S-1/A
1
S-1/A
Registration No. 33-6534
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post Effective Amendment No. 9 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
(Exact name of registrant as specified in charter)
Barbados Not Applicable
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
6331 Financial Services Centre
(Primary standard industrial Bishops Court Hill
classification number) St. Michael, Barbados, W.I.
(809) 436-4895
(Address and telephone number of
principal executive office)
RONALD W. JONES, Vice President
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados, W.I.
(809) 436-4895
(Name, address and telephone number of agent for service)
Copy to:
David R. Woodward, Esq.
LeBoeuf, Lamb, Greene & MacRae
1875 Connecticut Avenue, N.W.
Washington, D.C. 20009
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. (X)
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
Cross reference sheet between
Items of Form S-1 and Prospectus
Pursuant to Item 501(b)
of Regulation S-K
FORM S-1 ITEM NO. CAPTION OR
AND CAPTION LOCATION IN PROSPECTUS
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus ....................... Front Cover
2. Inside Front Page and Outside Back
Cover Pages of Prospectus ........ Inside Front Cover; Outside
Back Cover
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges .......................... Summary; Risk Factors
4. Use of Proceeds .................. Use of Proceeds
5. Determination of Offering Price .. Determination of Offering
Price
6. Dilution ......................... Not Applicable
7. Selling Security Holdings ........ Not Applicable
8. Plan of Distribution ............. Plan of Distribution
9. Description of Securities to be
Registered ....................... Description of Capital Stock
10. Interests of Named Experts and
Counsel .......................... Not Applicable
11. Information With Respect to the
Registrant ....................... Summary; The Company; Use of
Proceeds; Capitalization;
Business of the Company;
Management; Principal
Shareholder
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities .................. Not Applicable
P R O S P E C T U S
Motors Mechanical Reinsurance Company, Limited
26,500 Shares of Participating Stock
THE SECURITIES OFFERED HEREBY INVOLVE SIGNIFICANT RISK, ARE SUBJECT TO
SUBSTANTIAL RESTRICTIONS ON TRANSFER, AND WILL NOT BE READILY MARKETABLE.
OFFEREES SHOULD REFER TO THE SECTION CAPTIONED "RISK FACTORS".
Motors Mechanical Reinsurance Company, Limited (the "Company"), a Barbados
company, is engaged in the business of assuming risks in respect of certain
insurance policies covering motor vehicle mechanical repairs. (See "The
Company.")
The shares of Participating Stock of the Company offered by this Prospectus
(the "Shares") are divided into 265 series, and the authorized number of Shares
of each series is 100 Shares. The offering price is $75.00 per Share. (See
"Description of Capital Stock.") ALL AMOUNTS OF MONEY SHOWN IN THIS PROSPECTUS
ARE STATED IN U.S. DOLLARS.
The Company is offering Shares of a series only to persons certified by the
owners of motor vehicle franchises to be identified with that series and only
if it receives Stock Purchase Agreements executed by such persons which are
acceptable to the Company in its sole discretion.
The Shares are being sold, on a continuous basis, by certain employes of Motors
Insurance Corporation ("MIC"), who are not compensated specifically for their
services in this regard. (See "Plan of Distribution.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Underwriting
Price to discounts and Proceeds
public commissions to issuer
Per Share $75.00 None $75.00
Total 26,500 shares $1,987,500 None $1,987,500
Of this number, 20,400 shares had been issued and sold as of the date of
this Prospectus.
The date of this Prospectus is , 1994.
The Company, certain of its directors, and certain experts named herein are
residents of Barbados, and all or a substantial portion of the assets of the
Company and of such persons are or may be located outside the United States.
As a result, it may not be possible for investors to effect service of process
within the United States upon the Company or such persons, or to enforce
against them judgments obtained in United States courts predicated upon the
civil liability provisions of the Securities Act of 1933, as amended (the "1933
Act"). The Company has been advised by its Barbados counsel, Evelyn, Gittens &
Farmer, that there is doubt as to whether Barbados courts would (1) enforce
judgments of United States courts obtained against the Company or such persons
predicated upon the civil liability provisions of the 1933 Act, or (2) impose,
in original actions in Barbados, liabilities against the Company or such
persons predicated upon the 1933 Act.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied
at the offices of the Commission, at Room 1024, 450 Fifth Street,
N.W., Washington, D.C.; Room 1204, Kluczynski Federal Building, 230 South
Dearborn Street, Chicago, Illinois; and Room 1102, Jacob K. Javits Building, 26
Federal Plaza, New York, New York. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company furnishes to its stockholders annual reports containing financial
statements that reflect the Company's overall results and condition and that
have been audited and reported upon by independent public accountants, and
quarterly reports for each of the first three quarters of each fiscal year
containing unaudited financial information. In addition, the Company furnishes
to each holder of Shares of a series a quarterly statement containing unaudited
financial information relating to such series. The reports furnished by the
Company contain information prepared in accordance with accounting principles
generally accepted in the United States.
TABLE OF CONTENTS
Page
DEFINITIONS .......................................................
SUMMARY ...........................................................
RISK FACTORS ......................................................
Relationship with MIC ............................................
Restrictions Applicable to Certain Retrocessions .................
Extension of New Vehicle Warranties ..............................
Risk of Underwriting Losses ......................................
Investment Experience ............................................
United States Tax Considerations .................................
Risks Related to Foreign Business Operations .....................
Competition and Loss of Business .................................
Barbados Regulatory Limitations ..................................
Reliance on Outside Consultants ..................................
Dividends ........................................................
No Public Market; Restrictions on Transfers ......................
Share Redemption..................................................
THE COMPANY .......................................................
ELIGIBILITY TO PURCHASE THE SHARES ................................
USE OF PROCEEDS ...................................................
DETERMINATION OF OFFERING PRICE ...................................
DIVIDENDS .........................................................
BUSINESS OF THE COMPANY ...........................................
Introduction .....................................................
The Retrocessions ................................................
General Considerations ..........................................
The Retroceding Company .........................................
Types of Risks Subject to Retrocession ..........................
The Retrocession Agreement -- Principal Agreement ...............
The Retrocession Agreement -- Supplemental Agreement ............
Loss Reserves ...................................................
Investment Income ................................................
Employes .........................................................
Competition ......................................................
Insurance Management Agreement ...................................
Barbados Regulation and Taxes ....................................
Insurance Regulation ............................................
Taxes ...........................................................
Exchange Control ................................................
Facilities .......................................................
SELECTED FINANCIAL DATA............................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .............................
MANAGEMENT ........................................................
Directors and Officers ...........................................
Alternate Directors ..............................................
Committees of the Board ..........................................
Remuneration .....................................................
PRINCIPAL SHAREHOLDER .............................................
DESCRIPTION OF CAPITAL STOCK ......................................
Allocations to Subsidiary Capital Accounts .......................
Voting Rights ....................................................
Election of Directors ...........................................
Proxies .........................................................
Liquidation .....................................................
Changes in Articles and By-Laws .................................
Other Matters ...................................................
Redemption .......................................................
Liquidation ......................................................
Restrictions on Transfer .........................................
Transfers of Less Than All Shares of a Series ...................
Right of First Refusal ..........................................
Exceptions for Certain Transfers ................................
Provisions Applicable to All Transfers ..........................
Common Stock .....................................................
Barbados Corporate Law Provisions ................................
Dividends and Distributions .....................................
Repurchase ......................................................
Shareholders' Remedies ..........................................
Enforcement of United States Judgments ..........................
Indemnification .................................................
Inspection of Corporate Records .................................
PLAN OF DISTRIBUTION ..............................................
Purchase Procedures ..............................................
Terms of Sale ....................................................
Conditions of Sale ...............................................
Approval of Purchase ............................................
Termination of Offering ..........................................
UNITED STATES FEDERAL TAX CONSIDERATIONS ..........................
United States - Barbados Income Tax Treaty .......................
United States Premium Excise Tax .................................
United States Federal Income Tax Risks and
Consequences -- the Company .....................................
United States Federal Income Tax Consequences -- the Shareholders.
LEGAL MATTERS .....................................................
EXPERTS ...........................................................
ADDITIONAL INFORMATION ............................................
INDEPENDENT AUDITORS' REPORT ......................................
FINANCIAL STATEMENTS...............................................
APPENDIX A (Restated Articles of Incorporation of the Company)...
APPENDIX B (Stock Purchase Agreement)............................
APPENDIX C (Certification Form)..................................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
DEFINITIONS
As used in this Prospectus, the following terms have the particular meanings
set forth below.
Common Stock -- The class of shares held by MIC.
Company -- Motors Mechanical Reinsurance Company, Limited.
Eligible Purchaser -- An individual or entity certified, by the owner(s) of the
Franchise(s) for which an MIC Agency Account is maintained, as a purchaser of
all or part of a series of Shares in respect of such MIC Agency Account.
Franchise -- A right conferred by a motor vehicle manufacturer pursuant to a
written agreement which permits the grantee to sell the manufacturer's new
motor vehicles.
MIC -- Motors Insurance Corporation.
MIC Agency Account -- The separate business record maintained by MIC or any of
its subsidiaries to track volume, experience, and commissions with respect to
insurance business related to any one or more particular Franchises.
Policies -- Insurance policies issued by any MIC subsidiary and reinsured by
MIC that cover motor vehicle mechanical repair risks, to the extent that risks
under such policies are attributable to an MIC Agency Account in respect of
which a series of Shares is issued and outstanding.
Premium Income -- As used in the context of Barbados insurance laws, net
premiums after deducting any premiums paid by the Company for reinsurance.
Retrocession Agreement -- The agreement or agreements entered into between the
Company and MIC pursuant to which a specified portion of the risks arising
under the Policies is transferred to the Company.
Shares -- Shares of the Participating Stock of the Company.
Stock Purchase Agreement -- The agreement entered into between the Company
and a purchaser of Shares, in the form approved by the Company's Board of
Directors.
Subsidiary Capital Account -- The subsidiary bookkeeping record established by
the Company for a particular series of shares or class of stock and maintained
for the purpose of accounting for items of income and expense, gains and
losses, capital contributions, and shareholder distributions which are
allocated to the particular series of shares or class of stock.
SUMMARY
The following summary is qualified in its entirety by the detailed information
and financial statements, including the notes thereto, appearing elsewhere in
this Prospectus.
THE COMPANY
The Company was incorporated under the laws of Barbados on June 12, 1986 and
has registered as a licensee under the Barbados Exempt Insurance Act, 1983 to
carry on the business of an Exempt Insurance Company from within Barbados. Its
registered and principal offices are located in St. Michael, Barbados. The
Company is engaged in the business of assuming insurance risks with respect to
motor vehicle mechanical breakdowns insured under policies that are reinsured
by MIC. The Company conducts its operations within or from Barbados. (See
"The Company.")
THE OFFERING
Securities Being
Offered ........... Participating Stock, not to exceed 26,500 shares, in
series of 100 shares each, without nominal or par
value. As of the date of this Prospectus, 20,400
shares had been sold, leaving 6,100 remaining to be
offered. (See "Description of Capital Stock.")
Offering Price .... $75.00 per Share, or $7,500 per series.
Terms of Offering . Shares of a series of Participating Stock will be
issued with respect to a specific MIC Agency Account.
Only one series of Shares will be issued with respect
to each MIC Agency Account. An entire series must be
purchased by one or more Eligible Purchasers. (See
"Eligibility to Purchase the Shares.")
Offering Period ... This offering commenced on June 1, 1987 and, subject
to termination by the Board of Directors of the
Company (the "Board"), will be continuous in
accordance with Rule 415 under the 1933 Act. All
funds paid by an Eligible Purchaser will be held for
the benefit of the Company in an escrow account at
Barclays Bank PLC in Bridgetown, Barbados until such
time as the related Stock Purchase Agreement has been
accepted by the Company. Upon acceptance by the
Company of a Stock Purchase Agreement, funds will be
paid to the Company and Shares will be issued.
Purchase Procedure.. Eligible Purchasers who wish to purchase Shares will
be required to submit to the Company in Barbados the
following: (1) two executed Stock Purchase Agreements;
(2) a certified or cashier's check in the amount of
the purchase price of the Shares payable to "Motors
Mechanical Reinsurance Company, Limited -- Escrow
Account"; and (3) certification of eligibility. (See
"Eligibility to Purchase the Shares.")
Restrictions on
Transfer .......... Subject to certain exceptions, the transfer of Shares
is subject to the Company's right of first refusal.
In addition, the transfer of less than all of the
Shares of a series requires prior written consent of
the Company. (See "Description of Capital Stock --
Restrictions on Transfer.")
Voting Rights ..... Holders of Shares as a class are entitled to elect one
out of six members of the Board. Their right to vote
on other matters is limited. (See "Description of
Capital Stock -- Voting Rights.")
Risk Factors ...... This investment is subject to significant risks. (See
"Risk Factors.")
Capital Structure.. As of March 31, 1994, 19,900 Shares representing 199
series were issued and outstanding and were held by
338 shareholders. In addition to the Shares, the
Company has authorized 2,000 shares of Common Stock
without nominal or par value, all of which have been
issued to MIC and are outstanding.
Use of Proceeds ... The proceeds of this offering are added to general
funds of the Company and utilized in its insurance
business. (See "Use of Proceeds.")
Plan of
Distribution ...... The Shares are being sold by employes of MIC on a
continuous basis. Neither MIC nor its employees are
compensated specifically for their services in that
regard, and no commissions are charged or paid in
connection with sales of the Shares. (See "Plan of
Distribution.")
RISK FACTORS
Investment in the Company is subject to significant risk. Prospective
investors should carefully consider, together with the information contained
elsewhere in this Prospectus, the following:
Relationship with MIC. MIC owns all of the Common Stock of the Company, which
permits it to control the Board and determine, among other things, the
selection of the Company's officers, outside insurance management company and
outside investment adviser. (See "Description of Capital Stock," "Business of
the Company -- Investment Income," "Business of the Company -- Insurance
Management Agreement," and "Management.") The Company has entered into a
Retrocession Agreement with MIC pursuant to which risks that MIC reinsures
under Policies are "retroceded" to the Company. (See "Business of the Company
-- The Retrocessions.") The Company relies entirely on the Retrocession
Agreement and, thus, on MIC for its business. Therefore, any matters adversely
affecting MIC may have an adverse impact on the insurance business of the
Company. In addition, it should be noted that, under the Retrocession
Agreement, only business identified with certain MIC Agency Accounts is
retroceded. MIC and its subsidiaries have the power to terminate agency
agreements and otherwise limit the Company's insurance business with respect to
MIC Agency Accounts.
Pursuant to the Retrocession Agreement, the Company must pay to MIC the amounts
of any and all claims paid by MIC in respect of the Policies. Although the
Company may, at its own expense, be associated with MIC in the defense of any
claim, MIC or its subsidiaries generally have full authority to investigate and
settle, or defend, all claims. (See "Business of the Company -- The
Retrocessions.")
The Retrocession Agreement extends for an indefinite term. It generally may be
terminated at any time by MIC or the Company upon 30 days written notice. (See
"Business of the Company -- The Retrocessions.") In the event that the
Retrocession Agreement were terminated, there is no assurance that the Company
could make arrangements which would allow it to continue to operate in the
manner described in this Prospectus.
Restrictions Applicable to Certain Retrocessions. At the present time, MIC
believes that there is no federal or state law or regulation that impairs its
ability to retrocede its risks under the Policies to the Company. However,
certain state insurance laws and regulations are imprecise and subject to
varied interpretations, and it is possible that some state administrators could
seek to limit retrocession arrangements with a non-United States insurance
company or with an insurance company that is affiliated with the ceding company
or its agents. Moreover, from time to time, there are legislative and
regulatory proposals that could, if adopted, affect the MIC retrocession.
Extension of New Vehicle Warranties. Sales of mechanical breakdown coverages,
and thus the business of the Company, may be adversely affected by changes in
warranties provided by manufacturers for new motor vehicles. If such
warranties are expanded, there could be an adverse effect on the sales of
mechanical breakdown insurance coverage, and thus on the retrocession business
of the Company. Beginning with 1989 models, GM's basic warranty was modified
to cover defects in material and workmanship on all components of new vehicles
for 36 months or 50,000 miles subject to a $100 deductible after the first 12
months or 12,000 miles. Beginning with 1992 models, GM's basic warranty was
modified to apply for 36 months or 36,000 miles; however, the previously
existing $100 deductible was eliminated.
Risk of Underwriting Losses. Mechanical breakdown risks are unpredictable and
highly volatile. If losses and expenses incurred by the Company were to exceed
its premium and investment income, the Company would incur net losses.
Each series of Shares bears 90% of the losses incurred (to the extent of its
respective Subsidiary Capital Account balance) with respect to business
attributable to the MIC Agency Account related to such series (as well as a pro
rata share of 10% of all losses incurred by the Company). To the extent such
losses are substantial, a holder of Shares might sustain a loss of all or a
portion of his or her investment even if other holders of Shares are not
similarly affected. In addition, underwriting losses allocable to a particular
series may, under certain circumstances, be allocated to the other series.
(See "Description of Capital Stock -- Allocations to Subsidiary Capital
Accounts.")
Investment Experience. The profitability of the Company depends in part on the
amount of income that the Company earns on its investments. There can be no
assurance that the Company will earn a net investment return which, when added
to its underwriting income, will be sufficient to offset its liability for
claims and expenses. In addition, the Company could suffer investment losses
due to declines in the market values of securities in which it invests which
may be caused by, among other things, volatile interest rates. Substantially
all of the Company's assets are currently invested in U.S. dollar-denominated
securities issued outside of the United States by non-United States private or
governmental issuers and U.S. dollar-denominated bank certificates of deposit
issued by foreign banks and foreign branches of U.S. banks. Investing in such
securities subjects the Company to certain risks not generally associated with
securities issued in the United States. Moreover, the Company has recently
been authorized to invest in non-dollar denominated bonds on a fully currency-
hedged basis. When effectively implemented, such forward foreign currency
transactions will minimize the risk of loss resulting from a decline in the
value of the foreign currency relative to the dollar, but may also limit the
potential for gain in the event the foreign currency's value increases in
relation to the value of the dollar. (See "Business of the Company --
Investment Income.")
United States Tax Considerations. As discussed elsewhere herein, the Company
conducts a reinsurance business in Barbados and executes and administers its
reinsurance agreements and manages its business affairs from Barbados. On this
basis, the Company believes that it should not be deemed to be engaged in
business within the United States through a permanent establishment, and,
therefore, the Company believes it should not be subject to United States
income tax. However, given the factual nature of the questions involved and
certain aspects of the Company's treaty reinsurance program related to the
United States, there can be no assurance that for tax purposes the Company
ultimately will not be deemed to be engaged in business within the United
States through a permanent establishment. In such event, the Company would be
subject to United States income tax on business profits attributable to such
permanent establishment, as well as an additional 5% branch profits tax.
Under captive insurance company provisions contained in the Tax Reform Act of
1986, each holder of Shares generally will be subject to United States income
tax currently on his or her pro rata share of the earnings of the Company,
whether or not such earnings are distributed. To the extent that the Company
were subject to United States income tax on its business profits, the holders
of Shares would not be subject to current tax on such profits, but the holders
of Shares would be subject to tax on actual distributions of the Company with
respect to such profits. (See "United States Federal Tax Considerations --
United States Federal Income Tax Consequences -- the Shareholders.")
No representation is made as to the effect that any change in United States tax
laws or the interpretation thereof may have on the Company or holders of
Shares.
Risks Related to Foreign Business Operations. The Company's business is
conducted outside of the United States and may, consequently, be affected by
changes in foreign governments and by other political and economic conditions.
As a Barbados corporation, the Company is subject to the provisions of the
Barbados Companies Act, 1982. (See "Description of Capital Stock -- Barbados
Corporate Law Provisions.") In addition, although the Company has received a
guarantee from the Barbados Minister of Finance exempting it from Barbados
taxes for a period ending December 31, 2001, there is no assurance that the
guarantee will be extended beyond that date.
Competition and Loss of Business. The business of insuring motor vehicle
mechanical breakdown risks is highly competitive, with many companies seeking
the business produced by motor vehicle dealers. Since all of the Company's
business is currently derived from the Retrocession Agreement, the volume of
the Company's business is dependent, to some extent, upon the marketability of
agreements and plans developed by GM and MIC subsidiaries and offered through
motor vehicle dealers. In addition, GM may choose not to insure its liability
under mechanical repair plans with MIC or its subsidiaries. MIC management
believes that at present, MIC and its subsidiaries underwrite approximately 20%
of the mechanical breakdown insurance in the United States on new GM vehicles.
(See "Business of the Company -- Competition.")
Barbados Regulatory Limitations. To the extent that the net asset value of the
Company does not meet the minimum requirements for the Company as a whole under
Barbados insurance laws and to the extent that a Subsidiary Capital Account
does not support the business related to such account, the Company may reduce
the amount of its business attributable to such deficient Subsidiary Capital
Account.
Reliance on Outside Consultants. The Company does not have any full-time
officers or employes. The Company relies on outside consultants for insurance
management, day-to-day administrative services, and investment advice. (See
"Business of the Company -- Insurance Management Agreement," and "Business of
the Company -- Investment Income.")
Dividends. Although the Company's Restated Articles of Incorporation (the
"Articles") (see Appendix A) provide for a minimum annual dividend to holders
of Shares under certain circumstances, the ability of the Company to pay any
dividend is subject to compliance with Barbados insurance regulatory
requirements, the Barbados Companies Act and other limitations provided in the
Company's Articles. (See "Dividends.")
No Public Market; Restrictions on Transfers. There is no public market for the
Shares or the other capital stock of the Company, and none is expected to
develop. In addition, the Shares are subject to substantial restrictions on
transfer. Except for transfers to certain members of a transferor's family,
certain trusts, certain business affiliates, or estates, a transfer of any
series of Shares is subject to the Company's right of first refusal, and a
transfer of less than all of the Shares of a series cannot be made without the
express written consent of the Company. All transferees must agree to be bound
by the provisions of a Stock Purchase Agreement, including, among other things,
restrictions on the transfer of their Shares. (See "Description of Capital
Stock -- Restrictions on Transfer," "Eligibility to Purchase
the Shares," and "Plan of Distribution.")
Share Redemption. The Board of Directors of the Company has the right to cause
a redemption of the Shares of any series at any time and for any reason. This
permits, among other things, the Board of Directors to redeem, at its
discretion, shareholders who produce unsatisfactory business on a continuing
basis. The Board also may reject a request for redemption by a shareholder.
(See "Description of Capital Stock -- Redemption.")
THE COMPANY
Motors Mechanical Reinsurance Company, Limited (the "Company") was incorporated
in Barbados on June 12, 1986, and became registered in Barbados as an insurer
on June 30, 1986. The Company's registered and principal offices are located
at Financial Services Centre, Bishops Court Hill, St. Michael, Barbados and its
telephone number is (809) 436-4895. The Company was organized by MIC.
Pursuant to the Retrocession Agreement, the Company engages in the business of
assuming risks with respect to motor vehicle mechanical breakdowns arising
under insurance policies that are reinsured by MIC and that are attributable to
MIC Agency Accounts in respect of which Shares are issued and outstanding.
Under the Retrocession Agreement, the Company has agreed to indemnify MIC for
losses that may be incurred by MIC under the Policies. As consideration for
the retrocession, the Company receives a portion of the premiums paid to MIC in
respect of the Policies. The Retrocession Agreement constitutes the sole
source of the Company's insurance business. (See "Business of the Company.")
Barbados is an island nation located in the Atlantic Ocean. It is the
eastern-most island of the West Indies. Formerly a British colony, Barbados
gained its independence in 1966 and maintains a parliamentary form of
government. The currency of Barbados currently is linked by law to the U.S.
dollar at a fixed exchange rate, which at present is two Barbadian dollars to
one U.S. dollar.
The Company conducts all of its business from Barbados and does not conduct any
of its business within the United States. It is subject to general corporate
and insurance regulation under the laws of Barbados, including minimum net
asset value and reporting requirements. (See "Business of the Company --
Barbados Regulation and Taxes.")
ELIGIBILITY TO PURCHASE THE SHARES
Shares of a series may be purchased only by an individual or entity certified
by the owner(s) of the Franchise(s) for which an MIC Agency Account is
maintained, as a purchaser of all or part of a series of Shares in respect of
such MIC Agency Account ("Eligible Purchaser"). There are no formal
eligibility requirements for certification; however, Franchise owner(s) have
complete discretion with respect to whom they choose to certify (including
themselves) and the Company has complete discretion to accept or reject any
offer to purchase Shares. No more than one series of Shares is issued with
respect to each MIC Agency Account. No Shares of a series are issued unless
executed Stock Purchase Agreements (see Appendix B) for all Shares of that
series have been received and accepted by the Company.
A prospective purchaser is considered to be properly certified if the Company
has received a certificate in the form furnished by the Company (see Appendix
C) from each owner of the particular Franchise(s) stating that the prospective
purchaser has been designated by such owner(s) to be eligible to purchase the
particular Shares. In addition, the prospective purchaser must execute a Stock
Purchase Agreement and forward that agreement, together with payment for the
Shares purchased, to the Company. Stock Purchase Agreements are subject to
acceptance by the Company. (See "Plan of Distribution.")
Transfer of Shares is subject to certain restrictions. If less than all the
Shares of a series are transferred, the Company must give its consent. In
addition, the Company has a right of first refusal to purchase any Shares
which the holder attempts to transfer. However, a transfer is not subject to
either of the foregoing restrictions if the transferee falls into one of the
categories of designated transferees set forth in the Articles. (See
"Description of Capital Stock -- Restrictions on Transfer.")
USE OF PROCEEDS
The offering of the Shares pursuant to this Prospectus is being made on a
continuous basis. This means that it is not possible to predict how many
series of Shares will ultimately be purchased or the maximum net proceeds to be
derived by the Company from this offering.
The proceeds derived from this offering are added to the general funds of the
Company to provide capital to support its insurance business. Under Barbados
law, the Company is required to have minimum net assets, determined by
reference to the annual earned premium, described more fully under "Business of
the Company -- Barbados Regulation and Taxes." All of the Company's available
capital, including the proceeds of this offering, is invested by its investment
advisor in accordance with guidelines established by the Board. (See "Business
of the Company -- Investment Income.") The Company believes that the proceeds
derived from this offering will be sufficient, together with its other capital,
to support the Company's insurance operations for the foreseeable future.
DETERMINATION OF OFFERING PRICE
There is no public trading market for the Shares nor is one expected to
develop. The price per Share reflects the projected capital needs of the
Company and bears no relationship to any valuation criteria.
DIVIDENDS
Dividends may be declared and paid at the discretion of the Board, provided
that each holder of Shares of a series will be entitled to receive a minimum
dividend, payable annually, equal to 20% of the annual net income attributable
to the Subsidiary Capital Account associated with that series of Shares. In
all events, however, dividends are subject to the restrictions described in the
following paragraphs.
Pursuant to the general corporate laws of Barbados, dividends on the Shares are
payable only if after the payment: (a) the Company would be able to pay its
liabilities as they come due; and (b) the realizable value of the Company's
assets exceeds its liabilities and stated capital of all classes. Dividends
may not be paid out of unrealized gains. Further, under Barbados insurance
law, the Company is required to maintain a minimum capitalization of $125,000
and, in addition, the value of its assets must exceed its liabilities by: (a)
$125,000 where the earned premium in the preceding financial year did not
exceed $750,000; (b) an amount equal to 20% of the earned premium for the
preceding financial year, where such income exceeded $750,000 but did not
exceed $5,000,000; and (c) an amount equal to the aggregate of $1,000,000 and
10% of the amount by which the earned premium for the preceding financial year
exceeded $5,000,000. (See "Business of the Company -- Barbados Regulation and
Taxes," and "Description of Capital Stock -- Barbados Corporate Law
Provisions.")
In addition to the provisions of Barbados law, the Articles place limitations
on the payment of dividends. Dividends may be declared and paid only out of
the earned surplus of the Company and only if the Company, after giving effect
to the distribution, meets the Barbados margin of solvency requirements without
regard to any letters of credit. Further, dividends with respect to any series
of Shares may be paid only out of earned surplus attributable to the Subsidiary
Capital Account identified with those Shares, and only to the extent that,
after giving effect to the dividend, the capital and surplus identified with
that Subsidiary Capital Account (without regard to any guarantee or letter of
credit) would meet its pro rata share, based on allocable Premium Income, of
the minimum margin of solvency required of the Company under Barbados law, as
described in the preceding paragraph. To the extent a dividend, other than a
minimum dividend, is declared on the Shares, it will be declared and paid
subject to the foregoing limitations on all series of Shares as a percentage of
the net income and/or earned surplus attributable to each series, provided that
such percentage may vary with the level of net income and/or earned surplus.
In May of 1990 and June of 1991, the Company declared minimum dividends on the
Shares in total amounts of $114,376 and $150,317, respectively. In April of
1992, the Company declared a dividend on the Shares aggregating $1,021,705
which was equal to 35% of earned surplus attributable to each series of Shares
meeting the above requirements. In April of 1993, the Company declared a
dividend on the Shares aggregating $2,021,504. This dividend was declared as a
varying percentage of earned surplus attributable to each series of Shares with
the percentage applicable to each series varying from 30% to 50% depending on
the amount of earned surplus attributable to such series. In April of 1994,
the Company declared a dividend on the Shares aggregating $2,156,304. This
dividend was declared as a varying percentage applicable to each series varying
from 20% to 55% depending on the amount of earned surplus attributable to such
series.
Dividends on the Common Stock are also subject to the restrictions under
Barbados law and the Articles described above. In addition, the Articles
provide that dividends may not be declared or paid on the Common Stock unless
and until each holder of Shares of a series has received any minimum dividend
to which he is entitled for the current period and may be declared and paid
only to the extent that the earned surplus attributable to the Common Stock
exceeds Restricted Earned Surplus. (See "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts.")
BUSINESS OF THE COMPANY
INTRODUCTION
The Company was incorporated in Barbados on June 12, 1986. It became
registered in Barbados as an insurer on June 30, 1986 and commenced insurance
operations in December, 1987.
The business of the Company is the assumption of motor vehicle mechanical
breakdown insurance risks arising under insurance policies reinsured by MIC to
the extent such policies are attributable to an MIC Agency Account in respect
of which a series of shares is issued and outstanding. These policies are
issued either to General Motors Corporation ("GM") or to automobile dealers,
reinsured by MIC, and retroceded to the Company. Shares of the Company's
Participating Stock (the "Shares") are sold to persons designated by owners of
motor vehicle sales franchises with respect to which MIC maintains an MIC
Agency Account. A separate series is created for Shares relating to each MIC
Agency Account, and a separate "Subsidiary Capital Account" is maintained for
each such series. The profitability of the Company reflects both underwriting
and investment experience, which is allocated among the Subsidiary Capital
Accounts.
THE RETROCESSIONS
General Considerations. Reinsurance is a means of transferring the risk of
loss arising under a contract of insurance from the company that initially
insured the risk to the reinsurer. Retrocession is the transfer of the risk
borne by the reinsurer (the "retroceding company") to another company which, in
turn, assumes such risk (the "retrocessionaire"). Retrocession agreements are
of numerous different types and may be individually negotiated by the parties
to meet particular needs. Under a "quota share" indemnity retrocession
agreement, such as the Retrocession Agreement between MIC and the Company, the
retrocessionaire (the Company) is paid ("ceded") a certain percentage of the
premiums collected by the retroceding company (MIC) and, in return, agrees to
indemnify the retroceding company for a certain percentage of the losses in
respect of those risks. Further, a "treaty" arrangement, such as is involved
here, covers all risks of a defined class.
The Retroceding Company. MIC, the retroceding company under the Retrocession
Agreement, is a stock insurance company organized under the laws of New York.
All of MIC's outstanding stock is owned by General Motors Acceptance
Corporation which, in turn, is a wholly owned subsidiary of GM. MIC, directly
and through its subsidiaries, offers property and casualty coverages in all 50
states and the District of Columbia, as well as in Canada and Europe. MIC
consistently has been awarded A.M. Best Company's insurance financial rating of
A + (Superior), one of the highest possible ratings.
MIC maintains MIC Agency Accounts in respect of Franchises to which the risks
to be retroceded can be attributed. (A single MIC Agency Account may be
established either for a single Franchise or in respect of a group of
Franchises treated as a single business unit by MIC and its subsidiaries.)
Currently, there are more than 6,800 MIC Agency Accounts in respect of
Franchises through which mechanical insurance business is produced.
Types of Risks Subject to Retrocession. Included in the base price of the
vehicle, automobile manufacturers traditionally provide a limited warranty to
purchasers of new vehicles, which is designed to protect the purchaser against
failures resulting from defects in the materials used or workmanship during the
manufacturing process. These manufacturers warranties have varied from year to
year in scope and duration. Beginning with 1989 models, GM's basic warranty
was modified to cover all components of new vehicles for 36 months or 50,000
miles subject to a $100 deductible after the first 12 months or 12,000 miles.
Beginning with 1992 models, GM's basic warranty was modified to apply for 36
months or 36,000 miles, with no deductible.
Automobile manufacturers, dealers and others also may make available to
automobile purchasers service contracts or insurance policies (both of which
are commonly referred to as "service contracts") that provide coverage against
specific automobile mechanical breakdowns during the new vehicle warranty
period that are not attributed to manufacturing defects and coverage for
certain specified mechanical breakdowns (whether or not caused by manufacturing
defects) well beyond such period. Such service contracts often provide
additional services, such as towing and rental allowances.
MIC reinsures the following service contracts insured by its subsidiaries for
new and used vehicles:
1. GM offers a variety of service contract options under the General Motors
Protection Plan ("GMPP") to purchasers of new GM motor vehicles and certain
used GM vehicles. In the United States, GM currently insures its liability
under this plan with a subsidiary of MIC.
2. Certain dealers offer automobile purchasers a dealer service contract
called the Value Guard Mechanical Repair Plan ("MRP"), generally with respect
to used cars and new non-GM cars that provide protection against certain
automobile mechanical breakdowns. These service contracts provide varying
degrees of protection, depending upon the particular plan involved. Such
dealers obtain insurance covering their liability under these plans from a
subsidiary of MIC.
MIC also writes some mechanical insurance business on a direct basis, none of
which will be subject to reinsurance with the Company and none of which is
included in the definition of "Policies."
The Retrocession Agreement -- Principal Agreement. The Company has entered
into a "quota share" retrocession agreement (the "Agreement") which became
effective as of December 11, 1987, the date Shares were first issued. Pursuant
to the Agreement, MIC is obligated to retrocede to the Company, and the Company
is obligated to assume, MIC's risks in respect of policies issued by any MIC
subsidiary and reinsured by MIC that cover mechanical breakdown risks, to the
extent that risks under such policies are attributable to an MIC Agency Account
in respect of which a series of Shares is issued and outstanding (the
"Policies"), and such risks are insured on or after the effective date of the
Agreement. Under the Agreement, MIC is not obligated to retrocede any risk to
the Company in excess of the amount allowed under applicable state laws
concerning the retrocession of risks located in the particular state. (See
"Risk Factors -- Restrictions Applicable to Certain Retrocessions.")
Pursuant to the Agreement, MIC retrocedes to the Company 75% of MIC's risk in
respect of each Policy at the time it is written. Such retrocession remains in
effect for the duration of the underlying Policy. With respect to this cession
of 75% of the risk, MIC pays the Company 56.25% of the gross premiums it
receives, reduced by any related agents' or brokers' commissions. MIC
retrocedes the remaining 25% of its risk in respect of each such Policy on a
monthly basis. In connection with this retrocession of 25% of the risk, MIC
pays the Company 18.75% of the original gross premium, reduced by any related
agents' or brokers' commissions, as earned.
Thus, for assuming 100% of each risk the Company receives, in the aggregate,
75% of the original gross premium with respect to the risk, reduced by related
agents' or brokers' commissions, if any. The remaining 25% of the premium is
retained by MIC as a ceding commission. The Company generally is not otherwise
required to reimburse MIC for expenses incurred by MIC with respect to the
Policies. Settlements between the Company and MIC are made on a quarterly
basis.
Pursuant to the Agreement, the Company, at its own expense, to the extent
permitted by the underlying reinsurance agreement, may join MIC or its ceding
company in the defense or control of any claim, loss, or legal proceeding that
results in, or is likely to result in liability for the Company. However,
because MIC controls the Company, MIC will indirectly control any determination
by the Company whether it will take such action. The Company will not be
liable for any damages assessed against MIC arising out of its conduct in
investigating, negotiating, defending, or handling any claims or suits or in
dealing with its policyholders.
The Agreement requires that, as security for the amount of the Company's
liability to MIC thereunder, the Company furnish, to the extent requested by
MIC, collateral in the form of an irrevocable letter of credit of at least 12
months duration equal in amount to the unearned premium in respect of risks
retroceded and unpaid loss reserves (including reserves for losses incurred but
not reported) otherwise required to be maintained by MIC in respect of the
Policies. This letter of credit must be issued by a bank acceptable to MIC.
As of December 31, 1993, the Company provided MIC with such a letter in the
amount of $32,250,000.
The Agreement may be terminated at any time by mutual consent of the parties,
or by either party upon 30 days written notice. Upon termination of the
Agreement, MIC and the Company will remain bound by their respective
obligations under the Agreement with respect to risks retroceded prior to the
close of business on the date of termination. However, risks not yet
retroceded to the Company under the Agreement shall remain risks of MIC.
The Retrocession Agreement -- Supplemental Agreement. MIC from time to time,
enters into agreements with Franchise owners for which an MIC Agency Account is
established, pursuant to which MIC, acting for itself and on behalf of certain
of its subsidiaries, agrees to cede or retrocede to another insurance company
mutually satisfactory to MIC and the respective Franchise owners the unexpired
liability with respect to service contracts, insured under the Policies, sold
after the date specified in each such agreement. This liability can be ceded
or retroceded to dealer-owned companies organized specifically with respect to
a particular Franchise or, if a series of Shares is issued which relates to the
Franchise, pursuant to an agreement between MIC and the Company (the
"Supplemental Retrocession Agreement"). For this purpose, unexpired liability
means MIC's liability in respect of the remaining period of coverage under the
Policy as of the effective date of the cession. Under the Supplemental
Retrocession Agreement, unexpired liability in respect of the Policies is
assumed on the same basis as risks retroceded to the Company under the
principal Retrocession Agreement.
