsibility of the Council of Lloyd's. All invested
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<PAGE>
assets of PXRE Lloyd's Syndicate amounting to approximately $11,253,000 at
December 31, 1999, are restricted from being paid as a dividend for at least
three years.
The Insurance Act 1978 of Bermuda and related regulations
(collectively, the "Act") imposes on Bermuda insurance companies, including PXRE
Bermuda, solvency and liquidity standards and auditing and reporting
requirements and grants to the Minister of Finance powers to supervise,
investigate and intervene in the affairs of insurance companies.
The Act provides that the value of the general business assets of a
Class 3 insurer must exceed the amount of its general business liabilities by at
least the prescribed minimum solvency margin. PXRE Bermuda, as a Class 3
insurer, is required to maintain a minimum solvency margin equal to the greatest
of: (A) $1,000,000, (B) 20% of net premiums written up to $6,000,000 plus 15% of
net premiums written over $6,000,000, and (C) 15% of loss reserves. In addition,
PXRE Bermuda is prohibited from declaring or paying any dividends during any
financial year it is in breach of its minimum solvency margin or minimum
liquidity ratio or if the declaration or payment of such dividends would cause
it to fail to meet such margin or ratio (if it fails to meet its minimum
solvency margin or minimum liquidity ratio on the last day of any financial
year, the insurer will be prohibited, without the approval of the Minister, from
declaring or paying any dividends during the next financial year).
As a Class 3 insurer, PXRE Reinsurance also is prohibited, without the
approval of the Minister, from reducing by 15% or more its total statutory
capital, as set out in its previous year's financial statements, and if it
appears to the Minister that there is a risk of the insurer becoming insolvent
or that it is in breach of the Insurance Act or any conditions imposed upon its
registration, the Minister may, in addition to the restrictions specified above,
direct the insurer not to declare or pay any dividends or any other
distributions or may restrict it from making such payments to such extent as the
Minister may think fit.
The Act provides a minimum liquidity ratio for general business. An
insurer engaged in general business is required to maintain the value of its
relevant assets at not less than 75% of the amount of its relevant liabilities.
Relevant assets include cash and time deposits, quoted investments, unquoted
bonds and debentures, first liens on real estate, investment income due and
accrued, accounts and premiums receivable and reinsurance balances receivable.
There are certain categories of assets which, unless specifically permitted by
the Minister, do not automatically qualify as relevant assets such as unquoted
equity securities, investments in and advances to affiliates, real estate and
collateral loans. The relevant liabilities are total general business insurance
reserves and total other liabilities less deferred income tax and sundry
liabilities (by interpretation, those not specifically defined).
Under Bermuda law, PXRE Bermuda may not lawfully declare or pay a
dividend unless there are reasonable grounds for believing that it is, or will
after payment of the dividend be, able to pay its liabilities as they become
due, and that the realizable value of its assets will, after payment of the
dividend, be greater than the aggregate value of its liabilities, issued share
capital and share premium accounts. PXRE Bermuda is also required to maintain
statutory assets in an amount that permits it to meet the prescribed minimum
solvency margin for the net premium income level of its business from time to
time. In addition, the directors of PXRE Bermuda are, as a matter of prudence,
required to ensure that any dividend declared or paid is not of an amount that
will reduce the reserves of PXRE Bermuda to a level that is not sufficient to
meet the reserve requirements of its business.
At December 31, 1999 PXRE Bermuda's solvency and liquidity margins and
statutory capital and surplus were in excess of the minimum levels required by
Bermuda regulations.
TAXATION OF PXRE AND ITS SUBSIDIARIES
The following summary of the taxation of PXRE, PXRE Bermuda, PXRE
Barbados and PXRE's U.S. subsidiaries, including PXRE Reinsurance, Transnational
Insurance, PXRE Trading Corporation, TREX Trading Corporation, PXRE Solutions
Inc., PXRE Direct Underwriting Managers, Inc. and PXRE Underwriting Managers,
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<PAGE>
Inc. (collectively, the "PXRE U.S. Companies") is based upon current law.
Legislative, judicial or administrative changes may be forthcoming that could
affect this summary. See, for example, "Legislation" below. Certain subsidiaries
and branch offices of PXRE are subject to taxation related to operations in the
United Kingdom and Belgium.
Bermuda
PXRE and PXRE Bermuda have each received from the Minister of Finance
an assurance under The Exempted Undertakings Tax Protection Act, 1966 of
Bermuda, to the effect that in the event of there being enacted in Bermuda any
legislation imposing tax computed on profits or income, or computed on any
capital asset, gain or appreciation, or any tax in the nature of estate duty or
inheritance tax, then the imposition of any such tax shall not be applicable to
PXRE or PXRE Bermuda or to any of their operations or the shares, debentures or
other obligations of PXRE or PXRE Bermuda until March 28, 2016. These assurances
are subject to the proviso that they are not construed so as to prevent the
application of any tax or duty to such persons as are ordinarily resident in
Bermuda (PXRE and PXRE Bermuda are not currently so designated) or to prevent
the application of any tax payable in accordance with the provisions of The Land
Tax Act of 1967 of Bermuda or otherwise payable in relation to the land leased
to PXRE or PXRE Bermuda.
Barbados
PXRE Barbados is subject to a Barbados corporation tax, assessed at a
rate of 2.5% on profits and gains of up to 10 million Barbados Dollars
(approximately U.S. $5 million), and at declining rates on profits and gains
exceeding 10 million Barbados Dollars. PXRE Barbados may elect to take a credit
in respect of taxes paid to a country other than Barbados provided that such an
election does not reduce the tax payable in Barbados to a rate less than 1% of
the profits and gains of PXRE Barbados in any income year.
United States
The PXRE U.S. Companies carry on business in, and are subject to
taxation in, the United States. PXRE believes that it and its subsidiaries,
other than the PXRE U.S. Companies, have operated and will continue to operate
their business in a manner that will not cause them to be treated as engaged in
a trade or business within the United States. Tax conventions between the United
States and Bermuda or Barbados may provide relief to PXRE Bermuda and PXRE
Barbados, respectively, if either such company is deemed to be engaged in the
conduct of a U.S. trade or business. Under the tax convention between Bermuda
and the United States (the "Bermuda Treaty"), a Bermuda company predominantly
engaged in the insurance business, such as PXRE Bermuda, is subject to U.S.
income tax on its insurance income found to be effectively connected with a U.S.
trade or business only if that trade or business is conducted through a
permanent establishment in the United States. (As a holding company that is not
predominantly engaged directly in an insurance business, PXRE Group Ltd. is not
entitled to the benefits of the Bermuda Treaty.) Similarly, under the tax
convention between Barbados and the United States (the "Barbados Treaty"), a
corporation that is a Barbados resident will not be subject to U.S. income tax
on income that is effectively connected with a U.S. business, unless such
business is conducted through a permanent establishment in the United States.
Each of PXRE Group Ltd., PXRE Bermuda and PXRE Barbados will operate under
guidelines that are intended to minimize the risk that it will be treated as
engaged in a U.S. trade or business, and each of PXRE Bermuda and PXRE Barbados
will operate under guidelines that are intended to minimize the risk that it
will be found to have a U.S. permanent establishment.
On this basis, PXRE does not expect that it and its subsidiaries,
other than the PXRE U.S. Companies, will be required to pay U.S. federal
corporate income taxes (other than withholding taxes on certain U.S. source
investment income and excise taxes on reinsurance premiums as described below).
However, irrespective of such guidelines, there can be no assurance that PXRE
Bermuda and PXRE Barbados will qualify for the Bermuda Treaty and the Barbados
Treaty, respectively, now or in the future, or that the Bermuda Treaty or the
Barbados Treaty will not be
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<PAGE>
terminated or revised in a manner that could adversely affect any protection
from U.S. corporate tax that it currently provides. In addition, because there
is uncertainty as to the activities which constitute being engaged in a trade or
business in the United States, there can be no assurances that the U.S. Internal
Revenue Service will not contend successfully that PXRE or a non-U.S. subsidiary
is engaged in a trade or business in the United States. The maximum federal tax
rates currently are 35% for a corporation's income which is effectively
connected with being engaged in a trade or business in the United States. In
addition, the U.S. branch profits tax of 30% is imposed each year on a
corporation's earnings and profits (with certain adjustments) effectively
connected with its U.S. trade or business deemed repatriated out of the United
States, for a potential maximum effective tax rate of approximately 54% on the
net business connected with a U.S. trade or business.
Foreign corporations not engaged in a trade or business in the United
States are subject to U.S. income tax, effected through withholding by the
payor, on certain "fixed or determinable annual or periodic gains, profits and
income" derived from sources within the United States as enumerated in Section
881(a) of the U.S. Internal Revenue Code (the "Code").
The United States also imposes an excise tax on insurance and
reinsurance premiums paid to foreign insurers or reinsurers with respect to
risks located in the United States. The rate of tax applicable to reinsurance
premiums paid to PXRE Bermuda is 1% of gross premiums.
Legislation
PXRE understands that certain U.S.-based insurance companies are
advocating an amendment to the Code which would impose federal income tax on a
domestic insurer which is controlled by a foreign reinsurer on the deemed
investment income on its reserves on U.S. risks ceded to one or more foreign
reinsurers. At this point, the Company is unable to predict whether this
legislative effort will be successful, what form any such legislation may
ultimately take and what impact any such legislation would have on the Company.
EMPLOYEES
PXRE employed 103 full-time employees as at December 31, 1999. None of
PXRE's employees is represented by a labor union, and management considers its
relationship with its employees to be excellent.
Bermuda based employees of PXRE, including senior management of PXRE
Group Ltd. and PXRE Bermuda, are employed pursuant to work permits granted by
Bermuda authorities. These permits expire at various times over the next few
years. The Company has no reason to believe that these permits would not be
extended at expiration upon request, although no assurance can be given in this
regard.
ITEM 2. PROPERTIES
PXRE leases a total of approximately 69,500 square feet of office space
in Hamilton, Bermuda (PXRE's corporate headquarters), Edison, New Jersey,
Norwalk, Connecticut, New York, New York, Richmond, Virginia, San Francisco,
California, London, England and Brussels, Belgium. The Hamilton, Bermuda lease,
which covers approximately 2,618 square feet of office space, was signed in 1999
and is for a term of two (2) years at a fixed annual rent of approximately
$102,000 and additional rents on account of PXRE's proportionate share of
services. The Edison, New Jersey space is comprised of (i) a 1994 lease of
approximately 24,000 square feet of office space, for a term of 15 years at a
fixed annual rent of approximately $370,000 (inclusive of basic electricity) and
additional rents on account of PXRE Corporation's proportionate share of
increases in building operating expenses and property taxes over calendar year
1994, and (ii) a November 1999 lease of approximately 24,000 square feet of
additional office space for a term of 10 years expiring on October 31, 2009 at
fixed rentals of approximately $582,000 for years 1-5 of the term and $676,000
for years 6-10 of the term, in each case plus additional rents on account of
PXRE Corporation's proportionate share of taxes and operating expenses
attributable to the building. Relatedly, in February 2000 PXRE Corporation
subleased approximately 11,000 square feet of the additional space for a three
year term ending on the
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36th month next following the date that the premises are delivered to the
subtenant. The sublease provides for the subtenant to pay fixed rent to PXRE
Corporation at the rate of approximately $274,000 per annum, together with
electricity at the rate of approximately $16,500 per annum. The subtenant is
additionally required to pay its proportionate share of taxes and operating
expenses payable by PXRE Corporation under the lease.
ITEM 3. PENDING LEGAL PROCEEDINGS
PXRE is subject to litigation and arbitration in the ordinary course of
its business. Management does not believe that the eventual outcome of any such
pending litigation or arbitration is likely to have a material adverse effect on
the Company's financial condition or business. Pursuant to PXRE's insurance and
reinsurance arrangements, disputes are generally required to be finally settled
by arbitration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of the stockholders of PXRE Corporation on October
5, 1999, the holders of PXRE Corporation common stock approved the following:
(1) The approval and adoption of the Agreement and Plan of Merger,
dated July 7, 1999 (the "Merger Agreement") among PXRE
Corporation, PXRE Group Ltd. and PXRE Merger Corp.
<TABLE>
<CAPTION>
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Approval of the
Merger Agreement 6,989,981 2,065,714 18,941 2,549,966
</TABLE>
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PXRE's common shares are listed on the New York Stock Exchange under
the symbol "PXT". The following table sets forth for the periods indicated the
high and low bid quotations for PXRE's common shares as reported by the New York
Stock Exchange and cash dividends per common share declared and subsequently
paid:
<TABLE>
<CAPTION>
Bid Price
---------------
High Low Dividends
---- --- ---------
<S> <C> <C> <C>
1998:
First Quarter $ 35.25 $ 29.375 $ 0.25
Second Quarter 32.875 29.00 0.25
Third Quarter 30.50 25.625 0.25
Fourth Quarter 26.688 20.625 0.26
1999:
First Quarter $ 26.25 $ 18.00 $ 0.26
Second Quarter 21.25 16.00 0.26
Third Quarter 19.0625 14.3125 0.06
Fourth Quarter 14.50 10.00 0.06
</TABLE>
These prices represent quotations by dealers and do not include
markups, markdowns, or commissions, and do not necessarily represent actual
transactions. As of March 24, 2000, there were 11,758,174 common shares issued
and outstanding, which shares were held by approximately 90 shareholders of
record and, based on PXRE's best information, by approximately 2200 beneficial
owners of the common shares. See Notes 8 and 9 of Notes to Consolidated
Financial Statements for information with respect to shares reserved for
issuance under employee benefit and stock option plans.
The payment of dividends on the common shares is subject to the
discretion of the Board of Directors which will consider, among other factors,
PXRE's operating results, overall financial condition, capital requirements and
general business conditions. There can be no assurance that dividends will be
paid in the future.
As a holding company, PXRE is largely dependent upon dividends and net
tax allocation payments from its subsidiaries including PXRE Reinsurance,
Transnational Insurance and PXRE Bermuda, to pay dividends to PXRE's
shareholders. PXRE Reinsurance and Transnational Insurance are subject to U.S.
state laws, and PXRE Bermuda is subject to Bermuda law, that may restrict their
ability to distribute dividends. In addition, certain covenants in PXRE's bank
credit agreement may restrict PXRE's ability to pay dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Regulation" for
further information concerning restrictions contained in PXRE's bank credit
agreement and under U.S. and Bermuda law.
Under PXRE's Bye-Laws, subject to certain exceptions and to waiver by
PXRE's board of directors on a case by case basis, no transfer of PXRE shares is
permitted if such transfer would result in a shareholder owning, directly or
indirectly, more than 9.9% of the voting power of the outstanding shares,
including common shares, of
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PXRE or more than 9.9% of the outstanding shares of any class of PXRE's stock.
Ownership is broadly defined in PXRE's Bye-Laws.
PXRE may refuse to register any such transfer on PXRE's share transfer
records. A transferee will be permitted to promptly dispose of any PXRE shares
purchased which violate the restriction and as to the transfer of which
registration is refused. The transferor of such PXRE shares will be deemed to
own such shares for dividend, voting and reporting purposes until a transfer of
such shares has been so registered.
In addition, in the event that PXRE becomes aware of a shareholder
owning more than 9.9% of the voting power of PXRE's outstanding shares after a
transfer of shares has been registered, PXRE's Bye-Laws provide that, subject to
the same exceptions and waiver procedures, the voting rights with respect to
PXRE shares owned by any such shareholder will be limited to a voting power of
9.9%. The voting rights with respect to all shares held by such person in excess
of the 9.9% limitation will be allocated to the other holders of PXRE common
shares. Such allocation will be pro rata based on the number of PXRE common
shares held by all such other holders of PXRE common shares, 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 allocation.
Recent Sales of Unregistered Securities (Information required by Item 701 of
Regulation S-K):
(a) On June 4, 1999, 12,000 PXRE common shares were issued.
(b) The securities were issued to the PXRE Purpose Trust in connection
with the Bermuda redomestication.
(c) The securities were issued for $12,000 and the PXRE Purpose Trust made
subsequent capital contributions, of $865,000 in respect of such
shares.
(d) Exemption from registration was claimed pursuant to Section 4(2) of the
Securities Act of 1933. There was no public offering and the
participants in the transaction were the Company and the PXRE Purpose
Trust, a trust established and funded by PXRE Corporation in connection
with that corporation's Bermuda redomestication.
(e) Not applicable.
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997 1996 1995
(1)(2) (1)(2) (1)(2) (3)
------ ------- ------ ------- ------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross premiums written $221,349 $136,215 $126,232 $114,348 $155,380
Premiums ceded (82,504) (47,521) (26,177) (46,630) (57,744)
--------- --------- --------- --------- ---------
Net premiums written 138,845 88,694 100,055 67,718 97,636
Change in unearned premiums (10,341) 3,692 (8,640) 5,078 (494)
--------- --------- ---------- ---------- ----------
Net premiums earned 128,503 92,386 91,415 72,796 97,142
Net investment income 47,173 19,612 31,191 16,782 14,730
Net realized investment (losses) gains (3,766) (3,862) 2,467 94 85
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Management fees(3) 3,590 2,172 3,006 6,032 6,417
--------- --------- ---------- ---------- ----------
Total revenues 175,500 110,308 128,079 95,704 118,374
------- ------- -------- --------- --------
Losses and loss expenses incurred 159,259 57,793 12,491 18,564 34,716
Commissions and brokerage 27,703 20,563 19,138 12,874 13,251
Other operating expenses 30,052 19,313 15,716 12,262 11,237
Interest expense 3,915 1,395 3,325 6,957 7,143
Minority interest in consolidated subsidiary 8,790 8,928 8,184 -- --
-------- --------- --------- ----------- -------------
Total losses and expenses 229,719 107,992 58,854 50,657 66,347
------- ------- -------- -------- ---------
(Loss) income before income taxes, cumulative effect
of accounting change, extraordinary (54,219) 2,316 69,225 45,047 52,027
item and equity in net earnings of TREX
Equity in net earnings of TREX(3) 0 0 0 3,898 5,948
Income tax (benefit) provision (12,775) (1,206) 22,198 15,644 18,189
-------- ------- ---------- -------- --------
(Loss) income before cumulative effect of (41,444) 3,522 47,027 33,301 39,786
accounting change and extraordinary loss
Cumulative effect of accounting change, net of tax 695 -- -- -- --
Extraordinary loss on debt redemption, net of tax 0 843 2,774 -- --
--------- ------ -------- -------- --------
Net (loss) income $(42,139) $2,679 $ 44,253 $ 33,301 $ 39,786
========= ====== ======== ======== ========
Preferred stock dividend(4) 0 0 0 0 599
========= ====== ======== ======== ========
Net (loss) income available to common
stockholders $(42,139) $2,679 $ 44,253 $ 33,301 $ 39,187
========= ====== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(1)(2) (1)(2) (1)(2) (3)
------ ------- ------- ------ ------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(5) -- 1.09 6.59 7.15 7.90
Ratio of earnings to combined fixed charges --
and preferred dividends(5) 1.09 6.59 7.15 7.04
Basic earnings per common share:
(Loss) income before cumulative effect of
accounting change and extraordinary item $ (3.58) $ 0.26 $ 3.41 $ 3.73 $ 4.81
Cumulative effect of accounting change (0.06) -- -- -- --
Extraordinary loss -- 0.06 0.20 -- --
-------- -------- ------- ------- -------
Net (loss) income $ (3.64) $ 0.20 $ 3.21 $ 3.73 $ 4.81
======== ======= ======= ======= =======
Average common shares outstanding(3)(4) 11,568 13,339 13,776 8,922 8,150
====== ====== ======== ======= =======
Diluted earnings per common share:
(Loss) income before cumulative effect of
accounting change and extraordinary item $ (3.58) $ 0.26 $ 3.39 $ 3.69 $ 4.52
Cumulative effect of accounting change (0.06) -- -- -- --
Extraordinary loss -- 0.06 0.20 -- --
-------- -------- ------- ------- -------
Net (loss) income $ (3.64) $ 0.20 $ 3.19 $ 3.69 $ 4.52
======== ======= ======= ======= =======
Average common shares outstanding(3) 11,568 13,452 13,893 9,020 8,812
====== ====== ====== ======= ========
Cash dividends per common share $ 0.64 $ 1.01 $ 0.88 $ 0.75 $ 0.63
OTHER OPERATING DATA:
GAAP loss ratio(6) 123.9% 62.6% 13.7% 25.5% 35.7%
GAAP underwriting expense ratio(6) 43.0% 40.9% 34.8% 26.2% 18.6%
------- ------- ------- ----- -----
GAAP combined ratio(6) 166.9% 103.5% 48.5% 51.7% 54.3%
====== ====== ======= ===== =====
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ------
BALANCE SHEET DATA: (in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Cash and investments $524,303 $490,594 $527,738 $467,078 $269,089
Total assets 780,180 632,691 608,172 543,324 396,084
Losses and loss expenses 261,551 102,592 57,189 70,977 72,719
Minority interest in consolidated subsidiary 99,521 99,517 99,513 -- --
Debt payable 75,000 50,000 21,414 64,725 67,775
Total stockholders' equity 263,279 334,376 386,688 357,678 211,162
Book value per common share $ 22.54 $ 27.13 $ 28.10 $ 25.63 $ 24.15
Statutory capital and surplus of
PXRE Reinsurance $399,007 $447,229 $451,321 $400,133 $250,231
Statutory capital and surplus of PXRE Bermuda(1) $25,200 -- -- -- --
</TABLE>
- -------------------
(1) PXRE Group Ltd. was incorporated on June 1, 1999 as a Bermuda holding
company and a wholly owned subsidiary of PXRE Purpose Trust, a purpose
trust established under the laws of Bermuda. On October 5, 1999, PXRE
Corporation,
-35-
<PAGE>
a publicly held Delaware holding company ("PXRE Delaware") completed a
reorganization pursuant to which the Company became the ultimate parent
holding company of PXRE Delaware. PXRE Delaware and its subsidiaries
provide property and casualty reinsurance and insurance products to a
national and international market place. In connection with the
reorganization, the Company repurchased for $1.00 per share 100% of
the common shares owned by PXRE Purpose Trust and each outstanding
share of PXRE Delaware common stock (other than shares held by PXRE
Delaware and its subsidiaries) was converted into one common share of
the Company. After the consummation of the reorganization the Company
commenced carrying on the holding company functions previously
conducted by PXRE Delaware.
(2) In the fourth quarter of 1999, PXRE changed the reporting period for
its U.K. operations from a fiscal year ending September 30 to a
calendar year ending December 31. The results of operations for the
period from October 1, 1998 to December 31, 1998 amounted to a loss of
approximately $140,000. This loss was charged to retained earnings
during the year in order to report only twelve months operating
results. The U.K. operations of PXRE Limited and PXRE Managing Agency
are included in the consolidated results on a one quarter lag basis
from 1997 through the third quarter of 1999.
(3) On December 11, 1996, PXRE merged with TREX. The Merger has been
accounted for as a purchase. Accordingly, TREX has been included in
PXRE's consolidated results of operations from the date of acquisition,
which resulted in incremental earnings of $1,253,000 in 1996. For 1994
and 1995 and for the period from January 1, 1996 until December 11,
1996, PXRE recorded equity in net earnings of TREX. Diluted average
shares outstanding reflects the 5,680,256 weighted shares issued to
holders of TREX common shares in connection with the Merger. Included
in management fee was $2,512,000, $3,526,000 and $3,364,000 in 1996,
1995 and 1994, respectively, earned from TREX prior to the Merger. If
the Merger had taken place at the beginning of 1996 and 1995,
consolidated revenues would have been $153,410,000 and $193,972,000
for 1996 and 1995, respectively. Consolidated pro forma net income and
diluted net income per share would have been $49,161,000 and $3.42 in
1996 and $60,755,000 and $4.19 in 1995. Such pro forma amounts are not
necessarily indicative of what the actual consolidated results might
have been if the Merger had been effected prior to December 11, 1996.
(4) During 1995, all of PXRE's outstanding shares of Series A Cumulative
Convertible Preferred Stock were converted into shares of PXRE's common
stock.
(5) The ratios of earnings to fixed charges were determined by dividing
consolidated earnings by total fixed charges. For purposes of these
computations (i) earnings consist of consolidated income before
considering income taxes, fixed charges and minority interest and (ii)
fixed charges consist of interest on indebtedness and that portion of
rentals which is deemed by PXRE's management to be an appropriate
interest factor. Earnings were inadequate to cover fixed charges by
$55,288,000 for the year ended December 31, 1999. The ratios of
earnings to combined fixed charges and preferred dividends were
determined by dividing consolidated earnings by total fixed charges and
preferred dividends. Earnings were inadequate to cover fixed charges
and preferred dividends by $55,288,000 for the year ended December 31,
1999.
(6) The loss, underwriting expense and combined ratios included under
"Other Operating Data" have been derived from the audited consolidated
statements of income of PXRE prepared in accordance with U.S. GAAP.
-36-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
PXRE Group Ltd. ("PXRE" or the "Company") - with operations principally
in Bermuda, Barbados, the United States, the United Kingdom and Europe -
provides reinsurance products and services to a worldwide market place. The
Company primarily emphasizes commercial and personal property and casualty
reinsurance risks and it offers both brokerbased and direct-writing distribution
capabilities. PXRE also provides marine and aerospace reinsurance products and
services. The Company's shares trade on the New York Stock Exchange under the
symbol PXT. On October 5, 1999 PXRE Corporation, a Delaware holding company
("PXRE Delaware") completed a reorganization that resulted in the formation of
the Company which became the ultimate parent holding company of PXRE Delaware.
Holders of PXRE Delaware common stock automatically became holders of the same
number of PXRE common shares. The reorganization also involved the establishment
of a Bermuda based reinsurance company, PXRE Reinsurance Ltd. ("PXRE Bermuda"),
and operations in Barbados through PXRE (Barbados) Ltd ("PXRE Barbados").
The Company conducts its business primarily through its principal
operating subsidiaries, PXRE Delaware, PXRE Reinsurance Company ("PXRE
Reinsurance"), PXRE Solutions Inc. ("PXRE Solutions"), PXRE Bermuda, PXRE
Barbados, PXRE Managing Agency Limited ("PXRE Managing Agency"), PXRE Limited,
the sole member of PG Butler Syndicate 1224 ("PXRE Lloyd's Syndicate"), and
Transnational Insurance Company ("Transnational Insurance"). The term "PXRE" as
used herein, refers to one or more of PXRE Delaware, PXRE Reinsurance, PXRE
Solutions, PXRE Bermuda, PXRE Barbados, PXRE Managing Agency, PXRE Lloyd's
Syndicate and Transnational Insurance in discussions of these entities'
businesses and refers to PXRE Group Ltd. in all other circumstances.
The property and casualty reinsurance industry has been experiencing an
extended period of soft market conditions characterized by inadequate pricing.
The industry is also consolidating through mergers and other acquisitions. PXRE
competes with numerous companies, many of which have substantially greater
financial, marketing and management resources.
Since its formation more than a decade ago, PXRE has specialized in
property reinsurance, including a strong focus on catastrophe-type products.
Coverage terms for these products have deteriorated in recent years, and PXRE
has reduced commitments on marginally priced business.
37
<PAGE>
Meanwhile, PXRE has adopted an ambitious diversification strategy
involving:
- the establishment of a direct presence in the Lloyd's market;
- the addition of a reinsurance platform offering primarily casualty
products directly to customers;
- the enhancement of its international broker market reinsurance
platform to include additional lines of business including casualty
risks;
- the start-up of an excess and surplus lines insurance company;
- an acceleration of business offerings to one of its managed business
participants;
- the formation of a finite reinsurance unit; and
- the establishment of a direct presence in the Bermuda market.
At December 31, 1999, PXRE was a party to retrocessional arrangements
with a number of insurers and reinsurers. Under these arrangements, PXRE cedes
some of its underwritten risks to the participants, subject to maximum aggregate
liabilities per reinsurance program. PXRE receives a management fee or
commission, initially based on premium volume, adjusted in some cases through
contingent profit commissions related to underwriting results measured over a
period of years. Future management fee income is dependent upon the amount of
business ceded to the participants and the profitability of that business.
Another arrangement with Select Reinsurance Ltd. ("Select Re"), a Bermuda
reinsurer, formerly Investors Reinsurance Ltd., involves a multi-year fee based
undertaking by PXRE through the year ending December 31, 2003 to produce and
underwrite business with Select Re. Gerald Radke (Chairman, President and Chief
Executive Officer of PXRE) and Jeffrey Radke (Executive Vice President of PXRE
and President of PXRE Bermuda) are on the Board of Directors of Select Re and
are shareholders of Select Re. Gerald Radke is Co-Vice Chairman of Select Re and
Jeffrey Radke was formerly the President of Select Re.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE significantly increased its
purchases of such coverage in 1998 and 1999 in light of the continued general
deterioration in catastrophe reinsurance pricing and the opportunity to buy
protection at more favorable terms than in previous years.
CERTAIN RISKS AND UNCERTAINTIES
As a reinsurer of property catastrophe-type coverages in the worldwide
market place, PXRE's 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, floods, earthquakes, spells of severely cold weather,
fires and explosions. While PXRE may, depending on market conditions, purchase
catastrophe retrocessional coverage for its own protection, the occurrence of
one or more major catastrophes in any given period could nevertheless have a
material adverse impact on PXRE's results of operations and financial condition
and result in substantial liquidation of investments and outflows of cash as
losses are paid.
38
<PAGE>
The estimation of losses for catastrophe reinsurers is inherently less
reliable than for reinsurers of risks which have an established historical
pattern of losses. In addition, insured events which occur near the end of a
reporting period, as well as with respect to PXRE's retrocessional book of
business, the significant delay in losses being reported to insurance carriers,
reinsurers and finally retrocessionaires require PXRE to make estimates of
losses based on limited information from ceding companies and based on its own
underwriting data. Because of the uncertainty in the process of estimating its
losses from insured events, there is a risk that PXRE's liabilities for losses
and loss expenses could prove to be inadequate, with a consequent adverse impact
on future earnings and stockholders' equity. Additionally, as a consequence of
its emphasis on property reinsurance, PXRE may forgo potential investment income
because property losses are typically settled within a shorter period of time
than casualty losses.
In addition, the potential for uncertainty for recent underwriting
years is greater than in past years because of the increased casualty exposures
assumed by PXRE. Unlike property losses that tend to be reported more promptly
and usually are settled within a shorter time period, casualty losses are
frequently slower to be reported and may be determined only through the lengthy,
unpredictable process of litigation. Moreover, given its recent expansion of
casualty business, PXRE does not have an established historical loss pattern
that can be used to establish casualty loss liabilities. PXRE must therefore
rely on the inherently less reliable historical loss patterns reported by ceding
companies and industry loss standards in calculating its liabilities.
As PXRE underwrites risks from a large number of insurers based on
information generally supplied by reinsurance brokers, there is a risk of
developing a concentration of exposure to loss in certain geographic areas prone
to specific types of catastrophes. PXRE has developed systems and software tools
to monitor and manage the accumulation of its exposure to such losses.
Management has established guidelines for maximum tolerable losses from a single
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.
Premiums on reinsurance business assumed are recorded as earned on a
pro rata basis over the contract period based upon estimated subject premiums.
Management must estimate the subject premiums associated with the treaties in
order to determine the level of earned premiums for a reporting period. Such
estimates are based on information from brokers, which can be subject to change
as new information becomes available. Because of the inherent uncertainty in
this process, there is the risk that premiums and related receivable balances
may turn out to be higher or lower than reported.
PXRE's invested assets consist primarily of fixed maturities and
limited partnerships, but also include equities, real estate investment trusts
("REITS") and short-term investments. PXRE's investments are subject to market-
wide risks and fluctuations, as well as to risk inherent in particular
securities. Additionally, the estimated fair value of PXRE's investments does
not necessarily represent the amount which could be realized upon future sale
particularly if PXRE were required to liquidate a substantial portion of its
portfolio to fund catastrophic losses. PXRE's investment guidelines stress
conservation of principal, diversification of risk and liquidity.
39
<PAGE>
Premium receivables and loss reserves include business denominated in
currencies other than U.S. dollars. PXRE is exposed to the possibility of
significant claims in currencies other than U.S. dollars. While PXRE holds
positions denominated in foreign currencies to mitigate, in part, the effects of
currency fluctuations on its results of operations, it currently does not hedge
its currency exposures before a catastrophic event which may produce a claim.
PXRE and its non-U.S. subsidiaries intend to operate their business in
a manner that will not cause them to be treated as engaged in a trade or
business in the United States and, thus, will not require them to pay U.S.
federal corporate income taxes (other than withholding taxes on certain U.S.
source investment income and excise taxes on reinsurance premiums). However,
because there is uncertainty as to the activities which constitute being engaged
in a trade or business within the United States, there can be no assurances that
the U.S. Internal Revenue Service will not contend successfully that PXRE Group
or a non-U.S. subsidiary is engaged in a trade or business in the United States.
The company understands that certain U.S.-based insurance companies are
advocating an amendment to the U.S. Internal Revenue Code which would impose
federal income tax on a domestic insurer which is controlled by a foreign
reinsurer on the deemed investment income on its reserves on U.S. risks ceded
to one or more foreign reinsurers. At this point, the Company is unable to
predict whether this legislative effort will be successful, what form any such
legislation may ultimately take and what impact any such legislation would have
on the Company. If PXRE Group or any of its non-U.S. subsidiaries were subject
to U.S. income tax, PXRE Group's shareholders' equity and earnings could be
materially adversely affected.
COMPARISON OF 1999 WITH 1998
<TABLE>
<CAPTION>
Year Ended December 31,
Increase
1999 1998 (Decrease)
---- ---- ----------
(000's) %
<S> <C> <C> <C>
Gross premiums written $221,349 $136,215 62.5
Ceded premiums:
Managed business participants 42,549 21,542 97.5
Catastrophe coverage and other
reinsurance 39,955 25,979 53.8
-------- --------
Total reinsurance premiums ceded 82,504 47,521 73.6
-------- --------
Net premiums written $138,845 $ 88,694 56.5
======== ========
</TABLE>
Gross premiums written for 1999 increased 62.5% to $221,349,000 from
$136,215,000 for 1998. Net premiums written for the year ended December 31,
1999 increased 56.5% to $138,845,000 from $88,694,000 for 1998. Net premiums
earned for the year ended December 31, 1999 increased 39.1% to $128,503,000
40
<PAGE>
from $92,386,000 in 1998. Gross written, net written and net earned premiums
for 1999 increased from prior year levels reflecting new business written
through PXRE's diversification program and approximately $7,548,000 of
additional reinstatement premiums generated by 1999 loss activity.
Premiums ceded by PXRE to its managed business participants increased
97.5% to $42,549,000 for 1999 compared with $21,542,000 for 1998. The increase
in premiums ceded to these programs was due primarily to the increase in gross
premiums written, including reinstatement premiums on 1999 catastrophe losses,
and to fronting certain businesses on behalf of other reinsurers.
In 1999, catastrophe coverage and other reinsurance ceded premiums
written increased due to PXRE fronting certain business on behalf of other
reinsurers, to additional coverage associated with new operations and to
opportunistic purchases of catastrophe retrocessional protection. PXRE's
property business is protected by a series of retrocessional agreements which
currently provide protection principally against unusual severity of loss and
are not designed to protect PXRE's exposure to smaller, more frequent loss
occurrences.
The following tables summarize the 1999 and 1998 net written and earned
premium by PXRE's business segments:
<TABLE>
<CAPTION>
Net Premiums Written
(000's except %'s)
1999 1999 1998 1998
---- ---- ---- ----
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Catastrophe and Risk Excess
North American $ 26,704 $ 12,795
International 63,957 58,595
Excess of loss cessions (18,883) (3,938)
-------- ---------
Subtotal 71,778 52% 67,452 76%
-------- ---------
Casualty
North American 13,148 650
International 12,851 4,433
-------- ---------
25,999 19% 5,083 6%
-------- ---------
Structured/Finite Business
North American 0 0
International 0 0
-------- ---------
0 0% 0 0%
-------- ---------
Other Lines
North American 12,073 2,054
International 28,995 14,105
-------- ---------
41,068 29% 16,159 18%
-------- ---------
Total $138,845 100% $ 88,694 100%
======== ==== ========= ====
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Net Premiums Earned
(000's except %'s) 1999 1999 1998 1998
---- ---- ---- ----
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Catastrophe- and Risk Excess
North American $ 26,155 $ 13,561
International 61,241 63,830
Excess of loss cessions (14,958) (2,869)
---------- -----------
Subtotal 72,438 56% 74,522 81%
---------- -----------
Casualty
North American 11,593 (152)
International 9,794 2,207
---------- ----------
21,387 17% 2,055 2%
---------- ----------
Structured /Finite Business
North American 0 0
International 0 0
---------- ----------
0 0% 0 0%
---------- ----------
Other Lines
North American 11,296 3,234
International 23,383 12,575
---------- ----------
34,679 27% 15,809 17%
---------- --- ---------- ----
Total $ 128,504 100% $ 92,386 100%
========== ==== ========== ====
</TABLE>
Management fee income from all sources for the year ended December 31,
1999 increased 65.3% to $3,590,000 from $2,172,000 for 1998, reflecting higher
ceded premiums written, including higher management fee income earned from
Select Re, offset in part by reduced profit commission from 1999 catastrophe
losses.
The underwriting results of a property and casualty insurer are
discussed frequently by reference to its loss ratio, underwriting expense ratio
and combined ratio. The loss ratio is the result of dividing losses and loss
expenses incurred by net premiums earned. The underwriting expense ratio is the
result of dividing underwriting expenses (reduced by management fees, if any) by
net premiums written for purposes of U.S. SAP and net premiums earned for
purposes of U.S. GAAP. The combined ratio is the sum of the loss ratio and the
underwriting expense ratio. A combined ratio under 100% indicates underwriting
profits and a combined ratio exceeding 100% indicates underwriting losses. The
combined ratio does not reflect the effect of investment income on operating
results. The ratios discussed below have been calculated on a U.S. GAAP basis.
The loss ratio was 123.9% for 1999 compared with 62.6% for 1998 largely
due to fifteen catastrophe events in 1999, primarily in the fourth quarter when
$59,635,000 of the $79,465,000 in net catastrophe losses for 1999 occurred. The
loss ratio for 1999 reflected incurred catastrophe losses of $170,477,000 gross
and $92,687,000 net. In comparison, the loss ratio for 1998 reflected incurred
catastrophe losses of $55,564,000 gross and $29,437,000 net largely due to
Hurricane Georges and two aerospace catastrophes.
42
<PAGE>
Significant catastrophe and risk losses affecting the year ended
December 31, 1999 loss ratio are as follows:
<TABLE>
<CAPTION>
Amount of Losses
----------------
Loss Event Gross Net
- ---------- ----- ---
(in thousands)
<S> <C> <C>
French Storm Martin $31,300 $24,000
French Storm Lothar 51,900 20,600
Hurricane Floyd 20,900 13,700
Danish Storms 14,800 11,400
Hurricane Lenny 4,300 3,300
Hurricane Bart 5,800 2,500
Three Risk Losses 11,300 3,500
</TABLE>
Significant catastrophe and satellite losses affecting the year ended
December 31, 1998 loss ratio are as follows:
<TABLE>
<CAPTION>
Amount of Losses
----------------
Loss Event Gross Net
- ---------- ----- ---
(in thousands)
<S> <C> <C>
Hurricane Georges $49,106 $ 25,753
Hailstorms 4,521 3,597
Swissair and Delta 3 Satellites 4,087 3,399
</TABLE>
The provision for losses and loss expenses and the loss ratio includes
the effect of foreign exchange movements on PXRE's liability for losses and
loss expenses, resulting in a foreign currency exchange gain of $442,000 for
1999 compared to a loss of $675,000 for 1998.
During 1999, PXRE experienced adverse development of $19,781,000 net
for prior-year loss and loss expenses primarily related to $8,400,000 of
Hurricane Georges, $1,400,000 of Hurricane Mitch and other 1998 events,
including $3,381,000 in PXRE Lloyd's Syndicate, primarily due to accident and
health and facultative reserve strengthening. During 1998, PXRE experienced
savings of $532,000 net for prior-year loss and loss expenses primarily related
to the triggering of a retrocessional recovery on a 1994 aviation loss offset in
part by adverse development due to the 1997 German, Polish and Czech floods.
The underwriting expense ratio was 43.0% for 1999 compared with 40.9%
for 1998. The increase in underwriting expense ratio was substantially due to an
increase in salary and benefits incurred in building the diversified business.
As a result of the above, the combined ratio was 166.9% for 1999
compared with 103.5% for 1998. The increase in PXRE's GAAP combined ratio was
primarily caused by the catastrophe activity previously discussed.
43
<PAGE>
The following table summarizes the 1999 and 1998 underwriting
profit and loss by segment:
<TABLE>
<CAPTION>
Underwriting
(000's except %'s)
1999 1999 1998 1998
---- ---- ---- ----
Amount % Amount %
------ ---- ------ ----
<S> <C> <C> <C> <C>
Catastrophe and Risk Excess
North American $(31,591) $ 6,970
International (32,039) 7,081
Excess of loss cessions 15,476 8,372
--------- -------
Subtotal (48,154) 87% 22,423 141%
--------- -------
Casualty
North American (279) (409)
International (242) 1% 87
--------- -------
(521) (322) (2%)
--------- -------
Structured/Finite Business
North American 0 0
International 411 0
--------- -------
411 (1%) 0 (0%)
--------- -------
Other Lines
North American (715) (1,442)
International (6,166) (4,794)
--------- -------
(6,881) 13% (6,236) (39%)
--------- --- ------- ----
Total $(55,145) 100% $ 15,865 100%
========= ==== ========== ====
</TABLE>
Underwriting operations include premiums earned, losses incurred and
commission and brokerage net of management fees, but do not include investment
income, realized gains or losses, interest expense, operating expenses,
unrealized foreign exchange gains or losses incurred or management fees on
weather contracts.
The catastrophe and risk excess underwriting portfolio can be
characterized on a longer term basis as being comprised of coverages involving
higher margins and greater volatility than other coverages written by PXRE. Over
the periods indicated pricing and other coverage terms deteriorated and in
response PXRE moved to layers of risk less affected by competitive pressure; or
reduced commitments. Notwithstanding these moves, in 1999 this portfolio
produced an underwriting loss as a result of major events.
Other operating expenses increased to $30,052,000 for the year ended
December 31, 1999 from $19,313,000 in 1998, as a result of the costs incurred to
implement PXRE's planned diversification including an increase in salary and
related benefit costs of $6,329,000 and data processing costs of $1,462,000.
Included in other operating expenses were foreign currency exchange losses of
$836,000 for 1999 compared to gains of $204,000 for the corresponding period of
1998. In addition, PXRE incurred charges of approximately $1,087,000 after-tax
in connection with the redomestication as well as tax charges discussed below.
Also in 1999, PXRE incurred $695,000 in after-tax expenses associated with a
change in accounting in accordance with the American Institute of Certified
Public Accountants Statement of Position 98-5, for organizational and start-up
costs capitalized in prior years.
During 1999, interest expense increased to $3,915,000 as compared to
$1,395,000 in 1998. The increase in interest expense relates to a drawdown of
$50,000,000 under a credit facility at a fixed rate of 6.34% on December 30,
1998, and a drawdown of the remaining $25,000,000 of this facility in the fourth
quarter of 1999, at a variable annual rate of 7.12%. See "Liquidity and
Capital Resources". Interest in 1998 reflected $21,400,000 of PXRE's 9.75%
Senior Debt which was retired in August 1998. In addition, during 1999
PXRE incurred minority interest expense amounting to $8,790,000 related to
PXRE's $100 million of 8.85% Capital Trust Pass-through Securities'sm'
(TRUPS'sm')
44
<PAGE>
(as described below under "Liquidity and Capital Resources") compared to
$8,928,000 in 1998.
Net investment income for the year ended December 31, 1999 increased,
140.5% to $47,173,000 from $19,612,000 for 1998. The increase in net investment
income was caused primarily by strong limited partnership investment returns
amounting to $25,700,000 (which are carried on the equity method). PXRE's
pre-tax investment yield was 10.4% for 1999 compared with 4.3% for 1998, both
calculated using amortized cost and investment income before investment
expenses. Net realized investment losses for 1999 were $3,766,000, reflecting
losses from trading of weather contracts compared to losses of $3,862,000 for
1998 from volatile emerging market bonds offset, in part, by net gains from sale
of other securities.
The net effects of foreign currency exchange fluctuations were losses
of $394,000 in 1999, as compared to losses of $471,000 for 1998.
In 1999, PXRE changed the reporting period for its UK operations from a
fiscal year ending September 30, to a calendar year ending December 31. The
results of operations for the period from October 1, 1998 to December 31, 1998,
amounted to a loss of approximately $140,000. This loss was charged to retained
earnings during the year in order to report only 12 months of operating results.
The increase in losses in the fourth quarter of 1999 amounted to $3,517,000,
primarily related to the European storms.
The tax benefit includes a one-time income tax charge in connection
with the Bermuda redomestication of approximately $1.8 million related to the
cancellation of shares of PXRE Delaware held by its subsidiary. In addition,
PXRE incurred a tax charge of $2,314,000 upon payment of a dividend by PXRE
Delaware in connection with the redomestication.
For the reasons discussed above, the net loss was $42,139,000 for 1999
compared to net income of $2,679,000 for 1998. The diluted loss per common share
before cumulative effect of accounting change and extraordinary loss was $3.58
for 1999 compared to net income of $0.26 for the prior year. The diluted net
loss per common share was $3.64 for 1999 compared to net income of $0.20 for
1998 based on diluted average shares outstanding of approximately 11,568,000
in 1999 and 13,452,000 in 1998.
45
<PAGE>
COMPARISON OF 1998 AND 1997
<TABLE>
<CAPTION>
Year Ended December 31,
Increase
1998 1997 (Decrease)
---- ---- ----------
(000's) %
------ ---
<S> <C> <C> <C>
Gross premiums written $136,215 $126,232 7.9
Ceded premiums:
Managed business participants 21,542 16,534 30.3
Catastrophe coverage 25,979 9,643 169.4
--------- --------- ------
Total reinsurance premiums ceded 47,521 26,177 81.5
--------- --------- -------
Net premiums written $ 88,694 $100,055 (11.4)
======== ======== ======
</TABLE>
Gross premiums written for 1998 increased 7.9% to $136,215,000 from
$126,232,000 for 1997. Net premiums written for the year ended December 31, 1998
decreased 11.4% to $88,694,000 from $100,055,000 as PXRE increased the purchase
of reinsurance and retrocessional coverage in 1998. Net premiums earned for the
year ended December 31, 1998, increased 1.1% to $92,386,000 from $91,415,000 in
1997. The contribution of PXRE Lloyd's Syndicate operation, which commenced in
the first quarter of 1997, together with PXRE's new business initiatives
commenced in 1998, more than offset the continued impact of an intensely
competitive market on PXRE's other business lines and helped PXRE increase its
premium volume during the fourth quarter of 1998. New business expansion in 1998
included an international treaty underwriting team, excess and surplus lines
written by Transnational Insurance, new international facultative business, and
PXRE's new direct writing team.
Premiums ceded by PXRE to its managed business participants increased
30.3% to $21,542,000 for 1998 compared with $16,534,000 for 1997. The increase
in premiums ceded to these programs was due primarily to an increased cession
rate to Select Re and cessions from new operations offset in part by the effect
of declines in gross premiums written in PXRE's traditional operations.
In 1998, opportunistic purchases of catastrophe retrocessional
protection and additional coverage associated with new operations increased
catastrophe written premiums ceded.
Management fee income from all sources for the year ended December 31,
1998 decreased 27.7% to $2,172,000 from $3,006,000 for 1997, reflecting a
reduced profit commission primarily associated with Hurricane Georges and the
two aerospace catastrophes discussed below and a higher combined ratio on the
change in business mix reflected in the higher ceded premiums written, offset,
in part, by an increase in management fee income earned from Select Re.
The loss ratio was 62.6% for 1998 compared with 13.7% for 1997 largely
due to Hurricane Georges, two aerospace catastrophes and the higher average loss
ratio from the PXRE Lloyd's Syndicate operation, the new excess and surplus
46
<PAGE>
lines business and new international operations. The loss ratio for 1998
reflected incurred catastrophe losses of $55,564,000 gross and $29,437,000
net for 1998 and prior accident years. In comparison, the loss ratio for 1997
reflected a re-estimation, which reduced catastrophe losses by $1,457,000 gross
and $964,000 net for 1997 and prior accident years, after taking into account,
among other things, the German, Polish and Czech flood losses referred to below.
Significant catastrophe and satellite losses affecting the year ended
December 31, 1998 loss ratio are as follows:
<TABLE>
<CAPTION>
Amount of Losses
----------------
Loss Event Gross Net
----- ---
(in thousands)
<S> <C> <C>
Hurricane Georges $49,106 $25,753
Hailstorms 4,521 3,597
Swissair and Delta 3 Satellites 4,087 3,399
</TABLE>
Significant catastrophe and risk losses affecting the year ended
December 31, 1997 loss ratio are as follows:
<TABLE>
<CAPTION>
Amount of Losses
-----------------
Loss Event Gross Net
----- ----
(in thousands)
<S> <C> <C>
German, Polish and Czech Floods $1,739 $1,457
</TABLE>
The provision for losses and loss expenses and the loss ratio includes
the effect of foreign exchange movements on PXRE's liability for losses and loss
expenses, resulting in a foreign currency exchange loss of $675,000 for 1998
compared to a gain of $627,000 for 1997.
During 1998, PXRE experienced savings of $532,000 net for prior-year
loss and loss expenses primarily related to the triggering of a retrocessional
recovery on a 1994 aviation loss offset in part by adverse development due to
the 1997 German, Polish and Czech floods. The loss ratio for 1997 was favorably
affected by decreases to reserves of $3,917,000 net for prior-year loss and loss
expenses primarily related to the Eurotunnel fire and Hurricane Fran where
redundant reserves were recognized in 1997 of approximately $1,644,000 and
$1,440,000 respectively. In addition, included in the savings of $3,917,000 were
prior-year losses originally thought to have triggered market loss coverage
thresholds which proved to be redundant by approximately $1,800,000, offset in
part by development on prior year facultative losses.
The underwriting expense ratio was 40.9% for 1998 compared with 34.8%
for 1997. The increase in underwriting expense ratio was substantially due to
higher acquisition expenses and contingent commissions on certain business. In
addition, PXRE's diversification strategy announced in the second quarter of
1998, involving the addition of direct writing and international teams, and
PXRE's strengthening of its Lloyd's and Brussels' units contributed a
significant portion of the $3,597,000 of additional overhead expenses in 1998 in
addition to expenses associated with the first year of underwriting operations
for Transnational Insurance.
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<PAGE>
As a result of the above, the combined ratio was 103.5% for 1998
compared with 48.5% for 1997.
Other operating expenses increased to $19,313,000 for the year ended
December 31, 1998 from $15,716,000 in 1997. The increase was mainly due to
salary and benefits expenses associated with new operations. Included in other
operating expenses were foreign currency exchange gains of $204,000 for 1998
compared to losses of $1,221,000 for the corresponding period of 1997.
During 1998, interest expense decreased to $1,395,000 as compared to
$3,325,000 in 1997 due to the effect of repurchases of PXRE's 9.75% Senior Notes
in open market purchases and the redemption of the remaining Senior Notes on
August 15, 1998 (see "Liquidity and Capital Resources"). In addition, during
1998 PXRE incurred minority interest expense amounting to $8,928,000 related
to PXRE's $100 million of 8.85% Capital Trust Pass-through Securities'sm'
(TRUPS'sm') (as described below under "Liquidity and Capital Resources")
compared to $8,184,000 in 1997. The increase in 1998 reflects the fact that
the obligation was only outstanding during a portion of 1997.
In 1998, PXRE recorded an extraordinary loss of $843,000, net of tax,
in connection with the redemption of $20.4 million of PXRE's 9.75% Senior Notes
and the associated write-off of the pro rata share of the unamortized debt
issuance costs.
Net investment income for the year ended December 31, 1998 decreased
37.1% to $19,612,000 from $31,191,000 for 1997. The decrease in net investment
income was largely due to the substantial turmoil witnessed in global securities
markets during the third and fourth quarters of 1998 and the resulting decline
in value of certain of PXRE's limited partnership investments. PXRE's pre-tax
investment yield was 4.3% for 1998 compared with 6.3% for 1997, both calculated
using amortized cost and investment income before investment expenses. The
decline in yield was primarily due to returns on the limited partnership
investments. Net realized investment losses for 1998 were $3,862,000 compared to
gains of $2,467,000 for 1997, which included trading in investment products
having characteristics similar to the types of reinsurance PXRE traditionally
assumes. In 1998, PXRE recorded the markdown of a Russian bond that was in
technical default. This loss was recorded as realized which resulted in a
pre-tax loss of $6,600,000.
The net effects of foreign currency exchange fluctuations were losses
of $471,000 in 1998, as compared to losses of $594,000 for 1997.
For the reasons discussed above, net income was $2,679,000 for 1998
compared to net income of $44,253,000 for 1997. Diluted income per common share
before extraordinary loss was $0.26 for 1998 compared to $3.39 for the prior
year. Diluted net income per common share was $0.20 for 1998 compared to $3.19
for 1997 based on diluted average shares outstanding of approximately 13,452,000
in 1998 and 13,893,000 in 1997.
48
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
PXRE relies primarily on cash dividends and net tax allocation payments
from its subsidiaries, including PXRE Reinsurance, Transnational Insurance and
PXRE Bermuda to pay its operating expenses and income taxes, to meet its debt
service obligations and to pay dividends. The payment of dividends by PXRE
Reinsurance and by Transnational Insurance to PXRE Reinsurance is subject to
limits imposed under the insurance laws and regulations of Connecticut, the
state of incorporation and domicile of PXRE Reinsurance and Transnational
Insurance, as well as certain restrictions arising in connection with PXRE
indebtedness discussed below. Under the Connecticut insurance law, the maximum
amount of dividends or other distributions that PXRE Reinsurance may declare or
pay, and that Transnational Insurance may declare or pay to PXRE Reinsurance,
within any twelve-month period, without regulatory approval, is limited to the
lesser of (a) earned surplus or (b) the greater of 10% of policyholders' surplus
at December 31 of the preceding year or 100% of net income for the twelve-month
period ending December 31 of the preceding year, all determined in accordance
with U.S. SAP. Accordingly, the Connecticut insurance laws could limit the
amount of dividends available for distribution by PXRE Reinsurance or
Transnational Insurance without prior regulatory approval, depending upon a
variety of factors outside the control of PXRE, including the frequency and
severity of catastrophe and other loss events and changes in the reinsurance
market, in the insurance regulatory environment and in general economic
conditions. The maximum amount of dividends or distributions that PXRE
Reinsurance may declare and pay during 2000, without regulatory approval, is
$39,901,000. Transnational Insurance may not declare or pay any dividend to
PXRE Reinsurance in 2000 without regulatory approval. During 1999, $35,525,695
in dividends was paid by PXRE Reinsurance, including extraordinary dividends
and $10,000,000 was paid by Transnational Insurance to PXRE Reinsurance,
including extraordinary dividends. In both cases authorization was obtained
from the Insurance Department of the State of Connecticut. Under Bermuda
law, PXRE Bermuda may not pay a dividend unless after payment of the
dividend it is able to pay its liabilities as they become due, and the
realizable value of its assets are greater than the aggregate value of its
liabilities, issued share capital and share premium accounts. PXRE Bermuda is
also required to maintain statutory assets in an amount that permits it to meet
the prescribed minimum solvency margin for the net premium income level of its
business from time to time. In addition, any dividend paid cannot be in an
amount that will reduce the reserves of PXRE Bermuda to a level that is not
sufficient to meet the reserve requirements of its business.
Dividends and other permitted payments from PXRE Delaware to PXRE
Barbados are expected to be subject to U.S. withholding taxes at the rate
of 5% (reduced from 30% under the tax convention between the United States and
Barbados) and a 2 1/2 % Barbados corporate income tax.
In the event the amount of dividends available, together with other
sources of funds, are not sufficient to permit PXRE to meet its debt service and
other obligations and to pay cash dividends, it would be necessary to obtain the
approval of the Connecticut Insurance Commissioner prior to the payment of
additional dividends by PXRE Reinsurance (or Transnational Insurance) or the
approval of the Bermuda Minister of Finance prior to the payment of additional
dividends by PXRE Bermuda. If such approval were not obtained, PXRE would have
to adopt one or more alternatives, such as refinancing or restructuring its
indebtedness or seeking additional equity. There can be no assurance that any of
49
<PAGE>
these strategies could be effected on satisfactory terms, if at all. In the
event that PXRE were unable to generate sufficient cash flow and were otherwise
unable to obtain funds necessary to meet required payments of principal and
interest on its indebtedness, PXRE could be in default under the terms of the
agreements governing such indebtedness. In the event of such default, the
holders of such indebtedness could elect to declare all of the funds borrowed
thereunder to be due and payable together with accrued and unpaid interest.
PXRE Delaware entered into a Credit Agreement dated as of December 30,
1998 (the "Credit Agreement") with First Union National Bank ("First Union") as
Agent and as a Lender, pursuant to which First Union agreed to make available to
PXRE Delaware a $75,000,000 revolving credit facility. On May 18, 1999, pursuant
to various Joinder Agreements and Assignment and Acceptance Agreements, First
Union syndicated the revolving credit facility, joining Fleet National Bank,
Credit Lyonnais New York Branch and Bank One (formerly, The First National Bank
of Chicago) as additional lenders (collectively with First Union, the
"Lenders"). As at December 31, 1998, PXRE Delaware had outstanding borrowings
under the Credit Agreement of $50,000,000, and in October 1999, the remaining
$25,000,000 was borrowed.
