Page 1 of 32
U.S. Securities and Exchange Commission
Washington D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of July, 2003.
KINGSWAY FINANCIAL SERVICES INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
ONTARIO, CANADA
(Province or other jurisdiction of incorporation or organization)
5310 Explorer Drive, Suite 200, Mississauga, Ontario, Canada L4W 5H8
------------------------------------------------------------------------
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file annual
reports under cover or Form 20-F or Form 40-F:]
Form 20-F Form 40-F X
----- -----
[Indicate by check mark whether the Registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934:]
Yes No X
-------- -------
[If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):]
N/A
-----
Page 2 of 32
KINGSWAY FINANCIAL SERVICES INC.
Table of Contents
Sequential
Page
Number
Item Description
1. Press Release - dated July 3, 2003 4
2. Preliminary Short Form Prospectus - dated June 18, 2003 5
3. Final Short Form Prospectus - dated June 25, 2003 29
Page 3 of 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Kingsway Financial Services Inc.
Dated: July 8, 2003 By: /s/ W. Shaun Jackson
------------------------------
W. Shaun Jackson
Executive Vice President and
Chief Financial Officer
Page 4 of 32
[KINGSWAY FINANCIAL LOGO]
KINGSWAY COMPLETES PUBLIC OFFERING
TORONTO, ONTARIO (July 3, 2003) - Kingsway Financial Services Inc. (TSE:KFS,
NYSE:KFS) today announced that it has completed its previously announced public
offering. 6,100,000 common shares were issued at Cdn$16.70 per share from
treasury on a bought deal basis to a syndicate of underwriters led by Scotia
Capital Inc. for total gross proceeds of $101,870,000.
The underwriters of the offering were Scotia Capital Inc., CIBC World Markets
Inc., BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., Sprott Securities
Inc., Desjardins Securities Inc., Griffiths McBurney & Partners and HSBC
Securities (Canada) Inc.
The net proceeds from this offering will be used for general corporate purposes.
This news release does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities in the United States. The securities have not
been and will not be registered under the United States Securities Act of 1933,
as amended (the "U.S. Securities Act") or any state securities laws and may not
be offered or sold within the United States or to U.S. persons unless registered
under the U.S. Securities Act and applicable state securities laws or an
exemption from such registration is available. These securities are not being
offered to the public in the United States.
NOT FOR DISTRIBUTION TO U.S NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED
STATES.
About Kingsway
--------------
Kingsway's primary business is the insuring of automobile risks for drivers who
do not meet the criteria for coverage by standard automobile insurers and
trucking insurance. The Company currently operates through nine wholly-owned
insurance subsidiaries in Canada and the U.S. Canadian subsidiaries include
Kingsway General Insurance Company, York Fire & Casualty Insurance Company and
Jevco Insurance Company. U.S. subsidiaries include Universal Casualty Company,
American Service Insurance Company, Southern United Fire Insurance Company,
Lincoln General Insurance Company, U.S. Security Insurance Company, American
Country Insurance Company and Avalon Risk Management, Inc. The Company also
operates reinsurance subsidiaries in Barbados and Bermuda. Kingsway Financial,
Lincoln General Insurance Company, Universal Casualty Insurance Company,
Kingsway General, York Fire, Jevco and Kingsway Reinsurance (Bermuda) are all
rated "A-" Excellent by A.M. Best. The Company's senior debt is rated 'BBB'
(investment grade) by Standard and Poor's and by Dominion Bond Rating Services.
The common shares of Kingsway Financial Services Inc. are listed on the Toronto
Stock Exchange and the New York Stock Exchange, under the trading symbol "KFS".
-30-
For further information, please contact:
Shaun Jackson
Executive Vice President and Chief Financial Officer
Tel: (905) 629-7888
Fax: (905) 629-5008
Page 5 of 32
A copy of this preliminary short form prospectus has been filed with the
securities regulatory authorities in each of the provinces of Canada, but has
not yet become final for the purpose of the sale of securities. Information
contained in this preliminary short form prospectus may not be complete and may
have to be amended. The securities may not be sold until a receipt for the short
form prospectus is obtained from the securities regulatory authorities.
This short form prospectus constitutes a public offering of these securities
only in those jurisdictions where they may be lawfully offered for sale and
therein only by persons permitted to sell such securities. No securities
regulatory authority has expressed an opinion about these securities and it is
an offence to claim otherwise.
Information has been incorporated by reference in this short form prospectus
from documents filed with securities commissions or similar authorities in
Canada. For the purpose of the Province of this simplified prospectus contains
information to be completed by consulting the permanent information record.
Copies of the documents incorporated herein by reference or of the permanent
information record may be obtained on request without charge from the Corporate
Secretary of Kingsway Financial Services Inc. at Suite 4400, Royal Trust Tower,
Toronto-Dominion Centre, Toronto, Ontario M5K 1G8 (416) 864-9700.
These securities have not been and will not be registered under the United
States Securities Act of 1933, as amended, or any state securities laws and
subject to certain exceptions may not be offered or sold within the United
States.
PRELIMINARY SHORT FORM PROSPECTUS
New Issue
---------
June 18, 2003
LOGO
$101,870,000
KINGSWAY FINANCIAL SERVICES INC.
6,100,000 Common Shares
Kingsway Financial Services Inc. ("Kingsway" or the "Company") is offering in
all provinces of Canada (the "Offering") an aggregate of 6,100,000 common shares
(the "Offered Shares") at a price of $16.70 per Offered Share (the "Offering
Price") pursuant to an underwriting agreement (the "Underwriting Agreement")
dated as of June 17, 2003 among Scotia Capital Inc., CIBC World Markets Inc.,
BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., Sprott Securities Inc.,
Desjardins Securities Inc., Griffiths McBurney & Partners and HSBC Securities
(Canada) Inc. (collectively, the "Underwriters") and Kingsway. The Offering
Price of the Offered Shares was determined by negotiation between Kingsway and
the Underwriters. Kingsway's outstanding common shares are listed on the Toronto
Stock Exchange (the "TSX") and on the New York Stock Exchange (the "NYSE") under
the symbol "KFS". The TSX is the principal market on which Kingsway's common
shares are traded. On June 17, 2003, the closing price of Kingsway's common
shares on the TSX was $16.74.
In connection with the Offering, the Underwriters may over-allot or effect
transactions which stabilize or maintain the market price of Kingsway's common
shares at levels other than those which otherwise might prevail in the open
market. See "Plan of Distribution". The Offered Shares will be offered in all of
the provinces in Canada through the Underwriters in such provinces as each is
duly registered to do so.
Page 6 of 32
Investing in Kingsway's common shares involves a high degree of risk. See "Risk
Factors" beginning on page 8.
-------------------------------
PRICE: $16.70 per Offered Share
-------------------------------
Price to Underwriting Net
the Public Commission Proceeds(1)
---------- ------------ ----------
Per Offered Share(2) $16.70 $0.668 $16.032
Total(3) $101,870,000 $4,074,800 $97,795,200
(1) Before deducting the expenses of this Offering, estimated at $200,000,
which Kingsway will pay from the proceeds of the Offering.
(2) Includes associated common share purchase rights which will initially trade
with the Offered Shares. The value attributable to the rights, if any, is
reflected in the Price to the Public for the Offered Shares.
(3) Kingsway has granted to the Underwriters an option (the "Over-Allotment
Option") to purchase up to an aggregate of 610,000 additional common shares
on the same terms set forth above solely to cover over-allotments, if any.
If the Over-Allotment Option is exercised in full, the total Price to the
Public will be $112,057,000, the total Underwriting commission will be
$4,482,280 and the total Net Proceeds will be $107,574,720 before deducting
estimated expenses of the Offering. The Over-Allotment Option is
exercisable at any time within 30 days after the closing of this Offering.
This prospectus also qualifies the grant of the Over-Allotment Option and
the distribution of the common shares issuable upon the exercise of the
Over-Allotment Option (the "Over-Allotment Shares"). See "Plan of
Distribution".
Kingsway has applied to list the Offered Shares and the Over-Allotment Shares
(collectively, the "Shares") on the TSX and the NYSE. Listing of the Shares on
these stock exchanges will be subject to Kingsway's fulfillment of all the
listing requirements of the TSX and NYSE.
The Underwriters, as principals, conditionally offer to the public the Offered
Shares, subject to prior sale, if, as and when issued by Kingsway and accepted
by the Underwriters in accordance with the conditions contained in the
Underwriting Agreement referred to under "Plan of Distribution" and subject to
the approval of certain legal matters on Kingsway's behalf by Fogler, Rubinoff
LLP, and on behalf of the Underwriters by Stikeman Elliott LLP.