Loss Reserves. Reserves are balance sheet liabilities representing estimates
of amounts needed in the future to pay claims with respect to insured events
which have occurred as of the balance sheet dates.
For purposes of establishing loss reserves, the Company relies upon the advice
of MIC. Loss reserves are established after an annual actuarial review, based
on judgments of the effects of technological change, manufacturer's warranties,
and MIC's historical experience with automotive mechanical breakdown risks.
Consequently, the determination of loss reserves is a process inherently
subject to a number of highly variable factors. Any adjustments to reserves
are reflected in the operating results for the periods in which they become
known.
The Company's incurred loss ratios (losses incurred as a percentage of net
premium earned) on all mechanical business for the fiscal years ended December
31, 1993, 1992, and 1991 were 70.7%, 62.8%, and 68.2%, respectively.
The following table sets forth an analysis of changes in the loss reserves for
the fiscal years ended December 31, 1993, 1992 and 1991:
Period Ended
12/31/91 12/31/92 12/31/93
________ ________ ________
Beginning balance in
reserves for losses......... $1,075,123 $1,396,542 $1,622,855
__________ __________ __________
Add-provision for losses
incurred related to:
Current claim year........ 7,301,654 8,461,984 11,046,932
Prior claim years......... (282,726) (297,535) (134,249)
__________ __________ __________
Total................. 7,018,928 8,164,449 10,912,683
__________ __________ ___________
Deduct-paid losses
attributable to:
Current claim
year...................... 5,948,952 7,025,671 9,363,720
Prior claim
years..................... 748,557 912,465 1,261,788
__________ __________ ___________
Total..................... 6,697,509 7,938,136 10,625,508
__________ __________ ___________
Ending balance in reserves
for losses.................. $1,396,542 $1,622,855 $1,910,030
__________ __________ ___________
The following table analyzes the development of loss and loss adjustment
expense, from February 1, 1989 through December 31, 1993.
1/31/90 12/31/90 12/31/91 12/31/92 12/31/93
_______ ________ ________ ________ ________
Liability for
unpaid claims
and claims
adjustment
expense $ 766,912 $1,075,123 $1,396,542 $1,622,855 $1,910,030
__________ __________ __________ __________ __________
Paid (cumulative)
in subsequent
year(s) $ 666,866 $ 748,557 $ 912,465 $1,261,788
Estimated unpaid
liability as of
year end 2,393 43,840 186,542 226,818
__________ __________ __________ __________
Cumulative
Deficiency
(Redundancy) $ (97,653) $ (282,726) $ (297,535) $ (134,249)
__________ __________ __________ __________
Because mechanical breakdown claims are generally paid within 90 days of
when they are incurred, liability for unpaid claims incurred in prior years is
negligible. Accordingly, liability for unpaid claims incurred in all prior
years has been combined at each year end.
The table shows initial estimated reserves at December 31, 1993, 1992, 1991 and
1990 and January 31, 1990 and amounts paid on claims unsettled at each prior
period end. Claims are typically processed for payment at the time the claim
is reported. Therefore, the recorded claim liability at each year end
represents the estimated incurred but not reported claims and claims in the
process of payment. The cumulative deficiency or redundancy represents the
total change in reserve estimates covering prior years.
It should be noted that the policies reinsured by the Company are written for
multiple years (up to six years) and losses do not occur equally over the
period for which the policy is written but tend to be clustered in the later
years. Therefore, loss experience for prior years may not be indicative of
that for future years.
INVESTMENT INCOME
A major source of income to an insurance company is income earned on the
investment of amounts not currently required to meet claims or expenses. The
principal funds available for investment by the Company come from accumulated
capital, and the cumulative excess of premiums collected over losses and
operating expenses paid.
The Company's funds are invested in a manner consistent with investment
guidelines that are established by the Board. Under the guidelines in effect
prior to April, 1994, the Company was permitted to invest only in U.S.
dollar-denominated securities issued outside of the United States by non-United
States private or governmental issuers, and U.S. dollar-denominated bank
certificates of deposit issued by foreign banks and foreign branches of U.S.
banks. Subject to the satisfaction of certain conditions, the Board
authorized, in April, 1994, limited investments in non-dollar denominated
bonds, on a fully currency-hedged basis. The Company may invest only in
securities and certificates which are rated at least Aa3 by Moody's or AA- by
Standard & Poor's or the equivalent, or are guaranteed by such an issuer. As
of April, 1994, certain unrated securities may also be held if, in the opinion
of the investment manager, they have at least equivalent credit standing to the
above rating standard. The Board reviews on a regular basis and, where
appropriate, revises the investment objectives and guidelines for the Company's
funds. There can be no assurance, however, as to whether a particular
investment objective, once adopted, can be achieved or that adverse factors
would not cause a decrease in the overall value of the Company's investment
portfolio.
Investments in non-U.S. securities, particularly those of non-governmental
issuers, may involve considerations not ordinarily associated with investments
in domestic issuers. These considerations include, but are not limited to, the
possibility of expropriation, the unavailability of financial information or
difficulty in interpreting such information when it is prepared under foreign
accounting or regulatory standards, the possible negative impact of political,
social or diplomatic developments, and the possible imposition of withholding
taxes by foreign taxing authorities.
Changes in interest rates in the quarter ended March 31, 1994 adversely
affected the market values of the Company's investment portfolio at that date
and its investment income in the quarter then ended as compared with the
quarter ended March 31, 1993. Realized losses on the sale of investment
securities in the quarter ended March 31, 1994 were $303,389 compared to
realized gains of $378,444 in the quarter ended March 31, 1993. Unrealized
losses on investment securities held at March 31, 1994 were $1,163,467 compared
to unrealized gains at December 31, 1993 of $99,886.
Rothschild Asset Management Limited ("Rothschild") manages the investment and
reinvestment of the Company's funds in accordance with the investment policies
and guidelines established by the Board. Rothschild, which is one of the
leading institutions engaged in the management of offshore fixed-income
portfolios, and which has been providing this service since 1974, is an
affiliate of NM Rothschild and Sons Limited, a prominent merchant bank in
London which has been in the investment management business worldwide for more
than 100 years. Rothschild charges a management fee of 0.3% per annum on the
first $20,000,000 of assets under management based on the market value of the
Company's investment portfolio at the end of each calendar quarter, and 0.15%
per annum on the excess thereof.
EMPLOYES
The Company does not have any full-time employes. Rather, the Company relies
on Alexander Insurance Managers (Barbados) Ltd. (the "Manager"), to handle its
day-to-day operations. (See "Business of the Company -- Insurance Management
Agreement," below.) In addition, corporate secretarial services for the
Company are provided by Colybrand Company Services Limited of St. Michael,
Barbados. The Board and the committees thereof, however, remain responsible
for the establishment and implementation of policy decisions.
COMPETITION
The insurance business is extremely competitive. MIC management believes that
at present, MIC and its subsidiaries are, as a group, one of the largest
mechanical breakdown insurers of new GM vehicles in the United States. There
are other major companies offering similar coverage. Because the insurance
business of the Company is limited to the assumption of certain mechanical
breakdown insurance business ceded by MIC, the profitability of the Company
depends to a large degree on the success experienced by MIC and its affiliates
in competing with those other insurers.
Many commercial insurance groups are seeking to capture additional mechanical
insurance business by offering to assist automobile dealers in the formation of
their own dealer-owned reinsurance companies. MIC itself has assisted in the
establishment of such companies for a number of qualified GM dealers. However,
MIC believes that participation in the Company represents a more practical
alternative for dealers who do not have the available capital, insurance
management expertise or time for the personal involvement necessary for their
own reinsurance company.
INSURANCE MANAGEMENT AGREEMENT
The Company has entered into an Insurance Management Agreement (the "Management
Agreement") with the Manager, pursuant to which the Manager collects and
disburses funds on behalf of the Company, provides bookkeeping, clerical,
telephone, telex, and other services for the Company, and advises and consults
with the Company in regard to all aspects of the Company's retrocession
activities.
Pursuant to the Management Agreement, the Manager has undertaken to maintain an
office in Barbados to perform its duties. Further, during the term of the
Management Agreement and generally for a period of one year thereafter, the
Manager has agreed not to provide management or accounting services for any
other company which, by the nature of its operations, is offering, insuring or
reinsuring mechanical breakdown and/or extended warranty or related coverages
on a multi-state basis in the United States or Canada with respect to motor
vehicles sold by franchised GM dealerships. Under the terms of the Management
Agreement, the Company pays the Manager a fee based on hourly rates for
services performed. For the year ended December 31, 1993, the Company paid
fees to the Manager in the amount of $180,135.
The Manager is responsible for the payment of the salaries of its officers and
employes and all office and staff overhead and other costs attributable to its
services on the Company's behalf. However, out-of-pocket expenses, such as
telephone, telex, postage, travel, and other items are borne by the Company on
an expense reimbursement basis.
The Manager was incorporated in Barbados in 1984, and is an affiliate of
Alexander and Alexander, an international insurance brokerage and insurance
consulting firm. The Manager performs services similar to those performed for
the Company for several other entities. The Manager has nine employes. In
addition, the Manager may draw upon the resources of its affiliates as needed
to provide the services contemplated under the Management Agreement. No
employe of the Manager devotes all of his or her time to the business of the
Company. However, the Manager is obligated to devote all employe time
necessary to ensure the performance of the Manager's duties under the
Management Agreement. The Manager is subject to the control and direction of
the Board.
The Manager has served in that capacity since 1986. The current Management
Agreement became effective on March 19, 1992 and may be terminated by either
party as of the end of the then current fiscal year by the giving of written
notice to the other party by September 1 of that year.
BARBADOS REGULATION AND TAXES
Insurance Regulation. The Company is subject to regulation under the Barbados
Exempt Insurance Act, 1983, as amended (the "Exempt Insurance Act"). The
Exempt Insurance Act and related regulations set forth a number of requirements
applicable to insurers doing business in Barbados. The principal requirements
are as follows:
(1) the Company is required to maintain a principal office in Barbados,
appoint an auditor, and have a resident citizen of Barbados as one of its
directors;
(2) the Company must maintain assets that exceed its liabilities by:
(a) $125,000, where the earned premium in the preceding financial year
did not exceed $750,000;
(b) an amount equal to 20% of the earned premium for the preceding
financial year where the earned premium exceeded $750,000 but did not
exceed $5,000,000; and
(c) an amount equal to the aggregate of $1,000,000 and 10% of the amount
by which the earned premium for the preceding financial year exceeded
$5,000,000.
(3) the Company must have audited financial statements prepared in the
prescribed form ("Statutory Financial Statements") in respect of its
insurance business for each year;
(4) the Company must submit its Statutory Financial Statements to the Barbados
Supervisor of Insurance ("Supervisor") within six months after the end of
the relevant financial year; and
(5) the Company must submit to the Supervisor on an annual basis a certificate
of its auditor that the Company is in compliance with the requirements of
the Insurance Act as at the balance sheet date.
Taxes. Under the Exempt Insurance Act, no income tax, capital gains tax or
other direct tax or impost is levied in Barbados on (1) the profits or gains of
the Company, (2) the transfer of the securities of the Company to any person
who is not a resident of Barbados, (3) the Company, its shareholders or
transferees in respect of the transfer of all or any part of the Company's
securities or other assets to another licensee under the Exempt Insurance Act
or to any person who is not a resident of Barbados, or (4) any portion of any
dividend, interest, or other return payable to any person in respect of his or
her holding any Shares or other securities of the Company. The Company has
received a guarantee from the Minister of Finance of Barbados that such
benefits and exemptions will be available for a period ending December 31,
2001.
Exchange Control. Pursuant to the Exempt Insurance Act, the Company is exempt
from the Barbados Exchange Control Act. Accordingly, the Company may hold any
non-Barbadian currency and convert that currency into any other currency
without restriction.
FACILITIES
The Company neither owns nor maintains any office space or facilities. Rather,
the business office for the Company is provided by the Manager and is located
at Financial Services Centre, Bishops Court Hill, St. Michael, Barbados. The
Company believes that these facilities are adequate for its current and
anticipated future needs. In addition, the Manager supplies all equipment for
the Company, and maintains all insurance records for the Company.
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 1993,
1992 and 1991, the eleven month period ended December 31, 1990 and the fiscal
year ended January 31, 1990 have been derived from financial statements audited
by Deloitte & Touche, independent chartered accountants, whose report with
respect to their audits of the financial statements as of December 31, 1993 and
1992 and for each of the three years in the period ended December 31, 1993 is
included elsewhere in this Prospectus. The data presented for the three month
periods ended March 31, 1994 and 1993 are derived from unaudited financial
statements presented elsewhere in this Prospectus and, in the opinion of
management, include all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the data for such periods. The results
for the three month period ended March 31, 1994 are not necessarily indicative
of the results to be expected for the full fiscal year. This information
should be read in conjunction with the information under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes included elsewhere in this
Prospectus.
Three Months Ended March 31,
1994 1993
____ ____
Premiums Assumed $8,816,331 $5,389,885
__________ __________
Premiums Earned 4,571,906 3,572,828
Net Investment Income 267,303 839,973
__________ __________
Total Income 4,839,209 4,412,801
Less Losses and
Expenses 4,516,391 3,679,676
__________ __________
Net Income 322,818 733,125
__________ __________
Dividends Per Common
Share 0 0
Total Assets 53,984,124 39,843,550
Total Policy Reserves
and Other Liabilities 46,920,295 31,646,894
Stockholders' Equity 7,063,829 8,196,656
Dividends Paid on
Participating Shares 0 0
Periods Ended December 31, January 31
____________________________________________________ __________
1993 1992 1991 1990 1990
____ ____ ____ ____ ____
Premiums
Assumed $27,779,063 $19,386,455 $16,784,405 $12,957,759 $10,032,140
___________ ___________ ___________ ___________ ___________
Premiums
Earned 15,429,611 13,005,184 10,292,788 8,177,525 5,183,768
Net Investment
Income 2,700,242 2,522,712 1,792,947 843,021 727,844
___________ ___________ ___________ ___________ ___________
Total Income 18,129,853 15,527,896 12,085,735 9,020,546 5,911,612
Less Losses and
Expenses 15,425,146 12,020,682 10,165,350 8,280,612 5,297,836
___________ ___________ ___________ ___________ ___________
Net Income 2,704,707 3,507,214 1,920,385 739,934 613,776
___________ ___________ ___________ ___________ ___________
Dividends Per
Common Share 0 0 0 0 0
Total Assets 50,359,633 36,847,490 28,124,056 18,759,382 12,507,645
Total Policy
Reserves and
Other
Liabilities 42,430,269 29,777,783 23,148,003 16,347,245 11,238,143
Stockholders'
Equity 7,929,364 7,069,707 4,976,053 2,412,137 1,269,502
Dividends Paid on
Participating
Shares 2,021,504 1,021,705 150,317 114,376 0
Information as to earnings per share is not provided inasmuch as the
results for each series of stock will vary with the underwriting experience
attributable to each Subsidiary Capital Account established with respect to
that series. See Note 2(f) to the financial statements.
In May of 1990, the Company changed its fiscal year end from January 31 to
December 31.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity. The Company expects to generate sufficient funds from operations to
cover current liquidity needs. The Company's liquidity requirements are
related to payment of insurance losses, administrative expenses, and dividends.
Premiums generated by the Company's reinsurance business, combined with
investment earnings plus proceeds from the sale of Shares, will continue to be
the principal sources of funds for the Company. Although losses are expected
to increase due to the increased level of premiums assumed in each preceeding
year and the anticipated incidence of claims following the expiration of
manufacturers' warranties, available funds from the sources identified above
have also grown. Net cash provided by operating activities has increased from
$5,386,977 in 1991 and $7,598,500 in 1992 to $12,422,648 in 1993. The Company
believes that such funds will be sufficient to meet its liquidity requirements
in 1994 and in future years to which its reinsurance liabilities extend. No
capital expenditures are expected during the next few years.
See "Dividends" for a discussion of dividends paid and legal restrictions on
the payment of dividends.
On April 8, 1994, the Board of Directors authorized the payment of dividends to
eligible holders of Participating Shares aggregating $2,156,304.
Capital Resources. Capitalization of the Company, as of December 31, 1993, was
comprised of paid-in capital with respect to the Common Stock of $200,000,
paid-in capital with respect to the Shares of $1,417,500 (compared with
$1,072,500 and $817,500 as of December 31, 1992 and 1991, respectively), and
earnings retained for use in the business. As of March 31, 1994, the share
capital of the Company was $1,692,500, comprised of paid-in capital with
respect to the Common Stock of $200,000 and paid-in capital with respect to
Participating Shares of $1,492,500. In addition, the Company had surplus from
retained earnings in the amount of $6,534,796 and unrealized depreciation on
marketable securities of ($1,163,467).
Barbados law requires that the Company's net assets equal at least the
aggregate of $1,000,000 and 10% of the amount by which the earned premium
exceeded $5,000,000 in the previous fiscal year. If the Company's net asset
ratio is less than mandated by Barbados law, the Company has the right to
reduce the business related to a Subsidiary Capital Account by retrocession or
any other means to the extent necessary to permit the Subsidiary Capital
Account to meet its pro rata share of the Company's required capital and
surplus. At January 1, 1994, the Company's required minimum net assets
computed in accordance with Barbados law was approximately $2,042,961, compared
to total capital and retained earnings of $7,929,364.
First Quarter Ending March 31, 1994. Net premium volume continues to increase
as additional participants are added to the program. During the quarter ended
March 31, 1994, 10 new series of Shares were added bringing the total number of
series approved to 199. Premiums earned increased by $999,078 over the
comparable period of 1993. The ratio of losses incurred to premiums earned for
the quarter under review is 69.8% as compared to 73.1% for the quarter ended
March 31, 1993.
Expenses increased by $836,715 to $4,516,391 in the quarter ended March 31,
1994 from $3,679,676 in the first quarter of 1993. Net underwriting income in
the quarter ended March 31, 1994 increased $162,363 to $55,515 compared with an
underwriting loss of $106,848 in the 1993 quarter. The increase in net
underwriting income, however, was offset by a decline in investment income of
$572,670, from $839,973 in the first quarter of 1993 to $267,303 in the
comparable period of 1994, due to realized losses on the sale of invested
assets. The Company has reported net income for the three month period ended
March 31, 1994 of $322,818 compared to net income of $733,125 for the three
month period ended March 31, 1993.
Changes in interest rates in the quarter ended March 31, 1994 adversely
affected the market values of the Company's investment portfolio at that date
and its investment income in the quarter then ended as compared with the
quarter ended March 31, 1993. Realized losses on the sale of investment
securities in the quarter ended March 31, 1994 were $303,389 compared to
realized gains of $378,444 in the quarter ended March 31, 1993. Unrealized
losses on investment securities held at March 31, 1994 were $1,163,467 compared
to unrealized gains at December 31, 1993 of $99,886. The Company's investment
guidelines do not permit the use of financial instrument derivatives in
managing interest rate risk.
Cash, cash equivalents and investments valued at market have increased from
$36,671,259 at the beginning of the year to $37,946,767 at March 31, 1994.
FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" is effective for years beginning after December 15, 1993 and will
require the Company to classify its securities holdings into three categories
(trading, available for sale, and held to maturity). The Company adopted
Statement No. 115 in 1994 and classified its securities portfolio as available
for sale. Adoption of the statement did not have a material effect on the
Company's financial position and results of operations.
Results of Operations - Year Ended December 31, 1993. The Company became
operational during the fiscal year ended January 31, 1988. The Company's first
year of full operation was the fiscal year ended January 31, 1989. In May of
1990, the Company changed its fiscal year end from January 31 to December 31.
A full 12 months of underwriting activity are reflected in the financial
statements for all periods presented. The results of operations for the 11-
month period ended December 31, 1990, however, include only 11 months'
investment income and administrative expense. Accordingly, results for the 11-
month period ended December 31, 1990 are not fully comparable with results for
full fiscal years.
____________________
For the 11-month period ended December 31, 1989, the Company had $5,183,768
of earned premium, $673,785 of investment income and incurred $5,278,717 of
losses and expenses. The net income of the Company for the period was
$578,836.
During the fiscal year ended December 31, 1993, the Company had net income of
$2,704,707 compared to $3,507,214 and $1,920,385 for the fiscal years ended
December 31, 1992 and 1991, respectively. The reduction in net income during
1993 compared to the previous year is the result primarily of an increase in
losses incurred as discussed below. The Company had earned premiums of
$15,429,611 compared to $13,005,184 and $10,292,788 for the fiscal years ended
December 31, 1992 and 1991, respectively. Increased premium income has been
generated by the addition of 46 new series during the year ended December 31,
1993, and the continuing flow of reinsurance premiums from series issued in
prior fiscal years. There were 189 series of Shares outstanding at
December 31, 1993 compared to 143 and 109 series of Shares outstanding at
December 31, 1992 and 1991, respectively. Investment income during the period
totaled $2,700,242 compared to $2,522,712 and $1,792,947 for the fiscal years
ended December 31, 1992 and 1991, respectively. These gains are attributable
to an increase in assets under management which were partially offset by lower
interest rates. At present, the Company's investments are comprised entirely
of U.S.-dollar denominated fixed-income securities. In the future, the Company
may also invest in foreign-denominated bonds in situations where the investment
manager anticipates a higher rate of return (net of hedging costs) than would
be available in the market for similarly rated U.S.-dollar denominated bonds.
(See "Business of the Company -- Investment Income.")
The Company incurred losses and expenses during the fiscal year ended
December 31, 1993 of $15,425,146 compared with $12,020,682 and $10,165,350 for
the fiscal years ended December 31, 1992 and 1991, respectively. This was
comprised of provisions for losses incurred during the period of $10,912,683,
ceding commissions and excise taxes of $4,009,285 and operating expenses of
$503,178. Losses incurred in 1992 and 1991 were $8,164,449 and $7,018,928,
respectively. The ratio of losses incurred to premiums earned for the fiscal
year ended December 31, 1993 was 70.7% compared to 62.8% and 68.2% for the
fiscal years ended December 31, 1992 and 1991, respectively. Management
believes the Company's increased loss experience in 1993 reflects the effects
of changes in underlying manufacturer's warranties. The expiration during 1992
of certain unlimited mileage mechanical plans that had been retroceded to the
Company and the elimination of certain deductibles under warranties for certain
1992 model vehicles had a favorable impact on 1992 loss experience. On the
other hand, the reduction of warranties from 50,000 to 36,000 miles for certain
1992 model vehicles adversely affected 1993 losses. Management does not
believe that the level of losses will continue to rise. The loss ratio in the
first quarter of 1994 was 69.8%, as compared to 73.1% for the quarter ended
March 31, 1993.
The Company incurred operating expenses during the fiscal year ended December
31, 1993 of $503,178 compared to $478,475 for the fiscal year ended December
31, 1992 and $307,301 in 1991. In 1993 and 1992, the Company paid share
issuance costs and allocated such costs to the Subsidiary Capital Account for
the Common Stock. In previous years, these expenses had been paid by MIC
pursuant to an agreement by which MIC agreed to pay the costs of issuing shares
until such costs could be allocated to the Subsidiary Capital Account for the
Common Stock. Share issuance costs for the fiscal year ended December 31,
1993, which were paid by the Company and charged to the Subsidiary Capital
Account for the Common Stock, were $74,461 compared to $80,298 for the fiscal
year ended December 31, 1992.
Pursuant to the Retrocession Agreement, the Company must furnish to MIC
collateral in the form of an irrevocable letter of credit of at least 12 months
duration generally equal in amount to the unearned premium in respect of risks
retroceded and unpaid loss reserves (including reserves for losses incurred but
not reported) otherwise required to be maintained by MIC in respect of the
Policies. As of December 31, 1993, the Company had furnished such a letter of
credit in the amount of $32,250,000.
MANAGEMENT
DIRECTORS AND OFFICERS
Five of the current directors of the Company were elected by MIC through its
ownership of the Common Stock. One director was elected by the holders of the
Shares at the Annual Shareholders Meeting held on April 8, 1994. The directors
and officers of the Company are as follows:
POSITION WITH THE COMPANY
(AND OTHER EMPLOYMENT DURING
NAME AGE PAST FIVE YEARS)
Robert T. O'Connell........ 55 Chairman and Chief Executive Officer
and Director (Chairman of the Board,
General Motors Acceptance Corporation
("GMAC"), and Motors Insurance
Corporation ("MIC")).
Mr. O'Connell became a Director and was
appointed Chairman and Chief Executive
Officer in April of 1992.
Joseph J. Pero ............ 54 President and Director (President and
Director, MIC).
Mr. Pero has been a Director since
1986. He served as Vice-President from
1986 until 1987 when he was appointed
President.
Vincent K. Quinn .......... 63 Executive Vice-President and Director
(Executive Vice-President and Director,
MIC).
Mr. Quinn has been a Director since
1986. He was appointed Executive Vice-
President in April of 1992.
Louis S. Carrio, Jr. ...... 50 Vice-President and Director
(Vice-President, MIC).
Mr. Carrio became a Director and was
appointed Vice-President in June of
1991.
Peter R. P. Evelyn ........ 52 Director (Attorney, Evelyn, Gittens &
Farmer, a Barbados law firm).
Mr. Evelyn has been a Director since
1986.
Donald C. Mealey........... 58 Director (President, Don Mealey
Chevrolet, Inc.).
Mr. Mealey became a Director in April
of 1994.
Ronald W. Jones ........... 41 Vice-President, Finance (Managing
Director, Alexander Insurance Managers
(Barbados) Ltd.).
Mr. Jones has served as Vice-President,
Finance since 1987.
Michael R. Boyce ........... 54 Secretary (Principal, Colybrand Company
Services, Limited, Barbados, since
1993; previously principal, Price
Waterhouse, Eastern Caribbean).
Mr. Boyce was elected Secretary in
1994. Mr. Boyce served previously as
Assistant Secretary to the Company.
The directors and officers named above serve in those capacities until the
annual meeting of shareholders next following their election.
ALTERNATE DIRECTORS
The By-Laws allow for the election of an alternate director for each director.
The holders of the Common Stock may elect up to five alternate directors and
the holders of the Shares may elect one alternate director. An alternate
director may attend meetings of directors and vote in respect of any matter
presented if the director for whom he is an alternate is not present.
Alternate directors shall not otherwise be deemed directors of the Company for
any purpose. At the Annual Shareholders Meeting held on April 8, 1994,
alternate directors were elected for Messrs. Quinn and Carrio.
COMMITTEES OF THE BOARD
The By-Laws authorize the Board to delegate any of its powers to committees of
two or more directors. The only currently existing committee of the Board is
the Nominating Committee which consists of three directors, including one
elected by the holders of Shares and two elected by the holders of the Common
Stock. The duties of the Nominating Committee are limited to the nomination of
one person, who may not be an incumbent director but may be an incumbent
alternate director, to stand for election as a director representing the
holders of Shares at the next following annual meeting and the nomination of
one person, who may not be an incumbent director, to stand for election as an
alternate director by the holders of Shares at the next following annual
meeting.
REMUNERATION
No director or officer of the Company is compensated directly by the Company
for his services as such. However, each director and officer of the Company is
reimbursed for expenses incurred for attendance at Board, committee, and
shareholder meetings. In addition, Mr. Jones is an officer of the Manager,
which receives management fees and compensation for data processing services;
Mr. Evelyn is a member of the law firm of Evelyn, Gittens & Farmer, which
serves as the Company's Barbados counsel; and Mr. Boyce is affiliated with
Colybrand Company Services Limited, St. Michael, Barbados, which provides
corporate secretarial services to the Company.
PRINCIPAL SHAREHOLDER
MIC owns all of the issued and outstanding shares of the Common Stock of the
Company, which consist of 2,000 shares. Donald C. Mealey, a director, owns 140
shares in three series of Participating Stock.
DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized to issue 2,000 shares of Common Stock,
without nominal or par value per share, all of which have been issued to MIC
and are outstanding. In addition, the Company is currently authorized to issue
100,000 shares of Participating Stock (the "Shares"), also without nominal or
par value per share (collectively, the Shares and the Common Stock are referred
to as the "Capital Stock"). The Shares are issued in series of 100 shares. As
of March 31, 1994, 19,900 Shares representing 199 series had been issued and
were outstanding and were held of record by 338 shareholders. Subsequently
three series totalling 300 shares were redeemed due to unsatisfactory
performance. All of the Capital Stock is, when issued and outstanding, fully
paid and nonassessable. No shares of Capital Stock have conversion, preemptive
or sinking-fund rights.
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company has established a Subsidiary Capital Account with respect to the
Common Stock as a class, and establishes such an account with respect to each
series of Shares at the time a series is issued. Subsidiary Capital Accounts
are maintained solely for the purpose of the allocations described below, and
do not serve any other legal or accounting function. None of the Company's
assets are segregated or earmarked with respect to those accounts.
The consideration received by the Company upon the issuance of a particular
series of Shares and the Common Stock as a class are allocated to the
Subsidiary Capital Account for that series or class. Items of income and
expense, and losses, attributable to insurance underwriting activities are
determined and allocated to the Subsidiary Capital Accounts as of the end of
each quarter. Investment experience, and other items of income and expense,
gains and losses and distributions with respect to the Capital Stock, are
determined and allocated to the Subsidiary Capital Accounts as of the end of
each quarter. All such accounting determinations are made using United States
generally accepted accounting principles, unless otherwise required by the
Articles.
For purposes of the following discussion, items shall be "related" to the
Subsidiary Capital Account for the series identified with the MIC Agency
Account to which such items can be attributed.
(1) Allocations with respect to underwriting activities are made as follows:
(a) With respect to premiums ceded by MIC to the Company, 100% to the
related Subsidiary Capital Account; provided, however, that an amount
equal to 1-1/3% of those premiums, net of related ceding commissions,
are subtracted from such Subsidiary Capital Account and allocated to
the Subsidiary Capital Account for the Common Stock.
(b) With respect to any agents' or brokers' commissions, commissions
recaptured, unearned premiums, reinsurance premiums ceded, and any
United States excise tax, 100% to the related Subsidiary Capital
Account.
(c) With respect to losses incurred, and any amount of losses recovered
through salvage, subrogation, reimbursement or otherwise,
(i) Ninety percent (90%) to the related Subsidiary Capital Account;
and
(ii) The remainder among all Subsidiary Capital Accounts of the
Shares pro rata in accordance with the relative earned premiums
attributable to those accounts for the calendar quarter in which
the losses are incurred.
(d) With respect to return premiums, 98-2/3% to the related Subsidiary
Capital Account and 1-1/3% to the Subsidiary Capital Account for the
Common Stock.
(2) Any expenses or liabilities attributable to day-to-day Company operations,
excluding any United States Federal income taxes, are allocated among all
Subsidiary Capital Accounts for the Shares pro rata in accordance with the
relative earned premiums allocated to those accounts for the quarter in
which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any interest thereon
or any penalties related thereto) is allocated among the Subsidiary
Capital Accounts based upon the relative contribution of each of those
accounts to the taxable income of the Company upon which the tax (or any
interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the sale and issuance of
Shares, including but not limited to the costs of compliance with
regulations and requirements of the Securities and Exchange Commission and
state securities laws (but not including ongoing periodic reporting
costs), are allocated to the Subsidiary Capital Account for the Common
Stock; however, MIC may undertake to pay such expenses.
(5) Any expenses or liabilities of the Company not allocable in the manner
described in paragraphs 2 through 4 above are allocated among the
Subsidiary Capital Accounts on the basis of the relative balances of those
accounts as of the end of the quarter preceding the date on which the
expense or liability is incurred.
(6) (a) Investment income, net of any direct investment expense, is allocated
among the Subsidiary Capital Accounts pro rata based upon the
relative Investment Asset Balance (as defined in subparagraph (b)
below) of each of those accounts as of the last day of the quarter
preceding the quarter for which the investment income is being
allocated. For these purposes, net investment income includes
realized (but not unrealized) gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital Account is
equal to the capital and surplus of each account, increased by:
(i) the unearned portions of the written premiums that have been
collected by the Company attributable to those accounts as of
the last day of the quarter preceding the quarter for which the
income is being allocated, net of any applicable commissions and
taxes;
(ii) the outstanding loss reserves attributable to each of those
accounts as of the last day of the quarter preceding the quarter
for which the income is being allocated; and
(iii) any other outstanding liability that has been charged to the
account as of the last day of the quarter preceding the quarter
or which the income is being allocated.
(7) (a) If, after the credits and charges described in paragraphs 1-6 above
are made to the Subsidiary Capital Accounts there exists a deficit in
one or more of the accounts, then each such deficit is allocated to
and charged against:
(i) first, the Subsidiary Capital Account for the Common Stock to
the extent of Restricted Earned Surplus (the phrase "Restricted
Earned Surplus" refers to the portion of the earned surplus, if
any, in the Subsidiary Capital Account for the Common Stock
equal to that 1-1/3% of the premiums ceded to the Company during
the immediately preceding five-year period which was subtracted
from the Subsidiary Capital Accounts for the Shares pursuant to
paragraph 1(a) above, net of losses allocated to that account
during such period pursuant to the allocation procedure
described in this paragraph 7 and net of return premiums
allocated to that Account during such period pursuant to the
allocation procedure described in paragraph (1)(d) above);
(ii) then, the Subsidiary Capital Accounts for the Shares, pro rata,
based upon the relative earned premiums allocated to each such
account for the quarter for which the allocation is being made,
provided, however, that only accounts which have positive
balances are taken into account for purposes of this allocation;
(iii) then, the remaining Subsidiary Capital Accounts for the Shares
with positive balances as of the last day of the quarter for
which the allocation is being made, pro rata, based upon such
balances; and
(iv) then, to the extent necessary, the Subsidiary Capital Account
for the Common Stock.
(b) If, as a result of an allocation of a deficit as described in
subparagraph (ii) or (iii) of paragraph (a) above, a deficit is
created in one or more of the Subsidiary Capital Accounts, then the
resulting deficit(s) are further allocated in the manner provided in
that subparagraph before applying a subsequent subparagraph.
(c) Notwithstanding the foregoing, if any Subsidiary Capital Account for
a series of Shares had a deficit that was allocated to and charged
against the Restricted Earned Surplus, then at the end of any
succeeding quarter for which that account otherwise would show an
account balance greater than zero, the balance is reallocated to the
Restricted Earned Surplus until all reductions of that surplus
attributable to that Subsidiary Capital Account have been restored.
Thus, a loss in a Subsidiary Capital Account which exceeds the
balance in that account is absorbed by other Subsidiary Capital
Accounts, in general, as follows: The amount of such excess losses is
charged first to the Restricted Earned Surplus portion of the
Subsidiary Capital Account of the Common Stock. Any remaining
losses, should the Restricted Earned Surplus be exhausted, are
allocated among the Subsidiary Capital Accounts of other
participating series. Any then unabsorbed losses are charged to the
Subsidiary Capital Account of the Common Stock.
Funds drawn from the Restricted Earned Surplus in the manner
described above must be restored from the Subsidiary Capital Account
that drew the funds if at any time it returns to a positive balance.
Funds drawn from the Subsidiary Capital Accounts of other series are
not, however, restored.
(8) (a) Dividends, payments upon redemption or liquidation (described below),
and any other distributions with respect to the Capital Stock are
allocated to the Subsidiary Capital Account for the class or series
with respect to which the dividend, payment or distribution was made.
(b) Where all Shares of a series are repurchased by the Company pursuant
to its right of first refusal or redeemed in accordance with the
Company's procedures for redemption, the Subsidiary Capital Account
for that series is terminated. Thereafter, all income, expenses,
gains and losses that would have been allocated to the terminated
account, will be allocated among the Subsidiary Capital Accounts of
the existing series of Shares pro rata based upon relative earned
premiums attributable to such accounts for the calendar quarter in
which the item was earned or incurred; provided, however, that a net
deficit for any such period shall be allocated in accordance with the
provisions described above
Using the procedures described above, the Company has allocated items of gain
and loss to the Subsidiary Capital Account for each series. Initially each
Account had a balance of $7,500 representing the amount paid for the Shares of
that series. During the fiscal year ended December 31, 1993, $507,643 of net
underwriting gains were allocated among the 189 series of Shares outstanding as
of December 31, 1993 and $2,700,242 of net investment income and $503,178 of
administrative expenses were allocated among the 189 series of Shares
outstanding as of December 31, 1993 and the Common Stock.
As of December 31, 1993, 163 such series had balances greater than $7,500
(ranging from $7,537 to $187,718) and 26 series had balances less than $7,500
(ranging from $6,904 to zero). (It should be noted that the amounts in the
Subsidiary Capital Accounts can fluctuate substantially and therefore may not
be indicative of future results.) At December 31, 1993, an aggregate of
$901,758 had been advanced from the Restricted Earned Surplus (which forms a
portion of the Account established for the Common Stock owned by MIC) to 15
Subsidiary Capital Accounts and remained outstanding at that date. Aggregate
deficits reallocated among the Subsidiary Capital Accounts of the Shares
through December 31, 1993 were $369,711.
The Subsidiary Capital Account for the Common Stock had, at the time it was
established, a balance of approximately $200,000, representing the capital paid
in by MIC for the 2,000 shares of the Common Stock issued to it. That
Subsidiary Capital Account is not affected directly by underwriting gains and
losses attributable to the various Subsidiary Capital Accounts related to
series of Shares, but is affected by those gains and losses indirectly to the
extent that one of the Subsidiary Capital Accounts for a series of Shares
incurs a deficit, in which case resort to the Subsidiary Capital Account for
the Common Stock will result, in the manner described above.
The allocations of income and expense, gains and losses, and distributions
described above are subject to approval by the Board, and when finally so
approved are considered final and conclusive and will be binding on all holders
of Shares for all purposes including without limitation any redemption of
Shares pursuant to the Company's procedures for redemption. (See "Description
of Capital Stock -- Redemption.")