The terms of the Credit Agreement have been amended three times
pursuant to a First Amendment and Waiver to Credit Agreement, dated May 18,
1999, and a second Amendment and Waiver to Credit Agreement, dated June 25, 1999
and the First Amended and Restated Credit Agreement dated August 31, 1999. The
First Amendment increased the applicable margin percentage for LIBOR loans under
the Credit Agreement by 1/8% and changed the governing law from North Carolina
to New York law. The Second Amendment modified various covenants related to the
investments that PXRE and its subsidiaries are permitted to make under the
Credit Agreement. The First Amended and Restated Credit Agreement was undertaken
to address the Bermuda redomestication and to provide for PXRE Group Ltd. and
PXRE (Barbados) Ltd. as guarantors of the loan obligation.
As amended, loans under the Credit Agreement bear interest at an annual
rate equal to First Union's base rate, as in effect from time to time, for base
rate loans or at a margin (1.00% as of December 31, 1999) over First Union's
Eurodollar rate for periods of 30, 60, 90 or 180 days for LIBOR loans. In
connection with the Credit Agreement, PXRE Delaware and First Union entered into
an interest rate swap which, effective December 31, 1998, has the intended
effect of converting the initial $50,000,000 borrowings by PXRE Delaware into a
fixed rate borrowing at an annual interest of 6.34%. The remaining $25,000,000,
was borrowed at a variable annual rate of 7.12%. Commitments under the Credit
Agreement terminate on March 31, 2005 and are subject to annual reductions of
$10,000,000 commencing March 31, 2000 and $25,000,000 on March 31, 2005, and,
unless due or paid sooner, the aggregate principal of the loans are due and
payable in full on March 31, 2005.
The Credit Agreement contains covenants which, among other things,
limit the ability of PXRE and its subsidiaries and affiliates: (a) to incur
additional Indebtedness (other than certain permitted Indebtedness); (b) to
create Liens upon their properties or assets (other than Permitted Liens); (c)
to sell, transfer or otherwise dispose of their assets, business or properties
(other than certain permitted dispositions); (d) to make additional Investments
50
<PAGE>
(other than certain permitted Investments, including Permitted Acquisitions and
other Investments in compliance with, among other things, applicable law and the
limitations set forth in the companies' investment policies and not exceeding
specified limits); (e) to pay dividends or repurchase stock if after giving
effect thereto a Default or Event of Default exists or the Fixed Charge Coverage
Ratio would be less than 1.5 to 1.0 as defined in the Credit Agreement; (f) to
enter into certain transactions with Affiliates; (g) to engage in any unrelated
business (h) to enter into or remain a party to certain ceded reinsurance
agreements or (i) to consolidate, merge or otherwise combine (or agree to do any
of the foregoing) unless, among other things, (1) PXRE Group Ltd. is the
surviving entity in such merger or consolidation, (2) such merger or
consolidation constitutes a Permitted Acquisition and the conditions and
requirements of the Credit Agreement are complied with and (3) immediately
thereafter no Default or Event of Default exists. The Credit Agreement also
requires compliance with Leverage Ratio, Fixed Charge Coverage Ratio, Risk-Based
Capital Ratio and Combined Statutory Surplus requirements. As at December 31,
1999, there was no default under the Credit Agreement.
The Credit Agreement enumerates various Events of Default, including
but not limited to, if: (1) any Person or group becomes the "beneficial owner"
of securities of PXRE Group Ltd. representing 20% or more of the combined voting
power of the then outstanding securities of PXRE Group Ltd. ordinarily having
the right to vote in the election of directors; or (2) the Board of Directors of
PXRE Group Ltd. ceases to consist of a majority of the individuals who
constituted the Board as of the date of the Credit Agreement or who subsequently
become members after having been nominated, or otherwise approved in writing, by
at least a majority of individuals who constituted the Board as of the date of
the Credit Agreement (or their approved replacements). A copy of the First
Amended and Restated Credit Agreement dated August 31, 1999 is filed as Exhibit
4.5 and is incorporated herein by reference.
On January 29, 1997, PXRE Capital Trust I, ("PXRE Capital Trust") a
Delaware statutory business trust and a wholly-owned subsidiary of PXRE Delaware
issued $100,000,000 principal amount of its 8.85% TRUPS'sm' due February 1,
2027 in an institutional private placement. Proceeds from the sale of these
securities were used to purchase PXRE Delaware's 8.85% Junior Subordinated
Deferrable Interest Debentures due February 1, 2027 (the "Subordinated Debt
Securities"). On April 23, 1997, PXRE Delaware and PXRE Capital Trust completed
the registration with the Securities and Exchange Commission of an exchange
offer for these securities and the securities were exchanged for substantially
similar securities (the "Capital Securities"). Distributions on the Capital
Securities (and interest on the related Subordinated Debt Securities) are
payable semi-annually, in arrears, on February 1 and August 1 of each year,
commencing August 1, 1997. Minority interest expense, including amortization of
debt offering costs, for the twelve months ended December 31, 1999 in respect of
the Capital Securities (and related Subordinated Debt Securities) amounted to
$8,790,000. On or after February 1, 2007, PXRE Delaware has the right to redeem
the Subordinated Debt Securities, in whole at any time or in part from time to
time, subject to certain conditions, at call prices of 104.180% at February 1,
2007, declining to 100.418% at February 1, 2016, and 100% thereafter. PXRE
Delaware has the right, at any time, subject to certain conditions, to defer
payments of interest on the Subordinated Debt Securities for Extension Periods
(as defined in the applicable indenture), each not exceeding 10 consecutive
51
<PAGE>
semi-annual periods; provided that no Extension Period may extend beyond the
maturity date of the Subordinated Debt Securities. As a consequence of PXRE
Delaware's extension of any interest payment period on the Subordinated Debt
Securities, distributions on the Capital Securities would be deferred (though
such distributions would continue to accrue interest at a rate of 8.85% per
annum compounded semi-annually). In the event that PXRE Delaware exercises its
right to extend an interest payment period, then during any Extension Period,
subject to certain exceptions, (i) PXRE Delaware may not declare or pay any
dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital
stock or rights to acquire such capital stock or make any guarantee payments
(subject to specified exceptions) with respect to the foregoing, and (ii) PXRE
Delaware may not make any payment of interest on, or principal of (or premium,
if any, on), or repay, repurchase or redeem, any debt securities issued by
PXRE Delaware which rank pari passu with or junior to the Subordinated Debt
Securities. Upon the termination of any Extension Period and the payment of all
amounts then due, PXRE Delaware may commence a new Extension Period, subject to
certain requirements.
PXRE Delaware has used the net proceeds from the sale of the Capital
Securities for general corporate purposes, including the redemption and the
purchase of outstanding indebtedness and common stock of PXRE Delaware.
PXRE Delaware files U.S. income tax returns for itself and all of its
direct or indirect subsidiaries that satisfy the stock ownership requirements
for consolidation (collectively, the "Subsidiaries"). PXRE Delaware is party to
an Agreement Concerning Filing of Consolidated Federal Income Tax Returns (the
"Tax Allocation Agreement") pursuant to which each U.S. Subsidiary makes tax
payments to PXRE Delaware in an amount equal to the federal income tax payment
that would have been payable by such Subsidiary for such year if it had filed a
separate income tax return for such year. PXRE Delaware is required to provide
for payment of the consolidated federal income tax liability for the entire
group. If the aggregate amount of tax payments made in any tax year by a U.S.
Subsidiary is less than (or greater than) the annual tax liability for such
Subsidiary on a stand-alone basis for such year, such Subsidiary will be
required to make up such deficiency to PXRE Delaware (or will be entitled to
receive a credit if payments exceed the separate return tax liability) of the
Subsidiary.
The primary sources of liquidity for PXRE's principal operating
subsidiaries are net cash flow from operating activities (including interest
income from investments), the maturity or sale of investments, borrowings,
capital contributions and advances and in the case of PXRE Reinsurance,
dividends from Transnational Insurance. Funds are applied primarily to the
payment of claims, operating expenses, income taxes and to the purchase of
investments. Premiums are typically received in advance of related claim
payments.
Net cash flow provided by operations was $17,512,000 in 1999 compared
with $4,955,000 during 1998, due to the effects of timing of collection of
receivables and reinsurance recoverables and payments of losses.
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<PAGE>
PXRE's management has established general procedures and guidelines for
its investment portfolio and oversees investment management carried out by
Phoenix Investment Partners, Limited, a public majority-owned subsidiary of
Phoenix Home Life Mutual Insurance Company, and by Mariner Investment Group,
Inc. ("Mariner") the sole shareholder of which is the Chairman of the Board and
a founding shareholder of Select Re. PXRE's invested assets consist primarily of
fixed maturities and limited partnerships, but also include equities, REITS
and short term investments. PXRE investments are subject to market-wide risks
and fluctuations, as well as to risk inherent in particular securities. As at
December 31, 1999, 72.9% of PXRE's investment portfolio, at fair value,
consisted of fixed maturities and short-term investments, while the balance
was in various mutual funds, limited partnerships and equity securities.
The limited partnerships primarily include a fund of funds investing in a
multiple number of hedge strategies. The investment policies of PXRE are
approved by its Board of Directors.
Of PXRE's fixed maturities portfolio at December 31, 1999, 89.0% of the
fair value was in obligations rated "A2" or "A" or better by Moody's or S&P,
respectively. Mortgage and asset-backed securities accounted for 28.9% of fixed
maturities based on fair value at December 31, 1999. At December 31, 1999, PXRE
had no investments in real estate or commercial mortgage loans; however, PXRE
has invested in common and preferred shares of publicly traded REITS. The
average market yield to maturity of PXRE's fixed maturities portfolio at
December 31, 1999 and 1998, was 6.6% and 5.9%, respectively.
Fixed maturity and equity investments are reported at fair value, with
the net unrealized gain or loss, net of tax, reported as a separate component of
stockholders' equity. PXRE recorded directly to stockholders' equity a
$6,752,000 after-tax unrealized loss in the value of its investment portfolio at
December 31,1999 primarily due to an increase in interest rates.
Short-term investments are carried at amortized cost, which
approximates fair value. PXRE's short-term investments, principally high-grade
commercial paper, marketable fixed income securities and investments in limited
partnerships which invest primarily in marketable fixed income securities, were
$50,004,000 at December 31, 1999 compared to $58,862,000 at December 31, 1998.
Limited partnership assets amounting to $113,476,000 at December 31, 1999, were
accounted for under the equity method. The amount of equity income included in
short-term investments and limited partnership assets as of December 31, 1999
amounted to $25,740,000.
Dividends declared in 1999 were $7,629,925 compared to $13,585,333 in
1998, as a result of the decrease in the per share quarterly dividend from $.26
to $.06 in the third quarter of 1999 in anticipation of the Bermuda
redomestication as well as share repurchases in 1999. The expected annual
dividend based on shares outstanding at December 31, 1999 is approximately
$2,803,000.
Book value per common share was $22.54 at December 31, 1999.
During 1999, PXRE acquired 884,700 shares of common stock under its
stock repurchase program. In December 1999, PXRE announced a new stock
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<PAGE>
repurchase program of up to 1,000,000 shares. PXRE had approximately 11,680,000
common shares outstanding as of December 31, 1999.
PXRE may be subject to gains and losses resulting from currency
fluctuations because substantially all of its investments are denominated in
U.S. dollars, while some of its net liability exposure is in currencies other
than U.S. dollars. PXRE holds, and expects to continue to hold, currency
positions and has made, and expects to continue to make, investments denominated
in foreign currencies to mitigate, in part, the effects of currency fluctuations
on its results of operations. Currency holdings and investments denominated in
foreign currencies do not constitute a material portion of PXRE's investment
portfolio and, in the opinion of PXRE's management, are sufficiently liquid for
its needs.
In connection with the capitalization of PXRE Lloyd's Syndicate, PXRE
has placed on deposit $46,587,000 par value of U.S. government securities and
municipal bonds as collateral for Lloyd's. In addition, PXRE issued a letter of
credit for the benefit of Lloyd's in the amount of $15,355,000, which is
collateralized by municipal bonds of approximately $17,835,000. All invested
assets of PXRE Lloyd's Syndicate amounting to $11,253,000 at December 31, 1999
are restricted from being paid as a dividend for at least three years. In
addition, PXRE Reinsurance has provided a 'L'5,000,000 ($8,091,000 at
December 31, 1999 exchange rates) line of credit to PXRE Managing Agency for
liquidity purposes of which $7,111,000 had been drawn.
In September 1997, PXRE and Phoenix Home Life completed the formation
of a joint venture, Cat Bond Investors L.L.C., with initial committed capital of
$20 million. The joint venture specializes in investing in instruments, the
returns on which are determined, in whole or in part, by the nature, magnitude
and/or effects of certain catastrophe events or meteorological conditions.
All amounts classified as reinsurance recoverable at December 31, 1999
are considered by management of PXRE to be collectible in all material respects.
MARKET RISK
PXRE is exposed to market risks that are principally interest rate and
equity price risks. The potential for losses from changes in interest rates with
respect to its investments, borrowings, and a related interest rate swap exists.
PXRE is exposed to potential losses from changes in equity prices with respect
to its investments. However, PXRE believes its exposure to foreign exchange risk
and exposures to other market risks represented by weather contracts, are not
currently material. PXRE has no open weather contracts as of December 31, 1999.
PXRE risk management strategy is to accept certain levels of market
risks, principally through its investment activities, in order to offset its
insurance exposures that may be considered actuarial rather than financial. The
objectives of PXRE's investment activities are to generate the required return
from selected market sectors and limit its exposures to market risks that may
prevent PXRE from servicing its insurance obligations. PXRE's Board of Directors
approves investment guidelines and the selection of external investment
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<PAGE>
advisers who manage PXRE's portfolios. The investment managers make tactical
investment decisions within the established guidelines. Management monitors the
external advisers through written reports that are reviewed and approved by the
Board of Directors. Management also manages diversification strategies across
the portfolios in order to limit PXRE's potential loss from any single market
risk. The performance and risk profiles of the portfolio are reported in
various forms throughout the fiscal year to management, the Board of Directors,
rating agencies, regulators, and to shareholders.
The investment portfolio of PXRE is summarized in the Notes to the
Financial Statements, Item 7, Management's Discussion and Analysis and Item 1,
Business.
INTEREST RATE RISK
PXRE's principal fixed maturity market risk exposure is to changes in
U.S. interest rates. Changes in interest rates may affect the fair value of
PXRE's fixed-income portfolio, borrowings (Bank Debt and Trust Preferred) and a
related interest rate swap. PXRE's holdings subject it to exposures in the
treasury, municipal, and various asset-backed sectors. These sectors consist
primarily of investment grade securities whose fair value is subject to interest
rate, credit and prepayment risk. All investment positions are long with no
'short' or derivative positions.
PXRE's investments in emerging market debt securities are subject to
interest rate risk which is included in the analysis below. During 1999, PXRE
substantially reduced its investment in emerging market debt securities to less
than 4% of the fixed maturity portfolio. Therefore, the level of credit exposure
associated with these securities has been substantially reduced.
PXRE believes that reinsurance receivables and payables do not expose
it to significant interest rate risk and are excluded from the analysis below.
In order to measure PXRE's exposure to changes in interest rates a
sensitivity analysis was performed. Potential loss is measured as a change in
fair value. The fair value of the fixed income portfolio, borrowings and related
interest rate swap at year-end was re-measured from the fair values reported in
the financial statements assuming a 10% increase in interest rates. The
potential loss in fair value due to interest rate exposure was estimated at $3
million at December 31, 1999 and $1 million at December 31, 1998.
The estimated potential loss is net of prepayment risk associated with
the mortgage-related securities. The mortgage sector is a minor portion of the
portfolio at year-end. The estimate assumes a similar change in fair value
across security sectors with no adjustment for change in value due to credit
risk. The interest rate risk related to the investments of PXRE Lloyd's
Syndicate is diminimus. The average maturity of these investments is under one
year.
CREDIT RISK
PXRE's exposure to potential loss due to changes in credit spreads was
simulated through a sensitivity analysis assuming an increase in credit spreads
of 200 basis points with respect to the emerging market securities holdings.
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The estimated potential loss in fair value due to changes in credit spreads was
estimated at $5 million at December 31, 1998. This analysis excluded the impact
of changes in credit spreads on other portfolio sectors and borrowings that may
be offsetting. PXRE has significantly reduced its investments in emerging
market securities in 1999. Therefore the credit risk related to the investment
is diminimus at December 31, 1999.
FOREIGN EXCHANGE RISK
PXRE's exposure to foreign exchange risk from its foreign denominated
securities is not material. Only a small portion of PXRE's investment portfolio
is denominated in currencies other than U.S. dollars. Additionally the carrying
value of certain receivables and payables denominated in foreign currencies are
carried at fair value. For these reasons, these items have been excluded from
the market risk disclosure.
EQUITY PRICE RISK
PXRE is exposed to equity price risk in the form of a limited number of
equity investments, including holdings in the common stock of U.S. REIT's. Based
on a 10% decrease in equity prices the potential loss in fair value is estimated
to be $2.4 million and $4 million at December 31, 1999 and 1998, respectively.
The decrease reflects the reduction in the size of the equity portfolio at
December 31, 1999.
DIVERSIFICATION BENEFIT
PXRE's risk management strategy includes investments that are expected
to reflect offsetting changes in fair value in response to various changes in
market risks. PXRE's exposure to interest risk in its fixed income portfolio is
expected to be offset in part by the change in value of its REIT's. PXRE also
invests in REIT's to limit the potential loss due to exposures to changes in
interest rates; this loss limit is based on the expected minimum value of the
real estate holdings of the trusts.
PXRE also holds other investments that are excluded from this
disclosure that are expected to provide positive returns under most market
conditions representing adverse changes in interest rates and other market
factors (See Note 3 of Notes to Consolidated Financial Statements).
To compare the magnitude of changes in fair value due to interest rate
changes with those of other risk factors in the investment portfolio, reference
is made to Note 3 of Notes to Consolidated Financial Statements related to
realized and unrealized gains and losses on investments.
INCOME TAXES
PXRE recognized a tax benefit in 1999 and 1998 of $13,149,000, and
$1,660,000, respectively, compared to tax expense in 1997 of $20,705,000. The
tax benefit reported by PXRE for 1999 and 1998 is primarily attributable to
underwriting losses, tax-exempt income and amortization of negative goodwill.
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The tax benefit in 1999 was offset, in part, by non recurring charges including
approximately $1.8 million in connection with the Bermuda redomestication
related to the cancellation of shares of PXRE Delaware held by its subsidiary
and by $2.3 million in connection with the redomestication related to dividends
paid by PXRE Delaware. Tax expense in 1997 differed from the statutory rate
principally due to the relative proportion of underwriting and taxable
income versus tax exempt income and negative goodwill amortization. See Note 5
of Notes to Consolidated Financial Statements.
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YEAR 2000 UPDATE
PXRE's Year 2000 Readiness Project was successfully concluded prior to
December 31, 1999. The Company did not experience any Y2K-related problems at
year-end or thereafter.
PXRE contacted and where appropriate re-contacted its material business
partners to determine their Year 2000 date processing capabilities. To date none
of these partners has reported or evidenced any date-related difficulty.
PXRE continues to maintain disaster recovery procedures and the ability
to re-deploy computer and staff to a remote hot site.
PXRE continues to evaluate potential Year 2000 exposures emanating from
its reinsurance business by conducting an analysis of each individual customer's
risk exposures. Where appropriate, PXRE requires that an exclusion be added to
the reinsurance contract or that a letter of intent be received. PXRE began
adding exclusions to reinsurance contracts in early 1998. Additionally, it is
PXRE's position, in common with others in the industry, that Year 2000 exposures
in and of themselves are not fortuitous losses and thus are not covered under
reinsurance contracts even without specific exclusions. For these reasons, PXRE
believes that its exposures to Year 2000 claims will not be material. However,
as was the case with environmental exposures, changing social and legal trends
may create unintended coverage for exposures by causing courts to reinterpret
reinsurance contracts and related exclusions. It is impossible to predict what,
if any, exposure reinsurance companies may ultimately have for Year 2000 claims
whether coverage for the issue is specifically excluded or included.
Readers are cautioned that forward-looking statements contained in this
Year 2000 Update should be read in conjunction with the Company's disclosures
under the heading: "CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains various forward-looking statements and includes
assumptions concerning PXRE's operations, future results and prospects.
Statements included herein, as well as statements made by or on behalf of PXRE
in press releases, written statements or other documents filed with the
Securities and Exchange Commission, or in its 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 hereby identified as, "forward-looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934 as amended. These forward-looking statements, identified by words
such as "intend", "believe", or "expects" or variations of such words or similar
expressions are based on current expectations and are subject to risk and
uncertainties. PXRE cautions 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) the
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frequency and severity of catastrophic events; (ii) changes in the level of
competition in the reinsurance or primary insurance markets that impact the
volume or profitability of business (these changes include, but are not limited
to, the intensity of price competition, the entry of new competitors, existing
competitors exiting the market and competitors'development of new products);
(iii) changes in the demand for reinsurance, including changes in the amount of
ceding companies' retentions and changes in the demand for excess and surplus
lines insurance coverages; (iv) the ability of PXRE to execute its
diversification initiatives in markets in which PXRE has not had a significant
presence; (v) adverse development on loss reserves related to business written
in prior years; (vi) lower than estimated retrocessional recoveries on unpaid
losses, including the effects of losses due to a decline in the creditworthiness
of PXRE's retrocessionaires; (vii) increases in interest rates, which cause a
reduction in the market value of PXRE's interest rate sensitive investments,
including its fixed income investment portfolio; (viii) decreases in interest
rates causing a reduction of income earned on new cash flow from operations and
the reinvestment of the proceeds from sales, calls or maturities of existing
investments; (ix) market fluctuations in equity securities and securities
underlying limited partnership investments; (x) foreign currency fluctuations
resulting in exchange gains or losses; (xi) changes in the composition of
PXRE's investment portfolio; (xii) changes in tax laws, tax treaties, tax rules
and interpretations; and (xiii) changes in management's evaluation of the impact
of the Year 2000 problem on its operations.
In addition to the factors outlined above that are directly related to
PXRE's business, PXRE is also subject to general business risks, including, but
not limited to, adverse U.S. state and federal or non-U.S. legislation and
regulation, adverse publicity or news coverage, changes in general economic
factors and the loss of key employees.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed as part of this Form 10-K:
<TABLE>
<CAPTION>
Page
<S> <C>
PXRE Group Ltd.:
Report of Independent Accountants F-1
Consolidated Balance Sheets
at December 31, 1999 and 1998 F-2
Consolidated Statements of Operations and
Comprehensive Income for the years
ended December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of
Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flow
for the years ended December 31,
1999, 1998 and 1997 F-5
Notes to Consolidated Financial
Statements F-6
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disclosure hereunder is required as PXRE has not changed its
accountants since December 31, 1997.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1999 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1999 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1999 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1999 fiscal year.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
PXRE Group Ltd.:
Report of Independent Accountants F-1
Consolidated Balance Sheets at
December 31, 1999 and 1998 F-2
Consolidated Statements of Operations and
Comprehensive Income for the years
ended December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flow for the years
ended December 31, 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
(2) Financial Statements Schedules
Schedule I - Summary of Investments
(The information required by this Schedule is presented in the
financial statements and the notes thereto included in this
Form 10-K.) --
Schedule II - Condensed Financial Information of Registrant F-31
Schedule III - Supplementary Insurance Information F-32
Schedule IV - Reinsurance
(The information required by this Schedule is presented
in the financial statements and the notes thereto included
in this Form 10-K.) ---
Schedule VI -- Supplemental Information Concerning
Property/Casualty Insurance Operations F-32
Report of Independent Accountants on the Financial Statement
Schedules and Consent of Independent Accountants F-33
All other financial statement schedules have been omitted as
</TABLE>
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<PAGE>
inapplicable.
(3) Exhibits
3.1 Memorandum of Association and Bye-laws of PXRE Group Ltd. (Exhibits
3.1 and 3.2, respectively, to PXRE's Form S-4 Registration Statement dated
August 18, 1999 (File No. 333-85451), and incorporated herein by reference).
(4) Instruments Defining the Rights of Security Holders.
4.1 Form of Specimen Common Share certificate, par value $1.00 per
share, of PXRE (Exhibit 4.1 to PXRE's Form S-4 Registration Statement dated
August 18, 1999 (File No. 333-85451), and incorporated herein by reference).
4.2 Credit Agreement dated as of December 30, 1998 among PXRE
Corporation, the banks and financial institutions listed on the signature pages
thereto or that subsequently become parties thereto (collectively, the
"Lenders") and First Union National Bank ("First Union") as agent for the
Lenders (Exhibit 4.8 to PXRE Corporation's Form 8-K dated January 8, 1999 (File
No. 0-15428), and incorporated herein by reference).
4.3 First Amendment and Waiver to Credit Agreement dated as of May 18,
1999 among PXRE Corporation, the Lenders and First Union, Joinder Agreements
dated May 18, 1999 by Fleet National Bank and Credit Lyonnais New York Branch,
Assignments and Acceptances dated May 18, 1999 between First Union and Fleet
National Bank and between First Union and The First National Bank of Chicago,
respectively (Exhibit 4.9 to PXRE Corporation's Form 10-Q for the quarterly
period ended June 30, 1999 (File No. 0-15428), and incorporated herein by
reference).
4.4 Second Amendment and Waiver to Credit Agreement dated as of June
25, 1999 among PXRE Corporation, the Lenders and First Union, (Exhibit 4.9 to
PXRE Corporation's Form 10-Q for the quarterly period ended June 30, 1999 (File
No. 0-15428), and incorporated herein by reference).
4.5 First Amended and Restated Credit Agreement among PXRE Corporation,
as borrower, PXRE Group Ltd. and PXRE (Barbados) Ltd., as guarantors, the
Lenders named therein and First Union as agent (Exhibit 4.5 to PXRE's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999 (File No. 1-15259)
and incorporated herein by reference).
4.6 Indenture, dated as of January 29, 1997, between PXRE Corporation
and First Union National Bank, as Trustee (Exhibit 4.3 to PXRE Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No.
0-15428), and incorporated herein by reference).
4.7 First Supplemental Indenture, dated as of January 29, 1997, between
PXRE Corporation and First Union National Bank, as Trustee, in respect of PXRE
Corporation's 8.85% Junior Subordinated Deferrable Interest Debentures due 2027
(Exhibit 4.4 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1996 (File No. 0-15428), and incorporated herein
by reference).
4.8 Amended and Restated Declaration of Trust of PXRE Capital Trust I,
dated as of January 29, 1997, among PXRE Corporation, as sponsor, the
Administrators thereof, First Union Bank of Delaware, as Delaware Trustee, First
Union National Bank, as Institutional Trustee, and the holders from time to time
of undivided interests in the assets of PXRE Capital Trust I (Exhibit 4.5 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated herein by reference).
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4.9 Capital Securities Guarantee Agreement, dated as of January 29,
1997, between PXRE Corporation and First Union National Bank, as Guarantee
Trustee (Exhibit 4.6 to the Annual Report on Form 10-K of PXRE Corporation for
the fiscal year ended December 31, 1996 (File No.0-15428), and incorporated
herein by reference).
4.10 Common Securities Guarantee Agreement, dated as of January 29,
1997, executed by PXRE Corporation (Exhibit 4.7 to the Annual Report on Form
10-K of PXRE Corporation for the fiscal year ended December 31, 1996 (File No.
0-15428), and incorporated herein by reference).
4.11 Registration Rights Agreement, dated January 29, 1997, among PXRE
Corporation, PXRE Capital Trust I and Salomon Brothers Inc, as Representative of
the Initial Purchasers (Exhibit 10.1 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
4.12 Purchase Agreement among PXRE Corporation, PXRE Capital Trust I
and Salomon Brothers Inc, as Representative of the Initial Purchasers, dated
January 24, 1997 (Exhibit 10.2 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
(10) Material Contracts. The material contracts of PXRE are as
follows:
10.1 PXRE Reinsurance Company Management Agreement among PXRE
Reinsurance Company and, among others, Merrimack Mutual Fire Insurance Company
("Merrimack"), Pennsylvania Lumbermens Mutual Insurance Company ("Pennsylvania
Lumbermens"), and NRMA Insurance Limited ("NRMA") (Exhibit 10.1 to the Annual
Report on Form 10-K of PXRE Corporation for the fiscal year ended December 31,
1991 (File No. 0-15428), and incorporated herein by reference); letter dated
November 28, 1990 from Pennsylvania Lumbermens confirming reduced participation
(Exhibit 10.7 to PXRE Corporation's Form S-2 Registration Statement dated
February 21, 1992, as amended by Amendment No. 1 thereto dated April 1, 1992 and
by Amendment No. 2 thereto dated April 13, 1992 and by Amendment No. 3 thereto
dated April 23, 1992 (File No. 33-45893), and incorporated herein by reference);
cover notes respecting January 1997 renewals by Merrimack, Pennsylvania
Lumbermens and NRMA and cover note respecting participation commencing January
1, 1997 by Auto-Owners Insurance Company ("Auto-Owners") (Exhibit 10.3 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated herein by reference);
cover notes respecting January 1999 renewals by NRMA, Pennsylvania Lumbermens,
Auto-Owners and The Andover Companies (a Merrimack company) (Exhibit 10.3 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1998 (File No. 0-15428), and incorporated herein by reference);
and cover note respecting participation commencing January 1, 1999 by the
Kyoei Mutual Fire & Marine Insurance Company.
10.2 Quota Share Retrocessional Agreement between PXRE Reinsurance
Company and Trenwick America Reinsurance Corporation ("Trenwick Group") (Exhibit
10.21 to the Annual Report on Form 10-K of PXRE Corporation for the fiscal year
ended December 31, 1993 (File No. 0-15428), and incorporated herein by
reference); cover note respecting January 1999 renewal by Trenwick Group
(Exhibit 10.17 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1998 (File No. 0-15428), and incorporated herein
by reference).
10.3 Undertaking dated September 1, 1998 between PXRE Reinsurance
Company and Select Reinsurance Ltd., Amended and Restated Facultative Obligatory
Quota Share Retrocessional Agreement between PXRE Reinsurance Company and Select
Reinsurance Ltd. and Variable Quota Share Retrocessional Agreement between PXRE
Reinsurance Company and Select Reinsurance Ltd. (Exhibit 10.36 to the Annual
Report on Form
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10-K of PXRE Corporation for the fiscal year ended December 31, 1998 (File No.
0-15428), and incorporated herein by reference); letter dated November 1, 1999
regarding Undertaking extension; and endorsement regarding Select Reinsurance
Ltd. participation for 2000.
10.4 Tax Settlement Agreement dated June 21, 1991 between PXRE
Corporation, PXRE Reinsurance Company and PM Holdings, Inc. (Exhibit 10.2 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1991 (File No. 0-15428), and incorporated herein by reference).
10.5 Investment Advisory Agreement between PXRE Reinsurance Company and
Phoenix Investment Counsel, Inc., dated February 25, 1987 and effective as of
January 1, 1987 (Exhibit 10.10 to Amendment No. 1 dated February 19, 1987 to
PXRE Corporation's Form S-1 Registration Statement dated August 29, 1986, as
subsequently amended by Amendment No. 2 thereto dated March 25, 1987 (File No.
33-8406), and incorporated herein by reference); Amendment to Investment
Advisory Agreement between PXRE Reinsurance Company and Phoenix Investment
Counsel, Inc., effective retroactively as of January 1, 1987 (Exhibit 10.3 to
the Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1991 (File No. 0-15428), and incorporated herein by reference);
Amendment No. 2 to Investment Advisory Agreement between PXRE Reinsurance
Company and Phoenix Investment Counsel, Inc., effective as of November 1, 1989
(Exhibit 10.4 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1991 (File No. 0-15428), and incorporated herein
by reference); Amendment No. 3 to Investment Advisory Agreement between PXRE
Reinsurance Company and Phoenix Investment Counsel, Inc. effective June 1, 1995
(Exhibit 10.26 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1995 (File No. 0-15428), and incorporated herein
by reference).
10.6 Investment Management Agreement, effective January 29, 1997
between PXRE Corporation and Phoenix Investment Counsel, Inc. (Exhibit 10.29 to
the Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated herein by reference).
10.7 Amended and Restated Investment Advisory Agreement between
Transnational Reinsurance Company and Phoenix Investment Counsel, Inc., dated
November 8, 1993 (Exhibit 10.4 to Transnational Re Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-22376) and
incorporated herein by reference), as amended by the Amendment thereto,
effective June 1, 1995 (Exhibit 10.11 to Transnational Re Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 (File No.
0-22376) and incorporated herein by reference).
10.8 Investment Management Agreement effective October 15, 1999 between
PXRE Group Ltd. and Phoenix Investment Counsel, Inc.
10.9 Investment Management Agreement effective October 15, 1999 between
PXRE Reinsurance Ltd. and Phoenix Investment Counsel, Inc.
10.10 Investment Advisory Services Agreement between PXRE Reinsurance
Ltd. and Mariner Investment Group, Inc. dated October 1, 1999.
10.11 Amended and Restated Agreement Concerning Filing of Consolidated
Federal Income Tax Returns dated as of August 23, 1993 between PXRE Corporation
and PXRE Reinsurance Company (Exhibit 10.8 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31, 1993 (File No. 0-15428),
and incorporated herein by reference); Addendum No. 2 dated November 10, 1994 to
the PXRE Corporation Amended and Restated Agreement Concerning Filing of
Consolidated Federal Income Tax Returns (Exhibit 10.22 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended December 31, 1994 (File
No. 0-15428), and incorporated herein by reference); and Addendum No. 3 dated as
of December 11, 1996 to the PXRE Corporation Amended and Restated Agreement
Concerning Filing of Consolidated Federal
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Income Tax Returns (Exhibit 10.22 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
10.12 Employee Stock Purchase Plan, as amended (Appendix C to PXRE's
Proxy Statement for the 2000 annual general meeting of shareholders, and
incorporated herein by reference). (M)
10.13 Executive Severance Plan (Exhibit 10.10 to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No. 333-85451) and
incorporated herein by reference). (M)
10.14 1988 Stock Option Plan, as amended (Exhibit A to the first
Prospectus forming part of PXRE's Form S-8 and S-3 Registration Statement dated
June 21, 1990 (File No. 33-35521), and incorporated herein by reference). (M)
10.15 Restated Employee Annual Incentive Bonus Plan, as amended
(Appendix A to PXRE's Proxy Statement for the 2000 annual general meeting of
shareholders, and incorporated herein by reference).(M)
10.16 1992 Officer Incentive Plan, as amended (Appendix B to PXRE's
Proxy Statement for the 2000 annual general meeting of shareholders and
incorporated herein by reference).(M)
10.17 Director Stock Plan (Appendix D to PXRE's Proxy Statement
for the 2000 annual general meeting of shareholders and incorporated herein by
reference).(M)
10.18 Director Equity and Deferred Compensation Plan (Appendix E to
PXRE's Proxy Statement for the 2000 annual general meeting of shareholders,
and incorporated herein by reference).(M)
10.19 Non-Employee Director Deferred Stock Plan (Appendix A to PXRE
Corporation's Proxy Statement dated April 12, 1991, and incorporated herein by
reference).(M)
10.20 Management Agreement dated as of November 8, 1993 among PXRE
Reinsurance Company, Transnational Re Corporation and Transnational Reinsurance
Company (Exhibit 10.22 to the Annual Report on Form 10-K of PXRE Corporation for
the fiscal year ended December 31, 1993 (File No. 0-15428), and incorporated
herein by reference), as amended by Amendment No. 1 thereto, dated December 1,
1994 (Exhibit 10.21 to the Annual Report on Form 10-K of PXRE Corporation for
the fiscal year ended December 31, 1994 (File No. 0-15428), and incorporated
herein by reference).
10.21 Agreement and Plan of Merger dated as of August 22, 1996 between
PXRE Corporation and Transnational Re Corporation, as amended by Amendment No. 1
dated as of September 27, 1996 and Amendment No. 2 dated as of October 24, 1996
(Annex A to PXRE Corporation's Form S-4 Registration Statement dated October 30,
1996 (File No. 333-15087), and incorporated herein by reference).
10.22 Excess of Loss Reinsurance Agreement, effective as of January 1,
1998, between PXRE Reinsurance Company and Transnational Insurance Company.
- --------
(M) INDICATES A MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT IN WHICH
THE DIRECTORS AND/OR EXECUTIVE OFFICERS OF PXRE PARTICIPATE.
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10.23 Reinsurance Pooling Agreement, effective as of January 1, 1999,
between PXRE Reinsurance Company and Transnational Insurance Company. (Exhibit
10.21 to PXRE's Form S-4 Registration Statement dated August 18, 1999 (File No.
333-85451), and incorporated herein by reference).
10.24 Agreement and Plan of Merger dated as of July 7, 1999 among PXRE
Corporation, PXRE Group Ltd. and PXRE Merger Corp. (Annex A to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No. 333-85451), and
incorporated herein by reference).
10.25 Facultative Obligatory Quota Share Retrocessional Agreement
effective October 1, 1999 between PXRE Reinsurance Company and PXRE Reinsurance
Ltd. and Aggregate Excess of Loss Agreement effective October 1, 1999 between
PXRE Reinsurance Ltd. and PXRE Reinsurance Company.
10.26 Lease dated May 9, 1994 between Thornall Associates, L.P. and
PXRE Corporation (Exhibit 10.24 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1994 (File No. 0-15428), and
incorporated herein by reference) and Lease dated November 1, 1999 between
Thornall Associates, L.P. and PXRE Corporation.
10.27 Lloyd's Deposit Trust Deed (Third Party Deposit) dated November
29, 1996 between PXRE Limited and PXRE Reinsurance Company (Exhibit 10.32 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1997 (File No. 0-15428), and incorporated herein by reference).
10.28 Letter of Credit dated November 22, 1996 issued by The Chase
Manhattan Bank by order of PXRE Reinsurance Company for the benefit of Lloyd's
(Exhibit 10.33 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1997 (File No. 0-15428), and incorporated herein
by reference).
10.29 Lloyd's Security Trust Deed (Letter of Credit and Bank Guarantee)
dated November 29, 1997 between PXRE Limited and Lloyd's (Exhibit 10.34 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1997 (File No. 0-15428), and incorporated herein by reference).
10.30 Operating Agreement of Cat Bond Investors, effective as of June
9, 1997 among Cat Bond Investors, Phoenix Home Life and PXRE Corporation
(Exhibit 10.35 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1997 (File No. 0-15428), and incorporated herein
by reference).
10.31 Employment Agreement dated July 16, 1998 between PXRE Managing
Agency Limited and Peter G. Butler (Exhibit 10.37 to the Annual Report on Form
10-K of PXRE Corporation for the fiscal year ended December 31, 1998 (File No.
0-15428) and incorporated herein by reference). (M)
10.32 Employment Agreement dated June 8, 1998 between PXRE Corporation
and Michael J. Toman (Exhibit 10.38 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1998 (File No. 0-15428) and
incorporated herein by reference). (M)
10.33 Employment Agreement dated April 14, 1999 between PXRE
Reinsurance Company and Jeffrey Mayer (Exhibit 10.39 to PXRE Corporation's Form
10-Q for the quarterly period ended June 30, 1999 (File No. 0- 15428) and
incorporated herein by reference). (M)
10.34 Investment Advisory Services Agreement between PXRE Corporation
and Mariner Investment Group, Inc. dated March 14, 2000.
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(M) INDICATES A MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT IN WHICH
THE DIRECTORS AND/OR EXECUTIVE OFFICERS OF PXRE PARTICIPATE.
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(11) Statement re computation of earnings per share (The
information required by this Exhibit is presented in the financial statements
and the notes thereto included in this Form 10-K.)
(12) Statement re computation of ratios (attached hereto as
Exhibit 12).
(21) List of Subsidiaries. At December 31, 1999, PXRE had the following
subsidiaries: PXRE Reinsurance Ltd., a Bermuda insurance company; PXRE
(Barbados) Ltd., a Barbados company; PXRE Corporation, a Delaware corporation;
PXRE Reinsurance Company, a Connecticut insurance company; Transnational
Insurance Company, a Connecticut insurance company; PXRE Capital Trust I, a
Delaware statutory business trust; PXRE Limited., an English company (the sole
member of PG Butler Syndicate 1224 at Lloyd's); PXRE Managing Agency Limited
(the managing agency for PG Butler Syndicate 1224 at Lloyd's); PXRE Trading
Corporation, a Delaware corporation; TREX Trading Corporation, a Delaware
corporation; PX/TX Associates, a Delaware general partnership (of which PXRE
Trading and TREX Trading are the only partners); CAT Fund, L.P., a Delaware
limited partnership (of which PX/TX Associates is the sole general partner and
PXRE Trading and TREX Trading are the only limited partners); Cat Bond Investors
L.L.C. (of which PXRE Delaware and Phoenix Home Life are the only members); PXRE
Solutions Inc., a Connecticut corporation; PXRE Direct Underwriting Managers,
Inc., a Connecticut corporation; and PXRE Underwriting Managers, Inc., a
Virginia corporation. (See the discussion in this Form 10-K under the captions
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations.")
(23) Consents of Experts and Counsel. The consent of
PricewaterhouseCoopers, independent accountants to PXRE, is included as part of
Item 14(a)(2) of this Form 10-K.
(24) Power of Attorney. Copies of the powers of attorney executed by
each of F. Sedgwick Browne, Robert W. Fiondella, Franklin D. Haftl, Bernard
Kelly, Wendy Luscombe, Philip R. McLoughlin, David W. Searfoss and Wilson Wilde
are attached hereto as Exhibit 24.
(27) Financial Data Schedule. Exhibit 27 included in electronic filing
only.
(28) Information from reports furnished to state insurance regulatory
authorities. Filed in paper under cover of Form SE.
(b) Current Reports.
None.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
-68-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, PXRE Group Ltd. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PXRE GROUP LTD.
By: /s/ Gerald L. Radke
Gerald L. Radke
Its Chairman of the Board,
President and Chief
Executive Officer
Date: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of PXRE
Group Ltd. and in the capacity and on the dates indicated:
By:/s/ Gerald L. Radke By:/s/ James F. Dore
Gerald L. Radke James F. Dore
Its Chairman of the Board, Its Executive Vice President
President and Chief and Chief Financial
Executive Officer Officer
(Principal Executive (Principal Financial
Officer) and Director Officer and Principal
Accounting Officer)
Date: March 29, 2000 Date: March 29, 2000
By*_______________________ By*______________________
F. Sedgwick Browne Franklin D. Haftl
Director Director
Date: March 29, 2000 Date: March 29, 2000
By*_______________________ By*______________________
Robert W. Fiondella Wendy Luscombe
Director Director
Date: March 29, 2000 Date: March 29, 2000
-69-
<PAGE>
By*_______________________ By*______________________
Bernard Kelly Philip R. McLoughlin
Director Director
Date: March 29, 2000 Date: March 29, 2000
By*_______________________ By*_______________________
David W. Searfoss Wilson Wilde
Director Director
Date: March 29, 2000 Date: March 29, 2000
*By:/s/ Gerald L. Radke
Gerald L. Radke
Attorney-in-Fact
Attorney-in-Fact
-70-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
PXRE GROUP LTD. (Successor Registrant of PXRE Corporation)
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and comprehensive income, of
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of PXRE Group Ltd. (Successor Registrant of PXRE
Corporation) and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers
Hamilton, Bermuda
February 7, 2000
F-1
<PAGE>
PXRE
Group Ltd. Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C> <C> <C>
Assets Investments:
Fixed maturities, available-for-sale, at fair value (amortized
cost $329,962,000 and $308,658,000, respectively) $ 321,247,527 $ 309,477,075
Equity securities, at fair value (cost $26,214,000 and $41,146,000) 24,840,360 40,974,283
Short-term investments 50,004,473 58,861,983
Limited partnerships, at equity (cost $93,147,000 and $66,588,000) 113,475,717 65,163,581
------------- -------------
Total investments 509,568,077 474,476,922
Cash 14,735,040 16,117,473
Accrued investment income 4,186,849 5,330,419
Receivables:
Unreported premiums 40,216,340 18,440,954
Balances due from intermediaries and brokers, net 21,549,113 14,631,140
Other receivables 22,971,088 21,293,256
Reinsurance recoverable 106,702,307 41,260,657
Ceded unearned premiums 19,582,260 8,231,130
Deferred acquisition costs 7,809,971 4,122,603
Current income tax recoverable 12,628,414 14,095,364
Deferred tax asset 11,531,000 5,474,000
Other assets 8,699,650 9,217,218
------------- -------------
Total assets $ 780,180,109 $ 632,691,136
============= =============
Liabilities Losses and loss expenses $ 261,551,353 $ 102,592,394
Unearned premiums 42,218,837 20,541,326
Debt payable 75,000,000 50,000,000
Other liabilities 38,609,857 25,664,972
------------- -------------
Total liabilities 417,380,047 198,798,692
------------- -------------
Minority interest in consolidated subsidiary:
Company-obligated mandatorily redeemable capital trust
pass-through securities of subsidiary trust holding solely a
company-guaranteed related subordinated debt 99,521,079 99,516,938
Stockholders' Serial preferred stock, $1.00 par value -- 10,000,000 shares authorized
Equity respectively; 0 shares issued and outstanding 0 0
Common stock, $1.00 par value and $.01 respectively -- 50,000,000 shares
authorized 11,679,769 and 14,938,262 shares issued 11,679,769 149,382
Additional paid-in capital 173,682,802 259,147,554
Treasury stock at cost ( 0 and 2,614,498 shares) 0 (61,420,025)
Accumulated other comprehensive income:
Net unrealized (depreciation) appreciation on investments, net of
deferred income tax (benefit) expense of $3,520,000 and $3,400 (6,752,002) 6,253
Retained earnings 89,932,620 139,842,939
Restricted stock at cost (369,483 and 167,832 shares) (5,264,206) (3,350,597)
------------- -------------
Total stockholders' equity 263,278,983 334,375,506
------------- -------------
Total liabilities and stockholders' equity $ 780,180,109 $ 632,691,136
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
PXRE
Group Ltd. Consolidated Statements of Operations and Comprehensive Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
---- ---- ---
<S> <C> <C> <C>
Revenues Net premiums earned $ 128,503,110 $ 92,386,326 $ 91,415,240
Net investment income 47,172,616 19,611,889 31,190,625
Net realized investment (losses) gains (3,765,816) (3,862,189) 2,467,338
Management fees 3,590,337 2,172,131 3,005,657
---------------- ------------- ------------
175,500,247 110,308,157 128,078,860
---------------- ------------- ------------
Losses and Losses and loss expenses incurred 159,259,413 57,793,626 12,491,324
Expenses Commissions and brokerage 27,701,644 20,562,688 19,137,822
Other operating expenses 30,052,310 19,313,425 15,716,150
Interest expense 3,915,098 1,394,811 3,324,900
Minority interest in consolidated subsidiary 8,790,106 8,927,863 8,183,514
--------------- ------------- ------------
229,718,571 107,992,413 58,853,710
---------------- ------------- ------------
(Loss) income before income taxes, cumulative effect of accounting
change, and extraordinary item (54,218,324) 2,315,744 69,225,150
Income tax benefit (provision) 12,774,971 1,206,077 (22,198,000)
---------------- ------------- ------------
(Loss) income before cumulative effect of accounting change
and extraordinary loss (41,443,353) 3,521,821 47,027,150
Cumulative effect of accounting change, net of $374,381 tax benefit 695,278 0 0
Extraordinary loss on debt redemption, net of $454,000
income tax benefit 0 843,000 2,773,690
================ ============= ============
Net (loss) income $ (42,138,631) $ 2,678,821 $ 44,253,460
================ ============= ============
Comprehensive Other comprehensive (loss) income, net of tax:
Income Net unrealized (depreciation) appreciation on investments (6,758,255) (3,166,753) 2,604,601
================ ============= ============
Comprehensive (loss) income $ (48,896,886) $ (487,932) $ 46,858,061
================ ============= ============
Per Share Basic:
(Loss) income before cumulative effect of accounting change
and extraordinary item $ (3.58) $ 0.26 $ 3.41
Cumulative effect of accounting change (0.06) 0.00 0.00
Extraordinary loss 0.00 (0.06) (0.20)
---------------- ------------- ------------
Net (loss) income $ (3.64) $ 0.20 $ 3.21
================ ============= ============
Average shares outstanding 11,568,494 13,339,479 13,775,844
================ ============= ============
Diluted:
(Loss) income before cumulative effect of accounting change
and extraordinary item $ (3.58) $ 0.26 $ 3.39
Cumulative effect of accounting change (0.06) 0.00 0.00
Extraordinary loss 0.00 (0.06) (0.20)
---------------- ------------- ------------
Net (loss) income $ (3.64) $ 0.20 $ 3.19
================ ============= ============
Average shares outstanding 11,568,494 13,451,731 13,892,760
=============== ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
PXRE
Group Ltd. Consolidated Statements of Stockholders' Equity
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1999, 1998 and 1997
Accumulated
Additional Other
Preferred Common Paid-in Treasury Comprehensive Retained
Stock Stock Capital Stock Income Earnings
----- ----- ------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $0 $ 147,058 $ 252,978,182 $ (14,090,289) $ 568,405 $118,705,257
Net income 44,253,460
Unrealized appreciation on investments, net 2,604,601
Issuance of common stock 1,005 1,748,520
Repurchase of treasury stock (7,464,583)
Issuance of restricted stock
Amortization of restricted stock
Dividends paid to common stockholders (12,209,266)
Other 334,090 (105,236)
-------------------------------------------------------------------------------------
Balance at December 31, 1997 0 148,063 255,060,792 (21,660,108) 3,173,006 150,749,451
Net income 2,678,821
Unrealized depreciation on investments, net (3,166,753)
Issuance of common stock 1,319 4,069,940
Repurchase of treasury stock (39,728,564)
Issuance of restricted stock
Amortization of restricted stock
Dividends paid to common stockholders (13,585,333)
Other 16,822 (31,353)
-------------------------------------------------------------------------------------
Balance at December 31, 1998 0 149,382 259,147,554 (61,420,025) 6,253 139,842,939
Net loss (42,138,631)
Unrealized depreciation on investments, net (6,758,255)
Increase in par value upon redomestication 11,501,792 (11,501,792)
Issuance of common stock 28,595 4,928,345
Repurchase of common stock (17,169,725)
Cancellation of treasury stock (78,697,992) 78,697,992
Issuance of restricted stock
Amortization of restricted stock
Dividends paid to common stockholders (7,629,924)
Elimination of quarter lag in results of
UK subsidiary (141,764)
Other (193,313) (108,242)
-------------------------------------------------------------------------------------
Balance at December 31, 1999 $0 $11,679,769 $ 173,682,802 $ 0 $(6,752,002) $ 89,932,620
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Total
Restricted Stockholders'
Stock Equity
----- ------
<S> <C> <C>
Balance at December 31, 1996 $ (630,835) $ 357,677,778
Net income 44,253,460
Unrealized appreciation on investments, net 2,604,601
Issuance of common stock 1,749,525
Repurchase of treasury stock (7,464,583)
Issuance of restricted stock (741,988) (741,988)
Amortization of restricted stock 585,263 585,263
Dividends paid to common stockholders (12,209,266)
Other 4,752 233,606
---------------------------
Balance at December 31, 1997 (782,808) 386,688,396
Net income 2,678,821
Unrealized depreciation on investments, net (3,166,753)
Issuance of common stock 4,071,259
Repurchase of treasury stock (39,728,564)
Issuance of restricted stock (3,838,227) (3,838,227)
Amortization of restricted stock 1,239,085 1,239,085
Dividends paid to common stockholders (13,585,333)
Other 31,353 16,822
---------------------------
Balance at December 31, 1998 (3,350,597) 334,375,506
Net loss (42,138,631)
Unrealized depreciation on investments, net (6,758,255)
Increase in par value upon redomestication 0
Issuance of common stock 4,956,940
Repurchase of common stock (17,169,725)
Cancellation of treasury stock 0
Issuance of restricted stock (4,385,780) (4,385,780)
Amortization of restricted stock 2,409,665 2,409,665
Dividends paid to common stockholders (7,629,924)
Elimination of quarter lag in results of
UK subsidiary (141,764)
Other 62,506 (239,049)
-----------------------------
Balance at December 31, 1999 $ (5,264,206) $ 263,278,983
=============================
</TABLE>
The accompanying notes are an integral part of these statements.
- --------------------------------------------------------------------------------
F-4
<PAGE>
PXRE
Group Ltd. Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows Net (loss) income $ (42,138,631) $ 2,678,821 $ 44,253,460
from Operating Adjustments to reconcile net income to net cash
Activities provided by operating activities:
Losses and loss expenses 158,958,959 45,402,940 (13,787,994)
Unearned premiums 15,512,597 (3,643,393) 8,639,753
Deferred acquisition costs (3,687,368) (1,156,862) (1,516,691)
Receivables (29,151,184) (16,603,791) (12,764,637)
Reinsurance balances payable 10,385,580 10,021,725 (5,082,885)
Reinsurance recoverable (70,627,866) (27,018,379) 3,822,847
Income tax recoverable 3,132,135 (7,591,759) (3,139,559)
Equity in earnings of limited partnerships (23,608,098) 5,059,230 (2,298,232)
Other (1,263,685) (2,193,466) 1,500,427
--------------- ---------------- ------------------
Net cash provided by operating activities 17,512,439 4,955,067 19,626,489
--------------- ---------------- ------------------
Cash Flows Cost of fixed maturity investments (129,792,417) (178,648,802) (294,637,213)
from Investing Fixed maturity investments matured/disposed 103,388,412 262,534,237 290,013,188
Activities Payable for securities 2,076,557 0 0
Cost of equity securities (9,835,512) (22,871,893) (17,372,574)
Equity securities disposed 28,382,068 2,817,183 3,172,678
Net change in short-term investments 12,717,651 (6,053,033) 8,742,789
Limited partnerships disposed 30,391,215 7,040,660 0
Limited partnerships purchased (56,883,257) (34,325,097) (42,375,000)
--------------- ---------------- ------------------
Net cash (used) provided by investing activities (19,555,283) 30,493,255 (52,456,132)
--------------- ---------------- ------------------
Cash Flows Proceeds from issuance of common stock 505,795 233,032 855,570
from Financing Cash dividends paid to common stockholders (7,629,924) (13,585,333) (12,209,266)
Activities Issuance of minority interest in consolidated subsidiary 0 0 99,509,000
Repurchase of debt 0 (22,527,860) (46,521,683)
Proceeds of debt 25,000,000 50,000,000 0
Cost of stock repurchased (17,215,460) (39,728,564) (7,464,583)
--------------- ---------------- ------------------
Net cash provided(used) by financing activities 660,411 (25,608,725) 34,169,038
--------------- ---------------- ------------------
Net change in cash (1,382,433) 9,839,597 1,339,395
Cash, beginning of period 16,117,473 6,277,876 4,938,481
--------------- ---------------- ------------------
Cash, end of period $ 14,735,040 $ 16,117,473 $ 6,277,876
================== ================ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PXRE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GROUP LTD. YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
On October 5, 1999, PXRE completed a reorganization that involved the
formation of PXRE Group Ltd., a Bermuda-based holding company which became the
holding company for PXRE Corporation and its other operations. The
reorganization also involved the establishment of a Bermuda-based reinsurance
subsidiary, PXRE Reinsurance Ltd., and operations in Barbados through PXRE
(Barbados) Ltd. The accompanying consolidated financial statements have been
prepared in U.S. dollars in conformity with generally accepted accounting
principles ("GAAP") in the United States. The 1999 financial statements reflect
the consolidated operations of PXRE Group Ltd. (collectively referred to as
"PXRE"), and its subsidiaries PXRE Corporation, PXRE Reinsurance Company ("PXRE
Reinsurance"), PXRE Solutions Inc., PXRE Direct Underwriting Managers, Inc.,
Transnational Insurance Company ("Transnational"), PXRE Trading Corporation,
TREX Trading Corporation, Cat Fund L.P., PXRE Capital Trust I, PXRE Limited,
PXRE Managing Agency Limited, PXRE Reinsurance Ltd., and PXRE (Barbados) Ltd.
The 1998 and 1997 financial statements reflect the financial position and
results of operations of PXRE Corporation and subsidiaries.
PXRE, through its wholly-owned subsidiaries, principally provides
property and casualty reinsurance products and services through broker-based and
direct-writing distribution capabilities. PXRE also provides marine and
aerospace reinsurance products and services. All material transactions between
the consolidated companies have been eliminated in preparing these consolidated
financial statements.
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made for 1998 and 1997 to conform
to the 1999 presentation.
PREMIUMS ASSUMED AND CEDED
Premiums on reinsurance business assumed are recorded as earned on a
pro rata basis over the contract period based on estimated subject premiums.
Adjustments based on actual subject premium are recorded once ascertained. The
portion of premiums written relating to unexpired coverages at the end of the
period is recorded as unearned premiums. Reinsurance premiums ceded are recorded
as incurred on a pro rata basis over the contract period.
DEFERRED ACQUISITION COSTS
Acquisition costs consist of commission and brokerage expenses incurred
in connection with contract issuance, net of acquisition costs ceded. These
costs are deferred and amortized over the period in which the related premiums
are earned. Deferred acquisition costs are reviewed to determine that they do
not exceed recoverable amounts, after considering investment income.
F-6
<PAGE>
MANAGEMENT FEES
Management fees are recorded as earned under various arrangements
whereby PXRE Reinsurance acts as underwriting manager for other insurers and
reinsurers. These fees are initially based on premium volume, but are adjusted
in some cases through contingent profit commissions related to underwriting
results measured over a period of years.