Subscriptions will be received subject to rejection or allotment in whole or in
part and the right is reserved to close the subscription books at any time
without notice. It is expected that certificates evidencing the Offered Shares
will be available for delivery at the closing of this Offering, which is
expected to be on or about July 3, 2003, or on such other date as may be agreed
upon by Kingsway and the Underwriters, but not later than August 6, 2003.
Scotia Capital Inc., CIBC World Markets Inc., BMO Nesbitt Burns Inc. RBC
Dominion Securities Inc. and HSBC Securities (Canada) Inc., each an Underwriter,
are affiliates of banks which are lenders to Kingsway. Consequently, Kingsway
may be considered to be a connected issuer of these Underwriters under
securities regulations in certain provinces. See "Plan of Distribution".
2
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TABLE OF CONTENTS
Page
----
Documents Incorporated by Reference 2
The Offering 3
The Company 3
Use of Proceeds 5
Description of Share Capital 5
Plan of Distribution 6
Risk Factors 7
Legal Matters 9
Auditor, Transfer Agent and Registrar 9
Where You Can Find More Information 9
Purchasers' Statutory Rights 9
Certificate of the Company C-1
Certificate of the Underwriters C-2
You should rely only on the information contained or incorporated by
reference in this prospectus. Kingsway has not authorized any person to provide
you with different information. Kingsway is offering to sell, and seeking offers
to buy, the Shares only in jurisdictions where offers and sales are permitted.
This prospectus is not an offer to sell or a solicitation of an offer to buy the
Shares in any jurisdiction where it is unlawful. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of the Shares.
All references in this prospectus to "dollars" or "$" are to Canadian
dollars unless otherwise noted.
Kingsway's consolidated financial statements incorporated herein by
reference have been prepared in accordance with Canadian generally accepted
accounting principles. Kingsway publishes its consolidated financial statements
in Canadian dollars.
Unless otherwise indicated, all information in this prospectus assumes
that none of the 1,866,635 issued employee stock options outstanding at June 17,
2003 are exercised. All references to Kingsway's common shares shall also refer
to the associated common share purchase rights issued pursuant to Kingsway's
shareholders' rights plan.
Unless otherwise indicated, information in this prospectus assumes that
the Underwriters do not exercise their Over-Allotment Option.
Page 8 of 32
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this short form
prospectus from documents filed with securities commissions or similar
authorities in Canada. For the purpose of the Province of Quebec, this
simplified prospectus contains information to be completed by consulting the
permanent information record. Copies of documents incorporated by reference in
this prospectus and of the permanent information record may be obtained from
Kingsway's Corporate Secretary as set out in the segment "Where You Can Find
More Information" below.
The following documents, filed with the securities commissions or
similar authorities in each of the provinces of Canada, are specifically
incorporated by reference in and form an integral part of this short form
prospectus:
(a) Kingsway's Annual Information Form dated May 2, 2003 (the "AIF");
(b) Kingsway's audited comparative consolidated financial statements and
the notes thereto for the years ended December 31, 2002 and 2001,
together with the auditor's report thereon and the report of its
appointed actuary found at pages 47 through 61 of Kingsway's 2002
Annual Report (the "Annual Financial Statements");
(c) Management's discussion and analysis of Kingsway's financial condition
and results of operations for the year ended December 31, 2002 found
at pages 24 through 46 in Kingsway's 2002 Annual Report;
(d) Kingsway's unaudited comparative consolidated interim financial
statements, including the notes thereto, for the three months ended
March 31, 2003 and 2002;
(e) Management's discussion and analysis of Kingsway's financial condition
and results of operations for the three months ended March 31, 2003;
(f) Kingsway's Management Information Circular dated March 21, 2003,
relating to its annual and special meeting of shareholders held on May
1, 2003 excluding the sections entitled "Composition of the
Compensation Committee", "Report of the Compensation Committee",
"Performance Graph", "Statement of Corporate Governance Practices" and
"Schedule 'A' Governance Procedures"; and
(g) Pages 62 and 63 of Kingsway's 2002 Annual Report.
All documents of the type referred to above and all material change
reports (excluding confidential material change reports) filed by Kingsway with
securities regulatory authorities in Canada subsequent to the date of this
prospectus and prior to the termination of this Offering shall be deemed to be
incorporated by reference in this prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this short form prospectus to the extent that a statement
contained herein, or in any other subsequently filed document which also is
incorporated or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. The modifying or superseding statement need not state
that it has modified or superseded a prior statement or include any other
information set forth in the document that it modifies or supersedes. The making
of a modifying or superseding statement will not be deemed an admission for any
purposes that the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an omission to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in light of the circumstances in which it was made.
Any statement so modified or superseded shall not be deemed in its unmodified or
superseded form to constitute a part of this short form prospectus.
2
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--------------------------------------------------------------------------------
SUMMARY OF THE OFFERING
Offered Shares: 6,100,000 common shares
Common shares
to be outstanding
after the Offering: 55,055,629 common shares
Offering Price: $16.70 per common share
Use of proceeds: Kingsway estimates that its net proceeds from this Offering
will be approximately $97,595,200 or $107,374,720 if the
Underwriters' Over-Allotment Option is exercised in full.
Kingsway intends to use the net proceeds of this Offering
to provide additional capital to its subsidiaries, including
to support the expected growth of its business, and for
general corporate purposes. See "Use of Proceeds".
TSX symbol: KFS
NYSE symbol: KFS
--------------------------------------------------------------------------------
THE COMPANY
Overview
Founded in 1989, Kingsway is a specialty provider of personal and
commercial lines of property and casualty insurance in the United States and
Canada. Kingsway's principal line of business is non-standard automobile
insurance, which covers drivers who do not qualify for standard automobile
insurance coverage because of their payment history, driving record, place of
residence, age, vehicle type or other factors, including market conditions.
Kingsway is a market leading provider of non-standard automobile and motorcycle
insurance in Canada based on its analysis of the limited market share
information available for these segments. In addition, Kingsway has a prominent
position in several US markets in which it currently operates, such as Florida,
Illinois, Texas and South Carolina based on the market share information
published by A.M. Best Company. Kingsway is licensed to write a broad range of
property and casualty insurance in all Canadian provinces and territories and in
48 states and the District of Columbia in the United States. Kingsway intends to
pursue licenses in the two remaining states in the United States in which it is
not currently licensed. In 2002, Kingsway generated 76.9% of its gross premiums
written from the United States and 23.1% from Canada.
Kingsway also provides standard automobile insurance as well as
insurance for commercial and public vehicles, including taxis and trucks. In
addition to automobile insurance, Kingsway provides motorcycle insurance,
specialized commercial and personal property coverage, warranty insurance and
other specialty coverages, such as customs and surety bonds. In 2002, Kingsway
derived 39.0% of its gross premiums written from non-standard automobile
insurance, 32.3% from trucking, 13.5% from commercial and personal property
coverages, 7.5% from commercial automobile, 3.5% from other specialty coverages,
such as warranty and customs bonds, 2.5% from motorcycles and 1.7% from standard
automobile. In 2002, Kingsway derived 47.4% of its gross premiums from insurance
for individual customers, typically referred to as personal lines, and 52.6%
from insurance for commercial customers, typically referred to as commercial
lines.
In 2002, Kingsway's gross premiums written increased 99% to $2.1
billion compared to $1.1 billion in 2001. Kingsway's revenue was $1.8 billion in
2002, an increase of 94% over the $937.5 million reported in 2001. As of March
31, 2003, Kingsway had total assets of $3.0 billion and shareholders' equity of
$612.9 million. In addition to revenue derived from premiums earned, Kingsway
also derives revenue from premium financing and investment income. This revenue
amounted to $81.1 million in 2002 as compared to $64.6 million in 2001.
3
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Kingsway has earned a profit from its underwriting activities in 11 of
its last 13 fiscal years. The property and casualty insurance industry in
Canada, on average, has not made an underwriting profit since 1978. The selected
supplemental financial information set out on page 62 of Kingsway's 2002 Annual
Report provides details of the gross premiums written, underwriting profits, and
key ratios from Kingsway's insurance operations compared to industry results for
the eight year period ending December 31, 2002.
Capital required for Kingsway's business has been obtained from
Kingsway's public offerings of common shares and debentures, its private
placements of trust preferred securities, its syndicated term lending facility
and its syndicated revolving credit facility, and has been internally generated
from underwriting and investment profits. Kingsway's operations create liquidity
by collecting and investing premiums, as more fully discussed on pages 37 and 38
in its 2002 Annual Report.