The Company is currently in compliance with net asset value requirements of
Barbados insurance law. However, in the event that the Company is unable to
comply with such requirements in the future, it has the right to reduce the
business related to a Subsidiary Capital Account by retrocession or any other
means to the extent necessary to permit the Subsidiary Capital Account to
meet its pro rata share of the Company's required capital and surplus.
VOTING RIGHTS
Subject to the following, holders of Capital Stock are entitled to one vote for
each share held on any question on which the holder is entitled to vote. The
matters on which holders of Capital Stock are entitled to vote, and the
relative voting rights of each class of stock, are set forth below.
Election of Directors. The holders of Shares as a class are entitled to elect
one director of the Company and one alternate director, and the holders of
Common Stock as a class are entitled to elect five directors and up to five
alternate directors. At least one of the directors must be resident in
Barbados. Cumulative voting is not permitted.
Proxies. Any shareholder of the Company may appoint another person as his or
her proxy to act on behalf of the appointing shareholder at any annual meeting
of the Company. The appointment of a person as proxy for a shareholder must be
in writing.
Liquidation. The Company may be liquidated upon the vote of at least 75% of
the outstanding Shares. (See "Description of Capital Stock -- Redemption," and
"Description of Capital Stock -- Liquidation.")
Changes in Articles and By-Laws. No change may be made in the Articles or
By-Laws unless a majority of the Shares, and a majority of the Common Stock,
present in person or by proxy and voting at a meeting at which a vote on that
issue is put forth for a vote, approve the change. In addition, no amendment
may vary the rights associated with any one series unless either the rights
associated with all other series are similarly changed or a majority of the
holders of the Shares of each series present in person or by proxy at a meeting
vote in favor of the amendment.
Other Matters. Any matters other than those described above which call for a
shareholder vote require only approval by a majority of the outstanding shares
of Common Stock.
REDEMPTION
Pursuant to the Articles, the Capital Stock may be redeemed as follows: The
Company may redeem outstanding Shares of a series at any time for any reason if
the redemption of such Shares is approved by a majority of the Board of
Directors, provided that the Director representing the Shares must vote in
favor of the action being taken. The Common Stock is nonredeemable in all
circumstances.
A redemption of Shares is effective as of the date specified by the Board of
Directors but no later than the end of the calendar year in which the
redemption was approved by the Board. This date is referred to hereinafter as
the "Redemption Date." The consideration payable to the holders of redeemed
shares of Capital Stock will be the Subsidiary Capital Account balance
("Account Balance") of those shares as of the Redemption Date, as adjusted by
the Board to reflect unrealized gains and losses on investments held by the
Company and any contingent liabilities allocable to such account. Each holder
of redeemed Shares will receive the pro rata portion of the Account Balance
that corresponds to the proportionate number of Shares of the series owned.
The Account Balance will be paid within five months of the Redemption Date and
bear interest from the Redemption Date until the date of payment at a rate
equal to the yield on 26-week U.S. Treasury Bills for the issue immediately
following the Redemption Date.
Upon the redemption of Shares on the Redemption Date, the redeemed Shares will
be cancelled and the holders thereof will no longer have any interest in the
Shares redeemed or in the Subsidiary Capital Account with respect to the
redeemed Shares.
LIQUIDATION
Subject to Barbados regulatory and judicial approvals, the Company may be
liquidated upon the vote of 75% of the outstanding Shares. (See "Description
of Capital Stock -- Redemption.") In the event of the liquidation of the
Company, after payment of all liabilities of the Company, each holder of Shares
of a series is entitled to receive his pro rata share of his respective Account
Balance before any distribution of the assets of the Company is made to the
holder(s) of Common Stock. Thereafter, the holders of Shares are not entitled
to participate further in the distribution of the assets of the Company. Each
holder of Common Stock will be entitled to receive his pro rata share of the
remaining assets of the Company, if any.
RESTRICTIONS ON TRANSFER
There is no existing public market for the Shares, and it is not anticipated
that one will develop in the future. In addition, the Articles set forth a
number of restrictions on the manner in which the Shares may be transferred.
These restrictions and certain exceptions thereto are described below.
Transfers of Less Than All Shares of a Series. Subject to the exceptions
described below, transfers of less than all Shares of a series may not be made
unless the transfer is to the Company, or the holder(s) of the Shares sought to
be transferred has received the written consent of the Company. A request for
consent must be made in writing and set forth the name(s) and address(es) of
the intended transferee(s), the desired date of the transfer and the
consideration to be paid. No transfer may otherwise be made by a shareholder
of less than all of the Shares of a particular series that he owns. If the
Company fails to give its written consent, any subsequent transfer is void and
of no effect.
Right of First Refusal. Subject to the exceptions described below, transfers
of Shares of a series may not in any event be made unless the holder(s) has
received a bona fide written offer to purchase such Shares, a copy of that
offer has been furnished to the Company, and the Company is thereafter offered
the opportunity to purchase the Shares. The Company will have 60 days during
which to exercise its right to purchase the Shares sought to be transferred.
If the Company accepts the offer to purchase, the price will be the lesser of
the Account Balance for the series of Shares sought to be transferred as of the
last day of the quarter immediately preceding the date on which the offer to
purchase was accepted by the Company, or the bona fide offering price. A
purchase made by the Company pursuant to this "right of first refusal" will be
deemed effective upon acceptance by the Company of the offer to purchase,
although payment by the Company may be deferred until the end of the quarter in
which the offer to purchase is accepted by the Company. Shares purchased by
the Company pursuant to its right of first refusal will be cancelled.
Exceptions for Certain Transfers. A transfer of either all or a portion of the
Shares of a series is not subject to either the consent or right of first
refusal of the Company where the Board determines that the transferee of the
shares is: (1) a member of the transferring shareholder's immediate family; (2)
a trust for the benefit of the transferring shareholder or for the benefit of
other exempted transferees described in this paragraph; (3) if the transferor
is a corporation, any of its shareholders; (4) if the transferor is a
partnership, any of its partners; (5) a corporation which is controlled by or
under common control with the transferor; (6) the estate of a deceased
shareholder and legatees or heirs of a deceased shareholder; (7) a charitable
or other qualifying organization described in section 170(c)(2) of the United
States Internal Revenue Code of 1986, or any successor provision thereto; (8)
in the case of a transfer of less than all the Shares of a series, a person who
immediately prior to such transfer is a holder of Shares of that series; or (9)
a key employe of an owner of a Franchise previously designated in the Stock
Purchase Agreement entered into by the transferor.
Provisions Applicable to All Transfers. No Shares may be transferred unless
and until the Board has received, from the holder of the Shares sought to be
transferred, assurances of compliance with all applicable laws and regulations.
Further, transferees of Shares must agree to abide by the requirements set
forth in the Stock Purchase Agreement entered into by the transferor.
Certificates representing the Shares will bear a legend noting the applicable
limitations on transfers.
COMMON STOCK
On June 13, 1986 and January 16, 1987, the Company issued to MIC 1,250 shares
and 750 shares, respectively, of Common Stock of the Company, without nominal
or par value.
A Subsidiary Capital Account has been established for this class of stock, and
allocations of various items to such account are described above. (See
"Description of Capital Stock -- Allocations to Subsidiary Capital Accounts.")
Holders of Common Stock as a class are entitled to elect five directors, at
least one of whom must be resident in Barbados, and up to five alternate
directors. As a class, these holders generally have the sole right to vote on
matters not specifically reserved to the Shares. (See "Description of Capital
Stock -- Voting Rights.")
BARBADOS CORPORATE LAW PROVISIONS
The corporate law of Barbados was derived historically from that of England
prior to the coming into force in 1985 of the Companies Act Cap. 308 of the
Laws of Barbados, which is similar to the Canada Corporations Act. Barbados
law may differ in certain respects from comparable law in the United States.
The following is a summary of certain provisions of Barbados corporate law as
prepared by Evelyn, Gittens & Farmer, the Company's Barbados counsel. The
summary does not purport to contain all applicable provisions and does not
purport to be complete or cover all respects in which Barbados corporate law
may differ from laws generally applicable to United States corporations and
their shareholders.
Dividends and Distributions. Under Barbados law, a company may pay dividends
only if there are reasonable grounds for believing that (a) the company would
be able, after the payment of the dividends, to pay its liabilities as they
become due, and (b) the realizable value of the company's assets would be
greater than the aggregate of its liabilities and stated capital of all
classes. Dividends may not be paid out of unrealized gains.
Repurchase. The Company is authorized by the Articles, subject to certain
approvals, to repurchase its own shares. Such purchases may only be effected
if the Company can satisfy a similar solvency test as that described above
under "Dividends and Distributions."
Shareholders' Remedies. Barbados corporate law contains wide protection for
minority shareholders and investors generally. A statutory right of action is
conferred on subscribers to shares of a Barbados company against the directors
and officers responsible for the issue of a prospectus, in respect of damages
suffered by reason of untrue statements therein. In addition, the Company may
take action against directors and officers for breach of their statutory duty
to act honestly and in good faith with a view to the best interests of the
Company.
Enforcement of United States Judgments. Except as mentioned below, a judgment
of a court in the United States, under which a sum of money is payable, will
under most circumstances be enforced as a debt by the courts of Barbados
without reexamination of the merits of the case. This will not apply where the
judgment is for payment of taxes, fines or penalties. There is also doubt as
to whether a Barbados court would enforce judgments of United States courts
obtained against the Company, or its directors and officers resident in
Barbados, predicated on the civil liability provisions of the 1933 Act or, in
original actions, impose liabilities against the Company or such persons
predicated upon that Act.
Indemnification. The By-Laws of the Company provide for the indemnification of
its directors and officers against liabilities incurred in their capacities as
such, but the indemnity does not extend to any liability incurred in respect of
wilful negligence, wilful default, fraud or dishonesty in relation to the
Company.
Inspection of Corporate Records. Shareholders have the right to inspect and
copy the Articles and By-Laws, corporate register, security register, minutes
of shareholders meetings, any unanimous shareholder agreement, as well as
audited financial statements of the Company, which must be presented to the
annual meeting of shareholders.
PLAN OF DISTRIBUTION
The Shares are being offered by full-time employes of MIC or its affiliates
("Salespersons") who have other duties in connection with the business of MIC
or its affiliates and who are not engaged in the sale of securities other than
those of the Company and MIC Life Reinsurance Company, Limited. Salespersons
receive no commissions or other compensation related directly to their sale of
the Shares. In addition, MIC receives no compensation in connection with its
distribution of the Shares. Salespersons are licensed as agents of MIC in
certain states in which they offer the Shares for sale and their activities in
selling the Shares are subject to the regulation of state securities
regulators. All sales of the Shares are subject to approval by the Company.
(See "Eligibility to Purchase the Shares.")
PURCHASE PROCEDURES
In order to purchase the Shares, the following documents must be sent to the
Company in Barbados:
(1) two duly executed Stock Purchase Agreements (see Appendix B);
(2) all necessary certifications of the eligibility of prospective purchasers
by the owner(s) of the Franchise(s) related to the MIC Agency Account with
respect to which the Shares will be issued (see "Description of Capital
Stock -- Allocations to Subsidiary Capital Accounts," and Appendix C); and
(3) a certified or cashier's check payable to "Motors Mechanical Reinsurance
Company, Limited -- Escrow Account" in the amount of the aggregate cost of
the Shares to be purchased, based on the offering price of $75.00 per
Share ("Purchase Payment").
NONE OF THE FOREGOING DOCUMENTS IS TO BE EXECUTED OR DELIVERED UNTIL AFTER A
FINAL PROSPECTUS HAS BEEN DELIVERED TO THE OFFEREE.
Once it is executed by a prospective purchaser, a Stock Purchase Agreement is,
in effect, an offer to purchase the Shares described therein. That offer will
be deemed accepted only if the Company approves the offer and executes the
agreement. (See "Plan of Distribution--Conditions of Sale.")
Following execution of the Stock Purchase Agreement by the Company, the
prospective purchaser has no right to withdraw the amount of the purchase
Payment or any interest earned thereon. Amounts remain in the Escrow Account
pending satisfaction of the conditions set forth below under "Conditions of
Sale."
TERMS OF SALE
Shares are sold only to eligible purchasers who have executed a Stock Purchase
Agreement and returned it to the Company. Shares must be purchased by series,
although more than one person may buy the Shares of one series. Pursuant to
the Stock Purchase Agreement, the purchaser must accept and agree to be bound
by the Articles and By-Laws of the Company, including the restrictions on
transfer. (See "Description of Capital Stock -- Restrictions on Transfer.")
The Stock Purchase Agreement further provides that the Company may place on a
certificate issued with respect to Shares a legend stating that the transfer or
other disposition of the Shares evidenced thereby is restricted pursuant to the
Articles and By-Laws.
Once it is accepted by the Company, a Stock Purchase Agreement remains in
effect as long as the Shares purchased pursuant thereto remain outstanding. A
Stock Purchase Agreement terminates only upon the redemption of the Shares or
the liquidation of the Company. Upon a transfer of Shares, the transferor is
relieved of all restrictions and obligations under the Stock Purchase Agreement
which the transferor had entered into upon the purchase of those Shares and the
transferee, as a condition of the transfer, is required to agree to abide by
all of the provisions of the Stock Purchase Agreement.
CONDITIONS OF SALE
The Company maintains an Escrow Account at Barclays Bank PLC in Bridgetown,
Barbados (the "Escrow Account"), into which checks from prospective purchasers
are deposited pending satisfaction of the conditions described below. This
account bears interest at prevailing rates but is not subject to investment
guidelines discussed above. (See "Business of the Company -- Investment
Income.") If the conditions are not satisfied, the Purchase Payment is
returned together with any interest earned.
Approval of Purchase. Each purchase of Shares must be accepted by the Company
within 120 days from the date of execution of the Stock Purchase Agreement by
the Purchaser. If the Company determines to accept an offer to purchase Shares
from an Eligible Purchaser, it executes both copies of the Stock Purchase
Agreement remitted by such person and returns one copy to such person. If it
determines not to approve an offer to purchase, it returns the Stock Purchase
Agreement without having executed it.
Pending approval of offers, each check for the purchase of Shares (which
ordinarily is received together with a Stock Purchase Agreement) is deposited
in the Escrow Account. If a request to purchase is approved, Shares are issued
and the Eligible Purchaser receives a certificate evidencing ownership of the
Shares. Where the Company determines not to approve a sale of Shares to a
prospective purchaser, the Purchase Payment is returned, together with any
interest earned thereon. The Company has the right to reject any prospective
purchaser for any reason whatsoever.
TERMINATION OF OFFERING
Unless terminated sooner by the Board, this offering will terminate on the date
on which all of the Shares offered hereby have been sold.
UNITED STATES FEDERAL TAX CONSIDERATIONS
It is impractical to comment here on all aspects of the Federal, state, and
local tax laws that may affect the United States taxation of the Company and
its shareholders. The following is a summary, based on the facts set forth
herein and existing law, of the material Federal tax consequences associated
with an investment in the Company. It is based upon advice from the Company's
U.S. tax counsel, LeBoeuf, Lamb, Greene & MacRae.
United States taxation of the Company and its shareholders involves a number of
complex questions of fact and law with respect to some of which there is no
statutory, administrative, or judicial authority directly on point. Advance
rulings on these questions have not been requested by the Company from the
Internal Revenue Service (the "Service") and, at least as to certain matters,
there is no assurance that favorable rulings could be obtained. There is also
no assurance that the laws in existence as of the date of this Prospectus will
not be modified so as to alter the tax consequences described below.
This summary does not discuss all aspects of federal income taxation that may
be relevant to a particular shareholder in light of his or her personal tax
circumstances. Nor does it address state, local, or foreign tax laws that may
affect taxation of shareholders. EACH PROSPECTIVE INVESTOR IN THE COMPANY
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE TAX IMPLICATIONS OF
HIS OR HER INVESTMENT IN THE COMPANY.
UNITED STATES -- BARBADOS INCOME TAX TREATY
The United States and Barbados have entered into an income tax treaty (the
"Treaty") that offers certain tax benefits (some of which are discussed below)
to those persons who qualify for its protection. As a Barbados corporation
that ultimately is owned more than 50% by U.S. persons, the Company is entitled
to the benefits of the Treaty provided that it is "resident" (that is, "managed
and controlled") in Barbados. The Company attempts to conduct its business in
such a manner that it will be considered to be "managed and controlled" in
Barbados in order to qualify for the benefits of the Treaty. As discussed
below, legislation has eliminated the premium excise tax exemption under the
Treaty. (See "United States Federal Tax Considerations -- United States
Premium Excise Tax.")
UNITED STATES PREMIUM EXCISE TAX
The United States imposes an excise tax at the rate of one percent of the gross
premiums paid to foreign insurance companies for reinsurance covering risks
located within the United States. Reinsurance premiums paid to the Company are
subject to this excise tax. Although there have been legislative proposals
from time to time that would increase the rate of excise tax on reinsurance
premiums from one to four percent, in recent trade negotiations (NAFTA and
GATT) the U.S. has indicated agreement not to raise its tax on reinsurance
premiums paid to foreign companies, and legislative action has become less
likely.
UNITED STATES FEDERAL INCOME TAX RISKS AND CONSEQUENCES -- THE COMPANY
Risks and Consequences of Carrying on a United States Reinsurance Business
Through a Permanent Establishment. As a "resident" of Barbados, if the Company
engages in business within the United States through a permanent establishment,
it will be subject to United States Federal income tax at normal corporate tax
rates on its business profits that are attributable to such permanent
establishment. Insofar as is relevant hereto, all of the Company's
underwriting income and investment income (such as dividends and interest)
generally would be treated as business profits attributable to such a permanent
establishment. In addition, a Barbadian resident corporation engaged in
business in the United States through a permanent establishment would be
subject to a branch-level tax at the rate of 5% (reduced by the Treaty from a
30% statutory rate that would apply generally to foreign corporations engaged
in business in the United States) on its after-tax earnings attributable to its
United States permanent establishment that are considered remitted to the head
office of the corporation.
All relevant facts and circumstances must be taken into account in any
particular case in determining whether a person is engaged in business within
the United States and, if so, whether the business is carried on through a
permanent establishment within the meaning of the Treaty. Under the Treaty,
the activities of both dependent and independent agents in some circumstances
may be deemed to create a permanent establishment of the principal that they
represent. As discussed elsewhere herein, the Company conducts reinsurance
business in Barbados and in that regard executes and administers its
reinsurance agreements and manages its business affairs from Barbados. On this
basis, the Company believes that it should not be deemed to be engaged in
business within the United States through a permanent establishment, and
therefore the Company believes it should not be subject to United States income
tax. However, given the factual nature of the questions involved and certain
aspects of the Company's treaty reinsurance program related to the United
States, and given the absence of any clear legal interpretation of the
application of the agency provisions of the permanent establishment standard
under the circumstances, there can be no assurance that for tax purposes the
Company ultimately will not be deemed to be engaged in business within the
United States through a permanent establishment.
United States Withholding Tax Applicable to Certain Investment Income Not
Attributable to a United States Permanent Establishment. If the Company does
not engage in business within the United States through a permanent
establishment, it generally will be subject to a United States withholding tax
on interest, dividends, and certain other investment income derived from
sources within the United States. (The 30% rate of United States withholding
tax provided by statute is reduced by the Treaty to 5% in the case of interest
and 15% in the case of dividends derived from portfolio investments.) An
exemption from the United States withholding tax is provided for interest
earned on amounts on deposit in a bank, savings and loan association, or
insurance company, and interest income, termed "portfolio interest," on certain
debt obligations of United States issuers.
Although the Company could, in the circumstances described above, invest its
funds in the United States without incurring a withholding tax, the Company
currently invests its funds outside of the United States. (See "Business of
the Company -- Investment Income.")
Reallocations By Internal Revenue Service. Under section 482 of the Internal
Revenue Code (the "Code"), the Service may allocate gross income, deductions,
and credits between or among two or more businesses, owned or controlled
directly or indirectly by the same interests, in order to prevent evasion of
taxes or to reflect clearly the true taxable income of such businesses. As
described elsewhere herein, MIC elects five of the Company's six directors
through its ownership of all of the Company's issued and outstanding Common
Stock. Thus, if transactions between MIC and the Company were determined not
to reflect the true taxable income of the parties, a reallocation of income or
deductions between such entities could result. However, as long as the
transactions between MIC and the Company are conducted on an "arm's-length"
basis in a manner consistent with industry standards and practices, section 482
should not provide a basis for reallocations by the Service between MIC and the
Company.
In addition, section 845 of the Code, adopted as part of the Tax Reform Act of
1984, grants broad authority to the Service to adjust items arising under
certain reinsurance agreements (including retrocession agreements), whether or
not they involve related parties. If two or more "related" parties enter into
a reinsurance contract, the Service in general may make any adjustment
necessary to reflect the "proper source and character" of the taxable income of
each such party. The Service also has broad authority to make proper
adjustments where any reinsurance contract between unrelated parties has a
"significant tax avoidance effect" on any party to the contract.
Because MIC is entitled to elect five of the Company's six directors, MIC and
the Company may be considered "related" parties within the meaning of section
845 of the Code. To date, there are no regulations under section 845 of the
Code to aid in its interpretation. However, the legislative history of section
845 suggests that certain types of reinsurance transactions -- such as a
coinsurance reinsurance transaction that covers new business of the ceding
company and that allocates expenses and income items between the ceding company
and the reinsurer in the same proportion as the allocation of the risk
reinsured -- generally should not be subject to reallocations or adjustments.
The ongoing quota share Retrocession Agreement between MIC and the Company, in
general, would seem to be similar to such transactions for which adjustments
generally should not be made, but there is substantial uncertainty at the
present time concerning the scope of section 845.
If the Service were successful in an effort to reallocate to MIC business
retroceded to the Company by MIC, MIC would likely be subject to tax on such
business. Since the Company has no obligation to indemnify MIC against such
adverse tax consequences, a reallocation of business to MIC should not directly
affect the Company. However, any such reallocation might contribute to the
early termination of the Retrocession Agreement between MIC and the Company.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES --- THE SHAREHOLDERS
Taxation of Income of the Company to Shareholders Under Subpart F of the Code.
Under the so-called "Subpart F" provisions (sections 951-964) of the Code,
current United States income tax is imposed on each United States person who
owns stock in any twenty-five percent (25%) or more U.S.-owned foreign
insurance company with respect to "related person insurance income," whatever
the degree of ownership of the United States shareholder. For this purpose,
the term "related person insurance income" means underwriting and investment
income of a foreign insurer attributable to a policy of insurance or
reinsurance with respect to which the insured is a United States shareholder of
the foreign insurer or a person related to such a shareholder. Under this
provision, all of the Company's income (as determined for tax purposes) will be
treated as "related person insurance income," and, as such, will be passed
through and taxed currently to all of the shareholders of the Company
("Shareholders") under Subpart F of the Code.
The basis of the stock of a Shareholder will be increased by the amount
required to be included in the Shareholder's income with respect to such stock
under Subpart F. Further, a distribution from earnings and profits of the
Company attributable to amounts that have been included in gross income of the
Shareholders under Subpart F would not be included again in gross income of the
Shareholders but would reduce the adjusted tax basis of the stock with respect
to which the distribution is made. It should be noted that Subpart F income
will be computed for the Company as a single entity. The amount of Subpart F
income attributable to one series of Shares in these circumstances may be
affected by results with respect to other series. It also should be noted that
the Subpart F income of the Company generally will be computed under the same
rules that govern the computation of taxable income of domestic property and
casualty insurance companies.
As a result of differences between financial and tax accounting rules
applicable to the computation of income of the Company, the amount of income
subject to pass-through to Shareholders of the Company for United States tax
purposes may in any year differ from the amount of book income allocable to a
Shareholder's subsidiary capital account. Since the consideration payable to
the holders of a series of Shares upon redemption is based substantially on
book income previously allocated to the Shares being redeemed, such
consideration may not reflect the amount of income previously passed through
and taxed to the holders of those Shares.
To the extent that the Company were subject to United States income tax on its
business profits, the Shareholders generally would not be subject to current
tax on such profits under Subpart F, but would be taxed when profits were
distributed by the Company. (See "United States Federal Tax Considerations --
United States Federal Income Tax Consequences -- the Company.")
Risk of Recharacterization of Reinsurance Profits on Business Retroceded to the
Company. As described elsewhere herein, a portion of the underwriting
experience in respect of insurance business retroceded to the Company is
allocated to the series of Shares issued in respect of the Franchise that is
the source of such business. In this connection, the Service could question
whether profits on such business should be treated as being related to equity
ownership for tax purposes, or whether the Shares should be treated, in whole
or in part, as a means by which the direct insurer pays additional income to
certain of its business producers or pays return premiums to certain
policyholders, such that the producers or policyholders (rather than the
Shareholders) should be subject to ordinary income tax on all or some of such
profits. Although the issue is not free from doubt, given, among other things,
the significance of the Shareholders' "at-risk" investment in the Company
relative to the volume of business projected for the Company, the degree of
pooling of risks among all series of Shares, the fact that distributions with
respect to Shares are, subject to certain "minimum dividends," within the
discretion of the Board, and the vote accompanying each Share, there should be
substantial arguments against the recharacterization of profits with respect to
the Shares.
Deductibility of Premiums Paid By Franchises for Certain Coverages Reinsured by
the Company. As discussed elsewhere herein, risks arising under mechanical
service agreements entered into with respect to a particular Franchise
ultimately may be retroceded to the Company and allocated in part to a series
of Shares owned by the owner(s) of such Franchise or by persons closely related
to such owner(s). The Service conceivably could seek to deny any deductions
taken by the obligor under the mechanical service agreements for premiums paid
by it with respect to its obligations ultimately retroceded to the Company,
relying on the theory, developed in cases dealing with transactions involving
wholly-owned insurance companies, that no insurance risk has been shifted in
respect of such premiums. However, although the matter is not free from doubt,
given the degree of risk pooling within the Company, there should be
substantial arguments in support of the treatment of such premiums as
deductible insurance premiums for tax purposes.
LEGAL MATTERS
The legality of the securities offered hereby is passed upon for the Company by
its Barbados counsel, Evelyn, Gittens & Farmer, Heritage House, Pinfold Street,
Bridgetown, Barbados, West Indies. LeBoeuf, Lamb, Greene & MacRae, 1875
Connecticut Avenue, N.W., Washington, D.C. 20009, will advise the Company as to
certain matters pertaining to the laws of the United States.
EXPERTS
The financial statements included elsewhere in this Prospectus have been
audited by Deloitte & Touche, Bridgetown, Barbados, independent chartered
accountants as set forth in their report included in this Prospectus. Such
financial statements have been so included in this Prospectus in reliance upon
such report given upon the authority of that firm as experts in accounting and
auditing.
The matters of Barbados law referred to in this Prospectus are set forth in
reliance upon the opinion of Evelyn, Gittens & Farmer and upon their authority
as experts in Barbados law. LeBoeuf, Lamb, Greene & MacRae has passed upon the
statements concerning United States tax laws contained in the discussion under
"United States Federal Tax Considerations," which is included herein in
reliance upon their authority as experts with respect to such matters.
ADDITIONAL INFORMATION
A registration statement under the 1933 Act has been filed with the Securities
and Exchange Commission, Washington, D.C. (the "Commission") with respect to
the Shares offered hereby. This Prospectus does not contain all of the
information set forth in such registration statement, certain parts having been
omitted pursuant to the rules and regulations of the Commission. The omitted
information may be examined at the Commission's principal office at 450 5th
Street, N.W., Washington, D.C., or at the following regional offices: New York
City, 26 Federal Plaza, Room 1102; Chicago, 219 South Dearborn Street, Room
1204; and Los Angeles, 5757 Wilshire Boulevard, Suite 500 East. Copies may be
obtained upon payment of the fees prescribed from the public reference section
of the Commission, Washington, D.C. 20549.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
hereby made to the copy of the contract or other document filed as an exhibit
to the registration statement, of which this Prospectus is a part, for a full
statement of the provisions, and each such statement in this Prospectus is
qualified in all respects by such reference.
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados
We have audited the accompanying balance sheet of Motors Mechanical Reinsurance
Company, Limited as of December 31, 1993 and 1992 and the related statements of
income and retained earnings and cash flows for each of the three years in the
period ended December 31, 1993. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Motors Mechanical Reinsurance
Company, Limited as of December 31, 1993 and 1992 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993 in accordance with the accounting principles generally
accepted in the United States of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
March 11, 1994
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992, AND MARCH 31, 1994
(Expressed in U.S. Dollars)
March 31
December 31 December 31 1994
Notes 1992 1993 (unaudited)
_____ ___________ ___________ ___________
ASSETS
Investments 2(c),3,6 $24,382,923 $29,882,488 $34,903,388
Cash and cash equivalents 2(c),6 1,710,738 6,788,771 3,043,379
Accrued investment income 1,115,367 861,190 901,057
Due from ceding company 2,356,608 2,331,978 3,535,158
Deferred acquisition costs 2(b) 7,281,854 10,495,206 11,599,267
Prepaid expenses 0 0 1,875
___________ ___________ ___________
Total Assets $36,847,490 $50,359,633 $53,984,124
___________ ___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums 2(b) 28,063,606 40,413,058 44,657,483
Loss reserves 2(d) 1,622,855 1,910,030 2,097,239
Accrued liabilities 91,322 107,181 165,573
___________ ___________ ___________
Total Liabilities 29,777,783 42,430,269 46,920,295
___________ ___________ ___________
COMMITMENTS AND CONTINGENCIES 6
STOCKHOLDERS' EQUITY
Share capital
Common stock - no par value;
Authorized - 2,000 shares;
issued and outstanding -
2,000 shares 200,000 200,000 200,000
Participating - no par value;
Authorized - 100,000 shares;
issued and outstanding -
18,900 shares at December 31,
1993 and 14,300 shares at
December 31, 1992 4 1,072,500 1,417,500 1,492,500
___________ ___________ ___________
1,272,500 1,617,500 1,692,500
Retained earnings 7 5,528,775 6,211,978 6,534,796
Unrealized appreciation
(depreciation) on
investments 3 268,432 99,886 (1,163,467)
___________ ___________ ___________
Total Stockholders' Equity 7,069,707 7,929,364 7,063,829
___________ ___________ ___________
Total Liabilities and
Stockholders' Equity $36,847,490 $50,359,633 $53,984,124
___________ ___________ ___________
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993,
AND THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Expressed in U.S. Dollars)
Periods Ended December 31,
_______________________________________
Notes 1993 1992 1991
_____ ___________ ___________ ___________
INCOME
Reinsurance
premiums assumed 2(b),5 $27,779,063 $19,386,455 $16,784,405
Increase in
unearned premiums (12,349,452) (6,381,271) (6,491,617)
____________ ___________ _________
Premiums earned 15,429,611 13,005,184 10,292,788
___________ ___________ ___________
Investment income:
Interest earned 1,827,955 1,658,430 1,300,603
Realized gains
on investments 872,287 864,282 492,344
___________ ___________ ___________
Investment income - net 2,700,242 2,522,712 1,792,947
___________ ___________ ___________
TOTAL INCOME 18,129,853 15,527,896 12,085,735
___________ ___________ ___________
EXPENSES
Acquisition costs 2(b) 4,009,285 3,377,758 2,839,121
Losses paid 10,625,508 7,938,136 6,697,509
Increase in loss
reserves 287,175 226,313 321,419
Administrative expenses 503,178 478,475 307,301
___________ ___________ ___________
TOTAL EXPENSES 15,425,146 12,020,682 10,165,350
___________ ___________ ___________
NET INCOME 2,704,707 3,507,214 1,920,385
RETAINED EARNINGS,
beginning of period 5,528,775 3,043,266 1,273,198
DIVIDENDS (2,021,504) (1,021,705) (150,317)
___________ ___________ ___________
RETAINED EARNINGS, end of period $ 6,211,978 $ 5,528,775 $ 3,043,266
___________ ___________ ___________
Three Month Periods Ended
March 31,
(unaudited)
__________________________
Notes 1994 1993
_____ ___________ ___________
INCOME
Reinsurance
premiums assumed 2(b),5 $8,816,331 $5,389,885
Increase in
unearned premiums 4,244,425 1,817,057
___________ ___________
Premiums earned 4,571,906 3,572,828
___________ ___________
Investment income:
Interest earned 570,692 461,529
Realized gains (losses)
on investments (303,389) 378,444
___________ ___________
Investment income - net 267,303 839,973
___________ ___________
TOTAL INCOME 4,839,209 4,412,801
___________ ___________
EXPENSES
Acquisition costs 2(b) 1,188,209 928,266
Losses paid 3,001,850 2,627,016
Increase (decrease) in
loss reserves 187,209 (15,861)
Administrative expenses 139,123 140,255
___________ ___________
TOTAL EXPENSES 4,516,391 3,679,676
___________ ___________
NET INCOME 322,818 733,125
RETAINED EARNINGS,
beginning of period 6,211,978 5,528,775
DIVIDENDS 0 0
___________ ___________
RETAINED EARNINGS, end of period 6,534,796 6,261,900
___________ ___________
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993
AND THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(Expressed in U.S. dollars)
Periods Ended December 31,
______________________________________
1993 1992 1991
___________ ___________ ___________
Cash flows from operating activities:
Reinsurance premiums collected $26,933,330 $17,624,088 $14,709,039
Losses and underwriting expenses
paid (16,977,784) (11,898,682) (10,575,830)
Administrative expenses paid (490,616) (429,735) (288,593)
Investment income received 2,957,718 2,302,829 1,542,361
___________ ___________ __________
Net cash provided by operating
activities 12,422,648 7,598,500 5,386,977
___________ ___________ ___________
Cash flows from investing activities:
Purchases of investment securities(49,834,608) (60,877,408) (32,306,550)
Sales of investment securities 44,166,497 52,166,918 30,252,467
___________ ___________ ___________
Net cash invested (5,668,111) (8,710,490) (2,054,083)
___________ ___________ ___________
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 345,000 255,000 120,000
Dividends paid (2,021,504) (1,021,705) (150,317)
___________ ___________ ___________
Net cash used in financing
activities (1,676,504) (766,705) (30,317)
___________ ___________ ___________
Increase (decrease) in cash and cash
equivalents 5,078,033 (1,878,695) 3,302,577
Cash and cash equivalents, beginning
of period 1,710,738 3,589,433 286,856
___________ ___________ __________
Cash and cash equivalents, end of
period $ 6,788,771 $ 1,710,738 $ 3,589,433
___________ ___________ ___________
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 2,704,707 $ 3,507,214 $ 1,920,385
Change in:
Accrued investment income 254,177 (222,446) (277,412)
Due from ceding company 24,630 (653,270) (1,529,537)
Deferred acquisition costs (3,213,352) (1,662,778) (1,527,217)
Unearned premiums 12,349,452 6,381,271 6,491,617
Loss reserves 287,175 226,313 321,419
Accrued liabilities 15,859 22,196 (12,278)
___________ ___________ ___________
Net cash provided by operating
activities $12,422,648 $ 7,598,500 $ 5,386,977
___________ ___________ ___________
Three Month Periods Ended
March 31,
(unaudited)
_________________________
1994 1993
___________ ___________
Cash flows from operating activities:
Reinsurance premiums collected $7,062,145 $6,216,413
Losses and underwriting expenses
paid (4,730,167) (3,859,806)
Administrative expenses paid (95,553) (75,302)
Investment income received 227,436 1,333,671
___________ ___________
Net cash provided by operating
activities 2,463,861 3,614,976
___________ ___________
Cash flows from investing activities:
Purchases of investment securities (25,508,046) (23,807,944)
Sales and maturities
of investment securities 19,223,793 22,461,238
___________ ___________
Net cash invested (6,284,253) (1,346,706)
___________ ___________
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 75,000 52,500
Dividends paid 0 0
___________ ___________
Net cash provided by financing
activities 75,000 52,500
___________ ___________
Increase (decrease) in cash and cash
equivalents (3,745,392) 2,320,770
Cash and cash equivalents, beginning
of period 6,788,771 1,710,738
___________ ___________
Cash and cash equivalents, end of
period $ 3,043,379 $ 4,031,508
___________ ___________
Reconciliation of net income to
net cash provided by operating
activities:
Net income 322,818 733,125
Change in:
Accrued investment income (39,867) 492,399
Due from ceding company (1,203,180) 995,342
Deferred acquisition costs (1,104,061) (473,126)
Prepaid expenses (1,875) (1,875)
Unearned premiums 4,244,425 1,817,057
Loss reserves 187,209 (15,861)
Accrued liabilities 58,392 67,915
___________ ___________
Net cash provided by operating
activities $ 2,463,861 $ 3,614,976
___________ ___________
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 1. OPERATIONS
The Company is incorporated under the laws of Barbados and is a
licensed insurer under the Exempt Insurance Act, 1983.
All of the common stock of the Company is owned by Motors
Insurance Corporation ("MIC"). MIC is an indirect wholly-owned
subsidiary of General Motors Corporation. The principal
activity of the Company is the assumption of certain automobile
mechanical breakdown risks arising under insurance policies
reinsured by MIC and attributable to an MIC Agency Account in
respect of which shares of Participating Stock are issued and
outstanding. All premiums received were derived from MIC.
MIC has agreed that all expenses incurred by or on behalf of the
Company with respect to the issuance of the Company's Participating
Stock will be borne by MIC, either through charges to its shareholder
account in the Company, or by direct reimbursement.
Note 2. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of Presentation
The financial statements are stated in United States dollars and are
prepared generally in conformity with accounting principles generally
accepted within the United States of America. Reinsurance premiums
assumed by the Company represent policies ceded by MIC during the
twelve months ended December 31 of each fiscal year.
(b) Premium Income and Acquisition Costs
Reinsurance premiums are based on the Company assuming (after ceding
commission) 75% of the original policy premium written by the direct
insurer. Of these reinsurance premiums, 75% is retroceded to the
Company when written and 25% when earned.