LOSSES AND LOSS EXPENSE LIABILITIES
Liabilities for losses and loss expenses are established in amounts
estimated to settle incurred losses. Losses and loss expense liabilities are
based on individual case estimates provided for reported losses for known events
and estimates of incurred but not reported losses. Losses and loss expense
liabilities are necessarily based on estimates and the ultimate liabilities may
vary from such estimates. Any adjustments to these estimates are reflected in
income when known. Reinsurance recoverable on paid losses and reinsurance
recoverable on unpaid losses are reported as assets. Reinsurance recoverable on
paid losses represent amounts recoverable from retrocessionaires at the end of
the period for gross losses previously paid. Provisions are established for all
reinsurance recoveries which are considered doubtful.
INVESTMENTS
Fixed maturity investments and equity securities are considered
available-for-sale and are reported at fair value. Unrealized gains and losses,
as a result of temporary changes in fair value during the period such
investments are held, are reflected net of income taxes in stockholders' equity.
Unrealized losses which are deemed other than temporary are charged to
operations. Short-term investments, which have an original maturity of one year
or less, are carried at amortized cost which approximates fair value. Short-term
investments also includes a limited partnership that invests primarily in
marketable fixed income securities and provides for fund withdrawals upon 30
days notice; this partnership is reported under the equity method. Investments
in limited partnerships are reported under the equity method, which includes the
cost of the investment and subsequent proportional share of the partnership
earnings. Realized gains or losses on disposition of investments are determined
on the basis of specific identification. The amortization of premiums and
accretion of discount for fixed maturity investments is computed utilizing the
interest method. The effective yield under the interest method is adjusted for
anticipated prepayments. Investments in weather indexed contracts are carried at
estimated fair value and such adjustments to estimated fair value are included
in realized gains and losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of certain assets and liabilities are based on published
market values, if available, or estimates based upon fair values of similar
issues. Fair values are reported in Notes 3 and 4.
F-7
<PAGE>
DEBT ISSUANCE COSTS
Debt issuance costs associated with the issuance of $100 million 8.85%
Capital Trust Pass-through Securities'sm' (TRUPS'sm') and the issuance of a
note under a $75 million Credit Agreement are being amortized over the term of
the related outstanding debt on the interest method.
EXCESS OF FAIR MARKET VALUE OF NET ASSETS OF BUSINESS ACQUIRED OVER COST
The excess of fair market value of net assets of business acquired over
cost is included in other liabilities and is amortized on a straight-line basis
over three years.
FOREIGN EXCHANGE
Foreign currency assets and liabilities are translated at the exchange
rate in effect at the balance sheet date. Resulting gains and losses are
reflected in income for the period.
FEDERAL INCOME TAXES
Deferred tax assets and liabilities reflect the expected future tax
consequences of temporary differences between carrying amounts and the tax bases
of PXRE's assets and liabilities.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income consists of the change in the net unrealized
appreciation or depreciation of investments, net of tax.
EARNINGS PER SHARE
Basic earnings per share are determined by dividing net earnings (after
deducting cumulative preferred stock dividends) by the weighted average number
of common shares outstanding. On a diluted basis both net earnings and shares
outstanding are adjusted to reflect the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity, unless the effect of the assumed conversion is
anti-dilutive.
STOCK-BASED COMPENSATION
PXRE accounts for its stock options in accordance with the provisions
of Accounting Principles Board Opinion No. 25 ("APB").
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Effective December 31, 1998, PXRE adopted SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information. This statement requires
that companies report certain information about their operating segments,
including information about the products and services from which the revenues
are derived, the geographic areas of operation, and information about major
customers. The statement defines operating segments based on internal management
reporting and management's method of allocating resources and assessing
performance.
F-8
<PAGE>
REPORTING YEAR FOR U.K. OPERATIONS
In 1999, PXRE changed the reporting period for its U.K. operations from
a fiscal year ending September 30 to a calendar year ending December 31. The
results of operations for the period from October 1, 1998 to December 31, 1998
amounted to a loss of approximately $140,000. This loss was charged to retained
earnings during the year in order to report only 12 months' operating results.
ORGANIZATIONAL AND START-UP COSTS
Effective for 1999, PXRE adopted Statement of Position 98-5 "Reporting
on the Costs of Start-Up Activities" issued by the American Institute of
Certified Public Accountants. This statement requires that companies expense
organizational and start-up costs as incurred, and that initial application be
reported as the cumulative effect of a change in accounting principle. As a
result, PXRE expensed $695,000 in such expenses, net after tax, 1999.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments, including certain instruments embedded in
other contracts. It requires that all derivatives be recognized as either assets
or liabilities in the balance sheet and measured at fair value. Gains or losses
from changes in the derivative values are to be accounted for based on how the
derivative was used and whether it qualifies for hedge accounting.
The statement has been deferred and is now effective for all fiscal
periods beginning after June 15, 2000. PXRE is currently assessing the effect of
adopting this statement. It is not expected, however, that the adoption of this
statement will have a material effect on PXRE's financial position or results of
operations.
2. UNDERWRITING PROGRAMS
Premiums written and earned for the years ended December 31, 1999, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Premiums written
Assumed $218,507,032 $133,143,629 $126,231,727
Direct 2,842,139 3,071,559 0
------------- -------------- -------------
Gross premiums written 221,349,171 136,215,188 126,231,727
Ceded premiums written (82,504,050) (47,521,377) (26,176,733)
-------------- ------------- -------------
Net premiums written $138,845,121 $ 88,693,811 $100,054,994
============= ============= =============
<CAPTION>
1999 1998 1997
---- ---- ----
Premiums earned
Assumed $198,342,728 $133,010,858 $119,609,970
Direct 2,113,403 424,822 0
Ceded (71,953,021) (41,049,354) (28,194,730)
-------------- ------------- -------------
Net premiums earned $128,503,110 $ 92,386,326 $ 91,415,240
============== ============= =============
</TABLE>
F-9
<PAGE>
Premiums written were assumed principally through reinsurance brokers
or intermediaries. In 1999, 1998 and 1997 three reinsurance intermediaries
individually accounted for more than 10% of gross premiums written, and
collectively accounted for approximately 43%, 47% and 55% of gross premiums
written, respectively.
Included in ceded premiums written to managed business participants is
$29,466,000, $10,565,000 and $3,023,000 of premiums ceded to a reinsurer, Select
Reinsurance Ltd., whose Board of Directors includes PXRE's Chief Executive
Officer and an Executive Officer, both of whom are shareholders of the
reinsurer. Net assets due from the reinsurer at December 31, 1999, are
$14,932,000 which is secured by a trust agreement and letter of credit.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. In the event that retrocessionaires
are unable to meet their contractual obligations, PXRE would be liable for such
defaulted amounts.
Activity in the net losses and loss expense liability for the years
ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net balance January 1 $ 69,242,355 $44,455,998 $55,309,304
Adjustment to eliminate quarter lag on U.K. subsidiary (1,677,529) 0 0
Incurred related to:
Current year 139,478,230 58,325,429 16,443,586
Prior years 19,781,183 (531,903) (3,917,410)
------------ ---------- ----------
Total incurred 159,259,413 57,793,526 12,526,176
------------ ---------- ----------
Paid related to:
Current year 17,855,659 11,112,999 4,295,293
Prior years 48,452,350 21,894,173 19,084,189
------------ ---------- ----------
Total paid 66,308,009 33,007,172 23,379,482
------------ ---------- ----------
Net balance at December 31 160,516,230 69,242,352 44,455,998
Reinsurance recoverable on unpaid losses and loss expenses 101,035,123 33,350,042 12,733,456
------------ ------------- ----------
Gross balance at December 31 $261,551,353 $102,592,394 $57,189,454
============ ============ ==========
</TABLE>
As a result of changes in estimates of insured events in prior years,
the provision for losses and loss expenses experienced deficiencies of
$19,781,000 on a net basis in 1999, primarily due to Hurricanes Georges and
Mitch and accidents and health and facultative reserve strengthening in
PXRE Lloyd's Syndicate. The net loss ratio was favorably affected by a
savings to reserves of $532,000 in 1998 and $3,917,000 in 1997.
F-10
<PAGE>
3. INVESTMENTS
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in fixed maturities and equity securities as
of December 31, 1999 and 1998 are shown below:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
1999
<S> <C> <C> <C> <C>
United States government securities $ 104,034,363 $ 54,370 $ 2,568,969 $ 101,519,764
Foreign government securities 10,115,674 0 1,373,084 8,742,590
United States government agency
mortgage-backed securities 25,416,497 0 817,661 24,598,836
Other mortgage and asset-backed
securities 69,105,382 8,288 1,900,332 67,213,338
Obligations of states and political
subdivisions 94,691,998 422,315 1,163,694 93,950,619
Public utilities and industrial and
miscellaneous securities 26,598,316 9,120 1,385,056 25,222,380
--------------- --------------- ------------ ---------------
Total fixed maturities $ 329,962,230 $ 494,093 $ 9,208,796 $ 321,247,527
=============== =============== ============ ===============
Equity securities $ 26,214,265 $ 0 $ 1,373,905 $ 24,840,360
=============== ================ ============ ===============
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- -------- --------
<S> <C> <C> <C> <C>
1998
United States government securities $ 113,029,756 $ 1,771,592 $ 159,367 $ 114,641,981
Foreign government securities 43,815,569 242,591 5,286,056 38,772,104
United States government agency
mortgage-backed securities 1,087,492 17,031 0 1,104,523
Other mortgage-backed securities 43,174,814 1,271,787 181,569 44,265,032
Obligations of states and political
subdivisions 97,469,857 4,467,662 27,311 101,910,208
Public utilities and industrial and
miscellaneous securities 10,080,619 0 1,297,392 8,783,227
--------------- --------------- ------------ ---------------
Total fixed maturities $ 308,658,107 $ 7,770,663 $ 6,951,695 $ 309,477,075
=============== ================ ============ ===============
Equity securities $ 41,146,001 $ 3,661,597 $ 3,833,315 $ 40,974,283
=============== ================ ============ ===============
</TABLE>
F-11
<PAGE>
Included in other comprehensive income in 1999 is $6,758,000 of net
unrealized depreciation on investments which includes $10,524,000 of unrealized
net losses arising during the year less $3,766,000 of reclassification
adjustments for net losses, included in net income.
Proceeds, gross realized gains, and gross realized losses from sales of
fixed maturity investments before maturity date or securities that prepay and
from sales of equity securities were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Proceeds from Sale
Fixed maturities $ 86,040,075 $ 234,195,041 $281,200,500
============ ============= ============
Equity securities $ 28,382,068 $ 3,871,056 $ 3,883,703
============ ============= ============
Gross Gains
Fixed maturities $ 1,936,898 $ 4,298,138 $ 3,443,425
Equity securities 4,307,178 1,046,699 807,238
Other 3,661,831 2,346,612 0
------------ ------------- ------------
9,905,907 7,691,449 4,250,663
------------ ------------- ------------
Gross Losses
Fixed maturities (6,316,161) (10,615,978) (1,621,134)
Equity Securities (687,055) (23,056) 0
Other (6,668,507) (914,604) (162,191)
------------ ------------- ------------
(13,671,723) (11,553,638) (1,783,325)
------------ ------------- ------------
Net realized (losses) gains $ (3,765,816) $ (3,862,189) $ 2,467,338
============ ============= ============
</TABLE>
Included in gross losses on fixed maturities for 1998 is a realized
loss on the permanent write down of a bond in technical default in the amount of
$6,600,000, which was sold in 1999 at a gain of $596,000.
The components of net investment income were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturity investments $ 19,096,242 $ 22,654,993 $25,835,051
Equity securities 1,282,199 579,718 180,956
Short-term investments 1,984,366 2,044,876 5,646,704
Limited partnerships 25,703,702 (4,933,361) 442,504
------------- ------------- -----------
48,066,509 20,346,226 32,105,215
Less investment expenses 893,893 734,337 914,590
------------- ------------- -----------
Net investment income $ 47,172,616 $ 19,611,889 $31,190,625
============= ============= ===========
</TABLE>
Investment expenses primarily represent fees paid to Phoenix Investment
Partners, Limited (formerly Phoenix Duff & Phelps Corporation), a public
majority-owned subsidiary of Phoenix Home Life Mutual Insurance Company which
owned 7.8%, 5.17% and 4.6% of the outstanding common stock of PXRE at December
31, 1999, 1998 and 1997, respectively.
F-12
<PAGE>
INVESTMENT MATURITY DISTRIBUTIONS
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1999 by contractual maturity date is shown below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Maturity
One year or less $ 6,578,422 $ 6,659,434
Over 1 through 5 years 118,566,069 116,668,834
Over 5 through 10 years 79,630,444 76,727,334
Over 10 through 20 years 10,659,376 11,300,517
Over 20 years 18,928,560 17,204,092
United States government agency and
other mortgage and asset-backed securities 95,599,359 92,687,316
------------ -------------
Total $329,962,230 $ 321,247,527
============ =============
</TABLE>
In addition to fixed maturities, PXRE held $50,004,000 and $58,862,000
of short-term investments at December 31, 1999 and 1998, respectively, comprised
principally of high-grade commercial paper, U.S. Treasury bills and other
investments with original maturities of one year or less. PXRE also held
$113,476,000 and $65,164,000 of limited partnership assets at December 31, 1999
and 1998, respectively, accounted for under the equity method, as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
$ Ownership % $ Ownership %
- ------------ - -----------
<S> <C> <C> <C> <C>
Mariner Select L.P. 27,229,000 47.35 26,652,967 51.62
Other 86,246,717 38,510,614
---------- ----------
Total 113,475,717 65,163,581
=========== ==========
</TABLE>
Total net assets and net income of the Mariner Select L.P. Fund
amounted to $57,511,000 and $16,795,000 in 1999, and $51,621,000 and $2,456,000
in 1998. Mariner Partners L.P., which is included in short-term investments, has
total net assets and net income of $41,493,000 and $7,250,000 in 1999, and
$51,440,000 and net loss of $408,000 in 1998.
The sole shareholder of Mariner Investment Group is the Chairman of
the Board and a founding shareholder of Select Reinsurance Ltd. which owns
approximately 9.5% of PXRE.
F-13
<PAGE>
RESTRICTED ASSETS
Under the terms of certain reinsurance agreements, irrevocable letters
of credit in the amount of $480,000 were issued at December 31, 1999, in respect
of reported loss reserves and unearned premiums. Investments with a par value of
$4,000,000 have been pledged as collateral with issuing banks. In addition,
securities with a par value of $15,376,000 at December 31, 1999 were on deposit
with various state insurance departments in order to comply with insurance laws.
PXRE, in connection with the startup of PXRE Ltd.'s Syndicate No. 1224,
has placed on deposit $46,587,000 par value of United States government
securities and municipal securities as collateral for Lloyd's of London. In
addition, PXRE issued a letter of credit for the benefit of Lloyd's of London in
the amount of $15,355,000. The letter of credit is collateralized by municipal
bonds of approximately $17,835,000. All invested assets of Syndicate 1224
amounting to $11,253,000 at December 31, 1999 are restricted from being paid as
a dividend for at least three years.
PXRE has $25 million in commitments for funding certain investments in
certain limited partnerships of which $18.5 million has been funded at December
31, 1999.
4. NOTES PAYABLE AND CREDIT ARRANGEMENTS
In January 1997, PXRE Corporation issued $100,000,000 of 8.85% TRUPS.
The fair value of the TRUPS is $87,677,919 and $99,086,425 at December 31, 1999
and 1998, respectively. Interest is payable on the TRUPS semi-annually. The
notes are redeemable on or after February 1, 2007 at the option of PXRE
Corporation, initially at 104.180% declining to 100.418% at February 1, 2016,
and 100% thereafter.
On August 15, 1998, PXRE Corporation redeemed the remaining balance of
$20,414,000 of its 9.75% Senior Notes due August 15, 2003 at a premium of
103.656%. In connection with the redemption of the Senior Notes, PXRE
Corporation recorded an extraordinary charge of $843,000, net of tax reflecting
the write-off of the remaining unamortized debt issuance costs and related
redemption premium.
Interest paid, including the minority interest in consolidated
subsidiary, was $12,705,000, $11,687,000, and $8,707,000 for 1999, 1998 and
1997, respectively.
On December 30, 1998 PXRE Corporation entered into a Credit Agreement
with First Union National Bank ("First Union") to arrange and syndicate for it a
revolving credit facility of up to $75 million. At December 31, 1998, $50
million of the total $75 million was underwritten and committed to by First
Union. The additional $25 million of the revolving credit facility was drawn
down October 6, 1999 and PXRE Group Ltd. and PXRE (Barbados) Ltd. were added as
guarantors under the Credit Agreement. First Union syndicated the $75 million
revolving credit facility, joining Fleet National Bank, Credit Lyonnais, New
York Branch and Bank One (formerly, The First National Bank of Chicago) as
additional lenders (collectively with First Union, the "Lenders"). The $75
million borrowings under the Credit Agreement bear interest at First Union's
base rate or at the financial institution's LIBOR rate for periods of 30, 60, 90
or 180 days plus a 1% credit margin. The interest rate as of December 31, 1999,
was 7.12% on the $25
F-14
<PAGE>
million loan. The interest rate charged on the $50 million portion of the loan
at December 31, 1999 and 1998 was 6.936% and 7.75%, respectively. In addition,
the Credit Agreement requires PXRE and certain subsidiaries, where applicable,
to maintain certain financial ratios including minimum fixed charge coverage,
maximum consolidated debt to total capitalization, minimum statutory capital and
surplus, and minimum risk based capital ratios. Commitments under this Credit
Agreement terminate on March 31, 2005 and are subject to annual reductions of
$10 million commencing March 31, 2000 and $25 million on March 31, 2005. At
December 31, 1999 and 1998, $75 million and $50 million was outstanding under
this Credit Agreement. The Credit Agreement requires that PXRE Corporation pay a
commitment fee of 25 basis points on any unused portion of the loan.
PXRE Corporation entered into an interest rate swap agreement with First
Union that locks in the interest rate on the $50 million portion of the loan to
5.34% plus a 1.00% credit margin or 6.34%. The swap agreement coincides with the
maturity of the Credit Agreement. The fair value of the loan and the interest
rate swap agreement at December 31, 1999 and 1998 was approximately $72,908,000
and $50,084,000, respectively.
5. INCOME TAXES
PXRE is incorporated under the laws of Bermuda and, under current
Bermuda law, is not obligated to pay any taxes in Bermuda based upon income or
capital gains. The company has received an undertaking from the Minister of
Finance in Bermuda pursuant to the provisions of the Exempted Undertakings Tax
Protection Act, 1966, which exempts the company, from any Bermuda taxes computed
on profits, income or any capital asset, gain or appreciation, or any tax in the
nature of estate duty or inheritance tax, at least until the year 2016.
PXRE does not consider itself to be engaged in a trade or business in
the United States and accordingly does not expect to be subject to direct United
States income taxation.
The United States subsidiaries of PXRE file a consolidated U.S. federal
income tax return.
Pretax (loss) income from operations before cumulative effect of
accounting change for the years ended December 31, was taxed under the following
jurisdictions;
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. $(43,808,000) $2,316,000 $69,225,000
Bermuda (11,437,000) 0 0
Barbados 1,027,000 0 0
------------ ---------- -----------
Total $(54,218,000) $2,316,000 $69,225,000
============ ========== ===========
</TABLE>
F-15
<PAGE>
The components of the (benefit) provision for income taxes for the
years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current
U.S. $(12,819,000) $ 3,321,000 $ 18,014,000
State and local 0 21,000 515,000
Foreign 2,314,000 0 706,000
------------ ------------ ----------
Subtotal (10,505,000) 3,342,000 19,235,000
Deferred U.S. (2,270,000) (2,396,000) 2,963,000
Deferred foreign 0 (2,152,000) 0
------------ ------------ ----------
Income tax (benefit) provision
before extraordinary loss and
change in accounting (12,775,000) (1,206,000) 22,198,000
Income tax benefit from
extraordinary loss 0 454,000 1,493,000
Income tax benefit from change in
accounting (374,000) 0 0
------------ ------------ ----------
Income tax (benefit) provision $(13,149,000) $ (1,660,000) $ 20,705,000
============ ============ ============
Income taxes paid $ 1,930,000 $ 10,900,000 $ 23,460,000
============ ============ ============
</TABLE>
The entire 1999 net operating loss will be carried back to 1997.
The significant components of the net deferred income tax asset
(liability) are as follows:
<TABLE>
<CAPTION>
Deferred tax asset: 1999 1998
---- ----
<S> <C> <C>
Discounted reserves and unearned
premiums $ 7,177,000 $ 3,116,000
U.K. losses not currently deductible 6,478,000 1,027,000
Unrealized depreciation on investments 3,550,000 0
Deferred compensation and benefits 1,020,000 500,000
Credit carryforwards 1,433,000 3,434,000
Other, net 265,000 0
------------ ------------
Total deferred income tax asset 19,923,000 8,077,000
------------ ------------
Deferred income tax liability:
Deferred acquisition costs (1,969,000) (678,000)
Unrealized
appreciation on investments (4,690,000) (236,000)
Investments and unrealized foreign
exchange (1,587,000) (621,000)
Other, net (146,000) (1,068,000)
------------ ------------
Total deferred income tax liability (8,392,000) (2,603,000)
------------ ------------
Net deferred income tax asset $ 11,531,000 $ 5,474,000
============ ============
</TABLE>
F-16
<PAGE>
Management has reviewed PXRE's deferred tax asset, and has concluded that it is
realizable and no valuation allowance is necessary.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate of
35% to pretax income from operations as a result of the following differences.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. rate $(18,976,000) $ 357,000 $ 22,735,000
Tax exempt interest (1,781,000) (1,231,000) (1,284,000)
Amortization of intangibles (753,000) (753,000) (753,000)
Reciprocal shares 1,815,000 0 0
Foreign tax credit expiration 920,000 0 0
Bermuda loss 4,003,000 0 0
Foreign Income - Barbados (359,000) 0 0
Barbados tax 2,314,000 0 0
Other net (332,000) (33,000) 7,000
------------ ------------ ------------
Total provision $(13,149,000) $ (1,660,000) $ 20,705,000
============ ============ ============
</TABLE>
6. STOCKHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS
STOCKHOLDERS' EQUITY
PXRE was incorporated on June 1, 1999 as a Bermuda holding company and a wholly
owned subsidiary of PXRE Purpose Trust, a purpose trust established under the
laws of Bermuda.
In connection with the reorganization, PXRE repurchased for $1.00 per share,
100% of the common shares owned by PXRE Purpose Trust and each outstanding share
of PXRE Corporation common stock (other than shares held by PXRE Corporation and
its subsidiaries) was converted into one common share of PXRE. In addition, PXRE
retired all of its treasury shares.
On August 9, 1999 PXRE's Board of Directors unanimously approved a resolution to
increase the number of authorized shares from 12,000 to 60,000,000 consisting
of 50,000,000 common shares and 10,000,000 preferred shares. In addition, PXRE's
Board of Directors authorized an increase in par value of its common shares from
$0.01 per share to $1.00 per share.
The Company's bye-laws restrict the ownership and voting rights of any
shareholder who directly or indirectly would own more that 9.9% of the
outstanding common shares of the Company. The restriction requires the prompt
disposition of any shares held in violation of the provision and limits the
voting power of a shareholder with more than 9.9% of the outstanding shares to
the voting power of a shareholder with 9.9% or less of the outstanding common
shares.
F-17
<PAGE>
DIVIDEND RESTRICTIONS
The Insurance Department of the State of Connecticut, in which PXRE
Reinsurance is domiciled, recognizes as net income and surplus (stockholders'
equity) those amounts determined in conformity with statutory accounting
practices ("SAP") prescribed or permitted by the department, which differ in
certain respects from U.S. GAAP. The amount of statutory capital and surplus at
December 31, and statutory net income of PXRE Reinsurance for the years then
ended, as filed with insurance regulatory authorities are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
PXRE Reinsurance
Statutory capital and surplus $ 399,007,000 $ 447,229,000 $ 451,321,000
Statutory net (loss) income $ (1,327,000) $ 4,835,000 $ 57,388,000
</TABLE>
PXRE Reinsurance is subject to state regulatory restrictions, which
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 the State of Connecticut.
As of December 31, 1999, the maximum amount of dividends and other
distributions which may be made by PXRE Reinsurance during 2000 without prior
approval is limited to approximately $39,901,000. Accordingly, the remaining
amount of its capital and surplus is considered restricted. Under the terms of
the Credit Agreement, dividends to PXRE shareholders in any year are limited as
described in Note 4.
F-18
<PAGE>
7. EARNINGS PER SHARE
A reconciliation of income before extraordinary item and change in
accounting, and shares, which affect basic and diluted earnings per share, is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
(Loss) income available to common stockholders:
(Loss) income before extraordinary loss and
change in accounting $(41,443,353) $ 3,521,821 $ 47,027,150
Extraordinary loss 695,278 843,000 2,773,690
Change in accounting 0 0 0
------------ ------------ ------------
Net (loss) income available to stockholders $(42,138,631) $ 2,678,821 $ 44,253,460
============ ============ ============
Weighted average shares of common stock outstanding:
Weighted average common shares
outstanding (basic) 11,568,494 13,339,479 13,775,844
Equivalent shares of stock options 0 62,218 70,770
Equivalent shares of restricted stock 0 50,034 46,146
------------ ------------ ------------
Weighted average common equivalent shares
(diluted) 11,568,494 13,451,731 13,892,760
============ ============ ============
Per share amounts:
Basic
(Loss) income before extraordinary loss and
change in accounting $ (3.58) $ .26 $ 3.41
Net (loss) income $ (3.64) $ .20 $ 3.21
Diluted
(Loss) income before extraordinary loss and
change in accounting $ (3.58) $ .26 $ 3.39
Net (loss) income $ (3.64) $ .20 $ 3.19
</TABLE>
F-19
<PAGE>
8. EMPLOYEE BENEFITS
BENEFIT PLANS
Effective January 1, 1993, PXRE adopted a non-contributory defined
benefit pension plan covering all U.S. employees with one year or more of
service and who had attained age 21. Benefits are generally based on years of
service and compensation. PXRE funds the plan in amounts not less than the
minimum statutory funding requirement nor more than the maximum amount that can
be deducted for U.S. income tax purposes.
PXRE also sponsors a supplemental executive retirement plan. This plan
is non-qualified and provides certain key employees benefits in excess of normal
pension benefits.
The net pension expenses for the company-sponsored plans included the
following components at December 31, based on a January 1 valuation date (the
latest actuarial estimate):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Components of net periodic cost
Service cost $ 455,892 $ 308,916 $ 265,216
Interest cost 352,348 247,025 220,404
Expected return on
assets (44,166) (29,802) (9,680)
Amortization of prior
service costs 110,301 94,147 94,996
Recognized net
actuarial costs 75,280 8,734 (401)
--------- --------- ---------
Net periodic benefit
costs $ 949,655 $ 629,020 $ 570,535
========= ========= =========
</TABLE>
F-20
<PAGE>
The following table sets forth the funded status of the plans and
amounts recognized in the consolidated balance sheets:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Reconciliation of benefit obligation
Benefit obligation
January 1 $ 4,297,331 $ 3,784,732
Service cost 455,892 308,916
Interest cost 352,348 247,025
Amendments 199,305 0
Actuarial loss (137,982) (43,342)
----------- -----------
Benefit obligation
December 31 $ 5,166,894 $ 4,297,331
=========== ===========
Reconciliation of plan assets
Fair value of plan
assets as of January 1 $ 453,518 $ 315,222
Return on plan assets 40,327 33,459
Employer contributions 308,942 104,837
----------- -----------
Fair value of plan
assets December 31 $ 802,787 $ 453,518
=========== ===========
Reconciliation of funded status
Funded status $(4,364,107) $(3,843,813)
Unrecognized prior
service cost 1,256,350 1,167,346
Unrecognized net
gain 277,257 486,680
----------- -----------
Prepaid cost $(2,830,500) $(2,189,787)
=========== ===========
Weighted average assumptions as of December 31,
Discount rate 7.75% 6.75%
Expected return on
plan assets 8.00% 8.00%
Rate of compensation
increase 5.00% 4.50%
</TABLE>
The Brussels and London operations cover employees under a defined
contribution type plan. The provision for such plans is $326,000, $246,000 and
$131,000 for 1999, 1998 and 1997 respectively.
EMPLOYEE STOCK PURCHASE PLAN
PXRE maintains an Employee Stock Purchase Plan under which it has
reserved 6,029 common shares for issuance to PXRE personnel. The price per share
is the lesser of 85% of the fair market value at either the date granted or the
date exercised.
F-21
<PAGE>
9. STOCK OPTIONS AND GRANTS
In 1988, PXRE adopted a stock option plan (the "1988 Stock Option
Plan") which provides for the grant of incentive stock options and non-qualified
stock options to officers and key employees. Options granted under the 1988
Stock Option Plan have a term of 10 years and become exercisable in four equal
annual installments. The exercise price for options granted pursuant to the plan
must be equal to or exceed the fair market value of the common shares on the
date the option is granted. In 1992, the Board of Directors resolved to freeze
the 1988 Stock Option Plan as of December 31, 1992. At December 31, 1999 and
1998, 73,380 and 86,674 options are exercisable under this plan.
In 1992, a Restated Employee Annual Incentive Bonus Plan was approved.
Incentive compensation to employees is based in part on return on equity
compared to a target return on equity and in part at the discretion of the
Restated Bonus Plan Committee.
In 1992, PXRE adopted a 1992 Officer Incentive Plan that provides for
the grant of incentive stock options, non-qualified stock options and awards of
shares subject to certain restrictions. Options granted under the plan have a
term of 10 years and generally become exercisable in four equal annual
installments commencing one year from the date of grant. The exercise price for
the incentive shares options must be equal to or exceed the fair market value of
the common shares on the date the option is granted. The exercise price for the
non-qualified options may not be less than the fair market value of the common
stock on the date of grant. At December 31, 1999 and 1998, options for 256,631
and 220,743 shares respectively, were exercisable under this plan.
In 1999, 1998, and 1997, $3,170,000, $1,240,000, and $1,553,000,
respectively was incurred under these plans, including 30% of any bonus granted
to certain levels of employees paid in restricted shares which vest in 36
months.
F-22
<PAGE>
Information regarding the option plans described above is as follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share Range
---------- ---------------
<S> <C> <C>
Outstanding at December 31, 1996 373,023 $8.00 - $25.00
Options granted 82,166 $26.688
Options exercised 64,504 $8.00 - $25.00
-------
Outstanding at December 31, 1997 390,688
Options granted 91,586 $30.72 - $32.94
Options exercised 4,626 $10.875 - $24.88
Options canceled 4,624 $24.75 - $26.69
-------
Outstanding at December 31, 1998 473,024 $8.75 - $32.94
Options granted 0 $0
Options exercised 13,294 $10.625 - $11.50
Options canceled 7,256 $24.75 - $32.938
-------
Outstanding at December 31, 1999 452,474 $8.75 - $32.938
=======
</TABLE>
In 1995, PXRE adopted a non-employee Director Stock Option Plan, which
provided for an annual grant of 1,000 options per director from 1995 to 1996 and
provides for 3,000 options per director from 1997 to 2005 inclusive as amended.
Options granted under the plan have a term of 10 years from the date of grant
and are vested and exercisable in three equal annual installments commencing one
year from the date of grant. The exercise price of the options is the fair
market value on the date of grant. As of December 31, 1999, options for 250,000
shares were authorized and 91,191 were exercisable.
Beginning January 1, 1998, PXRE allowed its directors to elect to
convert their Board of Directors retainer fee to options. At December 31, 1999,
ten year options for 48,461 shares were granted at prices ranging from $17.704
to $33.455 which are 100% vested and immediately exercisable.
Total authorized common shares reserved for grants of stock options and
restricted stock under the above plans is 2,141,754 shares. Total shares of
415,452 relate to stock options which are vested and exercisable at December 31,
1999, at exercise prices between $8.75 and $33.455. All options become
exercisable upon a change of control of PXRE as defined by the plans.
As permitted by SFAS No. 123, PXRE has elected to continue to account
for its stock option plans under the accounting rules prescribed by APB 25,
under which no compensation costs are recognized as an expense. Had compensation
costs for the stock options been determined using the fair value method of
accounting as recommended by SFAS No. 123, net income and earnings per share for
1999, 1998 and 1997 would have been reduced to the following pro forma amounts:
F-23
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income
As reported $(42,138,631) $ 2,678,821 $ 44,253,460
Pro forma (42,612,003) 1,987,264 43,789,779
Basic income per share
As reported $ (3.64) $ 0.20 $ 3.21
Pro forma (3.68) 0.15 3.18
Diluted income per share
As reported $ (3.64) $ 0.20 $ 3.19
Pro forma (3.68) 0.15 3.15
</TABLE>
The fair value of each option granted in 1999, 1998 and 1997 was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free rate 6.72% 5.07% 5.89%
Dividend yield 1.85% 4.01% 2.63%
Volatility factor 26.71% 24.94% 30.70%
Weighted average expected life 5 5 5
</TABLE>
A summary of the status of the employee and director stock option plans
at December 31, 1999 and 1998 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 561,475 24.58 433,688 20.49
Options granted 58,146 25.87 137,037 32.42
Options exercised 13,294 11.11 4,626 20.25
Options canceled 7,259 28.62 4,624 25.46
--------- ---------
Options outstanding at end of year 599,068 24.80 561,475 24.58
--------- ---------
Options exercisable at end of year 421,202 21.33 307,417 21.19
--------- ---------
Weighted average fair value per share of options granted 10.68 7.50
</TABLE>
F-24
<PAGE>
Options outstanding at December 31, 1999 included:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Outstanding at Remaining Exercise Number Exercisable at Exercise
Prices December 31, 1999 Life Price December 31, 1999 Price
- ------ ----------------- ---- ----- ----------------- ---------
<C> <C> <C> <C> <C> <C>
$8.75 to $11.50 73,380 1.61 9.80 73,380 9.80
$23.25 to $33.455 525,688 6.69 26.89 347,822 25.79
</TABLE>
In 1990, PXRE adopted a non-employee Director Deferred Stock Plan
granting 2,000 shares to each non-employee Board member at the time specified in
the plan. The 12,000 shares granted to Board members who are not employees of
PXRE or Phoenix Home Life Mutual Insurance Company will be issued to Board
members at or after their retirement according to the option selected from those
defined in the plan. The 6,000 shares granted to Board members who are employees
of Phoenix Home Life Mutual Insurance Company were issued on August 24, 1993.
10. SEGMENT INFORMATION
PXRE operates in four reportable property and casualty segments -
catastrophe and risk excess casualty structured / finite business and all
other lines based on the Company's method of internal management reporting.
In addition, the Company operates in two geographic segments - North American
representing North American based risks written by North American based
reinsureds and International (principally the United Kingdom, Continental
Europe, Australia and Asia) representing all other premiums
written.
The reportable segments were redefined during 1999. Segment information
for 1998 and 1997 was restated to be consistent with 1999 segments.
There are no significant differences among the accounting policies of
the segments as compared to the Company's consolidated financial statements.
PXRE does not maintain separate balance sheet data for each of its
operating segments. Accordingly, PXRE does not review and evaluate the financial
results of its operating segments based upon balance sheet data.
F-25
<PAGE>
<TABLE>
<CAPTION>
Net Premiums Written
(000's except %'s)
1999 1999 1998 1998 1997 1997
---- ---- ---- ---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C>
Catastrophe and Risk Excess
North American $ 26,704 $ 12,795 $ 21,724
International 63,957 58,595 63,154
Excess of loss cessions (18,883) (3,938) (409)
-------- ------- -----
Subtotal 71,778 52% 67,452 76% 84,469 84%
-------- ------- ------
Casualty
North American 13,148 650 0
International 12,851 4,433 0
------- ------ -------
25,999 19% 5,083 6% 0 0%
------- ------ -------
Structured/Finite Business
North American 0 0 0
International 0 0 0
------- ------ --------
0 0% 0 0% 0 0%
------- ------ --------
Other Lines
North American 12,073 2,054 4,848
International 28,995 14,105 10,738
------ ------ ------
41,068 29% 16,159 18% 15,586 16%
------ -- ------ -- ------ ----
Total $ 138,845 100% $ 88,694 100% $ 100,055 100%
========== ==== ======== ==== ========= ====
<CAPTION>
Net Premiums Earned
(000's except %'s)
1999 1999 1998 1998 1997 1997
---- ---- ---- ---- ---- ----
Amount % Amount % Amount %
Catastrophe- and Risk Excess
North American $ 26,155 $ 13,561 $ 21,877
International 61,241 63,830 60,148
Excess of loss cessions (14,958) (2,869) (353)
-------- -------- ------
Subtotal 72,438 56% 74,522 81% 81,672 89%
------- -------- ------
Casualty
North American 11,593 (152) 0
International 9,794 2,207 0
------ ------- ------
21,387 17% 2,055 2% 0 0%
------- ------- ------
Structured /Finite Business
North American 0 0 0
International 0 0 0
------- ------- ------
0 0% 0 0% 0 0%
------- ------- ------
Other Lines
North American 11,296 3,234 5,650
International 23,383 12,575 4,093
34,679 27% 15,809 17% 9,743 11%
------- --- ------- --- ------ ---
Total $128,504 100% $ 92,386 100% $ 91,415 100%
======== ==== ========= ==== ========= ====
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
Underwriting Profit (Loss)
(000's except %'s)
1999 1999 1998 1998 1997 1997
---- ---- ---- ---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Catastrophe and Risk Excess
North American $ (31,591) $ 6,970 $ 13,655
International (32,039) 7,081 48,197
Excess of loss cessions 15,476 8,372 2,407
----------- ------------ ---------
Subtotal (48,154) 87% 22,423 141% 64,259 102%
----------- ------------ ---------
Casualty
North American (279) (409) 0
International (242) 87 0
----------- ------------ -------
(521) 1% (322) (2%) 0 0%
----------- ------------ -------
Structured/Finite Business
North American 0 0 0
International 411 0 0
----------- ------------ -------------
411 (1%) 0 0% 0 0%
----------- ------------ -------------
Other Lines
North American (715) (1,442) (2,075)
International (6,166) (4,794) 573
----------- ------------ ------------
(6,881) 13% (6,236) (39%) (1,502) (2%)
----------- --- ------------ ----- ------------ ----
Total $ (55,145) 100% $ 15,865 100% $ 62,757 100%
=========== ==== ============ ==== =========== ====
</TABLE>
The following table reconciles the underwriting operations for the
operating segments to income before tax as reported in the consolidated
statements of operations and comprehensive income:
<TABLE>
<CAPTION>
(000's) 1999 1998 1997
---- ---- ----
<S> <C> <S> <C>
Underwriting (loss) profit $(55,145) $ 15,865 $ 62,757
Net investment income 47,173 19,612 31,191
Net realized investment (losses) gains (3,766) (3,862) 2,467
Interest expense (3,915) (1,395) (3,325)
Minority interest in consolidated
subsidiary (8,790) (8,928) (8,184)
Operating expenses (30,052) (19,313) (15,716)
Other income 277 336 35
------- ------- -------
(Loss) income before income taxes,
cumulative effect of accounting change,
and extraordinary item $(54,218) $ 2,315 $ 69,225
========= ========== ========
</TABLE>
F-27
<PAGE>
11. QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
The following are unaudited quarterly results of operations on a
consolidated basis for the years ended December 31, 1999 and 1998. Quarterly
results necessarily rely heavily on estimates. This and certain other factors,
such as catastrophic losses, call for caution in drawing specific conclusions
from quarterly results. Due to changes in the number of average shares
outstanding, quarterly earnings per share may not add to the total for the year.
The common share price ranges are bid quotations as reported by the New
York Stock Exchange.
Results for the quarter ended September 30, 1999, includes results of
operations of PXRE prior to the redomestication of PXRE Corporation and
subsidiaries.
F-28
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1999
- ----
Net premiums written $ 38,828,000 $ 28,774,000 $ 31,960,000 $ 39,283,000
============== ============== ============ ==============
Revenues:
Net premiums earned $ 23,830,950 $ 28,694,483 $ 32,458,734 $ 43,518,943
Net investment income 7,200,592 10,922,120 9,466,325 19,583,579
Realized investment (losses) gains (2,576,011) 1,193,499 (2,194,302) (189,002)
Management fees 896,616 403,699 528,151 1,761,871
-------------- -------------- ------------ --------------
Total revenues 29,352,147 41,213,801 40,258,908 64,675,391
-------------- -------------- ------------ --------------
Losses and expenses:
Losses and loss expenses incurred 18,898,062 17,969,860 29,327,207 93,064,284
Commissions and brokerage 6,406,928 6,138,823 7,871,366 7,284,527
Other operating expenses 6,237,793 7,079,920 7,389,761 9,344,836
Interest expense 831,285 842,700 885,254 1,355,859
Minority interest in consolidated
subsidiary 2,108,441 2,218,328 2,220,046 2,243,291
-------------- -------------- ------------ --------------
Total expenses 34,482,509 34,249,631 47,693,634 113,292,797
-------------- -------------- ------------ --------------
(Loss) income before income taxes and
change in accounting (5,130,362) 6,964,170 (7,434,726) (48,617,406)
Income tax benefit (provision) 2,368,000 (1,918,000) 1,196,130 11,128,841
-------------- -------------- ------------ --------------
(Loss) income before change in
accounting (2,762,362) 5,046,170 (6,238,596) (37,488,565)
Cumulative effect of accounting
change, net of $374,381 tax benefit 0 0 0 695,278
-------------- -------------- ------------ --------------
Net (loss) income $ (2,762,362) $ 5,046,170 $ (6,238,596) $ (38,183,843)
============== ============== ============ ==============
Basic (loss) earnings per common share:
Net (loss) income $ (0.23) $ 0.44 $ (0.55) $ (3.28)
============== ============== ============ ==============
Average shares outstanding 11,889,636 11,439,018 11,441,979 $ 11,449,872
============== ============== ============ ==============
Diluted (loss) earnings per common share:
Net (loss) income $ (0.23) $ 0.44 $ (0.55) $ (3.34)
============== ============== ============ ==============
Average shares outstanding 11,889,636 11,584,551 11,441,979 11,449,872
============== ============== ============ ==============
Dividends paid per common share $ 0.26 $ 0.26 $ 0.06 $ 0.06
Price Range of Common Share:
High $ 26.25 $ 21.25 $ 19.0625 $ 14.50
Low $ 18.00 $ 16.00 $ 14.3125 $ 10.00
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1998
- ----
Net premiums written $ 28,357,000 $ 15,368,000 $ 24,001,000 $ 20,968,000
============== ============== ============== ==============
Revenues:
Net premiums earned $ 19,713,968 $ 21,378,386 $ 27,644,965 $ 23,649,007
Net investment income 7,561,058 4,436,722 (851,792) 8,465,901
Realized investment gains (losses) 1,224,643 427,454 1,328,034 (6,842,320)
Management fees 825,681 678,947 (33,227) 700,730
-------------- -------------- ------------- ---------------
Total revenues 29,325,350 26,921,509 28,087,980 25,973,318
-------------- -------------- ------------- ---------------
Losses and expenses:
Losses and loss expenses incurred 3,570,797 2,951,664 32,936,993 18,334,172
Commissions and brokerage 3,992,016 4,288,096 7,376,058 4,906,518
Other operating expenses 4,349,853 3,600,868 5,414,708 5,947,996
Interest expense 544,280 601,890 248,641 0
Minority interest in consolidated
subsidiary 2,231,884 2,231,923 2,232,051 2,232,005
-------------- -------------- ------------- ---------------
Total expenses 14,688,830 13,674,441 48,208,451 31,420,691
-------------- -------------- ------------- ---------------
Income (loss) before income taxes and
extraordinary item 14,636,520 13,247,068 (20,120,471) (5,447,374)
Income tax provision (benefit) 4,650,000 4,058,000 (7,484,000) (2,430,077)
-------------- -------------- ------------- ---------------
Income (loss) before extraordinary loss 9,986,520 9,189,068 (12,636,471) (3,017,297)
-------------- -------------- ------------- ---------------
Extraordinary loss on debt redemption
net of income tax benefit 0 0 843,000 0
---------------- ---------------- --------------- ----------------
Net income (loss) $ 9,986,520 $ 9,189,068 $ (13,479,471) $ (3,017,297)
---------------- ---------------- --------------- ----------------
Basic earnings (loss) per common share:
Income (loss) before extraordinary
item $ 0.73 $ 0.67 $ (0.93) $ (0.24)
Extraordinary loss 0.00 0.00 0.06 0.00
-------------- -------------- ------------- ---------------
Net income (loss) $ 0.73 $ 0.67 $ (0.99) $ (0.24)
============== ============== ============= ===============
Average shares outstanding 13,744,975 13,650,563 13,596,222 12,691,058
============== ============== ============= ===============
Diluted earnings (loss) per common share:
Income (loss) before extraordinary
item $ 0.72 $ 0.67 $ (0.93) $ (0.24)
Extraordinary loss 0.00 0.00 0.06 0.00
-------------- -------------- ------------- ---------------
Net income (loss) $ 0.72 $ 0.67 $ (0.99) $ (0.24)
============== ============== ============= ===============
Average shares outstanding 13,862,678 13,722,006 13,596,222 12,691,058
============== ============== ============= ===============
Dividends paid per common share $ 0.25 $ 0.25 $ 0.25 $ 0.26
Price Range of Common Share:
High $ 35.25 $ 32.875 $ 30.500 $ 26.6875
Low $ 29.375 $ 29.00 $ 25.625 $ 20.6250
</TABLE>
F-30
<PAGE>
Parent Company Information Schedule II
PXRE Group Ltd.'s (successor registrant to PXRE Corporation) summarized
financial information (parent company only) is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
-------------- ---------------
<S> <C> <C>
BALANCE SHEET
Assets
Short-term investments $ - $ 1,012,031
Equity securities(market Value) - 3,069,554
Other invested assets - 5,490,561
Cash 391,934 232,157
Receivable from subsidiaries 1,066,356 3,384,100
Other receivables 0 1,621
Income tax recoverable 0 10,402,439
Deferred income tax benefits 0 6,741,946
Equity in subsidiaries 263,737,568 457,193,174
Other assets 0 7,106,953
-------------- ---------------
Total assets $ 265,195,858 $ 494,634,536
============== ===============
Liabilities
Debt payable $ 0 $ 50,000,000
Income tax payable 0 0
Loan from subsidiary 1,877,000 3,416,886
Deferred income tax liabilities 0 0
Excess of fair market value over cost 0 2,550,671
Other liabilities 39,875 4,774,535
-------------- ---------------
Total Liabilities 1,916,875 60,742,092
-------------- ---------------
Minority Interest in Consolidated Subsidiary 0 99,516,938
Stockholders' equity 263,278,983 334,375,506
-------------- ---------------
Total liabilities and stockholders' equity $ 265,195,858 $ 494,634,536
============== ===============
</TABLE>
<TABLE>
<CAPTION>
INCOME STATEMENT Years ended December 31,
------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Investment income (loss) $ 6,361 $ (1,839,856) $ 2,799,937
Realized (loss)/gain on investment 0 1,458,142 433,966
Management fee 44,178 300,380 0
Interest expense 0 (11,046,269) (12,005,863)
Other operating expenses (1,105,792) (36,349) 154,757
-------------- -------------- -------------
Loss before tax benefit, cumulative effect
of accounting change and extraordinary
item (1,055,253) (11,163,952) (8,617,203)
Income tax benefit 0 5,505,896 4,713,952
-------------- -------------- -------------
(1,055,253) (5,658,056) (3,903,251)
Equity in earnings of subsidiary (40,388,100) 9,179,877 50,930,401
-------------- -------------- -------------
Net (loss) income before cumulative effect (41,443,353) 3,521,821 47,027,150
of accounting change and extraordinary loss
Cumulative effect of accounting change, net of tax 695,278 0 0
Extraordinary loss, net of tax 0 843,000 2,773,690
-------------- -------------- -------------
Net (loss) income $ (42,138,631) $ 2,678,821 $ 44,253,460
============== ============== =============
CASH FLOW STATEMENT
Cash from operating activities:
Net (loss) income $ (42,138,631) $ 2,678,821 $ 44,253,460
Adjustments to reconcile net income to cash provided by
operating activities:
Equity in earnings of subsidiaries 41,083,378 (9,179,877) (50,930,401)
Cash dividends from subsidiaries 36,235,000 57,388,000 0
Contribution of capital to subsidiaries (35,000,000) (49,745,731) 0
Investment income receivable 0 377,245 (377,245)
Loan from subsidiary (1,539,886) 0 0
Intercompany accounts 2,317,744 2,053,111 (2,314,302)
Deferred income taxes 6,741,946 (1,580,912) (4,165,649)
Income tax recoverable 10,402,439 (1,907,459) (5,074,049)
Other (3,174,770) (4,716,339) 4,025,593
-------------- -------------- -------------
Net cash provided (used) by operating activities 14,927,220 (4,633,141) (14,582,593)
-------------- -------------- -------------
Cash flow from investing activities:
Investment in equity of PXRE Trading Corporation 0 3,444,305 0
Net change in short-term investments 1,012,031 4,114,797 13,372,334
Cost of fixed maturity investments 0 0 (32,981,953)
Equity securities redomesticated/disposed 3,069,554
Cost of equity securities acquired 0 (45,688) (3,023,866)
Fixed maturity investments matured/disposed 0 18,482,376 16,428,816
Net change in other invested assets 5,490,561 9,193,726 (14,684,287)
-------------- -------------- -------------
Net cash provided (used) by investing activities 9,572,146 35,189,516 (20,888,956)
-------------- -------------- -------------
Cash flow from financing activities:
Proceeds from issuance of common stock 505,796 233,032 855,570
Cash dividends paid to common stockholders (7,629,925) (13,585,333) (12,209,262)
Repurchase of debt 0 (27,689,000) (45,221,683)
Proceeds from issuance of debt 0 50,000,000 0
Cost of treasury stock (17,215,460) (39,728,564) (7,464,583)
Issuance of minority interest in consolidated subsidiary 0 0 99,509,000
-------------- -------------- -------------
Net cash (used) provided by financing activities (24,339,589) (30,769,865) 35,469,042
-------------- -------------- -------------
Net change in cash 159,777 (213,490) (2,507)
Cash, beginning of period 232,157 445,647 448,154
-------------- -------------- -------------
Cash, end of period $ 391,934 $ 232,157 $ 445,647
============== ============== =============
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
Schedule III
PXRE CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
Column A Column B Column C Column D Column E Column F Column G Column H
-------- -------- -------- -------- -------- -------- -------- --------
Future
policy
benefits, Other
losses, policy Benefits,
Segment- Deferred claims and claims and claims,
property policy loss Unearned benefits Net losses and
and acquisition expenses premiums payable Premium investment settlement
casualty cost (caption (caption (caption revenue income expenses
insurance (caption 7) 13-a-1) 13-a-2) 13-a-3) (caption 1) (caption 2) (caption 4)
--------- ----------- ------- ------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 North American $ 49,044,000 $ 91,589,000
International 94,418,000 99,237,000
Corporate Wide (14,958,000) (31,567,000)
-----------------------------------------------------------------------------------------------------
Total $ 7,810,000 $261,551,000 $42,219,000 $ 0 $128,504,000 $45,185,000 $159,259,000
1998 North American $ 16,643,000 $ 36,531,000
International 78,612,000 32,903,000
Corporate Wide (2,869,000) (11,640,000)
-----------------------------------------------------------------------------------------------------
Total $ 4,123,000 $102,592,000 $20,541,000 $ 0 $ 92,386,000 $19,612,000 $ 57,794,000
1997 North American $ 27,527,000 $ 8,450,000
International 64,241,000 4,684,000
Corporate Wide (353,000) (643,000)
-----------------------------------------------------------------------------------------------------
Total $ 2,966,000 $ 57,189,000 $18,485,000 $ 0 $ 91,415,000 $31,191,000 $ 12,491,000
</TABLE>
<TABLE>
<CAPTION>
Column I Column J Column K
-------- -------- --------
Amortiza-
tion of
deferred
policy Other
acquisition operating Premiums
costs expense written
----- ------- -------
<S> <C> <C> <C>
1999 North American $ 7,629,000 $ 51,925,000
International 15,899,000 105,803,000
Corporate Wide 4,174,000 (18,883,000)
--------------------------------------------------
Total $ 27,702,000 $28,525,000 $138,845,000
1998 North American $ 6,697,000 $ 15,499,000
International 12,213,000 77,133,000
Corporate Wide 1,653,000 (3,938,000)
--------------------------------------------------
Total $ 20,563,000 $19,313,000 $ 88,694,000
1997 North American $ 10,968,000 $ 26,572,000
International 7,279,000 73,892,000
Corporate Wide 891,000 (409,000)
---------------------------------------------------
Total $ 19,138,000 $15,716,000 $100,055,000
</TABLE>
<TABLE>
<CAPTION>
Schedule VI
PXRE CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
Column A Column B Column C Column D Column E Column F Column G
-------- -------- -------- -------- -------- -------- --------
Reserves for
unpaid
Deferred claims Discount,
Affiliation policy and claim if any Net
with acquisition adjustment deducted in Unearned Earned investment
registrant costs expenses Column C premiums premiums income
---------- ----- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 Consolidated $ 7,810,000 $ 261,551,000 $ 0 $42,219,000 $ 128,503,000 $ 45,185,000
1998 Consolidated 4,123,000 102,592,000 0 20,541,000 92,386,000 19,612,000
1997 Property 2,966,000 57,189,000 0 18,485,000 91,415,000 31,191,000
</TABLE>
<TABLE>
<CAPTION>
Column H Column I Column J Column K
-------- -------- -------- --------
Claims and Claim Amortiza-
adjustment expenses tion of Paid
incurred related to deferred claims
(1) (2) policy and claim
Current Prior acquisi- adjustment Premiums
year years tion costs expenses written
---- ----- ---------- -------- -------
<C> <C> <C> <C> <C> <C>
1999 $ 139,478,000 $ 19,781,000 $27,702,000 $ 66,308,000 $ 138,845,000
1998 58,326,000 (532,000) 20,563,000 33,007,000 88,694,000
1997 16,408,000 (3,917,000) 19,138,000 23,379,000 100,055,000
</TABLE>
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of PXRE Group Ltd. (Successor Registrant of PXRE Corporation):
Our audits of the consolidated financial statements referred to in our report
dated February 7, 2000 appearing on page F-1 of PXRE Group Ltd.'s (Successor
Registrant of PXRE Corporation) Annual Report on Form 10-K for the year ended
December 31, 1999, also included an audit of the Financial Statement Schedules
listed in Item 14(a) of this Form 10-K. In our opinion, these Financial
Statement Schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PRICEWATERHOUSECOOPERS
Hamilton, Bermuda
February 7, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-4 (No. 333-85451) of
PXRE Group Ltd. (Successor Registrant of PXRE Corporation) of our report
dated February 7, 2000 appearing on page F-1 of this Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedules, which appears above.
PRICEWATERHOUSECOOPERS
Hamilton, Bermuda
March 29, 2000
F-33
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
<S> <C> <C>
3.1 Memorandum of Association and Bye-laws of PXRE Group Ltd.
(Exhibits 3.1 and 3.2, respectively, to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No.
333-85451), and incorporated herein by reference).
4.1 Form of Specimen Common Share certificate, par value $1.00
per share, of PXRE (Exhibit 4.1 to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No.
333-85451), and incorporated herein by reference).
4.2 Credit Agreement dated as of December 30, 1998 among PXRE
Corporation, the banks and financial institutions listed on
the signature pages thereto or that subsequently become
parties thereto (collectively, the "Lenders") and First
Union National Bank ("First Union") as agent for the
Lenders (Exhibit 4.8 to PXRE Corporation's Form 8-K dated
January 8, 1999 (File No. 0-15428), and incorporated herein
by reference).
4.3 First Amendment and Waiver to Credit Agreement dated as of
May 18, 1999 among PXRE Corporation, the Lenders and First
Union, Joinder Agreements dated May 18, 1999 by Fleet
National Bank and Credit Lyonnais New York Branch,
Assignments and Acceptances dated May 18, 1999 between
First Union and Fleet National Bank and between First Union
and The First National Bank of Chicago, respectively
(Exhibit 4.9 to PXRE Corporation's Form 10-Q for the
quarterly period ended June 30, 1999 (File No. 0-15428),
and incorporated herein by reference).
4.4 Second Amendment and Waiver to Credit Agreement dated as of
June 25, 1999 among PXRE Corporation, the Lenders and First
Union, (Exhibit 4.9 to PXRE Corporation's Form 10-Q for the
quarterly period ended June 30, 1999 (File No. 0-15428),
and incorporated herein by reference).
4.5 First Amended and Restated Credit Agreement among PXRE
Corporation, as borrower, PXRE Group Ltd. and PXRE
(Barbados) Ltd., as guarantors, the Lenders named therein
and First Union as agent (Exhibit 4.5 to PXRE's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 (File No. 1-15259) and incorporated
herein by reference).
4.6 Indenture, dated as of January 29, 1997, between PXRE
Corporation and First Union National Bank, as Trustee
(Exhibit 4.3 to PXRE Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (File No.
0-15428), and incorporated herein by reference).
4.7 First Supplemental Indenture, dated as of January 29, 1997,
between PXRE Corporation and First Union National Bank, as
Trustee, in respect of PXRE Corporation's 8.85% Junior
Subordinated Deferrable Interest Debentures due 2027
(Exhibit 4.4 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1996
(File No. 0-15428), and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
<S> <C> <C>
4.8 Amended and Restated Declaration of Trust of PXRE Capital
Trust I, dated as of January 29, 1997, among PXRE
Corporation, as sponsor, the Administrators thereof, First
Union Bank of Delaware, as Delaware Trustee, First Union
National Bank, as Institutional Trustee, and the holders
from time to time of undivided interests in the assets of
PXRE Capital Trust I (Exhibit 4.5 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated
herein by reference).