The total size of Kingsway's investment portfolio, together with cash
and accrued interest, increased from $1.2 billion at the end of 2001 to $2.1
billion as at both December 31, 2002 and March 31, 2003. Realized returns on a
pre-tax basis were 4.9% for 2002 compared with 6.4% for 2001. Kingsway's
investment portfolio as at December 31, 2002 was comprised of assets from a
number of different classes as reflected in Note 2 to its consolidated financial
statements set out on pages 54 and 55 in its 2002 Annual Report.
Kingsway may, from time to time, be involved in discussions concerning
acquisition opportunities, although there can be no assurance that any of such
discussions will result in a transaction. Kingsway is not currently a party to
any agreement or understanding with respect to any future acquisitions.
Recent Developments
On March 6, 2003, the Company filed an amendment to its preliminary
registration statement with the U.S. Securities and Exchange Commission for a
proposed public offering of Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding subordinated debentures ("trust
preferred securities") to be issued by a finance subsidiary formed by Kingsway
America Inc., the holding company for the Company's U.S. insurance subsidiaries.
Payments under the trust preferred securities will be fully guaranteed by the
Company. It is anticipated that the public offering will be for approximately
US$50 million plus an over-allotment. The exact amount and terms of the issuance
have not been determined as of the date hereof.
In May 2003, subsidiaries of the Company completed two private
placements of 30 year floating rate trust preferred securities for aggregate
gross proceeds of approximately US$32.5 million.
In May 2003, Kingsway renewed its $66.5 million unsecured revolving
credit facility with a syndicate of three banks. The facility is being used for
general corporate purposes.
Corporate Information
Kingsway Financial Services Inc. was incorporated under the Business
Corporations Act (Ontario) pursuant to articles of incorporation dated September
19, 1989, as amended on November 10, 1995, October 11, 1996 and April 27, 1998.
Kingsway's principal executive offices are located at 5310 Explorer Drive, Suite
200, Mississauga, Ontario L4W 5H8 and its telephone number is (905) 629-7888.
Kingsway's insurance business is conducted through its subsidiaries and
Kingsway serves as a holding company for such business. Kingsway's material
subsidiaries as at December 31, 2002, are set out in Note 1(a) to the Annual
Financial Statements on page 53 of its 2002 Annual Report. All subsidiaries are
100% owned, directly or indirectly, (except for qualifying shares of York Fire &
Casualty Insurance Company and Kingsway General Insurance Company held by
directors in order to satisfy applicable statutory requirements).
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USE OF PROCEEDS
Kingsway estimates that the net proceeds from this Offering will be
approximately $97,595,200, after deducting the underwriting commission and
estimated offering expenses. If the Underwriters exercise the Over-Allotment
Option in full, the total net proceeds are estimated to be approximately
$107,374,720, after deducting the estimated underwriting commission and offering
expenses.
Kingsway intends to use the net proceeds of this Offering to provide
additional capital to its subsidiaries, including to support the expected growth
of its business, and for general corporate purposes. Pending the foregoing uses,
Kingsway intends to invest the net proceeds from this Offering in short-term,
interest bearing, investment grade marketable securities.
DESCRIPTION OF SHARE CAPITAL
Kingsway's authorized capital consists of an unlimited number of common
shares, without par value. As of June 17, 2003, there were 48,955,629 common
shares issued and outstanding. As of June 17, 2003, options to acquire 1,866,635
common shares were outstanding.
Common Shares
The holders of Kingsway's common shares are entitled to one vote per
share with respect to each matter presented to shareholders on which the holders
of its common shares are entitled to vote. The holders of Kingsway's common
shares are entitled to receive rateably any dividends declared by its board of
directors out of funds legally available for that purpose. In the event of
Kingsway's liquidation, dissolution or winding up, the holders of its common
shares are entitled to share rateably in all assets remaining after payment of
liabilities. The holders of Kingsway's common shares have no pre-emptive,
subscription or conversion rights.
Shareholders' Rights Plan
At Kingsway's annual and special meeting of shareholders held on May 2,
2002, its shareholders reaffirmed its shareholders' rights plan dated March 15,
1999. (the "Rights Plan"). The Rights Plan will continue to be effective until
March 15, 2004. The shareholders' rights plan is designed to encourage the fair
treatment of Kingsway's shareholders in connection with any take-over offer for
Kingsway's outstanding common shares. The Rights Plan provides Kingsway's board
of directors and shareholders with 60 days to fully consider any unsolicited
takeover bid. It also allows Kingsway's board of directors to consider, if
appropriate, other alternatives to maximize shareholder value and allows for
additional time for competing proposals to emerge.
TSX and NYSE Listings
Kingsway's common shares are currently listed on the TSX and the NYSE
under the symbol "KFS". Kingsway has applied to list the Shares on the TSX and
the NYSE. Listing of the Shares on these stock exchanges will be subject to
Kingsway's fulfillment of all the listing requirements of the TSX and NYSE.
Ownership Restrictions
There is no law or government decree or regulation in Canada that
restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to non-resident holders of Kingsway's
common shares, other than withholding tax requirements.
There is no limitation imposed by Canadian law or Kingsway's articles
of incorporation or other charter documents on the right of a non-resident to
hold or vote common shares of Kingsway, other than as provided by the Investment
Canada Act, which requires notification and, in certain cases, advance review
and approval by the Government of Canada of the acquisition by a "non-resident"
of "control" of a "Canadian business", all as defined in the Investment Canada
Act.
5
Page 12 of 32
PLAN OF DISTRIBUTION
Subject to the terms and conditions of an underwriting agreement dated
as of June 17, 2003 (the "Underwriting Agreement") among Kingsway and the
Underwriters, the Underwriters have severally agreed to purchase and Kingsway
has agreed to sell 6,100,000 Offered Shares at $16.70 per Offered Share. The
Offering Price was determined by negotiation between Kingsway and the
Underwriters.
Kingsway has granted to the Underwriters an Over-Allotment Option,
exercisable for a period of 30 days following the closing of this Offering, to
purchase up to an additional 610,000 common shares at the Offering Price solely
to cover over-allotments, if any. To the extent that the Underwriters exercise
the Over-Allotment Option, each Underwriter will become obligated, subject to
various conditions, to purchase a number of additional common shares
proportionate to such Underwriter's initial commitment. If the Over-Allotment
Option is exercised in full, the total price to the public will be $112,057,000,
the total Underwriters' commission will be $4,482,280, and the total net
proceeds to Kingsway will be $107,574,720 before deducting estimated expenses of
the Offering. This short form prospectus qualifies in all of the provinces of
Canada both the grant of the Over-Allotment Option and the distribution of any
Over-Allotment Shares, if any are purchased.
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Offered Shares are subject to approval of certain
legal matters and to specified conditions precedent. The conditions contained in
the Underwriting Agreement include, among other things, the requirement that the
representations and warranties made by Kingsway to the Underwriters are true,
that there is no material change in the financial markets and that Kingsway
delivers to the Underwriters customary closing documents. The obligations of the
Underwriters under the Underwriting Agreement may be terminated at their
discretion on the basis of their assessment of the state of the financial
markets and may also be terminated upon the occurrence of certain stated events.
The Underwriters are however, obligated to take up and pay for all of the
Offered Shares (but not the Over-Allotment Shares) if any are purchased under
the Underwriting Agreement.
The Offered Shares will be offered in all of the provinces in Canada
through the Underwriters in such provinces as each is duly registered to do so.
The Offered Shares have not been and will not be registered under the United
States Securities Act of 1933, as amended (the "US Securities Act") and may not
be offered or sold in the United States. The Underwriters have agreed that they
will not offer or sell any Offered Shares within the United States.
In consideration for the Underwriters entering into the Underwriting
Agreement and for the services to be performed by the Underwriters under the
Underwriting Agreement, Kingsway has agreed to pay the Underwriters an
underwriting commission of 4% of the total proceeds from this Offering,
including the proceeds from the sale of any Over-Allotment Shares. Kingsway
estimates that the total expenses of this Offering, excluding the Underwriters
Commission, will be approximately $200,000, which will be paid by Kingsway from
the proceeds of the Offering.
Kingsway has agreed to indemnify the Underwriters against various civil
liabilities, including liabilities under applicable Canadian securities
legislation, or to contribute the payments that the Underwriters may be required
to make in respect of these liabilities.
Kingsway has agreed, subject to limited exceptions, for a period of 90
days after the date of this prospectus, not to, without the prior written
consent of the Underwriters, directly or indirectly sell, agree or offer to
sell, grant any option for the sale of, or otherwise dispose of any common
shares of Kingsway or securities convertible into common shares of Kingsway,
except for the purposes of granting employee and director compensation and
incentives and to satisfy outstanding instruments or contractual commitments.