Premiums are taken into income on the basis of quarterly cessions and
are related to anticipated loss exposures. Acquisition costs,
consisting of ceding commissions and excise taxes, are taken into
income on the basis of premiums earned.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)
(c) Investments
Investments are comprised of interest-bearing marketable securities
which are carried at fair value, based on quoted market prices and
dealer quotes obtained from an external pricing service. Investments
with original maturities of less than 90 days are classified as cash
equivalents. Unrealized appreciation (depreciation) is included in
stockholders' equity.
Realized gains and losses on the sale of investments are included as
investment income. During 1991, the basis of determining the cost of
securities sold was changed from the specific identification method
to the average cost method. The effect of the change was not
material.
(d) Loss Reserves
The Company provides for unsettled, reported losses based on
estimates of the final settlement, with an experience factor added to
provide for losses incurred but not reported. The final settlement
may be greater or less than the amounts provided. Any such
differences, when they become known, are recognized in current
operations.
(e) Taxation
The Company has received an undertaking from the Barbados Government
exempting it from all local income, profits and capital gains taxes
for a period ending December 31, 2001.
Stockholders who are United States residents are taxed on their share
of the Company's income on a deemed distribution basis.
(f) Earnings Per Share
No amount has been reported as earnings per share as the earnings
applicable to the Participating Stockholders vary with the
underwriting results of each series. Retained earnings applicable to
the Common Stockholder include allocated investment income and
operating expenses and amounts restricted for advances to
Participating Stockholders (see Note 7).
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS
The cost and estimated fair value of investments in debt securities
are as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
__________ ____________ ____________ _________
March 31, 1994 (unaudited):
Debt securities
issued by
foreign
governments
and their
agencies $18,003,450 $35,891 $471,546 $17,567,795
Debt securities
issued by
supra-nationals 15,234,561 6,588 598,742 14,642,407
Corporate
securities 2,828,844 - 135,658 2,693,186
__________ ________ _________ __________
Total $36,066,855 $42,479 $1,205,946 $34,903,388
___________ ________ __________ ___________
December 31, 1993:
Debt securities
issued by
foreign
governments
and their
agencies $16,327,184 $72,332 $(135,761) $16,263,755
Debt securities
issued by
supra-nationals 7,182,454 103,034 (25,925) 7,259,563
Corporate
securities 6,272,964 109,193 (22,987) 6,359,170
_________ _______ _______ _________
Total $29,782,602 $284,559 $(184,673) $29,882,488
___________ ________ _________ ___________
December 31, 1992:
Debt securities
issued by
foreign
governments
and their
agencies $ 14,080,561 $204,554 $(43,057) $14,242,058
Debt securities
issued by
supra-nationals 9,826,630 107,771 (5,087) 9,929,314
Corporate
securities 207,300 4,251 - 211,551
___________ ________ ________ ___________
Total $24,114,491 $316,576 $(48,144) $24,382,923
___________ ________ ________ ___________
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS (Cont'd)
The cost and estimated fair value of debt securities at December 31,
1993, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or
prepayment penalties.
Estimated
Fair
Cost Value
___________ ___________
Due after one year
through five years $15,463,270 $15,575,893
Due after five years
through ten years 14,319,332 14,306,595
___________ ___________
$29,782,602 $29,882,488
___________ ___________
Proceeds from sales of investments in debt securities during the
years ended December 31, 1993 and 1992 were $44,166,497 and
$52,166,918, respectively. In 1993, gross gains of $964,613 and
gross losses of $92,326 were realized. In 1992, gross gains of
$1,008,932 and gross losses of $144,650 were realized. In 1991,
gross gains of $538,996 and gross losses of $46,652 were realized.
The following summarizes net unrealized appreciation (depreciation)
on investments:
Balance, December 31, 1990 $ 241,439
Net appreciation 673,848
_________
Balance, December 31, 1991 $ 915,287
Net depreciation (646,855)
_________
Balance, December 31, 1992 $ 268,432
Net depreciation (168,546)
_________
Balance, December 31, 1993 $ 99,886
Net depreciation (unaudited) (1,263,353)
_________
Balance, March 31, 1994
(unaudited) $(1,163,467)
_________
The investment portfolio is comprised of diverse U.S. dollar-
denominated debt securities which do not result in any concentration
in credit risks.
FASB Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" is effective for years beginning December 15,
1993 and requires that the Company classify its securities holdings
into three categories (trading, available for sale, and held to
maturity). The Company adopted Statement No. 115 effective January
1, 1994 and classified its securities portfolio as available for
sale. Adoption of the Statement did not have a material effect on
the Company's financial position and results of operations.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 4. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. An offering of
26,500 shares of Participating Stock is being made to persons
certified by owners of certain motor vehicle franchises. The
offering consists of 265 series of 100 shares each at a price of $75
per share.
During the quarter ended March 31, 1994, 10 additional series of 100
shares were added (unaudited). During 1993, 46 additional series of
100 shares of Participating Stock were issued as compared with 34 and
16 series for the years ended December 31, 1992 and 1991, respec-
tively.
In the years ended December 31, 1993 and 1992, costs in the amount of
$74,461 and $80,298, respectively, were incurred in the sale of
Participating Stock and were charged to the account of the Common
Stockholder. In 1991, $74,589 of costs incurred in the sale of
Participating Stock were paid by MIC.
The holders of Common Stock as a class are entitled to elect five
directors, at least one of whom must be a resident of Barbados. They
generally have no right to vote with respect to liquidation of the
Company. As a class, these holders generally have the sole right to
vote on matters not specifically reserved to Participating Stock.
The Common Stock is nonredeemable.
The holders of Participating Stock as a class are entitled to elect
one director. Generally, liquidation of the Company requires
approval by at least 75% of the outstanding shares of this class.
Any redemption of a series of shares requires a vote of the Board
provided that the director representing holders of the Participating
Stock votes in favor of the redemption. Any changes in the Company's
Articles or By-Laws requires the approval of a majority of the
holders of Participating Stock present and voting together with a
majority of the holders of Common Stock.
From time to time, funds are held in escrow on account of Participat-
ing Stock applications. Such amounts are not included in cash and
cash equivalents in the accompanying financial statements. At
December 31, 1993 and 1992, there were no amounts held in escrow.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 5. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement, the Company will
receive additional cessions of $13,471,019 ($9,354,534 at December
31, 1992) relating to premiums written by the ceding insurer but
unearned at the respective period ends. The amounts will be received
as the premiums are earned, net of related acquisition costs.
Note 6. LETTERS OF CREDIT
The Company has provided an irrevocable letter of credit to MIC, in
the sum of $32,250,000 which is secured by cash equivalents and
investments to secure the amounts recoverable from the Company
related to the business ceded.
Note 7. RETAINED EARNINGS
Items of income or loss and expenses attributable to insurance
underwriting activities are determined as of the end of each calendar
quarter and are allocated to the Participating Stockholders' capital
accounts as of the end of the fiscal quarter of the Company in which
the respective calendar quarter ends.
An amount equal to 1-1/3 percent of written ceded premiums (net of
related ceding commissions) is allocated to the capital account of
the Common Stockholder. Such allocations accumulate as restricted
retained earnings and may be used to advance capital to any
Participating Stockholders who incur a deficit in their capital
accounts; any such advances are repayable out of future profitable
operations of the respective Participating Stockholder. Amounts
allocated to the Common Stockholder, net of advances to Participating
Stockholders are presented in the table below as "net transfers."
Dividends may be declared and paid at the discretion of the Company's
Board of Directors, except that dividends may not be paid out of
unrealized investment gains. Barbados law requires that the Company
maintain a minimum capitalization based generally on the amount of
premiums earned in the preceding fiscal year. On January 1, 1994 the
Company's required minimum capital computed in accordance with
Barbados law was approximately $2,042,961.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 7. RETAINED EARNINGS (Cont'd)
Amounts of retained earnings applicable to the Common and
Participating Stockholders are comprised of the following:
Common Participating Total
______ _____________ _____
Balance, December 31, 1990 $ 14,944 $1,258,254 $1,273,198
Net income for the year 23,911 1,896,474 1,920,385
Net transfers 38,702 (38,702) -
Dividends paid - (150,317) (150,317)
________ ________ ________
Balance, December 31, 1991 77,557 2,965,709 3,043,266
Net income (loss) for the year (42,631) 3,549,845 3,507,214
Net transfers 173,954 (173,954) -
Dividends paid - (1,021,705) (1,021,705)
______ __________ __________
Balance, December 31, 1992 208,880 5,319,895 5,528,775
Net income (loss) for the year (41,909) 2,746,616 2,704,707
Net transfers (175,245) 175,245 -
Dividends paid - (2,021,504) (2,021,504)
_______ __________ __________
Balance (Deficit),
December 31, 1993 (8,274) 6,220,252 6,211,978
Net income (loss) for the
quarter ended March 31, 1994
(unaudited) (27,055) 349,873 322,818
Net transfers for the quarter
ended March 31, 1994
(unaudited) (104,396) 104,396 -
________ ________ ________
Balance (deficit),
March 31, 1994 (unaudited) $ (139,725) $6,674,521 $6,534,796
__________ __________ __________
COMPANIES ACT OF BARBADOS APPENDIX A
(Section 205)
RESTATED ARTICLES OF INCORPORATION FORM 13
1. Name of Company
Motors Mechanical Reinsurance Company, Limited
2. Company No.
1485
3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE COMPANY IS
AUTHORIZED TO ISSUE
The annexed Schedule is incorporated in this form.
4. RESTRICTION IF ANY ON SHARE TRANSFERS
The annexed Schedule is incorporated in this form.
5. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS
There shall be a minimum of 5 and a maximum of 6 directors.
6. RESTRICTIONS IF ANY ON BUSINESS THE COMPANY MAY CARRY ON
The principal object and activity of the Company is to engage in Exempt
Insurance business within the meaning of the Exempt Insurance Act, 1983 of
Barbados and the business of the Company shall be restricted accordingly.
7. OTHER PROVISIONS IF ANY
The annexed Schedule is incorporated in this form.
8. Date Signatures Title
January 29, 1987 Peter Evelyn Director
FOR MINISTRY USE ONLY
COMPANY NO. FILED
COMPANIES ACT OF BARBADOS SCHEDULE TO ARTICLES OF INCORPORATION
3. The classes and any maximum number of shares that the Company is
authorized to issue:
The Company is authorized to issue:
(a) 2,000 shares of one class without nominal or par value to be designated
Common shares; and
(b) 100,000 shares of one class without nominal or par value to be designated
Participating shares which shall be divided into 1,000 series and issued in
series of 100 shares.
The rights, preferences and limitations of the said classes of shares are as
follows:
DEFINITIONS
In these Articles and any amendment thereto and in the Company's By-Laws the
following terms shall mean:
Board -- The Company's Board of Directors.
Company -- Motors Mechanical Reinsurance Company, Limited.
Franchise -- A right conferred by a motor vehicle manufacturer pursuant to a
written agreement which permits the grantee to sell the manufacturer's new
motor vehicles.
MIC -- Motors Insurance Corporation, a New York corporation with its
administrative offices in Detroit, Michigan.
MIC Agency Account -- The separate business record maintained by MIC or any of
its subsidiaries to track volume, experience, and commissions with respect to
insurance business related to any one or more particular Franchises.
Restricted Earned Surplus -- At any point in time, that portion of the earned
surplus, if any, in the Subsidiary Capital Account for the Common shares equal
to one and one-third percent (1-1/3%) of the premiums paid to the Company
during the immediately preceding five-year period, net of deficits allocated to
such account pursuant to paragraph 3(1)(7)(a)(i) hereof during such five-year
period to the extent not restored to such account pursuant to paragraph
3(1)(7)(c) hereof and net of return premiums allocated to such account during
such period pursuant to paragraph 3(1)(1)(d) hereof.
Shares -- Shares of the Participating Stock of the Company.
Stock Purchase Agreement -- The agreement entered into between the Company and
the purchaser of Shares, in the form approved by the Board.
Subsidiary Capital Account -- The subsidiary bookkeeping record established by
the Company for a particular series or class of shares and maintained for the
purpose of accounting for items of income and expense, gains and losses,
capital contributions, and shareholder distributions which are allocated to the
particular series or class of shares.
(1) ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company will establish a Subsidiary Capital Account with respect to the
Common shares as a class, and to each series of Shares of the Company at the
time a series is issued.
The consideration received by the Company upon the issuance of a particular
series of Shares and the Common shares as a class will be allocated to the
Subsidiary Capital Account for that series or class. Items of income and
expense, and losses, attributable to insurance underwriting activities shall be
determined as of the end of each calendar quarter and shall be allocated to the
Subsidiary Capital Accounts as of the end of the fiscal quarter of the Company
in which the respective calendar quarter ends. Investment experience, and
other items of income and expense, gains and losses and distributions with
respect to shares of the Company will be determined and allocated to the
Subsidiary Capital Accounts as of the end of each fiscal quarter of the
Company. All such accounting determinations shall be made using United States
generally accepted accounting principles, unless otherwise required by these
Articles. For purposes of such allocations, items shall be "related" to a
Subsidiary Capital Account which is identified with the same MIC Agency Account
to which such items can be attributed.
(1) Items of income and expense, and losses, attributable to insurance
underwriting activities shall be allocated to the Subsidiary Capital Accounts
in accordance with the following paragraphs:
(a) With respect to premiums ceded to the Company, one hundred percent
(100%) shall be allocated to the related Subsidiary Capital Account;
provided, however, that an amount equal to one and one-third percent
(1-1/3%) of such premiums shall be subtracted from such Subsidiary Capital
Account and allocated to the Subsidiary Capital Account of the Common
shares.
(b) With respect to any agents' or brokers' commissions, any commissions
recaptured, unearned premiums, reinsurance premiums ceded by the Company,
and any United States excise tax, one hundred percent (100%) shall be
allocated to the related Subsidiary Capital Account.
(c) With respect to losses incurred, and any amount of losses recovered
through salvage, subrogation, reimbursement or otherwise:
(i) ninety percent (90%) shall be allocated to the related
Subsidiary Capital Account; and
(ii) the remainder shall be allocated among all Subsidiary Capital
Accounts of the Shares pro rata in accordance with the relative
earned premiums attributable to such accounts for the calendar
quarter in which the losses are incurred. For this purpose, losses
incurred includes both paid and unpaid (reported and unreported)
losses.
(d) With respect to return premiums, ninety-eight and two-thirds percent
(98-2/3%) shall be allocated to the related Subsidiary Capital Account and
one and one-third percent (1-1/3%) shall be allocated to the Subsidiary
Capital Account for the Common shares.
(2) Any expenses or liabilities attributable to ordinary day-to-day Company
operations, excluding any United States Federal income taxes, shall be
allocated among all Subsidiary Capital Accounts for the Shares pro rata in
accordance with the relative earned premiums allocated to such accounts for the
fiscal quarter in which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any interest thereon
or any penalties related thereto) incurred by the Company shall be allocated
among the Subsidiary Capital Accounts based upon the relative contribution of
each of those accounts to the taxable income of the Company upon which the tax
(and any interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the organization of the
Company or to the offer, sale or issuance of Shares, including but not limited
to the costs of compliance with regulations and requirements of the United
States Securities and Exchange Commission and the various states and other
jurisdictions of the United States as they pertain thereto, shall be allocated
to the Subsidiary Capital Account for the Common shares.
(5) Any expenses or liabilities of the Company not allocable in the manner
described in paragraphs (2) through (4) above shall be allocated among the
Subsidiary Capital Accounts on the basis of the relative balances of such
accounts as of the end of the fiscal quarter preceding the date on which the
expense or liability is incurred.
(6) (a) Investment income, net of any direct investment expense, shall be
allocated among the Subsidiary Capital Accounts pro rata based upon the
relative Investment Asset Balance (as defined in subparagraph (b) below)
of each such account as of the last day of the fiscal quarter preceding
the quarter for which the investment income is being allocated. For these
purposes, net investment income will include realized (but not unrealized)
gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital Account shall
be equal to the capital and surplus allocated to such account, increased
by:
(i) the unearned portions of the written premiums that have been
collected by the Company and allocated to such account as of the last
day of the fiscal quarter preceding the quarter for which the income
is being allocated, net of any applicable commissions and taxes;
(ii) the outstanding loss reserves attributable to such account as of
the last day of the fiscal quarter preceding the quarter for which
the income is being allocated; and
(iii) any other outstanding liability that has been charged to such
account as of the last day of the fiscal quarter preceding the
quarter for which the income is being allocated.
(7) (a) If, after the credits and charges described in paragraphs (1) through
(6) above are made to the Subsidiary Capital Accounts there exists a
deficit in one or more of such accounts, then each such deficit will be
allocated to and charged against:
(i) first, the Subsidiary Capital Account for the Common shares to
the extent of Restricted Earned Surplus;
(ii) then, any remaining unallocated deficit to the Subsidiary
Capital Accounts for the Shares, pro rata, based upon the relative
earned premiums allocated to each such account for the fiscal quarter
for which the allocation is being made; provided, however, that only
accounts which have positive balances will be taken into account for
the purposes of this allocation;
(iii) then, any remaining unallocated deficit to the remaining
Subsidiary Capital Accounts for the Shares with positive balances as
of the last day of the fiscal quarter for which the allocation is
being made, pro rata, based upon such balances; and
(iv) finally, to the extent necessary, the Subsidiary Capital Account
for the Common shares.
(b) If, as a result of an allocation of a deficit as described in
subparagraph (ii) or (iii) of paragraph (a) above, a deficit is created in
one or more of the Subsidiary Capital Accounts, then the resulting
deficit(s) will be further allocated in the manner provided in that
subparagraph.
(c) Although this paragraph (7) shall be applied in a manner that does
not result in a balance in any Subsidiary Capital Account for a series of
Shares that is less than zero, if any such account had a deficit that was
allocated to and charged against the Subsidiary Capital Account of the
Common shares pursuant to section 3(1)(7)(a)(i) hereof, then at the end of
any succeeding fiscal quarter for which that account otherwise would show
an account balance greater than zero, such balance will be reallocated to
the Subsidiary Capital Account of the Common shares until all reductions
of such Subsidiary Capital Account for the Common shares under section
3(1)(7)(a)(i) hereof for the series of Shares have been restored.
(8) (a) Dividends, payments upon redemption or liquidation (described below),
and any other distributions with respect to shares of the Company will be
allocated to the Subsidiary Capital Account for the class or series with
respect to which the dividend, payment or distribution was made.
(b) Where all shares of a series of Shares are repurchased by the Company
pursuant to Section 4 below, or redeemed in accordance with the Company's
procedures for redemption set forth in Section 3(6) below, the Subsidiary
Capital Account for such series shall be terminated as of the Repurchase
Date or Redemption Date (as those terms are defined in Sections 4 and
3(6), respectively). Thereafter, all income, expenses, gains and losses
that would have been allocated to the terminated account will be allocated
among the Subsidiary Capital Accounts of the existing series of Shares pro
rata based upon relative earned premiums attributable to such accounts for
the calendar quarter in which the item was earned or incurred; provided,
however, that a net deficit for any such period shall be allocated in
accordance with the provisions of Section 3(1)(7).
The allocations to the Subsidiary Capital Accounts described above shall be
approved by the Board, and when finally so approved all calculations,
allocations and determinations shall be final and conclusive and shall be
binding on all holders of shares of the Company for all purposes, including
without limitation any redemption of shares of the Company pursuant to the
Company's procedures for redemption. The Board is authorized to interpret and
apply the provisions of these Articles and to promulgate such additional rules
and guidelines as the Board deems appropriate to carry out the intent of these
Articles and such interpretations, rules and guidelines shall be binding on all
shareholders.
(2) PARTICIPATING SHARES
(a) If any Share shall be redeemed, repurchased or otherwise retired, it shall
return to the status of an authorized but unissued share of such class.
(b) A series of Shares shall be issued with respect to a specific MIC Agency
Account. Only one series of Shares shall be issued with respect to an MIC
Agency Account. A series of Shares shall be issued only to persons or entities
acceptable to the Board and certified by the owner(s) of the Franchise(s) to
which the MIC Agency Account relates. Certification will be effected in
accordance with procedures adopted by the Board from time to time. No share of
any particular series of Shares shall be issued unless all shares of such
series are issued.
(c) Each outstanding Share shall entitle the registered holder of record of
such Share to dividends in accordance with the rules set forth in Section 3(5)
of these Articles.
(d) The holders of Shares shall among them have the right to elect one
director of the Company and shall otherwise have only such voting rights as are
specifically provided herein. On all such matters each share shall entitle the
registered holder thereof to one vote.
(e) The rights associated with any Shares of a series shall be identical to
the rights associated with all other Shares of the same series.
(3) COMMON SHARES
(a) Each outstanding Common share shall entitle the registered holder of such
shares to dividends in accordance with the rules set forth in Section 3(5) of
these Articles.
(b) Each outstanding Common share shall entitle the registered holder thereof
to one vote per share on all resolutions of the Company other than as
specifically provided herein.
(c) The holders of the Common shares shall be entitled to elect five directors
of the Company, one of whom must be a resident citizen of Barbados.
(4) LIQUIDATION
The Company may be liquidated upon the vote of the holders of at least
seventy-five percent (75%) of the Shares. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company, after payment of all liabilities of the Company, each holder of Shares
of a series shall be entitled to receive an amount equal to his share (based on
his proportionate ownership of such series) of the Subsidiary Capital Account
balance related to his series of Shares before any distribution of the assets
of the Company shall be made to holders of the Common shares. After such
payment shall have been made in full to the holders of the outstanding Shares,
or funds necessary for such payment shall have been set aside in trust for the
account of the holders of the outstanding Shares so as to be available
therefor, the holders of the outstanding Shares shall be entitled to no further
participation in the distribution of the assets of the Company, and the
remaining assets of the Company, if any, shall be divided and distributed among
the holders of the Common shares then outstanding pro rata based on their
respective shares. A consolidation or merger of the Company, or sale or
transfer of all or substantially all its assets, or any purchase or redemption
of shares of the Company of any class or series, shall not be regarded as a
"liquidation, dissolution, or winding up" within the meaning of this paragraph.
(5) DIVIDENDS
(a) Subject to the following paragraphs, dividends may be paid at the
discretion of the Board.
(b) Dividends, payable in cash or such other property as the Board may
determine, on a series of Shares or on Common shares, shall be declared and
payable only if the Company shall have, after giving effect to the dividend,
sufficient net assets, without regard to any Letter of Credit or Guarantee, to
meet the general business solvency margin prescribed by the Exempt Insurance
Act and Section 51 of the Act; provided that dividends with respect to any
series of Shares may be paid only out of earned surplus attributable to the
Subsidiary Capital Account identified with those Shares, and only to the extent
that, after giving effect to the dividend, the capital and surplus identified
with that Subsidiary Capital Account (without regard to any Guarantee or Letter
of Credit) would meet its pro rata share, based on allocable premium income, of
the minimum net assets required of the Company under the Exempt Insurance Act.
Subject to the right of the holders of Shares to receive minimum dividends
pursuant to the following paragraph, to the extent a dividend is declared on
the Shares, it shall be declared and paid subject to the foregoing limitations
for each series of Shares as a percentage of the net income for the preceding
calendar year and/or earned surplus as of the end of the preceding calendar
year, attributable to each series, provided that such percentage may vary among
series of Shares with the level of net income and/or earned surplus. Dividends
shall only be declared and paid on Common shares to the extent that the earned
surplus attributable to Common shares exceeds Restricted Earned Surplus.
(c) Subject to the preceding paragraph, the holders of the Shares of each
series shall be entitled to receive minimum annual dividends, payable annually
within the first 120 days of each fiscal year, in cash or such other property
as the Board may determine. The minimum annual dividend payable on each Share
shall be such Share's pro rata portion of an amount equal to twenty percent
(20%) of the net income, if any, for the preceding fiscal year attributable to
the Subsidiary Capital Account associated with the series of which that Share
is a part. If a holder of Shares receives no dividend or a limited dividend in
any annual period as a result of the limitations set forth in the preceding
paragraph, any unpaid portion of the minimum dividend otherwise payable
pursuant to this paragraph shall not become payable pursuant to this paragraph
in any subsequent year.
(d) In no event shall any dividend whatever be paid upon or declared or set
apart for the Common shares, unless and until all minimum annual dividends
required to be paid on the then outstanding Shares for the then current period
shall have been paid or declared and set apart for payment.
(6) REDEMPTION
The common shares are non-redeemable. Subject to compliance with any
applicable statute or act, the Company may redeem any of its issued and
outstanding Shares if all Shares of the series involved are redeemed and the
redemption of such Shares is approved by a majority of the Board, provided that
the Director representing holders of the Shares votes in favor of the
redemption.
The redemption of Shares shall be effective on such future date as determined
by the Board, which shall be no later than the last business day of the
calendar year in which the redemption was approved by the Board, and in the
case of a redemption of Common Shares, by holders of the Shares. Such date is
herein called the "Redemption Date."
The consideration payable to the holders of redeemed Shares shall be the
Subsidiary Capital Account balance for the series of such Shares as of the
Redemption Date, as adjusted by the Board to reflect unrealized gains and
losses on investments held by the Company and any contingent liabilities
allocable to such account. Such consideration shall be paid within five (5)
months of the Redemption Date, provided that the holder(s) of the redeemed
Shares shall have delivered to the Company, certificates representing the
Shares being redeemed duly endorsed and accompanied by such other documents as
the Company may require. Such consideration shall bear interest from the
Redemption Date until the earlier of the date of payment or the date that is
five (5) months from the Redemption Date, at a rate equal to the rate of
interest paid on 26-week United States Treasury Bills for the issue following
the Redemption Date.
Upon redemption of the Shares as aforesaid, the holder(s) thereof shall cease
to have any further interest in the shares being redeemed. Shares redeemed
pursuant to this Section 3(6) shall return to the status of authorized but
unissued Shares.
4. Restrictions, if any, on share transfers:
(a) Subject to the exceptions listed below, Shares (whether owned by the
original or any subsequent holder thereof) shall not be transferred in any
manner unless the holder(s) has received a bona fide written offer to
purchase such Shares, a copy of which has been furnished to the Company,
and the Company is thereafter offered the opportunity to purchase such
Shares. The Company shall have sixty (60) days during which to exercise
the rights conferred upon it by this paragraph. If the Company accepts
such offer, the price will be the lesser of the balance of the Subsidiary
Capital Account related to such series of Shares as of the last day of the
fiscal quarter immediately preceding the date on which the offer to
purchase was accepted by the Company (the "Repurchase Date") (or if less
than all such Shares are offered, then the pro rata portion of such
account attributable to the Shares offered), or the bona fide offering
price. Payment by the Company may be deferred until the end of the fiscal
quarter in which the offer to purchase was accepted by the Company.
Shares purchased by the Company pursuant to this paragraph shall return to
the status of authorized but unissued shares of such class. If the
Company does not elect to purchase the Shares pursuant to this paragraph,
they may be sold in accordance with the bona fide written offer referred
to above within the following sixty (60) days, subject to the requirements
of the following paragraphs. After such further sixty (60) days, any
attempted sale or transfer of the Shares shall be subject to all the
requirements of this paragraph.
(b) In addition to the requirements of the preceding paragraph and except
as provided in paragraph (d) below, transfers of less than all Shares of a
series shall not be made unless the holder(s) has received the written
consent of the Company thereto. A request for such consent must be made
in writing and set forth the name(s) and address(es) of the intended
transferee(s), the desired date of the transfer, and the consideration to
be paid. The Company shall have sixty (60) days from receipt of such
request to grant or withhold its consent to the intended transfer. If the
Company fails to give its written consent, any subsequent transfer shall
be void and of no effect.
(c) Shares may not be transferred unless and until the Board has received
such assurances of compliance with all applicable laws and regulations as
it may deem necessary and the transferee has agreed to abide by the
requirements set forth in the Stock Purchase Agreement entered into by the
transferor. Certificates representing shares of any class of the
Company's shares shall bear a legend substantially to the effect of this
Section 4 of these Articles.
(d) A sale, gift, assignment, pledge or other transfer of Shares shall be
exempt from the requirements of paragraphs (a) and (b) of this Section 4
if the Board determines that the transferee or assignee of the shares is:
(i) a member of the transferring shareholder's immediate family; (ii) a
trust for the benefit of the transferring shareholder, or for the benefit
of other exempted transferees described in this paragraph; (iii) if the
transferor is a corporation, any shareholder of the transferor; (iv) if
the transferor is a partnership, any of its partners; (v) a corporation
which is controlled by or under common control with the transferor; (vi)
the estate of a deceased shareholder or legatees and heirs of such
deceased shareholder; (vii) a charitable or other qualifying organization
described in Section 170(c)(2) of the United States Internal Revenue Code
of 1986; (viii) in the case of a transfer of less than all of the Shares
of a series, a person who immediately prior to such transfer is a holder
of Shares of that series; or (ix) a key employe with respect to a
Franchise previously designated in the Stock Purchase Agreement entered
into by the transferor.
7. Other provisions if any:
No holder of shares of the Company of any class, now or hereafter authorized,
shall have any preferential or preemptive right to subscribe for, purchase or
receive any shares of the Company of any class, now or hereafter authorized, or
any options or warrants for such shares, or any rights to subscribe for or
purchase such shares, or any securities convertible into or exchangeable for
such shares, which may at any time be issued, sold or offered for sale by the
Company.
Amendment of Articles and By-Laws:
The Company's Articles and By-Laws shall not be altered, amended or repealed
and no provision inconsistent therewith shall be adopted, without the
affirmative vote of the holders of a majority of the Common shares and of the
Shares present; provided that the rights associated with any series of Shares
shall not be varied, unless the rights associated with all other series are
similarly changed, without the affirmative vote of the holders of a majority of
the Shares of each series present.
APPENDIX B
STOCK PURCHASE AGREEMENT
BETWEEN
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
AND
(Certified Purchaser)
_________ , 19
Motors Mechanical Reinsurance
Company, Limited
Financial Services Centre
Bishops Court Hill
St Michael, Barbados
Gentlemen:
The undersigned Shareholder (as more fully described below) hereby offers to
purchase certain shares of stock of Motors Mechanical Reinsurance Company,
Limited, a Barbados Corporation (the "Company"), upon the terms and conditions
set forth herein. The Shareholder hereby tenders a check in the amount of the
Purchase Payment (as defined herein), to be held in an escrow account with
Barclays Bank PLC (the "Escrow Account"). This offer shall expire on the 120th
day after the date hereof if the Company has not accepted it prior to such
expiration date. The Shareholder acknowledges receipt of a prospectus dated
with respect to the stock described herein.
1. DEFINITIONS
1.1 Franchisee. The term "Franchisee" means (insert name(s) and address(es)
of Franchisee(s) of the automobile sales franchise(s) related to the applicable
MIC Agency Account).
1.2 MIC. The term "MIC" means Motors Insurance Corporation, a New York
corporation.
1.3 MIC Agency Account. The term "MIC Agency Account" means the separate
business record maintained by MIC or any of its subsidiaries or affiliates to
track volume, experience and commissions with respect to insurance business
related to the automobile sales franchise(s) owned by the Franchisee.
1.4 Purchase Payment. The term "Purchase Payment" means the $ ($75 (U.S.) x
number of shares) paid hereunder as consideration for the purchase of the
Shares.
1.5 Shareholder. The term "Shareholder" means , taxpayer
identification number , who is a citizen of ,
and who resides at .
1.6 Shares. The term "Shares" means shares (number of shares) of
the authorized shares of a series of the participating stock of the Company,
which series consists of 100 shares, and which is issued in respect of the MIC
Agency Account.
1.7 The masculine gender is to be construed to include a female or an entity
where the context of this Agreement so requires.
2. REPRESENTATIONS
2.1 Representation of Shareholder. The Shareholder represents that he has
been duly certified (on the form furnished by the Company and attached hereto)
by the Franchisee and meets the requirements for this purchase and sale as set
forth in the Articles of Incorporation of the Company (the "Articles"), copies
of which are attached to the prospectus. (It is understood that, if the
Franchisee consists of more than one person, all such persons must join in the
certification of the Shareholder.)
2.2 Representation of Company. The Company represents that the issuance and
sale of the Shares pursuant to this Agreement has been duly authorized by the
Board in accordance with the Articles, and is consistent with the applicable
provisions of Barbados law.
3. PURCHASE AND SALE OF SHARES
Upon acceptance of this Agreement by the Company, the Company agrees to sell
and issue to the Shareholder, and the Shareholder agrees to purchase, the
Shares in consideration of the Purchase Payment.
4. ESCROW OF PURCHASE PAYMENT
Subject to the following sentence, the Purchase Payment will remain on deposit
in the Escrow Account until the Shares are issued by the Company. If this
Agreement is not executed by the Company within 120 days of the date hereof,
the Purchase Payment shall be refunded promptly together with any interest
earned thereon. Following execution by the Company, the Shareholder shall have
no right to withdraw the amount of the Purchase Payment or any interest earned
thereon.
5. COVENANTS OF THE COMPANY
5.1 Series of Participating Stock. No more than 100 shares of the same series
of participating stock as the Shares shall be issued by the Company, and no
other series of such stock shall be issued with respect to the MIC Agency
Account.
5.2 Reinsurance Business. The business of the Company shall be limited to the
reinsurance of mechanical breakdown risks underwritten by MIC or its
subsidiaries or affiliates and identified with the MIC Agency Account and
similar MIC accounts maintained with respect to automobile franchises for which
series of participating stock of the Company are issued and outstanding.
6. LIMITATIONS BASED ON INADEQUATE CAPITAL
The Shareholder and the Company agree that if the Company cannot meet the
minimum margin of solvency requirements under Barbados insurance law, then, to
the extent the net asset value attributable to the Subsidiary Capital Account
(the "Account") for the shares issued pursuant to this Agreement is less than
its pro rata share (based on proportionate earned premium) of the Company's
required net asset value, the Company shall reduce the business attributable to
the Account, on a pro rata basis with such other accounts that are similarly
deficient, by retrocession or some other means acceptable to the Company, to
the extent necessary to permit the Company to meet the Company's required
minimum margin of solvency.
7. RESTRICTIONS ON TRANSFER
The Shareholder agrees to be bound by and shall be subject to all provisions in
the Articles (including without limitation those with respect to the ownership
and transfer of the Shares) that are in effect as of the date of this Agreement
or that may be added in the future, and any amendments to such provisions. It
is understood that the Company may place on the certificate for the Shares a
legend stating in substance:
The sale, transfer, or other disposition of the shares evidenced by this
certificate is restricted pursuant to provisions of the Articles of Motors
Mechanical Reinsurance Company, Limited ("Company"), and the Stock
Purchase Agreement ("Agreement") between the Company and the Shareholder,
dated , 19 , pursuant to which the shares were issued. Copies
of the Articles and the Agreement may be examined at the registered office
of the Company.
8. MISCELLANEOUS
8.1 Severability. If for any reason any provision of this Agreement shall be
invalid or unenforceable, the validity of any or all of the remaining
provisions shall not be affected thereby; provided, however, that the absence
of such illegal or invalid provisions does not so materially alter the purpose
of this Agreement such that the continuation of the arrangement contemplated by
this Agreement would no longer be mutually beneficial to the Shareholder and
the Company.
8.2 No Waiver. The failure of any party to insist upon strict performance of
any obligation hereunder shall not be a waiver of the party's right to demand
strict compliance therewith in the future.
8.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Barbados.
8.4 Counterparts. This Agreement has been executed in multiple copies, each
of which shall for all purposes constitute one Agreement, binding on the
parties.
8.5 Assignment. This Agreement is personal to the parties and, except as
contemplated herein and in the Articles, no party shall have any right to
assign any right or to delegate any duty hereunder, either voluntarily or
involuntarily, or by operation of law.
8.6 Term of Agreement. Except as herein expressly provided, this Agreement
shall remain in force as long as the Shares remain outstanding. If not
terminated sooner, this Agreement shall terminate upon the earlier of the
redemption of the Shares or the liquidation of the Company.
8.7 Effect of Transfer. The Shareholder shall be relieved of all restrictions
and obligations and shall not be entitled to any further benefits under this
Agreement upon transfer of all the Shares and upon the agreement of the
transferee to be bound by the terms and conditions of this Agreement.
8.8 Amendment. No change, modification, or amendment to this Agreement shall
be valid or binding upon the parties hereto unless such change, modification,
or amendment shall be in writing signed by all of the parties.
8.9 Integration. This Agreement constitutes the full and complete agreement
between the Shareholder and the Company.
8.10 Captions. Titles or captions of sections, paragraphs or exhibits
contained in or made a part of this Agreement are inserted only as a matter of
convenience and for reference, and in no way define, limit, extend or describe
the scope of this Agreement or the intent of any provision hereof.
8.11 Notices. Any and all notifications permitted or required to be made under
this Agreement shall be in writing, signed by the party giving such
notification, and shall be sent by registered or certified mail, postage
prepaid (1) if to the Shareholder, at the address set forth in Section 1.5 of
this Agreement or at such other address as may have been furnished by the
Shareholder to the Company in writing; or (2) if to the Company, in care of
Alexander Insurance Managers (Barbados) Limited, Financial Services Centre,
Bishops Court Hill, St. Michael, Barbados, W.I. For purposes of computing a
time period, the date of mailing shall be the date of notification.
8.12 Survival of Representations and Warranties. All agreements,
representations, and warranties contained herein or made in writing by the
Shareholder or the Company in connection with the transactions contemplated
hereby shall survive the execution and delivery of this Agreement, and the sale
and purchase of the Shares under this Agreement.
8.13 Relationship to Articles. The provisions of the Articles are incorporated
herein to the extent relevant to this Agreement.
If the authorized representative of the Company executes this Agreement on its
behalf, then this Agreement shall become a binding contract, subject to the
terms and conditions set forth herein, between the Company and the Shareholder
as of the date of the execution on behalf of the Company.
Very truly yours,
______________________________ __________________________________
Date Signature of Shareholder
_________________________________
Print Name of Shareholder
The foregoing Agreement is hereby accepted and agreed to as of the date set
forth below. Series P- is hereby designated for the Shares described in this
Agreement.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
By ___________________________ Dated: __________________________
Title ________________________
Note: Upon acceptance by the Company, a duly signed copy of this Agreement
shall be sent to the Shareholder.