4.9 Capital Securities Guarantee Agreement, dated as of January
29, 1997, between PXRE Corporation and First Union National
Bank, as Guarantee Trustee (Exhibit 4.6 to the Annual
Report on Form 10-K of PXRE Corporation for the fiscal year
ended December 31, 1996 (File No.0-15428), and incorporated
herein by reference).
4.10 Common Securities Guarantee Agreement, dated as of January
29, 1997, executed by PXRE Corporation (Exhibit 4.7 to the
Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
4.11 Registration Rights Agreement, dated January 29, 1997,
among PXRE Corporation, PXRE Capital Trust I and Salomon
Brothers Inc, as Representative of the Initial Purchasers
(Exhibit 10.1 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1996
(File No. 0-15428), and incorporated herein by reference).
4.12 Purchase Agreement among PXRE Corporation, PXRE Capital
Trust I and Salomon Brothers Inc, as Representative of the
Initial Purchasers, dated January 24, 1997 (Exhibit 10.2 to
the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
<S> <C> <C>
10.1 PXRE Reinsurance Company Management Agreement among PXRE
Reinsurance Company and, among others, Merrimack Mutual
Fire Insurance Company ("Merrimack"), Pennsylvania
Lumbermens Mutual Insurance Company ("Pennsylvania
Lumbermens"), and NRMA Insurance Limited ("NRMA") (Exhibit
10.1 to the Annual Report on Form 10-K of PXRE Corporation
for the fiscal year ended December 31, 1991 (File No.
0-15428), and incorporated herein by reference); letter
dated November 28, 1990 from Pennsylvania Lumbermens
confirming reduced participation (Exhibit 10.7 to PXRE
Corporation's Form S-2 Registration Statement dated
February 21, 1992, as amended by Amendment No. 1 thereto
dated April 1, 1992 and by Amendment No. 2 thereto dated
April 13, 1992 and by Amendment No. 3 thereto dated April
23, 1992 (File No. 33-45893), and incorporated herein by
reference); cover notes respecting January 1997 renewals by
Merrimack, Pennsylvania Lumbermens and NRMA and cover note
respecting participation commencing January 1, 1997 by
Auto-Owners Insurance Company ("Auto-Owners") (Exhibit 10.3
to the Annual Report on Form 10-K of PXRE Corporation for
the fiscal year ended December 31, 1996 (File No. 0-15428),
and incorporated herein by reference); cover notes
respecting January 1999 renewals by NRMA, Pennsylvania
Lumbermens, Auto-Owners and The Andover Companies (a
Merrimack company) (Exhibit 10.3 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1998 (File No. 0-15428), and incorporated
herein by reference); and cover note respecting
participation commencing January 1, 1999 by the Kyoei
Mutual Fire & Marine Insurance Company.*
10.2 Quota Share Retrocessional Agreement between PXRE
Reinsurance Company and Trenwick America Reinsurance
Corporation ("Trenwick Group") (Exhibit 10.21 to the Annual
Report on Form 10-K of PXRE Corporation for the fiscal year
ended December 31, 1993 (File No. 0-15428), and
incorporated herein by reference); cover note respecting
January 1999 renewal by Trenwick Group (Exhibit 10.17 to
the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1998 (File No. 0-15428), and
incorporated herein by reference).
10.3 Undertaking dated September 1, 1998 between PXRE
Reinsurance Company and Select Reinsurance Ltd., Amended
and Restated Facultative Obligatory Quota Share
Retrocessional Agreement between PXRE Reinsurance Company
and Select Reinsurance Ltd. and Variable Quota Share
Retrocessional Agreement between PXRE Reinsurance Company
and Select Reinsurance Ltd. (Exhibit 10.36 to the Annual
Report on Form 10-K of PXRE Corporation for the fiscal year
ended December 31, 1998 (File No. 0-15428), and
incorporated herein by reference); letter dated November 1,
1999 regarding Undertaking extension; and endorsement
regarding Select Reinsurance Ltd. participation for 2000.*
3
</TABLE>
- -------------------------
* Filed herewith
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
<S> <C> <C>
10.4 Tax Settlement Agreement dated June 21, 1991 between PXRE
Corporation, PXRE Reinsurance Company and PM Holdings, Inc.
(Exhibit 10.2 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1991
(File No. 0-15428), and incorporated herein by reference).
10.5 Investment Advisory Agreement between PXRE Reinsurance
Company and Phoenix Investment Counsel, Inc., dated
February 25, 1987 and effective as of January 1, 1987
(Exhibit 10.10 to Amendment No. 1 dated February 19, 1987
to PXRE Corporation's Form S-1 Registration Statement dated
August 29, 1986, as subsequently amended by Amendment No. 2
thereto dated March 25, 1987 (File No. 33-8406), and
incorporated herein by reference); Amendment to Investment
Advisory Agreement between PXRE Reinsurance Company and
Phoenix Investment Counsel, Inc., effective retroactively
as of January 1, 1987 (Exhibit 10.3 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1991 (File No. 0-15428), and incorporated
herein by reference); Amendment No. 2 to Investment
Advisory Agreement between PXRE Reinsurance Company and
Phoenix Investment Counsel, Inc., effective as of November
1, 1989 (Exhibit 10.4 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31,
1991 (File No. 0-15428), and incorporated herein by
reference); Amendment No. 3 to Investment Advisory
Agreement between PXRE Reinsurance Company and Phoenix
Investment Counsel, Inc. effective June 1, 1995 (Exhibit
10.26 to the Annual Report on Form 10-K of PXRE Corporation
for the fiscal year ended December 31, 1995 (File No.
0-15428), and incorporated herein by reference).
10.6 Investment Management Agreement, effective January 29, 1997
between PXRE Corporation and Phoenix Investment Counsel,
Inc. (Exhibit 10.29 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31,
1996 (File No. 0-15428), and incorporated herein by
reference).
10.7 Amended and Restated Investment Advisory Agreement between
Transnational Reinsurance Company and Phoenix Investment
Counsel, Inc., dated November 8, 1993 (Exhibit 10.4 to
Transnational Re Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 (File No.
0-22376) and incorporated herein by reference), as amended
by the Amendment thereto, effective June 1, 1995 (Exhibit
10.11 to Transnational Re Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (File
No. 0-22376) and incorporated herein by reference).
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
<S> <C> <C>
10.8 Investment Management Agreement effective October 15, 1999
between PXRE Group Ltd. and Phoenix Investment Counsel,
Inc.*
10.9 Investment Management Agreement effective October 15, 1999
between PXRE Reinsurance Ltd. and Phoenix Investment
Counsel, Inc.*
10.10 Investment Advisory Services Agreement between PXRE
Reinsurance Ltd. and Mariner Investment Group, Inc. dated
October 1, 1999.*
10.11 Amended and Restated Agreement Concerning Filing of
Consolidated Federal Income Tax Returns dated as of August
23, 1993 between PXRE Corporation and PXRE Reinsurance
Company (Exhibit 10.8 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31,
1993 (File No. 0-15428), and incorporated herein by
reference); Addendum No. 2 dated November 10, 1994 to the
PXRE Corporation Amended and Restated Agreement Concerning
Filing of Consolidated Federal Income Tax Returns (Exhibit
10.22 to the Annual Report on Form 10-K of PXRE Corporation
for the fiscal year ended December 31, 1994 (File No.
0-15428), and incorporated herein by reference); and
Addendum No. 3 dated as of December 11, 1996 to the PXRE
Corporation Amended and Restated Agreement Concerning
Filing of Consolidated Federal Income Tax Returns (Exhibit
10.22 to the Annual Report on Form 10-K of PXRE Corporation
for the fiscal year ended December 31, 1996 (File No.
0-15428), and incorporated herein by reference).
10.12 Employee Stock Purchase Plan, as amended (Appendix C to
PXRE's Proxy Statement for the 2000 annual general meeting
of shareholders, and incorporated herein by reference).(M)
10.13 Executive Severance Plan (Exhibit 10.10 to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No.
333-85451) and incorporated herein by reference).(M)
10.14 1988 Stock Option Plan, as amended (Exhibit A to the first
Prospectus forming part of PXRE's Form S-8 and S-3
Registration Statement dated June 21, 1990 (File No.
33-35521), and incorporated herein by reference).(M)
10.15 Restated Employee Annual Incentive Bonus Plan, as amended
(Appendix A to PXRE's Proxy Statement for the 2000 annual
general meeting of shareholders, and incorporated herein by
reference).(M)
</TABLE>
- -------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
5
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
<S> <C> <C>
10.16 1992 Officer Incentive Plan, as amended (Appendix B to
PXRE's Proxy Statement for the 2000 annual general meeting
of shareholders, and incorporated herein by reference).(M)
10.17 Director Stock Plan (Appendix D to PXRE's Proxy Statement
for the 2000 annual general meeting of shareholders, and
incorporated herein by reference).(M)
10.18 Director Equity and Deferred Compensation Plan (Appendix E
to PXRE's Proxy Statement for the 2000 annual general
meeting of shareholders, and incorporated herein by
reference).(M)
10.19 Non-Employee Director Deferred Stock Plan (Appendix A to
PXRE Corporation's Proxy Statement dated April 12, 1991,
and incorporated herein by reference).(M)
10.20 Management Agreement dated as of November 8, 1993 among
PXRE Reinsurance Company, Transnational Re Corporation and
Transnational Reinsurance Company (Exhibit 10.22 to the
Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1993 (File No. 0-15428), and
incorporated herein by reference), as amended by Amendment
No. 1 thereto, dated December 1, 1994 (Exhibit 10.21 to the
Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1994 (File No. 0-15428), and
incorporated herein by reference).
10.21 Agreement and Plan of Merger dated as of August 22, 1996
between PXRE Corporation and Transnational Re Corporation,
as amended by Amendment No. 1 dated as of September 27,
1996 and Amendment No. 2 dated as of October 24, 1996
(Annex A to PXRE Corporation's Form S-4 Registration
Statement dated October 30, 1996 (File No. 333-15087), and
incorporated herein by reference).
10.22 Excess of Loss Reinsurance Agreement, effective as of
January 1, 1998, between PXRE Reinsurance Company and
Transnational Insurance Company.*
10.23 Reinsurance Pooling Agreement, effective as of January 1,
1999, between PXRE Reinsurance Company and Transnational
Insurance Company. (Exhibit 10.21 to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No.
333-85451), and incorporated herein by reference).
</TABLE>
- -------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
6
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
<S> <C> <C>
10.24 Agreement and Plan of Merger dated as of July 7, 1999 among
PXRE Corporation, PXRE Group Ltd. and PXRE Merger Corp.
(Annex A to PXRE's Form S-4 Registration Statement dated
August 18, 1999 (File No. 333-85451), and incorporated
herein by reference).
10.25 Facultative Obligatory Quota Share Retrocessional Agreement
effective October 1, 1999 between PXRE Reinsurance Company
and PXRE Reinsurance Ltd. and Aggregate Excess of Loss
Agreement effective October 1, 1999 between PXRE
Reinsurance Ltd. and PXRE Reinsurance Company.*
10.26 Lease dated May 9, 1994 between Thornall Associates, L.P.
and PXRE Corporation (Exhibit 10.24 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1994 (File No. 0-15428), and incorporated
herein by reference) and Lease dated November 1, 1999
between Thornall Associates, L.P. and PXRE Corporation.*
10.27 Lloyd's Deposit Trust Deed (Third Party Deposit) dated
November 29, 1996 between PXRE Limited and PXRE Reinsurance
Company (Exhibit 10.32 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31,
1997 (File No. 0-15428), and incorporated herein by
reference).
10.28 Letter of Credit dated November 22, 1996 issued by The
Chase Manhattan Bank by order of PXRE Reinsurance Company
for the benefit of Lloyd's (Exhibit 10.33 to the Annual
Report on Form 10-K of PXRE Corporation for the fiscal year
ended December 31, 1997 (File No. 0-15428), and
incorporated herein by reference).
10.29 Lloyd's Security Trust Deed (Letter of Credit and Bank
Guarantee) dated November 29, 1997 between PXRE Limited and
Lloyd's (Exhibit 10.34 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31,
1997 (File No. 0-15428), and incorporated herein by
reference).
10.30 Operating Agreement of Cat Bond Investors, effective as of
June 9, 1997 among Cat Bond Investors, Phoenix Home Life
and PXRE Corporation (Exhibit 10.35 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1997 (File No. 0-15428), and incorporated
herein by reference).
10.31 Employment Agreement dated July 16, 1998 between PXRE
Managing Agency Limited and Peter G. Butler (Exhibit 10.37
to the Annual Report on Form 10-K of PXRE Corporation for
the fiscal year ended December 31, 1998 (File No. 0-15428)
and incorporated herein by reference). (M)
</TABLE>
- -------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
7
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
<S> <C> <C>
10.32 Employment Agreement dated June 8, 1998 between PXRE
Corporation and Michael J. Toman (Exhibit 10.38 to the
Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1998 (File No. 0-15428)
and incorporated herein by reference). (M)
10.33 Employment Agreement dated April 14, 1999 between PXRE
Reinsurance Company and Jeffrey Mayer (Exhibit 10.39 to
PXRE Corporation's Form 10-Q for the quarterly period ended
June 30, 1999 (File No. 0-15428) and incorporated herein by
reference). (M)
10.34 Investment Advisory Services Agreement between PXRE
Corporation and Mariner Investment Group, Inc. dated March
14, 2000.*
11 Statement re computation of earnings per share.
12 Statement re computation of ratios.*
21 List of Subsidiaries. At December 31, 1999, PXRE had the
following subsidiaries: PXRE Reinsurance Ltd., a Bermuda
insurance company; PXRE (Barbados) Ltd., a Barbados
company; PXRE Corporation, a Delaware corporation; PXRE
Reinsurance Company, a Connecticut insurance company;
Transnational Insurance Company, a Connecticut insurance
company; PXRE Capital Trust I, a Delaware statutory
business trust; PXRE Limited., an English company (the sole
member of PG Butler Syndicate 1224 at Lloyd's); PXRE
Managing Agency Limited (the managing agency for PG Butler
Syndicate 1224 at Lloyd's); PXRE Trading Corporation, a
Delaware corporation; TREX Trading Corporation, a Delaware
corporation; PX/TX Associates, a Delaware general
partnership (of which PXRE Trading and TREX Trading are the
only partners); CAT Fund, L.P., a Delaware limited
partnership (of which PX/TX Associates is the sole general
partner and PXRE Trading and TREX Trading are the only
limited partners); Cat Bond Investors L.L.C. (of which PXRE
Delaware and Phoenix Home Life are the only members); PXRE
Solutions Inc., a Connecticut corporation; PXRE Direct
Underwriting Managers, Inc., a Connecticut corporation; and
PXRE Underwriting Managers, Inc., a Virginia corporation.
(See the discussion in this Form 10-K under the captions
"Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")
23 Consent of PricewaterhouseCoopers, independent accountants
to PXRE. (Included as part of Item 14(a)(2) of this Form
10-K.)
24 Powers of Attorney.*
27 Financial Data Schedule (electronic filing only).*
</TABLE>
- -------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
8
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
<S> <C> <C>
28 Information from reports furnished to state insurance
regulatory authorities.**
</TABLE>
- -------------------------
* Filed in paper under cover of Form SE.
9
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as...................... 'r'
The service mark symbol shall be expressed as.............................. 'sm'
The British pound sterling sign shall be expressed as...................... 'L'
<PAGE>
Cover Note No TG0000617 [LOGO] Aon Re Worldwide
Aon Re Japan
8 Devonshire Square
London EC2M 4PL
tel: 0171 623 5500
fax: 0171 621 1511
PXRE REINSURANCE COMPANY
399 THORNALL STREET
14TH FLOOR
EDISON
NEW JERSEY
08837
U.S.A. Date: 7th January 2000
COVER NOTE
REASSURED: PXRE REINSURANCE COMPANY
PERIOD: Continuous contract from 1st January, 2000, subject to 90
days written notice of cancellation prior to 31st December
any year. Covering new and renewal business.
TYPE: QUOTA SHARE TREATY.
CLASS: All business written by the Reassured.
TERRITORIAL SCOPE: As per original business written by Reassured.
TREATY DETAIL: Reassured to cede up to a maximum of $20,000,000 any one
programme for 100% on all business written and retained for
net account.
Hereon 0.7% Quota Share.
COMMISSION: As original plus 5% overrider on Gross Written Premium as
reimbursement for expenses.
PROFIT COMMISSION: 100% of underwriting profits after commissions, including
overrider. Reinsurers Management Expenses $100,000.
LOSS CORRIDOR: Reassured to retain all losses in excess of 90% Combined
Ratio.
ACCOUNTS: Quarterly.
Page 1 of 3
Please examine the terms, conditions and security shown on this Cover Note and
advise us immediately if any of these are not in accordance with your
requirements.
- --------------------------------------------------------------------------------
Aon Group Limited
Registered Office: 8 Devonshire Square London EC2M 4PL
Registered in London No. 210725 o VAT Registration No. 480 8401 48
LLOYD's BROKER
<PAGE>
Aon Re Worldwide [LOGO] Continuation of Cover Note No. TG0000617
FUNDS WITHHELD: All cash balances in excess of $100,000 (in the aggregate
any one year).
CASH LOSS: Special Cash request for individual losses and/or
catastrophe losses above $250,000 for 100%. (Waived for
Kyoei's participation).
GENERAL CONDITIONS: Special Termination Clause as per wording.
Access to Records Clause.
Errors and Omissions Clause.
Insolvency Clause.
Arbitration Clause.
Offset Clause.
WORDING: To be agreed.
INFORMATION: 1999 Revised Estimated Premium Income - $128,756,000 (for
100%).
2000 Estimated Premium Income - $152,267,000 (for 100%).
ORDER HEREON: 100% of 0.7% Quota Share.
Reinsured With:
100.0000% THE KYOEI MUTUAL FIRE AND MARINE INSURANCE COMPANY TOKYO, JAPAN
---------
100,0000%
---------
Page 2 of 3
<PAGE>
Aon Re Worldwide [LOGO] Continuation of Cover Note No. TG0000617
Statement Of Connected Interests
Aon Corporation is the ultimate parent company of Aon Group Limited. Aon
Corporation has, through its subsidiaries, made minority investments in certain
Lloyd's syndicates which may be participants in this placement. These
investments are subject to strict Lloyd's regulations prohibiting any influence
upon the business conduct of such syndicates.
For and on behalf of
AON GROUP LIMITED
/s/ David Ambrose /s/ Philip Rees
Director Director
CLARKSON BAIN JAPAN CLARKSON BAIN JAPAN
Page 3 of 3
<PAGE>
[LOGO] The Corner House, 20 Parliament Street,
4th Floor, Hamilton HM 12, Bermuda
Tel: (441) 296-8453 Fax: (441) 296-8459
Mailing Address:
Suite #794 48 Par-La-Ville Road,
SELECT REINSURANCE LTD. Hamilton HM 11, Bermuda
November 1, 1999
Mr. Gerald Radke
PXRE Corporation
399 Thornall Street - 14 Floor
Edison, New Jersey 8837
U.S.A.
Tel. 1-732-906-6700
Dear Jerry:
This will confirm our agreement with respect to the following matters:
1. In reference to PXRE's letter dated September 1, 1998 concerning the
"20% undertaking", this agreement has been extended by one year to
now end in 2003. PXRE Reinsurance and its affiliates will use
reasonable efforts to offer to Select Re business with aggregate
premiums of not less than 20% of Select Re's shareholders' equity
derived from Class B, C, D, E and F common shares (at December 31,
1998 - $106.2 million).
2. Effective June 30, 1999 PXRE will cancel the Security Agreement
between PXRE and Select Re.
<PAGE>
PXRE Agreement
November 1, 1999
Page 2
If the foregoing correctly reflects our agreement, please sign and return to
the undersigned the enclosed copy of this letter.
Sincerely,
Select Reinsurance Ltd.
By /s/ Jeffrey L. Radke
---------------------------
Jeffrey L. Radke
President
Accepted and Agreed:
PXRE Reinsurance Company
By /s/ Gerald L. Radke
---------------------------
Gerald L. Radke
President
<PAGE>
ENDORSEMENT
TO
FACULTATIVE OBLIGATORY RETROCESSIONAL AGREEMENT
(hereinafter referred to as "Agreement")
between
PXRE REINSURANCE COMPANY
(hereinafter referred to as the "Company")
and
SELECT REINSURANCE COMPANY
(hereinafter referred to as the "Reinsurer")
It is understood and agreed that effective January 1, 2000, the participation of
the Reinsurer is amended to 15.00%.
Under terms of the Agreement, the Reinsurer agrees to assume severally and not
jointly with other participants a 15.00% share (being $3,000,000 per program) of
the liability described in the attached Agreement, and as consideration of the
above, the Reinsurer shall receive 15.00% of the premium named therein for
cession made on or after 12:01 a.m., January 1, 2000, local time, for business
incepting or renewing after that date.
Signed in Hamilton Branch this 31st day of January, 2000.
SELECT REINSURANCE LTD.
BY: /s/ Robert P. Myron
--------------------------
TITLE: Vice President
And in Edison, New Jersey this 1st day of February, 2000.
PXRE REINSURANCE COMPANY
PXRE REINSURANCE COMPANY
BY: /s/ Gordon Forsyth III
--------------------------
TITLE: Gordon Forsyth III
Executive Vice President
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
Witnesseth this AGREEMENT, effective October 15, 1999 by and between the PXRE
GROUP LTD. (the "Client") and PHOENIX INVESTMENT COUNSEL, INC (the "Manager") a
corporation organized pursuant to the laws of The Commonwealth of Massachusetts,
with its home office at 56 Prospect Street, Hartford, Connecticut.
In consideration of the mutual covenants contained herein, the parties hereto
agree as follows:
1. APPOINTMENT OF MANAGER
Client hereby engages the Manager and delegates to the Manager the power to
manage (including the power to acquire or dispose of), in accordance with the
terms and conditions of this Agreement, the assets of the Account. The "Account"
shall mean the assets of the Client which are acceptable to the Manager and
which by notice given to the Manager are placed in the Account, and the
investments and reinvestments of, and all income earned by, or distributions
received with respect to, any assets in the Account, subject to the provisions
of paragraph 3 of this Agreement.
Client agrees to provide Manager with written notice of additions to, and
withdrawals from, the Account.
2. ACCEPTANCE BY MANAGER
The Manager hereby acknowledges and agrees to the engagement provided in
paragraph 1 hereof, and acknowledges and warrants that it is duly registered
with the Securities and Exchange Commission as an investment adviser under the
Investment Advisers Act of 1940.
3. INVESTMENT DIRECTION
The Client's fundamental investment policies and any applicable investment
guidelines are set forth in Part I of Schedule A attached hereto and made a part
hereof. The Client hereby directs the Manager to select investments for the
Account in compliance with such policies and in accordance with such guidelines.
All interest payments and other distributions with respect to any security or
other property in the Account shall be reinvested, unless Client provides
written notice to the contrary to Manager.
Upon receiving written notice from the Client that a specified cash amount is
required from the Account, the Manager shall liquidate such portion of the
Account as may be necessary to provide the specified cash amount. The Manager
shall in its sole discretion select the assets of the Account to be liquidated
in such event, provided that the investment guidelines set forth in Schedule A
shall be complied with to the extent possible after giving effect to such
liquidation. The directions contained herein may be modified at any time by the
Client by notice in writing to the Manager.
<PAGE>
4. CUSTODY OF SECURITIES
The Client will establish and maintain a custody account with a custodian
("Custodian") acceptable to the Manager for all assets in the Account. The
Client agrees to give the Manager at least thirty (30) days' written notice of
any change of Custodian.
5. MANAGER'S AUTHORITY
Subject to the provisions of paragraph 3 and Schedule A of this Agreement, the
Manager is authorized by the Client to invest, sell and reinvest the assets of
the Account as it deems appropriate. The Manager is not authorized to take
physical possession of the assets of the Account; and the Custodian shall have
sole responsibility for holding and safekeeping the assets. The Custodian shall
make settlement of purchases and sales of such assets upon orders placed by the
Manager pursuant to the Custodian's established operating procedures. The
Manager shall promptly notify the Custodian in writing of any purchase or sale
made for the Account.
The Manager shall select brokers and dealers for any purchase or sale of assets
of the Account. The Manager may, in the allocation of portfolio brokerage
business and the payment of brokerage commissions, consider the brokerage and
research services furnished the Manager by brokers and dealers, in accordance
with the provisions of Section 28(e) of the Securities Exchange Act of 1934, as
amended.
The Manager will not be required to take any action, or render any advice, with
respect to the voting of any of the securities in the Account and Client agrees
to be solely responsible for the voting of any such securities and for any
required recordkeeping with respect thereto.
6. DOCUMENTATION TO BE FURNISHED
The Manager shall keep accurate and detailed accounts of any investments,
receipts and disbursements, and other transactions hereunder, and all such
accounts and the books and records relating thereto shall be open to inspection
at all reasonable times by the Client and by any other person entitled by law to
inspect such records.
Upon written request, the Manager will make available to the Client any
information in the Manager's possession which may be required by the Client in
fulfilling any reporting, disclosure, or recordkeeping obligation imposed on the
Client by applicable law.
7. APPRAISAL; DETERMINATIONS OF VALUE
The Manager will provide the Client with an appraisal of the Account as of the
last day of each calendar quarter on which the New York Stock Exchange is open
(the "Appraisal Date") during the term of this Agreement. Such appraisal shall
include a written statement of each individual asset held in the Account on the
Appraisal Date.
8. COMPENSATION TO MANAGER
In consideration of the services to be performed by Manager pursuant to the
terms of this Contract, the Client will pay to Manager compensation in
accordance with the attached Schedule A, Part II based upon
<PAGE>
the value of the funds, securities and other assets subject to this Contract, as
of the calendar quarter end, which compensation will be charged quarterly in
arrears directly to the Client. Securities and other assets will, for purpose of
determining compensation to Manager, be valued at market value or, in absence of
market value, at fair value as determined in good faith by Manager.
9. ASSIGNMENT
No assignment (as the term is defined in the Investment Adviser's Act of 1940)
of this Agreement shall be made by the Manager without the consent of the
Client.
10. RENEWAL AND TERMINATION
This contract may be terminated by either the Client or the Manager upon written
notice of such termination delivered to the other party at least 30 days prior
to the end of any quarterly period.
11. LIABILITY OF MANAGER
Client specifically acknowledges and agrees that except for loss resulting from
negligence, misfeasance, bad faith or reckless disregard on the part of the
Manager in performance of its duties hereunder, neither Manager or any of the
Manager's officers, directors, shareholders, agents or employees shall be liable
hereunder for any action taken or not taken in providing services hereunder.
12. OTHER AGREEMENTS AND OBLIGATIONS
It is understood that the Manager may have advisory or other contracts with
other persons, firms, or organizations (some of which may have investment
policies similar to those of the Account) and may have other interests and
businesses. In these connections the Manager may acquire information of a
confidential nature. The Client agrees that the Manager shall not be required to
provide investment advice or take any other action on behalf of the Account with
respect to any particular investment if such action by the Manager would involve
a violation of law. All information and advice furnished by either party to this
Agreement shall be treated as confidential and shall not be disclosed to third
parties except as required by law.
The Manager may act as investment adviser to other clients and may give advice,
and take action, with respect to any of those clients that may differ from the
advice given, or the timing or nature of action taken, with respect to the
Account. The Manager shall have no obligation to purchase or sell for Client, or
to recommend for purchase or sale by Client, any security that the Manager, its
principals, affiliates or employees may purchase for themselves or for any other
clients.
13. NOTICES
All notices and instructions with respect to any matters contemplated by this
Agreement shall be deemed duly given when delivered in writing to the addresses
below or when deposited by first-class mail addressed as follows:
<PAGE>
(a) To Client:
James F. Dore
PXRE Group Ltd.
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
b) To Manager:
Nancy Engberg, VP General Counsel
Phoenix Investment Counsel, Inc.
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115
14. AUTHORITY TO PERFORM
Each of the parties to this Agreement hereby represents that it is duly
authorized and empowered to execute, deliver, and perform this Agreement and the
transactions contemplated hereby, that such actions do not conflict with or
violate any provision of law or contract.
15. GOVERNING LAW
The laws of the State of Connecticut shall control all matters relating to this
Agreement and shall apply to the extent not preempted by Federal law.
16. MISCELLANEOUS
Client hereby acknowledges receipt of Adviser's brochure as required by Rule
204-3 under the Investment Advisers Act of 1940 prior to or on the date of the
execution of this Contract. If the Client has received said brochure less than
forty-eight hours prior to the execution of this Contract, the Client shall have
the option to terminate this Contract without penalty within five business days
after the date of execution; provided, however, that any investment action taken
by Adviser with respect to the Account prior to the effective date of such
termination shall be at the Client's risk.
This Agreement is the entire agreement of the parties with respect to management
of the assets in the Account and subject to the terms of paragraph 9, may not be
amended except by a writing signed by the parties.
This Agreement shall be effective as of the day and year first above written.
PXRE GROUP LTD.
Date: October 14, 1999
__________________________________
By: /s/ James F. Dore
________________________________
Title: Executive VP and CFO
_____________________________
WITNESS: /s/ F. Sedgwick Browne
_____________________________
<PAGE>
PHOENIX INVESTMENT COUNSEL, INC.
Title: Vice President
________________________________
By: James K. Salonia Date: November 1, 1999
________________________________ ________________________________
Attachment: Schedule A, Parts I and II
<PAGE>
SCHEDULE A, PART I
INVESTMENT OBJECTIVES AND GUIDELINES
ATTACHMENT
PXRE GROUP LTD.
STATEMENT OF INVESTMENT OBJECTIVES AND GUIDELINES
DATED 10-14-99
____________________
<PAGE>
Investment Policy
Scope: This policy would cover the investment portfolio of PXRE Reinsurance,
Ltd., PXRE Group Ltd. and PXRE (Barbados) Ltd.
Investment Limitations:
1. No more than 5% of opening admitted assets (or Bermuda equivalent) in any
single issuer.
a. except, where a fund or limited partnership consisting of a
diversified portfolio of stocks, bonds, equities or other instruments;
a maximum of up to 10% in such fund or limited partnership.
b. except, there shall be no limit on U.S. Treasury Securities or such
investments guaranteed by the U.S. government (i.e., FNMA, GNMA,
etc).
c. No more than 30% can be invested in securities of any country (other
than the United States) except where such investments are used to
match with liabilities denominated in the same currency.
2. No more than 80% of the portfolio shall be in equity or limited
partnership investments.
3. No more than 20% of the portfolio can be invested in below investment
grade bonds as defined as below Baa S&P or equivalent for other rating
agencies.
4. Exceptions can be made so long as the sum of all exceptions to the above
policy statements does not exceed 15% of opening assets.
5. No more than 25% of the investments should be in mortgage or asset backed
securities.
Other Limitations:
Short Term Investments -- All short term investments should be in instruments
which are A2/P2 or better.
<PAGE>
SCHEDULE A, PART II
INVESTMENT MANAGER COMPENSATION
The Manager shall be paid a fee as specified below by the Client as full
compensation for services rendered under the Investment Manager Agreement
effective October 15, 1999.
Upon presentation of an invoice by the Manager, after the close of each quarter,
the Client shall pay the Manager a management fee which shall be calculated on
the value of the assets of the Account and paid at one-fourth of the following
annual fee rate:
All Assets..................................................0.125%
subject to a minimum quarterly fee of $6,250.
For purposes of the calculation of the fee, the value of the securities
(including all cash and cash equivalents) in the Account shall be determined as
of the Appraisal Date at the end of each calendar quarter. If the Manager shall
serve for less than the whole of any calendar quarter, its compensation shall be
determined as provided above on the basis of the value of assets in the Account
on the date of termination and shall be payable on a pro rata basis for the
period of the calendar quarter for which it has served as Manager hereunder. In
the event funds are contributed to or withdrawn from the Account during the
calendar quarter, the amount of the management fee then due shall be prorated
proportionately.
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
Witnesseth this AGREEMENT, effective October 15, 1999 by and between the PXRE
REINSURANCE LTD. (the "Client") and PHOENIX INVESTMENT COUNSEL, INC (the
"Manager") a corporation organized pursuant to the laws of The Commonwealth of
Massachusetts, with its home office at 56 Prospect Street, Hartford,
Connecticut.
In consideration of the mutual covenants contained herein, the parties hereto
agree as follows:
1. APPOINTMENT OF MANAGER
Client hereby engages the Manager and delegates to the Manager the power to
manage (including the power to acquire or dispose of), in accordance with the
terms and conditions of this Agreement, the assets of the Account. The "Account"
shall mean the assets of the Client which are acceptable to the Manager and
which by notice given to the Manager are placed in the Account, and the
investments and reinvestments of, and all income earned by, or distributions
received with respect to, any assets in the Account, subject to the provisions
of paragraph 3 of this Agreement.
Client agrees to provide Manager with written notice of additions to, and
withdrawals from, the Account.
2. ACCEPTANCE BY MANAGER
The Manager hereby acknowledges and agrees to the engagement provided in
paragraph 1 hereof, and acknowledges and warrants that it is duly registered
with the Securities and Exchange Commission as an investment adviser under the
Investment Advisers Act of 1940.
3. INVESTMENT DIRECTION
The Client's fundamental investment policies and any applicable investment
guidelines are set forth in Part I of Schedule A attached hereto and made a part
hereof. The Client hereby directs the Manager to select investments for the
Account in compliance with such policies and in accordance with such guidelines.
All interest payments and other distributions with respect to any security or
other property in the Account shall be reinvested, unless Client provides
written notice to the contrary to Manager.
Upon receiving written notice from the Client that a specified cash amount is
required from the Account, the Manager shall liquidate such portion of the
Account as may be necessary to provide the specified cash amount. The Manager
shall in its sole discretion select the assets of the Account to be liquidated
in such event, provided that the investment guidelines set forth in Schedule A
shall be complied with to the extent possible after giving effect to such
liquidation. The directions contained herein may be modified at any time by the
Client by notice in writing to the Manager.
4. CUSTODY OF SECURITIES
The Client will establish and maintain a custody account with a custodian
("Custodian") acceptable to the Manager for all assets in the Account. The
Client agrees to give the Manager at least thirty (30) days' written notice of
any change of Custodian.
<PAGE>
5. MANAGER'S AUTHORITY
Subject to the provisions of paragraph 3 and Schedule A of this Agreement, the
Manager is authorized by the Client to invest, sell and reinvest the assets of
the Account as it deems appropriate. The Manager is not authorized to take
physical possession of the assets of the Account; and the Custodian shall have
sole responsibility for holding and safekeeping the assets. The Custodian shall
make settlement of purchases and sales of such assets upon orders placed by the
Manager pursuant to the Custodian's established operating procedures. The
Manager shall promptly notify the Custodian in writing of any purchase or sale
made for the Account.
The Manager shall select brokers and dealers for any purchase or sale of assets
of the Account. The Manager may, in the allocation of portfolio brokerage
business and the payment of brokerage commissions, consider the brokerage and
research services furnished the Manager by brokers and dealers, in accordance
with the provisions of Section 28(e) of the Securities Exchange Act of 1934, as
amended.
The Manager will not be required to take any action, or render any advice, with
respect to the voting of any of the securities in the Account and Client agrees
to be solely responsible for the voting of any such securities and for any
required recordkeeping with respect thereto.
6. DOCUMENTATION TO BE FURNISHED
The Manager shall keep accurate and detailed accounts of any investments,
receipts and disbursements, and other transactions hereunder, and all such
accounts and the books and records relating thereto shall be open to inspection
at all reasonable times by the Client and by any other person entitled by law to
inspect such records.
Upon written request, the Manager will make available to the Client any
information in the Manager's possession which may be required by the Client in
fulfilling any reporting, disclosure, or recordkeeping obligation imposed on the
Client by applicable law.
7. APPRAISAL; DETERMINATIONS OF VALUE
The Manager will provide the Client with an appraisal of the Account as of the
last day of each calendar quarter on which the New York Stock Exchange is open
(the "Appraisal Date") during the term of this Agreement. Such appraisal shall
include a written statement of each individual asset held in the Account on the
Appraisal Date.
8. COMPENSATION TO MANAGER
In consideration of the services to be performed by Manager pursuant to the
terms of this Contract, the Client will pay to Manager compensation in
accordance with the attached Schedule A, Part II based upon the value of the
funds, securities and other assets subject to this Contract, as of the calendar
quarter end, which compensation will be charged quarterly in arrears directly to
the Client. Securities and other assets will, for purpose of determining
compensation to Manager, be valued at market value or, in absence of market
value, at fair value as determined in good faith by Manager.
<PAGE>
9. ASSIGNMENT
No assignment (as the term is defined in the Investment Adviser's Act of 1940)
of this Agreement shall be made by the Manager without the consent of the
Client.
10. RENEWAL AND TERMINATION
This contract may be terminated by either the Client or the Manager upon written
notice of such termination delivered to the other party at least 30 days prior
to the end of any quarterly period.
11. LIABILITY OF MANAGER
Client specifically acknowledges and agrees that except for loss resulting from
negligence, misfeasance, bad faith or reckless disregard on the part of the
Manager in performance of its duties hereunder, neither Manager or any of the
Manager's officers, directors, shareholders, agents or employees shall be liable
hereunder for any action taken or not taken in providing services hereunder.
12. OTHER AGREEMENTS AND OBLIGATIONS
It is understood that the Manager may have advisory or other contracts with
other persons, firms, or organizations (some of which may have investment
policies similar to those of the Account) and may have other interests and
businesses. In these connections the Manager may acquire information of a
confidential nature. The Client agrees that the Manager shall not be required to
provide investment advice or take any other action on behalf of the Account with
respect to any particular investment if such action by the Manager would involve
a violation of law. All information and advice furnished by either party to this
Agreement shall be treated as confidential and shall not be disclosed to third
parties except as required by law.
The Manager may act as investment adviser to other clients and may give advice,
and take action, with respect to any of those clients that may differ from the
advice given, or the timing or nature of action taken, with respect to the
Account. The Manager shall have no obligation to purchase or sell for Client, or
to recommend for purchase or sale by Client, any security that the Manager, its
principals, affiliates or employees may purchase for themselves or for any other
clients.
13. NOTICES
All notices and instructions with respect to any matters contemplated by this
Agreement shall be deemed duly given when delivered in writing to the addresses
below or when deposited by first-class mail addressed as follows:
(a) To Client:
James F. Dore
PXRE Reinsurance Ltd.
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
<PAGE>
b) To Manager:
Nancy Engberg, VP General Counsel
Phoenix Investment Counsel, Inc.
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115
14. AUTHORITY TO PERFORM
Each of the parties to this Agreement hereby represents that it is duly
authorized and empowered to execute, deliver, and perform this Agreement and the
transactions contemplated hereby, that such actions do not conflict with or
violate any provision of law or contract.
15. GOVERNING LAW
The laws of the State of Connecticut shall control all matters relating to this
Agreement and shall apply to the extent not preempted by Federal law.
16. MISCELLANEOUS
Client hereby acknowledges receipt of Adviser's brochure as required by Rule
204-3 under the Investment Advisers Act of 1940 prior to or on the date of the
execution of this Contract. If the Client has received said brochure less than
forty-eight hours prior to the execution of this Contract, the Client shall have
the option to terminate this Contract without penalty within five business days
after the date of execution; provided, however, that any investment action taken
by Adviser with respect to the Account prior to the effective date of such
termination shall be at the Client's risk.
This Agreement is the entire agreement of the parties with respect to management
of the assets in the Account and subject to the terms of paragraph 9, may not be
amended except by a writing signed by the parties.
This Agreement shall be effective as of the day and year first above written.
PXRE REINSURANCE LTD. PHOENIX INVESTMENT COUNSEL, INC.
By: /s/ Gerald L. Radke By: James K. Salonia
_______________________________ _______________________________
Title: President Title: Vice President
___________________________ ____________________________
Date: October 14, 1999 Date: November 1, 1999
_____________________________ ____________________________
WITNESS /s/ F. Sedgwick Browne
Attachment: Schedule A, Parts I and II
<PAGE>
SCHEDULE A, PART I
INVESTMENT OBJECTIVES AND GUIDELINES
ATTACHMENT
PXRE REINSURANCE LTD.
STATEMENT OF INVESTMENT OBJECTIVES AND GUIDELINES
DATED 10-14-99
____________________
<PAGE>
Investment Policy
Scope: This policy would cover the investment portfolio of PXRE Reinsurance,
Ltd., PXRE Group Ltd. and PXRE (Barbados) Ltd.
Investment Limitations:
1. No more than 5% of opening admitted assets (or Bermuda equivalent) in any
single issuer.
a. except, where a fund or limited partnership consisting of a
diversified portfolio of stocks, bonds, equities or other instruments;
a maximum of up to 10% in such fund or limited partnership.
b. except, there shall be no limit on U.S. Treasury Securities or such
investments guaranteed by the U.S. government (i.e., FNMA, GNMA,
etc).
c. No more than 30% can be invested in securities of any country (other
than the United States) except where such investments are used to
match with liabilities denominated in the same currency.
2. No more than 80% of the portfolio shall be in equity or limited
partnership investments.
3. No more than 20% of the portfolio can be invested in below investment
grade bonds as defined as below Baa S&P or equivalent for other rating
agencies.
4. Exceptions can be made so long as the sum of all exceptions to the above
policy statements does not exceed 15% of opening assets.
5. No more than 25% of the investments should be in mortgage or asset backed
securities.
Other Limitations:
Short Term Investments -- All short term investments should be in instruments
which are A2/P2 or better.
<PAGE>
SCHEDULE A, PART II
INVESTMENT MANAGER COMPENSATION
The Manager shall be paid a fee as specified below by the Client as full
compensation for services rendered under the Investment Manager Agreement
effective October 15, 1999.
Upon presentation of an invoice by the Manager, after the close of each quarter,
the Client shall pay the Manager a management fee which shall be calculated on
the value of the assets of the Account and paid at one-fourth of the following
annual fee rate:
All Assets..................................................0.125%
subject to a minimum quarterly fee of $6,250.
For purposes of the calculation of the fee, the value of the securities
(including all cash and cash equivalents) in the Account shall be determined as
of the Appraisal Date at the end of each calendar quarter. If the Manager shall
serve for less than the whole of any calendar quarter, its compensation shall be
determined as provided above on the basis of the value of assets in the Account
on the date of termination and shall be payable on a pro rata basis for the
period of the calendar quarter for which it has served as Manager hereunder. In
the event funds are contributed to or withdrawn from the Account during the
calendar quarter, the amount of the management fee then due shall be prorated
proportionately.
<PAGE>
October 1, 1999
PXRE Reinsurance Ltd.
99 Front Street
Hamilton, Bermuda
Re: Investment Advisory Services
Dear Mr. Radke:
This letter will serve to confirm our agreement that Mariner Investment
Group, Inc. ("Mariner") will provide investment advisory, trade execution and
related services to PXRE Reinsurance Ltd. (the "Client") on the terms, and
subject to the conditions, set forth herein.
SCOPE OF RESPONSIBILITIES
Mariner will perform the services and have the authority set forth
herein with respect to the cash, securities and other investment assets of the
Client specified in writing by the Client and all proceeds thereof and additions
thereto (the "Account"). Mariner will supervise and direct the investment of the
Account in accordance with, and subject to, the investment guidelines provided
by the Client in writing (a copy of the initial guidelines being annexed as
Exhibit A), as the same may be amended, revised or replaced from time to time by
the Client (the "Investment Guidelines"); provided, however, that Mariner shall
not invest, or permit the investment of, the Account directly or indirectly in
any partnership or other "flow-through" entity without first having received a
written description of the policies and practices of such entity to prevent
investors in the entity from being treated as engaged in a trade or business in
the United States by virtue of the activities of the entity itself or
partnerships or other "flow-through" entities in which it invests, which
policies and practices have been accepted in writing by Client. Subject to the
foregoing, Mariner, as agent and attorney-in-fact with respect to the Account
may, when it deems appropriate, buy, sell, exchange, retain, reinvest or
otherwise trade in securities of the types specified in the Investment
Guidelines and place orders for the execution of such investment transactions
with or through such brokers, dealers or other persons as Mariner may select.
Mariner shall deliver, or shall cause to be delivered, to Client or to such
custodian as Client may direct in writing to Mariner, all assets in the Account,
as Client may direct from time to time, and Mariner shall not retain any assets
in
1
<PAGE>
the Account. Client may make any addition to or withdrawal from the Account
at any time and in any amount that Client determines, so long as Client promptly
notifies the Manager in writing of any addition to the Account and the amount of
the addition, and so long as Client makes no withdrawal (and such withdrawal
does not cause the Account or Mariner to be in violation of applicable law,
regulation or order of a competent authority, of Bermuda) from the Account
without first delivering to the Manager within a reasonable time prior to the
withdrawal, written notice of intended withdrawal and the amount of the
withdrawal. Mariner will comply with all legal requirements and rules of
securities exchanges applicable to its duties in connection with the execution
of transactions.
Mariner will provide or cause to be provided to the Client such
periodic reports concerning the status of the Account (including a valuation
thereof based upon such valuation method(s) agreed with Client) as the Client
may reasonably request. Mariner will provide to the Client on request, and not
less frequently than quarterly, a report of Account transactions effected by
Mariner since the date of the most recent such report. Mariner will preserve its
records relating to the Account for no less than six years and shall make such
records available for inspection at reasonable times during normal business
hours, upon the request of the Client, to the Client, its auditors or any
pertinent regulatory authority. Prior to discarding or destroying any such
records, Mariner will give the Client reasonable opportunity, at the Client's
expense, to review them and to take all or such portion of them as the Client
wishes to retain. All information and advice furnished by either party to the
other hereunder will be treated as confidential and will not be disclosed to
third parties except as provided in this paragraph or as required by law.
FEES
Client agrees to pay Mariner a fee, or defer such fee pursuant to an
arrangement agreed to in writing by both parties, payable or deferred quarterly
in advance, calculated, based on the valuation of the Account as at the end of
the previous quarter, using the fee schedule below for the assets under
management.
<TABLE>
<CAPTION>
Asset Class Annual fee %
<S> <C>
Traditional Equities .25%
Non-Mariner Hedge Funds 1.25%
Mariner Hedge Funds 0%
High Yield Public Debt .25%
Private Securities .50%
</TABLE>
The methodology for valuing the Account for fee calculation purposes shall be as
agreed in writing by Mariner and Client. If Mariner shall serve for less than
the whole of any calendar quarter, its compensation shall be payable on a pro
rata basis for the period of the calendar quarter for which it has served as
manager hereunder, and Mariner shall promptly reimburse Client accordingly in
respect of any advance payment.
2
<PAGE>
EXPENSES
Client shall reimburse Mariner for any reasonable investment-related
out-of-pocket costs and expenses incurred in monitoring the Account of a type
previously agreed in writing by the Client upon presentation of appropriate
supporting documentation.
INDEMNITY
Client shall indemnify and hold harmless Mariner, its directors,
officers, employees and agents ("Indemnified Parties"), individually and
collectively, against any losses (including financial results poorer than
expected by Client), claims, damages, liabilities or expenses, including
reasonable attorneys' fees (collectively, "Losses") to which Mariner may become
subject in so far as such Losses arise out of or are based upon any activities
undertaken by, or inaction of, Mariner as investment advisor, unless such Losses
arise out of the gross negligence, willful misfeasance or bad faith of the
Indemnified Parties.
Mariner shall give Client written notice as soon as practicable after
it becomes aware of any fact, condition or event which may give rise to Losses
for which indemnification hereunder may be sought. If any lawsuit or enforcement
action is filed against any Indemnified Parties which may give rise to any
indemnification Losses, written notice thereof shall be given to Client as
promptly as practicable (and in any event, within 10 days after the service of
the citation or summons); provided, that the failure to give such notice shall
not relieve Client from its indemnification obligations hereunder, except and
only to the extent that such failure increases the indemnified Losses. Client
shall be entitled, if it so elects, to take control of the defense and
investigation of any such lawsuit or action and to employ and engage attorneys
of its choice (and at its expense) to handle and defend the same. No settlement
relating to any Losses shall be made unless Mariner gives its written consent to
such settlement which consent shall not be unreasonably delayed or withheld.
STATUS OF INVESTMENT MANAGER
Mariner will for all purposes herein be deemed to be an independent
contractor and will, except as otherwise expressly provided or authorized by or
under this letter agreement, have no authority to act for or represent the
Client in any way or otherwise be deemed an agent of the Client.
ACTIVITIES OF INVESTMENT MANAGER
Mariner and its affiliates, may engage, simultaneously with the
investment management activities on behalf of the Account, in other businesses
and make investments for their own accounts, and may render services similar to
those described in this agreement for other individuals, companies, trusts or
persons, and shall not by reason of such engaging in other businesses, making
such investments or rendering of services for others be deemed to be acting in
conflict with the interest of the Account.
3
<PAGE>
TERM
This Agreement is effective from November 1, 1999 and may be terminated
upon ninety-(90) days written notice by Mariner, or upon thirty (30) days
written notice by Client, to the other or upon shorter notice upon the mutual
agreement of the parties; provided, however, Client may terminate this Agreement
without such advance notice if Client pays a termination fee determined as if
the Manager had continued to provide services under this Agreement for a period
of thirty (30) days after the termination date. Termination of this Agreement
for any reason shall not relieve the Manager of liability or responsibility
under this Agreement with respect to the period prior to the effectiveness of
the termination. This letter agreement will be governed by, and construed in
accordance with, the laws of the State of New York, (other than any conflict of
law rule which might result in the application of the law of any other
jurisdiction).
NOTIFICATION
All notices and other communications hereunder shall be in writing and
shall be deemed to have been given when delivered by hand against written
receipt; when confirmation of a fax or email sent during business hours of the
recipient is received by the sender; or upon the fifth day following mailing
which shall be by certified or registered mail, postage paid:
1. If to Mariner at: Mariner Investment Group, Inc.
65 East 55th Street, 9th Floor, NY, NY 10022
Fax number: 212 758 6680
Email: [email protected]
Attention: William J. Michaelcheck
2. If to Client at: PXRE Reinsurance Ltd.
Suite 231, 12 Church Street, Hamilton HM 11, Bermuda
Attention: Gerald L. Radke
ASSIGNMENT
Without the written consent of the other party, this Agreement may not
be assigned by either of the parties hereto; any such attempted assignment being
void.
AUTHORITY TO PERFORM
Each of the parties to this Agreement hereby represents that it is
duly authorized and empowered to execute, deliver and perform this Agreement and
the transactions contemplated hereby, that such actions do not conflict with or
violate any provision of law, regulation, or contract, deed of trust, agreement
or other instrument to which it is a party or by which it is bound or to which
it is subject and that no consent of any person or government regulatory agency
to such person's performing its obligations under this
4
<PAGE>
Agreement is required which has not been obtained, and that this Agreement is a
valid and binding obligation upon that party, enforceable in accordance with its
terms.
MISCELLANEOUS
This Agreement is the entire agreement of the parties with respect to
the management of the assets in the Account and may not be amended except in a
writing signed by the parties.
Please confirm your agreement with the terms set forth herein by
signing the enclosed copy of this letter where indicated below and returning it
to Mariner.
Very truly yours,
MARINER INVESTMENT GROUP, INC.
By /s/ William Michaelcheck
___________________________________
Title: Chairman
AGREED AND ACKNOWLEDGED,
IN HAMILTON, BERMUDA
PXRE Reinsurance Ltd.
By /s/ Gerald L. Radke
____________________________________
Title: President
5
<PAGE>
EXHIBIT A
Investment Policy
Scope: This policy would cover the investment portfolio of PXRE Reinsurance,
Ltd., PXRE Group Ltd. and PXRE (Barbados) Ltd.
Investment Limitations:
1. No more than 5% of opening admitted assets (or Bermuda equivalent) in any
single issuer.
a. except, where a fund or limited partnership consisting of a
diversified portfolio of stocks, bonds, equities or other instruments;
a maximum of up to 10% in such fund or limited partnership.
b. except, there shall be no limit on U.S. Treasury Securities or such
investments guaranteed by the U.S. government (i.e., FNMA, GNMA,
etc).
c. No more than 30% can be invested in securities of any country (other
than the United States) except where such investments are used to
match with liabilities denominated in the same currency.
2. No more than 80% of the portfolio shall be in equity or limited
partnership investments.
3. No more than 20% of the portfolio can be invested in below investment
grade bonds as defined as below Baa S&P or equivalent for other rating
agencies.
4. Exceptions can be made so long as the sum of all exceptions to the above
policy statements does not exceed 15% of opening assets.
5. No more than 25% of the investments should be in mortgage or asset backed
securities.
Other Limitations:
Short Term Investments -- All short term investments should be in instruments
which are A2/P2 or better.
<PAGE>
EXCESS OF LOSS REINSURANCE AGREEMENT
This Agreement is made and entered into by and between TRANSNATIONAL INSURANCE
COMPANY (hereinafter referred to as the "Company"), and PXRE REINSURANCE COMPANY
(hereinafter referred to as the "Reinsurer").
WITNESSETH: That in consideration of the mutual covenants hereinafter contained
and upon the terms and conditions hereinafter set forth, the parties hereto
agree as follows:
ARTICLE I - COVERAGE AND EFFECTIVE DATE
This Agreement shall be effective as of 12:01 a.m., EST, January 1, 1998.
The Reinsurer shall indemnify the Company in respect to losses, loss expenses
and underwriting expenses, as further defined in Article II, that may accrue to
the Company under all policies, contracts, binders or agreements of insurance or
reinsurance, whether written or oral (hereinafter referred to as "policies")
written or renewed by the Company at any time prior to the cancellation of this
Agreement, as provided in Article III. Such coverage shall include the positive
or negative development of loss reserves, loss expense reserves and underwriting
liabilities established by the Company as of the effective date of this
Agreement.
All reinsurance for which the Reinsurer will be obligated by virtue of this
Agreement will be subject to the same terms, conditions, interpretations,
waivers, modifications and alterations as the respective policies of the Company
to which this reinsurance applies.
ARTICLE II - RETENTION AND LIMIT
No claim will be made by the Company to the Reinsurer unless the Company has
first incurred a "Combined Ratio", as defined in this Article II, exceeding 105%
during any calendar year covered by this Agreement. The Reinsurer will indemnify
the Company for the amount of losses, loss expenses and underwriting expenses in
excess of the Company's retention. The indemnification provided by this
Agreement shall have no limit. While the coverage under this Agreement shall
apply on a calendar year basis, the Company shall measure the applicability of
the coverage provided under this Agreement at the conclusion of each calendar
quarter, as further provided in Article V.
The Combined Ratio as provided in the previous paragraph, shall consist of the
sum of the "Loss and Loss Expense Ratio" and the "Underwriting Expense Ratio".
The two individual ratios which comprise the Combined Ratio shall be computed
using information from the quarterly or
<PAGE>
annual statements prepared by the Company and filed with the National
Association of Insurance Commissioners and the Insurance Department of the State
of Connecticut, as follows:
Loss and Loss Expense Ratio:
The sum of:
Net losses incurred (page 4, line 2, <annual> or line 2D
<quarterly>)
Net loss expenses incurred (page 4, line 3)
Divided by:
Net premiums earned (page 4, line 1 <annual> or page 4, line
1D, <quarterly>)
Underwriting Expense Ratio:
The sum of:
Other underwriting expenses (page 4, line 4)
Aggregate write-ins for underwriting deductions (page 4,
line 5)
Divided by:
Net premiums written (page 9, column 4, line 31 <annual> or
page 4, line 1D, parenthetical amount <quarterly>)
ARTICLE III - TERM AND CANCELLATION
This Agreement will apply to all losses, loss expenses and underwriting expenses
incurred by the Company as defined in Article I, and will remain in full force
and effect until canceled as hereinafter provided.
This Agreement can be canceled as of any December 31 by either party giving 30
(thirty) days prior notice to the other party. In the event this Agreement is
canceled in accordance with the above procedure, the Reinsurer will continue to
be liable for all losses, loss adjustment expenses and underwriting expenses
incurred under policies covered by this Agreement through the effective date of
cancellation. However, amounts incurred for losses, loss expenses or
underwriting expenses occurring subsequent to the cancellation date, including
the positive or negative development of loss reserves, loss expense reserves and
underwriting liabilities established by the Company as of the cancellation date
of this Agreement will not be covered by this Agreement.
ARTICLE IV - RATE AND PREMIUM
The Company will cede to the Reinsurer a premium of one percent (1.0%) of its
net earned premium on all policies covered by this Agreement. Net earned premium
shall be defined as all direct premium written by the Company, whether voluntary
or involuntary and net of premiums returned as the result of cancellations and
endorsements, plus all reinsurance assumed by the Company, adjusted for the
change in unearned premiums associated with such direct or assumed
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<PAGE>
premiums written for the period covered by this Agreement. Net earned premium
shall also be reduced by certain reinsurance ceded on earned premium as provided
in Article VI, below.
ARTICLE V - REPORTS AND REMITTANCES
Within twenty-five (25) days following the close of each calendar quarter, the
Company will furnish the Reinsurer with a report of reinsurance premium due to
the Reinsurer for that period. Such report shall be in a form and shall contain
such data as required by the Reinsurer for completion of its NAIC annual
statement. The report will also provide the Reinsurer with a computation of the
Combined Ratio, as defined in Article II, above, for the calendar quarter and
calendar year-to-date. Any balance shown to be due to the Reinsurer will be
remitted within forty (40) days following the close of the calendar quarter. Any
balance shown as due to the Company will be settled as follows: (i) For the
first, second and third calendar quarters, any balance shown to be due to the
Company will be accrued on the books of both the Reinsurer and the Company but
the remittance of funds will be deferred until the fourth quarter, (ii) For the
fourth calendar quarter, any balance shown to be due to the Company, after
taking into account balances deferred from prior quarters, will be paid to the
Company by the Reinsurer within fifteen (15) days following receipt of the
fourth quarter report from the Company.