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Page 13 of 32
Other than in Canada, no action has been taken by Kingsway or the
Underwriters that would permit a public offering of the Shares in any
jurisdiction that requires action for that purpose. The Shares may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
Offering material or advertisements in connection with the offer and sale of any
of the Shares be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Kingsway advises persons who receive this
prospectus to inform themselves about and to observe any restrictions relating
to the Offering of the Shares and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any of
the Shares in any jurisdiction where such an offer or a solicitation would not
be permitted or legal.
Pursuant to policy statements of the Ontario Securities Commission and
the Commission des valeur mobilieres du Quebec, the Underwriters may not,
throughout the period of distribution, bid for or purchase common shares of
Kingsway. The foregoing restriction is subject to exceptions, on the condition
that the bid or purchase not be engaged in for the purpose of creating actual
or apparent active trading in, or raising the price of, the common shares of
Kingsway. Such exceptions include a bid or purchase permitted under the
by-laws and rules of the TSX relating to market stabilization and passive
market making activities and a bid or purchase made for and on behalf of a
customer where the order was not solicited during the period of distribution,
provided that the bid or purchase was not engaged in for the purpose of
creating actual or apparent active trading in, or raising the price of the
common shares of Kingsway. Kingsway has been advised by the Underwriters that,
in connection with the Offering, subject to the foregoing and applicable laws,
the Underwriters may effect transactions which stabilize or maintain the
market price of the common shares of Kingsway at levels other than those
which might otherwise prevail in the open market. Such transactions, if
commenced, may be discontinued at any time.
Scotia Capital Inc., CIBC World Markets Inc., BMO Nesbitt Burns Inc.,
RBC Dominion Securities Inc. and HSBC Securities (Canada) Inc. and/or their
respective affiliates have provided various financial services for Kingsway for
which services they have received customary fees. In addition, Scotia Capital
Inc. and CIBC World Markets Inc. are affiliates of banks which are lenders to
Kingsway under its US$100 million unsecured credit facility established in
February 1999 as described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Liquidity and
Capital Resources" set out at page 37 in Kingsway's 2002 Annual Report. As at
June 17, 2003, US$82.5 million of this credit facility remained outstanding.
Affiliates of CIBC World Markets Inc. and HSBC Securities (Canada) Inc. are
members of a banking syndicate which entered into a Cdn.$66.5 million unsecured
revolving credit facility with Kingsway in May 2002, which facility was renewed
in May 2003. As at June 17, 2003, approximately Cdn.$47.2 million of this credit
facility was drawn. Further, Scotia Capital Inc., CIBC World Markets Inc., BMO
Nesbitt Burns Inc. and RBC Dominion Securities Inc. are affiliates of banks
which have provided a letter of credit facility used to collateralize
inter-company reinsurance balances. As of May 31, 2003, the letter of credit
utilization was US$218.9 million. Consequently, Kingsway may be considered to be
a connected issuer of Scotia Capital Inc., CIBC World Markets Inc., BMO Nesbitt
Burns Inc., RBC Dominion Securities Inc. and HSBC Securities (Canada) Inc. under
applicable Canadian securities legislation. The decision to distribute the
Shares, including the determination of the terms of the Offering, was made
through negotiations between Kingsway and the Underwriters. No proceeds from
this Offering will be used to repay any indebtedness to the Underwriters or
their affiliates. The lenders under Kingsway's credit facilities did not have
any involvement in the decision or determination regarding the terms of this
Offering, nor is the consent of the lenders required for this Offering. Kingsway
is in compliance with the terms of the agreements governing these credit
facilities and assuming completion of this Offering, Kingsway will continue to
be in compliance with all financial covenants contained in these credit
facilities.
RISK FACTORS
You should carefully consider the following risks, as well as the other
information contained in this prospectus and documents incorporated by reference
including Kingsway's financial statements and the related notes. If any of the
following risks actually occurs, Kingsway's business could be harmed. In that
case, the trading price of common shares of Kingsway could decline, and you
might lose all or part of your investment.
7
Page 14 of 32
o Kingsway's provisions for unpaid claims may be inadequate, which would
result in a reduction in its net income.
o Kingsway may experience difficulty in managing its growth, which could
adversely affect its results of operations and financial condition.
o Kingsway relies on independent agents, managing general agents and
brokers and is exposed to related risks.
o The highly competitive environment in which Kingsway operates could
have an adverse effect on its business, results of operations and
financial condition.
o Kingsway's operating results may fluctuate as a result of many
factors, including cyclical patterns in the property and casualty
insurance industry and in the automobile insurance market.
o If Kingsway fails to comply with the covenants in its credit
agreements or fails to maintain specified financial ratios, the
lenders under its credit facilities could declare Kingsway in default
of its obligations.
o If Kingsway is unable to maintain its current claims-paying ratings,
its ability to write insurance and compete with other insurance
companies may be adversely impacted.
o The majority of Kingsway's gross premiums written are derived from the
non-standard automobile and trucking insurance markets. If the demand
for insurance in these markets declines, Kingsway's results of
operations could significantly decline.
o If Kingsway fails to comply with applicable insurance regulatory
requirements, Kingsway's business and financial condition could be
adversely affected.
o If Kingsway's insurance subsidiaries fail to comply with minimum
capital requirements, they may be subject to regulatory action.
o Kingsway's business could be adversely affected as a result of
changing political, regulatory, economic or other influences.
o Kingsway may not be able to realize its investment objectives, which
could reduce its net income significantly.
o Kingsway derives the majority of its premiums from a few geographic
areas, which may cause its business to be affected by catastrophic
losses or business conditions in these areas.
o If reinsurance rates rise significantly or reinsurance becomes
unavailable or reinsurers are unable to pay Kingsway's claims,
Kingsway may be adversely affected.
o Kingsway is a holding company and its operating subsidiaries are
subject to dividend restrictions.
o Kingsway's business depends upon key employees, and if it is unable to
retain the services of these key employees or to attract and retain
additional qualified personnel, Kingsway's business may suffer.
o Various factors may inhibit potential acquisition bids that could be
beneficial to Kingsway's shareholders.
o Fluctuations in currency exchange rates could negatively affect
Kingsway's results.
8
Page 15 of 32
More detailed discussion of the risk factors related to Kingsway is
contained in Management's Discussion and Analysis set out on pages 39-45 of
Kingsway's 2002 Annual Report.
LEGAL MATTERS
Certain legal matters relating to the sale of the Shares offered by
this prospectus will be passed upon on Kingsway's behalf by Fogler, Rubinoff
LLP. Michael Slan, a partner of Fogler, Rubinoff LLP, is Kingsway's corporate
secretary. Certain legal matters relating to the sale of the Shares will be
passed upon on behalf of the Underwriters by Stikeman Elliott LLP. As at the
date hereof, members of each of the firms of Fogler, Rubinoff LLP and Stikeman
Elliott LLP, as a group, own beneficially, directly or indirectly, less than 1%
of Kingsway's issued and outstanding common shares.
AUDITORS, TRANSFER AGENT AND REGISTRAR
Kingsway's auditors are KPMG LLP, Toronto, Canada. The transfer agent
and registrar for Kingsway's common shares in Canada is Computershare Trust
Company of Canada, at its principal offices in Toronto. The transfer agent and
registrar for Kingsway's common shares in the United States is Computershare
Trust Company, Inc., at its principal offices in Denver, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
Copies of this prospectus and the documents incorporated by reference
herein may be obtained on request without charge from Mr. Michael Slan,
Corporate Secretary, Suite 4400, Royal Trust Tower, Toronto-Dominion Centre,
Toronto, Ontario, M5K 1G8, telephone: (416) 864-9700. Copies of these documents
are available on the System for Electronic Document Analysis and Retrieval of
the Canadian Securities Administrators, at www.sedar.com.
PURCHASERS' STATUTORY RIGHTS
Securities legislation in certain provinces of Canada provides
purchasers with the right to withdraw from an agreement to purchase securities.
This right may be exercised within two business days after receipt or deemed
receipt of a prospectus and any amendment. In several of the provinces, the
securities legislation further provides a purchaser with remedies for rescission
or damages if the prospectus and any amendment contains a misrepresentation or
is not delivered to the purchaser, provided that the remedies for rescission or
damages are exercised by the purchaser within the time limit prescribed by the
securities legislation of the purchaser's province. The purchaser should refer
to any applicable provisions of the securities legislation of the purchaser's
province for the particulars of these rights or consult with a legal adviser.
9
Page 16 of 32
CERTIFICATE OF THE COMPANY
Dated: June 18, 2003.
This short form prospectus, together with the documents and information
incorporated herein by reference, constitutes full, true and plain disclosure of
all material facts relating to the securities offered by this prospectus as
required under the securities legislation of each of the provinces of Canada.