APPENDIX C
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
CERTIFICATION FORM
The undersigned represent(s) that he (she)(they) is (are) the owner(s) of an
automobile sales franchise doing business as ______________________ (name of
dealership), with respect to which MIC Agency Account___ is maintained. The
undersigned hereby designate(s) ___________________________________ (name of
purchaser), who resides at ____________________________ (address of purchaser),
to be deemed eligible to purchase shares of a series of the participating stock
of Motors Mechanical Reinsurance Company, Limited (the "Company") pursuant to
the Articles of Incorporation of the Company.
______________________________ __________________________________
Date Signature of Franchise Owner
__________________________________
Print Name of Franchise Owner
(Names of Co-Owners, if any)
______________________________ __________________________________
Date Signature of Co-Owner
__________________________________
Print Name of Co-Owner
______________________________ __________________________________
Date Signature of Co-Owner
__________________________________
Print Name of Co-Owner
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, all of which were paid
by Motors Insurance Corporation, in connection with the initial offering
described in the Registration Statement:
Registration Fee -- Securities
and Exchange Commission ................ $ 1,500
State "Blue Sky" fees ................... $ 15,000
Accountants Fees and Expenses ........... $ 10,000
Legal Fees and Expenses ................. $150,000
Printing and Engraving .................. $ 37,000
Miscellaneous ........................... $ 10,000
--------
Total Expenses ..................... $223,500
--------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Paragraph 10 of Registrant's By-Laws provides for the indemnification of
Registrant's officers and directors (and such persons' heirs, executors and
administrators) against any and all judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees, incurred by such
person in connection with any claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that such
person is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director, officer, employe, fiduciary or member
of any other corporation, partnership, joint venture, trust, enterprise or
organization, except with respect to any matter for which indemnification would
be void pursuant to the Companies Act, 1982 of Barbados (the "Companies Act").
Under the Companies Act, indemnification of Registrant's officers and directors
against any liability which would attach by reason of any contract entered into
or act or thing done or omitted to be done by them in performance of their
office or in any way in the discharge of their duties, if the same happens
through their not acting in good faith and in the best interest of the
Registrant is void.
The position of the Securities and Exchange Commission regarding
indemnification for liabilities arising under the Securities Act of 1933 (the
"1933 Act") is set forth under Item 17, paragraph 5 of this Part II.
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES
No securities which were not registered under the Act have been issued or sold
by Registrant within the past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
3 (a) Restated Articles of Incorporation (filed as Appendix A to the
Prospectus).
(b) By-Laws of Registrant, as amended.
4 Specimen Participating Stock Certificate.
5 Opinion of Evelyn, Gittens & Farmer.
10 (a) Form of Principal Retrocession Agreement between Motors
Insurance Corporation and Registrant.
(b) Form of Supplemental Retrocession Agreement between Motors
Insurance Corporation and Registrant.
(c) Specimen Stock Purchase Agreement (filed as Appendix B to the
Prospectus).
(d) Amended and Restated Stock Purchase Agreement between Registrant
and Motors Insurance Corporation.
(e) Insurance Management Agreement between Registrant and Alexander
Insurance Managers (Barbados) Ltd.
23 (a) Consent of Evelyn, Gittens & Farmer.
(b) Consent of LeBoeuf, Lamb, Greene & MacRae.
(c) Consent of Deloitte & Touche, Independent Chartered Accountants.
99 (a) Certification Form (filed as Appendix C to the Prospectus).
(b) Guarantee issued by the Minister of Finance of Barbados.
(c) Certificate of Barbados Residency.
Filed previously,
Filed as Exhibit 19(f) to Form 10-K on March 30, 1994, File No. 33-6534,
and incorporated herein by reference.
B. Financial Statement Schedules:
No financial statement schedules are submitted herewith because the information
is included elsewhere in the financial statements or the notes thereto or such
schedules are not applicable.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which offers or sales of the securities
being registered are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement, and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering; and
(4) To file a post-effective amendment to the registration statement to
include any financial statements required throughout a continuous offering.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Post Effective Amendment to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of St. Michael, Barbados, on June 30, 1994.
MOTORS MECHANICAL
REINSURANCE COMPANY, LIMITED
By s/Ronald W. Jones
Ronald W. Jones, Vice-President,
Finance
Pursuant to the requirements of the Securities Act of 1933, this Post Effective
Amendment to this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
s/Robert T. O'Connell Chairman and Chief June 30, 1994
Robert T. O'Connell Executive Officer and
Director (Principal
Executive Officer)
s/Ronald W. Jones Vice-President (Principal June 30, 1994
Ronald W. Jones Financial and Accounting
Officer)
s/Joseph J. Pero President and Director June 30, 1994
Joseph J. Pero
s/Vincent K. Quinn Executive Vice-President
Vincent K. Quinn and Director June 30, 1994
s/Louis S. Carrio, Jr. Vice-President and Director June 30, 1994
Louis S. Carrio, Jr.
s/Peter R. P. Evelyn Director June 30, 1994
Peter R. P. Evelyn
s/Donald C. Mealey Director June 30, 1994
Donald C. Mealey
Registration No. 33-6534
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post Effective Amendment No. 9 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
(Exact name of registrant as specified in charter)
Barbados Not Applicable
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
6331 Financial Services Centre
(Primary standard industrial Bishops Court Hill
classification number) St. Michael, Barbados, W.I.
(809) 436-4895
(Address and telephone number of
principal executive office)
RONALD W. JONES, Vice President
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados, W.I.
(809) 436-4895
(Name, address and telephone number of agent for service)
Copy to:
David R. Woodward, Esq.
LeBoeuf, Lamb, Greene & MacRae
1875 Connecticut Avenue, N.W.
Washington, D.C. 20009
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. (X)
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
Cross reference sheet between
Items of Form S-1 and Prospectus
Pursuant to Item 501(b)
of Regulation S-K
FORM S-1 ITEM NO. CAPTION OR
AND CAPTION LOCATION IN PROSPECTUS
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus ....................... Front Cover
2. Inside Front Page and Outside Back
Cover Pages of Prospectus ........ Inside Front Cover; Outside
Back Cover
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges .......................... Summary; Risk Factors
4. Use of Proceeds .................. Use of Proceeds
5. Determination of Offering Price .. Determination of Offering
Price
6. Dilution ......................... Not Applicable
7. Selling Security Holdings ........ Not Applicable
8. Plan of Distribution ............. Plan of Distribution
9. Description of Securities to be
Registered ....................... Description of Capital Stock
10. Interests of Named Experts and
Counsel .......................... Not Applicable
11. Information With Respect to the
Registrant ....................... Summary; The Company; Use of
Proceeds; Capitalization;
Business of the Company;
Management; Principal
Shareholder
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities .................. Not Applicable
P R O S P E C T U S
Motors Mechanical Reinsurance Company, Limited
26,500 Shares of Participating Stock
THE SECURITIES OFFERED HEREBY INVOLVE SIGNIFICANT RISK, ARE SUBJECT TO
SUBSTANTIAL RESTRICTIONS ON TRANSFER, AND WILL NOT BE READILY MARKETABLE.
OFFEREES SHOULD REFER TO THE SECTION CAPTIONED "RISK FACTORS".
Motors Mechanical Reinsurance Company, Limited (the "Company"), a Barbados
company, is engaged in the business of assuming risks in respect of certain
insurance policies covering motor vehicle mechanical repairs. (See "The
Company.")
The shares of Participating Stock of the Company offered by this Prospectus
(the "Shares") are divided into 265 series, and the authorized number of Shares
of each series is 100 Shares. The offering price is $75.00 per Share. (See
"Description of Capital Stock.") ALL AMOUNTS OF MONEY SHOWN IN THIS PROSPECTUS
ARE STATED IN U.S. DOLLARS.
The Company is offering Shares of a series only to persons certified by the
owners of motor vehicle franchises to be identified with that series and only
if it receives Stock Purchase Agreements executed by such persons which are
acceptable to the Company in its sole discretion.
The Shares are being sold, on a continuous basis, by certain employes of Motors
Insurance Corporation ("MIC"), who are not compensated specifically for their
services in this regard. (See "Plan of Distribution.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Underwriting
Price to discounts and Proceeds
public commissions to issuer
Per Share $75.00 None $75.00
Total 26,500 shares $1,987,500 None $1,987,500
Of this number, 20,400 shares had been issued and sold as of the date of
this Prospectus.
The date of this Prospectus is , 1994.
The Company, certain of its directors, and certain experts named herein are
residents of Barbados, and all or a substantial portion of the assets of the
Company and of such persons are or may be located outside the United States.
As a result, it may not be possible for investors to effect service of process
within the United States upon the Company or such persons, or to enforce
against them judgments obtained in United States courts predicated upon the
civil liability provisions of the Securities Act of 1933, as amended (the "1933
Act"). The Company has been advised by its Barbados counsel, Evelyn, Gittens &
Farmer, that there is doubt as to whether Barbados courts would (1) enforce
judgments of United States courts obtained against the Company or such persons
predicated upon the civil liability provisions of the 1933 Act, or (2) impose,
in original actions in Barbados, liabilities against the Company or such
persons predicated upon the 1933 Act.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied
at the offices of the Commission, at Room 1024, 450 Fifth Street,
N.W., Washington, D.C.; Room 1204, Kluczynski Federal Building, 230 South
Dearborn Street, Chicago, Illinois; and Room 1102, Jacob K. Javits Building, 26
Federal Plaza, New York, New York. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company furnishes to its stockholders annual reports containing financial
statements that reflect the Company's overall results and condition and that
have been audited and reported upon by independent public accountants, and
quarterly reports for each of the first three quarters of each fiscal year
containing unaudited financial information. In addition, the Company furnishes
to each holder of Shares of a series a quarterly statement containing unaudited
financial information relating to such series. The reports furnished by the
Company contain information prepared in accordance with accounting principles
generally accepted in the United States.
TABLE OF CONTENTS
Page
DEFINITIONS .......................................................
SUMMARY ...........................................................
RISK FACTORS ......................................................
Relationship with MIC ............................................
Restrictions Applicable to Certain Retrocessions .................
Extension of New Vehicle Warranties ..............................
Risk of Underwriting Losses ......................................
Investment Experience ............................................
United States Tax Considerations .................................
Risks Related to Foreign Business Operations .....................
Competition and Loss of Business .................................
Barbados Regulatory Limitations ..................................
Reliance on Outside Consultants ..................................
Dividends ........................................................
No Public Market; Restrictions on Transfers ......................
Share Redemption..................................................
THE COMPANY .......................................................
ELIGIBILITY TO PURCHASE THE SHARES ................................
USE OF PROCEEDS ...................................................
DETERMINATION OF OFFERING PRICE ...................................
DIVIDENDS .........................................................
BUSINESS OF THE COMPANY ...........................................
Introduction .....................................................
The Retrocessions ................................................
General Considerations ..........................................
The Retroceding Company .........................................
Types of Risks Subject to Retrocession ..........................
The Retrocession Agreement -- Principal Agreement ...............
The Retrocession Agreement -- Supplemental Agreement ............
Loss Reserves ...................................................
Investment Income ................................................
Employes .........................................................
Competition ......................................................
Insurance Management Agreement ...................................
Barbados Regulation and Taxes ....................................
Insurance Regulation ............................................
Taxes ...........................................................
Exchange Control ................................................
Facilities .......................................................
SELECTED FINANCIAL DATA............................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .............................
MANAGEMENT ........................................................
Directors and Officers ...........................................
Alternate Directors ..............................................
Committees of the Board ..........................................
Remuneration .....................................................
PRINCIPAL SHAREHOLDER .............................................
DESCRIPTION OF CAPITAL STOCK ......................................
Allocations to Subsidiary Capital Accounts .......................
Voting Rights ....................................................
Election of Directors ...........................................
Proxies .........................................................
Liquidation .....................................................
Changes in Articles and By-Laws .................................
Other Matters ...................................................
Redemption .......................................................
Liquidation ......................................................
Restrictions on Transfer .........................................
Transfers of Less Than All Shares of a Series ...................
Right of First Refusal ..........................................
Exceptions for Certain Transfers ................................
Provisions Applicable to All Transfers ..........................
Common Stock .....................................................
Barbados Corporate Law Provisions ................................
Dividends and Distributions .....................................
Repurchase ......................................................
Shareholders' Remedies ..........................................
Enforcement of United States Judgments ..........................
Indemnification .................................................
Inspection of Corporate Records .................................
PLAN OF DISTRIBUTION ..............................................
Purchase Procedures ..............................................
Terms of Sale ....................................................
Conditions of Sale ...............................................
Approval of Purchase ............................................
Termination of Offering ..........................................
UNITED STATES FEDERAL TAX CONSIDERATIONS ..........................
United States - Barbados Income Tax Treaty .......................
United States Premium Excise Tax .................................
United States Federal Income Tax Risks and
Consequences -- the Company .....................................
United States Federal Income Tax Consequences -- the Shareholders.
LEGAL MATTERS .....................................................
EXPERTS ...........................................................
ADDITIONAL INFORMATION ............................................
INDEPENDENT AUDITORS' REPORT ......................................
FINANCIAL STATEMENTS...............................................
APPENDIX A (Restated Articles of Incorporation of the Company)...
APPENDIX B (Stock Purchase Agreement)............................
APPENDIX C (Certification Form)..................................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
DEFINITIONS
As used in this Prospectus, the following terms have the particular meanings
set forth below.
Common Stock -- The class of shares held by MIC.
Company -- Motors Mechanical Reinsurance Company, Limited.
Eligible Purchaser -- An individual or entity certified, by the owner(s) of the
Franchise(s) for which an MIC Agency Account is maintained, as a purchaser of
all or part of a series of Shares in respect of such MIC Agency Account.
Franchise -- A right conferred by a motor vehicle manufacturer pursuant to a
written agreement which permits the grantee to sell the manufacturer's new
motor vehicles.
MIC -- Motors Insurance Corporation.
MIC Agency Account -- The separate business record maintained by MIC or any of
its subsidiaries to track volume, experience, and commissions with respect to
insurance business related to any one or more particular Franchises.
Policies -- Insurance policies issued by any MIC subsidiary and reinsured by
MIC that cover motor vehicle mechanical repair risks, to the extent that risks
under such policies are attributable to an MIC Agency Account in respect of
which a series of Shares is issued and outstanding.
Premium Income -- As used in the context of Barbados insurance laws, net
premiums after deducting any premiums paid by the Company for reinsurance.
Retrocession Agreement -- The agreement or agreements entered into between the
Company and MIC pursuant to which a specified portion of the risks arising
under the Policies is transferred to the Company.
Shares -- Shares of the Participating Stock of the Company.
Stock Purchase Agreement -- The agreement entered into between the Company
and a purchaser of Shares, in the form approved by the Company's Board of
Directors.
Subsidiary Capital Account -- The subsidiary bookkeeping record established by
the Company for a particular series of shares or class of stock and maintained
for the purpose of accounting for items of income and expense, gains and
losses, capital contributions, and shareholder distributions which are
allocated to the particular series of shares or class of stock.
SUMMARY
The following summary is qualified in its entirety by the detailed information
and financial statements, including the notes thereto, appearing elsewhere in
this Prospectus.
THE COMPANY
The Company was incorporated under the laws of Barbados on June 12, 1986 and
has registered as a licensee under the Barbados Exempt Insurance Act, 1983 to
carry on the business of an Exempt Insurance Company from within Barbados. Its
registered and principal offices are located in St. Michael, Barbados. The
Company is engaged in the business of assuming insurance risks with respect to
motor vehicle mechanical breakdowns insured under policies that are reinsured
by MIC. The Company conducts its operations within or from Barbados. (See
"The Company.")
THE OFFERING
Securities Being
Offered ........... Participating Stock, not to exceed 26,500 shares, in
series of 100 shares each, without nominal or par
value. As of the date of this Prospectus, 20,400
shares had been sold, leaving 6,100 remaining to be
offered. (See "Description of Capital Stock.")
Offering Price .... $75.00 per Share, or $7,500 per series.
Terms of Offering . Shares of a series of Participating Stock will be
issued with respect to a specific MIC Agency Account.
Only one series of Shares will be issued with respect
to each MIC Agency Account. An entire series must be
purchased by one or more Eligible Purchasers. (See
"Eligibility to Purchase the Shares.")
Offering Period ... This offering commenced on June 1, 1987 and, subject
to termination by the Board of Directors of the
Company (the "Board"), will be continuous in
accordance with Rule 415 under the 1933 Act. All
funds paid by an Eligible Purchaser will be held for
the benefit of the Company in an escrow account at
Barclays Bank PLC in Bridgetown, Barbados until such
time as the related Stock Purchase Agreement has been
accepted by the Company. Upon acceptance by the
Company of a Stock Purchase Agreement, funds will be
paid to the Company and Shares will be issued.
Purchase Procedure.. Eligible Purchasers who wish to purchase Shares will
be required to submit to the Company in Barbados the
following: (1) two executed Stock Purchase Agreements;
(2) a certified or cashier's check in the amount of
the purchase price of the Shares payable to "Motors
Mechanical Reinsurance Company, Limited -- Escrow
Account"; and (3) certification of eligibility. (See
"Eligibility to Purchase the Shares.")
Restrictions on
Transfer .......... Subject to certain exceptions, the transfer of Shares
is subject to the Company's right of first refusal.
In addition, the transfer of less than all of the
Shares of a series requires prior written consent of
the Company. (See "Description of Capital Stock --
Restrictions on Transfer.")
Voting Rights ..... Holders of Shares as a class are entitled to elect one
out of six members of the Board. Their right to vote
on other matters is limited. (See "Description of
Capital Stock -- Voting Rights.")
Risk Factors ...... This investment is subject to significant risks. (See
"Risk Factors.")
Capital Structure.. As of March 31, 1994, 19,900 Shares representing 199
series were issued and outstanding and were held by
338 shareholders. In addition to the Shares, the
Company has authorized 2,000 shares of Common Stock
without nominal or par value, all of which have been
issued to MIC and are outstanding.
Use of Proceeds ... The proceeds of this offering are added to general
funds of the Company and utilized in its insurance
business. (See "Use of Proceeds.")
Plan of
Distribution ...... The Shares are being sold by employes of MIC on a
continuous basis. Neither MIC nor its employees are
compensated specifically for their services in that
regard, and no commissions are charged or paid in
connection with sales of the Shares. (See "Plan of
Distribution.")
RISK FACTORS
Investment in the Company is subject to significant risk. Prospective
investors should carefully consider, together with the information contained
elsewhere in this Prospectus, the following:
Relationship with MIC. MIC owns all of the Common Stock of the Company, which
permits it to control the Board and determine, among other things, the
selection of the Company's officers, outside insurance management company and
outside investment adviser. (See "Description of Capital Stock," "Business of
the Company -- Investment Income," "Business of the Company -- Insurance
Management Agreement," and "Management.") The Company has entered into a
Retrocession Agreement with MIC pursuant to which risks that MIC reinsures
under Policies are "retroceded" to the Company. (See "Business of the Company
-- The Retrocessions.") The Company relies entirely on the Retrocession
Agreement and, thus, on MIC for its business. Therefore, any matters adversely
affecting MIC may have an adverse impact on the insurance business of the
Company. In addition, it should be noted that, under the Retrocession
Agreement, only business identified with certain MIC Agency Accounts is
retroceded. MIC and its subsidiaries have the power to terminate agency
agreements and otherwise limit the Company's insurance business with respect to
MIC Agency Accounts.
Pursuant to the Retrocession Agreement, the Company must pay to MIC the amounts
of any and all claims paid by MIC in respect of the Policies. Although the
Company may, at its own expense, be associated with MIC in the defense of any
claim, MIC or its subsidiaries generally have full authority to investigate and
settle, or defend, all claims. (See "Business of the Company -- The
Retrocessions.")
The Retrocession Agreement extends for an indefinite term. It generally may be
terminated at any time by MIC or the Company upon 30 days written notice. (See
"Business of the Company -- The Retrocessions.") In the event that the
Retrocession Agreement were terminated, there is no assurance that the Company
could make arrangements which would allow it to continue to operate in the
manner described in this Prospectus.
Restrictions Applicable to Certain Retrocessions. At the present time, MIC
believes that there is no federal or state law or regulation that impairs its
ability to retrocede its risks under the Policies to the Company. However,
certain state insurance laws and regulations are imprecise and subject to
varied interpretations, and it is possible that some state administrators could
seek to limit retrocession arrangements with a non-United States insurance
company or with an insurance company that is affiliated with the ceding company
or its agents. Moreover, from time to time, there are legislative and
regulatory proposals that could, if adopted, affect the MIC retrocession.
Extension of New Vehicle Warranties. Sales of mechanical breakdown coverages,
and thus the business of the Company, may be adversely affected by changes in
warranties provided by manufacturers for new motor vehicles. If such
warranties are expanded, there could be an adverse effect on the sales of
mechanical breakdown insurance coverage, and thus on the retrocession business
of the Company. Beginning with 1989 models, GM's basic warranty was modified
to cover defects in material and workmanship on all components of new vehicles
for 36 months or 50,000 miles subject to a $100 deductible after the first 12
months or 12,000 miles. Beginning with 1992 models, GM's basic warranty was
modified to apply for 36 months or 36,000 miles; however, the previously
existing $100 deductible was eliminated.
Risk of Underwriting Losses. Mechanical breakdown risks are unpredictable and
highly volatile. If losses and expenses incurred by the Company were to exceed
its premium and investment income, the Company would incur net losses.
Each series of Shares bears 90% of the losses incurred (to the extent of its
respective Subsidiary Capital Account balance) with respect to business
attributable to the MIC Agency Account related to such series (as well as a pro
rata share of 10% of all losses incurred by the Company). To the extent such
losses are substantial, a holder of Shares might sustain a loss of all or a
portion of his or her investment even if other holders of Shares are not
similarly affected. In addition, underwriting losses allocable to a particular
series may, under certain circumstances, be allocated to the other series.
(See "Description of Capital Stock -- Allocations to Subsidiary Capital
Accounts.")
Investment Experience. The profitability of the Company depends in part on
the amount of income that the Company earns on its investments. There can be
no assurance that the Company will earn a net investment return which, when
added to its underwriting income, will be sufficient to offset its liability
for claims and expenses. In addition, the Company could suffer investment
losses due to declines in the market values of securities in which it invests
which may be caused by, among other things, volatile interest rates.
Substantially all of the Company's assets are currently invested in U.S.
dollar-denominated securities issued outside of the United States by non-United
States private or governmental issuers and U.S. dollar-denominated bank
certificates of deposit issued by foreign banks and foreign branches of U.S.
banks. Investing in such securities subjects the Company to certain risks not
generally associated with securities issued in the United States. Moreover,
the Company has recently been authorized to invest in non-dollar denominated
bonds on a fully currency-hedged basis. When effectively implemented, such
forward foreign currency transactions will minimize the risk of loss resulting
from a decline in the value of the foreign currency relative to the dollar, but
may also limit the potential for gain in the event the foreign currency's value
increases in relation to the value of the dollar. (See "Business of the
Company -- Investment Income.")
United States Tax Considerations. As discussed elsewhere herein, the Company
conducts a reinsurance business in Barbados and executes and administers its
reinsurance agreements and manages its business affairs from Barbados. On this
basis, the Company believes that it should not be deemed to be engaged in
business within the United States through a permanent establishment, and,
therefore, the Company believes it should not be subject to United States
income tax. However, given the factual nature of the questions involved and
certain aspects of the Company's treaty reinsurance program related to the
United States, there can be no assurance that for tax purposes the Company
ultimately will not be deemed to be engaged in business within the United
States through a permanent establishment. In such event, the Company would be
subject to United States income tax on business profits attributable to such
permanent establishment, as well as an additional 5% branch profits tax.
Under captive insurance company provisions contained in the Tax Reform Act of
1986, each holder of Shares generally will be subject to United States income
tax currently on his or her pro rata share of the earnings of the Company,
whether or not such earnings are distributed. To the extent that the Company
were subject to United States income tax on its business profits, the holders
of Shares would not be subject to current tax on such profits, but the holders
of Shares would be subject to tax on actual distributions of the Company with
respect to such profits. (See "United States Federal Tax Considerations --
United States Federal Income Tax Consequences -- the Shareholders.")
No representation is made as to the effect that any change in United States tax
laws or the interpretation thereof may have on the Company or holders of
Shares.
Risks Related to Foreign Business Operations. The Company's business is
conducted outside of the United States and may, consequently, be affected by
changes in foreign governments and by other political and economic conditions.
As a Barbados corporation, the Company is subject to the provisions of the
Barbados Companies Act, 1982. (See "Description of Capital Stock -- Barbados
Corporate Law Provisions.") In addition, although the Company has received a
guarantee from the Barbados Minister of Finance exempting it from Barbados
taxes for a period ending December 31, 2001, there is no assurance that the
guarantee will be extended beyond that date.
Competition and Loss of Business. The business of insuring motor vehicle
mechanical breakdown risks is highly competitive, with many companies seeking
the business produced by motor vehicle dealers. Since all of the Company's
business is currently derived from the Retrocession Agreement, the volume of
the Company's business is dependent, to some extent, upon the marketability of
agreements and plans developed by GM and MIC subsidiaries and offered through
motor vehicle dealers. In addition, GM may choose not to insure its liability
under mechanical repair plans with MIC or its subsidiaries. MIC management
believes that at present, MIC and its subsidiaries underwrite approximately 20%
of the mechanical breakdown insurance in the United States on new GM vehicles.
(See "Business of the Company -- Competition.")
Barbados Regulatory Limitations. To the extent that the net asset value of the
Company does not meet the minimum requirements for the Company as a whole under
Barbados insurance laws and to the extent that a Subsidiary Capital Account
does not support the business related to such account, the Company may reduce
the amount of its business attributable to such deficient Subsidiary Capital
Account.
Reliance on Outside Consultants. The Company does not have any full-time
officers or employes. The Company relies on outside consultants for insurance
management, day-to-day administrative services, and investment advice. (See
"Business of the Company -- Insurance Management Agreement," and "Business of
the Company -- Investment Income.")
Dividends. Although the Company's Restated Articles of Incorporation (the
"Articles") (see Appendix A) provide for a minimum annual dividend to holders
of Shares under certain circumstances, the ability of the Company to pay any
dividend is subject to compliance with Barbados insurance regulatory
requirements, the Barbados Companies Act and other limitations provided in the
Company's Articles. (See "Dividends.")
No Public Market; Restrictions on Transfers. There is no public market for the
Shares or the other capital stock of the Company, and none is expected to
develop. In addition, the Shares are subject to substantial restrictions on
transfer. Except for transfers to certain members of a transferor's family,
certain trusts, certain business affiliates, or estates, a transfer of any
series of Shares is subject to the Company's right of first refusal, and a
transfer of less than all of the Shares of a series cannot be made without the
express written consent of the Company. All transferees must agree to be bound
by the provisions of a Stock Purchase Agreement, including, among other things,
restrictions on the transfer of their Shares. (See "Description of Capital
Stock -- Restrictions on Transfer," "Eligibility to Purchase
the Shares," and "Plan of Distribution.")
Share Redemption. The Board of Directors of the Company has the right to cause
a redemption of the Shares of any series at any time and for any reason. This
permits, among other things, the Board of Directors to redeem, at its
discretion, shareholders who produce unsatisfactory business on a continuing
basis. The Board also may reject a request for redemption by a shareholder.
(See "Description of Capital Stock -- Redemption.")
THE COMPANY
Motors Mechanical Reinsurance Company, Limited (the "Company") was incorporated
in Barbados on June 12, 1986, and became registered in Barbados as an insurer
on June 30, 1986. The Company's registered and principal offices are located
at Financial Services Centre, Bishops Court Hill, St. Michael, Barbados and its
telephone number is (809) 436-4895. The Company was organized by MIC.
Pursuant to the Retrocession Agreement, the Company engages in the business of
assuming risks with respect to motor vehicle mechanical breakdowns arising
under insurance policies that are reinsured by MIC and that are attributable to
MIC Agency Accounts in respect of which Shares are issued and outstanding.
Under the Retrocession Agreement, the Company has agreed to indemnify MIC for
losses that may be incurred by MIC under the Policies. As consideration for
the retrocession, the Company receives a portion of the premiums paid to MIC in
respect of the Policies. The Retrocession Agreement constitutes the sole
source of the Company's insurance business. (See "Business of the Company.")
Barbados is an island nation located in the Atlantic Ocean. It is the
eastern-most island of the West Indies. Formerly a British colony, Barbados
gained its independence in 1966 and maintains a parliamentary form of
government. The currency of Barbados currently is linked by law to the U.S.
dollar at a fixed exchange rate, which at present is two Barbadian dollars to
one U.S. dollar.
The Company conducts all of its business from Barbados and does not conduct any
of its business within the United States. It is subject to general corporate
and insurance regulation under the laws of Barbados, including minimum net
asset value and reporting requirements. (See "Business of the Company --
Barbados Regulation and Taxes.")
ELIGIBILITY TO PURCHASE THE SHARES
Shares of a series may be purchased only by an individual or entity certified
by the owner(s) of the Franchise(s) for which an MIC Agency Account is
maintained, as a purchaser of all or part of a series of Shares in respect of
such MIC Agency Account ("Eligible Purchaser"). There are no formal
eligibility requirements for certification; however, Franchise owner(s) have
complete discretion with respect to whom they choose to certify (including
themselves) and the Company has complete discretion to accept or reject any
offer to purchase Shares. No more than one series of Shares is issued with
respect to each MIC Agency Account. No Shares of a series are issued unless
executed Stock Purchase Agreements (see Appendix B) for all Shares of that
series have been received and accepted by the Company.
A prospective purchaser is considered to be properly certified if the Company
has received a certificate in the form furnished by the Company (see Appendix
C) from each owner of the particular Franchise(s) stating that the prospective
purchaser has been designated by such owner(s) to be eligible to purchase the
particular Shares. In addition, the prospective purchaser must execute a Stock
Purchase Agreement and forward that agreement, together with payment for the
Shares purchased, to the Company. Stock Purchase Agreements are subject to
acceptance by the Company. (See "Plan of Distribution.")
Transfer of Shares is subject to certain restrictions. If less than all the
Shares of a series are transferred, the Company must give its consent. In
addition, the Company has a right of first refusal to purchase any Shares
which the holder attempts to transfer. However, a transfer is not subject to
either of the foregoing restrictions if the transferee falls into one of the
categories of designated transferees set forth in the Articles. (See
"Description of Capital Stock -- Restrictions on Transfer.")
USE OF PROCEEDS
The offering of the Shares pursuant to this Prospectus is being made on a
continuous basis. This means that it is not possible to predict how many
series of Shares will ultimately be purchased or the maximum net proceeds to be
derived by the Company from this offering.
The proceeds derived from this offering are added to the general funds of the
Company to provide capital to support its insurance business. Under Barbados
law, the Company is required to have minimum net assets, determined by
reference to the annual earned premium, described more fully under "Business of
the Company -- Barbados Regulation and Taxes." All of the Company's available
capital, including the proceeds of this offering, is invested by its investment
advisor in accordance with guidelines established by the Board. (See "Business
of the Company -- Investment Income.") The Company believes that the proceeds
derived from this offering will be sufficient, together with its other capital,
to support the Company's insurance operations for the foreseeable future.
DETERMINATION OF OFFERING PRICE
There is no public trading market for the Shares nor is one expected to
develop. The price per Share reflects the projected capital needs of the
Company and bears no relationship to any valuation criteria.
DIVIDENDS
Dividends may be declared and paid at the discretion of the Board, provided
that each holder of Shares of a series will be entitled to receive a minimum
dividend, payable annually, equal to 20% of the annual net income attributable
to the Subsidiary Capital Account associated with that series of Shares. In
all events, however, dividends are subject to the restrictions described in the
following paragraphs.
Pursuant to the general corporate laws of Barbados, dividends on the Shares are
payable only if after the payment: (a) the Company would be able to pay its
liabilities as they come due; and (b) the realizable value of the Company's
assets exceeds its liabilities and stated capital of all classes. Dividends
may not be paid out of unrealized gains. Further, under Barbados insurance
law, the Company is required to maintain a minimum capitalization of $125,000
and, in addition, the value of its assets must exceed its liabilities by: (a)
$125,000 where the earned premium in the preceding financial year did not
exceed $750,000; (b) an amount equal to 20% of the earned premium for the
preceding financial year, where such income exceeded $750,000 but did not
exceed $5,000,000; and (c) an amount equal to the aggregate of $1,000,000 and
10% of the amount by which the earned premium for the preceding financial year
exceeded $5,000,000. (See "Business of the Company -- Barbados Regulation and
Taxes," and "Description of Capital Stock -- Barbados Corporate Law
Provisions.")
In addition to the provisions of Barbados law, the Articles place limitations
on the payment of dividends. Dividends may be declared and paid only out of
the earned surplus of the Company and only if the Company, after giving effect
to the distribution, meets the Barbados margin of solvency requirements without
regard to any letters of credit. Further, dividends with respect to any series
of Shares may be paid only out of earned surplus attributable to the Subsidiary
Capital Account identified with those Shares, and only to the extent that,
after giving effect to the dividend, the capital and surplus identified with
that Subsidiary Capital Account (without regard to any guarantee or letter of
credit) would meet its pro rata share, based on allocable Premium Income, of
the minimum margin of solvency required of the Company under Barbados law, as
described in the preceding paragraph. To the extent a dividend, other than a
minimum dividend, is declared on the Shares, it will be declared and paid
subject to the foregoing limitations on all series of Shares as a percentage of
the net income and/or earned surplus attributable to each series, provided that
such percentage may vary with the level of net income and/or earned surplus.
In May of 1990 and June of 1991, the Company declared minimum dividends on
the Shares in total amounts of $114,376 and $150,317, respectively. In April
of 1992, the Company declared a dividend on the Shares aggregating $1,021,705
which was equal to 35% of earned surplus attributable to each series of Shares
meeting the above requirements. In April of 1993, the Company declared a
dividend on the Shares aggregating $2,021,504. This dividend was declared as a
varying percentage of earned surplus attributable to each series of Shares with
the percentage applicable to each series varying from 30% to 50% depending on
the amount of earned surplus attributable to such series. In April of 1994,
the Company declared a dividend on the Shares aggregating $2,156,304. This
dividend was declared as a varying percentage applicable to each series varying
from 20% to 55% depending on the amount of earned surplus attributable to such
series.
Dividends on the Common Stock are also subject to the restrictions under
Barbados law and the Articles described above. In addition, the Articles
provide that dividends may not be declared or paid on the Common Stock unless
and until each holder of Shares of a series has received any minimum dividend
to which he is entitled for the current period and may be declared and paid
only to the extent that the earned surplus attributable to the Common Stock
exceeds Restricted Earned Surplus. (See "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts.")
BUSINESS OF THE COMPANY
INTRODUCTION
The Company was incorporated in Barbados on June 12, 1986. It became
registered in Barbados as an insurer on June 30, 1986 and commenced insurance
operations in December, 1987.
The business of the Company is the assumption of motor vehicle mechanical
breakdown insurance risks arising under insurance policies reinsured by MIC to
the extent such policies are attributable to an MIC Agency Account in respect
of which a series of shares is issued and outstanding. These policies are
issued either to General Motors Corporation ("GM") or to automobile dealers,
reinsured by MIC, and retroceded to the Company. Shares of the Company's
Participating Stock (the "Shares") are sold to persons designated by owners of
motor vehicle sales franchises with respect to which MIC maintains an MIC
Agency Account. A separate series is created for Shares relating to each MIC
Agency Account, and a separate "Subsidiary Capital Account" is maintained for
each such series. The profitability of the Company reflects both underwriting
and investment experience, which is allocated among the Subsidiary Capital
Accounts.
THE RETROCESSIONS
General Considerations. Reinsurance is a means of transferring the risk of
loss arising under a contract of insurance from the company that initially
insured the risk to the reinsurer. Retrocession is the transfer of the risk
borne by the reinsurer (the "retroceding company") to another company which, in
turn, assumes such risk (the "retrocessionaire"). Retrocession agreements are
of numerous different types and may be individually negotiated by the parties
to meet particular needs. Under a "quota share" indemnity retrocession
agreement, such as the Retrocession Agreement between MIC and the Company, the
retrocessionaire (the Company) is paid ("ceded") a certain percentage of the
premiums collected by the retroceding company (MIC) and, in return, agrees to
indemnify the retroceding company for a certain percentage of the losses in
respect of those risks. Further, a "treaty" arrangement, such as is involved
here, covers all risks of a defined class.
The Retroceding Company. MIC, the retroceding company under the Retrocession
Agreement, is a stock insurance company organized under the laws of New York.
All of MIC's outstanding stock is owned by General Motors Acceptance
Corporation which, in turn, is a wholly owned subsidiary of GM. MIC, directly
and through its subsidiaries, offers property and casualty coverages in all 50
states and the District of Columbia, as well as in Canada and Europe. MIC
consistently has been awarded A.M. Best Company's insurance financial rating of
A + (Superior), one of the highest possible ratings.
MIC maintains MIC Agency Accounts in respect of Franchises to which the risks
to be retroceded can be attributed. (A single MIC Agency Account may be
established either for a single Franchise or in respect of a group of
Franchises treated as a single business unit by MIC and its subsidiaries.)
Currently, there are more than 6,800 MIC Agency Accounts in respect of
Franchises through which mechanical insurance business is produced.
Types of Risks Subject to Retrocession. Included in the base price of the
vehicle, automobile manufacturers traditionally provide a limited warranty to
purchasers of new vehicles, which is designed to protect the purchaser against
failures resulting from defects in the materials used or workmanship during the
manufacturing process. These manufacturers warranties have varied from year to
year in scope and duration. Beginning with 1989 models, GM's basic warranty
was modified to cover all components of new vehicles for 36 months or 50,000
miles subject to a $100 deductible after the first 12 months or 12,000 miles.
Beginning with 1992 models, GM's basic warranty was modified to apply for 36
months or 36,000 miles, with no deductible.