ARTICLE VI - OTHER REINSURANCE
The Company is permitted to purchase other treaty and/or facultative
reinsurance. The premium for any such reinsurance that inures to the benefit of
this Agreement shall be deducted from the net earned premium which constitutes
the subject premium under this Agreement.
Further, where the Company is required by statute to purchase reinsurance that
inures to the benefit of this Agreement, the entire premium subject to such
mandatory reinsurance shall be deducted from the net earned premium which
constitutes the subject premium under this Agreement.
ARTICLE VII - WAIVER OF EXCLUSIONS
It is intended that the Reinsurer shall "follow the fortunes" of the Company
with respect to the policies covered by this Agreement and, accordingly, there
shall be no exclusions with respect to the indemnity provided by this Agreement
including, but not limited to: judgments in excess of policy limits, punitive
damages and pre and post judgment interest.
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<PAGE>
ARTICLE VIII - ERRORS AND OMISSIONS
The Company will not be prejudiced in any way by any omission, through clerical
error, accident or oversight, to cede to the Reinsurer any reinsurance under the
terms of this Agreement. Errors and omissions inadvertently made will not
invalidate the liability of the Reinsurer. Any such error or omission will be
corrected immediately upon discovery.
ARTICLE IX - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company, or to its liquidator, receiver, conservator or
statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator or statutory successor of the Company has failed to pay
all or a portion of any claim. It is agreed, however, that the liquidator,
receiver, conservator or statutory successor of the Company shall give written
notice to the Reinsurer, of the pendency of a claim against the Company
indicating the policy insured which claim would involve a possible liability on
the part of the Reinsurer within a reasonable time after such claim is filed in
the conservation or liquidation proceeding or in the receivership, and that
during the pendency of such claim, the Reinsurer may investigate such claim and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem available to the Company
or its liquidator, receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to the approval of
the court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may accrue to
the Company solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the insolvent Company.
ARTICLE X - AMENDMENTS
This Agreement may be altered or amended in any of its terms and conditions by
mutual consent of the Company and the Reinsurer either by an addendum hereto or
by an exchange of letters; such addendum or letters will then constitute a part
of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Reinsurance Agreement to
be executed in duplicate by their duly authorized representatives.
TRANSNATIONAL INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
PXRE REINSURANCE COMPANY
By:
-------------------------------
Name:
Title:
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<PAGE>
FACULTATIVE OBLIGATORY
QUOTA SHARE RETROCESSIONAL AGREEMENT
BETWEEN
PXRE REINSURANCE COMPANY
AND
PXRE REINSURANCE LTD.
<PAGE>
FACULTATIVE OBLIGATORY QUOTA SHARE RETROCESSIONAL AGREEMENT, dated
as of October 14, 1999 and effective as of October 1, 1999 (hereinafter
referred to as the "Agreement"), between PXRE REINSURANCE LTD., a Bermuda
company (hereinafter referred to as "Reinsurer"), and PXRE REINSURANCE COMPANY,
a Connecticut corporation (hereinafter referred to as "Company").
W I T N E S S E T H :
WHEREAS, the Company and the Reinsurer wish to enter into a quota share
retrocessional arrangement pursuant to which the Company will offer to cede to
the Reinsurer, and the Reinsurer may assume from the Company, a quota share of
the Company's liabilities arising from the Company's reinsurance business, upon
the terms and subject to the conditions described below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
contained herein and of the mutual benefits herein provided, the parties hereto
agree as follows:
ARTICLE I
CLASSES OF BUSINESS REINSURED
This Agreement shall cover liability ceded under all Contracts written by the
Company in the manner set forth in ARTICLE II - REINSURANCE CLAUSE and subject
to the exclusions set forth in ARTICLE V - EXCLUSIONS. The terms "Contracts",
"Contracts written by the Company" and "Contracts of the Company" shall mean any
and all binders, policies, certificates, agreements and contracts of reinsurance
and insurance in force on the effective date hereof or issued, renewed, accepted
or held, covered provisionally or otherwise in the name of the Company on or
after the effective date.
ARTICLE II
REINSURANCE CLAUSE
Commencing with the effective date of this Agreement, the Company shall offer to
cede to the Reinsurer the quota share ("Quota Share") set forth on the Quota
Share Endorsement attached hereto of the Company's Net Retained Line on all
Contracts coming within the scope of this Agreement. The Reinsurer shall have
the right to accept or reject such cession offer in respect of any Contract (or
all such Contracts), in its sole discretion, but shall be deemed to have
accepted each Contract cession not rejected by notice given in writing to the
Company promptly following receipt of
<PAGE>
underwriting detail in respect of the proposed Contract cession. Each Contract
cession accepted (or deemed accepted) by the Reinsurer shall be deemed a
Contract ceded to, and in force under, this Agreement. If this Agreement is
renewed pursuant to Article III and the Parties desire to vary the Quota Share,
the Parties shall execute a Quota Share Endorsement (substantially in the form
of the Quota Share Endorsement attached hereto).
Limitations per reinsurance program, if any, on cessions to this Agreement shall
also be as set forth on the Quota Share Endorsement.
Subject to the conditions of the following paragraph, the term "Net Retained
Line" shall mean the amount of liability which the Company maintains per
reinsurance program after deduction of liability ceded, if any, to any general
or specific retrocessions to protect the Company and its quota share reinsurers
(including, without limitation, the Reinsurer).
The term "reinsurance program" shall be defined as:
1. Treaty Underlying Reinsurance Program - The portion of a ceding
company's program consisting of Pro Rata Treaties and/or Risk Excess of
Loss Contracts involving one or more layers where appropriate, and
subject to the same loss from an original insured.
2. Treaty Catastrophe Reinsurance Program - The portion of a ceding
company's program consisting of Catastrophe Excess of Loss and/or
Aggregate Excess of Loss Contracts involving one or more layers where
appropriate.
ARTICLE III
TERM AND CANCELLATION
This Agreement shall be effective from 12:01 a.m. Eastern Time, October 1, 1999
and shall be continuously in force until 11:59 p.m. Eastern Time, December 31,
2000 (the "Termination Date"). This Agreement shall automatically renew for a
one year term at each subsequent December 31 unless either Party has given
written notice to the other Party at least 90 days prior to December 31 of the
subject year of its intention not to renew this Agreement. If this Agreement is
so renewed, the "Termination Date" shall be the following December 31.
This Agreement may be terminated:
(a) by the Company prior to the Termination Date by notice to the
Reinsurer in the event that the Reinsurer's shareholders' equity
(calculated under United States generally accepted accounting
principles) shall have declined by 50% or more from the amount of such
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<PAGE>
shareholders' equity as at the previous December 31;
(b) by the Company prior to the Termination Date upon:
(i) a material breach by the Reinsurer of its obligations
under this Agreement (x) which breach has not been cured
within ten (10) days following receipt by the Reinsurer of
written notice of such breach or (y) if such breach is not
susceptible to cure within such ten (10) day period steps
reasonably designed to cure such breach are not commenced
within such period, such steps are not diligently pursued or
such breach is not cured within a reasonable period following
such written notice of breach, or
(ii) the conviction of, or plea of nolo contendere by, the
Reinsurer or any of its directors or executive officers
("Reinsurer Persons") to a felony or a crime involving moral
turpitude, or the entry of a judgment no longer subject to
appeal against the Reinsurer or any of the Reinsurer Persons
finding a common law fraud, or other unlawful conduct by the
Reinsurer or any of the Reinsurer Persons that is injurious to
the financial condition or reputation of, or is otherwise
materially injurious to, the Company or any of its
subsidiaries or affiliates; or
(c) by the Reinsurer prior to the Termination Date upon:
(i) a material breach by the Company of its obligations under
this Agreement (x) which breach has not been cured within ten
(10) days following receipt by the Company of written notice
of such breach or (y) if such breach is not susceptible to
cure within such ten (10) day period steps reasonably designed
to cure such breach are not commenced within such period, such
steps are not diligently pursued or such breach is not cured
within a reasonable period following such written notice of
breach, or
(ii) the conviction of, or plea of nolo contendere by, the
Company or any of its directors or executive officers (the
"Company Persons") to a felony or a crime involving moral
turpitude, or the entry of a judgment no longer subject to
appeal against the Company or any of the Company Persons
finding a common law fraud, or other unlawful conduct by the
Company or any of the Company Persons that is injurious to the
financial condition or reputation of, or is otherwise
materially injurious to, the Reinsurer or any of its
subsidiaries or affiliates.
The party desiring to terminate this Agreement pursuant to clause (a) through
(c) above shall give prompt written notice of such termination to the other
party. No termination of this Agreement pursuant to clause (a) through (c) above
by a party will relieve the other party from any liability for
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<PAGE>
any breach of this Agreement or from the performance of any obligation due with
respect to any period preceding such termination.
In the event of the termination of this Agreement, the Reinsurer shall remain
liable for all cessions in force prior to the termination until the natural
expiration date and final disposition of all losses and loss expenses occurring
hereunder during the period of its participation, and any amounts due under this
Agreement applicable to periods prior to termination (for whatever reason) shall
remain due after such termination.
Notwithstanding the foregoing, in the event of a termination of this Agreement
prior to its Termination Date as provided in clauses (a) or (b) above the
Company may, at its option, reassume all reinsurances in force at such
termination in which case the Reinsurer shall return to the Company the unearned
premium reserve calculated as of such date less the related Commissions.
ARTICLE IV
TERRITORY
This Agreement shall follow the territorial scope of the Contracts written by
the Company.
ARTICLE V
EXCLUSIONS
This Agreement shall be subject to the exclusions contained in the original
Contracts of the Company.
ARTICLE VI
ORIGINAL CONDITIONS
The true intent of this Agreement being that the Reinsurer shall follow the
fortunes of the Company, all reinsurances hereunder shall be subject to the same
rates, terms, conditions, waivers and modifications as the respective Contracts
of the Company, and the Reinsurer shall be credited with its exact proportion of
the original premium written by the Company, subject to the provisions of the
second sentence of ARTICLE II hereof.
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<PAGE>
ARTICLE VII
PREMIUM AND COMMISSION
The Company shall keep a record of each and every Contract ceded to this
Agreement and shall promptly cede to the Reinsurer its applicable Quota Share
part of unearned premiums on the Contracts in force at the inception of this
Agreement and, thereafter, the Company shall cede to the Reinsurer its
applicable Quota Share part of all gross premiums written by the Company in
respect of each and every Contract issued, renewed, accepted or held, covered
provisionally or otherwise in the name of the Company on or after the effective
date of this Agreement after deducting from such premiums any Return Premiums
(as defined herein).
The Reinsurer shall allow the Company a commission on the Contracts ceded
hereunder equal to the applicable Quota Share part of the actual acquisition
cost paid by the Company in obtaining said Contracts ("Written Commission"). For
purposes of this Agreement, actual acquisition cost shall mean original
commission plus premium tax and any brokerage paid by the Company.
In addition, the Reinsurer shall allow the Company the following override
commissions as an allowance for the Company's overhead expense ("Override
Commission"; together with the Written Commission, the "Commissions"):
1. Casualty business: 1% of the applicable Quota Share part of all
unearned premiums and gross premiums written in respect of Contracts
ceded to this Agreement (after deducting Return Premiums) primarily
involving such business.
2. All other business: 5% of the applicable Quota Share part of all
unearned premiums and gross premiums written in respect of Contracts
ceded to this Agreement (after deducting Return Premiums) primarily
involving such business.
In addition to the Commissions paid the Company as set forth herein, the
Reinsurer shall pay the Company in respect of each Period during which this
Agreement is in effect a profit commission ("Profit Commission") allowance of
25% on the applicable Quota Share part of the net profits in respect of all
Contracts ceded to this Agreement with respect to such Period. Notwithstanding
that the term of this Agreement is for fifteen months, the Parties intend the
Profit Commission to operate on a 3 Period block basis. If, with respect to the
first or any subsequent 3 Period block, this Agreement is not renewed for a
second annual term, the Profit Commission percentage shall be reduced from 25%
to 10%. Similarly, if this Agreement is not renewed for a third annual term, the
Profit Commission percentage shall be reduced from 25% to 15%. The Profit
Commission shall be computed as follows:
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<PAGE>
INCOME
1. Premiums earned during the Period.
OUTGO
2. Losses incurred during the Period.
3. Written Commission, brokerage and Override Commission plus deferred
acquisition costs at the beginning of the Period less deferred
acquisition costs at the end of the Period.
4. Federal excise taxes ("FET") paid during the Period.
5. Allowances for Reinsurer's management expense equal to five percent
(5%) of the premiums earned in (1) above.
The calculation of profit or loss shall be made by the Company within ninety
(90) days after the close of the applicable Period and any monies due shall be
remitted forty-five (45) days thereafter; provided, however, that if this
Agreement is renewed on the same or different terms beyond December 31, 2000 or
the Company and the Reinsurer enter into any other retrocessional arrangement
pursuant to which the Company offers to cede to the Reinsurer a share of the
Company's liabilities arising from the Company's reinsurance contracts, then
Profit Commission shall be calculated on a 3 Period block basis. The
calculations of profit or loss for the first two Periods shall be deemed
provisional and a final calculation for the entire 3 Period block shall be made
at the end of the third Period. If the aggregate of the items under Outgo exceed
the total of premiums earned as shown under Income (the amount of such excess,
if any, hereinafter the "Deficit") for the 3 Period block, the amount of the
Deficit shall be carried forward as a debit item in the calculation of income
and outgo for the ensuing 3 Period blocks until the Deficit has been made good;
provided, however, in no event shall any portion of any such Deficit otherwise
be recoverable from the Company, whether on termination of this Agreement or
otherwise. The first 3 Period block, if applicable, shall commence on October 1,
1999 and end on December 31, 2002.
For the purposes of this Agreement, the following definitions will apply:
(a) "Period" shall mean the actual time covered by each calculation of income
and outgo as set forth in this Agreement. The first Period shall be the period
October 1, 1999 through December 31, 2000 and, thereafter, each Period shall be
an annual period from January 1 to December 31 unless this Agreement is
terminated prior to such December 31 pursuant to ARTICLE III.
(b) "Premiums earned" shall mean the total of the net written premiums ceded to
the Reinsurer during the Period less unearned premiums at the close of the
Period, if any, plus unearned premiums
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<PAGE>
at the beginning of the Period, if any.
(c) "Net written premiums" shall mean gross premiums written and ceded to the
Reinsurer as recorded by the Company less any returns and/or cancellations also
recorded.
(d) "Losses incurred" shall mean losses paid, plus loss adjustment expense paid,
by the Reinsurer, less salvages or subrogations recovered, during the Period,
plus loss and loss adjustment expenses outstanding (included IBNR) at the end of
the Period, less loss and loss adjustment expenses (including IBNR) outstanding
at the beginning of the Period, if any.
ARTICLE VIII
REPORTS AND REMITTANCES
Within forty five (45) days after the close of each quarter, the Company will
furnish the Reinsurer with a report summarizing the reported and estimated
written premiums ceded less the related reported and estimated Commissions and
FET, and less reported losses paid and reported loss adjustment expense paid,
and the net balance (disregarding estimated items) due either party. In
addition, the Company will furnish the Reinsurer a quarterly statement showing
the total reserves for outstanding losses, loss adjustment expense, unearned
premiums, Profit Commissions (if any) and such other information as may be
required by the Reinsurer for completion of any reports or statements required
to be filed with Bermuda or other applicable insurance regulatory authorities.
Reinsurer agrees (i) to provide to the Company such information as may be
reasonably requested from time to time by the Company which information is
required by the Company to comply with any requests or requirements of
applicable insurance regulatory authorities (including, without limitation, the
Connecticut Insurance Department) and (ii) to take such other commercially
reasonable actions as the Company shall request, which actions are necessary or
desirable in order for the Company to comply with any applicable insurance
regulatory requirements respecting its ability to take credit, or reduce its
liabilities, by reason of the reinsurance cessions which are the subject of this
Agreement.
The Reinsurer agrees that it will on its books and records maintain reserves for
outstanding losses and loss adjustment expense (including IBNR) that are at
least equal to the amounts set forth in the statements provided by the Company
respecting the Contracts ceded to this Agreement.
Amounts due the Reinsurer by the Company will be remitted with the quarterly
report. Amounts due the Company by the Reinsurer will be remitted within forty
five (45) days following receipt of the report. Should payment due from the
Reinsurer exceed $250,000 as respects any one loss, the Company may give the
Reinsurer notice of payment made, or its intention to make payment, on a
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<PAGE>
certain date. If the Company has paid the loss, payment will be made by the
Reinsurer immediately. If the Company intends to pay the loss by a certain date
and has submitted a satisfactory proof of loss or similar document, payment will
be due from the Reinsurer twenty four (24) hours prior to that date, provided
the Reinsurer has a period of five (5) business days after receipt of said
notice to dispatch the payment. Cash loss amounts specifically remitted by the
Reinsurer as set forth herein will be credited to its next quarterly report in
which such cash loss amounts are reported.
ARTICLE IX
LOSSES AND LOSS ADJUSTMENT EXPENSES
All loss settlements (other than ex-gratia payments), whether under strict
policy conditions or by way of compromise, shall be unconditionally binding upon
the Reinsurer in the amount of its applicable Quota Share part thereof. The
Reinsurer shall bear its applicable Quota Share part of all loss adjustment
expenses incurred under the ceded Contracts.
In addition to indemnity amounts recoverable hereunder, the Reinsurer shall bear
its proportionate share of all expenses incurred by the Company in the
investigation, adjustment, appraisal or defense of all claims under policies
reinsured hereunder (excluding office expenses and compensation of officers and
regular employees of the Company, other than staff field adjusters and out of
pocket expense of the Company's officers incurred in connection with the loss),
and shall receive its proportionate share of any recoveries of such expenses.
ARTICLE X
EXTRA CONTRACTUAL OBLIGATIONS
The Reinsurer shall be liable hereunder for its share of 100% of any loss to the
Company in respect of Extra Contractual Obligations.
"Extra Contractual Obligations" are defined as those liabilities (excluding
office expenses and compensation of officers and regular employees of the
Company, other than staff field adjusters and out of pocket expense of the
Company's officers incurred in connection with the loss) not covered under any
other provision of this Agreement and which arise from the handling of any claim
on business covered hereunder, such liabilities arising because of, but not
limited to, the following: failure by the Company to settle within the policy
limit, or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Company
shall be
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<PAGE>
deemed, in all circumstances, to be the date of the original loss. The time any
amount is due from the Reinsurer hereunder shall be based upon the time the
Company has made a payment to which these provisions relate.
For purposes of Extra Contractual Obligations coverage there shall be no
recovery hereunder where the loss has been incurred due to or to the extent
caused by fraud by a member of the board of directors or a corporate officer of
the Company acting individually or collectively or in collusion with any
individual or corporation or other organization or party involved in the
presentation, defense or settlement of a claim on behalf of the Company.
ARTICLE XI
JUDGMENTS IN EXCESS OF POLICY LIMITS
This Agreement shall protect the Company for the Reinsurer's share in connection
with 100% of any loss in excess of the limit of its original policy, such loss
in excess of the limit having been incurred because of failure by the Company to
settle within the policy limit or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement, or in the preparation of
the defense, or in the trial of any action against its insured or reinsured or
in the preparation or prosecution of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to or
to the extent caused by fraud by a member of the board of directors or a
corporate officer of the Company acting individually or collectively or in
collusion with any individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any claim.
For purposes of this Article the word "loss" shall mean any amounts for which
the Company would have been contractually liable to pay had it not been for the
limit of the original policy (excluding office expenses and compensation of
officers and regular employees of the Company, other than staff field adjusters
and out of pocket expense of the Company's officers incurred in connection with
the loss).
ARTICLE XII
UNAUTHORIZED REINSURANCE
The obligations of the Reinsurer hereunder shall be secured by one or more trust
accounts and/or by one or more clean, irrevocable and unconditional letters of
credit, all as more fully described below. As regards Contracts issued by the
Company coming within the scope of this Agreement, the Company agrees that when
it shall file with the insurance regulatory authority or set up on its books
reserves for unearned premium and losses covered hereunder which it shall be
required by
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<PAGE>
law to set up, it will forward to the Reinsurer a statement showing the
proportion of such reserves which is applicable to the Reinsurer. The Reinsurer
hereby agrees to fund such reserves in respect of unearned premium, known
outstanding losses that have been reported to the Reinsurer and allocated loss
adjustment expense relating thereto, losses and allocated loss adjustment
expense paid by the Company but not recovered from the Reinsurer, plus reserves
for losses incurred but not reported, as shown in the statement prepared by the
Company (hereinafter referred to as "Obligations") by funds withheld, cash
advances, a reinsurance trust account or a letter of credit. The Reinsurer shall
have the option of determining the method of funding provided it is acceptable
to the Connecticut Insurance Department and any other insurance regulatory
authorities having jurisdiction over the Company's reserves.
A. Reinsurance Trust
If the Reinsurer elects to secure its Obligations through a reinsurance trust
account, the Reinsurer shall promptly establish a trust account (the "Statutory
Trust") with terms and bank acceptable to the regulatory authority(ies) having
jurisdiction over the Company. The trust agreement shall establish a trust that
names the Company as beneficiary of the trust and the Reinsurer as grantor of
the trust and shall satisfy applicable insurance regulatory requirements (the
"Statutory Trust Agreement").
At all times during the term of this Agreement, the Reinsurer shall have on
deposit in the Statutory Trust assets equal to the amount of the Obligations as
of the last day of the immediately preceding fiscal quarter (the "Statutory
Trust Amount"); provided, that the amount of the assets so deposited in the
Statutory Trust may be less than the Statutory Trust Amount if the Reinsurer
provides the Company with one or more letters of credit complying with Section B
of this ARTICLE XII. Adjustments to the Statutory Trust Amount shall be made
within thirty (30) days of Reinsurer's receipt of the report provided for in
Article VIII.
Assets deposited in the Statutory Trust shall be valued according to their
current fair market value and shall consist only of cash (United States legal
tender), certificates of deposit (issued by a United States bank and payable in
United States legal tender), and investments of the types permitted for a
domestic property/casualty reinsurance company under the provisions of the
applicable insurance laws and regulations of the State of Connecticut, or any
combination of the above, provided that any such investments are not issued by
an institution that is the parent, subsidiary, or affiliate of either the
Company or the Reinsurer.
Upon notification by the Company that the value of the assets on deposit in the
Statutory Trust is less than the Statutory Trust Amount (unless a letter of
credit has been provided for the amount of such deficiency), the Reinsurer
shall, within ten (10) days of receipt of such notice, deposit sufficient
additional assets in the Statutory Trust to increase the value of the assets or
deposit therein to the Statutory Trust Amount.
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<PAGE>
The Reinsurer, prior to depositing assets in the Statutory Trust, shall execute
assignments, endorsements in blank, or transfer legal title to the trustee of
all shares, obligations or any other assets requiring assignments, in order that
the Company, or the trustee upon the direction of the Company, may whenever
necessary negotiate, withdraw or dispose of any such assets without consent or
signature from the Reinsurer or any other entity.
The Reinsurer and the Company agree that, notwithstanding any other provision of
this Agreement, the assets in the Statutory Trust established pursuant to the
provisions of this Agreement may be withdrawn by the Company at any time,
without notice to the Reinsurer, upon the presentation of a letter signed by the
President or any Vice President of the Company stating that amounts are due and
owing with respect to this Agreement and stating the amounts due. Such withdrawn
assets shall be utilized and applied by the Company or its successors in
interest by operation of law, including without limitation any liquidator,
rehabilitator, receiver, or conservator of the Company, without diminution
because of the insolvency of the Company or the Reinsurer, only for the
following purposes:
1. To reimburse the Company for the Reinsurer's share of premiums returned
to the owners of Contracts ceded to this Agreement because of
cancellations of such Contracts ("Return Premiums").
2. To pay the Reinsurer's share or to reimburse the Company for the
Reinsurer's share of any Obligations, as stipulated in the annual
statement submitted by the Company to the Reinsurer, which share is due
to the Company and not otherwise paid by the Reinsurer.
3. To withdraw the balance of the Statutory Trust Account and place such
sums in an interest bearing trust account to secure the continuing
liabilities of the Reinsurer under this Agreement, in the event the
Company has received effective notice of termination of the Statutory
Trust Account and the Reinsurer's liability remains unliquidated and
undischarged ten (10) days prior to the termination date of the
Statutory Trust Account. Such sums will remain in an interest bearing
trust account until a renewal Trust Agreement acceptable to the
regulatory authority(ies) having jurisdiction over the Company, or a
substitute in lieu thereof acceptable to the regulatory authority(ies)
having jurisdiction over the Company, has been received by the Company.
The Company shall provide to the Reinsurer payment of any interest
thereon accruing from such account.
4. To refund any sum which is in excess of 102% of the actual amount
required to fund the Obligations under this Agreement.
5. To pay any Commissions, Profit Commissions or other amounts the Company
claims are due under this Agreement.
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<PAGE>
The Company agrees to return to the Reinsurer any amounts withdrawn from the
Statutory Trust which are in excess of the actual amounts required for items 1,
2, and 3 above or, in the case of item 5 above, any amounts that are
subsequently determined not to be due.
The Company further agrees to utilize all of the assets in the Statutory Trust
Account prior to drawing on any letter of credit established pursuant to Section
B of this ARTICLE XII.
B. Letters of Credit
By January 1 of each year during the term of this Agreement, the Reinsurer
shall, in the event that assets equal to the Statutory Trust Amount are not on
deposit in the Statutory Trust, establish and provide to the Company a clean,
irrevocable and unconditional Letter of Credit issued by a bank and containing
provisions acceptable to the insurance regulatory authorities having
jurisdiction over the Company's reserves in an amount equal to the shortfall in
the Statutory Trust. Such Letter of Credit shall be issued for a period of not
less than one year, and shall be automatically extended for one year from its
date of expiration or any future expiration date unless thirty (30) days (sixty
(60) days where required by insurance regulatory authorities) prior to any
expiration date the issuing bank shall notify the Company by certified or
registered mail that the issuing bank elects not to consider the Letter of
Credit extended for any additional period.
The Reinsurer and Company agree that the Letter of Credit provided by the
Reinsurer pursuant to the provisions of this Agreement may be drawn upon at any
time, notwithstanding any other provision of this Agreement, and be utilized by
the Company or any successor, by operation of law, of the Company including,
without limitation, any liquidator, rehabilitator, receiver or conservator of
the Company for the following purposes:
1. to reimburse the Company for the Obligations, the payment of which is
due under the terms of this Agreement and which has not been otherwise
paid;
2. to make refund of any sum which is in excess of the actual amount
required to pay the Obligations under this Agreement;
3. to fund an account with the Company for the Obligations. Such cash
deposit shall be held in an interest bearing account separate from the
Company's other assets, and interest thereon not in excess of the prime
rate shall accrue to the benefit of the Reinsurer;
4. to pay the Reinsurer's share of any other amounts the Company claims
are due under this Agreement.
In the event the amount drawn by the Company on any Letter of Credit is in
excess of the actual
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<PAGE>
amount required for 1, 2 or 3, or in the case of 4, the actual amount determined
to be due, the Company shall promptly return to the Reinsurer the excess amount
so drawn. All of the foregoing shall be applied without diminution because of
insolvency on the part of the Company or the Reinsurer.
The issuing bank shall have no responsibility whatsoever in connection with the
propriety of withdrawals made by the Company or the disposition of funds
withdrawn, except to ensure that withdrawals are made only upon the order of
properly authorized representatives of the Company.
From time to time, the Company shall reduce the amounts of any letters of credit
established under this ARTICLE XII, or release assets from the Statutory Trust
established pursuant to this ARTICLE XII by such amounts as the Company
reasonably determines (in its sole discretion) are no longer required to secure
the obligations of the Reinsurer to the Company hereunder; provided, however,
that in no event shall the value of the assets held in the Statutory Trust plus
the amount of such letters of credit be less than the Obligations.
ARTICLE XIII
TAXES
In consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making tax
returns, other than on Income or Profits Tax returns, to any state or territory
of the United States of America or to the District of Columbia.
ARTICLE XIV
FEDERAL EXCISE TAX
The Reinsurer and the Company agree that the Company shall withhold and pay over
to the United States Treasury Department, together with all necessary forms and
reports, the Excise Tax imposed by Section 4371 of the Internal Revenue Code of
1986, as amended, in accordance with the provisions of Sections 4370 through
4374 thereof. The Company will provide the Reinsurer copies of all such returns
and reports. In the event of any Return Premium becoming due hereunder, the
Company will either (i) offset the Excise Tax applicable to the Return Premium
against future Excise Taxes payable to the Treasury Department, or (ii) pay to
the Reinsurer the amount which the Company recovers from the Treasury Department
with respect to the Return Premium. In the event any amount offset pursuant to
subsection (i) of the previous sentence is
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<PAGE>
disallowed by the Internal Revenue Service, the Reinsurer shall indemnify the
Company for any such disallowed amount. The Company will use reasonable efforts
to offset or recover any such tax previously withheld on the returned portion of
the premium and the Reinsurer will cooperate with the Company to the extent
reasonably necessary to assist the Company in offsetting or recovering the tax
previously withheld on the returned portion of the premium from the Treasury
Department.
ARTICLE XV
CURRENCY
Wherever the word "Dollars" or sign "$" appear in this Agreement they shall be
construed to mean United States Dollars.
For purposes of this Agreement, where the Company receives premiums or pays
losses and/or commissions in currencies other than United States currency, such
premiums or losses and commissions shall be converted into United States Dollars
at the same rates of exchange as entered in the Company's books.
ARTICLE XVI
ACCESS TO RECORDS
The Reinsurer or its duly accredited representatives shall have full access to
the books and records (other than any list or lists of brokers through which the
Company has written the business ceded hereunder) of the Company at all
reasonable times for the purpose of obtaining information concerning this
Agreement or the subject matter hereof. Upon request, the Company shall supply
the Reinsurer, at the Reinsurer's expense, with copies of the whole or any part
of such books and records relating to this Agreement or the subject matter
hereof.
The Reinsurer agrees, on behalf of itself and its representatives, to hold and
keep confidential, and not to disclose to any third party (unless requested or
required by relevant insurance regulatory authorities or otherwise compelled to
do so by applicable law), any confidential and proprietary information of the
Company which it receives or has access to pursuant to the above paragraph. The
Reinsurer further agrees, on behalf of itself and its representatives, that it
shall not use any underwriting or related information received from the Company,
except for the sole purpose of analyzing the risks to be ceded to the Reinsurer
hereunder or in the application of the terms of this Agreement. The Reinsurer
agrees to abide by any determination by the Company
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<PAGE>
that any information provided to the Reinsurer constitutes confidential and
proprietary information.
ARTICLE XVII
ERRORS AND OMISSIONS
Except as provided in the second sentence of ARTICLE II hereof, any inadvertent
delay, omission, or error shall not be held to relieve either party hereto from
any liability which would attach to it hereunder if such delay, omission or
error had not been made, provided such delay, omission or error is rectified
promptly upon discovery.
ARTICLE XVIII
INSOLVENCY
In the event of the insolvency of the Company, this reinsurance shall be payable
by the Reinsurer directly to the Company, or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the Company
without diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator, or statutory successor of the Company has
failed to pay all or portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator, or statutory successor of the Company shall
give written notice to the Reinsurer of the pendency of a claim against the
Company indicating the policy or bond reinsured which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time after
such claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator, or statutory
successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of their respective reinsurance
agreements as though such expense had been incurred by the Company.
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<PAGE>
The reinsurance shall be payable by the Reinsurer to the Company or its
liquidator, receiver, conservator, or statutory successor, except as provided by
Section 4118(a) of the New York Insurance Law or except (a) where the agreement
specifically provides another payee of such reinsurance in the event of the
insolvency of the Company, and (b) where the Reinsurer, with the consent of the
direct insured or insureds, has assumed such policy obligations of the Company
as direct obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.
ARTICLE XIX
ARBITRATION
As a condition precedent to any right of action hereunder, if any dispute, claim
or controversy shall arise between the Company and the Reinsurer with respect to
this Agreement, the interpretation or breach thereof or the rights of the
parties with respect to any transaction contemplated hereunder (a "Dispute"),
whether such Dispute arises before or after termination of this Agreement, such
dispute, upon the written demand of either party, shall be arbitrated in
accordance with this ARTICLE XIX. Any such demand for arbitration shall be made
within a reasonable time after the Dispute has arisen, and in any event shall
not be made after the date when institution of legal or equitable proceedings
based on such Dispute would be barred by the applicable statute of limitations.
Any Dispute to be arbitrated hereunder shall be submitted to three arbitrators,
one to be appointed by each party, and an umpire to be chosen by the two so
appointed. If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after the receipt of written notice from the other party
requesting it to do so, the requesting party may appoint two arbitrators. If the
two arbitrators fail to agree in the selection of the umpire within thirty (30)
days of their appointment, each arbitrator shall nominate three candidates
within ten (10) days thereafter, two of whom the other shall decline, and the
choice between the remaining two shall be made by drawing lots. All arbitrators
shall be active or retired executive officers of insurance or reinsurance
companies or underwriters at Lloyd's, London not under the control of, or having
had in the previous 3 years direct and material business relations with, or
related by birth or marriage to any employee of, either party to this Agreement,
and having no other personal or financial interest in the outcome of the
arbitration. Any determination by a majority of the arbitrators shall be binding
and conclusive upon the parties hereto.
Each party shall submit its case to the arbitrators within thirty (30) days of
the appointment of the umpire. All proceedings before the arbitration panel
shall be informal and the arbitrators shall have the power to fix all procedural
rules relating to the arbitration proceeding.
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<PAGE>
The arbitration panel shall render its decision within thirty (30) days after
termination of the proceeding, which decision shall be in writing, stating the
reasons therefor. Judgment upon the final decision of the arbitrators may be
entered in any court having jurisdiction or application may be made to such
court for a judicial confirmation of the award and an order of enforcement, as
the case may be. Unless otherwise allocated by the arbitrators, each party shall
bear the expense of its own arbitrator and shall jointly and equally bear with
the other party the expense of the umpire and of any other expenses of the
arbitration. The arbitration shall take place in the city in which the Company's
head office is located unless some other place is mutually agreed upon by the
Company and the Reinsurer.
Notwithstanding the foregoing provisions of this ARTICLE XIX, it is hereby
agreed that no arbitration panel shall have any power to add to, alter or modify
the terms and conditions of this Agreement or to decide any issue which does not
arise from the interpretation or application of the provisions of this
Agreement.
ARTICLE XX
SERVICE OF SUIT
In the event of the failure of the Reinsurer to pay any amount claimed to be due
hereunder following an arbitration decision, or if court action is necessary to
aid arbitration, the Reinsurer, at the request of the Company, will submit to
the jurisdiction of any court of competent jurisdiction in the State and City of
New York and will comply with all requirements necessary to give such court
jurisdiction. All matters arising hereunder shall be determined in accordance
with the law and practice of such court. Nothing in this ARTICLE XX constitutes
or should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States.
Service of process in such suit may be made upon Morgan, Lewis & Bockius LLP,
101 Park Avenue, New York, NY 10178 (the "agent for service of process") and in
any suit instituted upon this Agreement, the Reinsurer will abide by the final
decision of such court or of any appellate court in the event of an appeal whose
decision is no longer subject to appeal. The above-named agent for service of
process is authorized and directed to accept service of process on behalf of the
Reinsurer in any such suit and the Reinsurer hereby agrees that any such service
shall be deemed good and sufficient service under the New York Civil Practice
Laws and Rules.
Further, pursuant to any statute of any state, territory or district of the
United States of America
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<PAGE>
which requires that the Reinsurer appoint a person designated by such statute as
its agent for service of process, Reinsurer hereby designates the
Superintendent, Commissioner, Director of Insurance, or other officer specified
for that purpose in such statute, or his successor or successors in office, as
its true and lawful attorney upon whom may be served any lawful process in any
action, suit or proceeding instituted by or on behalf of the Company or any
beneficiary hereunder arising out of this Agreement, and hereby designates the
agent for service of process as the firm to whom the said officer is authorized
to mail such process or a true copy thereof if such agent must be in the United
States, otherwise such process shall be mailed to the Reinsurer at its address
for notice under Article XXII hereof.
ARTICLE XXI
LIMITATIONS ON LIABILITY
The parties acknowledge that all business ceded under this Agreement shall be
subject to acceptance or rejection by the Reinsurer in its sole judgment.
Accordingly, in no event shall the Company be liable to the Reinsurer respecting
(i) the volume of business ceded pursuant to this Agreement (provided the Quota
Share, if any, is offered to be ceded) or (ii) any losses on any business ceded
pursuant to this Agreement.
Subject to the provisions of the preceding paragraph, the liability of the
Company to the Reinsurer in respect of any failure to comply with the provisions
of this Agreement shall be limited to amounts actually owed hereunder and
damages directly caused by the willful misconduct or gross negligence of the
Company. In no event shall the Company be liable for indirect, incidental,
special or consequential damages.
The parties shall each be entitled to specific performance of the terms of this
Agreement.
ARTICLE XXII
NOTICES
All notices, requests, demands and other communications hereunder must be in
writing (including facsimile transmission) and shall be deemed to have been duly
given (i) when received if delivered by hand against written receipt, (ii) when
sent if sent by facsimile transmission between 9:00 a.m. and 5:00 p.m. on a day
when the Federal Reserve Bank and the Bank of Bermuda are open for business,
provided such transmission is confirmed by the transmitting machine, (iii) 5
days after being mailed if mailed by prepaid, first class certified mail, return
receipt requested, or (iv) if sent by overnight courier, 2 days after delivery
to a
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<PAGE>
recognized major overnight courier service, fees prepaid. In each case notices
shall be addressed as follows:
If to the Company:
PXRE Reinsurance Company
399 Thornall Street
14th Floor
Edison, NJ 08837
Attention: President
Facsimile No.: 908-906-9157
If to the Reinsurer:
PXRE Reinsurance Ltd.
99 Front Street
Hamilton
Bermuda
Attention: President
Facsimile No.:
Any party by notice in writing sent to the other may change the name, address or
facsimile number to which notices, requests, demands or other communications to
it shall be given.
ARTICLE XXIII
MISCELLANEOUS
Both the Reinsurer and the Company shall have, and may exercise at any time, the
right to offset any balance or balances due from one party to the other or, to
the extent permitted by applicable law, such other's successor, including a
successor by operation of law. Such offset may only include balances due under
this Agreement and any other reinsurance agreements heretofore or hereafter
entered into between the Reinsurer and the Company, regardless of whether such
balances are in respect of premiums, or losses or otherwise, and regardless of
the capacity of any party, whether as reinsurer or reinsured, under the various
agreements involved.
This Agreement (including any Endorsements hereto) contains the entire agreement
between the parties, and supersedes all prior or contemporaneous discussions,
negotiations, representations, or agreements, relating to the subject matter
hereof.
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<PAGE>
This Agreement shall be construed and enforced in accordance with, and governed
by, the laws of the State of New York (other than any conflict of law rule which
might result in the application of the law of any other jurisdiction).
This Agreement is intended for the exclusive benefit of the parties to this
Agreement and their respective successors and permitted assigns, and nothing
contained in this Agreement shall be construed as creating any rights or
benefits in or to any third party.
The captions of the various sections of this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning thereof.
This Agreement may not be modified or amended or any term or provision hereof
waived or discharged except in writing signed by the party against whom such
amendment, modification, waiver or discharge is sought to be enforced.
Except as otherwise provided in this Agreement, any failure or delay on the part
of any party in exercising any power or right hereunder shall not operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power preclude any other or further exercise thereof or the exercise of any
other right or power hereunder or otherwise available at law or in equity.
No party may assign any of its rights or obligations under this Agreement
without the written consent of the other party to this Agreement, which consent
may be arbitrarily withheld by such party, any such non-consented to assignments
being void. Except as otherwise provided in this Agreement, this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by and against the
respective successors and assigns of each party to this Agreement.
This Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers in Hamilton, Bermuda as of the date first
written above.
PXRE REINSURANCE LTD.
By /s/ Gerald L. Radke
____________________________________________
Name: Gerald L. Radke
Title: President
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<PAGE>
PXRE REINSURANCE COMPANY
By /s/ Gerald L. Radke
___________________________________________
Name: Gerald L. Radke
Title: Chairman and Chief Executive Officer
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<PAGE>
ANNEX I
QUOTA SHARE
ENDORSEMENT
TO
FACULTATIVE OBLIGATORY
RETROCESSIONAL AGREEMENT
(hereinafter referred to as the "Reinsurance Agreement")
between
PXRE REINSURANCE COMPANY
(hereinafter referred to as the "Company)
and
PXRE REINSURANCE LTD.
(hereinafter referred to as the "Reinsurer")
It is understood and agreed that for the Period commencing October 1, 1999:
(i) the applicable quota share for purposes of the
Reinsurance Agreement shall be thirty percent (30%);
and
(ii) Cessions to the Reinsurance Agreement shall not
exceed $3,000,000 per reinsurance program.
Signed in Hamilton, Bermuda, as of October 14, 1999
PXRE REINSURANCE LTD.
By /s/ Gerald L. Radke
____________________________________________
Name: Gerald L. Radke
Title: President
PXRE REINSURANCE COMPANY
By /s/ Gerald L. Radke
___________________________________________
Name: Gerald L. Radke
Title: Chairman and Chief Executive Officer
<PAGE>
AGGREGATE EXCESS OF LOSS AGREEMENT
BETWEEN
PXRE REINSURANCE COMPANY
AND
PXRE REINSURANCE LTD.
<PAGE>
AGGREGATE EXCESS OF LOSS AGREEMENT, dated as of October 14, 1999 and effective
as of October 1, 1999 (hereinafter referred to as the "Agreement"), between PXRE
REINSURANCE LTD., a Bermuda company (hereinafter referred to as the "Company"),
and PXRE REINSURANCE COMPANY, a Connecticut corporation (hereinafter referred to
as "Reinsurer").
W I T N E S S E T H :
WHEREAS, the Company and the Reinsurer wish to enter into an aggregate excess of
loss arrangement pursuant to which the Company will cede to the Reinsurer, and
the Reinsurer will assume from the Company, certain of the Company's excess
liabilities arising from the Company's reinsurance business, upon the terms and
subject to the conditions described below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
contained herein and of the mutual benefits herein provided, the parties hereto
agree as follows:
ARTICLE I
REINSURANCE CLAUSE
Commencing with the effective date of this Agreement and subject to the
Aggregate Limit of Liability, the Reinsurer hereby reinsures the aggregate
liability of the Company resulting from losses in excess of the Aggregate
Retention that occur during the term of this Agreement under the Company's
Contracts, in force at the inception of this Agreement or written or renewed
during the term of this Agreement, subject to the terms and conditions set forth
herein.
In no event shall the Reinsurer be required to pay any losses hereunder (a)
unless and until the Company's Ultimate Net Loss has exceeded the Aggregate
Retention set forth in Annex I attached hereto; or (b) after the exhaustion of
the Aggregate Limit of Liability set forth in Annex I attached hereto. If this
Agreement is renewed pursuant to Article II and the Parties desire to vary the
Aggregate Retention or Aggregate Limit of Liability, the Parties shall execute
an endorsement (substantially in the form of the Annex I attached hereto).
The terms "Contracts", "Contracts written by the Company" and "Contracts of the
Company" shall mean any and all binders, policies, certificates, agreements and
contracts of reinsurance and insurance in force on the effective date hereof or
issued, renewed, accepted or held, covered provisionally or otherwise in the
name of the Company on or after the effective date.
The term "Ultimate Net Loss" means the actual loss, including loss adjustment
expense, 100% of loss in excess of policy limits and 100% of extra contractual
obligations, paid or to be paid by the Company on its Net Retained Line after
making deductions for all recoveries, salvages, subrogations
<PAGE>
and all claims on inuring reinsurance, whether collectible or not; provided,
however, that in the event of the insolvency of the Company, payment by the
Reinsurer shall be made in accordance with the provisions of the Insolvency
Article. Nothing herein shall be construed to mean that losses under this
Agreement are not recoverable until the Company's ultimate net loss has been
ascertained.
The term "Net Retained Line" shall mean the amount of liability which the
Company maintains per reinsurance program after deduction of liability ceded, if
any, to any general or specific retrocessions to protect the Company and its
reinsurers (including, without limitation, the Reinsurer).
ARTICLE II
TERM AND CANCELLATION
This Agreement shall be effective from 12:01 a.m. Eastern Time, October 1, 1999
and shall be continuously in force until 11:59 p.m. Eastern Time, December 31,
2000 (the "Termination Date"). This Agreement shall automatically renew for a
one year term at each subsequent December 31 unless either Party has given
written notice to the other Party at least 90 days prior to December 31 of the
subject year of its intention not to renew this Agreement. If this Agreement is
so renewed, the "Termination Date" shall be the following December 31.
This Agreement may be terminated:
(a) by the Company prior to the Termination Date by notice to the
Reinsurer in the event that the Reinsurer's shareholders' equity
(calculated under statutory accounting principles) shall have declined
by 50% or more from the amount of such shareholders' equity as at the
previous December 31;
(b) by the Company prior to the Termination Date upon:
(i) a material breach by the Reinsurer of its obligations
under this Agreement (x) which breach has not been cured
within ten (10) days following receipt by the Reinsurer of
written notice of such breach or (y) if such breach is not
susceptible to cure within such ten (10) day period steps
reasonably designed to cure such breach are not commenced
within such period, such steps are not diligently pursued or
such breach is not cured within a reasonable period following
such written notice of breach, or
(ii) the conviction of, or plea of nolo contendere by, the
Reinsurer or any of its directors or executive officers
("Reinsurer Persons") to a felony or a crime involving moral
turpitude, or the entry of a judgment no longer subject to
appeal against the
- 2 -
<PAGE>
Reinsurer or any of the Reinsurer Persons finding a common law
fraud, or other unlawful conduct by the Reinsurer or any of
the Reinsurer Persons that is injurious to the financial
condition or reputation of, or is otherwise materially
injurious to, the Company or any of its subsidiaries or
affiliates; or
(c) by the Reinsurer prior to the Termination Date upon:
(i) a material breach by the Company of its obligations under
this Agreement (x) which breach has not been cured within ten
(10) days following receipt by the Company of written notice
of such breach or (y) if such breach is not susceptible to
cure within such ten (10) day period steps reasonably designed
to cure such breach are not commenced within such period, such
steps are not diligently pursued or such breach is not cured
within a reasonable period following such written notice of
breach, or
(ii) the conviction of, or plea of nolo contendere by, the
Company or any of its directors or executive officers (the
"Company Persons") to a felony or a crime involving moral
turpitude, or the entry of a judgment no longer subject to
appeal against the Company or any of the Company Persons
finding a common law fraud, or other unlawful conduct by the
Company or any of the Company Persons that is injurious to the
financial condition or reputation of, or is otherwise
materially injurious to, the Reinsurer or any of its
subsidiaries or affiliates.
The party desiring to terminate this Agreement pursuant to clause (a) through
(c) above shall give prompt written notice of such termination to the other
party. No termination of this Agreement pursuant to clause (a) through (c) above
by a party will relieve the other party from any liability for any breach of
this Agreement or from the performance of any obligation due with respect to any
period preceding such termination.
In the event of the termination of this Agreement, the Reinsurer shall remain
liable for all cessions in force prior to the termination until the natural
expiration date and final disposition of all losses and loss expenses occurring
hereunder during the period of its participation, and any amounts due under this
Agreement applicable to periods prior to termination (for whatever reason) shall
remain due after such termination.
Notwithstanding the foregoing, in the event of a termination of this Agreement
prior to its Termination Date as provided in clauses (a) or (b) above the
Company may, at its option, reassume all reinsurances in force at such
termination in which case the Reinsurer shall return to the Company the unearned
premium reserve calculated as of such date.
- 3 -
<PAGE>
ARTICLE III
TERRITORY
This Agreement shall follow the territorial scope of the Contracts written by
the Company.
ARTICLE IV
EXCLUSIONS
This Agreement shall be subject to the exclusions contained in the original
Contracts of the Company.
ARTICLE V
ORIGINAL CONDITIONS
The true intent of this Agreement being that the Reinsurer shall follow the
fortunes of the Company, all reinsurances hereunder shall be subject to the same
terms, conditions, waivers and modifications as the respective Contracts of the
Company.
ARTICLE VI
PREMIUM
As premium for the reinsurance provided hereunder, the Company shall pay the
Reinsurer the premium set forth in Annex I hereto.
ARTICLE VII
REPORTS AND REMITTANCES
Within forty five (45) days after the close of each quarter, the Company will
furnish the Reinsurer a quarterly statement showing the total reserves for
outstanding losses, loss adjustment expense, unearned premiums, and such other
information as may be required by the Reinsurer for completion of any reports or
statements required to be filed with the Connecticut Insurance Department or
other applicable insurance regulatory authorities. Reinsurer agrees (i) to
provide to the Company such information as may be reasonably requested from time
to time by the Company which information is required by the Company to comply
with any requests or requirements of applicable insurance
- 4 -
<PAGE>
regulatory authorities and (ii) to take such other commercially reasonable
actions as the Company shall request, which actions are necessary or desirable
in order for the Company to comply with any applicable insurance regulatory
requirements respecting its ability to take credit, or reduce its liabilities,
by reason of the reinsurance cessions which are the subject of this Agreement.
Amounts due the Reinsurer by the Company will be remitted with the quarterly
report. Amounts due the Company by the Reinsurer will be remitted within forty
five (45) days following receipt of the report. Should payment due from the
Reinsurer exceed $250,000 as respects any one loss, the Company may give the
Reinsurer notice of payment made, or its intention to make payment, on a certain
date. If the Company has paid the loss, payment will be made by the Reinsurer
immediately. If the Company intends to pay the loss by a certain date and has
submitted a satisfactory proof of loss or similar document, payment will be due
from the Reinsurer twenty four (24) hours prior to that date, provided the
Reinsurer has a period of five (5) business days after receipt of said notice to
dispatch the payment. Cash loss amounts specifically remitted by the Reinsurer
as set forth herein will be credited to its next quarterly report in which such
cash loss amounts are reported.
ARTICLE VIII
EXTRA CONTRACTUAL OBLIGATIONS
Subject to the Aggregate Retention and Aggregate Limit of Liability, the
Reinsurer shall be liable hereunder for 100% of any loss to the Company in
respect of Extra Contractual Obligations.
"Extra Contractual Obligations" are defined as those liabilities (excluding
office expenses and compensation of officers and regular employees of the
Company, other than staff field adjusters and out of pocket expense of the
Company's officers incurred in connection with the loss) not covered under any
other provision of this Agreement and which arise from the handling of any claim
on business covered hereunder, such liabilities arising because of, but not
limited to, the following: failure by the Company to settle within the policy
limit, or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original loss. The
time any amount is due from the Reinsurer hereunder shall be based upon the time
the Company has made a payment to which these provisions relate.
For purposes of Extra Contractual Obligations coverage there shall be no
recovery hereunder where the loss has been incurred due to or to the extent
caused by fraud by a member of the
- 5 -
<PAGE>
board of directors or a corporate officer of the Company acting individually or
collectively or in collusion with any individual or corporation or other
organization or party involved in the presentation, defense or settlement of a
claim on behalf of the Company.
ARTICLE IX
JUDGMENTS IN EXCESS OF POLICY LIMITS
Subject to the Aggregate Retention and Aggregate Limit of Liability, this
Agreement shall protect the Company for 100% of any loss in excess of the limit
of its original policy, such loss in excess of the limit having been incurred
because of failure by the Company to settle within the policy limit or by reason
of alleged or actual negligence, fraud or bad faith in rejecting an offer of
settlement, or in the preparation of the defense, or in the trial of any action
against its insured or reinsured or in the preparation or prosecution of an
appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to or
to the extent caused by fraud by a member of the board of directors or a
corporate officer of the Company acting individually or collectively or in
collusion with any individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any claim.
For purposes of this Article the word "loss" shall mean any amounts for which
the Company would have been contractually liable to pay had it not been for the
limit of the original policy (excluding office expenses and compensation of
officers and regular employees of the Company, other than staff field adjusters
and out of pocket expense of the Company's officers incurred in connection with
the loss).
ARTICLE X
TAXES
In consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making tax
returns, other than on Income or Profits Tax returns, to any state or territory
of the United States of America or to the District of Columbia.
ARTICLE XI
CURRENCY
Wherever the word "Dollars" or sign "$" appear in this Agreement they shall be
construed to mean United States Dollars.
- 6 -
<PAGE>
For purposes of this Agreement, where the Company receives premiums or pays
losses in currencies other than United States currency, such premiums or losses
shall be converted into United States Dollars at the same rates of exchange as
entered in the Company's books.
ARTICLE XII
ACCESS TO RECORDS
The Reinsurer or its duly accredited representatives shall have full access to
the books and records (other than any list or lists of brokers through which the
Company has written the business ceded hereunder) of the Company at all
reasonable times for the purpose of obtaining information concerning this
Agreement or the subject matter hereof. Upon request, the Company shall supply
the Reinsurer, at the Reinsurer's expense, with copies of the whole or any part
of such books and records relating to this Agreement or the subject matter
hereof.
The Reinsurer agrees, on behalf of itself and its representatives, to hold and
keep confidential, and not to disclose to any third party (unless requested or
required by relevant insurance regulatory authorities or otherwise compelled to
do so by applicable law), any confidential and proprietary information of the
Company which it receives or has access to pursuant to the above paragraph. The
Reinsurer further agrees, on behalf of itself and its representatives, that it
shall not use any underwriting or related information received from the Company,
except for the sole purpose of analyzing the risks to be ceded to the Reinsurer
hereunder or in the application of the terms of this Agreement. The Reinsurer
agrees to abide by any determination by the Company that any information
provided to the Reinsurer constitutes confidential and proprietary information.
ARTICLE XIII
ERRORS AND OMISSIONS
Any inadvertent delay, omission, or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, provided such delay, omission or
error is rectified promptly upon discovery.
ARTICLE XIV
INSOLVENCY
In the event of the insolvency of the Company, this reinsurance shall be payable
by the Reinsurer
- 7 -
<PAGE>
directly to the Company, or to its liquidator, receiver, conservator or
statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator, or statutory successor of the Company has failed to pay
all or portion of any claim. It is agreed, however, that the liquidator,
receiver, conservator, or statutory successor of the Company shall give written
notice to the Reinsurer of the pendency of a claim against the Company
indicating the policy or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable time after such claim
is filed in the conservation or liquidation proceeding or in the receivership,
and that during the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding where such claim is
to be adjudicated any defense or defenses that it may deem available to the
Company or its liquidator, receiver, conservator, or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of their respective reinsurance
agreements as though such expense had been incurred by the Company.
The reinsurance shall be payable by the Reinsurer to the Company or its
liquidator, receiver, conservator, or statutory successor, except as provided by
Section 4118(a) of the New York Insurance Law or except (a) where the agreement
specifically provides another payee of such reinsurance in the event of the
insolvency of the Company, and (b) where the Reinsurer, with the consent of the
direct insured or insureds, has assumed such policy obligations of the Company
as direct obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.
ARTICLE XV
ARBITRATION
As a condition precedent to any right of action hereunder, if any dispute, claim
or controversy shall arise between the Company and the Reinsurer with respect to
this Agreement, the interpretation or breach thereof or the rights of the
parties with respect to any transaction contemplated hereunder (a "Dispute"),
whether such Dispute arises before or after termination of this Agreement, such
dispute, upon the written demand of either party, shall be arbitrated in
- 8 -
<PAGE>
accordance with this ARTICLE XV. Any such demand for arbitration shall be made
within a reasonable time after the Dispute has arisen, and in any event shall
not be made after the date when institution of legal or equitable proceedings
based on such Dispute would be barred by the applicable statute of limitations.
Any Dispute to be arbitrated hereunder shall be submitted to three arbitrators,
one to be appointed by each party, and an umpire to be chosen by the two so
appointed. If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after the receipt of written notice from the other party
requesting it to do so, the requesting party may appoint two arbitrators. If the
two arbitrators fail to agree in the selection of the umpire within thirty (30)
days of their appointment, each arbitrator shall nominate three candidates
within ten (10) days thereafter, two of whom the other shall decline, and the
choice between the remaining two shall be made by drawing lots. All arbitrators
shall be active or retired executive officers of insurance or reinsurance
companies or underwriters at Lloyd's, London not under the control of, or having
had in the previous 3 years direct and material business relations with, or
related by birth or marriage to any employee of, either party to this Agreement,
and having no other personal or financial interest in the outcome of the
arbitration. Any determination by a majority of the arbitrators shall be binding
and conclusive upon the parties hereto.
Each party shall submit its case to the arbitrators within thirty (30) days of
the appointment of the umpire. All proceedings before the arbitration panel
shall be informal and the arbitrators shall have the power to fix all procedural
rules relating to the arbitration proceeding.
The arbitration panel shall render its decision within thirty (30) days after
termination of the proceeding, which decision shall be in writing, stating the
reasons therefor. Judgment upon the final decision of the arbitrators may be
entered in any court having jurisdiction or application may be made to such
court for a judicial confirmation of the award and an order of enforcement, as
the case may be. Unless otherwise allocated by the arbitrators, each party shall
bear the expense of its own arbitrator and shall jointly and equally bear with
the other party the expense of the umpire and of any other expenses of the
arbitration. The arbitration shall take place in the city in which the Company's
head office is located unless some other place is mutually agreed upon by the
Company and the Reinsurer.
Notwithstanding the foregoing provisions of this ARTICLE XV, it is hereby agreed
that no arbitration panel shall have any power to add to, alter or modify the
terms and conditions of this Agreement or to decide any issue which does not
arise from the interpretation or application of the provisions of this
Agreement.