For the purpose of the Province of Quebec, this simplified prospectus, as
supplemented by the permanent information record, contains no misrepresentation
likely to affect the value or the market price of the securities to be
distributed.
(Signed) William G. Star (Signed) W. Shaun Jackson
Chairman, President and Executive Vice-President and
Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors
(Signed) F. Michael Walsh (Signed) Thomas A. Di Giacomo
Director Director
10
Page 17 of 32
CERTIFICATE OF THE UNDERWRITERS
Dated: June 18, 2003.
To the best of our knowledge, information and belief, this short form
prospectus, together with the documents incorporated herein by reference,
constitutes full, true and plain disclosure of all material facts relating to
the securities offered by this prospectus as required under securities
legislation of each of the provinces of Canada. For the purpose of the Province
of Quebec, to our knowledge, this simplified prospectus, as supplemented by the
permanent information record, contains no misrepresentation likely to affect the
value or the market price of the securities to be distributed.
SCOTIA CAPITAL INC.
(Signed) David J. Skurka
CIBC WORLD MARKETS INC.
(Signed) Robert Penteliuk
BMO NESBITT BURNS INC. RBC DOMINION SPROTT SECURITIES INC.
SECURITIES INC.
(Signed) Thomas E. Flynn (Signed) Linda Wong (Signed) W. Jeff Kennedy
DESJARDINS SECURITIES GRIFFITHS MCBURNEY & HSBC SECURITIES (CANADA)
INC. PARTNERS INC.
(Signed) Jacques Lemay (Signed) Matthew S. Frank (Signed) Patrick M. Nolan
11
Page 18 of 32
KINGSWAY FINANCIAL SERVICES INC.
[KINGSWAY FINANCIAL LOGO]
12
Page 19 of 32
This short form prospectus constitutes a public offering of these securities
only in those jurisdictions where they may be lawfully offered for sale and
therein only by persons permitted to sell such securities. No securities
regulatory authority has expressed an opinion about these securities and it is
an offence to claim otherwise.
Information has been incorporated by reference in this short form prospectus
from documents filed with securities commissions or similar authorities in
Canada. For the purpose of the Province of Quebec, this simplified prospectus
contains information to be completed by consulting the permanent information
record. Copies of the documents incorporated herein by reference or of the
permanent information record may be obtained on request without charge from the
Corporate Secretary of Kingsway Financial Services Inc. at Suite 4400, Royal
Trust Tower, Toronto-Dominion Centre, Toronto, Ontario M5K 1G8 (416) 864-9700.
For the purpose of the Province of Quebec, this simplified prospectus contains
information to be completed by consulting the permanent information record.
Copies of the documents incorporated herein by reference or of the permanent
information record may be obtained on request without charge from the Corporate
Secretary of Kingsway Financial Services Inc. at Suite 4400, Royal Trust Tower,
Toronto-Dominion Centre, Toronto, Ontario M5K 1G8 (416) 864-9700.
These securities have not been and will not be registered under the United
States Securities Act of 1933, as amended, or any state securities laws and
subject to certain exceptions may not be offered or sold within the United
States.
SHORT FORM PROSPECTUS
New Issue
---------
June 25, 2003
[KINGSWAY FINANCIAL LOGO]
$101,870,000
KINGSWAY FINANCIAL SERVICES INC.
6,100,000 Common Shares
Kingsway Financial Services Inc. ( "Kingsway" or the "Company ") is offering in
all provinces of Canada (the "Offering ") an aggregate of 6,100,000 common
shares (the "Offered Shares ") at a price of $16.70 per Offered Share (the
"Offering Price ") pursuant to an underwriting agreement (the "Underwriting
Agreement ") dated as of June 17, 2003 among Scotia Capital Inc., CIBC World
Markets Inc., BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., Sprott
Securities Inc., Desjardins Securities Inc., Griffiths McBurney & Partners and
HSBC Securities (Canada) Inc. (collectively, the "Underwriters ") and Kingsway.
The Offering Price of the Offered Shares was determined by negotiation between
Kingsway and the Underwriters. Kingsway's outstanding common shares are listed
on the Toronto Stock Exchange (the "TSX ") and on the New York Stock Exchange
(the "NYSE ") under the symbol "KFS ". The TSX is the principal market on which
Kingsway's common shares are traded. On June 24, 2003, the closing price of
Kingsway's common shares on the TSX was $16.35.
In connection with the Offering, the Underwriters may over-allot or effect
transactions which stabilize or maintain the market price of Kingsway's common
shares at levels other than those which otherwise might prevail in the open
market. See "Plan of Distribution". The Offered Shares will be offered in all of
the provinces in Canada through the Underwriters in such provinces as each is
duly registered to do so.
Investing in Kingsway's common shares involves a high degree of risk. See "Risk
Factors" beginning on page 10.
-------------------------------
PRICE: $16.70 per Offered Share
-------------------------------
Price to the Underwriting
Public Commission Net Proceeds(1)
------------- ------------ ---------------
Per Offered Share(2) $16.70 $0.668 $16.032
Total(3) $101,870,000 $4,074,800 $97,795,200
(1) Before deducting the expenses of this Offering, estimated at $200,000, which
Kingsway will pay from the proceeds of the Offering.
(2) Includes associated common share purchase rights which will initially trade
with the Offered Shares. The value attributable to the rights, if any, is
reflected in the Price to the Public for the Offered Shares.
(3) Kingsway has granted to the Underwriters an option (the "Over-Allotment
Option") to purchase up to an aggregate of 610,000 additional common shares
on the same terms set forth above solely to cover over-allotments, if any.
If the Over-Allotment Option is exercised in full, the total Price to the
Public will be $112,057,000, the total Underwriting commission will be
$4,482,280 and the total Net Proceeds will be $107,574,720 before deducting
estimated expenses of the Offering. The Over-Allotment Option is exercisable
at any time within 30 days after the closing of this Offering. This
prospectus also qualifies the grant of the Over-Allotment Option and the
distribution of the common shares issuable upon the exercise of the
Over-Allotment Option (the "Over-Allotment Shares"). See "Plan of
Distribution".
Page 20 of 32
Kingsway has applied to list the Offered Shares and the Over-Allotment Shares
(collectively, the "Shares") on the TSX and the NYSE. Listing of the Shares on
these stock exchanges will be subject to Kingsway's fulfillment of all the
listing requirements of the TSX and NYSE.
The Underwriters, as principals, conditionally offer to the public the Offered
Shares, subject to prior sale, if, as and when issued by Kingsway and accepted
by the Underwriters in accordance with the conditions contained in the
Underwriting Agreement referred to under "Plan of Distribution" and subject to
the approval of certain legal matters on Kingsway's behalf by Fogler, Rubinoff
LLP, and on behalf of the Underwriters by Stikeman Elliott LLP.
Subscriptions will be received subject to rejection or allotment in whole or in
part and the right is reserved to close the subscription books at any time
without notice. It is expected that certificates evidencing the Offered Shares
will be available for delivery at the closing of this Offering, which is
expected to be on or about July 3, 2003, or on such other date as may be agreed
upon by Kingsway and the Underwriters, but not later than August 6, 2003.
Scotia Capital Inc., CIBC World Markets Inc., BMO Nesbitt Burns Inc., RBC
Dominion Securities Inc. and HSBC Securities (Canada) Inc., each an Underwriter,
are affiliates of banks which are lenders to Kingsway. Consequently, Kingsway
may be considered to be a connected issuer of these Underwriters under
securities regulations in certain provinces. See "Plan of Distribution ".
2
Page 21 of 32
TABLE OF CONTENTS
Page
----
Documents Incorporated by Reference 4
The Offering 5
The Company 6
Use of Proceeds 7
Description of Share Capital 7
Plan of Distribution 8
Risk Factors 10
Legal Matters 11
Auditor, Transfer Agent and Registrar 11
Where You Can Find More Information 11
Purchasers' Statutory Rights 11
Certificate of the Company C-1
Certificate of the Underwriters C-2
You should rely only on the information contained or incorporated by
reference in this prospectus. Kingsway has not authorized any person to provide
you with different information. Kingsway is offering to sell, and seeking offers
to buy, the Shares only in jurisdictions where offers and sales are permitted.
This prospectus is not an offer to sell or a solicitation of an offer to buy the
Shares in any jurisdiction where it is unlawful. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of the Shares.
All references in this prospectus to "dollars" or "$" are to Canadian
dollars unless otherwise noted.
Kingsway's consolidated financial statements incorporated herein by
reference have been prepared in accordance with Canadian generally accepted
accounting principles. Kingsway publishes its consolidated financial statements
in Canadian dollars.