Automobile manufacturers, dealers and others also may make available to
automobile purchasers service contracts or insurance policies (both of which
are commonly referred to as "service contracts") that provide coverage against
specific automobile mechanical breakdowns during the new vehicle warranty
period that are not attributed to manufacturing defects and coverage for
certain specified mechanical breakdowns (whether or not caused by manufacturing
defects) well beyond such period. Such service contracts often provide
additional services, such as towing and rental allowances.
MIC reinsures the following service contracts insured by its subsidiaries for
new and used vehicles:
1. GM offers a variety of service contract options under the General Motors
Protection Plan ("GMPP") to purchasers of new GM motor vehicles and certain
used GM vehicles. In the United States, GM currently insures its liability
under this plan with a subsidiary of MIC.
2. Certain dealers offer automobile purchasers a dealer service contract
called the Value Guard Mechanical Repair Plan ("MRP"), generally with respect
to used cars and new non-GM cars that provide protection against certain
automobile mechanical breakdowns. These service contracts provide varying
degrees of protection, depending upon the particular plan involved. Such
dealers obtain insurance covering their liability under these plans from a
subsidiary of MIC.
MIC also writes some mechanical insurance business on a direct basis, none of
which will be subject to reinsurance with the Company and none of which is
included in the definition of "Policies."
The Retrocession Agreement -- Principal Agreement. The Company has entered
into a "quota share" retrocession agreement (the "Agreement") which became
effective as of December 11, 1987, the date Shares were first issued. Pursuant
to the Agreement, MIC is obligated to retrocede to the Company, and the Company
is obligated to assume, MIC's risks in respect of policies issued by any MIC
subsidiary and reinsured by MIC that cover mechanical breakdown risks, to the
extent that risks under such policies are attributable to an MIC Agency Account
in respect of which a series of Shares is issued and outstanding (the
"Policies"), and such risks are insured on or after the effective date of the
Agreement. Under the Agreement, MIC is not obligated to retrocede any risk to
the Company in excess of the amount allowed under applicable state laws
concerning the retrocession of risks located in the particular state. (See
"Risk Factors -- Restrictions Applicable to Certain Retrocessions.")
Pursuant to the Agreement, MIC retrocedes to the Company 75% of MIC's risk in
respect of each Policy at the time it is written. Such retrocession remains in
effect for the duration of the underlying Policy. With respect to this cession
of 75% of the risk, MIC pays the Company 56.25% of the gross premiums it
receives, reduced by any related agents' or brokers' commissions. MIC
retrocedes the remaining 25% of its risk in respect of each such Policy on a
monthly basis. In connection with this retrocession of 25% of the risk, MIC
pays the Company 18.75% of the original gross premium, reduced by any related
agents' or brokers' commissions, as earned.
Thus, for assuming 100% of each risk the Company receives, in the aggregate,
75% of the original gross premium with respect to the risk, reduced by related
agents' or brokers' commissions, if any. The remaining 25% of the premium is
retained by MIC as a ceding commission. The Company generally is not otherwise
required to reimburse MIC for expenses incurred by MIC with respect to the
Policies. Settlements between the Company and MIC are made on a quarterly
basis.
Pursuant to the Agreement, the Company, at its own expense, to the extent
permitted by the underlying reinsurance agreement, may join MIC or its ceding
company in the defense or control of any claim, loss, or legal proceeding that
results in, or is likely to result in liability for the Company. However,
because MIC controls the Company, MIC will indirectly control any determination
by the Company whether it will take such action. The Company will not be
liable for any damages assessed against MIC arising out of its conduct in
investigating, negotiating, defending, or handling any claims or suits or in
dealing with its policyholders.
The Agreement requires that, as security for the amount of the Company's
liability to MIC thereunder, the Company furnish, to the extent requested by
MIC, collateral in the form of an irrevocable letter of credit of at least 12
months duration equal in amount to the unearned premium in respect of risks
retroceded and unpaid loss reserves (including reserves for losses incurred but
not reported) otherwise required to be maintained by MIC in respect of the
Policies. This letter of credit must be issued by a bank acceptable to MIC.
As of December 31, 1993, the Company provided MIC with such a letter in the
amount of $32,250,000.
The Agreement may be terminated at any time by mutual consent of the parties,
or by either party upon 30 days written notice. Upon termination of the
Agreement, MIC and the Company will remain bound by their respective
obligations under the Agreement with respect to risks retroceded prior to the
close of business on the date of termination. However, risks not yet
retroceded to the Company under the Agreement shall remain risks of MIC.
The Retrocession Agreement -- Supplemental Agreement. MIC from time to time,
enters into agreements with Franchise owners for which an MIC Agency Account is
established, pursuant to which MIC, acting for itself and on behalf of certain
of its subsidiaries, agrees to cede or retrocede to another insurance company
mutually satisfactory to MIC and the respective Franchise owners the unexpired
liability with respect to service contracts, insured under the Policies, sold
after the date specified in each such agreement. This liability can be ceded
or retroceded to dealer-owned companies organized specifically with respect to
a particular Franchise or, if a series of Shares is issued which relates to the
Franchise, pursuant to an agreement between MIC and the Company (the
"Supplemental Retrocession Agreement"). For this purpose, unexpired liability
means MIC's liability in respect of the remaining period of coverage under the
Policy as of the effective date of the cession. Under the Supplemental
Retrocession Agreement, unexpired liability in respect of the Policies is
assumed on the same basis as risks retroceded to the Company under the
principal Retrocession Agreement.
Loss Reserves. Reserves are balance sheet liabilities representing estimates
of amounts needed in the future to pay claims with respect to insured events
which have occurred as of the balance sheet dates.
For purposes of establishing loss reserves, the Company relies upon the
advice of MIC. Loss reserves are established after an annual actuarial review,
based on judgments of the effects of technological change, manufacturer's
warranties, and MIC's historical experience with automotive mechanical
breakdown risks. Consequently, the determination of loss reserves is a process
inherently subject to a number of highly variable factors. Any adjustments to
reserves are reflected in the operating results for the periods in which they
become known.
The Company's incurred loss ratios (losses incurred as a percentage of net
premium earned) on all mechanical business for the fiscal years ended December
31, 1993, 1992, and 1991 were 70.7%, 62.8%, and 68.2%, respectively.
The following table sets forth an analysis of changes in the loss reserves for
the fiscal years ended December 31, 1993, 1992 and 1991:
Period Ended
____________
12/31/91 12/31/92 12/31/93
________ ________ ________
Beginning balance in
reserves for losses......... $1,075,123 $1,396,542 $1,622,855
__________ __________ __________
Add-provision for losses
incurred related to:
Current claim year........ 7,301,654 8,461,984 11,046,932
Prior claim years......... (282,726) (297,535) (134,249)
__________ __________ __________
Total................. 7,018,928 8,164,449 10,912,683
__________ __________ ___________
Deduct-paid losses
attributable to:
Current claim
year...................... 5,948,952 7,025,671 9,363,720
Prior claim
years..................... 748,557 912,465 1,261,788
__________ __________ ___________
Total..................... 6,697,509 7,938,136 10,625,508
__________ __________ ___________
Ending balance in reserves
for losses.................. $1,396,542 $1,622,855 $1,910,030
__________ __________ ___________
The following table analyzes the development of loss and loss adjustment
expense, from February 1, 1989 through December 31, 1993.
1/31/90 12/31/90 12/31/91 12/31/92 12/31/93
_______ ________ ________ ________ ________
Liability for
unpaid claims
and claims
adjustment
expense $ 766,912 $1,075,123 $1,396,542 $1,622,855 $1,910,030
__________ __________ __________ __________ __________
Paid (cumulative)
in subsequent
year(s) $ 666,866 $ 748,557 $ 912,465 $1,261,788
Estimated unpaid
liability as of
year end 2,393 43,840 186,542 226,818
__________ __________ __________ __________
Cumulative
Deficiency
(Redundancy) $ (97,653) $ (282,726) $ (297,535) $ (134,249)
__________ __________ __________ __________
Because mechanical breakdown claims are generally paid within 90 days of
when they are incurred, liability for unpaid claims incurred in prior years is
negligible. Accordingly, liability for unpaid claims incurred in all prior
years has been combined at each year end.
The table shows initial estimated reserves at December 31, 1993, 1992, 1991 and
1990 and January 31, 1990 and amounts paid on claims unsettled at each prior
period end. Claims are typically processed for payment at the time the claim
is reported. Therefore, the recorded claim liability at each year end
represents the estimated incurred but not reported claims and claims in the
process of payment. The cumulative deficiency or redundancy represents the
total change in reserve estimates covering prior years.
It should be noted that the policies reinsured by the Company are written for
multiple years (up to six years) and losses do not occur equally over the
period for which the policy is written but tend to be clustered in the later
years. Therefore, loss experience for prior years may not be indicative of
that for future years.
INVESTMENT INCOME
A major source of income to an insurance company is income earned on the
investment of amounts not currently required to meet claims or expenses. The
principal funds available for investment by the Company come from accumulated
capital, and the cumulative excess of premiums collected over losses and
operating expenses paid.
The Company's funds are invested in a manner consistent with investment
guidelines that are established by the Board. Under the guidelines in effect
prior to April, 1994, the Company was permitted to invest only in U.S.
dollar-denominated securities issued outside of the United States by non-United
States private or governmental issuers, and U.S. dollar-denominated bank
certificates of deposit issued by foreign banks and foreign branches of U.S.
banks. Subject to the satisfaction of certain conditions, the Board
authorized, in April, 1994, limited investments in non-dollar denominated
bonds, on a fully currency-hedged basis. The Company may invest only in
securities and certificates which are rated at least Aa3 by Moody's or AA- by
Standard & Poor's or the equivalent, or are guaranteed by such an issuer. As
of April, 1994, certain unrated securities may also be held if, in the opinion
of the investment manager, they have at least equivalent credit standing to the
above rating standard. The Board reviews on a regular basis and, where
appropriate, revises the investment objectives and guidelines for the Company's
funds. There can be no assurance, however, as to whether a particular
investment objective, once adopted, can be achieved or that adverse factors
would not cause a decrease in the overall value of the Company's investment
portfolio.
Investments in non-U.S. securities, particularly those of non-governmental
issuers, may involve considerations not ordinarily associated with investments
in domestic issuers. These considerations include, but are not limited to, the
possibility of expropriation, the unavailability of financial information or
difficulty in interpreting such information when it is prepared under foreign
accounting or regulatory standards, the possible negative impact of political,
social or diplomatic developments, and the possible imposition of withholding
taxes by foreign taxing authorities.
Changes in interest rates in the quarter ended March 31, 1994 adversely
affected the market values of the Company's investment portfolio at that date
and its investment income in the quarter then ended as compared with the
quarter ended March 31, 1993. Realized losses on the sale of investment
securities in the quarter ended March 31, 1994 were $303,389 compared to
realized gains of $378,444 in the quarter ended March 31, 1993. Unrealized
losses on investment securities held at March 31, 1994 were $1,163,467 compared
to unrealized gains at December 31, 1993 of $99,886.
Rothschild Asset Management Limited ("Rothschild") manages the investment and
reinvestment of the Company's funds in accordance with the investment policies
and guidelines established by the Board. Rothschild, which is one of the
leading institutions engaged in the management of offshore fixed-income
portfolios, and which has been providing this service since 1974, is an
affiliate of NM Rothschild and Sons Limited, a prominent merchant bank in
London which has been in the investment management business worldwide for more
than 100 years. Rothschild charges a management fee of 0.3% per annum on the
first $20,000,000 of assets under management based on the market value of the
Company's investment portfolio at the end of each calendar quarter, and 0.15%
per annum on the excess thereof.
EMPLOYES
The Company does not have any full-time employes. Rather, the Company
relies on Alexander Insurance Managers (Barbados) Ltd. (the "Manager"), to
handle its day-to-day operations. (See "Business of the Company -- Insurance
Management Agreement," below.) In addition, corporate secretarial services for
the Company are provided by Colybrand Company Services Limited of St. Michael,
Barbados. The Board and the committees thereof, however, remain responsible
for the establishment and implementation of policy decisions.
COMPETITION
The insurance business is extremely competitive. MIC management believes that
at present, MIC and its subsidiaries are, as a group, one of the largest
mechanical breakdown insurers of new GM vehicles in the United States. There
are other major companies offering similar coverage. Because the insurance
business of the Company is limited to the assumption of certain mechanical
breakdown insurance business ceded by MIC, the profitability of the Company
depends to a large degree on the success experienced by MIC and its affiliates
in competing with those other insurers.
Many commercial insurance groups are seeking to capture additional mechanical
insurance business by offering to assist automobile dealers in the formation of
their own dealer-owned reinsurance companies. MIC itself has assisted in the
establishment of such companies for a number of qualified GM dealers. However,
MIC believes that participation in the Company represents a more practical
alternative for dealers who do not have the available capital, insurance
management expertise or time for the personal involvement necessary for their
own reinsurance company.
INSURANCE MANAGEMENT AGREEMENT
The Company has entered into an Insurance Management Agreement (the "Management
Agreement") with the Manager, pursuant to which the Manager collects and
disburses funds on behalf of the Company, provides bookkeeping, clerical,
telephone, telex, and other services for the Company, and advises and consults
with the Company in regard to all aspects of the Company's retrocession
activities.
Pursuant to the Management Agreement, the Manager has undertaken to maintain an
office in Barbados to perform its duties. Further, during the term of the
Management Agreement and generally for a period of one year thereafter, the
Manager has agreed not to provide management or accounting services for any
other company which, by the nature of its operations, is offering, insuring or
reinsuring mechanical breakdown and/or extended warranty or related coverages
on a multi-state basis in the United States or Canada with respect to motor
vehicles sold by franchised GM dealerships. Under the terms of the Management
Agreement, the Company pays the Manager a fee based on hourly rates for
services performed. For the year ended December 31, 1993, the Company paid
fees to the Manager in the amount of $180,135.
The Manager is responsible for the payment of the salaries of its officers and
employes and all office and staff overhead and other costs attributable to its
services on the Company's behalf. However, out-of-pocket expenses, such as
telephone, telex, postage, travel, and other items are borne by the Company on
an expense reimbursement basis.
The Manager was incorporated in Barbados in 1984, and is an affiliate of
Alexander and Alexander, an international insurance brokerage and insurance
consulting firm. The Manager performs services similar to those performed for
the Company for several other entities. The Manager has nine employes. In
addition, the Manager may draw upon the resources of its affiliates as needed
to provide the services contemplated under the Management Agreement. No
employe of the Manager devotes all of his or her time to the business of the
Company. However, the Manager is obligated to devote all employe time
necessary to ensure the performance of the Manager's duties under the
Management Agreement. The Manager is subject to the control and direction of
the Board.
The Manager has served in that capacity since 1986. The current Management
Agreement became effective on March 19, 1992 and may be terminated by either
party as of the end of the then current fiscal year by the giving of written
notice to the other party by September 1 of that year.
BARBADOS REGULATION AND TAXES
Insurance Regulation. The Company is subject to regulation under the Barbados
Exempt Insurance Act, 1983, as amended (the "Exempt Insurance Act"). The
Exempt Insurance Act and related regulations set forth a number of requirements
applicable to insurers doing business in Barbados. The principal requirements
are as follows:
(1) the Company is required to maintain a principal office in Barbados,
appoint an auditor, and have a resident citizen of Barbados as one of its
directors;
(2) the Company must maintain assets that exceed its liabilities by:
(a) $125,000, where the earned premium in the preceding financial year
did not exceed $750,000;
(b) an amount equal to 20% of the earned premium for the preceding
financial year where the earned premium exceeded $750,000 but did not
exceed $5,000,000; and
(c) an amount equal to the aggregate of $1,000,000 and 10% of the amount
by which the earned premium for the preceding financial year exceeded
$5,000,000.
(3) the Company must have audited financial statements prepared in the
prescribed form ("Statutory Financial Statements") in respect of its
insurance business for each year;
(4) the Company must submit its Statutory Financial Statements to the Barbados
Supervisor of Insurance ("Supervisor") within six months after the end of
the relevant financial year; and
(5) the Company must submit to the Supervisor on an annual basis a certificate
of its auditor that the Company is in compliance with the requirements of
the Insurance Act as at the balance sheet date.
Taxes. Under the Exempt Insurance Act, no income tax, capital gains tax or
other direct tax or impost is levied in Barbados on (1) the profits or gains of
the Company, (2) the transfer of the securities of the Company to any person
who is not a resident of Barbados, (3) the Company, its shareholders or
transferees in respect of the transfer of all or any part of the Company's
securities or other assets to another licensee under the Exempt Insurance Act
or to any person who is not a resident of Barbados, or (4) any portion of any
dividend, interest, or other return payable to any person in respect of his or
her holding any Shares or other securities of the Company. The Company has
received a guarantee from the Minister of Finance of Barbados that such
benefits and exemptions will be available for a period ending December 31,
2001.
Exchange Control. Pursuant to the Exempt Insurance Act, the Company is exempt
from the Barbados Exchange Control Act. Accordingly, the Company may hold any
non-Barbadian currency and convert that currency into any other currency
without restriction.
FACILITIES
The Company neither owns nor maintains any office space or facilities. Rather,
the business office for the Company is provided by the Manager and is located
at Financial Services Centre, Bishops Court Hill, St. Michael, Barbados. The
Company believes that these facilities are adequate for its current and
anticipated future needs. In addition, the Manager supplies all equipment for
the Company, and maintains all insurance records for the Company.
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 1993,
1992 and 1991, the eleven month period ended December 31, 1990 and the fiscal
year ended January 31, 1990 have been derived from financial statements audited
by Deloitte & Touche, independent chartered accountants, whose report with
respect to their audits of the financial statements as of December 31, 1993 and
1992 and for each of the three years in the period ended December 31, 1993 is
included elsewhere in this Prospectus. The data presented for the three month
periods ended March 31, 1994 and 1993 are derived from unaudited financial
statements presented elsewhere in this Prospectus and, in the opinion of
management, include all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the data for such periods. The results
for the three month period ended March 31, 1994 are not necessarily indicative
of the results to be expected for the full fiscal year. This information
should be read in conjunction with the information under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes included elsewhere in this
Prospectus.
Three Months Ended March 31,
______________________________
1994 1993
____ ____
Premiums Assumed $8,816,331 $5,389,885
__________ __________
Premiums Earned 4,571,906 3,572,828
Net Investment Income 267,303 839,973
__________ __________
Total Income 4,839,209 4,412,801
Less Losses and
Expenses 4,516,391 3,679,676
__________ __________
Net Income 322,818 733,125
__________ __________
Dividends Per Common
Share 0 0
Total Assets 53,984,124 39,843,550
Total Policy Reserves
and Other Liabilities 46,920,295 31,646,894
Stockholders' Equity 7,063,829 8,196,656
Dividends Paid on
Participating Shares 0 0
Periods Ended December 31, January 31
____________________________________________________ __________
1993 1992 1991 1990 1990
____ ____ ____ ____ ____
Premiums
Assumed $27,779,063 $19,386,455 $16,784,405 $12,957,759 $10,032,140
___________ ___________ ___________ ___________ ___________
Premiums
Earned 15,429,611 13,005,184 10,292,788 8,177,525 5,183,768
Net Investment
Income 2,700,242 2,522,712 1,792,947 843,021 727,844
___________ ___________ ___________ ___________ ___________
Total Income 18,129,853 15,527,896 12,085,735 9,020,546 5,911,612
Less Losses and
Expenses 15,425,146 12,020,682 10,165,350 8,280,612 5,297,836
___________ ___________ ___________ ___________ ___________
Net Income 2,704,707 3,507,214 1,920,385 739,934 613,776
___________ ___________ ___________ ___________ ___________
Dividends Per
Common Share 0 0 0 0 0
Total Assets 50,359,633 36,847,490 28,124,056 18,759,382 12,507,645
Total Policy
Reserves and
Other
Liabilities 42,430,269 29,777,783 23,148,003 16,347,245 11,238,143
Stockholders'
Equity 7,929,364 7,069,707 4,976,053 2,412,137 1,269,502
Dividends Paid on
Participating
Shares 2,021,504 1,021,705 150,317 114,376 0
Information as to earnings per share is not provided inasmuch as the
results for each series of stock will vary with the underwriting experience
attributable to each Subsidiary Capital Account established with respect to
that series. See Note 2(f) to the financial statements.
In May of 1990, the Company changed its fiscal year end from January 31 to
December 31.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity. The Company expects to generate sufficient funds from operations
to cover current liquidity needs. The Company's liquidity requirements are
related to payment of insurance losses, administrative expenses, and dividends.
Premiums generated by the Company's reinsurance business, combined with
investment earnings plus proceeds from the sale of Shares, will continue to be
the principal sources of funds for the Company. Although losses are expected
to increase due to the increased level of premiums assumed in each preceeding
year and the anticipated incidence of claims following the expiration of
manufacturers' warranties, available funds from the sources identified above
have also grown. Net cash provided by operating activities has increased from
$5,386,977 in 1991 and $7,598,500 in 1992 to $12,422,648 in 1993. The Company
believes that such funds will be sufficient to meet its liquidity requirements
in 1994 and in future years to which its reinsurance liabilities extend. No
capital expenditures are expected during the next few years.
See "Dividends" for a discussion of dividends paid and legal restrictions on
the payment of dividends.
On April 8, 1994, the Board of Directors authorized the payment of dividends
to eligible holders of Participating Shares aggregating $2,156,304.
Capital Resources. Capitalization of the Company, as of December 31, 1993,
was comprised of paid-in capital with respect to the Common Stock of $200,000,
paid-in capital with respect to the Shares of $1,417,500 (compared with
$1,072,500 and $817,500 as of December 31, 1992 and 1991, respectively), and
earnings retained for use in the business. As of March 31, 1994, the share
capital of the Company was $1,692,500, comprised of paid-in capital with
respect to the Common Stock of $200,000 and paid-in capital with respect to
Participating Shares of $1,492,500. In addition, the Company had surplus from
retained earnings in the amount of $6,534,796 and unrealized depreciation on
marketable securities of ($1,163,467).
Barbados law requires that the Company's net assets equal at least the
aggregate of $1,000,000 and 10% of the amount by which the earned premium
exceeded $5,000,000 in the previous fiscal year. If the Company's net asset
ratio is less than mandated by Barbados law, the Company has the right to
reduce the business related to a Subsidiary Capital Account by retrocession or
any other means to the extent necessary to permit the Subsidiary Capital
Account to meet its pro rata share of the Company's required capital and
surplus. At January 1, 1994, the Company's required minimum net assets
computed in accordance with Barbados law was approximately $2,042,961, compared
to total capital and retained earnings of $7,929,364.
First Quarter Ending March 31, 1994. Net premium volume continues to
increase as additional participants are added to the program. During the
quarter ended March 31, 1994, 10 new series of Shares were added bringing the
total number of series approved to 199. Premiums earned increased by $999,078
over the comparable period of 1993. The ratio of losses incurred to premiums
earned for the quarter under review is 69.8% as compared to 73.1% for the
quarter ended March 31, 1993.
Expenses increased by $836,715 to $4,516,391 in the quarter ended March 31,
1994 from $3,679,676 in the first quarter of 1993. Net underwriting income in
the quarter ended March 31, 1994 increased $162,363 to $55,515 compared with an
underwriting loss of $106,848 in the 1993 quarter. The increase in net
underwriting income, however, was offset by a decline in investment income of
$572,670, from $839,973 in the first quarter of 1993 to $267,303 in the
comparable period of 1994, due to realized losses on the sale of invested
assets. The Company has reported net income for the three month period ended
March 31, 1994 of $322,818 compared to net income of $733,125 for the three
month period ended March 31, 1993.
Changes in interest rates in the quarter ended March 31, 1994 adversely
affected the market values of the Company's investment portfolio at that date
and its investment income in the quarter then ended as compared with the
quarter ended March 31, 1993. Realized losses on the sale of investment
securities in the quarter ended March 31, 1994 were $303,389 compared to
realized gains of $378,444 in the quarter ended March 31, 1993. Unrealized
losses on investment securities held at March 31, 1994 were $1,163,467 compared
to unrealized gains at December 31, 1993 of $99,886. The Company's investment
guidelines do not permit the use of financial instrument derivatives in
managing interest rate risk.
Cash, cash equivalents and investments valued at market have increased from
$36,671,259 at the beginning of the year to $37,946,767 at March 31, 1994.
FASB Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" is effective for years beginning after December 15, 1993 and
will require the Company to classify its securities holdings into three
categories (trading, available for sale, and held to maturity). The Company
adopted Statement No. 115 in 1994 and classified its securities portfolio as
available for sale. Adoption of the statement did not have a material effect
on the Company's financial position and results of operations.
Results of Operations - Year Ended December 31, 1993. The Company became
operational during the fiscal year ended January 31, 1988. The Company's first
year of full operation was the fiscal year ended January 31, 1989. In May of
1990, the Company changed its fiscal year end from January 31 to December 31.
A full 12 months of underwriting activity are reflected in the financial
statements for all periods presented. The results of operations for the 11-
month period ended December 31, 1990, however, include only 11 months'
investment income and administrative expense. Accordingly, results for the 11-
month period ended December 31, 1990 are not fully comparable with results for
full fiscal years.
____________________
For the 11-month period ended December 31, 1989, the Company had $5,183,768
of earned premium, $673,785 of investment income and incurred $5,278,717 of
losses and expenses. The net income of the Company for the period was
$578,836.
During the fiscal year ended December 31, 1993, the Company had net income
of $2,704,707 compared to $3,507,214 and $1,920,385 for the fiscal years ended
December 31, 1992 and 1991, respectively. The reduction in net income during
1993 compared to the previous year is the result primarily of an increase in
losses incurred as discussed below. The Company had earned premiums of
$15,429,611 compared to $13,005,184 and $10,292,788 for the fiscal years ended
December 31, 1992 and 1991, respectively. Increased premium income has been
generated by the addition of 46 new series during the year ended December 31,
1993, and the continuing flow of reinsurance premiums from series issued in
prior fiscal years. There were 189 series of Shares outstanding at
December 31, 1993 compared to 143 and 109 series of Shares outstanding at
December 31, 1992 and 1991, respectively. Investment income during the period
totaled $2,700,242 compared to $2,522,712 and $1,792,947 for the fiscal years
ended December 31, 1992 and 1991, respectively. These gains are attributable
to an increase in assets under management which were partially offset by lower
interest rates. At present, the Company's investments are comprised entirely
of U.S.-dollar denominated fixed-income securities. In the future, the Company
may also invest in foreign-denominated bonds in situations where the investment
manager anticipates a higher rate of return (net of hedging costs) than would
be available in the market for similarly rated U.S.-dollar denominated bonds.
(See "Business of the Company -- Investment Income.")
The Company incurred losses and expenses during the fiscal year ended
December 31, 1993 of $15,425,146 compared with $12,020,682 and $10,165,350 for
the fiscal years ended December 31, 1992 and 1991, respectively. This was
comprised of provisions for losses incurred during the period of $10,912,683,
ceding commissions and excise taxes of $4,009,285 and operating expenses of
$503,178. Losses incurred in 1992 and 1991 were $8,164,449 and $7,018,928,
respectively. The ratio of losses incurred to premiums earned for the fiscal
year ended December 31, 1993 was 70.7% compared to 62.8% and 68.2% for the
fiscal years ended December 31, 1992 and 1991, respectively. Management
believes the Company's increased loss experience in 1993 reflects the effects
of changes in underlying manufacturer's warranties. The expiration during 1992
of certain unlimited mileage mechanical plans that had been retroceded to the
Company and the elimination of certain deductibles under warranties for certain
1992 model vehicles had a favorable impact on 1992 loss experience. On the
other hand, the reduction of warranties from 50,000 to 36,000 miles for certain
1992 model vehicles adversely affected 1993 losses. Management does not
believe that the level of losses will continue to rise. The loss ratio in the
first quarter of 1994 was 69.8%, as compared to 73.1% for the quarter ended
March 31, 1993.
The Company incurred operating expenses during the fiscal year ended December
31, 1993 of $503,178 compared to $478,475 for the fiscal year ended December
31, 1992 and $307,301 in 1991. In 1993 and 1992, the Company paid share
issuance costs and allocated such costs to the Subsidiary Capital Account for
the Common Stock. In previous years, these expenses had been paid by MIC
pursuant to an agreement by which MIC agreed to pay the costs of issuing shares
until such costs could be allocated to the Subsidiary Capital Account for the
Common Stock. Share issuance costs for the fiscal year ended December 31,
1993, which were paid by the Company and charged to the Subsidiary Capital
Account for the Common Stock, were $74,461 compared to $80,298 for the fiscal
year ended December 31, 1992.
Pursuant to the Retrocession Agreement, the Company must furnish to MIC
collateral in the form of an irrevocable letter of credit of at least 12 months
duration generally equal in amount to the unearned premium in respect of risks
retroceded and unpaid loss reserves (including reserves for losses incurred but
not reported) otherwise required to be maintained by MIC in respect of the
Policies. As of December 31, 1993, the Company had furnished such a letter of
credit in the amount of $32,250,000.
MANAGEMENT
DIRECTORS AND OFFICERS
Five of the current directors of the Company were elected by MIC through its
ownership of the Common Stock. One director was elected by the holders of the
Shares at the Annual Shareholders Meeting held on April 8, 1994. The directors
and officers of the Company are as follows:
POSITION WITH THE COMPANY
(AND OTHER EMPLOYMENT DURING
NAME AGE PAST FIVE YEARS)
Robert T. O'Connell........ 55 Chairman and Chief Executive Officer
and Director (Chairman of the Board,
General Motors Acceptance Corporation
("GMAC"), and Motors Insurance
Corporation ("MIC")).
Mr. O'Connell became a Director and was
appointed Chairman and Chief Executive
Officer in April of 1992.
Joseph J. Pero ............ 54 President and Director (President and
Director, MIC).
Mr. Pero has been a Director since
1986. He served as Vice-President from
1986 until 1987 when he was appointed
President.
Vincent K. Quinn .......... 63 Executive Vice-President and Director
(Executive Vice-President and Director,
MIC).
Mr. Quinn has been a Director since
1986. He was appointed Executive Vice-
President in April of 1992.
Louis S. Carrio, Jr. ...... 50 Vice-President and Director
(Vice-President, MIC).
Mr. Carrio became a Director and was
appointed Vice-President in June of
1991.
Peter R. P. Evelyn ........ 52 Director (Attorney, Evelyn, Gittens &
Farmer, a Barbados law firm).
Mr. Evelyn has been a Director since
1986.
Donald C. Mealey........... 58 Director (President, Don Mealey
Chevrolet, Inc.).
Mr. Mealey became a Director in April
of 1994.
Ronald W. Jones ........... 41 Vice-President, Finance (Managing
Director, Alexander Insurance Managers
(Barbados) Ltd.).
Mr. Jones has served as Vice-President,
Finance since 1987.
Michael R. Boyce ........... 54 Secretary (Principal, Colybrand Company
Services, Limited, Barbados, since
1993; previously principal, Price
Waterhouse, Eastern Caribbean).
Mr. Boyce was elected Secretary in
1994. Mr. Boyce served previously as
Assistant Secretary to the Company.
The directors and officers named above serve in those capacities until the
annual meeting of shareholders next following their election.
ALTERNATE DIRECTORS
The By-Laws allow for the election of an alternate director for each director.
The holders of the Common Stock may elect up to five alternate directors and
the holders of the Shares may elect one alternate director. An alternate
director may attend meetings of directors and vote in respect of any matter
presented if the director for whom he is an alternate is not present.
Alternate directors shall not otherwise be deemed directors of the Company for
any purpose. At the Annual Shareholders Meeting held on April 8, 1994,
alternate directors were elected for Messrs. Quinn and Carrio.
COMMITTEES OF THE BOARD
The By-Laws authorize the Board to delegate any of its powers to committees of
two or more directors. The only currently existing committee of the Board is
the Nominating Committee which consists of three directors, including one
elected by the holders of Shares and two elected by the holders of the Common
Stock. The duties of the Nominating Committee are limited to the nomination of
one person, who may not be an incumbent director but may be an incumbent
alternate director, to stand for election as a director representing the
holders of Shares at the next following annual meeting and the nomination of
one person, who may not be an incumbent director, to stand for election as an
alternate director by the holders of Shares at the next following annual
meeting.
REMUNERATION
No director or officer of the Company is compensated directly by the Company
for his services as such. However, each director and officer of the Company is
reimbursed for expenses incurred for attendance at Board, committee, and
shareholder meetings. In addition, Mr. Jones is an officer of the Manager,
which receives management fees and compensation for data processing services;
Mr. Evelyn is a member of the law firm of Evelyn, Gittens & Farmer, which
serves as the Company's Barbados counsel; and Mr. Boyce is affiliated with
Colybrand Company Services Limited, St. Michael, Barbados, which provides
corporate secretarial services to the Company.
PRINCIPAL SHAREHOLDER
MIC owns all of the issued and outstanding shares of the Common Stock of the
Company, which consist of 2,000 shares. Donald C. Mealey, a director, owns 140
shares in three series of Participating Stock.
DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized to issue 2,000 shares of Common Stock,
without nominal or par value per share, all of which have been issued to MIC
and are outstanding. In addition, the Company is currently authorized to issue
100,000 shares of Participating Stock (the "Shares"), also without nominal or
par value per share (collectively, the Shares and the Common Stock are referred
to as the "Capital Stock"). The Shares are issued in series of 100 shares. As
of March 31, 1994, 19,900 Shares representing 199 series had been issued and
were outstanding and were held of record by 338 shareholders. Subsequently
three series totalling 300 shares were redeemed due to unsatisfactory
performance. All of the Capital Stock is, when issued and outstanding, fully
paid and nonassessable. No shares of Capital Stock have conversion, preemptive
or sinking-fund rights.
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company has established a Subsidiary Capital Account with respect to the
Common Stock as a class, and establishes such an account with respect to each
series of Shares at the time a series is issued. Subsidiary Capital Accounts
are maintained solely for the purpose of the allocations described below, and
do not serve any other legal or accounting function. None of the Company's
assets are segregated or earmarked with respect to those accounts.
The consideration received by the Company upon the issuance of a particular
series of Shares and the Common Stock as a class are allocated to the
Subsidiary Capital Account for that series or class. Items of income and
expense, and losses, attributable to insurance underwriting activities are
determined and allocated to the Subsidiary Capital Accounts as of the end of
each quarter. Investment experience, and other items of income and expense,
gains and losses and distributions with respect to the Capital Stock, are
determined and allocated to the Subsidiary Capital Accounts as of the end of
each quarter. All such accounting determinations are made using United States
generally accepted accounting principles, unless otherwise required by the
Articles.
For purposes of the following discussion, items shall be "related" to the
Subsidiary Capital Account for the series identified with the MIC Agency
Account to which such items can be attributed.
(1) Allocations with respect to underwriting activities are made as follows:
(a) With respect to premiums ceded by MIC to the Company, 100% to the
related Subsidiary Capital Account; provided, however, that an amount
equal to 1-1/3% of those premiums, net of related ceding commissions,
are subtracted from such Subsidiary Capital Account and allocated to
the Subsidiary Capital Account for the Common Stock.
(b) With respect to any agents' or brokers' commissions, commissions
recaptured, unearned premiums, reinsurance premiums ceded, and any
United States excise tax, 100% to the related Subsidiary Capital
Account.
(c) With respect to losses incurred, and any amount of losses recovered
through salvage, subrogation, reimbursement or otherwise,
(i) Ninety percent (90%) to the related Subsidiary Capital Account;
and
(ii) The remainder among all Subsidiary Capital Accounts of the
Shares pro rata in accordance with the relative earned premiums
attributable to those accounts for the calendar quarter in which
the losses are incurred.
(d) With respect to return premiums, 98-2/3% to the related Subsidiary
Capital Account and 1-1/3% to the Subsidiary Capital Account for the
Common Stock.
(2) Any expenses or liabilities attributable to day-to-day Company operations,
excluding any United States Federal income taxes, are allocated among all
Subsidiary Capital Accounts for the Shares pro rata in accordance with the
relative earned premiums allocated to those accounts for the quarter in
which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any interest thereon
or any penalties related thereto) is allocated among the Subsidiary
Capital Accounts based upon the relative contribution of each of those
accounts to the taxable income of the Company upon which the tax (or any
interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the sale and issuance of
Shares, including but not limited to the costs of compliance with
regulations and requirements of the Securities and Exchange Commission and
state securities laws (but not including ongoing periodic reporting
costs), are allocated to the Subsidiary Capital Account for the Common
Stock; however, MIC may undertake to pay such expenses.
(5) Any expenses or liabilities of the Company not allocable in the manner
described in paragraphs 2 through 4 above are allocated among the
Subsidiary Capital Accounts on the basis of the relative balances of those
accounts as of the end of the quarter preceding the date on which the
expense or liability is incurred.
(6) (a) Investment income, net of any direct investment expense, is allocated
among the Subsidiary Capital Accounts pro rata based upon the
relative Investment Asset Balance (as defined in subparagraph (b)
below) of each of those accounts as of the last day of the quarter
preceding the quarter for which the investment income is being
allocated. For these purposes, net investment income includes
realized (but not unrealized) gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital Account is
equal to the capital and surplus of each account, increased by:
(i) the unearned portions of the written premiums that have been
collected by the Company attributable to those accounts as of
the last day of the quarter preceding the quarter for which the
income is being allocated, net of any applicable commissions and
taxes;
(ii) the outstanding loss reserves attributable to each of those
accounts as of the last day of the quarter preceding the quarter
for which the income is being allocated; and
(iii) any other outstanding liability that has been charged to the
account as of the last day of the quarter preceding the quarter
or which the income is being allocated.