- 9 -
<PAGE>
ARTICLE XVI
SERVICE OF SUIT
In the event of the failure of the Reinsurer to pay any amount claimed to be due
hereunder following an arbitration decision, or if court action is necessary to
aid arbitration, the Reinsurer, at the request of the Company, will submit to
the jurisdiction of any court of competent jurisdiction in the State and City of
New York and will comply with all requirements necessary to give such court
jurisdiction. All matters arising hereunder shall be determined in accordance
with the law and practice of such court. Nothing in this ARTICLE XVI constitutes
or should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States.
Service of process in such suit may be made upon Morgan, Lewis & Bockius LLP,
101 Park Avenue, New York, NY 10178 (the "agent for service of process") and in
any suit instituted upon this Agreement, the Reinsurer will abide by the final
decision of such court or of any appellate court in the event of an appeal whose
decision is no longer subject to appeal. The above-named agent for service of
process is authorized and directed to accept service of process on behalf of the
Reinsurer in any such suit and the Reinsurer hereby agrees that any such service
shall be deemed good and sufficient service under the New York Civil Practice
Laws and Rules.
Further, pursuant to any statute of any state, territory or district of the
United States of America which requires that the Reinsurer appoint a person
designated by such statute as its agent for service of process, Reinsurer hereby
designates the Superintendent, Commissioner, Director of Insurance, or other
officer specified for that purpose in such statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the agent for service of process as the firm to whom the said
officer is authorized to mail such process or a true copy thereof if such agent
must be in the United States, otherwise such process shall be mailed to the
Reinsurer at its address for notice under Article XVIII hereof.
ARTICLE XVII
LIMITATIONS ON LIABILITY
The liability of the Company to the Reinsurer in respect of any failure to
comply with the provisions of this Agreement shall be limited to amounts
actually owed hereunder and damages
- 10 -
<PAGE>
directly caused by the willful misconduct or gross negligence of the Company. In
no event shall the Company be liable for indirect, incidental, special or
consequential damages.
The parties shall each be entitled to specific performance of the terms of this
Agreement.
ARTICLE XVIII
NOTICES
All notices, requests, demands and other communications hereunder must be in
writing (including facsimile transmission) and shall be deemed to have been duly
given (i) when received if delivered by hand against written receipt, (ii) when
sent if sent by facsimile transmission between 9:00 a.m. and 5:00 p.m. on a day
when the Federal Reserve Bank and the Bank of Bermuda are open for business,
provided such transmission is confirmed by the transmitting machine, (iii) 5
days after being mailed if mailed by prepaid, first class certified mail, return
receipt requested, or (iv) if sent by overnight courier, 2 days after delivery
to a recognized major overnight courier service, fees prepaid. In each case
notices shall be addressed as follows:
If to the Reinsurer:
PXRE Reinsurance Company
399 Thornall Street
14th Floor
Edison, NJ 08837
Attention: President
Facsimile No.: 908-906-9157
If to the Company:
PXRE Reinsurance Ltd.
99 Front Street
Hamilton
Bermuda
Attention: President
Facsimile No.:
Any party by notice in writing sent to the other may change the name, address or
facsimile number to which notices, requests, demands or other communications to
it shall be given.
- 11 -
<PAGE>
ARTICLE XIX
MISCELLANEOUS
Both the Reinsurer and the Company shall have, and may exercise at any time, the
right to offset any balance or balances due from one party to the other or, to
the extent permitted by applicable law, such other's successor, including a
successor by operation of law. Such offset may only include balances due under
this Agreement and any other reinsurance agreements heretofore or hereafter
entered into between the Reinsurer and the Company, regardless of whether such
balances are in respect of premiums, or losses or otherwise, and regardless of
the capacity of any party, whether as reinsurer or reinsured, under the various
agreements involved.
This Agreement (including any Annexes or Endorsements hereto) contains the
entire agreement between the parties, and supersedes all prior or
contemporaneous discussions, negotiations, representations, or agreements,
relating to the subject matter hereof.
This Agreement shall be construed and enforced in accordance with, and governed
by, the laws of the State of New York (other than any conflict of law rule which
might result in the application of the law of any other jurisdiction).
This Agreement is intended for the exclusive benefit of the parties to this
Agreement and their respective successors and permitted assigns, and nothing
contained in this Agreement shall be construed as creating any rights or
benefits in or to any third party.
The captions of the various sections of this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning thereof.
This Agreement may not be modified or amended or any term or provision hereof
waived or discharged except in writing signed by the party against whom such
amendment, modification, waiver or discharge is sought to be enforced.
Except as otherwise provided in this Agreement, any failure or delay on the part
of any party in exercising any power or right hereunder shall not operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power preclude any other or further exercise thereof or the exercise of any
other right or power hereunder or otherwise available at law or in equity.
No party may assign any of its rights or obligations under this Agreement
without the written consent of the other party to this Agreement, which consent
may be arbitrarily withheld by such party, any such non-consented to assignments
being void. Except as otherwise provided in this Agreement, this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by
- 12 -
<PAGE>
and against the respective successors and assigns of each party to this
Agreement.
This Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers in Hamilton, Bermuda as of the date first
written above.
PXRE REINSURANCE LTD.
By /s/ Gerald L. Radke
___________________________________________
Name: Gerald L. Radke
Title: President
PXRE REINSURANCE COMPANY
By /s/ Gerald L. Radke
___________________________________________
Name: Gerald L. Radke
Title: Chairman and Chief Executive Officer
- 13 -
<PAGE>
ANNEX I
TO
AGGREGATE EXCESS OF LOSS AGREEMENT
(hereinafter referred to as the "Reinsurance Agreement")
between
PXRE REINSURANCE COMPANY
(hereinafter referred to as the "Reinsurer")
and
PXRE REINSURANCE LTD.
(hereinafter referred to as the "Company")
It is understood and agreed that for the Period commencing October 1, 1999 and
terminating on December 31, 2000:
1. Aggregate Retention. The "Aggregate Retention" shall be the lesser of:
(A) $40,000,000, or
(B) 80% of the Company's Bermuda statutory capital
through January 1, 2000.
2. Aggregate Limit of Liability. In no event shall the Reinsurer be liable
during the term of this Agreement for losses in excess of the Aggregate
Limit of Liability of $30,000,000.
3. Premium. $450,000, payable quarterly in arrears in five equal installments
of $90,000.
Signed in Hamilton, Bermuda, as of October 14, 1999
PXRE REINSURANCE LTD.
By /s/ Gerald L. Radke
___________________________________________
Name: Gerald L. Radke
Title: President
PXRE REINSURANCE COMPANY
By /s/ Gerald L. Radke
___________________________________________
Name: Gerald L. Radke
Title: Chairman and Chief Financial Officer
<PAGE>
================================================================================
LEASE AGREEMENT
BETWEEN
THORNALL ASSOCIATES, L.P.,
AS LANDLORD
-AND-
PXRE CORPORATION,
AS TENANT
PREMISES: 399 THORNALL STREET
EDISON, NEW JERSEY
PORTION OF 12TH FLOOR
DATED: NOVEMBER 1,1999
================================================================================
<PAGE>
INDEX
<TABLE>
<CAPTION>
ARTICLE CAPTION PAGE
- ------- ------- ----
<S> <C> <C>
1 Demised Premises, Term, Rent ............................... 1
2 Use ........................................................ 3
3 Preparation of the Demised Premises ........................ 4
4 When Demised Premises Ready for Occupancy .................. 5
5 Additional Rent ............................................ 6
6 Subordination, Notice to Mortgagees ........................ 12
7 Quiet Enjoyment ............................................ 13
8 Assignment, Mortgaging, Subletting ......................... 13
9 Compliance with Laws and Requirements of Public
Authorities ................................................ 16
10 Insurance .................................................. 17
11 Rules and Regulations ...................................... 19
12 Tenant's Changes ........................................... 20
13 Tenant's Property .......................................... 22
14 Repairs and Maintenance .................................... 23
15 Electricity ................................................ 23
16 Heating, Ventilation and Air-Conditioning .................. 25
17 Landlord's Other Services .................................. 25
18 Access, Changes in Building Facilities, Name ............... 27
19 Notices of Accidents ....................................... 28
20 Non-Liability and Indemnification .......................... 29
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
ARTICLE CAPTION PAGE
- ------- ------- ----
<S> <C> <C>
21 Destruction or Damage ........................................ 30
22 Eminent Domain ............................................... 31
23 Surrender .................................................... 33
24 Conditions of Limitation ..................................... 33
25 Re-Entry by Landlord ......................................... 35
26 Damages ...................................................... 36
27 Waivers ...................................................... 38
28 No Other Waivers or Modifications ............................ 38
29 Curing Tenant's Defaults ..................................... 39
30 Broker ....................................................... 40
31 Notices ...................................................... 40
32 Estoppel Certificate ......................................... 40
33 Arbitration .................................................. 41
34 No Other Representations, Construction, Governing Law ........ 42
35 Security ..................................................... 42
36 Parties Bound ................................................ 43
37 Consents ..................................................... 43
38 Mortgage Financing - Tenant Cooperation ...................... 44
39 Environmental Compliance ..................................... 44
40 Holding Over ................................................. 45
41 Certain Definitions & Constructions .......................... 46
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
ARTICLE CAPTION PAGE
- ------- ------- ----
<S> <C> <C>
42 Relocation of Tenant ........................... 46
43 Option to Renew ................................ 47
EXHIBIT A - Description of Land
EXHIBIT B - Floor Plan
EXHIBIT C - Separate Workletter
EXHIBIT D - Cleaning and Maintenance Specifications
EXHIBIT E - Rules and Regulations
EXHIBIT F - Definitions
EXHIBIT G - Non Disturbance Agreement
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(iii)
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LEASE, dated November 1, 1999, between THORNALL ASSOCIATES, L.P., a New
Jersey Limited Partnership, c/o Alfieri Property Management, having its
principal office located at 399 Thornall Street, P.O. Box 2911, Edison, New
Jersey 08818-2911, ("Landlord"), and PXRE CORPORATION, a Delaware Corporation,
having its principal office located at 399 Thornall Street, Edison, New Jersey
08837, ("Tenant").
WITNESSETH:
ARTICLE 1
DEMISED PREMISES, TERM, RENT
1.01. Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the premises hereinafter described, in the building located at 399
Thornall Street, Edison, New Jersey, ("Building") on the parcel of land more
particularly described in Exhibit A ("Land"), for the term hereinafter stated,
for the rents hereinafter reserved and upon and subject to the conditions
(including limitations, restrictions and reservations) and covenants hereinafter
provided. Each party hereby expressly covenants and agrees to observe and
perform all of the conditions and covenants herein contained on its part to be
observed and performed.
1.02. The premises hereby leased to Tenant is a portion of the 12th
floor of the Building, as shown on the floor plans annexed hereto as Exhibit B.
Landlord and Tenant have mutually agreed that the premises leased has a rentable
area of 24,238 square feet which includes Tenant's share of the common area.
Said premises, together with all fixtures and equipment which at the
commencement, or during the term of this Lease are thereto attached (except
items not deemed to be included therein and removable by Tenant as provided in
Article 13) constitute the "Demised Premises". Included in the leasing hereby is
Tenant's non-exclusive right, together with other tenants of the Building and of
the building known as 379 Thornall Street, Edison, New Jersey, to use the
lobbies, elevators, sidewalks, public areas, hallways, parking deck, the atrium
area and other public and service areas affecting or serving the Building and
379 Thornall Street.
1.03. The term of this Lease, for which the Demised Premises are
hereby leased, shall commence on a date ("Commencement Date") which shall be (i)
the day on which the Demised Premises are ready for occupancy (as defined in
Article 4) or (ii) the day Tenant, or anyone claiming under or through Tenant,
first occupies the Demised Premises for business, whichever occurs earlier, and
shall end at noon on October 31, 2009, which ending date is hereinafter called
the "Expiration Date", or shall end on such earlier date upon which said term
may expire or be canceled or terminated pursuant to any of the conditions or
covenants of this Lease or pursuant to law. Promptly following the Commencement
Date, the Landlord shall notify Tenant in writing of the Commencement Date and
the Expiration Date as determined in accordance with this Section.
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1.04. The rents reserved under this Lease, for the term thereof,
shall be and consist of:
(a)
<TABLE>
<CAPTION>
PERIOD FIXED RENT MONTHLY RENT ANNUAL RENT
- ------ ---------- ------------ -----------
<S> <C> <C> <C>
YEARS 1-5 $24.00 $48,476.00 $581,712.00
YEARS 6 - 10/31/09 $27.90 $56,353.35 $676,240.20
</TABLE>
Said rent shall be payable in advance on the first day
of each and every calendar month during the term of this Lease, and
(b) Additional rent consisting of all such other sums of money
as shall become due from and payable by Tenant to Landlord hereunder (for
default in payment of which Landlord shall have the same remedies as for a
default in payment of fixed rent),
all to be paid to Landlord at its office, or such other place, or to such agent
at such place, as Landlord may designate by notice to Tenant, in lawful money of
the United States of America.
1.05. Tenant shall pay the fixed rent and additional rent herein
reserved promptly as and when the same shall become due and payable, without
demand therefor and without any abatement, deduction or setoff whatsoever.
1.06. If the Commencement Date occurs on a day other than the first
day of a calendar month, the fixed rent for such calendar month shall be
prorated and the balance of the first month's fixed rent theretofore paid shall
be credited against the next monthly installment of fixed rent.
1.07. Late payments of any payment of rent, including monthly rent
or any portion thereof, which is not received within five (5) days after it is
due, will be subject to a late charge equal to five percent (5%) of the unpaid
payment, or $100.00, whichever is greater. This amount is in compensation of
Landlord's additional cost of processing late payments. In addition, any rent
which is not paid when due, including monthly rent, will accrue interest at a
late rate charge of First Union Prime Rate plus 2.5% per annum, as said rate is
reasonably determined by Landlord from published reports, (but in no event in an
amount in excess of the maximum rate allowed by applicable law) from the fifth
(5th) day after it was due until the date on which it is paid in full with
accrued interest. If Tenant is in default of the Lease for failure to pay rent,
in addition to the late charges and interest set forth above, Tenant shall be
charged with all attorney fees in connection with the collection of all sums due
Landlord. Notwithstanding the foregoing, provided Tenant is not in default of
this Lease, Tenant shall have one (1) grace period for each year of the Lease
term where Tenant will not be subject to late charge or interest for any late
payment of rent as set forth above provided Tenant pays the sums due within five
(5) days of written notice therefor.
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1.08. Owner and Broker acknowledge that Owner and Tenant (formerly
known as Phoenix Re Corporation) entered into a lease dated May 9, 1994 (the
"Other Lease") for 24,238 rentable square feet on the 14th floor of the Building
for a term of fifteen (15) years commencing October 27, 1994 and expiring on
October 31, 2009.
1.09.Tenant's Expansion Option for 4,000-6,000 rentable square feet
on November 1, 1999 as more fully set forth in Article 44(a) of the Other Lease
is hereby null and void and of no further force or effect.
1.10. Tenant acknowledges that there is currently a tenant of the
Building occupying the Demised Premises. Tenant acknowledges that Landlord's
obligation hereunder to deliver the Demised Premises is conditioned upon
Landlord entering into satisfactory arrangements such tenant to vacate the
Demised Premises. Upon the execution hereof, Landlord agrees to diligently
proceed towards entering into such an arrangement with the tenant occupying the
Demised Premises. If Landlord is unable to enter into an arrangement
satisfactory to Landlord, as Landlord solely determines, for such tenant to
vacate the Demised Premises, this Lease shall be null and void and of no further
force or effect.
ARTICLE 2
USE
2.01. Tenant shall use and occupy the Demised Premises for executive
and general offices for the transaction of Tenant's business including ancillary
uses consistent with first class office building uses and permitted by law and
for no other purpose.
2.02. The use of the Demised Premises for the purposes specified in
Section 2.01 shall not include, and Tenant shall not use or permit the use of
the Demised Premises or any part thereof, for:
(a) A school of any kind other than for the training of
Tenant's employees;
(b) An employment agency; or
(c) An office for any governmental or quasi governmental
bureau, department, agency, foreign or domestic, including any autonomous
governmental corporation or diplomatic or trade mission;
(d) Any telemarketing activities or other direct selling
activities; or
(e) Any use, including executive and general office use, which
results in a density of a population of more than one person for every 200
rentable square feet.
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2.03. Tenant shall obtain and maintain any governmental license or
permit, other than a Certificate of Occupancy and any other permits in
connection with Landlord's Work, which shall be required for the proper and
lawful conduct of Tenant's business in the Demised Premises, or any part
thereof. Tenant shall at all times comply with the terms and conditions of each
such license or permit.
2.04. Tenant shall not at any time use or occupy, or do or permit
anything to be done in the Demised Premises, in violation of the Certificate of
Occupancy (or other similar municipal ordinance) governing the use and
occupation of the Demised Premises or for the Building.
2.05. Landlord represents that it shall continue to maintain the
Building as presently used as a first class office building, including such
other ancillary uses as are presently permitted under applicable zoning
ordinances, as well as those uses which are presently lawfully utilized in the
atrium or in the Building known as 379 Thornall Street, Edison, New Jersey.
Landlord shall comply with all licenses and permits required of it to maintain
and operate the Demised Premises and the Building and the atrium area. Landlord
represents that there are existing Certificates of Occupancy to allow occupancy
for the purposes presently used in the Building and the atrium area. Landlord
further represents that Tenant's use, as described in this Article 2, is
permitted under the zoning ordinances, but such occupancy is subject to
compliance with applicable codes respecting the completion of the Demised
Premises.
ARTICLE 3
PREPARATION OF THE DEMISED PREMISES
3.01. The Demised Premises shall be completed and prepared for
Tenant's occupancy in the manner, and subject to the terms, conditions and
covenants, set forth in Exhibit C. The facilities, materials, and work so to be
furnished, installed, and performed in the Demised Premises by Landlord at its
expense are hereinafter and in Exhibit C referred to as "Landlord's Work". Such
other installations, materials, and work which may be undertaken by or for the
account of Tenant to equip, decorate, and furnish the Demised Premises for
Tenant's occupancy, commonly called finishing trades work, are hereinafter and
in Exhibit C called "Tenant's Finish Work."
3.02. Landlord and Tenant acknowledge that Tenant shall be obligated
to restore the Demised Premises by the end of the term, including such renewals
thereto, or at any earlier expiration date. For purposes of this Lease, and
specifically without limitation, for purposes of Article 3, Article 13 and
specifically without limitation, Section 13.02, and Article 23, references to
"restoration" or to the obligation of Tenant "to restore", shall mean the
demolition of all of Landlord's Work and Tenant's Finish Work and of all work
thereafter performed by or on behalf of Tenant in connection with Tenant Changes
such that the Demised Premises are delivered to Landlord in the same manner and
in the same condition as existed prior to Landlord's Work or Tenant's Finish
Work as set forth in Exhibit C. If there are any changes to the base Building
systems as a result of Landlord's Work, Tenant's Finish Work or the installation
of the stairway between the 12th and 14th floor, Tenant shall be required to
restore
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such base Building systems to their condition prior to the performance of
Landlord's Work, Tenant's Finish Work or the installation of the stairway.
Landlord agrees that Tenant shall have the right, but shall be under no
obligation, to request Landlord to restore the Demised Premises upon written
notice to such effect given not later than sixty (60) days prior to the
expiration of the term. If Tenant requests Landlord to restore the Demised
Premises as aforesaid, then Tenant's restoration obligation shall be limited to
payment of such demolition costs as are specific to Tenant's then constructed
Demised Premises based upon the then applicable labor costs, as may be
escalated, and upon the then applicable garbage hauling costs, as may be
escalated, and the quantities so involved so reduced at Landlord's discretion.
3.03. Landlord agrees at its sole cost to modify the common area
lobby of the 12th floor to a first class condition consistent with Landlord's
Building standard lobbies, such renovation to be performed along with Landlord's
Work.
ARTICLE 4
WHEN DEMISED PREMISES READY FOR OCCUPANCY
4.01. The Demised Premises shall be deemed ready for occupancy on
the earliest date on which all of the following conditions have been met:
(a) A Certificate of Occupancy (temporary or final) has been
issued by the applicable governmental authorities, permitting Tenant's use of
the Demised Premises for the purposes for which the same have been leased.
(b) Landlord's Work, and so much of Tenant's Finish Work as
Landlord shall have undertaken in accordance with Exhibit C or by separate
letter agreement, in the Demised Premises have been substantially completed, and
same shall be so deemed notwithstanding the fact that minor or insubstantial
details of construction, mechanical adjustment, or decoration or special Finish
Work requested by Tenant, such as cabinetry remain to be performed, the
non-completion of which does not materially interfere with Tenant's use of the
Demised Premises.
(c) Reasonable means of access and facilities necessary to
Tenant's use and occupancy of the Demised Premises, including corridors,
elevators and stairways, and heating ventilating, air conditioning, sanitary,
water, and electrical facilities, have been installed and are in good operating
order and available to Tenant.
4.02. If making the Demised Premises ready for occupancy shall be
delayed by any act or omission of Tenant or any of its employees, agents or
contractors or any failure (not due to any act or omission of Landlord or any of
its employees, agents or contractors) to plan or execute Tenant's Finish Work
diligently or by reason of Tenant's failure to submit Tenant's plans and
specifications in the manner set forth in this Lease, the Demised Premises shall
be deemed ready for occupancy on the date when they would have been ready but
for such delay. In order for there to be deemed a delay in Landlord's Work,
Landlord shall within twenty-four (24) hours of the inception of such delay
advise Tenant that a tenant delay has occurred.
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4.03. It shall be conclusively presumed that Landlord's Work has
been satisfactorily completed (except for latent defects) as of the Commencement
Date, unless within ninety (90) days after such date Tenant shall give Landlord
notice specifying the respects in which the Demised Premises were not in
satisfactory condition.
4.04. Tenant shall have the right to present Landlord with a written
list of incomplete or defective Landlord's Work or Tenant's Finish Work (the
"Punch List") provided however that Tenant shall provide such Punch List within
ninety (90) days from when Tenant shall have taken actual possession of the
Demised Premises (or any portion thereof) based on inspection with
representatives of Tenant and Landlord present. Landlord shall proceed
diligently to complete all such Punch List items within thirty (30) days after
receipt of Tenant's Punch List and such additional time as may be reasonably
required because of the nature of the defect, unavailability of materials or
supplies or other reasons not subject to Landlord's control.
ARTICLE 5
ADDITIONAL RENT
5.01. For the purpose of Sections 5.01 through 5.03.
(a) "Taxes" shall mean real estate taxes, special and
extraordinary assessments and governmental levies against the Land and Building
of which the Demised Premises (but excluding therefrom that portion of the real
estate taxes directly attributable to improvements made by other tenants in the
Building beyond Landlord's allowances) are a part provided, however, if at any
time during the term of this Lease the method of taxation prevailing at the date
of this Lease shall be altered so that in lieu of or as a substitute for any or
all of the above there shall be assessed, levied or imposed (i) a tax,
assessment, levy, imposition or charge based on the income or rents received
from the Building whether or not wholly or partially as a capital levy or
otherwise; or (ii) a tax, assessment, levy, imposition or charge measured by or
based in whole or in part upon all or any part of the Land and/or Building and
imposed upon Landlord; or (iii) a license fee measured by the rents; or (iv) any
other tax, assessment, levy, imposition, charge or license fee however described
or imposed except as may otherwise be provided herein, then all such taxes,
assessments, levies, impositions, charges or license fees or the part thereof so
measured or based shall be included in the definition of "Taxes." Such
determination of Taxes shall be computed as if Landlord owns no assets other
than the Building and had no income other than from the Building. All Taxes
imposed as special assessments shall be paid in installments whenever permitted
or whenever payment of such installments is financially beneficial to tenants.
Excluded from the definition of Taxes shall be late interest or penalties
payable as a result of Landlord's late payment of Taxes, Landlord's inheritance
estate, gift and income and transfer taxes.
(b) "Base Taxes" shall mean the assessed valuation of the Land
and Building, assuming the Building was 100% occupied, multiplied by the tax
rate for the Tax Year 2000.
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(c) "Tax Year" shall mean each calendar year for which Taxes
are levied by any governmental authority.
(d) "Operational Year" shall mean each calendar year
commencing with calendar year 2001.
(e) "Tenant's Proportionate Share of Increase" shall mean
7.97% of the increase in Taxes in any Operational Year in excess of the Base
Taxes. Tenant's Proportionate Share of Increase for the first Operational Year
shall be prorated to reflect the actual occupancy by Tenant for said Operational
Year. With respect to the calculation of Tenant's Proportionate Share, in the
event the rentable square footage of the Building is physically increased or
decreased, the Tenant's Proportionate Share shall equally be adjusted based upon
the total rentable square footage of the Building as may be adjusted as compared
to Tenant's rentable square footage.
(f) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase in Taxes for the projected Operational Year
divided by twelve (12) and payable monthly by Tenant to Landlord as additional
rent.
5.02. Commencing with the first Operational Year and thereafter,
Tenant shall pay to Landlord as additional rent for the then Operational Year,
Tenant's Projected Share of Increase in Taxes in equal monthly installments,
which payment shall be made along with the fixed rent.
5.03. After the expiration of each Operational Year, Landlord shall
furnish to Tenant a written statement of the Taxes incurred for such Operational
Year as well as Tenant's Proportionate Share of Increase, if any. If the
statement furnished by Landlord to Tenant pursuant to this Section at the end of
the then Operational Year shall indicate that Tenant's Projected Share of
Increase exceeded Tenant's Proportionate Share of Increase, Landlord shall
either forthwith pay the amount of excess directly to Tenant concurrently with
the statement or, if the excess is less than $1,000.00, credit same against
Tenant's next monthly installment of rent. If such statement furnished by
Landlord to Tenant shall indicate that the Tenant's Proportionate Share of
Increase exceeded Tenant's Projected Share of Increase for the then Operational
Year, Tenant shall forthwith pay the amount of such excess to Landlord within
thirty (30) days of Tenant's receipt of Landlord's statement.
5.04. As used in Sections 5.04 through 5.06:
(a) "Operating Expenses" shall mean any or all expenses
incurred by Landlord in connection with the operation of the Land and Building
of which the Demised Premises are a part, as determined in accordance with sound
management practices in accordance with accounting principals generally used in
the commercial real estate industry consistently applied, including all expenses
incurred as a result of Landlord's compliance with any of its obligations
hereunder other than Landlord's Work and such expenses shall include: (i)
salaries, wages, medical, surgical and general welfare benefits, (including
group life insurance) and
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pension payments of employees of Landlord, but only to the extent the services
of such employees are rendered with respect to the operation and maintenance of
the Building; (ii) social security, unemployment, and payroll taxes, workers'
compensation, disability coverage, uniforms, and dry cleaning for the employees
referred to in Subsection (i); (iii) the cost for the Building and common areas
of all charges for oil, gas, common and public service area electricity
(including, but not limited to, fuel cost adjustments), steam, heat,
ventilation, air-conditioning, heating, and water including any taxes on any
such utilities, but excluding from Operating Expenses the Landlord's cost,
including taxes thereon, of electric energy, other than for heating and
air-conditioning, furnished to the Demised Premises (which electric energy so
furnished shall be paid for by Tenant pursuant to the provisions of Article 15
hereof); (iv) the cost of all premiums and charges for the following insurances:
rent, casualty, liability, fidelity and war risk (if obtainable from the United
States Government all of which premiums and charges shall be commercially
reasonable); (v) the cost of all building and cleaning supplies for the common
areas of the Building and charges for telephone for the Building; (vi) the cost
of all charges for management, window cleaning, security services, if any, and
janitorial services, and any independent contractor performing work included
within the definition of operating expenses; (vii) reasonable legal and
accounting services and other professional fees and disbursements incurred in
connection with the operation and management of the Land and Building (other
than as related to new leases, enforcing Landlord's rights under existing
leases, or sales of the Building, fees and charges for financing, refinancing,
syndications); (viii) general maintenance of the Building and the cost of
maintaining and replacing the landscaping; (ix) maintenance of the common area;
(x) capital expenditures, including the purchase of any item of capital
equipment or the leasing of capital equipment which have the effect of reducing
the expenses which would otherwise be included in Operating Expenses, the costs
of which shall be included in Operating Expenses for the Operational Year in
which the costs are incurred and subsequent Operational Years on a straight-line
basis, to the extent that such items are amortized over the actual life (but not
more than ten (10) years of the expenditure or equipment), with an interest
factor equal to the interest rate at the time of Landlord's having made said
expenditure; and (xi) that portion of the cost of any capital expenditures
incurred in connection with the operation of the Land and Building amortized on
a straight line basis, to the extent that such items are amortized over the
actual life, but not more than ten years, with an interest factor equal to the
interest rate, at the time of Landlord's having made said expenditure.
If during all or part of the Base Year or any
Operational Year, Landlord shall not furnish any particular item(s) of work or
service (which would otherwise constitute an Operating Expense hereunder) to
portions of the Land or Building due to the fact that (i) such portions are not
occupied or leased; (ii) such items of work or service is not required or
desired by the tenant of such portion; (iii) such tenant is itself obtaining and
providing such item of work or service; or (iv) for other reasons, then, for the
purposes of computing Operating Expenses, the amount for such item and for such
period shall be deemed to be increased by an amount equal to the additional
costs and expenses which would reasonably have been incurred during such period
by Landlord if it had at its own expense furnished such item of work or services
to such portion of the Building or such tenant.
Landlord agrees that the sum of all Proportionate Shares
of all tenants of increases in Operating Expenses for any Operational Year shall
not exceed the actual
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increases in Operating Expanses for such Operational Year when the actual
Operating Expenses are so finally determined.
Notwithstanding the foregoing, the following costs and
expenses shall not be included in Operating Expenses:
(1) Executives' salaries (and all related compensation)
above the grade of building manager;
(2) Amounts received by Landlord through proceeds of
insurance except to the extent they are compensation for sums previously
included in Operating Expenses hereunder;
(3) Cost of repairs or replacements incurred by reason
of fire or other casualty or condemnation to the extent Landlord is compensated
therefor;
(4) Advertising and promotional expenditures (including
"open houses" or broker's parties);
(5) Costs incurred in performing work or furnishing
services for any tenant (including Tenant), whether at such tenant's or at
Landlord's expense, to the extent that such work or service is in excess of any
work or service that Landlord is obligated to furnish to or for Tenant at
Landlord's expense;
(6) Depreciation, except as provided above for permitted
capital expenditures;
(7) Brokerage commissions;
(8) Taxes (as hereinbefore defined);
(9) The cost of electricity (for other than heating and
air-conditioning) furnished to the Demised Premises or any other space leased to
tenants as reasonably estimated by Landlord;
(10) Refinancing costs and mortgage interest and
amortization payments;
(11) Leasing commissions;
(12) Costs of preparing tenantable space for a tenant's
initial occupancy or lease renewal or extension and costs of relocating tenants
of the Building;
(13) Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by Landlord;
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(14) Interest on and amortization of debts, payments of
ground rent and other payments due under ground lease;
(15) Costs for acquisition or leasing of sculpture,
paintings or other objects of art;
(16) The cost of any additions to the square foot area
of the Building above the square foot area of the Building on the Commencement
Date;
(17) The cost of any work or services performed or other
expenses incurred in connection with installing, operating and maintaining any
specialty service or facility other than common Building facilities (e.g. a
skydeck, broadcasting facility or any luncheon, athletic or recreational club);
(18) Brokerage commission and legal costs (including
attorneys fees and disbursements) incurred in procuring tenants or renewing
leases or in connection with any mortgaging, financing, refinancing, sale or
entering into or extending or modifying any ground or underlying lease;
(19) Costs incurred in connection with a transfer or
disposition of all or any part of the Building or Land or any interest therein
or in Landlord or any entity comprising Landlord;
(20) Attorney's fees and Court costs in connection with
disputes with tenants of the Building unless such disputes relate to matters
which affect Tenant's (or any other tenant's) use or occupancy, or enjoyment of,
the Building, the Demised Premises or the space occupied by any such tenant;
(21) The cost of capital expenditures except as
expressly permitted herein;
(22) Any cost represented in an amount paid or allocated
to an affiliate of Landlord to the extent the same is materially in excess of
the amount which would have been paid in the absence of such a relationship
(except that any amount expressly stated in this Lease shall be deemed to be not
in excess);
(23) Costs incurred in the removal, containment,
encapsulation, disposal of or repair or cleaning of areas effected by asbestos
or other substances installed by persons other than Tenant in the Building which
must be removed or treated as required by law;
(24) Any other expenditure which would otherwise be an
Operating Expense to the extent Landlord is reimbursed therefore by condemnation
award or insurance proceeds, or by refund, credit, warranty, service, contract
or otherwise; and
(25) Costs incurred to correct structural defects in the
initial construction of the Building.
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(b) "Operational Year" shall mean each calendar year
commencing with calendar year 2001.
(c) "Base Year" shall mean calendar year 2000.
(d) "Tenant's Proportionate Share of Increase" shall mean
7.97% (which percentage may be adjusted as described above in Section 5.01(e),
multiplied by the increase in Operating Expenses for the Operational Year over
Operating Expenses for the Base Year. For purposes hereof, the Tenant's
Proportionate Share of Increase has been computed based upon a total square
footage of the Building equal to 304,000 square feet, and a total square footage
of the Demised Premises equal to 24,238 square feet.
(e) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase for the projected Operational Year divided by
twelve (12) and payable monthly by Tenant to Landlord as additional rent which
payment shall be made along with the fixed rent.
5.05. Commencing with the first Operational Year after Landlord
shall be entitled to receive Tenant's Proportionate Share of Increase, Tenant
shall pay to Landlord as additional rent for the then Operational Year, Tenant's
Projected Share of Increase.
5.06. After the expiration of the first Operational Year and for
each Operational Year thereafter, Landlord shall furnish to Tenant a written
detailed statement of the Operating Expenses (certified to be true and correct
by the Chief Operating Officer of Landlord) incurred for such Operational Year
which statement shall set forth Tenant's Proportionate Share of Increase, if
any. If the statement furnished by Landlord to Tenant, pursuant to this Section,
at the end of the then Operational Year shall indicate that Tenant's Projected
Share of Increase exceeded Tenant's Proportionate Share of Increase, Landlord
shall either forthwith pay the amount of excess directly to Tenant concurrently
with the statement or (if such excess is less than $1,000.00) credit same
against Tenant's next monthly installment of rent. If such statement furnished
by Landlord to Tenant hereunder shall indicate that the Tenant's Proportionate
Share of Increase exceeded Tenant's Projected Share of Increase for the then
Operational Year, Tenant shall forthwith pay the amount of such excess to
Landlord within thirty (30) days of Tenant's receipt of Landlord's statement.
5.07. Every statement given by Landlord pursuant to Sections 5.03
and 5.06 shall be conclusive and binding upon Tenant unless (i) within ninety
(90) days after the receipt of such statement Tenant shall notify Landlord that
it disputes the correctness of the statement, specifying the particular respects
in which the statement is claimed to be incorrect; and (ii) if such dispute
shall not have been settled by agreement, shall submit the dispute to judicial
proceedings within ninety (90) days after receipt of the statement. Within such
90 day period Tenant shall have the right to review, examine and audit
Landlord's books and records for the applicable calendar year which pertain to
the Operating Expenses and which are reasonably required to verify the accuracy
of any component of Landlord's Operating Statements. Landlord shall also provide
such additional reasonable information as is available based upon Tenant's
reasonable request. Landlord's documents shall be made available to Tenant at
Landlord's
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offices in the Building and shall also be available for photocopy. Tenant agrees
that it and its representatives shall conduct a review with complete
confidentiality and shall enter into a reasonable confidentiality agreement with
Landlord respecting the review, examination and audit. Pending the determination
of such dispute by agreement or judicial proceedings as aforesaid, Tenant shall,
within thirty (30) days after receipt of such statement, pay additional rent in
accordance with Landlord's statement and such payment shall be without prejudice
to Tenant's position. If the dispute shall be determined in Tenant's favor,
Landlord shall forthwith pay Tenant the amount of Tenant's overpayment of rents
resulting from compliance with Landlord's statement. If, after judicial
proceeding, it is determined that the Landlord's Operating Statements vary by
more than five percent (5%), then Landlord shall reimburse Tenant for Tenant's
reasonable costs for payment of an auditor or accountant. If Landlord's
statement is confirmed, Tenant shall reimburse Landlord for Landlord's auditor
or accountant.
ARTICLE 6
SUBORDINATION, NOTICE TO MORTGAGEES
6.01. Subject to Section 6.02 hereof, this Lease, and all rights of
Tenant hereunder are and shall be subject and subordinate in all respects to all
mortgages which may now or hereafter affect the Land and/or the Building and/or
any of such leases, whether or not such mortgages shall also cover other lands
and/or buildings, to each and every advance made or hereafter to be made under
such mortgages, and to all renewals, modifications, replacements, and extensions
of such mortgages and spreaders and consolidations of such mortgages. This
Section shall be self-operative and no further instrument of subordination shall
be required. In confirmation of such subordination, Tenant shall promptly
execute and deliver an instrument that Landlord or the holder of any such
mortgage or any of their respective successors in interest may reasonably
request to evidence such subordination. The mortgages to which this Lease is, at
the time referred to, subject and subordinate are hereinafter sometimes called
"superior mortgages" and the holder of a superior mortgage or its successor in
interest at the time referred to is sometimes hereinafter called a "superior
mortgagee."
6.02. Landlord shall make a good faith effort to obtain from the
Mortgagee a Subordination, Non-Disturbance and Attornment Agreement (the
"Non-Disturbance Agreement") in favor of Tenant utilizing such Mortgagee's
standard form. Such Mortgagee's Non-Disturbance Agreement form is attached as
Exhibit G Landlord agrees, within 120 days of the execution of this Lease and
Tenant's execution of Exhibit G to promptly obtain Mortgagee's approval to
execute the Non-Disturbance Agreement. If Tenant fails to accept the
Non-Disturbance Agreement as described in Exhibit G attached, it shall be
considered that Landlord has satisfied any requirement respecting the existing
Mortgagee. As to any future mortgagee, Landlord agrees that it shall use its
best efforts to obtain a similar Non-Disturbance Agreement which Tenant shall
accept as a condition to a future subordination by Tenant under Section 6.01.
6.03. Landlord represents that the Land and Building are not subject
to any ground, underlying or overriding leases.
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ARTICLE 7
QUIET ENJOYMENT
7.01. So long as Tenant pays all of the fixed rent and additional
rent due hereunder and performs all of Tenant's other obligations hereunder,
Tenant and any person entitled under this Lease to claim through or under Tenant
shall peaceably and quietly have, hold, and enjoy the Demised Premises subject,
nevertheless, to the obligations of this Lease and, as provided in Article 6, to
the superior mortgages.
ARTICLE 8
ASSIGNMENT, MORTGAGING, SUBLETTING
8.01. Neither this Lease, nor the term and estate hereby granted,
nor any part hereof or thereof, nor the interest of Tenant in any sublease, or
the rentals thereunder, shall be assigned, mortgaged, pledged, encumbered or
otherwise transferred by Tenant, and neither the Demised Premises, nor any part
thereof shall be encumbered in any manner by reason of any act or omission on
the part of Tenant or anyone claiming under or through Tenant or shall be
sublet, or offered or advertised for subletting, or be used or occupied or
permitted to be used or occupied, or utilized for desk space or for mailing
privileges, by anyone other than Tenant or any entity which would be a permitted
subtenant or a permitted assignee under Section 8.06 for any purpose other than
as permitted by this Lease, without the prior written consent of Landlord in
every case, except as expressly otherwise provided in this Article. Landlord's
consent to a sublease or an assignment of the Demised Premises shall not be
unreasonably withheld. Landlord shall not be deemed unreasonable for the
purposes of consent for a sublease or an assignment if Landlord withholds its
consent for any of the following: (i) in Landlord's belief the sublessee or
assignee is known as a non-performing or litigious tenant; (ii) the sublessee's
or assignee's use will burden the parking facilities of the Building; (iii) the
sublessee's or assignee's use will violate any provision of this Lease; (iv) if
such sublessee or assignee is an environmental nuisance; (v) if in Landlord's
reasonable discretion the Landlord does not find that the financial capacity of
the sublessee or assignee is adequate; or (vi) for any other reason which shall
not be unreasonable for Landlord to withhold it's consent.
8.02. If this Lease be assigned, whether or not in violation of the
provisions of this Lease, Landlord may collect rent from the assignee. If the
Demised Premises or any part thereof be sublet or be used or occupied by anybody
other than Tenant or any permitted subtenant or assignee under Section 8.06,
whether or not in violation of this Lease, Landlord may, after default by Tenant
and expiration of Tenant's time to cure such default, collect rent from the
undertenant or occupant. In either event, Landlord may apply the net amount
collected to the rents herein reserved, but no such assignment, underletting,
occupancy or collection shall be deemed a waiver of any of the provisions of
Section 8.01, or the acceptance of the assignee, undertenant or occupants as
Tenant, or a release of Tenant from the further performance by Tenant of
Tenant's obligations under this Lease. The consent by Landlord to assignment,
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mortgaging, underletting or use or occupancy by others shall not in any way be
considered to relieve Tenant from obtaining the express written consent of
Landlord to any other or further assignment, mortgaging or underletting or use
or occupancy by others not expressly permitted by this Article.
8.03. The following provisions shall govern in connection with the
subletting of all or a portion of the Demised Premises:
(a) Tenant shall submit in writing to Landlord (i) the name of
the proposed subtenant; (ii) the nature and character of the proposed
subtenant's business, and the intended use to be made of the Demised Premises by
the proposed subtenant; (iii) the terms and conditions of the proposed sublease;
and (iv) such reasonable financial information as Landlord may request regarding
the proposed subtenant.
(b) Within fifteen (15) business days of Landlord's receipt of
the information described in (a) above, Landlord, at Landlord's election may (i)
elect to sublease the Demised Premises directly from Tenant either upon (x) the
same terms and conditions offered to the proposed subtenant or, (y) upon the
same terms and conditions as set forth in this Lease; or (ii) cancel this Lease
as to that portion of the Demised Premises which Tenant desires to sublease, in
which event Tenant agrees to surrender all of its right, title, and interest
hereunder and Landlord may thereafter enter into a direct Lease with the
proposed subtenant or with any other persons as Landlord may desire; or (iii)
consent to the subletting on such terms and conditions as established by
Landlord, including Landlord's participation in any rentals received by Tenant.
Notwithstanding the foregoing, if during the first three (3) years of the Lease
term, Tenant submits a request for a proposed subtenant(s) for less than 12,000
rentable square feet whose subtennancy shall commence during the first three (3)
years of the Lease term, Landlord shall have no right to recapture as set forth
in (i) above and Landlord shall have no right to participate in any rentals as
set forth in (iii) above.
(c) As a condition to Landlord's consent, if given under (b)
above, Landlord shall have obtained consent to such proposed subletting by a
superior mortgagee, provided such superior mortgagee requires consent to the
subletting.
(d) In connection with any subletting, Tenant shall not offer
the Demised Premises, or any part thereof, to any other tenant in the Building
or their subsidiaries or affiliates at a rental rate less than the current
rental rate for office buildings in the surrounding area.
8.04. Tenant shall remain fully liable for the performance of all
Tenant's obligations hereunder notwithstanding any subletting provided for
herein (except to Landlord), and without limiting the generality of the
foregoing, shall remain fully responsible and liable to Landlord for all acts
and omissions of any subtenant or anyone claiming under or through any subtenant
which shall be in violation of any of the obligations of this Lease and any such
violation shall be deemed to be a violation by Tenant.
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8.05. Tenant shall not, without the prior written consent of
Landlord, assign this Lease, and the provisions of Section 8.03 with respect to
subletting shall equally apply to any assignment of this Lease. Tenant herein
named, or any immediate or remote successor in interest of Tenant herein named,
shall remain liable jointly and severally (as a primary obligor) with its
assignee and all subsequent assignees for the performance of Tenant's
obligations hereunder. In the event that Tenant hereunder is a corporation
(other than one whose shares, now or in the future, are regularly and publicly
traded on a recognized stock exchange, including over the counter, or is a
public company or merges with a public company), then any substantial change in
the ownership of and/or power to vote the majority of the outstanding capital
stock of Tenant, other than by inheritance or operation of law, shall be deemed
an assignment of this Lease and the provisions with respect to assignment shall
be applicable.
8.06. Notwithstanding anything to the contrary contained in this
Article with respect to assignment or subletting, Landlord shall consent to any
assignment and/or subletting (i) to any parent, affiliate or wholly-owned
subsidiary of Tenant (as defined in Rule 240.12b-2 under the Securities
Exchange Act of 1934) or (ii) to any corporation or other entity which succeeds
to all or substantially all of the assets and business of Tenant provided the
resulting entity has a financial condition equal to or greater than Tenant's as
of the date hereof, landlord's consent shall also not be required with respect
to (a) any transfer of corporate shares in or of Tenant which are publicly
traded on a recognized stock exchange or over-the-counter market; (b) any
transfer of corporate shares or other interests, or the creation of additional
corporate shares or other interests, which are not so publicly traded, provided
such transfer or creation is for a good business purpose and not for the sole
purpose transferring this Lease; (c) any sale or transfer of all or
substantially all of the Tenant's assets other than in connection with
(ii) above provided the resulting entity or owner shall have a financial
capacity and net worth equal to or greater than Tenant's as of the date of this
Lease; (d) any transfer of corporate shares or other interests in the Tenant
following the death of any shareholder or other principal. Tenant shall so
notify Landlord of all of the foregoing and provide Landlord such additional
reasonable available information as Landlord reasonably requests or with
respect to which Landlord is entitled.
8.07. Tenant agrees that in connection with each separate request
for a Landlord's consent to a subletting or assignment (including the review of
a statutory or other name change), Tenant shall pay to Landlord the sum of
$500.00 representing a reasonable compensation to Landlord for the
administration costs of evaluating and responding to the request.
8.08. Tenant further agrees that it shall not place any signs on the
Land or on the windows located in the Demised Premises indicating that all or
any portion of the Demised Premises are available for subleasing or assignment.
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ARTICLE 9
COMPLIANCE WITH LAWS AND REQUIREMENTS
OF PUBLIC AUTHORITIES
9.01. Tenant shall give prompt notice to Landlord of any notice it
receives of the violation of any law or requirement of public authority, and at
its expense shall comply with all laws and requirements of public authorities
which shall, with respect to the Demised Premises or the use and occupation
thereof, or the abatement of any nuisance, impose any violation, order or duty
on Landlord or Tenant, arising from (i) Tenant's specific use (other than
general office use) of the Demised Premises; (ii) the manner of conduct of
Tenant's business or operation of its installation, equipment or other property
therein; (iii) any cause or condition created by or at the instance of Tenant,
other than by Landlord's performance of any work for or on behalf of Tenant; or
(iv) the breach of any of Tenant's obligations hereunder. Furthermore, Tenant
need not comply with any such law or requirement of public authority so long as
Tenant shall be contesting the validity thereof, or the applicability thereof to
the Demised Premises, in accordance with Section 9.02.
Nothing contained herein shall be construed to require Tenant
to make structural alterations to the Building except to the extent that same
are required by reason of Tenant's specific use (other than general office).
Further, Tenant shall have no obligation under this Section 9.01 with respect to
any non-compliance of the Demised Premises or the Building with any law or
requirement of public authority existing on the Commencement Date of this Lease
unless caused by Tenant, its agents, employees and/or invitees. Tenant shall
have no obligation hereunder with respect to any law which requires the removal
and capsulation or abatement of any hazardous materials or substances including
asbestos that are located in the Building on the Commencement Date (unless
placed there by Tenant or its agents) and which on the Commencement Date are
considered hazardous materials or substances requiring removal by any such
public authority. Landlord represents that the Building does not contain any
asbestos or any other toxic materials or environmentally hazardous materials
which are considered such under any applicable building code or BOCA Code at the
time the Building received its initial Certificate of Occupancy. Without any
liability to Tenant, Landlord shall be liable to remove any such toxic
environmentally hazardous material if such representation proves untrue.
9.02. Tenant may, at its expense (and if necessary, in the name of
but without expense to Landlord) contest, by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any law or requirement of public authority, and Landlord shall
cooperate with Tenant in such proceedings provided that:
(a) Tenant shall defend, indemnify, and hold harmless Landlord
against all liability, loss or damage which Landlord shall suffer by reason of
such noncompliance or contest, including reasonable attorney's fees and other
expenses reasonably incurred by Landlord;
(b) Such non-compliance or contest shall not constitute or
result in any violation of any superior mortgage, or, if such superior mortgage
shall permit such non-
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compliance or contest on condition of the taking of action or furnishing of
security by Landlord, such action shall be taken and such security shall be
furnished at the expense of Tenant; and
(c) Tenant shall keep Landlord advised as to the status of
such proceedings.
9.03 Landlord states that, to the best of its knowledge, the
Building complies with Title III of the Americans with Disabilities Act, (the
Act), as the Act applies to existing structures constituting commercial
facilities. Landlord further states that Landlord's Work, as described in
Exhibit C, shall comply with the Act under Title III for existing structures
which are commercial facilities. If, after the Demised Premises are ready for
occupancy in accordance with Article 4, the Act requires further changes to the
Building when occasioned by any other tenant, then such changes shall not be
Tenant's responsibility. If, after the Demised Premises are ready for occupancy,
further changes to the Building, including the Demised Premises, are required by
virtue of the Lease and/or Tenant's specific use and occupancy other than as
general office uses, such changes shall be Tenant's responsibility.
ARTICLE 10
INSURANCE
10.01. Tenant shall not violate, or permit the violation of, any
condition imposed by the all-risk casualty policy issued for the Building and
shall not do anything, or permit anything to be kept, in the Demised Premises
which would increase the fire or other casualty insurance rate on the Building
or the property therein over the rate which would otherwise then be in effect,
(unless Tenant pays the resulting increased amount of premium as provided in
Section 10.02) or which would result in insurance companies of good standing
refusing to insure the Building or any of such property in amounts and at normal
rates reasonably satisfactory to Landlord. Tenant shall not be in violation
hereof unless Tenant first receives written notice thereof. However, Tenant
shall not be subject to any liability or obligation under this Article by reason
of the proper use of the Demised Premises for the purposes permitted by Article
2.
10.02. If, by reason of any act or omission on the part of Tenant,
the rate of fire insurance with extended all-risk coverage on the Building or
equipment or other property of Landlord or other tenants shall be higher than it
otherwise would be, Tenant shall reimburse Landlord, on demand, for that part of
the premiums for fire insurance and extended all-risk coverage paid by Landlord
because of such act or omission on the part of Tenant, which sum shall be deemed
to be additional rent and collectible as such. If such increase is attributable
to the acts or omissions of other tenants as well, the additional premiums shall
be allocated among all applicable tenants, including Tenant.
10.03. In the event that any dispute should arise between Landlord
and Tenant concerning insurance rates, a schedule or "make up" of rates for the
Building or the Demised Premises, as the case may be, issued by the Fire
Insurance Rating Organization of New Jersey or
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other similar body making rates for fire insurance and extended coverage for the
premises concerned, shall be presumptive evidence of the facts therein stated
and of the several items and charges in the fire insurance rates with extended
coverage then applicable to such premises.
10.04. Tenant shall obtain and keep in full force and effect during
the term of this Lease, at its own cost and expense, Comprehensive General
Liability Insurance, such insurance to afford protection in an amount of not
less than $1,000,000 for injury or death to any one person, $3,000,000 for
injury or death arising out of any one occurrence, and $1,000,000 for damage to
property, protecting and naming the Landlord, Alfieri Property Management as
additional insured and the Tenant as insured against any and all claims for
personal injury, death or property damage occurring in, upon, adjacent, or
connected with the Demised Premises and any part thereof. Tenant shall name such
other insureds associated with the Building as Landlord reasonably requests.
Tenant shall pay all premiums and charges therefor and upon failure to do so
Landlord may, but shall not be obligated to, make payments, and in such latter
event the Tenant agrees to pay the amount thereof to Landlord on demand and said
sum shall be deemed to be additional rent, and in each instance collectible on
the first day of any month following the date of notice to Tenant in the same
manner as though it were rent originally reserved hereunder, together with
interest thereon at the rate of two points in excess of Prime Rate of the First
Union. Tenant will use commercially reasonable efforts to include in such
Comprehensive General Liability Insurance policy a provision to the effect that
same will be non-cancelable, except upon reasonable advance written notice to
Landlord. Original insurance certificates evidencing the foregoing requirement
shall be deposited with Landlord together with any renewals, replacements or
endorsements thereof to the end that said insurance shall be in full force and
effect for the benefit of the Landlord during the term of this Lease.
10.05. Landlord and Tenant agree to use their best efforts to
include in each of its insurance policies a waiver of the insurer's right of
subrogation against the other party or if such waiver shall be unobtainable or
unenforceable (a) an express agreement that such policy shall not be invalidated
if the insured waives or has waived before the casualty, the right of recovery
against any party responsible for a casualty covered by the policy or (b) any
other form of permission for the release of the other party. If such waiver,
agreement, or permission shall not be or shall cease to be obtainable without
additional charge, or at all, the insured party shall so notify the other party
after learning thereof. In such a case, if the other party shall agree in
writing to pay the insurer's additional charge therefor, such waiver agreement
or permission shall, if obtainable, be included in the policy.
10.06. Each party hereby releases the other party with respect to
any claim (including a claim for negligence) which it might otherwise have
against the other party for loss, damage, or destruction with respect to its
property (including rental value or business interruption) occurring during the
term of this Lease.
10.07 The waiver of subrogation or permission for release referred
to in Section 10.05 shall extend to the agents of each party and their employees
and, in the case of Tenant, shall also extend to all other persons and entities
occupying, using or visiting the Demised Premises in accordance with the terms
of this Lease, but only if and to the extent that such waiver or permission can
be obtained without additional charge (unless such party shall pay such
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charge). The releases provided for in Section 10.06 shall likewise extend to
such agents, employees and other persons and entities, if and to the extent that
such waiver or permission is effective as to them. Nothing contained in Section
10.06 shall be deemed to relieve either party of any duty imposed elsewhere in
this Lease to repair, restore or rebuild or to nullify any abatement of rents
provided for elsewhere in this Lease. Except as otherwise provided in Section
10.04, nothing contained in Sections 10.05 and 10.06 shall be deemed to impose
upon either party any duty to procure or maintain any of the kinds of insurance
referred to therein or any particular amounts or limits of any such kinds of
insurance. However, each party shall advise the other, upon request, from time
to time (but not more often than once a year) of all of the policies of
insurance it is carrying of any of the kinds referred to in Sections 10.01 and
10.04, and if it shall discontinue any such policy or allow it to lapse, shall
notify the other party thereof with reasonable promptness. The insurance
policies referred to in Sections 10.05 and 10.06 shall be deemed to include
policies procured and maintained by a party for the benefit of its mortgagee or
pledgee.
10.08. Landlord agrees that it shall maintain in full force and
effect all risk insurance in an amount not less than sufficient to avoid
co-insurance with respect to the Building, including the Demised Premises, the
Land, and Parking Deck. Landlord also agrees to carry loss of rent insurance so
long as such insurance may be carried on a commercially reasonable basis.
Landlord agrees that in connection with any such rent insurance, the waiver of
subrogation provision set forth above shall apply as well. Landlord shall also
maintain general public liability insurance, including contractual liability
insurance, in such amounts as are generally carried by owners of first class
office buildings in the Edison, Metro Park, New Jersey area. None of the
foregoing shall relieve Tenant of nor diminish Landlord's rights with respect to
Operating Expenses described in Article 5.
ARTICLE 11
RULES AND REGULATIONS
11.01. Tenant and its employees and agent shall faithfully observe
and comply with the Rules and Regulations annexed hereto as Exhibit E, and such
reasonable changes therein (whether by modification, elimination, or addition)
as Landlord at any time or times hereafter may make and communicate in writing
to Tenant, which do not unreasonably affect the conduct of Tenant's business in
the Demised Premises; provided, however, that in case of any conflict or
inconsistency between the provisions of this Lease and any of the Rules and
Regulations as originally promulgated or as changed, the provisions of this
Lease shall control.
11.02. Nothing contained in this Lease shall be construed to impose
upon Landlord any duty or obligation to Tenant to enforce the Rules and
Regulations or the terms, covenants, or conditions in any other lease, as
against any other tenant and Landlord shall not be liable to Tenant for
violation of the same by any other tenant or its employees, agents or visitors.
However, Landlord shall not enforce any of the Rules and Regulations in such
manner as to discriminate against Tenant or anyone claiming under or through
Tenant.
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ARTICLE 12
TENANT'S CHANGES
12.01. Tenant shall make no changes, alterations, additions,
installations, substitutions, or improvements (hereinafter Collectively called
"changes", and, as applied to changes Provided for in this Article, "Tenant's
Changes") in and to the Demised Premises without the express prior written
consent of Landlord, which consent shall not be unreasonably withheld.
All proposed Tenant's Changes shall be submitted to Landlord for
written consent at least forty five (45) days prior to the date Tenant intends
to commence such changes, such submission to include all plans and
specifications reasonably required for the work to be done, proposed scheduling,
and the estimated cost of completion of Tenant's Changes. If Landlord consents
to Tenant's Changes, Tenant may commence and diligently prosecute to completion
Tenant's Changes, under the direct supervision of Landlord.