Unless otherwise indicated, all information in this prospectus assumes that
none of the 1,866,635 issued employee stock options outstanding at June 17, 2003
are exercised. All references to Kingsway's common shares shall also refer to
the associated common share purchase rights issued pursuant to Kingsway's
shareholders' rights plan.
Unless otherwise indicated, information in this prospectus assumes that the
Underwriters do not exercise their Over-Allotment Option.
3
Page 22 of 32
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this short form
prospectus from documents filed with securities commissions or similar
authorities in Canada. For the purpose of the Province of Quebec,e this
simplified prospectus contains information to be completed by consulting the
permanent information record. Copies of documents incorporated by reference in
this prospectus and of the permanent information record may be obtained from
Kingsway's Corporate Secretary as set out in the segment "Where You Can Find
More Information" below.
The following documents, filed with the securities commissions or similar
authorities in each of the provinces of Canada, are specifically incorporated by
reference in and form an integral part of this short form prospectus:
(a) Kingsway's Annual Information Form dated May 2, 2003 (the "AIF");
(b) Kingsway's audited comparative consolidated financial statements and
the notes thereto for the years ended December 31, 2002 and 2001,
together with the auditor's report thereon and the report of its
appointed actuary found at pages 47 through 61 of Kingsway's 2002
Annual Report (the "Annual Financial Statements");
(c) Management's discussion and analysis of Kingsway's financial condition
and results of operations for the year ended December 31, 2002 found
at pages 24 through 46 in Kingsway's 2002 Annual Report;
(d) Kingsway's unaudited comparative consolidated interim financial
statements, including the notes thereto, for the three months ended
March 31, 2003 and 2002;
(e) Management's discussion and analysis of Kingsway's financial condition
and results of operations for the three months ended March 31, 2003;
(f) Kingsway's Management Information Circular dated March 21, 2003,
relating to its annual and special meeting of shareholders held on May
1, 2003 excluding the sections entitled "Composition of the
Compensation Committee", "Report of the Compensation Committee",
"Performance Graph", "Statement of Corporate Governance Practices" and
"Schedule `A' Governance Procedures"; and
(g) Pages 62 and 63 of Kingsway's 2002 Annual Report.
All documents of the type referred to above and all material change reports
(excluding confidential material change reports) filed by Kingsway with
securities regulatory authorities in Canada subsequent to the date of this
prospectus and prior to the termination of this Offering shall be deemed to be
incorporated by reference in this prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this short form prospectus to the extent that a statement
contained herein, or in any other subsequently filed document which also is
incorporated or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. The modifying or superseding statement need not state
that it has modified or superseded a prior statement or include any other
information set forth in the document that it modifies or supersedes. The making
of a modifying or superseding statement will not be deemed an admission for any
purposes that the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an omission to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in light of the circumstances in which it was made.
Any statement so modified or superseded shall not be deemed in its unmodified or
superseded form to constitute a part of this short form prospectus.
4
Page 23 of 32
--------------------------------------------------------------------------------
SUMMARY OF THE OFFERING
Offered Shares: 6,100,000 common shares
Common shares to be
outstanding after the
Offering: 55,055,629 common shares
Offering Price: $16.70 per common share
Use of proceeds: Kingsway estimates that its net proceeds from
this Offering will be approximately $97,595,200 or
$107,374,720 if the Underwriters' Over-Allotment
Option is exercised in full. Kingsway intends to use
the net proceeds of this Offering to provide
additional capital to its subsidiaries, including to
support the expected growth of its business, and for
general corporate purposes. See "Use of Proceeds".
TSX symbol: KFS
NYSE symbol: KFS
--------------------------------------------------------------------------------
5
Page 24 of 32
THE COMPANY
Overview
Founded in 1989, Kingsway is a specialty provider of personal and
commercial lines of property and casualty insurance in the United States and
Canada. Kingsway's principal line of business is non-standard automobile
insurance, which covers drivers who do not qualify for standard automobile
insurance coverage because of their payment history, driving record, place of
residence, age, vehicle type or other factors, including market conditions.
Kingsway is a market leading provider of non-standard automobile and motorcycle
insurance in Canada based on its analysis of the limited market share
information available for these segments. In addition, Kingsway has a prominent
position in several US markets in which it currently operates, such as Florida,
Illinois, Texas and South Carolina based on the market share information
published by A.M. Best Company. Kingsway is licensed to write a broad range of
property and casualty insurance in all Canadian provinces and territories and in
48 states and the District of Columbia in the United States. Kingsway intends to
pursue licenses in the two remaining states in the United States in which it is
not currently licensed. In 2002, Kingsway generated 76.9% of its gross premiums
written from the United States and 23.1% from Canada.
Kingsway also provides standard automobile insurance as well as insurance
for commercial and public vehicles, including taxis and trucks. In addition to
automobile insurance, Kingsway provides motorcycle insurance, specialized
commercial and personal property coverage, warranty insurance and other
specialty coverages, such as customs and surety bonds. In 2002, Kingsway derived
39.0% of its gross premiums written from non-standard automobile insurance,
32.3% from trucking, 13.5% from commercial and personal property coverages, 7.5%
from commercial automobile, 3.5% from other specialty coverages, such as
warranty and customs bonds, 2.5% from motorcycles and 1.7% from standard
automobile. In 2002, Kingsway derived 47.4% of its gross premiums from insurance
for individual customers, typically referred to as personal lines, and 52.6%
from insurance for commercial customers, typically referred to as commercial
lines.
In 2002, Kingsway's gross premiums written increased 99% to $2.1 billion
compared to $1.1 billion in 2001. Kingsway's revenue was $1.8 billion in 2002,
an increase of 94% over the $937.5 million reported in 2001. As of March 31,
2003, Kingsway had total assets of $3.0 billion and shareholders' equity of
$612.9 million. In addition to revenue derived from premiums earned, Kingsway
also derives revenue from premium financing and investment income. This revenue
amounted to $81.1 million in 2002 as compared to $64.6 million in 2001.
Kingsway has earned a profit from its underwriting activities in 11 of its
last 13 fiscal years. The property and casualty insurance industry in Canada, on
average, has not made an underwriting profit since 1978. The selected
supplemental financial information set out on page 62 of Kingsway's 2002 Annual
Report provides details of the gross premiums written, underwriting profits, and
key ratios from Kingsway's insurance operations compared to industry results for
the eight year period ending December 31, 2002.
Capital required for Kingsway's business has been obtained from Kingsway's
public offerings of common shares and debentures, its private placements of
trust preferred securities, its syndicated term lending facility and its
syndicated revolving credit facility, and has been internally generated from
underwriting and investment profits. Kingsway's operations create liquidity by
collecting and investing premiums, as more fully discussed on pages 37 and 38 in
its 2002 Annual Report.
The total size of Kingsway's investment portfolio, together with cash and
accrued interest, increased from $1.2 billion at the end of 2001 to $2.1 billion
as at both December 31, 2002 and March 31, 2003. Realized returns on a pre-tax
basis were 4.9% for 2002 compared with 6.4% for 2001. Kingsway's investment
portfolio as at December 31, 2002 was comprised of assets from a number of
different classes as reflected in Note 2 to its consolidated financial
statements set out on pages 54 and 55 in its 2002 Annual Report.
Kingsway may, from time to time, be involved in discussions concerning
acquisition opportunities, although there can be no assurance that any of such
discussions will result in a transaction. Kingsway is not currently a party to
any agreement or understanding with respect to any future acquisitions.
6
Page 25 of 32
Recent Developments
On March 6, 2003, the Company filed an amendment to its preliminary
registration statement with the U.S. Securities and Exchange Commission for a
proposed public offering of Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding subordinated debentures ("trust
preferred securities") to be issued by a finance subsidiary formed by Kingsway
America Inc., the holding company for the Company's U.S. insurance subsidiaries.
Payments under the trust preferred securities will be fully guaranteed by the
Company. It is anticipated that the public offering will be for approximately
US$50 million plus an over-allotment. The exact amount and terms of the issuance
have not been determined as of the date hereof.
In May 2003, subsidiaries of the Company completed two private placements
of 30 year floating rate trust preferred securities for aggregate gross proceeds
of approximately US$32.5 million.
In May 2003, Kingsway renewed its $66.5 million unsecured revolving credit
facility with a syndicate of three banks. The facility is being used for general
corporate purposes.
Corporate Information
Kingsway Financial Services Inc. was incorporated under the Business
Corporations Act (Ontario) pursuant to articles of incorporation dated September
19, 1989, as amended on November 10, 1995, October 11, 1996 and April 27, 1998.
Kingsway's principal executive offices are located at 5310 Explorer Drive, Suite
200, Mississauga, Ontario L4W 5H8 and its telephone number is (905) 629-7888.