(7) (a) If, after the credits and charges described in paragraphs 1-6 above
are made to the Subsidiary Capital Accounts there exists a deficit in
one or more of the accounts, then each such deficit is allocated to
and charged against:
(i) first, the Subsidiary Capital Account for the Common Stock to
the extent of Restricted Earned Surplus (the phrase "Restricted
Earned Surplus" refers to the portion of the earned surplus, if
any, in the Subsidiary Capital Account for the Common Stock
equal to that 1-1/3% of the premiums ceded to the Company during
the immediately preceding five-year period which was subtracted
from the Subsidiary Capital Accounts for the Shares pursuant to
paragraph 1(a) above, net of losses allocated to that account
during such period pursuant to the allocation procedure
described in this paragraph 7 and net of return premiums
allocated to that Account during such period pursuant to the
allocation procedure described in paragraph (1)(d) above);
(ii) then, the Subsidiary Capital Accounts for the Shares, pro rata,
based upon the relative earned premiums allocated to each such
account for the quarter for which the allocation is being made,
provided, however, that only accounts which have positive
balances are taken into account for purposes of this allocation;
(iii) then, the remaining Subsidiary Capital Accounts for the Shares
with positive balances as of the last day of the quarter for
which the allocation is being made, pro rata, based upon such
balances; and
(iv) then, to the extent necessary, the Subsidiary Capital Account
for the Common Stock.
(b) If, as a result of an allocation of a deficit as described in
subparagraph (ii) or (iii) of paragraph (a) above, a deficit is
created in one or more of the Subsidiary Capital Accounts, then the
resulting deficit(s) are further allocated in the manner provided in
that subparagraph before applying a subsequent subparagraph.
(c) Notwithstanding the foregoing, if any Subsidiary Capital Account for
a series of Shares had a deficit that was allocated to and charged
against the Restricted Earned Surplus, then at the end of any
succeeding quarter for which that account otherwise would show an
account balance greater than zero, the balance is reallocated to the
Restricted Earned Surplus until all reductions of that surplus
attributable to that Subsidiary Capital Account have been restored.
Thus, a loss in a Subsidiary Capital Account which exceeds the
balance in that account is absorbed by other Subsidiary Capital
Accounts, in general, as follows: The amount of such excess losses is
charged first to the Restricted Earned Surplus portion of the
Subsidiary Capital Account of the Common Stock. Any remaining
losses, should the Restricted Earned Surplus be exhausted, are
allocated among the Subsidiary Capital Accounts of other
participating series. Any then unabsorbed losses are charged to the
Subsidiary Capital Account of the Common Stock.
Funds drawn from the Restricted Earned Surplus in the manner
described above must be restored from the Subsidiary Capital Account
that drew the funds if at any time it returns to a positive balance.
Funds drawn from the Subsidiary Capital Accounts of other series are
not, however, restored.
(8) (a) Dividends, payments upon redemption or liquidation (described below),
and any other distributions with respect to the Capital Stock are
allocated to the Subsidiary Capital Account for the class or series
with respect to which the dividend, payment or distribution was made.
(b) Where all Shares of a series are repurchased by the Company pursuant
to its right of first refusal or redeemed in accordance with the
Company's procedures for redemption, the Subsidiary Capital Account
for that series is terminated. Thereafter, all income, expenses,
gains and losses that would have been allocated to the terminated
account, will be allocated among the Subsidiary Capital Accounts of
the existing series of Shares pro rata based upon relative earned
premiums attributable to such accounts for the calendar quarter in
which the item was earned or incurred; provided, however, that a net
deficit for any such period shall be allocated in accordance with the
provisions described above
Using the procedures described above, the Company has allocated items of gain
and loss to the Subsidiary Capital Account for each series. Initially each
Account had a balance of $7,500 representing the amount paid for the Shares of
that series. During the fiscal year ended December 31, 1993, $507,643 of net
underwriting gains were allocated among the 189 series of Shares outstanding as
of December 31, 1993 and $2,700,242 of net investment income and $503,178 of
administrative expenses were allocated among the 189 series of Shares
outstanding as of December 31, 1993 and the Common Stock.
As of December 31, 1993, 163 such series had balances greater than $7,500
(ranging from $7,537 to $187,718) and 26 series had balances less than $7,500
(ranging from $6,904 to zero). (It should be noted that the amounts in the
Subsidiary Capital Accounts can fluctuate substantially and therefore may not
be indicative of future results.) At December 31, 1993, an aggregate of
$901,758 had been advanced from the Restricted Earned Surplus (which forms a
portion of the Account established for the Common Stock owned by MIC) to 15
Subsidiary Capital Accounts and remained outstanding at that date. Aggregate
deficits reallocated among the Subsidiary Capital Accounts of the Shares
through December 31, 1993 were $369,711.
The Subsidiary Capital Account for the Common Stock had, at the time it was
established, a balance of approximately $200,000, representing the capital paid
in by MIC for the 2,000 shares of the Common Stock issued to it. That
Subsidiary Capital Account is not affected directly by underwriting gains and
losses attributable to the various Subsidiary Capital Accounts related to
series of Shares, but is affected by those gains and losses indirectly to the
extent that one of the Subsidiary Capital Accounts for a series of Shares
incurs a deficit, in which case resort to the Subsidiary Capital Account for
the Common Stock will result, in the manner described above.
The allocations of income and expense, gains and losses, and distributions
described above are subject to approval by the Board, and when finally so
approved are considered final and conclusive and will be binding on all holders
of Shares for all purposes including without limitation any redemption of
Shares pursuant to the Company's procedures for redemption. (See "Description
of Capital Stock -- Redemption.")
The Company is currently in compliance with net asset value requirements of
Barbados insurance law. However, in the event that the Company is unable to
comply with such requirements in the future, it has the right to reduce the
business related to a Subsidiary Capital Account by retrocession or any other
means to the extent necessary to permit the Subsidiary Capital Account to
meet its pro rata share of the Company's required capital and surplus.
VOTING RIGHTS
Subject to the following, holders of Capital Stock are entitled to one vote for
each share held on any question on which the holder is entitled to vote. The
matters on which holders of Capital Stock are entitled to vote, and the
relative voting rights of each class of stock, are set forth below.
Election of Directors. The holders of Shares as a class are entitled to elect
one director of the Company and one alternate director, and the holders of
Common Stock as a class are entitled to elect five directors and up to five
alternate directors. At least one of the directors must be resident in
Barbados. Cumulative voting is not permitted.
Proxies. Any shareholder of the Company may appoint another person as his or
her proxy to act on behalf of the appointing shareholder at any annual meeting
of the Company. The appointment of a person as proxy for a shareholder must be
in writing.
Liquidation. The Company may be liquidated upon the vote of at least 75% of
the outstanding Shares. (See "Description of Capital Stock -- Redemption," and
"Description of Capital Stock -- Liquidation.")
Changes in Articles and By-Laws. No change may be made in the Articles or
By-Laws unless a majority of the Shares, and a majority of the Common Stock,
present in person or by proxy and voting at a meeting at which a vote on that
issue is put forth for a vote, approve the change. In addition, no amendment
may vary the rights associated with any one series unless either the rights
associated with all other series are similarly changed or a majority of the
holders of the Shares of each series present in person or by proxy at a meeting
vote in favor of the amendment.
Other Matters. Any matters other than those described above which call for a
shareholder vote require only approval by a majority of the outstanding shares
of Common Stock.
REDEMPTION
Pursuant to the Articles, the Capital Stock may be redeemed as follows: The
Company may redeem outstanding Shares of a series at any time for any reason if
the redemption of such Shares is approved by a majority of the Board of
Directors, provided that the Director representing the Shares must vote in
favor of the action being taken. The Common Stock is nonredeemable in all
circumstances.
A redemption of Shares is effective as of the date specified by the Board of
Directors but no later than the end of the calendar year in which the
redemption was approved by the Board. This date is referred to hereinafter as
the "Redemption Date." The consideration payable to the holders of redeemed
shares of Capital Stock will be the Subsidiary Capital Account balance
("Account Balance") of those shares as of the Redemption Date, as adjusted by
the Board to reflect unrealized gains and losses on investments held by the
Company and any contingent liabilities allocable to such account. Each holder
of redeemed Shares will receive the pro rata portion of the Account Balance
that corresponds to the proportionate number of Shares of the series owned.
The Account Balance will be paid within five months of the Redemption Date and
bear interest from the Redemption Date until the date of payment at a rate
equal to the yield on 26-week U.S. Treasury Bills for the issue immediately
following the Redemption Date.
Upon the redemption of Shares on the Redemption Date, the redeemed Shares will
be cancelled and the holders thereof will no longer have any interest in the
Shares redeemed or in the Subsidiary Capital Account with respect to the
redeemed Shares.
LIQUIDATION
Subject to Barbados regulatory and judicial approvals, the Company may be
liquidated upon the vote of 75% of the outstanding Shares. (See "Description
of Capital Stock -- Redemption.") In the event of the liquidation of the
Company, after payment of all liabilities of the Company, each holder of Shares
of a series is entitled to receive his pro rata share of his respective Account
Balance before any distribution of the assets of the Company is made to the
holder(s) of Common Stock. Thereafter, the holders of Shares are not entitled
to participate further in the distribution of the assets of the Company. Each
holder of Common Stock will be entitled to receive his pro rata share of the
remaining assets of the Company, if any.
RESTRICTIONS ON TRANSFER
There is no existing public market for the Shares, and it is not anticipated
that one will develop in the future. In addition, the Articles set forth a
number of restrictions on the manner in which the Shares may be transferred.
These restrictions and certain exceptions thereto are described below.
Transfers of Less Than All Shares of a Series. Subject to the exceptions
described below, transfers of less than all Shares of a series may not be made
unless the transfer is to the Company, or the holder(s) of the Shares sought to
be transferred has received the written consent of the Company. A request for
consent must be made in writing and set forth the name(s) and address(es) of
the intended transferee(s), the desired date of the transfer and the
consideration to be paid. No transfer may otherwise be made by a shareholder
of less than all of the Shares of a particular series that he owns. If the
Company fails to give its written consent, any subsequent transfer is void and
of no effect.
Right of First Refusal. Subject to the exceptions described below, transfers
of Shares of a series may not in any event be made unless the holder(s) has
received a bona fide written offer to purchase such Shares, a copy of that
offer has been furnished to the Company, and the Company is thereafter offered
the opportunity to purchase the Shares. The Company will have 60 days during
which to exercise its right to purchase the Shares sought to be transferred.
If the Company accepts the offer to purchase, the price will be the lesser of
the Account Balance for the series of Shares sought to be transferred as of the
last day of the quarter immediately preceding the date on which the offer to
purchase was accepted by the Company, or the bona fide offering price. A
purchase made by the Company pursuant to this "right of first refusal" will be
deemed effective upon acceptance by the Company of the offer to purchase,
although payment by the Company may be deferred until the end of the quarter in
which the offer to purchase is accepted by the Company. Shares purchased by
the Company pursuant to its right of first refusal will be cancelled.
Exceptions for Certain Transfers. A transfer of either all or a portion of the
Shares of a series is not subject to either the consent or right of first
refusal of the Company where the Board determines that the transferee of the
shares is: (1) a member of the transferring shareholder's immediate family; (2)
a trust for the benefit of the transferring shareholder or for the benefit of
other exempted transferees described in this paragraph; (3) if the transferor
is a corporation, any of its shareholders; (4) if the transferor is a
partnership, any of its partners; (5) a corporation which is controlled by or
under common control with the transferor; (6) the estate of a deceased
shareholder and legatees or heirs of a deceased shareholder; (7) a charitable
or other qualifying organization described in section 170(c)(2) of the United
States Internal Revenue Code of 1986, or any successor provision thereto; (8)
in the case of a transfer of less than all the Shares of a series, a person who
immediately prior to such transfer is a holder of Shares of that series; or (9)
a key employe of an owner of a Franchise previously designated in the Stock
Purchase Agreement entered into by the transferor.
Provisions Applicable to All Transfers. No Shares may be transferred unless
and until the Board has received, from the holder of the Shares sought to be
transferred, assurances of compliance with all applicable laws and regulations.
Further, transferees of Shares must agree to abide by the requirements set
forth in the Stock Purchase Agreement entered into by the transferor.
Certificates representing the Shares will bear a legend noting the applicable
limitations on transfers.
COMMON STOCK
On June 13, 1986 and January 16, 1987, the Company issued to MIC 1,250 shares
and 750 shares, respectively, of Common Stock of the Company, without nominal
or par value.
A Subsidiary Capital Account has been established for this class of stock, and
allocations of various items to such account are described above. (See
"Description of Capital Stock -- Allocations to Subsidiary Capital Accounts.")
Holders of Common Stock as a class are entitled to elect five directors, at
least one of whom must be resident in Barbados, and up to five alternate
directors. As a class, these holders generally have the sole right to vote on
matters not specifically reserved to the Shares. (See "Description of Capital
Stock -- Voting Rights.")
BARBADOS CORPORATE LAW PROVISIONS
The corporate law of Barbados was derived historically from that of England
prior to the coming into force in 1985 of the Companies Act Cap. 308 of the
Laws of Barbados, which is similar to the Canada Corporations Act. Barbados
law may differ in certain respects from comparable law in the United States.
The following is a summary of certain provisions of Barbados corporate law as
prepared by Evelyn, Gittens & Farmer, the Company's Barbados counsel. The
summary does not purport to contain all applicable provisions and does not
purport to be complete or cover all respects in which Barbados corporate law
may differ from laws generally applicable to United States corporations and
their shareholders.
Dividends and Distributions. Under Barbados law, a company may pay dividends
only if there are reasonable grounds for believing that (a) the company would
be able, after the payment of the dividends, to pay its liabilities as they
become due, and (b) the realizable value of the company's assets would be
greater than the aggregate of its liabilities and stated capital of all
classes. Dividends may not be paid out of unrealized gains.
Repurchase. The Company is authorized by the Articles, subject to certain
approvals, to repurchase its own shares. Such purchases may only be effected
if the Company can satisfy a similar solvency test as that described above
under "Dividends and Distributions."
Shareholders' Remedies. Barbados corporate law contains wide protection for
minority shareholders and investors generally. A statutory right of action is
conferred on subscribers to shares of a Barbados company against the directors
and officers responsible for the issue of a prospectus, in respect of damages
suffered by reason of untrue statements therein. In addition, the Company may
take action against directors and officers for breach of their statutory duty
to act honestly and in good faith with a view to the best interests of the
Company.
Enforcement of United States Judgments. Except as mentioned below, a judgment
of a court in the United States, under which a sum of money is payable, will
under most circumstances be enforced as a debt by the courts of Barbados
without reexamination of the merits of the case. This will not apply where the
judgment is for payment of taxes, fines or penalties. There is also doubt as
to whether a Barbados court would enforce judgments of United States courts
obtained against the Company, or its directors and officers resident in
Barbados, predicated on the civil liability provisions of the 1933 Act or, in
original actions, impose liabilities against the Company or such persons
predicated upon that Act.
Indemnification. The By-Laws of the Company provide for the indemnification of
its directors and officers against liabilities incurred in their capacities as
such, but the indemnity does not extend to any liability incurred in respect of
wilful negligence, wilful default, fraud or dishonesty in relation to the
Company.
Inspection of Corporate Records. Shareholders have the right to inspect and
copy the Articles and By-Laws, corporate register, security register, minutes
of shareholders meetings, any unanimous shareholder agreement, as well as
audited financial statements of the Company, which must be presented to the
annual meeting of shareholders.
PLAN OF DISTRIBUTION
The Shares are being offered by full-time employes of MIC or its affiliates
("Salespersons") who have other duties in connection with the business of MIC
or its affiliates and who are not engaged in the sale of securities other than
those of the Company and MIC Life Reinsurance Company, Limited. Salespersons
receive no commissions or other compensation related directly to their sale of
the Shares. In addition, MIC receives no compensation in connection with its
distribution of the Shares. Salespersons are licensed as agents of MIC in
certain states in which they offer the Shares for sale and their activities in
selling the Shares are subject to the regulation of state securities
regulators. All sales of the Shares are subject to approval by the Company.
(See "Eligibility to Purchase the Shares.")
PURCHASE PROCEDURES
In order to purchase the Shares, the following documents must be sent to the
Company in Barbados:
(1) two duly executed Stock Purchase Agreements (see Appendix B);
(2) all necessary certifications of the eligibility of prospective purchasers
by the owner(s) of the Franchise(s) related to the MIC Agency Account with
respect to which the Shares will be issued (see "Description of Capital
Stock -- Allocations to Subsidiary Capital Accounts," and Appendix C); and
(3) a certified or cashier's check payable to "Motors Mechanical Reinsurance
Company, Limited -- Escrow Account" in the amount of the aggregate cost of
the Shares to be purchased, based on the offering price of $75.00 per
Share ("Purchase Payment").
NONE OF THE FOREGOING DOCUMENTS IS TO BE EXECUTED OR DELIVERED UNTIL AFTER A
FINAL PROSPECTUS HAS BEEN DELIVERED TO THE OFFEREE.
Once it is executed by a prospective purchaser, a Stock Purchase Agreement is,
in effect, an offer to purchase the Shares described therein. That offer will
be deemed accepted only if the Company approves the offer and executes the
agreement. (See "Plan of Distribution--Conditions of Sale.")
Following execution of the Stock Purchase Agreement by the Company, the
prospective purchaser has no right to withdraw the amount of the purchase
Payment or any interest earned thereon. Amounts remain in the Escrow Account
pending satisfaction of the conditions set forth below under "Conditions of
Sale."
TERMS OF SALE
Shares are sold only to eligible purchasers who have executed a Stock Purchase
Agreement and returned it to the Company. Shares must be purchased by series,
although more than one person may buy the Shares of one series. Pursuant to
the Stock Purchase Agreement, the purchaser must accept and agree to be bound
by the Articles and By-Laws of the Company, including the restrictions on
transfer. (See "Description of Capital Stock -- Restrictions on Transfer.")
The Stock Purchase Agreement further provides that the Company may place on a
certificate issued with respect to Shares a legend stating that the transfer or
other disposition of the Shares evidenced thereby is restricted pursuant to the
Articles and By-Laws.
Once it is accepted by the Company, a Stock Purchase Agreement remains in
effect as long as the Shares purchased pursuant thereto remain outstanding. A
Stock Purchase Agreement terminates only upon the redemption of the Shares or
the liquidation of the Company. Upon a transfer of Shares, the transferor is
relieved of all restrictions and obligations under the Stock Purchase Agreement
which the transferor had entered into upon the purchase of those Shares and the
transferee, as a condition of the transfer, is required to agree to abide by
all of the provisions of the Stock Purchase Agreement.
CONDITIONS OF SALE
The Company maintains an Escrow Account at Barclays Bank PLC in Bridgetown,
Barbados (the "Escrow Account"), into which checks from prospective purchasers
are deposited pending satisfaction of the conditions described below. This
account bears interest at prevailing rates but is not subject to investment
guidelines discussed above. (See "Business of the Company -- Investment
Income.") If the conditions are not satisfied, the Purchase Payment is
returned together with any interest earned.
Approval of Purchase. Each purchase of Shares must be accepted by the Company
within 120 days from the date of execution of the Stock Purchase Agreement by
the Purchaser. If the Company determines to accept an offer to purchase Shares
from an Eligible Purchaser, it executes both copies of the Stock Purchase
Agreement remitted by such person and returns one copy to such person. If it
determines not to approve an offer to purchase, it returns the Stock Purchase
Agreement without having executed it.
Pending approval of offers, each check for the purchase of Shares (which
ordinarily is received together with a Stock Purchase Agreement) is deposited
in the Escrow Account. If a request to purchase is approved, Shares are issued
and the Eligible Purchaser receives a certificate evidencing ownership of the
Shares. Where the Company determines not to approve a sale of Shares to a
prospective purchaser, the Purchase Payment is returned, together with any
interest earned thereon. The Company has the right to reject any prospective
purchaser for any reason whatsoever.
TERMINATION OF OFFERING
Unless terminated sooner by the Board, this offering will terminate on the date
on which all of the Shares offered hereby have been sold.
UNITED STATES FEDERAL TAX CONSIDERATIONS
It is impractical to comment here on all aspects of the Federal, state, and
local tax laws that may affect the United States taxation of the Company and
its shareholders. The following is a summary, based on the facts set forth
herein and existing law, of the material Federal tax consequences associated
with an investment in the Company. It is based upon advice from the Company's
U.S. tax counsel, LeBoeuf, Lamb, Greene & MacRae.
United States taxation of the Company and its shareholders involves a number
of complex questions of fact and law with respect to some of which there is no
statutory, administrative, or judicial authority directly on point. Advance
rulings on these questions have not been requested by the Company from the
Internal Revenue Service (the "Service") and, at least as to certain matters,
there is no assurance that favorable rulings could be obtained. There is also
no assurance that the laws in existence as of the date of this Prospectus will
not be modified so as to alter the tax consequences described below.
This summary does not discuss all aspects of federal income taxation that
may be relevant to a particular shareholder in light of his or her personal tax
circumstances. Nor does it address state, local, or foreign tax laws that may
affect taxation of shareholders. EACH PROSPECTIVE INVESTOR IN THE COMPANY
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE TAX IMPLICATIONS OF
HIS OR HER INVESTMENT IN THE COMPANY.
UNITED STATES -- BARBADOS INCOME TAX TREATY
The United States and Barbados have entered into an income tax treaty (the
"Treaty") that offers certain tax benefits (some of which are discussed below)
to those persons who qualify for its protection. As a Barbados corporation
that ultimately is owned more than 50% by U.S. persons, the Company is entitled
to the benefits of the Treaty provided that it is "resident" (that is, "managed
and controlled") in Barbados. The Company attempts to conduct its business in
such a manner that it will be considered to be "managed and controlled" in
Barbados in order to qualify for the benefits of the Treaty. As discussed
below, legislation has eliminated the premium excise tax exemption under the
Treaty. (See "United States Federal Tax Considerations -- United States
Premium Excise Tax.")
UNITED STATES PREMIUM EXCISE TAX
The United States imposes an excise tax at the rate of one percent of the gross
premiums paid to foreign insurance companies for reinsurance covering risks
located within the United States. Reinsurance premiums paid to the Company are
subject to this excise tax. Although there have been legislative proposals
from time to time that would increase the rate of excise tax on reinsurance
premiums from one to four percent, in recent trade negotiations (NAFTA and
GATT) the U.S. has indicated agreement not to raise its tax on reinsurance
premiums paid to foreign companies, and legislative action has become less
likely.
UNITED STATES FEDERAL INCOME TAX RISKS AND CONSEQUENCES -- THE COMPANY
Risks and Consequences of Carrying on a United States Reinsurance Business
Through a Permanent Establishment. As a "resident" of Barbados, if the Company
engages in business within the United States through a permanent establishment,
it will be subject to United States Federal income tax at normal corporate tax
rates on its business profits that are attributable to such permanent
establishment. Insofar as is relevant hereto, all of the Company's
underwriting income and investment income (such as dividends and interest)
generally would be treated as business profits attributable to such a permanent
establishment. In addition, a Barbadian resident corporation engaged in
business in the United States through a permanent establishment would be
subject to a branch-level tax at the rate of 5% (reduced by the Treaty from a
30% statutory rate that would apply generally to foreign corporations engaged
in business in the United States) on its after-tax earnings attributable to its
United States permanent establishment that are considered remitted to the head
office of the corporation.
All relevant facts and circumstances must be taken into account in any
particular case in determining whether a person is engaged in business within
the United States and, if so, whether the business is carried on through a
permanent establishment within the meaning of the Treaty. Under the Treaty,
the activities of both dependent and independent agents in some circumstances
may be deemed to create a permanent establishment of the principal that they
represent. As discussed elsewhere herein, the Company conducts reinsurance
business in Barbados and in that regard executes and administers its
reinsurance agreements and manages its business affairs from Barbados. On this
basis, the Company believes that it should not be deemed to be engaged in
business within the United States through a permanent establishment, and
therefore the Company believes it should not be subject to United States income
tax. However, given the factual nature of the questions involved and certain
aspects of the Company's treaty reinsurance program related to the United
States, and given the absence of any clear legal interpretation of the
application of the agency provisions of the permanent establishment standard
under the circumstances, there can be no assurance that for tax purposes the
Company ultimately will not be deemed to be engaged in business within the
United States through a permanent establishment.
United States Withholding Tax Applicable to Certain Investment Income Not
Attributable to a United States Permanent Establishment. If the Company does
not engage in business within the United States through a permanent
establishment, it generally will be subject to a United States withholding tax
on interest, dividends, and certain other investment income derived from
sources within the United States. (The 30% rate of United States withholding
tax provided by statute is reduced by the Treaty to 5% in the case of interest
and 15% in the case of dividends derived from portfolio investments.) An
exemption from the United States withholding tax is provided for interest
earned on amounts on deposit in a bank, savings and loan association, or
insurance company, and interest income, termed "portfolio interest," on certain
debt obligations of United States issuers.
Although the Company could, in the circumstances described above, invest its
funds in the United States without incurring a withholding tax, the Company
currently invests its funds outside of the United States. (See "Business of
the Company -- Investment Income.")
Reallocations By Internal Revenue Service. Under section 482 of the Internal
Revenue Code (the "Code"), the Service may allocate gross income, deductions,
and credits between or among two or more businesses, owned or controlled
directly or indirectly by the same interests, in order to prevent evasion of
taxes or to reflect clearly the true taxable income of such businesses. As
described elsewhere herein, MIC elects five of the Company's six directors
through its ownership of all of the Company's issued and outstanding Common
Stock. Thus, if transactions between MIC and the Company were determined not
to reflect the true taxable income of the parties, a reallocation of income or
deductions between such entities could result. However, as long as the
transactions between MIC and the Company are conducted on an "arm's-length"
basis in a manner consistent with industry standards and practices, section 482
should not provide a basis for reallocations by the Service between MIC and the
Company.
In addition, section 845 of the Code, adopted as part of the Tax Reform Act of
1984, grants broad authority to the Service to adjust items arising under
certain reinsurance agreements (including retrocession agreements), whether or
not they involve related parties. If two or more "related" parties enter into
a reinsurance contract, the Service in general may make any adjustment
necessary to reflect the "proper source and character" of the taxable income of
each such party. The Service also has broad authority to make proper
adjustments where any reinsurance contract between unrelated parties has a
"significant tax avoidance effect" on any party to the contract.
Because MIC is entitled to elect five of the Company's six directors, MIC and
the Company may be considered "related" parties within the meaning of section
845 of the Code. To date, there are no regulations under section 845 of the
Code to aid in its interpretation. However, the legislative history of section
845 suggests that certain types of reinsurance transactions -- such as a
coinsurance reinsurance transaction that covers new business of the ceding
company and that allocates expenses and income items between the ceding company
and the reinsurer in the same proportion as the allocation of the risk
reinsured -- generally should not be subject to reallocations or adjustments.
The ongoing quota share Retrocession Agreement between MIC and the Company, in
general, would seem to be similar to such transactions for which adjustments
generally should not be made, but there is substantial uncertainty at the
present time concerning the scope of section 845.
If the Service were successful in an effort to reallocate to MIC business
retroceded to the Company by MIC, MIC would likely be subject to tax on such
business. Since the Company has no obligation to indemnify MIC against such
adverse tax consequences, a reallocation of business to MIC should not directly
affect the Company. However, any such reallocation might contribute to the
early termination of the Retrocession Agreement between MIC and the Company.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES --- THE SHAREHOLDERS
Taxation of Income of the Company to Shareholders Under Subpart F of the Code.
Under the so-called "Subpart F" provisions (sections 951-964) of the Code,
current United States income tax is imposed on each United States person who
owns stock in any twenty-five percent (25%) or more U.S.-owned foreign
insurance company with respect to "related person insurance income," whatever
the degree of ownership of the United States shareholder. For this purpose,
the term "related person insurance income" means underwriting and investment
income of a foreign insurer attributable to a policy of insurance or
reinsurance with respect to which the insured is a United States shareholder of
the foreign insurer or a person related to such a shareholder. Under this
provision, all of the Company's income (as determined for tax purposes) will be
treated as "related person insurance income," and, as such, will be passed
through and taxed currently to all of the shareholders of the Company
("Shareholders") under Subpart F of the Code.
The basis of the stock of a Shareholder will be increased by the amount
required to be included in the Shareholder's income with respect to such stock
under Subpart F. Further, a distribution from earnings and profits of the
Company attributable to amounts that have been included in gross income of the
Shareholders under Subpart F would not be included again in gross income of the
Shareholders but would reduce the adjusted tax basis of the stock with respect
to which the distribution is made. It should be noted that Subpart F income
will be computed for the Company as a single entity. The amount of Subpart F
income attributable to one series of Shares in these circumstances may be
affected by results with respect to other series. It also should be noted that
the Subpart F income of the Company generally will be computed under the same
rules that govern the computation of taxable income of domestic property and
casualty insurance companies.
As a result of differences between financial and tax accounting rules
applicable to the computation of income of the Company, the amount of income
subject to pass-through to Shareholders of the Company for United States tax
purposes may in any year differ from the amount of book income allocable to a
Shareholder's subsidiary capital account. Since the consideration payable to
the holders of a series of Shares upon redemption is based substantially on
book income previously allocated to the Shares being redeemed, such
consideration may not reflect the amount of income previously passed through
and taxed to the holders of those Shares.
To the extent that the Company were subject to United States income tax on its
business profits, the Shareholders generally would not be subject to current
tax on such profits under Subpart F, but would be taxed when profits were
distributed by the Company. (See "United States Federal Tax Considerations --
United States Federal Income Tax Consequences -- the Company.")
Risk of Recharacterization of Reinsurance Profits on Business Retroceded to the
Company. As described elsewhere herein, a portion of the underwriting
experience in respect of insurance business retroceded to the Company is
allocated to the series of Shares issued in respect of the Franchise that is
the source of such business. In this connection, the Service could question
whether profits on such business should be treated as being related to equity
ownership for tax purposes, or whether the Shares should be treated, in whole
or in part, as a means by which the direct insurer pays additional income to
certain of its business producers or pays return premiums to certain
policyholders, such that the producers or policyholders (rather than the
Shareholders) should be subject to ordinary income tax on all or some of such
profits. Although the issue is not free from doubt, given, among other things,
the significance of the Shareholders' "at-risk" investment in the Company
relative to the volume of business projected for the Company, the degree of
pooling of risks among all series of Shares, the fact that distributions with
respect to Shares are, subject to certain "minimum dividends," within the
discretion of the Board, and the vote accompanying each Share, there should be
substantial arguments against the recharacterization of profits with respect to
the Shares.
Deductibility of Premiums Paid By Franchises for Certain Coverages Reinsured by
the Company. As discussed elsewhere herein, risks arising under mechanical
service agreements entered into with respect to a particular Franchise
ultimately may be retroceded to the Company and allocated in part to a series
of Shares owned by the owner(s) of such Franchise or by persons closely related
to such owner(s). The Service conceivably could seek to deny any deductions
taken by the obligor under the mechanical service agreements for premiums paid
by it with respect to its obligations ultimately retroceded to the Company,
relying on the theory, developed in cases dealing with transactions involving
wholly-owned insurance companies, that no insurance risk has been shifted in
respect of such premiums. However, although the matter is not free from doubt,
given the degree of risk pooling within the Company, there should be
substantial arguments in support of the treatment of such premiums as
deductible insurance premiums for tax purposes.
LEGAL MATTERS
The legality of the securities offered hereby is passed upon for the Company by
its Barbados counsel, Evelyn, Gittens & Farmer, Heritage House, Pinfold Street,
Bridgetown, Barbados, West Indies. LeBoeuf, Lamb, Greene & MacRae, 1875
Connecticut Avenue, N.W., Washington, D.C. 20009, will advise the Company as to
certain matters pertaining to the laws of the United States.
EXPERTS
The financial statements included elsewhere in this Prospectus have been
audited by Deloitte & Touche, Bridgetown, Barbados, independent chartered
accountants as set forth in their report included in this Prospectus. Such
financial statements have been so included in this Prospectus in reliance upon
such report given upon the authority of that firm as experts in accounting and
auditing.
The matters of Barbados law referred to in this Prospectus are set forth in
reliance upon the opinion of Evelyn, Gittens & Farmer and upon their authority
as experts in Barbados law. LeBoeuf, Lamb, Greene & MacRae has passed upon the
statements concerning United States tax laws contained in the discussion under
"United States Federal Tax Considerations," which is included herein in
reliance upon their authority as experts with respect to such matters.
ADDITIONAL INFORMATION
A registration statement under the 1933 Act has been filed with the Securities
and Exchange Commission, Washington, D.C. (the "Commission") with respect to
the Shares offered hereby. This Prospectus does not contain all of the
information set forth in such registration statement, certain parts having been
omitted pursuant to the rules and regulations of the Commission. The omitted
information may be examined at the Commission's principal office at 450 5th
Street, N.W., Washington, D.C., or at the following regional offices: New York
City, 26 Federal Plaza, Room 1102; Chicago, 219 South Dearborn Street, Room
1204; and Los Angeles, 5757 Wilshire Boulevard, Suite 500 East. Copies may be
obtained upon payment of the fees prescribed from the public reference section
of the Commission, Washington, D.C. 20549.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
hereby made to the copy of the contract or other document filed as an exhibit
to the registration statement, of which this Prospectus is a part, for a full
statement of the provisions, and each such statement in this Prospectus is
qualified in all respects by such reference.
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados
We have audited the accompanying balance sheet of Motors Mechanical Reinsurance
Company, Limited as of December 31, 1993 and 1992 and the related statements of
income and retained earnings and cash flows for each of the three years in the
period ended December 31, 1993. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Motors Mechanical Reinsurance
Company, Limited as of December 31, 1993 and 1992 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993 in accordance with the accounting principles generally
accepted in the United States of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
March 11, 1994
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992, AND MARCH 31, 1994
(Expressed in U.S. Dollars)
March 31
December 31 December 31 1994
Notes 1992 1993 (unaudited)
_____ ___________ ___________ ___________
ASSETS
Investments 2(c),3,6 $24,382,923 $29,882,488 $34,903,388
Cash and cash equivalents 2(c),6 1,710,738 6,788,771 3,043,379
Accrued investment income 1,115,367 861,190 901,057
Due from ceding company 2,356,608 2,331,978 3,535,158
Deferred acquisition costs 2(b) 7,281,854 10,495,206 11,599,267
Prepaid expenses 0 0 1,875
___________ ___________ ___________
Total Assets $36,847,490 $50,359,633 $53,984,124
___________ ___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums 2(b) 28,063,606 40,413,058 44,657,483
Loss reserves 2(d) 1,622,855 1,910,030 2,097,239
Accrued liabilities 91,322 107,181 165,573
___________ ___________ ___________
Total Liabilities 29,777,783 42,430,269 46,920,295
___________ ___________ ___________
COMMITMENTS AND CONTINGENCIES 6
STOCKHOLDERS' EQUITY
Share capital
Common stock - no par value;
Authorized - 2,000 shares;
issued and outstanding -
2,000 shares 200,000 200,000 200,000
Participating - no par value;
Authorized - 100,000 shares;
issued and outstanding -
18,900 shares at December 31,
1993 and 14,300 shares at
December 31, 1992 4 1,072,500 1,417,500 1,492,500
___________ ___________ ___________
1,272,500 1,617,500 1,692,500
Retained earnings 7 5,528,775 6,211,978 6,534,796
Unrealized appreciation
(depreciation) on
investments 3 268,432 99,886 (1,163,467)
___________ ___________ ___________
Total Stockholders' Equity 7,069,707 7,929,364 7,063,829
___________ ___________ ___________
Total Liabilities and
Stockholders' Equity $36,847,490 $50,359,633 $53,984,124
___________ ___________ ___________
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993,
AND THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Expressed in U.S. Dollars)
Periods Ended December 31,
_______________________________________
Notes 1993 1992 1991
_____ ___________ ___________ ___________
INCOME
Reinsurance
premiums assumed 2(b),5 $27,779,063 $19,386,455 $16,784,405
Increase in
unearned premiums (12,349,452) (6,381,271) (6,491,617)
____________ ___________ _________
Premiums earned 15,429,611 13,005,184 10,292,788
___________ ___________ ___________
Investment income:
Interest earned 1,827,955 1,658,430 1,300,603
Realized gains
on investments 872,287 864,282 492,344
___________ ___________ ___________
Investment income - net 2,700,242 2,522,712 1,792,947
___________ ___________ ___________
TOTAL INCOME 18,129,853 15,527,896 12,085,735
___________ ___________ ___________
EXPENSES
Acquisition costs 2(b) 4,009,285 3,377,758 2,839,121
Losses paid 10,625,508 7,938,136 6,697,509
Increase in loss
reserves 287,175 226,313 321,419
Administrative expenses 503,178 478,475 307,301
___________ ___________ ___________
TOTAL EXPENSES 15,425,146 12,020,682 10,165,350
___________ ___________ ___________
NET INCOME 2,704,707 3,507,214 1,920,385
RETAINED EARNINGS,
beginning of period 5,528,775 3,043,266 1,273,198
DIVIDENDS (2,021,504) (1,021,705) (150,317)
___________ ___________ ___________
RETAINED EARNINGS, end of period $ 6,211,978 $ 5,528,775 $ 3,043,266
___________ ___________ ___________
Three Month Periods Ended
March 31,
(unaudited)
__________________________
Notes 1994 1993
_____ ___________ ___________
INCOME
Reinsurance
premiums assumed 2(b),5 $8,816,331 $5,389,885
Increase in
unearned premiums 4,244,425 1,817,057
___________ ___________
Premiums earned 4,571,906 3,572,828
___________ ___________
Investment income:
Interest earned 570,692 461,529
Realized gains (losses)
on investments (303,389) 378,444
___________ ___________
Investment income - net 267,303 839,973
___________ ___________
TOTAL INCOME 4,839,209 4,412,801
___________ ___________
EXPENSES
Acquisition costs 2(b) 1,188,209 928,266
Losses paid 3,001,850 2,627,016
Increase (decrease) in
loss reserves 187,209 (15,861)
Administrative expenses 139,123 140,255
___________ ___________
TOTAL EXPENSES 4,516,391 3,679,676
___________ ___________
NET INCOME 322,818 733,125
RETAINED EARNINGS,
beginning of period 6,211,978 5,528,775
DIVIDENDS 0 0
___________ ___________
RETAINED EARNINGS, end of period 6,534,796 6,261,900
___________ ___________
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993
AND THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(Expressed in U.S. dollars)
Periods Ended December 31,
______________________________________
1993 1992 1991
___________ ___________ ___________
Cash flows from operating activities:
Reinsurance premiums collected $26,933,330 $17,624,088 $14,709,039
Losses and underwriting expenses
paid (16,977,784) (11,898,682) (10,575,830)
Administrative expenses paid (490,616) (429,735) (288,593)
Investment income received 2,957,718 2,302,829 1,542,361
___________ ___________ __________
Net cash provided by operating
activities 12,422,648 7,598,500 5,386,977
___________ ___________ ___________
Cash flows from investing activities:
Purchases of investment securities(49,834,608) (60,877,408) (32,306,550)
Sales of investment securities 44,166,497 52,166,918 30,252,467
___________ ___________ ___________
Net cash invested (5,668,111) (8,710,490) (2,054,083)
___________ ___________ ___________
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 345,000 255,000 120,000
Dividends paid (2,021,504) (1,021,705) (150,317)
___________ ___________ ___________
Net cash used in financing
activities (1,676,504) (766,705) (30,317)
___________ ___________ ___________
Increase (decrease) in cash and cash
equivalents 5,078,033 (1,878,695) 3,302,577
Cash and cash equivalents, beginning
of period 1,710,738 3,589,433 286,856
___________ ___________ __________
Cash and cash equivalents, end of
period $ 6,788,771 $ 1,710,738 $ 3,589,433
___________ ___________ ___________
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 2,704,707 $ 3,507,214 $ 1,920,385
Change in:
Accrued investment income 254,177 (222,446) (277,412)
Due from ceding company 24,630 (653,270) (1,529,537)
Deferred acquisition costs (3,213,352) (1,662,778) (1,527,217)
Unearned premiums 12,349,452 6,381,271 6,491,617
Loss reserves 287,175 226,313 321,419
Accrued liabilities 15,859 22,196 (12,278)
___________ ___________ ___________
Net cash provided by operating
activities $12,422,648 $ 7,598,500 $ 5,386,977
___________ ___________ ___________
Three Month Periods Ended
March 31,
(unaudited)
_________________________
1994 1993
___________ ___________
Cash flows from operating activities:
Reinsurance premiums collected $7,062,145 $6,216,413
Losses and underwriting expenses
paid (4,730,167) (3,859,806)
Administrative expenses paid (95,553) (75,302)
Investment income received 227,436 1,333,671
___________ ___________
Net cash provided by operating
activities 2,463,861 3,614,976
___________ ___________
Cash flows from investing activities:
Purchases of investment securities (25,508,046) (23,807,944)
Sales and maturities
of investment securities 19,223,793 22,461,238
___________ ___________
Net cash invested (6,284,253) (1,346,706)
___________ ___________
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 75,000 52,500
Dividends paid 0 0
___________ ___________
Net cash provided by financing
activities 75,000 52,500
___________ ___________
Increase (decrease) in cash and cash
equivalents (3,745,392) 2,320,770
Cash and cash equivalents, beginning
of period 6,788,771 1,710,738
___________ ___________
Cash and cash equivalents, end of
period $ 3,043,379 $ 4,031,508
___________ ___________
Reconciliation of net income to
net cash provided by operating
activities:
Net income 322,818 733,125
Change in:
Accrued investment income (39,867) 492,399
Due from ceding company (1,203,180) 995,342
Deferred acquisition costs (1,104,061) (473,126)
Prepaid expenses (1,875) (1,875)
Unearned premiums 4,244,425 1,817,057
Loss reserves 187,209 (15,861)
Accrued liabilities 58,392 67,915
___________ ___________
Net cash provided by operating
activities $ 2,463,861 $ 3,614,976
___________ ___________
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 1. OPERATIONS
The Company is incorporated under the laws of Barbados and is a
licensed insurer under the Exempt Insurance Act, 1983.