Tenant shall pay to Landlord a commercially reasonable supervision
fee (which shall include the cost of review of the proposed Tenant's Changes)
equal to the lesser of the actual cost of the supervision or ten percent (10%)
of the certified cost of completion of Tenant's Changes. Prior to the
commencement of Tenant's Changes, Tenant shall pay to Landlord ten percent (10%)
of the estimated cost of completion (the "Estimated Payment") as additional
rent. Within fifteen (15) days after completion of Tenant's Changes, Tenant
shall furnish Landlord with a statement, certified by an officer or a principal
of Tenant to be accurate and true, of the total cost of completion of Tenant's
Changes (the "Total Cost"). If such certified statement furnished by Tenant
shall indicate that the Estimated Payment exceeded the lesser of the actual cost
of the supervision or ten percent (10%) of the Total Cost, Landlord shall
forthwith either (i) pay the amount of excess directly to Tenant concurrently
with the delivery of the certified statement or (ii) permit Tenant to credit the
amount of such excess against the subsequent payment of rent due hereunder. If
such certified statement furnished by Tenant shall indicate that the lesser of
the actual cost of the supervision or ten percent (10%) of the Total Cost
exceeded Tenant's Estimated Payment, Tenant shall, simultaneously with the
delivery to Landlord of the certified statement, pay the amount of such excess
to Landlord as additional rent.
12.02. Notwithstanding the provisions of Section 12.01, all proposed
Tenant's Changes which shall affect or alter:
(a) The outside appearance or the strength of the Building or
of any of its structural parts; or
(b) Any part of the Building outside of the Demised Premises;
or
(c) The mechanical, electrical, sanitary and other service
systems of the Building, or increase the usage of such systems;
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shall be performed only by the Landlord, at a cost to be mutually agreed upon
between Landlord and Tenant, which cost shall be commercially reasonable.
12.03. Tenant, at its expense, shall obtain all necessary
governmental permits and certificates for the commencement and prosecution of
Tenant's Changes and for final approval thereof upon completion, and shall cause
Tenant's Changes to be performed in compliance therewith and with all applicable
laws and requirements of public authorities, and with all applicable
requirements of insurance bodies, and in good and workmanlike manner, using new
materials and equipment at least equal in quality and class to the original
installations in the Building. Tenant's Changes shall be performed in such
manner as not to unreasonably interfere with or delay and (unless Tenant shall
indemnify Landlord therefor to the latter's reasonable satisfaction) as not to
impose any additional expense upon Landlord in the construction, maintenance or
operation of the Building. Throughout the performance of Tenant's Changes,
Tenant, at its expense, shall carry, or cause to be carried, workmen's
compensation insurance in statutory limits and general liability insurance for
any occurrence in or about the Building, in which Landlord and its agents shall
be named as parties insured in such limits as Landlord may reasonably prescribe,
with insurers reasonably satisfactory to Landlord. Tenant shall furbish Landlord
with reasonably satisfactory evidence that such insurance is in effect at or
before the commencement of Tenant's Changes and, on request, at reasonable
intervals thereafter during the continuance of Tenant's Changes. If any of
Tenant's Changes shall involve the removal of any fixtures, equipment or other
property in the Demised Premises which are not Tenant's Property (as defined in
Article 13), such fixtures, equipment or other property shall be promptly
replaced, at Tenant's expense, with new fixtures, equipment or other property
(as the case may be) of like utility and at least equal value. In addition,
unless Landlord shall otherwise expressly consent in writing, the Tenant shall
deliver such removed fixtures to Landlord unless Tenant is reusing such fixtures
within the Demised Premises.
12.04. Tenant, at its expense, and with diligence and dispatch,
shall procure the cancellation or discharge of all notices of violation arising
from or otherwise connected with Tenant's Changes which shall be issued by any
public authority having or asserting jurisdiction. Tenant shall defend,
indemnify and save harmless Landlord against any and all mechanic's and other
liens filed in connection with Tenant's Changes, including the liens of any
security interest in, conditional sales of, or chattel mortgages upon, any
material, fixtures or articles so installed in and constituting part of the
Demised Premises and, against all costs, expenses and liabilities incurred in
connection with any such lien, security interest, conditional sale or chattel
mortgage or any action or proceeding brought thereon. Tenant, at its expense,
shall bond over or procure the satisfaction or discharge of all such liens
within fifteen (15) days after Landlord makes written demand therefor. However,
nothing herein contained shall prevent Tenant from contesting, in good faith and
at its own expense, any such notice of violation, provided that Tenant shall
comply with the provisions of Section 9.02.
12.05. Tenant agrees that the exercise of its rights pursuant to the
provisions of this Article 12 shall not be done in a manner which would create
any work stoppage, picketing, labor disruption or dispute or violate Landlord's
union contracts affecting the Land and Building, nor interference with the
business of Landlord or any tenant or occupant of the Building.
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12.06.All of Tenant's Changes shall be subject to restoration in the
same manner and subject to the same terms and conditions as described in Section
3.02.
12.07.None of the provisions of this Article 12 shall apply to
Landlord's Work or Tenant's Finish Work described in Exhibit C.
ARTICLE 13
TENANT'S PROPERTY
13.01. All fixtures, equipment, improvements, and appurtenances
attached to or built into the Demised Premises at the commencement of or during
the term of this Lease, whether or not by or at the expense of Tenant, shall be
and remain a part of the Demised Premises, shall be deemed the property of
Landlord and shall not be removed by Tenant, except as required herein to be
restored or hereinafter in this Article expressly provided.
13.02. All business and trade fixtures, machinery and equipment,
communications equipment and office equipment, whether or not attached to or
built into the Demised Premises, which are installed in the Demised Premises by
or for the account of Tenant, without expense to Landlord, and can be removed
without permanent structural damage to the Building, and all furniture,
furnishings and other articles of movable personal property owned by Tenant and
located in the Demised Premises (all of which are sometimes called "Tenant's
Property"), shall be and shall remain the property of Tenant and shall be
removed by it at any time during the term of this Lease; provided that if any of
Tenant's Property is removed, Tenant shall repair or pay the cost of repairing
any damage to the Demised Premises or to the Building resulting from such
removal.. Tenant's trade fixtures shall include movable millwork, such as desks,
workstations, and audio-visual equipment and telecommunications equipment,
except any such removal shall be without permanent structural damage to the
Building as described above.
13.03. At or before the Expiration Date, or the date of an earlier
termination of this Lease, or as promptly as practicable after such an earlier
termination date, Tenant at its expense, shall restore the Demised Premises
subject to the provisions of Section 3.02 and shall remove all Tenant's Property
as described in Section 13.02 above. If Tenant fails to remove its Property
and/or otherwise fails to perform any restoration required of it under this
Lease, then Tenant shall be deemed a hold-over Tenant as contemplated in Article
40.
13.04. Any other items of Tenant's Property (except money,
securities, and other like valuables) which shall remain in the Demised Premises
after the Expiration Date or after a period of fifteen (15) days following an
earlier termination date, may, at the option of the Landlord, be deemed to have
been abandoned, and in such case either may be retained by Landlord as its
property or may be disposed of, without accountability, in such manner as
Landlord may see fit, at Tenant's expense. The foregoing shall not limit
Tenant's liability for failure to restore as required under this Lease.
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ARTICLE 14
REPAIRS AND MAINTENANCE
14.01. Tenant shall take good care of the Demised Premises. Tenant,
at its expense, shall promptly make all repairs, ordinary or extraordinary,
interior or exterior, structural or otherwise in and about the Demised Premises
and the Building as shall be required by reason of (i) the performance of
Tenant's Finish Work or Tenant's Changes; (ii) the installation, use or
operation of Tenant's Property in the Demised Premises by Tenant, its agents or
employees; (iii) the moving of Tenant's Property in or out of the Building; or
(iv) the misuse or neglect of Tenant or any of its employees, agents,
contractors or invitees; but Tenant shall not be responsible, and Landlord shall
be responsible, for any of such repairs as are required by reason of Landlord's
neglect or other fault in the manner of performing any of Tenant's Finish Work
or Tenant's Changes which may be undertaken by Landlord for Tenant's account or
are otherwise required by reason of neglect or other fault of Landlord or its
employees, agents, or contractors. Except if required by the neglect or other
fault of Landlord or its employees, agents, or contractors, Tenant, at its
expense, shall replace all scratched, damaged or broken doors or other glass in
or about the Demised Premises and shall be responsible for all repairs,
maintenance, and replacement of wall and floor coverings in the Demised Premises
and, for the repair and maintenance of all lighting fixtures therein.
14.02. Landlord, subject to the provisions of Section 5.04, shall
keep and maintain the Building and its fixtures, appurtenances, systems and
facilities serving the Demised Premises, in good working order, condition, and
repair and shall make with all due diligence all repairs, structural and
otherwise, interior and exterior, as and when needed in or about the Demised
Premises, except for those repairs for which Tenant is responsible pursuant to
any other provisions of this Lease. Landlord states that on the inception of
this Lease, the plumbing, mechanical, electrical, sewerage, fire protection and
sprinkler systems and the HVAC system and the elevators will be in good working
order and shall comply with applicable legal requirements.
14.03. Landlord shall have no liability to Tenant by reason of any
inconvenience, annoyance, interruption, or injury to Tenant's business arising
from Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or required by law, to make in or to any portion of the
Building or the Demised Premises, or in or to the fixtures, equipment of
appurtenances of the Building or the Demised Premises, provided that Landlord
shall use due diligence with respect thereto and shall perform such work, except
in case of emergency, at a time reasonably convenient to Tenant and otherwise in
such a manner as will not materially interfere with Tenant's use of the Demised
Premises.
ARTICLE 15
ELECTRICITY
15.01. Landlord shall furnish the electric energy that Tenant shall
require in the Demised Premises. Tenant shall pay to Landlord, as additional
rent, the costs and charges for all electric energy furnished to Tenant at the
Demised Premises, other than the electric energy costs
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and charges for the use and operation of the HVAC system (and all its component
parts) which costs shall be included as Operating Expenses under Article 5.
Additional rent for such electric energy shall be calculated and payable in the
manner hereinafter set forth.
15.02. As part of Landlord's Work described in Exhibit C, Landlord,
at Tenant's sole cost and expense, shall install an electrical meter or
sub-meter which shall measure Tenant's electrical use (other than the electric
energy costs and charges for the use and operation of the base Building HVAC
system and all of its component parts). Tenant shall pay the cost of such use to
Landlord as additional rent, based upon the actual electrical energy usage as
measured by the sub-meter, as if Tenant was a direct independent customer of the
utility company.
15.03. Landlord shall not be liable in any way to Tenant for any
failure or defect in the supply or character of electric energy furnished to the
Demised Premises by reason of any requirement, act, or omission of the public
utility serving the Building with electricity or for any other reason. Landlord
shall furnish and install all replacement lighting tubes, lamps, bulbs, and
ballasts required in the Demised Premises at Tenant's expense at a commercially
reasonable cost.
15.04. Tenant's use of electric energy in the Demised Premises shall
not at any time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Demised Premises. Landlord represents that
the electrical capacity of the Demised Premises is sufficient to satisfy the
needs of Tenant for any commercially reasonable use based upon the improvements
contemplated in Exhibit C. Landlord further states that the Landlord shall
provide electricity service to the main distribution electric buss service in
the closet located in the Demised Premises capable of providing seven (7) watts
(electric demand load, exclusive of HVAC) per rentable square feet as a basic
building service. Tenant's use of such electricity service (other than the
electric energy costs and charges for the use and operation of the base Building
HVAC system and all of its component parts) shall be separately metered, as
provided in Section 15.02. All distribution of electricity from this point shall
be the responsibility of Tenant, all at Tenant's sole cost. Any increase in HVAC
equipment or service necessitated by the use of this electric demand load shall
be at the sole coat and expense of Tenant. In order to insure that such capacity
is not exceeded and to avert possible adverse effect upon the Building electric
service, Tenant shall not, without Landlord's prior written consent in each
instance (which shall not be unreasonably withheld), connect any additional
fixtures, appliances, or equipment to the Building electrical distribution
system in excess of plus or minus 7 watts per rentable square foot or make any
alteration or addition to the electric system of the Demised Premises existing
on the Commencement Date, which shall cause the Building's electrical capacity
to be exceeded. Should Landlord grant such consent, all additional risers, HVAC
equipment or other electrical equipment required therefor shall be provided by
Landlord and the cost of installation and maintenance thereof shall be paid by
Tenant upon Landlord's demand. As a condition to granting such consent,
Landlord, at Tenant's sole expense, may cause a new survey to be made of the use
of electric energy (other than for Building standard heating and
air-conditioning as described in Exhibit C) in order to calculate the potential
additional electric energy to be made available to Tenant based upon the
estimated additional capacity of such additional risers or other
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equipment. When the amount of such increase is so determined, and the estimated
cost thereof is calculated, the amount of monthly additional rent payable
pursuant to Section 15.02 hereof shall be adjusted to reflect the additional
cost, and shall be payable as therein provided.
ARTICLE 16
HEATING, VENTILATION AND AIR-CONDITIONING
16.01. Landlord, subject to the provisions of Section 5.04, shall
maintain and operate the heating, ventilating, and air-conditioning systems
(hereinafter called "the systems") and shall furnish heat, ventilating, and air
conditioning (hereinafter collectively called "air conditioning service") in the
Demised Premises through the systems, as may be required for comfortable
occupancy of the Demised Premises in accordance with the HVAC specifications
incorporated as Item "1" of Exhibit C from 8:00 A.M. to 6:00 P.M. Monday
through Friday except days observed by the Federal or the state government as
legal holidays ("Regular Hours") throughout the year. Air cooling shall occur
from April 15th through October 15th of each calendar year. If Tenant shall
require air-conditioning service at any other time (hereinafter called "after
hours"), Landlord shall furnish such after hours air-conditioning service upon
reasonable advance notice from Tenant, and Tenant shall pay Landlord's then
established charges therefor on Landlord's demand.
16.02. Use of the Demised Premises, or any part thereof, in a manner
exceeding the design conditions (including occupancy and connected electrical
load) specified in Exhibit C for air-conditioning service in the Demised
Premises, or rearrangement of partitioning which interferes with normal
operation of the air-conditioning in the Demised Premises, may require changes
in the air-conditioning system servicing the Demised Premises. Such changes, so
occasioned, shall be made by Landlord, at Tenant's expense, as Tenant's Changes
pursuant to Article 12.
ARTICLE 17
LANDLORD'S OTHER SERVICES
17.01. Landlord, subject to the provisions of Section 5.04, shall
provide public elevator service, passenger and service, by elevators serving the
floor on which the Demised Premises are situated during Regular Hours, and shall
have at least one passenger elevator subject to call at all other times.
Landlord states that except for such instances of temporary use for move in, no
elevator shall be dedicated to the exclusive use of one tenant.
17.02. Landlord, subject to the provisions of Section 5.04, shall
cause the Demised Premises, including the exterior and the interior of the
windows thereof, to be cleaned. Tenant shall pay to Landlord on demand the costs
incurred by Landlord for (a) extra cleaning work in the Demised Premises
required because of (i) misuse or neglect on the part of Tenant or its employees
or visitors; (ii) use of portions of the Demised Premises for preparation,
serving or consumption of food or beverages, data processing, or reproducing
operations, private lavatories
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or toilets or other special purpose areas requiring greater or more difficult
cleaning work than office areas (only to the extent of such additional work
performed); (iii) unusual quantity of interior glass surfaces; (iv) non-building
standard materials or finishes installed by Tenant or at its request after the
Commencement Date; and (b) removal from the Demised Premises and the Building of
so much of any refuse and rubbish of Tenant as shall exceed that ordinarily
accumulated daily in the routine of business office occupancy. Landlord, its
cleaning contractor, and their employees shall have after-hours access to the
Demised Premises and the free use of light, power, and water in the Demised
Premises as reasonably required for the purpose of cleaning the Demised Premises
in accordance with Landlord's obligations hereunder. Landlord agrees that it
shall reasonably permit Tenant to designate a locked "or security zone" for the
storage of confidential proprietary information, which will have restricted
access available to Landlord and its agents. To the extent such security zone is
not available to Landlord, Tenant shall be liable for all legal requirements
relating to safety, access, ventilation and maintenance and shall indemnify
Landlord with respect thereto. Access shall be made available to Landlord upon
reasonable notice and during emergencies. Tenant shall maintain the security
zone so as to comply with reasonable requirements of Landlord's insurer.
17.03. Landlord, subject to the provisions of Section 5.04, shall
furnish adequate hot and cold water to each floor of the Building for drinking,
lavatory, and cleaning purposes, together with soap, towels, and toilet tissue
for each lavatory. If Tenant uses water for any other purpose, Landlord, at
Tenant's expense, shall install meters to measure Tenant's consumption of cold
water and/or hot water for such other purposes and/or steam, as the case may be.
Tenant shall pay for the quantities of cold water and hot water shown on such
meters, at Landlord's cost thereof, on the rendition of Landlord's bills
therefor.
17.04. Landlord, at its expense, and at Tenant's request, shall
insert initial listings on the Building directory of the names of Tenant, and
the names of any of their officers and employees, provided that the names so
listed shall not take up more than Tenant's proportionate share of the space on
the Building directory. All reasonable Building directory changes made at
Tenant's reasonable request after the Tenant's initial listings have been placed
on the Building directory shall be made by Landlord at the expense of Tenant,
and Tenant agrees to promptly pay to Landlord as additional rent the cost of
such changes within ten (10) days after Landlord has submitted an invoice
therefor.
17.05. Landlord reserves the right, without any liability to Tenant,
to stop service of any of the heating, ventilating, air conditioning, electric,
sanitary, elevator, or other Building systems serving the Demised Premises, or
the rendition of any of the other services required of Landlord under this
Lease, whenever and for so long as may be necessary, by reason of accidents,
emergencies, strikes, or the making of repairs or changes which Landlord is
required by this Lease or by law to make or in good faith deems necessary, by
reason of difficulty in securing proper supplies of fuel, steam, water,
electricity, labor or supplies, or by reason of any other cause beyond
Landlord's reasonable control. Notwithstanding the foregoing, if, as a result of
circumstances beyond Landlord's control, any service, utility or capacity which
Landlord is required to furnish or make available to Tenant under this Lease is
interrupted such that Tenant is unable to utilize the Demised Premises, and such
condition exists for three (3) consecutive business days after written notice
thereof, then commencing from the fourth (4th)
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business day, Tenant shall be entitled to an abatement of fixed rent and
additional rent for each day thereafter that Tenant is unable to utilize the
Demised Premises for the conduct of its business. If the condition exists for
sixty (60) or more consecutive days, then on five (5) business days written
notice, Tenant shall be entitled to terminate this Lease in which event, neither
party shall have any further liability to the other.
17.06. Landlord shall make available for Tenant's use Tenant's
Proportionate Share of parking spaces in common with other tenants of the
Building in the parking area adjacent to the Building. Landlord agrees that
except for payment of common expense charges covered by Article 5, there shall
be no separate fee or cost to Tenant for use of the parking areas. Landlord
states that the parking for the Building and the Building known as 379 Thornall
Street, including the atrium, is contained in a parking structure attached to
both buildings and surface parking area surrounding same and that the parking
spaces are calculated on the basis of four (4) parking spaces per rentable 1,000
square feet of office space.
17.07. The Building and the Demised Premises shall be cleaned in
accordance with the Cleaning and Maintenance Schedule set forth on Exhibit D
annexed hereto and made a part hereof.
17.08. Tenant acknowledges that as part of the consideration for
this Lease, and in order not to interfere with the rights of other tenants or
other tenants' quiet enjoyment of the common areas of the Building and otherwise
prevent Landlord from performing its services without causing increases to the
cost of such services, Tenant agrees that it shall not permit its employees to
congregate in hallways or elevators, shall not permit its employees to create an
unsightly condition in or about any passageway from the Building or the common
areas or to the parking lot/deck, with regard to smoking, including the disposal
of cigarettes, in the courtyard and/or outer areas adjacent to the Building and
will otherwise require its employees to act and conduct themselves in the common
areas in such a manner as will not disturb other tenants or the use and
enjoyment by other tenants of the Building.
ARTICLE 18
ACCESS, CHANGES IN BUILDING FACILITIES, NAME
18.01. All walls, windows, and doors bounding the Demised Premises
(including exterior Building walls, core corridor walls and doors, and any core
corridor entrance), except the inside surfaces thereof, any terraces or roofs
adjacent to the Demised Premises, and any space in or adjacent to the Demised
Premises used for shafts, stacks, pipes, conduits, fan room, ducts, electric or
other utilities, sinks or other Building facilities, and the use thereof, as
well as access thereto through the Demised Premises for the purposes of
operation, maintenance, decoration, and repair are reserved to Landlord. The
exercise of Landlord's rights hereunder shall not result in a reduction in the
rentable square footage of the Demised Premises or materially adversely affect
Tenant's use and enjoyment of the Demised Premises.
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18.02. Tenant shall permit Landlord to install, use, and maintain
pipes, ducts, and conduits within the demising walls, bearing columns, and
ceilings of the Demised Premises.
18.03. Landlord or Landlord's agent shall have the right upon
reasonable advanced request to Tenant at the Demised Premises (except in
emergency under clause (ii) hereof) to enter and/or pass through the Demised
Premises or any part thereof, at reasonable times during reasonable hours, (i)
to examine the Demised Premises and to show them to the holders of superior
mortgages, prospective purchasers or mortgagees of the Building as an entirety;
and (ii) for the purpose of making such repairs or changes or doing such
repainting in or to the Demised Premises or its facilities, as may be provided
for by this Lease or as may be mutually agreed upon by the parties or as
Landlord may be required to make by law or in order to repair and maintain said
structure or its fixtures or facilities. Landlord shall be allowed to take all
materials into and upon the Demised Premises that may be required for such
repairs, changes, repainting, or maintenance, without liability to Tenant but
Landlord shall not unreasonably interfere with Tenant's use of the Demised
Premises. Landlord shall also have the right to enter on and/or pass through the
Demised Premises, or any part thereof, at such times as such entry shall be
required by circumstances of emergency affecting the Demised Premises or the
Building.
18.04. During the period of six (6) months prior to the Expiration
Date, Landlord may exhibit the Demised Premises to prospective tenants.
18.05. Landlord reserves the right, at any time after completion of
the Building, without incurring any liability to Tenant therefor, to make such
changes in or to the Building and the fixtures and equipment thereof, as well as
in or to the street entrances, halls, passages, elevators, escalators, and
stairways thereof, as it may deem necessary or desirable, provided, however,
that such changes shall not reduce the size of the Demised Premises nor
materially adversely alter the character of the Building as a "first-class
commercial office building."
18.06. Landlord may adopt any name for the Building. Landlord
reserves the right to change the name or address of the Building at any time.
ARTICLE 19
NOTICE OF ACCIDENTS
19.01. Landlord and Tenant mutually agree to give notice to the
other, promptly after learning of (i) any accident in or about the Demised
Premises for which Landlord might be liable; (ii) all fires in the Demised
Premises; (iii) all damage to or defects in the Demised Premises, including the
fixtures, equipment, and appurtenances thereof, for the repair of which Landlord
might be responsible; and (iv) all damage to or defects in any parts or
appurtenances of the Building's sanitary, electrical, heating, ventilating,
air-conditioning, elevator, and other systems located in or passing through the
Demised Premises or any part thereof.
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ARTICLE 20
NON-LIABILITY AND INDEMNIFICATION
20.01. Neither Landlord nor any agent or employee of Landlord shall
be liable to Tenant for any injury or damage to Tenant or to any other person or
for any damage to, or loss (by theft or otherwise) of, any property of Tenant or
of any other person, irrespective of the cause of such injury, damage, or loss,
unless caused by or due to the negligence of Landlord, its agents, or employees
without contributory negligence on the part of Tenant. Neither Tenant nor any
agent or employee of Tenant shall be liable to Landlord for any injury or damage
to Landlord or to any property of Landlord or of any other person or damage to
any other person or their property, irrespective of the cause of such injury,
damage, or loss, unless caused by or due to the negligence of Tenant, its
agents, or employees without contributory negligence on the part of Landlord.
20.02. Tenant shall indemnify and save harmless Landlord and its
agents against and from (a) any and all claims (i) arising from (x) the conduct
or management of the Demised Premises or of any business therein, or (y) any
work or thing whatsoever done, or any condition created (other than by Landlord
for Landlord's or Tenant's account) in or about the Demised Premises during the
term of this Lease or during the period of time, if any, prior to the
Commencement Date that Tenant may have been given access to the Demised
Premises, or (ii) arising from any negligent or otherwise wrongful act or
omission of Tenant or any of its subtenants, invitees or licensees or its or
their employees, agents, or contractors, and (b) all costs, expenses, and
liabilities incurred in or in connection with each such claim or action or
proceeding brought thereon. In case any action or proceeding be brought against
Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall
resist and defend such action or proceeding.
20.03. Except as otherwise expressly provided in this Lease, this
Lease and the obligations of Tenant hereunder shall be in no way affected,
impaired or excused because Landlord is unable to fulfill, or is delayed in
fulfilling, any of its obligations under this Lease by reason of strike, other
labor trouble, governmental pre-emption or priorities or other controls in
connection with a national or other public emergency or shortages of fuel
supplies or labor resulting therefrom, or other like cause beyond Landlord's
reasonable control.
20.04. Landlord shall indemnify and save Tenant harmless and its
agents, employees and invitees arising from any negligent or other wrongful act
or omission of Landlord or any of its subcontractors, or agents, or employees
with respect to the Building and common areas and all costs, expenses, and
liabilities incurred in connection with each such claim or action or proceeding
brought thereon. In case any action or proceeding be brought against Tenant by
reason of any such claim, Landlord, upon notice from Tenant, shall resist and
defend such action or proceeding.
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ARTICLE 21
DESTRUCTION OR DAMAGE
21.01. If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other cause, then whether or not the
damage or destruction shall have resulted from the fault or neglect of Tenant,
or its employees, agents or visitors (and if this Lease shall not have been
terminated as in this Article hereinafter provided), Landlord shall repair the
damage and restore and rebuild the Building and/or the Demised Premises, at its
expense, with reasonable dispatch after notice to it of the damage or
destruction; provided, however, that Landlord shall not be required to repair or
replace any of the Tenant's Property.
21.02. If the Building or the Demised Premises shall be partially
damaged or partially destroyed by fire or other cause not attributable to the
fault or negligence of Tenant, its agents, or employees, the rents payable
hereunder shall be abated to the extent that the Demised Premises shall have
been rendered untenantable and for the period from the date of such damage or
destruction to the date the damage shall be repaired or restored. If the Demised
Premises or a major part thereof shall be totally (which shall be deemed to
include substantially totally) damaged or destroyed or rendered completely
(which shall be deemed to include substantially completely) untenantable on
account of fire or other cause, the rents shall abate as of the date of the
damage or destruction and until Landlord shall repair, restore, and rebuild the
Building and the Demised Premises, provided, however, that should Tenant
reoccupy a portion of the Demised Premises for the ordinary conduct of its work
during the period of restoration work is taking place and prior to the date that
the same are made completely tenantable, rents allocable to such portion shall
be payable by Tenant from the date of such occupancy.
21.03. If the Building shall be totally damaged or destroyed by fire
or other cause, or if the Building shall be so damaged or destroyed by fire or
other cause (whether or not the Demised Premises are damaged or destroyed) as to
require a reasonably estimated expenditure of more than twenty-five percent
(25%) of the full insurable value of the Building immediately prior to the
casualty, and Landlord elects to terminate all other leases, then in either such
case Landlord may terminate this Lease by giving Tenant notice to such effect
within sixty (60) days after the date of the casualty. In case of any damage or
destruction mentioned in this Article, Tenant may terminate the Lease by notice
to Landlord, if Landlord has not completed the making of the required repairs
and restored and rebuilt the Building and the Demised Premises within twelve
(12) months from the date of such damage or destruction, or within such period
after such date (not exceeding six (6) months) as shall equal the aggregate
period Landlord may have been delayed in doing so by adjustment of insurance,
labor trouble, governmental controls, act of God, or any other cause beyond
Landlord's reasonable control. In connection with any damage pursuant to this
Section 21.03, if the Building is damaged during the last two (2) years of the
term, then Tenant may cancel this Lease effective as of the date of the casualty
by notifying Landlord within thirty (30) days of the casualty.
21.04. No damages, compensation, or claim shall be payable by
Landlord for inconvenience, loss of business, or annoyance arising from any
repair or restoration of any portion 2of the Demised Premises or of the Building
pursuant to this Article. Landlord shall use
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its best efforts to effect such repair or restoration promptly and in such
manner as not unreasonably to interfere with Tenant's use and occupancy during
such time that Tenant is able to use the Demised Premises during Landlord's
restoration.
21.05. Landlord will not carry insurance of any kind on Tenant's
Property, and, except as provided by law or by reason of its fault or its breach
of any of its obligations hereunder, shall not be obligated to repair any damage
thereto or replace the same; to the extent that Tenant shall maintain insurance
on Tenant's Property, Landlord shall not be obligated to repair any damage
thereto or replace the same.
21.07. The provisions of this Article shall be considered an express
agreement governing any case of damage or destruction of the Demised Premises by
fire or other casualty, and any law of the State of New Jersey providing for
such a contingency in the absence of an express agreement, and any other law of
like import, now of hereafter in force, shall have no application in such case.
ARTICLE 22
EMINENT DOMAIN
22.01. If the whole of the Building shall be lawfully taken by
condemnation or in any other manner for any public or quasi-public use of
purpose, this Lease and the term and estate hereby granted shall forthwith
terminate as of the date of vesting of title on such taking (which date is
herein after also referred to as the "date of the taking"), and the rents shall
be prorated and adjusted as of such date.
22.02. If any part of the Building shall be so taken, this Lease
shall be unaffected by such taking, except that Tenant may elect to terminate
this Lease in the event of a permanent partial taking, of or part of the Demised
Premises if the Demised Premises are not be reasonably sufficient for Tenant to
continue feasible operation of its business. Tenant shall give notice of such
election to Landlord not later than thirty (30) days after the date of such
taking. Upon the giving of such notice to Landlord, this Lease shall terminate
on the date of service of notice and the rents apportioned to the part of the
Demised Premises so taken shall be prorated and adjusted as of the date of the
taking and the rents apportioned to the remainder of the Demised Premises shall
be prorated and adjusted as of such termination date. Upon such partial taking
and this Lease continuing in force as to any part of the Demised Premises, the
rents apportioned to the part taken shall be prorated and adjusted as of the
date of taking and from such date the fixed rent shall be reduced to the amount
apportioned to the remainder of the Demised Premises and additional rent shall
be payable pursuant to Article 5 according to the rentable area remaining.
22.03. Except as specifically set forth in Section 22.04. hereof,
Landlord shall be entitled to receive the entire award in any proceeding with
respect to any taking provided for in this Article without deduction therefrom
for any estate vested in Tenant by this Lease, and
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Tenant shall receive no part of such award. Tenant hereby expressly assigns to
Landlord all of its right, title, and interest in or to every such award. Tenant
may claim a condemnation award for the unamortized portion of the cost incurred
by Tenant in connection with any of Tenant's Property installed pursuant to this
Lease. In addition, Tenant may sue the appropriate agency for relocation
expenses.
22.04. If the temporary use or occupancy of all or any part of the
Demised Premises shall be lawfully taken by condemnation or in any other manner
for any public or quasi-public use or purpose during the term of this Lease,
Tenant shall be entitled, except as hereinafter set forth, to receive any award
for such taking up to the aggregate of all fixed rent and additional rent
provided any such reward does not serve to diminish Landlord's award in any
respect whatsoever and, if so awarded, for the taking of Tenant's Property and
for moving expenses, and Landlord shall be entitled to receive that portion
which represents reimbursement for the cost of restoration of the Demised
Premises. This Lease shall be and remain unaffected by such taking and Tenant
shall remain responsible for all of its obligations hereunder insofar as such
obligations are not affected by such taking and shall continue to pay in full
the fixed rent and additional rent when due. If the period of temporary use or
occupancy of the Demised Premises (or a part thereof) shall be divided between
Landlord and Tenant so that Tenant shall receive so much thereof as represents
the period prior to the Expiration Date and Landlord shall receive so much
thereof as represents the period subsequent to the Expiration Date. All moneys
received by Tenant as, or as part of, an award for temporary use and occupancy
for a period beyond the date to which the rents hereunder have been paid by
Tenant shall be received, held, and applied by Tenant as a trust fund for
payment of the rents falling due hereunder. Any temporary taking which lasts
longer than nine (9) months shall constitute a permanent taking.
22.05. In the event of any taking of less than the whole of the
Building which does not result in a termination of this Lease, or in the event
of a taking for a temporary use or occupancy of all or any part of the Demised
Premises which does not extend beyond the Expiration Date, Landlord, at its
expense, shall proceed with reasonable diligence to repair, alter, and restore
the remaining parts of the Building and the Demised Premises to substantially
their former condition to the extent that the same may be feasible and so as to
constitute a complete and tenantable Building and Demised Premises provided that
Landlord's liability under this Section 22.05 shall be limited to the net amount
(after deducting all costs and expenses, including, but not limited to, legal
expenses incurred in connection with the eminent domain proceeding) received by
Landlord as an award arising out of such taking. If such taking occurs within
the last three (3) years of the term of this Lease, Landlord shall have the
right to terminate this Lease by giving the Tenant written notice to such effect
within ninety (90) days after such taking, and this Lease shall then expire on
that effective date stated in the notice as if that were the Expiration Date,
but the fixed rent and the additional rent shall be prorated and adjusted as of
the date of such taking. If such taking occurs during the last two (2) years of
the term of this Lease, then Tenant shall have the right to terminate this lease
by giving the Landlord written notice to such effect and the foregoing
provisions of this Section 22.05 shall apply with respect to the Tenant's
notification to terminate.
22.06. Should any part of the Demised Premises be taken to effect
compliance with any law or requirement of public authority other than in the
manner hereinabove provided in
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this Article then, (i) if such compliance is the obligation of Tenant under this
Lease, Tenant shall not be entitled to any diminution or abatement of rent or
other compensation from Landlord therefor, but (ii) if such compliance is the
obligation of Landlord under this Lease, the fixed rent hereunder shall be
reduced and additional rents under Article 5 shall be adjusted in the same
manner as is provided in Section 22.02 according to the reduction in rentable
area of the Demised Premises resulting from such taking.
22.07. Any dispute which may arise between the parties with respect
to the meaning or application of any of the provisions of this Article shall be
determined by arbitration in the manner provided in Article 33.
22.08. Landlord and Tenant agree that any taking limited to the
parking deck and surrounding areas, within the Land, which results in a
permanent loss of twenty percent (20%) of the parking spaces, then such event
shall be deemed a taking under this Article 22.
ARTICLE 23
SURRENDER
23.01. Landlord and Tenant acknowledge that Tenant shall be
obligated to restore the Demised Premises by the end of the term, including such
renewals thereto, or at any earlier expiration date. For purposes of this Lease,
and specifically without limitation, for purposes of Article 3, Article 13 and
specifically without limitation, Section 13.02, and this Article 23, references
to "restoration" or to the obligation of Tenant "to restore", shall mean the
demolition of all of Landlord's Work and Tenant's Finish Work, excluding the
base Building air-conditioning equipment and duct work and sprinkler systems,
and of all work thereafter performed by or on behalf of Tenant in connection
with Tenant Changes such that the Demised Premises are delivered to Landlord in
the same manner and in the same condition as existed prior to Landlord's Work or
Tenant's Finish Work as set forth in Exhibit C. Landlord agrees that Tenant
shall have the right, but shall be under no obligation, to request Landlord to
restore the Demised Premises upon written notice to such effect given not later
than sixty (60) days prior to the expiration of the term. If Tenant requests
Landlord to restore the Demised Premises as aforesaid, then Tenant's restoration
obligation shall be limited to payment of such demolition costs as are specific
to Tenant's then constructed Demised Premises based upon the then applicable
labor costs, as may be escalated, and upon the then applicable garbage hauling
costs, as may be escalated, and the quantities so involved so reduced at
Landlord's discretion. If Tenant fails to perform any restoration required of it
under this Lease on or before the last day of the term of this Lease or upon any
earlier termination, Tenant shall be deemed a hold-over Tenant under Article 40
of this Lease until such time as Tenant has completed such restoration.
ARTICLE 24
CONDITIONS OF LIMITATION
24.01. This Lease and the term and estate hereby granted are subject
to the limitation that whenever Tenant shall make an assignment of the property
of Tenant for the
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benefit of creditors, or shall file a voluntary petition under any bankruptcy or
insolvency law, or an involuntary petition alleging an act of bankruptcy or
insolvency shall be filed against Tenant under any bankruptcy or insolvency law,
or whenever a petition shall be filed by or against Tenant under the
reorganization provisions of the United States Bankruptcy Act or under the
provisions of any law of like imports or whenever a petition shall be filed by
Tenant under the arrangement provisions of any law of like import, whenever a
permanent receiver of Tenant or of or for the property of Tenant shall be
appointed, then Landlord, (a) at any time of receipt of notice of the occurrence
of any such event, or (b) if such event occurs without the acquiescence of
Tenant, at any time after the event continues for sixty (60) days, Landlord may
give Tenant a notice of intention to end the term of this Lease at the
expiration of five (5) days from the date of service of such notice of
intention, and upon the expiration of said five (5) day period this Lease and
the term and estate hereby granted, whether or not the term shall theretofore
have commenced, shall terminate with the same effect as if that day were the
Expiration Date, but Tenant shall remain liable for damages as provided in
Article 26.
24.02. This Lease and the term and estate hereby granted are subject
to the further limitation that:
(a) Whenever Tenant shall default in the payment of
installment of fixed rent, or in the payment of any additional rent or any other
charge payable by Tenant to Landlord, or any day upon which the same ought to be
paid, and such default shall continue for ten (10) days after written notice
thereof in the case of fixed rent, Tenant's monthly Projected Share of Increases
in Taxes and Operating Expenses, and Tenant's monthly electric charge and twenty
(20) days in any other case; or,
(b) Whenever Tenant shall do or permit anything to be done,
whether by action or inaction, contrary to any of Tenant's obligations
hereunder, and if such situation shall continue and shall not be remedied by
Tenant within thirty (30) days after Landlord shall have given to Tenant a
written notice specifying the same, or, in the case of a happening or default
which cannot with due diligence be cured within a period of thirty (30) days and
the continuance of which for the period required for cure will not subject
Landlord to risk of criminal liability or foreclosure of any superior mortgage
if Tenant shall not, (i) within said thirty (30) day period advise Landlord of
Tenant's intention to duly institute all steps necessary to remedy such
situation; (ii) duly institute within said thirty (30) day period, and
thereafter diligently prosecute to completion all steps necessary to remedy the
same; (iii) complete such remedy within such time after the date of giving of
said notice to Landlord as shall reasonably be necessary; or
(c) Whenever any event shall occur or any contingency shall
arise whereby this Lease or the estate hereby granted or the unexpired balance
of the term hereof would, by operation of law or otherwise, devolve upon or pass
to any person, firm, or corporation other than Tenant, except as expressly
permitted by Article 8; or
(d) Whenever Tenant shall abandon the Demised Premises and not
pay rent (unless as a result of a casualty);
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(e) Whenever Tenant shall be deemed in default of the Other
Lease; then, and in any of the foregoing cases, this Lease and the term and
estate hereby granted, whether or not the term shall theretofore have commenced,
shall, if the Landlord so elects, terminate upon ten (10) days written notice by
Landlord to Tenant of Landlord's election to terminate the Lease and the term
hereof shall expire and come end on the date fixed in such notice, with the same
effect as if that day were the Expiration Date, but Tenant shall remain liable
for the rent and additional rent which subsequently accrues and for damages as
provided in Article 26.
24.03. In addition to any other rights of Tenant set forth in this
Lease, in the event Landlord is in default of its obligations hereof, Tenant
shall give Landlord a written notice of such default and thirty (30) days within
which to cure same, unless the nature of the default precludes cure within
thirty (30) days in which case Landlord shall commence such cure within thirty
(30) days and use its reasonable diligence to complete the cure of such default.
If, Landlord fails to cure such default, Tenant shall have the right to pay such
reasonable sums to cure such default and demand payment by Landlord thereof, or
otherwise seek such relief as Tenant is entitled at law or in equity. Under no
circumstances shall Tenant have the right to reduce its obligations to pay fixed
or additional rent, or otherwise set off any sums against fixed or additional
rent pending a judicial order permitting same or a judgment rendered against
Landlord.
ARTICLE 25
RE-ENTRY BY LANDLORD
25.01. If this Lease shall expire as provided in Article 24,
Landlord or Landlord's agents and employees may immediately or at any time
thereafter re-enter the Demised Premises, or any part thereof, in the name of
the whole, either by summary dispossess proceedings or by any suitable action or
proceeding at law, without being liable to indictment, prosecution or damages
therefor, and may repossess the same, and may remove any persons therefrom, to
the end that Landlord may have, hold, and enjoy the Demised Premises again as
and of its first estate and interest therein. The word "re-enter", as herein
used, is not restricted to its technical legal meaning. In the event of any
termination of this Lease under the provisions of Article 24 or if Landlord
shall re-enter the Demised Premises under the provisions of this Article or in
the event of the termination of this Lease, or of re-entry, by or under any
summary dispossess or other proceeding or action or any provision of law by
reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to
Landlord the fixed rent and additional rent payable by Tenant to Landlord up to
the time of such termination of this Lease, or of such recovery of possession or
the Demised Premises by Landlord, as the case may be, and shall also pay to
Landlord damages as provided in Article 26.
25.02. In the event of a breach or threatened breach by Landlord or
Tenant of any of their respective obligations under this Lease, either Landlord
or Tenant, as the case may be, shall also have the right of injunction. The
special remedies hereunder are cumulative and
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are not intended to be exclusive of any other remedies or means of redress to
which the parties may lawfully be entitled at any time.
25.03. If this Lease shall terminate under the provisions of Article
24, or if Landlord shall re-enter the Demised Premises under the provisions of
this Article, or in the event of any termination of this Lease, or of re-entry,
by or under any summary dispossess or other proceeding or action or any
provision of law by reason of default hereunder on the part of Tenant, Landlord
shall be entitled to retain all moneys, if any, paid by Tenant to Landlord,
whether as advance rent, security, or otherwise, but such moneys shall be
credited by Landlord against any fixed rent or additional rent due from Tenant
at the time of such termination or re-entry or, at Landlord's option, against
any damages payable by Tenant under Article 26 or pursuant to law.
ARTICLE 26
DAMAGES
26.01. If this Lease is terminated under the provisions of Article
24, or if Landlord shall re-enter the Demised Premises under the provisions of
Article 25, or in the event of the termination of this Lease, or of re-entry, by
or under any summary dispossess or other proceeding or action of any provision
of law by reason of default hereunder on the part of Tenant, Tenant shall pay to
Landlord as damages sums equal to the fixed rent and the additional rent (as
above presumed) payable hereunder which would have been payable by Tenant had
this Lease not so terminated, or had Landlord not so re-entered the Demised
Premises, payable upon the due dates therefor specified herein following such
termination or such re-entry and until the Expiration Date, provided, however,
that if Landlord shall relet the Demised Premises during said period, Landlord
shall credit Tenant with the net rents received by Landlord from such reletting,
such net rents to be determined by first deducting from the gross rents as and
when received by Landlord from such reletting, the expenses incurred or paid by
Landlord in terminating this Lease or in re-entering the Demised Premises and in
securing possession thereof, as well as the expenses of reletting, including
altering and preparing the Demised Premises for new tenants, brokers'
commissions, and all other expenses properly chargeable against the Demised
Premises and the rental therefrom; it being understood that any such reletting
may be for a period shorter or longer than the remaining term of this Lease; but
in no event shall Tenant be entitled to receive any excess of such net rents
over the sums payable by Tenant to Landlord hereunder, nor shall Tenant be
entitled in any suit for the collection of damages pursuant to this Subsection
to a credit in respect of any net rents from a reletting, except to the extent
that such net rents are actually received by Landlord. Damages shall also
include the unamortized portion of the cost of Landlord's Work and any brokerage
fees or commissions paid by Landlord. If the Demised Premises or any part
thereof should be relet in combination with other space, then proper
apportionment on a square foot basis shall be made of the rent received from
such reletting and of the expenses of reletting.
If the Demised Premises or any part thereof to be relet by
Landlord for the unexpired portion of the term of this Lease, or any part
thereof, before presentation of proof of such damages to any court, commission
or tribunal, the amount of rent reserved upon such
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reletting shall, prima facie, be the fair and reasonable rental value for the
Demised Premises, or part thereof, so relet during the term of the reletting.
Landlord agrees that it shall exert commercially reasonable
efforts to mitigate damages by attempting to relet the Demised Premises.
However, in the exercise of such efforts, Tenant acknowledges that Landlord
shall have no obligation to Tenant to offer the Demised Premises, or any part
thereof, in any manner, shape, form, or pursuant to any program different from
any other space in any building owned by Landlord in the Metro Park Complex then
sought to be leased by Landlord.
26.02. Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the term of this Lease would have expired if
it had not been so terminated under the provisions of Article 24, or under any
provision of law, or had Landlord not re-entered the Demised Premises. Nothing
herein contained shall be construed to limit or preclude recovery by Landlord
against Tenant of any sums or damages to which, in addition to the damages
particularly provided above, Landlord may lawfully be entitled by reason of any
default hereunder on the part of Tenant. Nothing herein contained shall be
construed to limit or prejudice the right of Landlord to seek and obtain as
liquidated damages by reason of the termination of this Lease or re-entry on the
Demised Premises for the default of Tenant under this Lease, an amount equal to
the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved whether or
not such amount be greater, equal to, or less than any of the sums referred to
in Section 26.01. Except with respect to the amount of fixed rent or Tenant's
finally determined Proportionate Share of Operating Expenses (which shall be
governed by Article 5), any payment by Tenant may be accompanied by a letter
from Tenant protesting such payment or reserving its rights under the Lease with
respect to such payment. Any such protest or reservation must be made along with
the payment and must be detailed and specific as to the nature of such protest
or reservation. If Tenant fails to implement litigation proceedings within
ninety (90) days of its reservation or protest, Tenant shall be deemed to have
waived its protest and reservation. If Landlord accepts, or is otherwise as a
result of litigation, required to reimburse or repay Tenant in connection with
such reservation or protest, such reimbursement shall be accompanied by interest
at First Union Prime Plus 2.5% per annum, which shall run from the date of
protest through the date of payment by Landlord.
26.03. In addition to the foregoing and without regard to whether
this Lease is terminated, Tenant shall pay to Landlord upon demand, all costs
and expenses incurred by Landlord, including reasonable attorney's fees, with
respect to any lawsuit instituted or defended or any action taken by Landlord to
enforce all or any of the provisions of this Lease to the extent Landlord is
successful. Landlord agrees that, if, after implementing proceedings or
litigation, Tenant is successful therein, then Landlord shall pay Tenant's
reasonable costs and expenses, including reasonable attorney fees.
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ARTICLE 27
WAIVERS
27.01. Tenant, for Tenant, and on behalf of any and all persons
claiming through or under Tenant, including creditors of all kinds, does hereby
waive and surrender all right and privilege which they or any of them might have
under or by reason of any present or future law, to redeem the Demised Premises
or to have a continuance of this Lease for the term hereby demised after being
dispossessed or ejected therefrom by process of law or under the terms of this
Lease or after the termination of this Lease as herein provided.
27.02. In the event that Tenant is in arrears in payment of fixed
rent or additional rent hereunder, Tenant waives Tenant's right, if any, to
designate the items against which any payments made by Tenant are to be
credited, and Tenant agrees that Landlord may apply any payments made by Tenant
to any items it sees fit, irrespective of and notwithstanding any designation or
request by Tenant as to the items against which any such payments shall be
credited.
27.03. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised
Premises, including any claim of injury or damage, or any emergency or other
statutory remedy with respect thereto.
27.04. The provisions in Articles 16 and 17 shall be considered
express agreements governing the services to be furnished by Landlord, and
Tenant agrees that any laws and/or requirements of public authorities, now or
hereafter in force, shall have no application in connection with any enlargement
of Landlord's obligations with respect to such services.
ARTICLE 28
NO OTHER WAIVERS OR MODIFICATIONS
28.01. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this Lease, or to exercise any election herein contained, shall not be construed
as a waiver or relinquishment for the future of the performance of such one or
more obligations of this Lease or of the right to exercise such election, but
the same shall continue and remain in full force and effect with respect to any
subsequent breach, act, or omission. No executory agreement hereafter made
between Landlord and Tenant shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease, in whole
or in part, unless such executory agreement is in writing, refers expressly to
this Lease and is signed by the party against whom enforcement of the change,
modification, waiver, release, discharge, or termination of effectuation of the
abandonment is sought.
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28.02. Without limiting Section 28.01, the following provisions
shall also apply:
(a) No agreement to accept a surrender of all or any part of
the Demised Premises shall be valid unless in writing and signed by Landlord.
The delivery of keys to an employee of Landlord or of its agent shall not
operate as a termination of this Lease or a surrender of the Demised Premises.
If Tenant shall at any time request Landlord to sublet the Demised Premises for
Tenant's account, Landlord or its agent is authorized to receive said keys for
such purposes without releasing Tenant from any of its obligations under this
Lease, and Tenant hereby releases Landlord from any liability for loss or damage
to any of Tenant's property in connection with such subletting.
(b) The receipt by Landlord or the payment by Tenant of rent
with knowledge of breach of any obligation of this Lease shall not be deemed a
waiver of such breach.
(c) No payment by Tenant or receipt by Landlord of a lesser
amount than the correct fixed rent or additional rent due hereunder shall be
deemed to be other than a payment on account, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment be deemed
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance or pursue any other
remedy in this Lease or at law provided.
ARTICLE 29
CURING TENANT'S DEFAULTS
29.01. If Tenant shall default in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice, in a case of emergency, and in any other
case, only if such default continues after the expiration of (i) ten (10) days
from the date Landlord gives Tenant notice of intention so to do, or (ii) the
applicable grace period provided in Section 24.02 or elsewhere in this Lease for
cure of such default, whichever occurs later.
29.02. Bills, invoices and purchase orders for any and all
reasonable costs, charges, and expenses incurred by Landlord in connection with
any such performance by it for the account of Tenant, including reasonable
counsel fees, involved in collecting or endeavoring to collect the fixed rent or
additional rent or any part thereof, or enforcing or endeavoring to enforce any
rights against Tenant, under or in connection with this Lease, or pursuant to
law, including any such cost, expense, and disbursement involved in instituting
and prosecuting summary proceedings, may be sent by Landlord to Tenant monthly,
or immediately, at Landlord's option, and, shall be due and payable in
accordance with the terms of such bills.
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ARTICLE 30
BROKER
30.01. Landlord and Tenant covenant, warrant, and represent that
there was no broker except THE CORPORATE REAL ESTATE ALLIANCE, ("Broker")
instrumental in consummating this Lease and that no conversations or
negotiations were had with any broker except Broker concerning the renting of
the Demised Premises. Landlord and Tenant agree to hold the other party harmless
against any claims for a brokerage commission arising out of a breach by the
other party of the foregoing representation.
ARTICLE 31
NOTICES
31.01. Any notice, statement, demand, or other communications
required or permitted to be given, rendered, or made by either party to the
other, pursuant to this Lease or pursuant to any applicable law or requirement
of public authority, shall be in writing (whether or not so stated elsewhere in
this Lease) and shall be deemed to have been properly given, rendered or made,
if sent by registered or certified mail, return receipt requested, addressed to
the other party at the address hereinabove set forth (except that after the
Commencement Date, Tenant's address, unless Tenant shall give notice to the
contrary, shall be the Building) and shall be deemed to have been given,
rendered, or made on the date following the date of mailing. Notice may also be
given by facsimile transmittal or overnight mail. If such notice is given by
facsimile transmittal, it shall be deemed received the day it was sent and
overnight mail shall be deemed received the day after it was sent. Either party
may, by notice as aforesaid, designate a different address or addresses for
notices, statements, demands, or other communications intended for it. In the
event of the cessation of any mail delivery for any reason, personal delivery
shall be substituted for the aforedescribed method of serving notices.
ARTICLE 32
ESTOPPEL CERTIFICATE
32.01. Tenant agrees, when requested by Landlord, to execute and
deliver to Landlord a statement certifying that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), certifying the
dates to which the fixed rent and additional rent have been paid, whether any
dispute exists with respect thereto and stating whether or not, to Tenant's best
knowledge, Landlord is in default in performance of any of its obligations under
this Lease, and, if so, specifying each such default of which Tenant may have
knowledge, it being intended that any such statement delivered pursuant hereto
may be relied upon by others. Such statement shall be served upon Landlord by
Tenant within ten (10) days of Landlord's request. Landlord agrees, when
requested by Tenant, to execute and deliver to Tenant within ten (10) days of
Tenant's written request therefor, a statement certifying that this Lease is
unmodified and in full force and
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effect (or if there have been modifications, that the same is in full force and
effect as modified and stating the modifications), certifying the dates to which
the fixed rent and additional rent have been paid, whether any dispute exists
with respect thereto and stating whether or not, to Landlord's best knowledge,
Tenant is in default in performance of any of its obligations under this Lease,
and, if so, specifying each such default of which Landlord may have knowledge,
it being intended that any such statement delivered pursuant hereto may be
relied upon by others.
ARTICLE 33
ARBITRATION
33.01. The parties hereto shall not be deemed to have agreed to
determination of any dispute arising out of this Lease by arbitration unless
determination in such manner shall have been specifically provided for in this
Lease.
33.02. The party desiring arbitration shall give notice to that
effect to the other party and shall in such notice appoint a person as
arbitrator on its behalf. Within ten (10) days, the other party by notice to the
original party shall appoint a second person as arbitrator on its behalf. The
arbitrators thus appointed shall appoint a third person, and such three
arbitrators shall as promptly as possible determine such matter, provided,
however that:
(a) If the second arbitrator shall not have been appointed as
aforesaid, the first arbitrator shall proceed to determine such matter; and
(b) If the two arbitrators appointed by the parties shall be
unable to agree, within ten (10) days after the appointment of the second
arbitrator, upon the appointment of a third arbitrator, they shall give written
notice to the parties of such failure to agree, and, if the parties fail to
agree upon the selection of such third arbitrator within ten (10) days after the
arbitrators appointed by the parties give notice as aforesaid, then within five
(5) days thereafter either of the parties upon notice to the other party may
request such appointment by the American Arbitration Association (or any
organization successor thereto), or in it absence, refusal, failure, or
inability to act, may apply for a court appointment of such arbitrator.
33.03. Each arbitrator shall be a fit and impartial person who shall
have had at least five years' experience in a calling connected with the matter
of dispute.
33.04. The arbitration shall be conducted, to the extent consistent
with this Article, in accordance with the then prevailing rules of the American
Arbitration Association (or any organization successor thereto). The arbitrators
shall render their decision and award, upon the concurrence of at least two of
their number, within thirty (30) days after the appointment of the third
arbitrator. Such decision and award shall be in writing and shall be final and
conclusive on the parties, and counterpart copies thereof shall be delivered to
each of the parties. In rendering such decision and award, the arbitrators shall
not add to, subtract from, or otherwise modify the provisions of this Lease.
Judgment may be had on the decision and award of the arbitrator(s) so rendered
in any court of competent jurisdiction. Notwithstanding the foregoing, the
parties hereto agree that such judgment of the arbitrator shall not be binding
and may be the
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subject of litigation in the Superior Court of New Jersey if it is alleged that
the arbitrator made a mistake of fact or law.
33.05. Each party shall pay the fees and expenses of the one of the
two original arbitrators appointed by or for such party and the fees and
expenses of the third arbitrator and all other expenses of the arbitration
(other than the fees and disbursement of attorneys or witnesses for each party)
shall be borne by the parties equally.
33.06. Notwithstanding the provisions of this Article, if any delay
in complying with any requirements of this Lease by Tenant might subject
Landlord to any fine or penalty, or to prosecution for a crime, or if it would
constitute a default by Landlord under any mortgage, Landlord may exercise its
right under Article 29, to remedy such default and in such event the sole
question to be determined by the arbitrators under this Article, shall be
whether Tenant is liable for Landlord's cost and expenses of curing such
default.
ARTICLE 34
NO OTHER REPRESENTATIONS, CONSTRUCTION, GOVERNING LAW
34.01. Tenant expressly acknowledges and agrees that Landlord has
not made and is not making, and Tenant, in executing and delivering this Lease,
is not relying upon, any warranties, representations, promises or statements,
except to the extent that the same are expressly set forth in this Lease. It is
understood and agreed that all understandings and agreements heretofore had
between the parties are merged in the Lease, which alone fully and completely
express their agreements and that the same are entered into after full
investigation, neither party relying upon any statement or representation not
embodied in the Lease made by the other.
34.02. If any of the provisions of this Lease, or the application
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
34.03. This Lease shall be governed in all respects by the laws of
the State of New Jersey.
ARTICLE 35
SECURITY
INTENTIONALLY DELETED
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ARTICLE 36
PARTIES BOUND
36.01. The obligation of this Lease shall bind and benefit the
successors and assigns of the parties with the same effect as if mentioned in
each instance where a party is named or referred to, except that no violation of
the provisions of Article 8 shall operate to vest any rights in any successor or
assignee of Tenant and that the provisions of this Article shall not be
construed as modifying the conditions of limitation contained in Article 24.
However, the obligations of Landlord under this Lease shall not be binding upon
Landlord herein named with respect to any period subsequent to the transfer of
its interest in the Building as owner or lessee thereof and in event of such
transfer said obligations shall thereafter be binding upon each transferee of
the interest of Landlord herein named as such owner or lessee of the Building,
but only with respect to the period ending with a subsequent transfer within the
meaning of this Article.
36.02. If Landlord shall be an individual, joint venture, tenancy in
common, partnership, unincorporated association, or other unincorporated
aggregate of individuals and/or entities or a corporation, Tenant shall look
only to such Landlord's estate and property in the Building (or the proceeds
thereof), all consideration received by Landlord from the sale or the
disposition of any part of Landlord's right, title and interest in the Building,
all available condemnation awards and insurance proceeds not used for
restoration, but subject to the rights of the mortgagee and, where expressly so
provided in this Lease, to offset against the rents payable under this Lease for
the collection of a judgment (or other judicial process) which requires the
payment of money by Landlord in the event of any default by Landlord hereunder.