Kingsway's insurance business is conducted through its subsidiaries and
Kingsway serves as a holding company for such business. Kingsway's material
subsidiaries as at December 31, 2002, are set out in Note 1(a) to the Annual
Financial Statements on page 53 of its 2002 Annual Report. All subsidiaries are
100% owned, directly or indirectly, (except for qualifying shares of York Fire &
Casualty Insurance Company and Kingsway General Insurance Company held by
directors in order to satisfy applicable statutory requirements).
USE OF PROCEEDS
Kingsway estimates that the net proceeds from this Offering will be
approximately $97,595,200, after deducting the underwriting commission and
estimated offering expenses. If the Underwriters exercise the Over-Allotment
Option in full, the total net proceeds are estimated to be approximately
$107,374,720, after deducting the estimated underwriting commission and offering
expenses.
Kingsway intends to use the net proceeds of this Offering to provide
additional capital to its subsidiaries, including to support the expected growth
of its business, and for general corporate purposes. Pending the foregoing uses,
Kingsway intends to invest the net proceeds from this Offering in short-term,
interest bearing, investment grade marketable securities.
DESCRIPTION OF SHARE CAPITAL
Kingsway's authorized capital consists of an unlimited number of common
shares, without par value. As of June 17, 2003, there were 48,955,629 common
shares issued and outstanding. As of June 17, 2003, options to acquire 1,866,635
common shares were outstanding.
Common Shares
The holders of Kingsway's common shares are entitled to one vote per share
with respect to each matter presented to shareholders on which the holders of
its common shares are entitled to vote. The holders of Kingsway's common shares
are entitled to receive rateably any dividends declared by its board of
directors out of funds legally available for that purpose. In the event of
Kingsway's liquidation, dissolution or winding up, the holders of its common
shares are entitled to share rateably in all assets remaining after payment of
liabilities. The holders of Kingsway's common shares have no pre-emptive,
subscription or conversion rights.
7
Page 26 of 32
Shareholders' Rights Plan
At Kingsway's annual and special meeting of shareholders held on May 2,
2002, its shareholders reaffirmed its shareholders' rights plan dated March 15,
1999. (the "Rights Plan"). The Rights Plan will continue to be effective until
March 15, 2004. The shareholders' rights plan is designed to encourage the fair
treatment of Kingsway's shareholders in connection with any take-over offer for
Kingsway's outstanding common shares. The Rights Plan provides Kingsway's board
of directors and shareholders with 60 days to fully consider any unsolicited
takeover bid. It also allows Kingsway's board of directors to consider, if
appropriate, other alternatives to maximize shareholder value and allows for
additional time for competing proposals to emerge.
TSX and NYSE Listings
Kingsway's common shares are currently listed on the TSX and the NYSE under
the symbol "KFS". Kingsway has applied to list the Shares on the TSX and the
NYSE. Listing of the Shares on these stock exchanges will be subject to
Kingsway's fulfillment of all the listing requirements of the TSX and NYSE.
Ownership Restrictions
There is no law or government decree or regulation in Canada that restricts
the export or import of capital, or affects the remittance of dividends,
interest or other payments to non-resident holders of Kingsway's common shares,
other than withholding tax requirements.
There is no limitation imposed by Canadian law or Kingsway's articles of
incorporation or other charter documents on the right of a non-resident to hold
or vote common shares of Kingsway, other than as provided by the Investment
Canada Act, which requires notification and, in certain cases, advance review
and approval by the Government of Canada of the acquisition by a "non-resident"
of "control" of a "Canadian business", all as defined in the Investment Canada
Act.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of an underwriting agreement dated as
of June 17, 2003 (the "Underwriting Agreement") among Kingsway and the
Underwriters, the Underwriters have severally agreed to purchase and Kingsway
has agreed to sell 6,100,000 Offered Shares at $16.70 per Offered Share. The
Offering Price was determined by negotiation between Kingsway and the
Underwriters.
Kingsway has granted to the Underwriters an Over-Allotment Option,
exercisable for a period of 30 days following the closing of this Offering, to
purchase up to an additional 610,000 common shares at the Offering Price solely
to cover over-allotments, if any. To the extent that the Underwriters exercise
the Over-Allotment Option, each Underwriter will become obligated, subject to
various conditions, to purchase a number of additional common shares
proportionate to such Underwriter's initial commitment. If the Over-Allotment
Option is exercised in full, the total price to the public will be $112,057,000,
the total Underwriters' commission will be $4,482,280, and the total net
proceeds to Kingsway will be $107,574,720 before deducting estimated expenses of
the Offering. This short form prospectus qualifies in all of the provinces of
Canada both the grant of the Over-Allotment Option and the distribution of any
Over-Allotment Shares, if any are purchased.
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Offered Shares are subject to approval of certain
legal matters and to specified conditions precedent. The conditions contained in
the Underwriting Agreement include, among other things, the requirement that the
representations and warranties made by Kingsway to the Underwriters are true,
that there is no material change in the financial markets and that Kingsway
delivers to the Underwriters customary closing documents. The obligations of the
Underwriters under the Underwriting Agreement may be terminated at their
discretion on the basis of their assessment of the state of the financial
markets and may also be terminated upon the occurrence of certain stated events.
The Underwriters are however, obligated to take up and pay for all of the
Offered Shares (but not the Over-Allotment Shares) if any are purchased under
the Underwriting Agreement.
The Offered Shares will be offered in all of the provinces in Canada
through the Underwriters in such provinces as each is duly registered to do so.
The Offered Shares have not been and will not be registered under the United
States Securities Act of 1933, as amended (the "US Securities Act") and may not
be offered or sold in the United States. The Underwriters have agreed that they
will not offer or sell any Offered Shares within the United States.
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In consideration for the Underwriters entering into the Underwriting
Agreement and for the services to be performed by the Underwriters under the
Underwriting Agreement, Kingsway has agreed to pay the Underwriters an
underwriting commission of 4% of the total proceeds from this Offering,
including the proceeds from the sale of any Over-Allotment Shares. Kingsway
estimates that the total expenses of this Offering, excluding the Underwriters
Commission, will be approximately $200,000, which will be paid by Kingsway from
the proceeds of the Offering.
Kingsway has agreed to indemnify the Underwriters against various civil
liabilities, including liabilities under applicable Canadian securities
legislation, or to contribute the payments that the Underwriters may be required
to make in respect of these liabilities.
Kingsway has agreed, subject to limited exceptions, for a period of 90 days
after the date of this prospectus, not to, without the prior written consent of
the Underwriters, directly or indirectly sell, agree or offer to sell, grant any
option for the sale of, or otherwise dispose of any common shares of Kingsway or
securities convertible into common shares of Kingsway, except for the purposes
of granting employee and director compensation and incentives and to satisfy
outstanding instruments or contractual commitments.
Other than in Canada, no action has been taken by Kingsway or the
Underwriters that would permit a public offering of the Shares in any
jurisdiction that requires action for that purpose. The Shares may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
Offering material or advertisements in connection with the offer and sale of any
of the Shares be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Kingsway advises persons who receive this
prospectus to inform themselves about and to observe any restrictions relating
to the Offering of the Shares and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any of
the Shares in any jurisdiction where such an offer or a solicitation would not
be permitted or legal.
Pursuant to policy statements of the Ontario Securities Commission and the
Commission des valeurs mobilieres du Quebec, the Underwriters may not,
throughout the period of distribution, bid for or purchase common shares of
Kingsway. The foregoing restriction is subject to exceptions, on the condition
that the bid or purchase not be engaged in for the purpose of creating actual or
apparent active trading in, or raising the price of, the common shares of
Kingsway. Such exceptions include a bid or purchase permitted under the by-laws
and rules of the TSX relating to market stabilization and passive market making
activities and a bid or purchase made for and on behalf of a customer where the
order was not solicited during the period of distribution, provided that the bid
or purchase was not engaged in for the purpose of creating actual or apparent
active trading in, or raising the price of the common shares of Kingsway.
Kingsway has been advised by the Underwriters that, in connection with the
Offering, subject to the foregoing and applicable laws, the Underwriters may
effect transactions which stabilize or maintain the market price of the common
shares of Kingsway at levels other than those which might otherwise prevail in
the open market. Such transactions, if commenced, may be discontinued at any
time.
Scotia Capital Inc., CIBC World Markets Inc., BMO Nesbitt Burns Inc., RBC
Dominion Securities Inc. and HSBC Securities (Canada) Inc. and/or their
respective affiliates have provided various financial services for Kingsway for
which services they have received customary fees. In addition, Scotia Capital
Inc. and CIBC World Markets Inc. are affiliates of banks which are lenders to
Kingsway under its US$100 million unsecured credit facility established in
February 1999 as described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition -- Liquidity and
Capital Resources" set out at page 37 in Kingsway's 2002 Annual Report. As at
June 17, 2003, US$82.5 million of this credit facility remained outstanding.