No other property or assets of such Landlord shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to this Lease, the relationship of Landlord and Tenant hereunder
or Tenant's use or occupancy of the Demised Premises. Further, Tenant agrees
that Landlord shall not be liable to Tenant for any special, indirect, or
consequential damages arising out of Landlord's breach of this Lease.
36.03. Landlord agrees that Tenant shall not be liable to Landlord
for any special, indirect or consequential damages arising out of Tenant's
breach of this Lease, however, rents, restoration charges, interest, late
charges, fees, reimbursements, damages incurred by Landlord as a result of
Tenant holding over and other damages provided for in Article 26 shall not be
considered special, indirect or consequential damages.
ARTICLE 37
CONSENTS
37.01. Wherever it is specifically provided in this Lease that a
party's consent is not to be unreasonably withheld, a response to a request for
such consent shall also not be unreasonably delayed, If either Landlord or
Tenant considers that the other had unreasonably withheld or delayed a consent,
it shall so notify the other party within ten (10) days after receipt
43
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of notice of denial of the requested consent or, in case notice of denial is not
received, within twenty (20) days after making its request for the consent.
ARTICLE 38
MORTGAGE FINANCING - TENANT COOPERATION
38.01. In the event that Landlord desires to seek mortgage financing
secured by the Demised Premises, Tenant agrees to cooperate with Landlord in the
making of any application(s) by Landlord for such financing including the
delivery to Landlord's mortgage broker or mortgagee, of such information as they
shall require with respect to Tenant's occupancy of the Demised Premises,
including, but not limited to the current financial statement of Tenant, but
Tenant shall not be required to deliver such information directly to Landlord,
all of the above to be at no cost and expense of Tenant. In the event that
Landlord's mortgagee shall request changes to the within Lease in order to make
same acceptable to Landlord's mortgagee, Tenant agrees to consent to such
changes, provided such changes shall not affect the term of this Lease nor the
financial obligations of Tenant hereunder nor otherwise adversely affect
Tenant's rights hereunder. The request by such mortgagee for notice of
Landlord's defaults and reasonable opportunity to cure shall not be deemed
adverse.
ARTICLE 39
ENVIRONMENTAL COMPLIANCE
39.01. Tenant shall, at Tenant's sole cost and expense, comply with
the New Jersey Industrial Site Recovery Act and the regulations promulgated
thereunder (referred to as "ISRA") as same relate to Tenant's occupancy of the
Demised Premises, as well as all other state, federal or local environmental
law, ordinance, rule, or regulation either in existence as of the date hereof or
enacted or promulgated after the date of this Lease, that concern the
management, control, discharge, treatment and/or removal of hazardous discharges
or otherwise affecting or affected by Tenant's use and occupancy of the Demised
Premises. Tenant represents that Tenant's SIC number does not subject it to
ISRA. Tenant shall, at Tenant's own expense, make all submissions to, provide
all information to, and comply with all requirements of the Bureau of Industrial
Site Evaluation (the "Bureau") of the New Jersey Department of Environmental
Protection ("NJDEP"). Should the Bureau or any other division of NJDEP, pursuant
to any other environmental law, rule, or regulation, determine that a cleanup
plan be prepared and that a cleanup be undertaken because of any spills or
discharge of hazardous substances or wastes at the Demised Premises which occur
during the term of this Lease and were caused by Tenant or its agents or
contractors, then Tenant shall, at Tenant's own expense prepare and submit the
required plans and financial assurances, and carry out the approved plans. In
the event that Landlord shall have to comply with ISRA by reason of Landlord's
actions, Tenant shall promptly provide all information requested by Landlord for
preparation of non-applicability affidavits or a Negative
44
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Declaration and shall promptly sign such affidavits when requested by Landlord.
Tenant shall indemnify, defend, and save harmless Landlord from all fines,
suits, procedures, claims, and actions of any kind arising out of or in any way
connected with any spills or discharges of hazardous substances or wastes at the
Demised Premises which occur during the term of this Lease and were caused by
Tenant or its agents or contractors, and from all fines, suits, procedures,
claims, and actions of any kind arising out of Tenant's failure to provide all
information, make all submissions and take all actions required by the Bureau or
any other division of NJDEP. Tenant's obligations and liabilities under this
Paragraph shall continue so long as Landlord remains responsible for any spills
or discharges of hazardous substances or wastes at the Demised Premises which
occur during the term of this Lease and were caused by Tenant or its agents or
contractors. Tenant's failure to abide by the terms of this paragraph shall be
restrainable by injunction. Tenant shall have no responsibility to obtain a
"Negative Declaration" or "Letter of Non-Applicability" from the NJDEP if the
sole reason for obtaining same is in connection with a sale or other disposition
of the real estate by Landlord but Tenant agrees to cooperate with Landlord in
Landlord's effort to obtain same and shall perform at Tenant's expense any clean
up required by reason of Tenant's use and occupancy of the Demised Premises.
ARTICLE 40
HOLDING OVER
40.01. Tenant will have no right to remain in possession of all or
part of the Demised Premises after the expiration of the term. If Tenant remains
in possession of all or any part of the Demised Premises after the expiration of
the Lease, without the express consent of Landlord: (a) such tenancy will be
deemed to be a periodic tenancy from month-to-month only; (b) such tenancy will
not constitute a renewal or extension of this Lease for any further term; and
(c) such tenancy may be terminated by Landlord upon the earlier of (i) thirty
(30) days prior written notice, or (ii) the earliest date permitted by law. In
such event, monthly rent will be increased to an amount equal to one hundred and
twenty five percent (125%) for the first month of holdover, one hundred and
fifty (150%) for the second month of holdover and two hundred percent (200%)
thereafter of the monthly rent payable during the last month of the term, and
any other sums due under this Lease will be payable in the amount and at the
times specified in this Lease. Such month-to-month tenancy will be subject to
every other term, condition, and covenant contained in this Lease. The
provisions of this Section shall not be construed to relieve Tenant from
liability to Landlord for damages resulting from any such holding over, or
preclude Landlord from implementing summary dispossess proceedings. Tenant
further acknowledges that its failure to perform any restoration required of it
under this Lease shall be deemed the same as its remaining in possession of the
Demised Premises after the expiration of the term, subjecting it to hold-over
rent in accordance with this Article 40.
45
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ARTICLE 41
CERTAIN DEFINITIONS AND CONSTRUCTIONS
41.01. For the purpose of this Lease and all agreements supplemental
to this Lease, unless the context otherwise requires, the definitions set forth
in Exhibit F annexed hereto shall be utilized.
41.02. The various terms which are italicized and defined in other
Articles of this Lease or are defined in Exhibits annexed hereto, shall have the
meanings specified in such other Articles and such Exhibits for all purposes of
this Lease and all agreements supplemental thereto, unless the context shall
otherwise require.
41.03. The submission of this Lease for examination does not
constitute a reservation of, or option for, the Demised Premises, and this Lease
becomes effective as a Lease only upon execution and delivery thereof by
Landlord and Tenant.
41.04. The Article headings in this Lease and the Index prefixed to
this Lease are inserted only as a matter of convenience in reference and are not
to be given any effect whatsoever in construing this Lease.
ARTICLE 42
RELOCATION OF TENANT
42.01. Landlord at its sole expense, on at least sixty (60) days
prior written notice, may require Tenant to move from the Demised Premises to
another location of comparable size and decor in the Building. By written notice
to Landlord served within five (5) days of Tenant's receipt of the relocation
notice, Tenant may elect to terminate this Lease in lieu of relocating to the
other space and shall there upon vacate the Demised Premises within the sixty
(60) day period. In the event of any such relocation, Landlord shall be
responsible for the expenses of preparing and decorating the relocated premises
so that they will be substantially similar to the Demised Premises being
relocated at the time of such relocation. Landlord shall also bear the moving
expenses of the relocation, but reserves the right to move Tenant through its
own personnel. Landlord agrees that its right to relocate Tenant shall be
limited to relocating Tenant to the 15th floor. Landlord shall be responsible
for all costs associated with the closing of the stairwell on the 14th floor and
its relocation between the 14th and 15th floor. Notwithstanding the foregoing,
Landlord shall be entitled to rescind its notice of relocation within forty-five
(45) days of its having forwarded to Tenant the notice of relocation or within
forty-eight (48) hours of Tenant having properly elected to terminate this
Lease. In the event Landlord rescinds the notice as aforesaid, this Lease shall
continue in full force and effect.
46
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ARTICLE 43
OPTION TO RENEW
43.01. Provided that Tenant is not then in default of the terms,
covenants, and provisions of this Lease beyond any applicable notice and grace
period and opportunity to cure, Landlord hereby grants to Tenant the right to
renew the term of this Lease for one (1) additional period of five (5) years
(the "First Renewal Period") commencing on the day after the initial Expiration
Date upon the same terms and conditions as set forth in this Lease other than
the fixed annual rental which shall be the Fair Market Rental of the Demised
Premises at the time of the commencement of the First Renewal Period. Said fixed
annual rental shall be payable in equal monthly installments in advance on the
first day of each and every month of the First Renewal Period. The base year for
calculation of additional rent for increase in taxes and operating expenses for
the First Renewal Period shall be the assessed valuation of the Land and
Building for the Tax Year in which the First Renewal Period shall commence,
multiplied by the tax rate applicable to such period and the Base Year for
Operating Expenses which shall be the first Operational Year in which the First
Renewal Period shall commence. Tenant shall exercise the within Option by giving
written notice to Landlord not later than nine (9) months prior to the initial
Expiration Date, TIME BEING OF THE ESSENCE. If Tenant fails to give such notice,
Tenant will be deemed to have waived such Renewal Option and the provisions of
this Section shall be null and void.
43.02. Provided that Tenant is not then in default of the terms,
covenants, and provisions of this Lease beyond any applicable notice and grace
periods and has exercised its rights under Section 43.01 with respect to the
First Renewal Period, Landlord hereby grants to Tenant the right to renew the
term of this Lease for a second additional period of five (5) years (the "Second
Renewal Period") commencing on the day after the expiration of the First Renewal
Period upon the same terms and conditions as set forth in this Lease other than
the fixed annual rental which shall be the Fair Market Rental of the Demised
Premises at the time of the commencement of the Second Renewal Period. Said
fixed annual rental shall be payable in equal monthly installments in advance on
the first day of each and every month of the Second Renewal Period. The base
year for calculation of additional rent for increase in taxes and operating
expenses for the Second Renewal Period shall be the assessed valuation of the
Land and Building for the Tax Year in which the Second Renewal Period shall
commence, multiplied by the tax rate applicable to such period and the Base Year
for Operating Expenses which shall be the first Operational Year in which the
Second Renewal Period shall commence. Tenant shall exercise the within Option by
giving written notice to Landlord not later than nine (9) months prior to the
expiration of the First Renewal Period, TIME BEING OF THE ESSENCE. If Tenant
fails to give such notice, Tenant will be deemed to have waived such Renewal
Option and the provisions of this Section shall be null and void.
47
<PAGE>
43.03. Fair Market Value shall mean the rents obtainable for
comparable space in the Metro Park, Edison, New Jersey market area.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
WITNESS: LANDLORD:
THORNALL ASSOCIATES, L.P.,
a New Jersey Limited Partnership
/s/ Michael Alfieri
- ---------------------------- ----------------------------------------
By: Michael Alfieri
Title: Partner
ATTEST: TENANT:
PXRE CORPORATION,
a Delaware Corporation
/s/ Sanford M. Kimmel
- ---------------------------- ----------------------------------------
By: Sanford M. Kimmel
Title: Senior V.P. & Treasurer
48
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EXHIBIT A
DESCRIPTION OF LAND
399 THORNALL STREET
ALL that certain tract, lot and parcel of land lying and being in the Township
of Edison, County of Middlesex, and State of New Jersey being more particularly
described as follows:
BEGINNING at a point in the Southeasterly Right-of-Way line of Thornall Street,
distant Southwestwardly 1,234.34 feet from the intersection formed by the
Southeasterly Right-of-Way line of Thornall Street, with the Southwesterly
Right-of-Way line of Wood Avenue South and from said beginning point running
thence:
1. South 43 degrees 27 minutes 01 seconds East along the common line between
lot 2-B-1 and Lot 2-B-4 in Block 676, as shown on the current Township of
Edison Tax Map 919.28 feet to a point; running thence
2. South 55 degrees 02 minutes 33 seconds West, along the common line between
Lot 2-B-4 and Lot 5 in Block 676, as shown on said Tax Map, 134.80 feet to
an angle point; running thence
3. South 31 degrees 14 minutes 31 seconds West, 99.16 feet to a point;
running thence
4. North 53 degrees 23 minutes 59 seconds West, 612.14 feet to a point;
running thence
5. North 36 degrees 36 minutes 01 seconds East, 76.19 feet to a point;
running thence
6. North 53 degrees 23 minutes 59 seconds West 264.80 feet to a point in the
new southeasterly Right-of-Way line of Thornall Street; running thence
7. Northeastwardly along the new southeasterly Right-of-Way line of Thornall
Street, along a curve to the left having a radius of 4,694.00 feet and an
arc length of 42.71 feet to a point of tangency; thence running
8. North 31 degrees 44 minutes 10 seconds East, continuing along said
Right-of-Way line of Thornall Street, 32.06 feet to a point of curvature;
running thence
9. Northeastwardly still along the above mentioned new Right-of-Way line of
Thornall Street, along a curve to the right, having a radius of 894.19
feet, an arch length of 235.66 feet to a point, said point being the point
and place of BEGINNING.
Being also known as Lot 2-B-4 in Block 676 on the current Tax Map of the
Township of Edison, Middlesex County, New Jersey.
Subject to easements, restrictions, and covenants of record and such state of
facts as an accurate survey may reveal.
1A
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EXHIBIT B
FLOOR PLAN
SEE ATTACHED
1B
<PAGE>
[PXRE CORPORATION FLOOR PLAN DIAGRAM]
EXHIBIT B
<PAGE>
EXHIBIT C
SEPARATE WORKLETTER
1C
<PAGE>
THORNALL ASSOCIATES, AS LANDLORD
PXRE CORPORATION, AS TENANT
EXHIBIT C
LANDLORD'S WORK
1. HVAC - Perimeter baseboard electric heat, central high velocity fan system
which utilizes a minimum of 10% to a maximum of 100% fresh air to maintain
no less than 68 degrees interior at zero degrees exterior, with a 15-mile
per hour wind. Air-cooling shall maintain no more than 78 degrees F dry
bulb with approximately 50% relative humidity when the outdoor conditions
are 91 degrees F dry bulb. The above heating and cooling standard is for
normal office use only which shall be deemed to be one person for every
200 square feet in any given or confined area which shall not include
areas with special HVAC requirements such as computer rooms, conference
rooms, cafeterias, high density or excessive heat producing equipment.
Perimeter baseboard electric heat is used during winter operations and an
air cooling system is utilized during summer operations.
2. Window covering - one (1) building-standard venetian blind per window.
3. Landlord shall complete the interior of the Demised Premises in accordance
with space plans and specifications that shall be supplied by the Tenant.
The location of the space is shown in Exhibit B, dated October 5, 1999.
4. Landlord shall permit Tenant and/or its agents or labor to enter the
Premises prior to the Commencement Date of the Lease upon prior reasonable
written request from Tenant, at a time designated by Landlord consistent
with Landlord's construction schedule in order to install telephone
outlets, data lines and computer equipment for the Computer Room. The
foregoing right to enter prior to the Commencement Date, however, is
conditioned upon Tenant's not interfering with Landlord's labor. If at any
time such entry shall cause disharmony, interference, or union disputes of
any nature whatsoever, or if Landlord shall, in Landlord's sole reasonable
judgment, determine that such entry, such work and the continuance thereof
shall interfere with, hamper or prevent Landlord from proceeding with the
completion of the Demised Premises at the earliest possible date, then
this right of entry may be withdrawn by Landlord immediately upon written
notice to Tenant but shall be reinstated as soon as Landlord deems
Tenant's re-entry practicable. Such entry shall be at Tenant's sole risk.
In the event that Tenant's agents or labor incur any charges from
Landlord, including but not limited to, charges for clean-up costs
necessitated by Tenant's entry, such charges shall be deemed an obligation
of Tenant and shall be collectible as additional rent pursuant to the
Lease. Landlord shall have no liability for any furnishings, equipment or
other items placed in the Demised Premises and Tenant shall indemnify,
defend and hold Landlord harmless for any damage, loss or expense caused
by it or its contractors or agents. Tenant shall also provide evidence of
insurance in accordance with the Lease and evidence of Worker's
Compensation Insurance to
<PAGE>
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protect Landlord and Tenant during the period of Tenant's entry prior to
the Commencement Date.
5. At any time after substantial completion of Landlord's Work, Landlord,
upon reasonable notice to Tenant, may enter the Demised Premises, at such
times as shall be reasonably acceptable to Landlord and Tenant, to
complete unfinished details of Landlord's Work and entry by Landlord, its
agents, servants, employees or contractors for such purpose shall not
constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement of rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord or its
agents.
6. Tenant further agrees that if an elevator lobby or corridor is included in
Tenant's Demised Premises or if by virtue of the size and configuration of
Tenant's Demised Premises, other tenants of the Building when in the
lobby, elevator or corridor can see into Tenant's Demised Premises through
a demising wall by a glass window, the Landlord shall have the sole and
final decision as to the color and design of all paint, wall coverings and
floor coverings so visible from the lobby, elevator or corridor.
7. The Tenant shall provide the Landlord with a complete set of architectural
and engineering documents to bid and for construction of the Tenant
fit-out. These shall be submitted to the Landlord on or before November
30, 1999. Delivery after November 30, 1999 shall constitute a Tenant
Delay, to the extent Landlord's Work is actually delayed. The Landlord
shall have the right to review and approve these drawings.
8. The Landlord shall provide the Tenant with $23.00 per rentable square foot
for the Tenant's improvements. This allowance shall be used in connection
with the cost of Landlord's Work and for no other purpose of readying the
Demised Premises for occupancy, such as telephone, furniture, or computer
systems.
9. For any costs above the Landlord's Work, the Tenant shall pay the Landlord
a 33% payment with the return of the work authorization to proceed, a 33%
payment thirty (30) days after receipt of the building permit, a 29%
payment upon Landlord's return of a Certificate of Occupancy and a final
5% payment upon Landlord's completion of the punchlist items. The
punchlist shall be delivered by the Tenant to the Landlord within ten
business days after the issuance of a Certificate of Occupancy. The
punchlist items shall be limited to the scope and the extent of the
initial construction fit-out work contained in the construction documents
as provided by the Tenant to the Landlord per Paragraph 7 of Exhibit "C"
above. After notice by the Landlord to the Tenant that the punchlist items
are complete, then the Tenant shall pay the final 5% to the Landlord.
<PAGE>
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10. The Landlord shall bid out all the trades to duly qualified
subcontractors. The Tenant may make recommendations to the Landlord for
qualified subcontractors, but the Landlord shall have the final choice as
to which subcontractors are qualified. The Landlord shall pick the low
bidder unless the Landlord and Tenant agree upon a higher bidder. The
final cost for the entire job shall include:
General conditions as defined in Division B10.00 of R. S. Means
Construction Cost Data, as applicable to the Tenant's fit-out
project
All of the subcontractors' bids
All demolition work shall be performed by the Landlord
Overhead at 13% of the general conditions and the subcontractors'
bids above
Profit at 10% of all the items listed above
Architectural fees, if any
All charges associated with the review of mechanical, electrical,
sprinkler, plumbing and structural engineering documents, if any
11. The Tenant shall be responsible for the telephone and computer
installation. The Landlord shall coordinate the timing of these items with
the Tenant. The Landlord shall not charge any overhead fees or profit for
such coordination work.
12. All changes to Landlord's Work requested by Tenant shall be in writing.
Landlord shall advise Tenant before accepting the change, of the cost
thereof or, if applicable, the savings and the delay in the substantial
completion, if any, caused by the change and, for any major changes to
Landlord's Work, any additional restoration requirements, if any. Tenant
shall have five (5) days from receipt of this information from Landlord to
advise Landlord to proceed with the change or to withdraw the request.
Tenant shall pay the cost of the change order within thirty (30) days
after receipt of Landlord's invoice with respect to such change if there
shall be an increased cost to Landlord as a result thereof.
13. The Landlord shall provide seven (7) watts per rentable square foot for
the Tenant's electric in the suite, exclusive of HVAC.
14. The Tenant shall have the option to install a stairwell between the 12th
and 14th Floors, subject to the review and approval by the Landlord of its
location and for approval by the Landlord of the architectural and
engineering drawings for the stairwell, which location has been approved
by Landlord as set forth in the plan, titled PL-1A, dated July 15, 1999.
15. The Landlord will provide a location for the supplemental HVAC outside the
building.
<PAGE>
EXHIBIT D
CLEANING AND MAINTENANCE SPECIFICATIONS
Landlord will provide building standard cleaning services to the tenant area and
the ground floor lobby area in accordance with the following specifications:
NIGHTLY
1. GENERAL CLEANING
a. Empty all waste and recycling receptacles, removing waste and
recycling material to designated central location for disposal.
b. Empty and damp wipe clean all ashtrays. Screen and clean all sand
urns, wipe exterior of sand urns.
c. Wash and disinfect all water coolers and drinking fountains.
d. Wipe clean fingermarks, smudges, etc. from all doors, security
desks, wall surfaces, furniture system trim, fixtures, cabinets,
files, conference tables, chairs, partition glass, flat ledges,
heating units, baseboards, blinds and window ledges.
e. Replace plastic liners in all waste-disposal cans.
f. Hand brush and/or vacuum all upholstered furniture, including
furniture system fabric panels.
g. Doors: Wash and wipe clean all kick panels, push/pull areas.
h. Wash and disinfect all public telephones.
i. Wipe down mail chute and mail depository nightly.
j. Clean all Tenant's interior stairways.
2. FLOORS
Group A - Ceramic tile, marble, terrazzo.
1D
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Group B - Linotile, asphalt, koroseal, plastic vinyl, rubber, wood,
cork, or other types of floors and base.
a. All floors in Group A to be swept and wet-mopped. Move light
furniture, planters and equipment other than desks and files.
b. All floors in Group B to be dry mopped, using a "dustdown"
preparation, and spots to be removed by wet process.
c. Main lobby to be machine buffed nightly.
3. VACUUMING
a. Vacuum all rugs and carpeted areas, moving light furniture and
office equipment other than desks and file cabinets. Spot clean to
remove soluble spots which safely respond to standard spotting
procedures without risk of injury to color or fabric.
4. WASHROOMS AND TOILETS
a. Sweep, mop, rinse, and dry floors. Polish mirrors, chrome plumbing
and bright-work. Clean enameled surfaces.
b. Wash and disinfect basins, urinals, and bowls using scouring powder
to remove stains, making certain to clean undersides of rims of
urinals and bowls.
c. Wash and disinfect both sides of all toilet seats.
d. Supply and service all toilet tissue, soap, towels, and sanitary
napkins. Sanitary napkins will be supplied in coin operated
dispensers.
e. All wastepaper cans and all receptacles are to be emptied and new
plastic liners installed.
f. Hand dust and wash clean all partitions, tile walls, dispensers, and
receptacles in lavatories and vanity area.
g. Empty and clean sanitary disposal receptacles and install new
plastic liners.
5. ELEVATORS
2D
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a. Clean the floor in accordance with specifications outlined above
based upon the type of flooring installed. The doors, metal wall
surfaces, wood wall surfaces, ceiling and fixtures shall be dusted.
6. GLASS
a. Clean both sides of all lobby glass, building entrance doors, upper
lobby glass, furniture system partition glass and interior wall
glass.
7. STAIRWELLS
a. Check all stairwells and landings nightly throughout entire demised
area, and keep in clean condition. All stairways and landings will
be dry mopped nightly. Railings, ledges, and equipment will be
dusted nightly.
WEEKLY
8. GENERAL CLEANING
a. Hand dust all office equipment, furniture, fixtures, including
paneling, shelving, window sills and mullions, telephones and all
flat surfaces with a treated cloth or yarn duster.
9. FLOORS
a. Floors in Group B will be wet mopped weekly.
10. WASHROOMS AND TOILETS
a. Wash down walls in washrooms and stalls, from trim to floor.
11. ELEVATORS
a. The doors, surfaces and fixtures shall be damp wiped. The floors
shall be stripped, waxed and machine buffed weekly.
12. STAIRWAYS
a. These areas shall be stripped, waxed and buffed weekly. This will be
governed by the amount of wear due to weather and other conditions.
13. MAIN LOBBY
3D
<PAGE>
a. Clean walls with damp cloth and dust weekly.
MONTHLY
14. FLOORS
a. Waxing, buffing, stripping or machine scrubbing of the floors in
Group A and B.
15. HIGH DUSTING
a. Dust all closet shelving and wash all closet floors, when
accessible.
QUARTERLY
16. GLASS
a. Clean inside of windows.
17. HIGH DUSTING
a. Damp dust all pictures, charts, graphs, light fixtures, etc., not
reached in nightly cleaning.
b. Dust clean all vertical surfaces such as walls, partitions, doors,
door bucks and other surfaces not reached in nightly cleaning.
c. Damp dust air conditioning diffusers, wall grills, door louvers,
registers and venetian blinds.
SEMI ANNUALLY
18. GLASS
a. Clean all doors and exterior side of exterior windows.
ANNUALLY
19. HIGH DUSTING
a. Dust interior and exterior of light fixtures.
4D
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MISCELLANEOUS
a. On completion of work, all slop sinks are to be thoroughly cleaned,
and cleaning equipment to be stored neatly in designated locations.
b. All cleaning services except those performed by day porters, window
cleaners, and matrons are to be performed nightly, five nights per
week. No Saturday, Sunday or Building holiday service to be
provided. In no event shall performance of any cleaning service
interfere with Tenant's normal business operation.
c. The Contractor or Landlord is to furnish all necessary approved
cleaning materials, implements, and machinery for the satisfactory
completion of the work. This includes scaffolding, vacuum machines,
scrubbing machines, etc.
d. Contractor shall furnish proof of liability and property damage
insurance reasonably acceptable to Landlord, and Workman's
Compensation Insurance in amounts required under the laws of New
Jersey.
e. Tenant will be charged for cleaning services in excess of the
specifications outlined above.
f. Tenant will be charged for the incremental cost to clean any areas
of the Demised Premises used for special purposes requiring more
difficult cleaning work than office areas including, but not limited
to, private toilets and showers, dining areas, cafeteria, kitchen,
etc.
5D
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, elevators, and
escalators of the Building are limited to ingress to and egress from the
tenants' demised premises for the tenants and their employees, licensees, and
invitees, and no tenant shall use or permit the use of the entrances, corridors,
escalators, or elevators for any other purpose. No tenant shall invite to the
tenant's demised premises, or permit the visit of, persons in such numbers or
under such conditions as to interfere with the use and enjoyment of any of the
plazas, entrances, corridors, escalators, elevators, and other facilities of the
Building by other tenants. Fire exits and stairways are for emergency use only,
and they shall not be used for any other purpose by the tenants, their
employees, licensees, or invitees. No tenant shall encumber or obstruct, or
permit the encumbrance or obstruction of any of the sidewalks, plazas,
entrances, corridors, escalators, elevators, fire exits, or stairways of the
Building. The Landlord reserves the right to control and operate the public
portions of the Building and the public facilities , as well as facilities
furnished for the common use of the tenants, in such manner as it deems best for
the benefit of the tenants generally.
2. The Landlord may refuse admission to the Building outside of
ordinary business hours to any person not having a pass issued by the Landlord
or the tenant whose demised premises are to be entered or not otherwise properly
identified, and may require all persons admitted to or leaving the Building
outside of ordinary business hours to register. Any person whose presence in the
Building at any time shall, in the judgment of the Landlord, be prejudicial to
the safety, character, reputation, and interests of the Building or of its
tenants may be denied access to the Building or may be ejected therefrom. In
case of invasion, riot, public excitement, or other commotion, the Landlord may
prevent all access to the Building during the continuance of the same, by
closing the doors or otherwise, for the safety of the tenants and protection of
property of the Building. The Landlord may require any person leaving the
Building with any package or other object to exhibit a pass from the tenant from
whose premises the packaging or object is being removed, but the establishment
and enforcement of such requirement shall not impose any responsibilities on the
Landlord for the protection of any tenant against the removal of property from
the premises of the tenant. The Landlord shall in no way be liable to any tenant
for damages or loss arising from the admission, exclusion, or ejection of any
person to or from the tenant's premises or the Building under the provisions of
this rule. Canvassing, soliciting, or peddling in the Building is prohibited,
and every tenant shall cooperate to prevent the same.
3. No tenant shall obtain or accept for use in its demised premises
ice, food for on premises preparation other than warming, beverage towel,
barbering, boot blackening, floor polishing, lighting maintenance, cleaning, or
other similar services from any persons not authorized by the Landlord in
writing to furnish such services, provided that the charges for such services by
persons authorized by the Landlord are not excessive and where appropriate and
1E
<PAGE>
consonant with the security and proper operation of the Building sufficient
persons are so authorized for the same service to provide tenants with a
reasonably competitive selection. Such services shall be furnished only at such
hours, in such places within the Tenant's Demised Premises and under such
reasonable regulations as may be fixed by the Landlord. Tenant may have a coffee
service, subject to Landlord's approval, and a kitchen for the use of its
employees commensurate with normal office use.
4. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with other
tenants, caused by a tenant or the employees, licensees, or invitees of the
tenant shall be paid by such tenant.
5. No lettering, sign, advertisement, notice or object shall be
displayed in or on the windows or doors, or on the outside of any tenant's
demised premises, or at any point inside any tenant's premises where the same
might be visible outside of such demised premises, except that the name of the
tenant may be displayed on the entrance door of the tenant's demised premises,
and in the elevator lobbies of the floors which are occupied entirely by any
tenant, subject to the approval of the Landlord as to the size, color, and style
of such display. The inscription of the name of the tenant on the door of the
tenant's demised premises shall be done by the Landlord at the expense of the
tenant.
6. No awnings or other projections over or around the windows shall
be installed by any tenant, and only such window blinds as are supplied or
permitted by the Landlord shall be used in a tenant's demised premises.
Linoleum, tile, or other floor covering shall be laid in a tenant's demised
premises only in a manner approved by the Landlord.
7. The Landlord shall have the right to prescribe the weight and
position of safes and other objects of excessive weight, and no safe or other
object whose weight exceeds the lawful load for the area upon which it would
stand shall be brought into or kept upon a tenant's demised premises. If, in the
judgment of the Landlord, it is necessary to distribute the concentrated weight
of any heavy object, the work involved in such distribution shall be done at the
expense of the tenant and in such manner as the Landlord shall determine. The
moving of safes and other heavy objects shall take place only outside of
ordinary business hours upon the same upon previous notice to the Landlord, and
the persons employed to move the same in and out of the Building shall be
reasonably acceptable to the Landlord and if so required by law, shall hold a
Master Rigger's license. Freight, furniture, business equipment, merchandise,
and bulky matter of any description shall be delivered to and removed from the
demised premises only in the freight elevators and through the service entrances
and corridors, and only during hours and in a manner approved by the Landlord.
Arrangements will be made by the Landlord with any tenant for moving large
quantities of furniture and equipment into or out of the Building.
8. No machines or mechanical equipment of any kind other than
typewriters and other ordinary portable business machines, may be installed or
operated in any tenant's demised premises without Landlord's prior written
consent, and in no case (even where the same are of a type so accepted or as so
consented to by Landlord) shall any machines or mechanical equipment be so
placed or operated as to disturb other tenants; but machines and mechanical
2E
<PAGE>
equipment which may be permitted to be installed and used in a tenant's demised
premises shall be so equipped, installed and maintained by such tenant as to
prevent any disturbing noise, vibration, or electrical or other interference
from being transmitted from such premises to any other area of the Building.
9. No noise, including the playing of any musical instruments, radio
or television, which, in the judgment of the Landlord might disturb other
tenants in the building, shall be made or permitted by any tenant, and no
cooking shall be done in the tenant's demised premises, except as expressly
approved by the Landlord. Nothing shall be done or permitted in any tenants'
demised premises, and nothing shall be brought into or kept in any tenants'
demised premises, which would impair or interfere with any of the Building
services or the proper and economic heating, cleaning, or other servicing of the
Building or the demised premises, or the use of enjoyment by any other tenant of
any other demised premises, nor shall there be installed by any tenant any
ventilating, air conditioning, electrical or other equipment of any kind which,
in the judgment of the Landlord, might cause any such impairment or
interference. No dangerous, inflammable, combustible, or explosive object or
material shall be brought into the building by any tenant or with the permission
of any tenant. Any cuspidors or similar containers or receptacles used in any
tenants' demised premises shall be cared for and cleaned by and at the expense
of the tenant.
10. No acids, vapors, or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the Building
which may damage them. The water and wash closets and other plumbing fixtures in
or serving any tenant's premises shall not be used for any purpose other than
the purposes for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited therein.
11. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows in any tenants' demised premises and no lock on any
door therein shall be changed or altered in any respect. Additional keys for a
tenant's demised premises and toilet rooms shall be procured only from the
Landlord, which may make a reasonable charge therefor. Upon the termination of a
tenant's lease, all keys of the tenant's demised premises and toilet rooms shall
be delivered to the Landlord.
12. All entrance doors in each tenants' demised premises shall be
left locked, and all windows shall be left closed by the tenant when the
tenant's demised premises are not in use. Entrance doors shall not be left open
at any time.
13. Hand trucks not equipped with rubber tires and side guards shall
not be used within the Building.
14. All windows in each tenant's demised premises shall be kept
closed and all blinds therein above the ground floor shall be lowered when and
as reasonably required because of the position of the sun, during the operation
of the Building air conditioning system to cool or ventilate the tenant's
demised premises.
3E
<PAGE>
EXHIBIT F
DEFINITIONS
(a) The term "mortgage" shall mean an indenture of mortgage and deed
of trust to a trustee to secure an issue of bonds, and the term "mortgagee"
shall mean such a trustee.
(b) The terms "include," "including," and "such as" shall each be
construed as if followed by the phrase "without being limited to."
(c) References to Landlord as having no liability to Tenant or being
without liability to Tenant, shall mean the Tenant is not entitled to terminate
this Lease, or to claim actual or constructive eviction, partial or total, or to
receive any abatement or diminution of rent, or to be relieved in any manner of
any of its other obligations hereunder, or to be compensated
(d) The term laws and/or requirements of public authorities and
words of like import shall mean laws and ordinances of any or all of the
Federal, state, city, county, and borough governments and rules, regulations,
orders and/or directives of any or all departments, subdivisions, bureaus,
agencies, or office thereof, or of any other governmental, public, or
quasipublic authorities, having jurisdiction in the premises, and/or the
direction of any public officer pursuant to law.
(e) The term requirements of insurance bodies and words of like
import shall mean rules, regulations, orders, and other requirements of the New
Jersey Board of Fire Underwriters and/or similar body performing the same or
similar functions and having jurisdiction or cognizance of the Building and/or
the Demised Premises.
(f) The term repair shall be deemed to include restoration and
replacement as may be necessary to achieve and/or maintain good working order
and condition.
(g) Reference to termination of this Lease includes expiration or
earlier termination of the term of this Lease or cancellation of this Lease
pursuant to any of the provisions of this Lease or to law. Upon a termination of
this Lease, the term and estate granted by this Lease shall end at noon of the
date of termination as if such date were the date of expiration of the term of
this Lease and neither party shall have any further obligation or liability to
the other after such termination (i) except as shall be expressly provided for
in this Lease, or (ii) except for such obligation as by its nature or under the
circumstances can only be, or by the provisions of this Lease, may be performed
after such termination and, in any event, unless expressly otherwise provided in
this Lease, any liability for a payment which shall have accrued to or with
respect to any period ending at the time of termination shall survive the
termination of this Lease.
<PAGE>
EXHIBIT G
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this _______ day of
________, 199___, by and among _______________________________________ (" Tenant
") and NEW YORK LIFE INSURANCE COMPANY, a New York mutual insurance company [NEW
YORK LIFE INSURANCE AND ANNUITY CORPORATION, a Delaware corporation] ("
Lender"), whose principal address is 51 Madison Avenue, New York, New York, and
THORNALL ASSOCIATES, L.P. ("Landlord").
RECITALS:
A. Lender has made a mortgage loan (the " Loan ") to Landlord in the
amount of $36,000,000 secured by a mortgage (the " Mortgage ") on the real
property legally described in Exhibit "A" attached hereto (the "Premises");
B. Tenant is the present lessee under a lease dated
_______________________ made by Landlord demising a portion of the Premises and
other property (said lease and all amendments thereto being referred to as the
"Lease");
C. The Loan terms require that Tenant subordinate the Lease and its
interest in the Premises in all respects to the lien of the Mortgage and that
Tenant attorn to Lender; and
D. In return, Lender is agreeable to not disturbing Tenant's possession of
the portion of the Premises covered by the Lease (the " Demised Premises "), so
long as Tenant is not in default under the Lease.
NOW THEREFORE, in consideration for the mutual covenants contained herein
and other consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
AGREEMENTS:
1. Subordination. The Lease, and the rights of Tenant in, to and under the
Lease and the Demised Premises, are hereby subjected and subordinated to the
lien of the Mortgage and to any modification, reinstatement, extension,
supplement, consolidation or replacement thereof as well as any advances or
re-advances with interest thereon and to any mortgages or deeds trust on the
Premises which may hereafter be held by Lender.
<PAGE>
-2-
2. Tenant Not to be Disturbed. In the event it should become necessary to
foreclose the Mortgage or Lender should otherwise come into possession of title
to the Premises, Lender will not join Tenant in summary or foreclosure
proceedings unless required by law in order to obtain jurisdiction, but in such
event no judgment foreclosing the Lease will be sought, and Lender will not
disturb the use and occupancy of Tenant under the Lease so long as Tenant is not
in default under any of the terms, covenants or conditions of the Lease and has
not prepaid the rent except monthly in advance as provided by the terms of the
Lease.
3. Tenant to Attorn to Lender. Tenant agrees that in the event any
proceedings are brought for foreclosure of the Mortgage, it will attorn to the
purchaser as the landlord under the Lease. The purchaser by virtue of such
foreclosure shall be deemed to have assumed and agreed to be bound, as
substitute landlord, by the terms and conditions of the Lease until the resale
or other disposition of its interest by such purchaser, except that such
assumption shall not be deemed of itself an acknowledgment by such purchaser of
the validity of any then existing claims of Tenant against any prior landlord
(including Landlord). All rights and obligations under the Lease shall continue
as though such foreclosure proceedings had not been brought, except as
aforesaid. Tenant agrees to execute and deliver to any such purchaser such
further assurance and other documents, including a new lease upon the same terms
and conditions of the Lease, confirming the foregoing as such purchaser may
reasonably request. Tenant waives the provisions (i) contained in the Lease or
any other agreement relating thereto and (ii) of any statute or rule of law now
or hereafter in effect which may give or purport to give it any right or
election to terminate or otherwise adversely affect the Lease and the
obligations of Tenant thereunder by reason of any foreclosure proceeding.
4. Limitations. Notwithstanding the foregoing, neither Lender nor such
other purchaser shall in any event be:
(a) liable for any act or omission of any prior landlord (including
Landlord);
(b) obligated to cure any defaults of any prior landlord (including
Landlord) which occurred prior to the time that Lender or such other purchaser
succeeded to the interest of such prior landlord under the Lease;
(c) subject to any offsets or defenses which Tenant may be entitled to
assert against any prior landlord (including landlord);
(d) bound by any payment of rent or additional rent by Tenant to any prior
landlord (including Landlord) for more than one month in advance;
(e) bound by any amendment or modification of the Lease made without the
written consent of Lender or such other purchaser, or
<PAGE>
-3-
(f) liable or responsible for, or with respect to, the retention,
application and/or return to Tenant of any security deposit paid to any prior
landlord (including Landlord), whether or not still held by such prior landlord,
unless and until Lender or such other purchaser has actually received for its
own account as landlord the full amount of such security deposit.
5. Acknowledgement of Assignment of Lease and Rent. Tenant acknowledges
that it has notice that the Lease and the rent and all other sums due thereunder
have been assigned or are to be assigned to Lender as security for the Loan
secured by the Mortgage. In the event that Lender notifies Tenant of a default
under the Mortgage and demands that Tenant pay its rent and all other sums due
under the Lease to Lender, Tenant agrees that it will honor such demand and pay
its rent and all other sums due under the Lease directly to Lender or as
otherwise required pursuant to such notice.
6. Limited Liability. Tenant acknowledges that in all events, the
liability of Lender and any purchaser shall be limited and restricted to their
interest in the Premises and shall in no event exceed such interest.
7. Lender's Right to Notice of Default and Option to Cure: Tenant will
give written notice to Lender of any default by Landlord under the Lease by
mailing a copy of the same by certified mail, postage prepaid, addressed as
follows (or to such other address as may be specified from time to time by
Lender to Tenant):
To Lender: New York Life Insurance Company
[New York Life Insurance and Annuity Corporation]
51 Madison Avenue
New York, NY 10010
Attn: Senior Vice President
Mortgage Finance Department
Upon such notice, Lender shall be permitted and shall have the option, in its
sole and absolute discretion, to cure any such default during the period of time
during which the Landlord would be permitted to cure such default, but in any
event, Lender shall have a period of thirty (30) days after the receipt of such
notification to cure such default, provided, however, that in the event Lender
is unable to cure the default by exercise of reasonable diligence within such 30
day period, Lender shall have such additional period of time as may be
reasonably required to remedy such default with reasonable dispatch.
Tenant waives the provisions of any statute or rule of law now or hereafter in
effect which may give or purport to give it any right or election to terminate
or otherwise adversely affect the Lease and the obligations of Tenant thereunder
in connection with any foreclosure proceedings.
<PAGE>
-4-
8. Successors and Assigns. The provisions of this Agreement are binding
upon and shall inure to the benefit of the heirs, successors and assigns of the
parties hereof.
IN WITNESS WHEREOF, the parties hereto have executed these presents the
day and year first above written;
WITNESSED: TENANT:
___________________________________________
______________________________ By:________________________________________
Name:______________________________________
______________________________ Title:_____________________________________
LENDER:
NEW YORK LIFE INSURANCE COMPANY
[NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION]
______________________________ By:________________________________________
Name:______________________________________
______________________________ Title:_____________________________________
The terms of the above Agreement are hereby consented, agreed to and
acknowledged.
LANDLORD:
THORNALL ASSOCIATES, L.P.
______________________________ By:________________________________________
Name: Michael Alfieri
______________________________ Title: Partner
<PAGE>
March 14, 2000
Gerald L. Radke
President & Chief Executive Officer
PXRE Corporation
399 Thornall Street
Edison, NJ 08337
Re: Investment Advisory Services
Dear Mr. Radke:
This letter will serve to confirm our agreement that Mariner Investment
Group, Inc. ("Mariner") will provide investment advisory, trade execution and
related services to PXRE Corporation and its U.S. affiliates (the "Client") on
the terms, and subject to the conditions, set forth herein.
Scope of Responsibilities
Mariner will perform the services and have the authority set forth
herein with respect to certain cash, securities and other investment assets of
the Client specified in writing by the Client and all proceeds thereof and
additions thereto (the "Account"). Mariner will supervise and direct the
investment of the Account in accordance with, and subject to, the investment
guidelines provided by the Client in writing (a copy of the initial guidelines
being annexed as Exhibit A), as the same may be amended, revised or replaced
from time to time by the Client (the "Investment Guidelines"). Subject to the
foregoing, Mariner, as agent and attorney-in-fact with respect to the Account
may, when it deems appropriate, buy, sell, exchange, retain, reinvest or
otherwise trade in securities of the types specified in the Investment
Guidelines and place orders for the execution of such investment transactions
with or through such brokers, dealers or other persons as Mariner may select;
provided, however, that Mariner shall consult with Client prior to consummating
any transaction, or series of related transactions, in excess of $5,000,000.
Mariner shall deliver, or shall cause to be delivered, to Client or to such
custodian as Client may direct in writing to Mariner, all assets in the Account,
as Client may direct from time to time, and Mariner shall not retain any assets
in the Account. Client may make any addition to or withdrawal from the Account
at any time and in any amount that Client determines, so long as Client promptly
notifies the Manager in writing of any addition to the Account and the amount of
the addition, and so long as Client makes no withdrawal from the Account without
first delivering to the Manager within a reasonable time prior to the
withdrawal, written notice of
<PAGE>
intended withdrawal and the amount of the withdrawal. Mariner will comply with
all legal requirements and rules of securities exchanges applicable to its
duties in connection with the execution of transactions.
Mariner will provide or cause to be provided to the Client such
periodic reports concerning the status of the Account (including a valuation
thereof based upon such valuation method(s) agreed with Client) as the Client
may reasonably request. Mariner will provide to the Client on request, and not
less frequently than quarterly, a report of Account transactions effected by
Mariner since the date of the most recent such report. Mariner will preserve its
records relating to the Account for no less than six years and shall make such
records available for inspection at reasonable times during normal business
hours, upon the request of the Client, to the Client, its auditors or any
pertinent regulatory authority. Prior to discarding or destroying any such
records, Mariner will give the Client reasonable opportunity, at the Client's
expense, to review them and to take all or such portion of them as the Client
wishes to retain. All information and advice furnished by either party to the
other hereunder will be treated as confidential and will not be disclosed to
third parties except as provided in this paragraph or as required by law.
Fees
Client agrees to pay Mariner a fee, or defer such fee pursuant to an
arrangement agreed to in writing by both parties, payable or deferred quarterly
in advance, calculated, based on the valuation of the Account as at the end of
the previous quarter, using the fee schedule below for the assets under
management.
<TABLE>
<CAPTION>
Asset Class Annual fee %
<S> <C>
Traditional Equities .25%
Non-Mariner Hedge Funds 1.25%
Mariner Hedge Funds 0%
High Yield Public Debt .25%
Private Securities .50%
</TABLE>
The methodology for valuing the Account for fee calculation purposes shall be as
agreed in writing by Mariner and Client. If Mariner shall serve for less than
the whole of any calendar quarter, its compensation shall be payable on a pro
rata basis for the period of the calendar quarter for which it has served as
manager hereunder, and Mariner shall promptly reimburse Client accordingly in
respect of any advance payment.
Expenses
Client shall reimburse Mariner for any reasonable investment-related
out-of-pocket costs and expenses incurred in monitoring the Account of a type
previously agreed in writing by the Client upon presentation of appropriate
supporting documentation.
2
<PAGE>
Indemnity
Client shall indemnify and hold harmless Mariner, its directors,
officers, employees and agents ("Indemnified Parties"), individually and
collectively, against any losses (including financial results poorer than
expected by Client), claims, damages, liabilities or expenses, including
reasonable attorneys' fees (collectively, "Losses") to which Mariner may become
subject in so far as such Losses arise out of or are based upon any activities
undertaken by, or inaction of, Mariner as investment advisor, unless such Losses
arise out of the gross negligence, willful misfeasance or bad faith of the
Indemnified Parties.
Mariner shall give Client written notice as soon as practicable after
it becomes aware of any fact, condition or event which may give rise to Losses
for which indemnification hereunder may be sought. If any lawsuit or enforcement
action is filed against any Indemnified Parties which may give rise to any
indemnification Losses, written notice thereof shall be given to Client as
promptly as practicable (and in any event, within 10 days after the service of
the citation or summons); provided, that the failure to give such notice shall
not relieve Client from its indemnification obligations hereunder, except and
only to the extent that such failure increases the indemnified Losses. Client
shall be entitled, if it so elects, to take control of the defense and
investigation of any such lawsuit or action and to employ and engage attorneys
of its choice (and at its expense) to handle and defend the same. No settlement
relating to any Losses shall be made unless Mariner gives its written consent to
such settlement which consent shall not be unreasonably delayed or withheld.
Status of Investment Manager
Mariner will for all purposes herein be deemed to be an independent
contractor and will, except as otherwise expressly provided or authorized by or
under this letter agreement, have no authority to act for or represent the
Client in any way or otherwise be deemed an agent of the Client.
Activities of Investment Manager
Mariner and its affiliates, may engage, simultaneously with the
investment management activities on behalf of the Account, in other businesses
and make investments for their own accounts, and may render services similar to
those described in this agreement for other individuals, companies, trusts or
persons, and shall not by reason of such engaging in other businesses, making
such investments or rendering of services for others be deemed to be acting in
conflict with the interest of the Account.
Term
This Agreement is effective from May 1, 1999 and may be terminated upon
ninety-(90) days written notice by Mariner, or upon thirty (30) days written
notice by Client, to the other or
3
<PAGE>
upon shorter notice upon the mutual agreement of the parties; provided, however,
Client may terminate this Agreement without such advance notice if Client pays a
termination fee determined as if the Manager had continued to provide services
under this Agreement for a period of thirty (30) days after the termination
date. Termination of this Agreement for any reason shall not relieve the Manager
of liability or responsibility under this Agreement with respect to the period
prior to the effectiveness of the termination. This letter agreement will be
governed by, and construed in accordance with, the laws of the State of New
York, (other than any conflict of law rule which might result in the application
of the law of any other jurisdiction).
Notification
All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered by hand against
written receipt; when confirmation of a fax or email sent during business hours
of the recipient is received by the sender; or upon the fifth day following
mailing which shall be by certified or registered mail, postage paid:
1. If to Mariner at: Mariner Investment Group, Inc.
65 East 55th Street, 9th Floor, NY, NY 10022
Fax number: 212 758 6680
Email: [email protected]
Attention: William J. Michaelcheck
If to Client at: PXRE Corporation
399 Thornall Street
Edison, NJ 08337
Fax number: 732-906-9157
Email: [email protected]
Attention: James F. Dore
Assignment
Without the written consent of the other party, this Agreement may not
be assigned by either of the parties hereto; any such attempted assignment being
void.
Authority to Perform
Each of the parties to this Agreement hereby represents that it is
duly authorized and empowered to execute, deliver and perform this Agreement and
the transactions contemplated hereby, that such actions do not conflict with or
violate any provision of law, regulation, or contract, deed of trust, agreement
or other instrument to which it is a party or by which it is bound or to which
it is subject and that no consent of any person or government regulatory agency
to such person's performing its obligations under this Agreement is required
which has not been obtained, and that this Agreement is a valid and binding
obligation upon that party, enforceable in accordance with its terms.
4
<PAGE>
Miscellaneous
This Agreement is the entire agreement of the parties with respect to
the management of the assets in the Account and may not be amended except in a
writing signed by the parties.
Please confirm your agreement with the terms set forth herein by
signing the enclosed copy of this letter where indicated below and returning it
to Mariner.
Very truly yours,
MARINER INVESTMENT GROUP, INC.
By /s/ William Michaelcheck
------------------------------
Title: Chairman
AGREED AND ACKNOWLEDGED,
PXRE CORPORATION
By /s/ James Dore
-------------------------------
Title: Executive Vice President
5
PXRE GROUP LTD. AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED
CHARGES AND RATIO OF CONSOLIDATED EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS
(In thousands, except ratios)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- --- ----
<S> <C> <C> <C> <C> <C>
Net income $ (42,139) $ 2,679 $ 44,253 $ 33,301 $ 39,786
Equity in earnings of TREX 0 0 0 (3,898) (5,948)
--------- ------- -------- -------- ---------
Income before equity in earnings of TREX (42,139) 2,679 44,253 29,403 33,838
Income taxes (13,149) (1,661) 22,198 15,644 18,189
--------- ------- -------- -------- ---------
$ (55,288) $ 1,018 $ 66,451 $ 45,047 $ 52,027
Fixed charges:
Interest expense 12,705 10,323 11,508 6,957 7,143
Appropriated portion (1/3) of rentals 718 490 378 365 397
--------- ------- -------- -------- ---------
Total fixed charges 13,423 10,813 11,886 7,322 7,540
--------- ------- -------- -------- ---------
Earnings before income taxes and fixed charges $ (41,865) $ 11,831 $ 78,337 $ 52,369 $ 59,567
--------- ------- -------- -------- ---------
Preferred dividend requirements $ 0 $ 0 $ 0 $ 0 $ 599
--------- ------- -------- -------- ---------
Ratio of pre-tax income to net income 1.31 0.38 1.50 1.53 1.54
--------- ------- -------- -------- ---------
Preferred dividend factor $ 0 $ 0 $ 0 $ 0 $ 922
Total fixed charges 13,423 10,813 11,886 7,322 7,540
--------- ------- -------- -------- ---------
Total fixed charges and preferred dividends $ 13,423 $ 10,813 $ 11,886 $ 7,322 $ 8,462
--------- ------- -------- -------- ---------
Ratio of earnings to fixed charges (3.12) 1.09 6.59 7.15 7.90
--------- ------- -------- -------- ---------
Ratio of earnings to combined fixed charges and
preferred dividends (3.12) 1.09 6.59 7.15 7.04
--------- ------- -------- -------- ---------
Deficiency in ratio 55,288
Deficiency in combined ratio 55,288
=========
</TABLE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of PXRE Group Ltd. (the "Company"), hereby constitutes and appoints
Gerald L. Radke and James F. Dore, and each of them singly, as his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, acting in the name and on behalf of the undersigned, to sign the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1999, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
attorneys-in-fact and agents (and either of them) full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
such connection, 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 (and either of them), or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March,
2000.
/s/ F. Sedgwick Browne
-----------------------------------
F. Sedgwick Browne
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of PXRE Group Ltd. (the "Company"), hereby constitutes and appoints
Gerald L. Radke and James F. Dore, and each of them singly, as his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, acting in the name and on behalf of the undersigned, to sign the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1999, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
attorneys-in-fact and agents (and either of them) full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
such connection, 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 (and either of them), or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March,
2000.
/s/ Wendy Luscombe
-----------------------------------
Wendy Luscombe
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of PXRE Group Ltd. (the "Company"), hereby constitutes and appoints
Gerald L. Radke and James F. Dore, and each of them singly, as his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, acting in the name and on behalf of the undersigned, to sign the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1999, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
attorneys-in-fact and agents (and either of them) full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
such connection, 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 (and either of them), or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March,
2000.
/s/ David W. Searfoss
-----------------------------------
David W. Searfoss
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of PXRE Group Ltd. (the "Company"), hereby constitutes and appoints
Gerald L. Radke and James F. Dore, and each of them singly, as her true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, acting in the name and on behalf of the undersigned, to sign the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1999, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
attorneys-in-fact and agents (and either of them) full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
such connection, as fully to all intents and purposes as she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents (and either of them), or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March,
2000.
/s/ Wilson Wilde
-----------------------------------
Wilson Wilde
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of PXRE Group Ltd. (the "Company"), hereby constitutes and appoints
Gerald L. Radke and James F. Dore, and each of them singly, as his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, acting in the name and on behalf of the undersigned, to sign the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1999, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
attorneys-in-fact and agents (and either of them) full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
such connection, 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 (and either of them), or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March,
2000.
/s/ Franklin D. Haftl
-----------------------------------
Franklin D. Haftl
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of PXRE Group Ltd. (the "Company"), hereby constitutes and appoints
Gerald L. Radke and James F. Dore, and each of them singly, as his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, acting in the name and on behalf of the undersigned, to sign the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1999, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
attorneys-in-fact and agents (and either of them) full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
such connection, 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 (and either of them), or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March,
2000.
/s/ Robert W. Fiondella
-----------------------------------
Robert W. Fiondella
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of PXRE Group Ltd. (the "Company"), hereby constitutes and appoints
Gerald L. Radke and James F. Dore, and each of them singly, as his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, acting in the name and on behalf of the undersigned, to sign the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1999, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
attorneys-in-fact and agents (and either of them) full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
such connection, 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 (and either of them), or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March,
2000.
/s/ Bernard Kelly
-----------------------------------
Bernard Kelly
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of PXRE Group Ltd. (the "Company"), hereby constitutes and appoints
Gerald L. Radke and James F. Dore, and each of them singly, as his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, acting in the name and on behalf of the undersigned, to sign the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1999, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
attorneys-in-fact and agents (and either of them) full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
such connection, 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 (and either of them), or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March,
2000.
/s/ Philip R. McLoughlin
-----------------------------------
Philip R. McLoughlin
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 329,962,000
<DEBT-CARRYING-VALUE> 321,247,527
<DEBT-MARKET-VALUE> 321,247,527
<EQUITIES> 24,840,360
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 509,568,077
<CASH> 14,735,040
<RECOVER-REINSURE> 106,702,307
<DEFERRED-ACQUISITION> 7,809,971
<TOTAL-ASSETS> 780,180,109
<POLICY-LOSSES> 261,551,353
<UNEARNED-PREMIUMS> 42,218,837
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 75,000,000
<COMMON> 11,679,769
0
0
<OTHER-SE> 251,599,214
<TOTAL-LIABILITY-AND-EQUITY> 780,180,109
128,503,110
<INVESTMENT-INCOME> 47,172,616
<INVESTMENT-GAINS> (3,765,816)
<OTHER-INCOME> 3,590,337
<BENEFITS> 159,259,413
<UNDERWRITING-AMORTIZATION> 27,701,644
<UNDERWRITING-OTHER> 30,052,310
<INCOME-PRETAX> (54,218,324)
<INCOME-TAX> (12,774,971)
<INCOME-CONTINUING> (41,443,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (695,278)
<NET-INCOME> (42,138,631)
<EPS-BASIC> (3.64)
<EPS-DILUTED> (3.64)
<RESERVE-OPEN> 102,592,394
<PROVISION-CURRENT> 220,132,079
<PROVISION-PRIOR> 37,129,370
<PAYMENTS-CURRENT> 17,508,053
<PAYMENTS-PRIOR> 80,794,439
<RESERVE-CLOSE> 261,551,354
<CUMULATIVE-DEFICIENCY> 37,129,370