Affiliates of CIBC World Markets Inc. and HSBC Securities (Canada) Inc. are
members of a banking syndicate which entered into a Cdn.$66.5 million unsecured
revolving credit facility with Kingsway in May 2002, which facility was renewed
in May 2003. As at June 17, 2003, approximately Cdn.$47.2 million of this credit
facility was drawn. Further, Scotia Capital Inc., CIBC World Markets Inc., BMO
Nesbitt Burns Inc. and RBC Dominion Securities Inc. are affiliates of banks
which have provided a letter of credit facility used to collateralize
inter-company reinsurance balances. As of May 31, 2003, the letter of credit
utilization was
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US$218.9 million. Consequently, Kingsway may be considered to be a connected
issuer of Scotia Capital Inc., CIBC World Markets Inc., BMO Nesbitt Burns Inc.,
RBC Dominion Securities Inc. and HSBC Securities (Canada) Inc. under applicable
Canadian securities legislation. The decision to distribute the Shares,
including the determination of the terms of the Offering, was made through
negotiations between Kingsway and the Underwriters. No proceeds from this
Offering will be used to repay any indebtedness to the Underwriters or their
affiliates. The lenders under Kingsway's credit facilities did not have any
involvement in the decision or determination regarding the terms of this
Offering, nor is the consent of the lenders required for this Offering. Kingsway
is in compliance with the terms of the agreements governing these credit
facilities and assuming completion of this Offering, Kingsway will continue to
be in compliance with all financial covenants contained in these credit
facilities.
RISK FACTORS
You should carefully consider the following risks, as well as the other
information contained in this prospectus and documents incorporated by reference
including Kingsway's financial statements and the related notes. If any of the
following risks actually occurs, Kingsway's business could be harmed. In that
case, the trading price of common shares of Kingsway could decline, and you
might lose all or part of your investment.
o Kingsway's provisions for unpaid claims may be inadequate, which would
result in a reduction in its net income.
o Kingsway may experience difficulty in managing its growth, which could
adversely affect its results of operations and financial condition.
o Kingsway relies on independent agents, managing general agents and
brokers and is exposed to related risks.
o The highly competitive environment in which Kingsway operates could
have an adverse effect on its business, results of operations and
financial condition.
o Kingsway's operating results may fluctuate as a result of many factors,
including cyclical patterns in the property and casualty insurance
industry and in the automobile insurance market.
o If Kingsway fails to comply with the covenants in its credit agreements
or fails to maintain specified financial ratios, the lenders under its
credit facilities could declare Kingsway in default of its obligations.
o If Kingsway is unable to maintain its current claims-paying ratings,
its ability to write insurance and compete with other insurance
companies may be adversely impacted.
o The majority of Kingsway's gross premiums written are derived from the
non-standard automobile and trucking insurance markets. If the demand
for insurance in these markets declines, Kingsway's results of
operations could significantly decline.
o If Kingsway fails to comply with applicable insurance regulatory
requirements, Kingsway's business and financial condition could be
adversely affected.
o If Kingsway's insurance subsidiaries fail to comply with minimum
capital requirements, they may be subject to regulatory action.
o Kingsway's business could be adversely affected as a result of changing
political, regulatory, economic or other influences.
o Kingsway may not be able to realize its investment objectives, which
could reduce its net income significantly.
o Kingsway derives the majority of its premiums from a few geographic
areas, which may cause its business to be affected by catastrophic
losses or business conditions in these areas.
o If reinsurance rates rise significantly or reinsurance becomes
unavailable or reinsurers are unable to pay Kingsway's claims, Kingsway
may be adversely affected.
o Kingsway is a holding company and its operating subsidiaries are
subject to dividend restrictions.
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o Kingsway's business depends upon key employees, and if it is unable to
retain the services of these key employees or to attract and retain
additional qualified personnel, Kingsway's business may suffer.
o Various factors may inhibit potential acquisition bids that could be
beneficial to Kingsway's shareholders.
o Fluctuations in currency exchange rates could negatively affect
Kingsway's results.
More detailed discussion of the risk factors related to Kingsway is
contained in Management's Discussion and Analysis set out on pages 39-45 of
Kingsway's 2002 Annual Report.
LEGAL MATTERS
Certain legal matters relating to the sale of the Shares offered by this
prospectus will be passed upon on Kingsway's behalf by Fogler, Rubinoff LLP.
Michael Slan, a partner of Fogler, Rubinoff LLP, is Kingsway's corporate
secretary. Certain legal matters relating to the sale of the Shares will be
passed upon on behalf of the Underwriters by Stikeman Elliott LLP. As at the
date hereof, members of each of the firms of Fogler, Rubinoff LLP and Stikeman
Elliott LLP, as a group, own beneficially, directly or indirectly, less than 1%
of Kingsway's issued and outstanding common shares.
AUDITORS, TRANSFER AGENT AND REGISTRAR
Kingsway's auditors are KPMG LLP, Toronto, Canada. The transfer agent and
registrar for Kingsway's common shares in Canada is Computershare Trust Company
of Canada, at its principal offices in Toronto. The transfer agent and registrar
for Kingsway's common shares in the United States is Computershare Trust
Company, Inc., at its principal offices in Denver, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
Copies of this prospectus and the documents incorporated by reference
herein may be obtained on request without charge from Mr. Michael Slan,
Corporate Secretary, Suite 4400, Royal Trust Tower, Toronto-Dominion Centre,
Toronto, Ontario, M5K 1G8, telephone: (416) 864-9700. Copies of these documents
are available on the System for Electronic Document Analysis and Retrieval of
the Canadian Securities Administrators, at www.sedar.com.
PURCHASERS' STATUTORY RIGHTS
Securities legislation in certain provinces of Canada provides purchasers
with the right to withdraw from an agreement to purchase securities. This right
may be exercised within two business days after receipt or deemed receipt of a
prospectus and any amendment. In several of the provinces, the securities
legislation further provides a purchaser with remedies for rescission or damages
if the prospectus and any amendment contains a misrepresentation or is not
delivered to the purchaser, provided that the remedies for rescission or damages
are exercised by the purchaser within the time limit prescribed by the
securities legislation of the purchaser's province. The purchaser should refer
to any applicable provisions of the securities legislation of the purchaser's
province for the particulars of these rights or consult with a legal adviser.
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CERTIFICATE OF THE COMPANY
Dated: June 25, 2003.
This short form prospectus, together with the documents and information
incorporated herein by reference, constitutes full, true and plain disclosure of
all material facts relating to the securities offered by this prospectus as
required under the securities legislation of each of the provinces of Canada.
For the purpose of the Province of Quebec, this simplified prospectus, as
supplemented by the permanent information record, contains no misrepresentation
likely to affect the value or the market price of the securities to be
distributed.
(Signed) WILLIAM G. STAR (Signed) W. SHAUN JACKSON
Chairman, President Executive Vice-President
and Chief Executive Officer and Chief Financial Officer
On behalf of the Board of Directors
(Signed) F. MICHAEL WALSH (Signed) THOMAS A. DI GIACOMO
Director Director
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CERTIFICATE OF THE UNDERWRITERS
Dated: June 25, 2003.
To the best of our knowledge, information and belief, this short form
prospectus, together with the documents incorporated herein by reference,
constitutes full, true and plain disclosure of all material facts relating to
the securities offered by this prospectus as required under securities
legislation of each of the provinces of Canada. For the purpose of the Province
of Quebec, to our knowledge, this simplified prospectus, e as supplemented by
the permanent information record, contains no misrepresentation likely to affect
the value or the market price of the securities to be distributed.
SCOTIA CAPITAL INC.
(Signed) DAVID J. SKURKA
CIBC WORLD MARKETS INC.
(Signed) ROBERT PENTELIUK
BMO NESBITT BURNS INC. RBC DOMINION SECURITIES INC. SPROTT SECURITIES INC.
(Signed) THOMAS E. FLYNN (Signed) LINDA WONG (Signed) W. JEFF KENNEDY
DESJARDINS SECURITIES GRIFFITHS MCBURNEY & HSBC SECURITIES (CANADA)
INC. PARTNERS INC.
(Signed) JACQUES LEMAY (Signed) MATTHEW S. FRANK (Signed) PATRICK M. NOLAN
C-2
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KINGSWAY FINANCIAL SERVICES INC.
[KINGSWAY FINANCIAL LOGO]