All of the common stock of the Company is owned by Motors
Insurance Corporation ("MIC"). MIC is an indirect wholly-owned
subsidiary of General Motors Corporation. The principal
activity of the Company is the assumption of certain automobile
mechanical breakdown risks arising under insurance policies
reinsured by MIC and attributable to an MIC Agency Account in
respect of which shares of Participating Stock are issued and
outstanding. All premiums received were derived from MIC.
MIC has agreed that all expenses incurred by or on behalf of the
Company with respect to the issuance of the Company's Participating
Stock will be borne by MIC, either through charges to its shareholder
account in the Company, or by direct reimbursement.
Note 2. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of Presentation
The financial statements are stated in United States dollars and are
prepared generally in conformity with accounting principles generally
accepted within the United States of America. Reinsurance premiums
assumed by the Company represent policies ceded by MIC during the
twelve months ended December 31 of each fiscal year.
(b) Premium Income and Acquisition Costs
Reinsurance premiums are based on the Company assuming (after ceding
commission) 75% of the original policy premium written by the direct
insurer. Of these reinsurance premiums, 75% is retroceded to the
Company when written and 25% when earned.
Premiums are taken into income on the basis of quarterly cessions and
are related to anticipated loss exposures. Acquisition costs,
consisting of ceding commissions and excise taxes, are taken into
income on the basis of premiums earned.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)
(c) Investments
Investments are comprised of interest-bearing marketable securities
which are carried at fair value, based on quoted market prices and
dealer quotes obtained from an external pricing service. Investments
with original maturities of less than 90 days are classified as cash
equivalents. Unrealized appreciation (depreciation) is included in
stockholders' equity.
Realized gains and losses on the sale of investments are included as
investment income. During 1991, the basis of determining the cost of
securities sold was changed from the specific identification method
to the average cost method. The effect of the change was not
material.
(d) Loss Reserves
The Company provides for unsettled, reported losses based on
estimates of the final settlement, with an experience factor added to
provide for losses incurred but not reported. The final settlement
may be greater or less than the amounts provided. Any such
differences, when they become known, are recognized in current
operations.
(e) Taxation
The Company has received an undertaking from the Barbados Government
exempting it from all local income, profits and capital gains taxes
for a period ending December 31, 2001.
Stockholders who are United States residents are taxed on their share
of the Company's income on a deemed distribution basis.
(f) Earnings Per Share
No amount has been reported as earnings per share as the earnings
applicable to the Participating Stockholders vary with the
underwriting results of each series. Retained earnings applicable to
the Common Stockholder include allocated investment income and
operating expenses and amounts restricted for advances to
Participating Stockholders (see Note 7).
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS
The cost and estimated fair value of investments in debt securities
are as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
__________ ____________ ____________ _________
March 31, 1994 (unaudited):
Debt securities
issued by
foreign
governments
and their
agencies $18,003,450 $35,891 $471,546 $17,567,795
Debt securities
issued by
supra-nationals 15,234,561 6,588 598,742 14,642,407
Corporate
securities 2,828,844 - 135,658 2,693,186
__________ ________ _________ __________
Total $36,066,855 $42,479 $1,205,946 $34,903,388
___________ ________ __________ ___________
December 31, 1993:
Debt securities
issued by
foreign
governments
and their
agencies $16,327,184 $72,332 $(135,761) $16,263,755
Debt securities
issued by
supra-nationals 7,182,454 103,034 (25,925) 7,259,563
Corporate
securities 6,272,964 109,193 (22,987) 6,359,170
_________ _______ _______ _________
Total $29,782,602 $284,559 $(184,673) $29,882,488
___________ ________ _________ ___________
December 31, 1992:
Debt securities
issued by
foreign
governments
and their
agencies $ 14,080,561 $204,554 $(43,057) $14,242,058
Debt securities
issued by
supra-nationals 9,826,630 107,771 (5,087) 9,929,314
Corporate
securities 207,300 4,251 - 211,551
___________ ________ ________ ___________
Total $24,114,491 $316,576 $(48,144) $24,382,923
___________ ________ ________ ___________
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS (Cont'd)
The cost and estimated fair value of debt securities at December 31,
1993, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or
prepayment penalties.
Estimated
Fair
Cost Value
___________ ___________
Due after one year
through five years $15,463,270 $15,575,893
Due after five years
through ten years 14,319,332 14,306,595
___________ ___________
$29,782,602 $29,882,488
___________ ___________
Proceeds from sales of investments in debt securities during the
years ended December 31, 1993 and 1992 were $44,166,497 and
$52,166,918, respectively. In 1993, gross gains of $964,613 and
gross losses of $92,326 were realized. In 1992, gross gains of
$1,008,932 and gross losses of $144,650 were realized. In 1991,
gross gains of $538,996 and gross losses of $46,652 were realized.
The following summarizes net unrealized appreciation (depreciation)
on investments:
Balance, December 31, 1990 $ 241,439
Net appreciation 673,848
_________
Balance, December 31, 1991 $ 915,287
Net depreciation (646,855)
_________
Balance, December 31, 1992 $ 268,432
Net depreciation (168,546)
_________
Balance, December 31, 1993 $ 99,886
Net depreciation (unaudited) (1,263,353)
_________
Balance, March 31, 1994
(unaudited) $(1,163,467)
_________
The investment portfolio is comprised of diverse U.S. dollar-
denominated debt securities which do not result in any concentration
in credit risks.
FASB Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" is effective for years beginning December 15,
1993 and requires that the Company classify its securities holdings
into three categories (trading, available for sale, and held to
maturity). The Company adopted Statement No. 115 effective January
1, 1994 and classified its securities portfolio as available for
sale. Adoption of the Statement did not have a material effect on
the Company's financial position and results of operations.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 4. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. An offering of
26,500 shares of Participating Stock is being made to persons
certified by owners of certain motor vehicle franchises. The
offering consists of 265 series of 100 shares each at a price of $75
per share.
During the quarter ended March 31, 1994, 10 additional series of 100
shares were added (unaudited). During 1993, 46 additional series of
100 shares of Participating Stock were issued as compared with 34 and
16 series for the years ended December 31, 1992 and 1991, respec-
tively.
In the years ended December 31, 1993 and 1992, costs in the amount of
$74,461 and $80,298, respectively, were incurred in the sale of
Participating Stock and were charged to the account of the Common
Stockholder. In 1991, $74,589 of costs incurred in the sale of
Participating Stock were paid by MIC.
The holders of Common Stock as a class are entitled to elect five
directors, at least one of whom must be a resident of Barbados. They
generally have no right to vote with respect to liquidation of the
Company. As a class, these holders generally have the sole right to
vote on matters not specifically reserved to Participating Stock.
The Common Stock is nonredeemable.
The holders of Participating Stock as a class are entitled to elect
one director. Generally, liquidation of the Company requires
approval by at least 75% of the outstanding shares of this class.
Any redemption of a series of shares requires a vote of the Board
provided that the director representing holders of the Participating
Stock votes in favor of the redemption. Any changes in the Company's
Articles or By-Laws requires the approval of a majority of the
holders of Participating Stock present and voting together with a
majority of the holders of Common Stock.
From time to time, funds are held in escrow on account of Participat-
ing Stock applications. Such amounts are not included in cash and
cash equivalents in the accompanying financial statements. At
December 31, 1993 and 1992, there were no amounts held in escrow.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 5. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement, the Company will
receive additional cessions of $13,471,019 ($9,354,534 at December
31, 1992) relating to premiums written by the ceding insurer but
unearned at the respective period ends. The amounts will be received
as the premiums are earned, net of related acquisition costs.
Note 6. LETTERS OF CREDIT
The Company has provided an irrevocable letter of credit to MIC, in
the sum of $32,250,000 which is secured by cash equivalents and
investments to secure the amounts recoverable from the Company
related to the business ceded.
Note 7. RETAINED EARNINGS
Items of income or loss and expenses attributable to insurance
underwriting activities are determined as of the end of each calendar
quarter and are allocated to the Participating Stockholders' capital
accounts as of the end of the fiscal quarter of the Company in which
the respective calendar quarter ends.
An amount equal to 1-1/3 percent of written ceded premiums (net of
related ceding commissions) is allocated to the capital account of
the Common Stockholder. Such allocations accumulate as restricted
retained earnings and may be used to advance capital to any
Participating Stockholders who incur a deficit in their capital
accounts; any such advances are repayable out of future profitable
operations of the respective Participating Stockholder. Amounts
allocated to the Common Stockholder, net of advances to Participating
Stockholders are presented in the table below as "net transfers."
Dividends may be declared and paid at the discretion of the Company's
Board of Directors, except that dividends may not be paid out of
unrealized investment gains. Barbados law requires that the Company
maintain a minimum capitalization based generally on the amount of
premiums earned in the preceding fiscal year. On January 1, 1994 the
Company's required minimum capital computed in accordance with
Barbados law was approximately $2,042,961.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 7. RETAINED EARNINGS (Cont'd)
Amounts of retained earnings applicable to the Common and
Participating Stockholders are comprised of the following:
Common Participating Total
______ _____________ _____
Balance, December 31, 1990 $ 14,944 $1,258,254 $1,273,198
Net income for the year 23,911 1,896,474 1,920,385
Net transfers 38,702 (38,702) -
Dividends paid - (150,317) (150,317)
________ ________ ________
Balance, December 31, 1991 77,557 2,965,709 3,043,266
Net income (loss) for the year (42,631) 3,549,845 3,507,214
Net transfers 173,954 (173,954) -
Dividends paid - (1,021,705) (1,021,705)
______ __________ __________
Balance, December 31, 1992 208,880 5,319,895 5,528,775
Net income (loss) for the year (41,909) 2,746,616 2,704,707
Net transfers (175,245) 175,245 -
Dividends paid - (2,021,504) (2,021,504)
_______ __________ __________
Balance (Deficit),
December 31, 1993 (8,274) 6,220,252 6,211,978
Net income (loss) for the
quarter ended March 31, 1994
(unaudited) (27,055) 349,873 322,818
Net transfers for the quarter
ended March 31, 1994
(unaudited) (104,396) 104,396 -
________ ________ ________
Balance (deficit),
March 31, 1994 (unaudited) $ (139,725) $6,674,521 $6,534,796
__________ __________ __________
COMPANIES ACT OF BARBADOS APPENDIX A
(Section 205)
RESTATED ARTICLES OF INCORPORATION FORM 13
1. Name of Company
Motors Mechanical Reinsurance Company, Limited
2. Company No.
1485
3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE COMPANY IS
AUTHORIZED TO ISSUE
The annexed Schedule is incorporated in this form.
4. RESTRICTION IF ANY ON SHARE TRANSFERS
The annexed Schedule is incorporated in this form.
5. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS
There shall be a minimum of 5 and a maximum of 6 directors.
6. RESTRICTIONS IF ANY ON BUSINESS THE COMPANY MAY CARRY ON
The principal object and activity of the Company is to engage in Exempt
Insurance business within the meaning of the Exempt Insurance Act, 1983 of
Barbados and the business of the Company shall be restricted accordingly.
7. OTHER PROVISIONS IF ANY
The annexed Schedule is incorporated in this form.
8. Date Signatures Title
January 29, 1987 Peter Evelyn Director
FOR MINISTRY USE ONLY
COMPANY NO. FILED
COMPANIES ACT OF BARBADOS SCHEDULE TO ARTICLES OF INCORPORATION
3. The classes and any maximum number of shares that the Company is
authorized to issue:
The Company is authorized to issue:
(a) 2,000 shares of one class without nominal or par value to be designated
Common shares; and
(b) 100,000 shares of one class without nominal or par value to be designated
Participating shares which shall be divided into 1,000 series and issued in
series of 100 shares.
The rights, preferences and limitations of the said classes of shares are as
follows:
DEFINITIONS
In these Articles and any amendment thereto and in the Company's By-Laws the
following terms shall mean:
Board -- The Company's Board of Directors.
Company -- Motors Mechanical Reinsurance Company, Limited.
Franchise -- A right conferred by a motor vehicle manufacturer pursuant to a
written agreement which permits the grantee to sell the manufacturer's new
motor vehicles.
MIC -- Motors Insurance Corporation, a New York corporation with its
administrative offices in Detroit, Michigan.
MIC Agency Account -- The separate business record maintained by MIC or any of
its subsidiaries to track volume, experience, and commissions with respect to
insurance business related to any one or more particular Franchises.
Restricted Earned Surplus -- At any point in time, that portion of the earned
surplus, if any, in the Subsidiary Capital Account for the Common shares equal
to one and one-third percent (1-1/3%) of the premiums paid to the Company
during the immediately preceding five-year period, net of deficits allocated to
such account pursuant to paragraph 3(1)(7)(a)(i) hereof during such five-year
period to the extent not restored to such account pursuant to paragraph
3(1)(7)(c) hereof and net of return premiums allocated to such account during
such period pursuant to paragraph 3(1)(1)(d) hereof.
Shares -- Shares of the Participating Stock of the Company.
Stock Purchase Agreement -- The agreement entered into between the Company and
the purchaser of Shares, in the form approved by the Board.
Subsidiary Capital Account -- The subsidiary bookkeeping record established by
the Company for a particular series or class of shares and maintained for the
purpose of accounting for items of income and expense, gains and losses,
capital contributions, and shareholder distributions which are allocated to the
particular series or class of shares.
(1) ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company will establish a Subsidiary Capital Account with respect to the
Common shares as a class, and to each series of Shares of the Company at the
time a series is issued.
The consideration received by the Company upon the issuance of a particular
series of Shares and the Common shares as a class will be allocated to the
Subsidiary Capital Account for that series or class. Items of income and
expense, and losses, attributable to insurance underwriting activities shall be
determined as of the end of each calendar quarter and shall be allocated to the
Subsidiary Capital Accounts as of the end of the fiscal quarter of the Company
in which the respective calendar quarter ends. Investment experience, and
other items of income and expense, gains and losses and distributions with
respect to shares of the Company will be determined and allocated to the
Subsidiary Capital Accounts as of the end of each fiscal quarter of the
Company. All such accounting determinations shall be made using United States
generally accepted accounting principles, unless otherwise required by these
Articles. For purposes of such allocations, items shall be "related" to a
Subsidiary Capital Account which is identified with the same MIC Agency Account
to which such items can be attributed.
(1) Items of income and expense, and losses, attributable to insurance
underwriting activities shall be allocated to the Subsidiary Capital Accounts
in accordance with the following paragraphs:
(a) With respect to premiums ceded to the Company, one hundred percent
(100%) shall be allocated to the related Subsidiary Capital Account;
provided, however, that an amount equal to one and one-third percent
(1-1/3%) of such premiums shall be subtracted from such Subsidiary Capital
Account and allocated to the Subsidiary Capital Account of the Common
shares.
(b) With respect to any agents' or brokers' commissions, any commissions
recaptured, unearned premiums, reinsurance premiums ceded by the Company,
and any United States excise tax, one hundred percent (100%) shall be
allocated to the related Subsidiary Capital Account.
(c) With respect to losses incurred, and any amount of losses recovered
through salvage, subrogation, reimbursement or otherwise:
(i) ninety percent (90%) shall be allocated to the related
Subsidiary Capital Account; and
(ii) the remainder shall be allocated among all Subsidiary Capital
Accounts of the Shares pro rata in accordance with the relative
earned premiums attributable to such accounts for the calendar
quarter in which the losses are incurred. For this purpose, losses
incurred includes both paid and unpaid (reported and unreported)
losses.
(d) With respect to return premiums, ninety-eight and two-thirds percent
(98-2/3%) shall be allocated to the related Subsidiary Capital Account and
one and one-third percent (1-1/3%) shall be allocated to the Subsidiary
Capital Account for the Common shares.
(2) Any expenses or liabilities attributable to ordinary day-to-day Company
operations, excluding any United States Federal income taxes, shall be
allocated among all Subsidiary Capital Accounts for the Shares pro rata in
accordance with the relative earned premiums allocated to such accounts for the
fiscal quarter in which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any interest thereon
or any penalties related thereto) incurred by the Company shall be allocated
among the Subsidiary Capital Accounts based upon the relative contribution of
each of those accounts to the taxable income of the Company upon which the tax
(and any interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the organization of the
Company or to the offer, sale or issuance of Shares, including but not limited
to the costs of compliance with regulations and requirements of the United
States Securities and Exchange Commission and the various states and other
jurisdictions of the United States as they pertain thereto, shall be allocated
to the Subsidiary Capital Account for the Common shares.
(5) Any expenses or liabilities of the Company not allocable in the manner
described in paragraphs (2) through (4) above shall be allocated among the
Subsidiary Capital Accounts on the basis of the relative balances of such
accounts as of the end of the fiscal quarter preceding the date on which the
expense or liability is incurred.
(6) (a) Investment income, net of any direct investment expense, shall be
allocated among the Subsidiary Capital Accounts pro rata based upon the
relative Investment Asset Balance (as defined in subparagraph (b) below)
of each such account as of the last day of the fiscal quarter preceding
the quarter for which the investment income is being allocated. For these
purposes, net investment income will include realized (but not unrealized)
gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital Account shall
be equal to the capital and surplus allocated to such account, increased
by:
(i) the unearned portions of the written premiums that have been
collected by the Company and allocated to such account as of the last
day of the fiscal quarter preceding the quarter for which the income
is being allocated, net of any applicable commissions and taxes;
(ii) the outstanding loss reserves attributable to such account as of
the last day of the fiscal quarter preceding the quarter for which
the income is being allocated; and
(iii) any other outstanding liability that has been charged to such
account as of the last day of the fiscal quarter preceding the
quarter for which the income is being allocated.
(7) (a) If, after the credits and charges described in paragraphs (1) through
(6) above are made to the Subsidiary Capital Accounts there exists a
deficit in one or more of such accounts, then each such deficit will be
allocated to and charged against:
(i) first, the Subsidiary Capital Account for the Common shares to
the extent of Restricted Earned Surplus;
(ii) then, any remaining unallocated deficit to the Subsidiary
Capital Accounts for the Shares, pro rata, based upon the relative
earned premiums allocated to each such account for the fiscal quarter
for which the allocation is being made; provided, however, that only
accounts which have positive balances will be taken into account for
the purposes of this allocation;
(iii) then, any remaining unallocated deficit to the remaining
Subsidiary Capital Accounts for the Shares with positive balances as
of the last day of the fiscal quarter for which the allocation is
being made, pro rata, based upon such balances; and
(iv) finally, to the extent necessary, the Subsidiary Capital Account
for the Common shares.
(b) If, as a result of an allocation of a deficit as described in
subparagraph (ii) or (iii) of paragraph (a) above, a deficit is created in
one or more of the Subsidiary Capital Accounts, then the resulting
deficit(s) will be further allocated in the manner provided in that
subparagraph.
(c) Although this paragraph (7) shall be applied in a manner that does
not result in a balance in any Subsidiary Capital Account for a series of
Shares that is less than zero, if any such account had a deficit that was
allocated to and charged against the Subsidiary Capital Account of the
Common shares pursuant to section 3(1)(7)(a)(i) hereof, then at the end of
any succeeding fiscal quarter for which that account otherwise would show
an account balance greater than zero, such balance will be reallocated to
the Subsidiary Capital Account of the Common shares until all reductions
of such Subsidiary Capital Account for the Common shares under section
3(1)(7)(a)(i) hereof for the series of Shares have been restored.
(8) (a) Dividends, payments upon redemption or liquidation (described below),
and any other distributions with respect to shares of the Company will be
allocated to the Subsidiary Capital Account for the class or series with
respect to which the dividend, payment or distribution was made.
(b) Where all shares of a series of Shares are repurchased by the Company
pursuant to Section 4 below, or redeemed in accordance with the Company's
procedures for redemption set forth in Section 3(6) below, the Subsidiary
Capital Account for such series shall be terminated as of the Repurchase
Date or Redemption Date (as those terms are defined in Sections 4 and
3(6), respectively). Thereafter, all income, expenses, gains and losses
that would have been allocated to the terminated account will be allocated
among the Subsidiary Capital Accounts of the existing series of Shares pro
rata based upon relative earned premiums attributable to such accounts for
the calendar quarter in which the item was earned or incurred; provided,
however, that a net deficit for any such period shall be allocated in
accordance with the provisions of Section 3(1)(7).
The allocations to the Subsidiary Capital Accounts described above shall be
approved by the Board, and when finally so approved all calculations,
allocations and determinations shall be final and conclusive and shall be
binding on all holders of shares of the Company for all purposes, including
without limitation any redemption of shares of the Company pursuant to the
Company's procedures for redemption. The Board is authorized to interpret and
apply the provisions of these Articles and to promulgate such additional rules
and guidelines as the Board deems appropriate to carry out the intent of these
Articles and such interpretations, rules and guidelines shall be binding on all
shareholders.
(2) PARTICIPATING SHARES
(a) If any Share shall be redeemed, repurchased or otherwise retired, it shall
return to the status of an authorized but unissued share of such class.
(b) A series of Shares shall be issued with respect to a specific MIC Agency
Account. Only one series of Shares shall be issued with respect to an MIC
Agency Account. A series of Shares shall be issued only to persons or entities
acceptable to the Board and certified by the owner(s) of the Franchise(s) to
which the MIC Agency Account relates. Certification will be effected in
accordance with procedures adopted by the Board from time to time. No share of
any particular series of Shares shall be issued unless all shares of such
series are issued.
(c) Each outstanding Share shall entitle the registered holder of record of
such Share to dividends in accordance with the rules set forth in Section 3(5)
of these Articles.
(d) The holders of Shares shall among them have the right to elect one
director of the Company and shall otherwise have only such voting rights as are
specifically provided herein. On all such matters each share shall entitle the
registered holder thereof to one vote.
(e) The rights associated with any Shares of a series shall be identical to
the rights associated with all other Shares of the same series.
(3) COMMON SHARES
(a) Each outstanding Common share shall entitle the registered holder of such
shares to dividends in accordance with the rules set forth in Section 3(5) of
these Articles.
(b) Each outstanding Common share shall entitle the registered holder thereof
to one vote per share on all resolutions of the Company other than as
specifically provided herein.
(c) The holders of the Common shares shall be entitled to elect five directors
of the Company, one of whom must be a resident citizen of Barbados.
(4) LIQUIDATION
The Company may be liquidated upon the vote of the holders of at least
seventy-five percent (75%) of the Shares. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company, after payment of all liabilities of the Company, each holder of Shares
of a series shall be entitled to receive an amount equal to his share (based on
his proportionate ownership of such series) of the Subsidiary Capital Account
balance related to his series of Shares before any distribution of the assets
of the Company shall be made to holders of the Common shares. After such
payment shall have been made in full to the holders of the outstanding Shares,
or funds necessary for such payment shall have been set aside in trust for the
account of the holders of the outstanding Shares so as to be available
therefor, the holders of the outstanding Shares shall be entitled to no further
participation in the distribution of the assets of the Company, and the
remaining assets of the Company, if any, shall be divided and distributed among
the holders of the Common shares then outstanding pro rata based on their
respective shares. A consolidation or merger of the Company, or sale or
transfer of all or substantially all its assets, or any purchase or redemption
of shares of the Company of any class or series, shall not be regarded as a
"liquidation, dissolution, or winding up" within the meaning of this paragraph.
(5) DIVIDENDS
(a) Subject to the following paragraphs, dividends may be paid at the
discretion of the Board.
(b) Dividends, payable in cash or such other property as the Board may
determine, on a series of Shares or on Common shares, shall be declared and
payable only if the Company shall have, after giving effect to the dividend,
sufficient net assets, without regard to any Letter of Credit or Guarantee, to
meet the general business solvency margin prescribed by the Exempt Insurance
Act and Section 51 of the Act; provided that dividends with respect to any
series of Shares may be paid only out of earned surplus attributable to the
Subsidiary Capital Account identified with those Shares, and only to the extent
that, after giving effect to the dividend, the capital and surplus identified
with that Subsidiary Capital Account (without regard to any Guarantee or Letter
of Credit) would meet its pro rata share, based on allocable premium income, of
the minimum net assets required of the Company under the Exempt Insurance Act.
Subject to the right of the holders of Shares to receive minimum dividends
pursuant to the following paragraph, to the extent a dividend is declared on
the Shares, it shall be declared and paid subject to the foregoing limitations
for each series of Shares as a percentage of the net income for the preceding
calendar year and/or earned surplus as of the end of the preceding calendar
year, attributable to each series, provided that such percentage may vary among
series of Shares with the level of net income and/or earned surplus. Dividends
shall only be declared and paid on Common shares to the extent that the earned
surplus attributable to Common shares exceeds Restricted Earned Surplus.
(c) Subject to the preceding paragraph, the holders of the Shares of each
series shall be entitled to receive minimum annual dividends, payable annually
within the first 120 days of each fiscal year, in cash or such other property
as the Board may determine. The minimum annual dividend payable on each Share
shall be such Share's pro rata portion of an amount equal to twenty percent
(20%) of the net income, if any, for the preceding fiscal year attributable to
the Subsidiary Capital Account associated with the series of which that Share
is a part. If a holder of Shares receives no dividend or a limited dividend in
any annual period as a result of the limitations set forth in the preceding
paragraph, any unpaid portion of the minimum dividend otherwise payable
pursuant to this paragraph shall not become payable pursuant to this paragraph
in any subsequent year.
(d) In no event shall any dividend whatever be paid upon or declared or set
apart for the Common shares, unless and until all minimum annual dividends
required to be paid on the then outstanding Shares for the then current period
shall have been paid or declared and set apart for payment.
(6) REDEMPTION
The common shares are non-redeemable. Subject to compliance with any
applicable statute or act, the Company may redeem any of its issued and
outstanding Shares if all Shares of the series involved are redeemed and the
redemption of such Shares is approved by a majority of the Board, provided that
the Director representing holders of the Shares votes in favor of the
redemption.
The redemption of Shares shall be effective on such future date as determined
by the Board, which shall be no later than the last business day of the
calendar year in which the redemption was approved by the Board, and in the
case of a redemption of Common Shares, by holders of the Shares. Such date is
herein called the "Redemption Date."
The consideration payable to the holders of redeemed Shares shall be the
Subsidiary Capital Account balance for the series of such Shares as of the
Redemption Date, as adjusted by the Board to reflect unrealized gains and
losses on investments held by the Company and any contingent liabilities
allocable to such account. Such consideration shall be paid within five (5)
months of the Redemption Date, provided that the holder(s) of the redeemed
Shares shall have delivered to the Company, certificates representing the
Shares being redeemed duly endorsed and accompanied by such other documents as
the Company may require. Such consideration shall bear interest from the
Redemption Date until the earlier of the date of payment or the date that is
five (5) months from the Redemption Date, at a rate equal to the rate of
interest paid on 26-week United States Treasury Bills for the issue following
the Redemption Date.
Upon redemption of the Shares as aforesaid, the holder(s) thereof shall cease
to have any further interest in the shares being redeemed. Shares redeemed
pursuant to this Section 3(6) shall return to the status of authorized but
unissued Shares.
4. Restrictions, if any, on share transfers:
(a) Subject to the exceptions listed below, Shares (whether owned by the
original or any subsequent holder thereof) shall not be transferred in any
manner unless the holder(s) has received a bona fide written offer to
purchase such Shares, a copy of which has been furnished to the Company,
and the Company is thereafter offered the opportunity to purchase such
Shares. The Company shall have sixty (60) days during which to exercise
the rights conferred upon it by this paragraph. If the Company accepts
such offer, the price will be the lesser of the balance of the Subsidiary
Capital Account related to such series of Shares as of the last day of the
fiscal quarter immediately preceding the date on which the offer to
purchase was accepted by the Company (the "Repurchase Date") (or if less
than all such Shares are offered, then the pro rata portion of such
account attributable to the Shares offered), or the bona fide offering
price. Payment by the Company may be deferred until the end of the fiscal
quarter in which the offer to purchase was accepted by the Company.
Shares purchased by the Company pursuant to this paragraph shall return to
the status of authorized but unissued shares of such class. If the
Company does not elect to purchase the Shares pursuant to this paragraph,
they may be sold in accordance with the bona fide written offer referred
to above within the following sixty (60) days, subject to the requirements
of the following paragraphs. After such further sixty (60) days, any
attempted sale or transfer of the Shares shall be subject to all the
requirements of this paragraph.
(b) In addition to the requirements of the preceding paragraph and except
as provided in paragraph (d) below, transfers of less than all Shares of a
series shall not be made unless the holder(s) has received the written
consent of the Company thereto. A request for such consent must be made
in writing and set forth the name(s) and address(es) of the intended
transferee(s), the desired date of the transfer, and the consideration to
be paid. The Company shall have sixty (60) days from receipt of such
request to grant or withhold its consent to the intended transfer. If the
Company fails to give its written consent, any subsequent transfer shall
be void and of no effect.
(c) Shares may not be transferred unless and until the Board has received
such assurances of compliance with all applicable laws and regulations as
it may deem necessary and the transferee has agreed to abide by the
requirements set forth in the Stock Purchase Agreement entered into by the
transferor. Certificates representing shares of any class of the
Company's shares shall bear a legend substantially to the effect of this
Section 4 of these Articles.
(d) A sale, gift, assignment, pledge or other transfer of Shares shall be
exempt from the requirements of paragraphs (a) and (b) of this Section 4
if the Board determines that the transferee or assignee of the shares is:
(i) a member of the transferring shareholder's immediate family; (ii) a
trust for the benefit of the transferring shareholder, or for the benefit
of other exempted transferees described in this paragraph; (iii) if the
transferor is a corporation, any shareholder of the transferor; (iv) if
the transferor is a partnership, any of its partners; (v) a corporation
which is controlled by or under common control with the transferor; (vi)
the estate of a deceased shareholder or legatees and heirs of such
deceased shareholder; (vii) a charitable or other qualifying organization
described in Section 170(c)(2) of the United States Internal Revenue Code
of 1986; (viii) in the case of a transfer of less than all of the Shares
of a series, a person who immediately prior to such transfer is a holder
of Shares of that series; or (ix) a key employe with respect to a
Franchise previously designated in the Stock Purchase Agreement entered
into by the transferor.
7. Other provisions if any:
No holder of shares of the Company of any class, now or hereafter authorized,
shall have any preferential or preemptive right to subscribe for, purchase or
receive any shares of the Company of any class, now or hereafter authorized, or
any options or warrants for such shares, or any rights to subscribe for or
purchase such shares, or any securities convertible into or exchangeable for
such shares, which may at any time be issued, sold or offered for sale by the
Company.
Amendment of Articles and By-Laws:
The Company's Articles and By-Laws shall not be altered, amended or repealed
and no provision inconsistent therewith shall be adopted, without the
affirmative vote of the holders of a majority of the Common shares and of the
Shares present; provided that the rights associated with any series of Shares
shall not be varied, unless the rights associated with all other series are
similarly changed, without the affirmative vote of the holders of a majority of
the Shares of each series present.
APPENDIX B
STOCK PURCHASE AGREEMENT
BETWEEN
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
AND
(Certified Purchaser)
_________ , 19
Motors Mechanical Reinsurance
Company, Limited
Financial Services Centre
Bishops Court Hill
St Michael, Barbados
Gentlemen:
The undersigned Shareholder (as more fully described below) hereby offers to
purchase certain shares of stock of Motors Mechanical Reinsurance Company,
Limited, a Barbados Corporation (the "Company"), upon the terms and conditions
set forth herein. The Shareholder hereby tenders a check in the amount of the
Purchase Payment (as defined herein), to be held in an escrow account with
Barclays Bank PLC (the "Escrow Account"). This offer shall expire on the 120th
day after the date hereof if the Company has not accepted it prior to such
expiration date. The Shareholder acknowledges receipt of a prospectus dated
with respect to the stock described herein.
1. DEFINITIONS
1.1 Franchisee. The term "Franchisee" means (insert name(s) and address(es)
of Franchisee(s) of the automobile sales franchise(s) related to the applicable
MIC Agency Account).
1.2 MIC. The term "MIC" means Motors Insurance Corporation, a New York
corporation.
1.3 MIC Agency Account. The term "MIC Agency Account" means the separate
business record maintained by MIC or any of its subsidiaries or affiliates to
track volume, experience and commissions with respect to insurance business
related to the automobile sales franchise(s) owned by the Franchisee.
1.4 Purchase Payment. The term "Purchase Payment" means the $ ($75 (U.S.) x
number of shares) paid hereunder as consideration for the purchase of the
Shares.
1.5 Shareholder. The term "Shareholder" means , taxpayer
identification number , who is a citizen of ,
and who resides at .
1.6 Shares. The term "Shares" means shares (number of shares) of
the authorized shares of a series of the participating stock of the Company,
which series consists of 100 shares, and which is issued in respect of the MIC
Agency Account.
1.7 The masculine gender is to be construed to include a female or an entity
where the context of this Agreement so requires.
2. REPRESENTATIONS
2.1 Representation of Shareholder. The Shareholder represents that he has
been duly certified (on the form furnished by the Company and attached hereto)
by the Franchisee and meets the requirements for this purchase and sale as set
forth in the Articles of Incorporation of the Company (the "Articles"), copies
of which are attached to the prospectus. (It is understood that, if the
Franchisee consists of more than one person, all such persons must join in the
certification of the Shareholder.)
2.2 Representation of Company. The Company represents that the issuance and
sale of the Shares pursuant to this Agreement has been duly authorized by the
Board in accordance with the Articles, and is consistent with the applicable
provisions of Barbados law.
3. PURCHASE AND SALE OF SHARES
Upon acceptance of this Agreement by the Company, the Company agrees to sell
and issue to the Shareholder, and the Shareholder agrees to purchase, the
Shares in consideration of the Purchase Payment.
4. ESCROW OF PURCHASE PAYMENT
Subject to the following sentence, the Purchase Payment will remain on deposit
in the Escrow Account until the Shares are issued by the Company. If this
Agreement is not executed by the Company within 120 days of the date hereof,
the Purchase Payment shall be refunded promptly together with any interest
earned thereon. Following execution by the Company, the Shareholder shall have
no right to withdraw the amount of the Purchase Payment or any interest earned
thereon.
5. COVENANTS OF THE COMPANY
5.1 Series of Participating Stock. No more than 100 shares of the same series
of participating stock as the Shares shall be issued by the Company, and no
other series of such stock shall be issued with respect to the MIC Agency
Account.
5.2 Reinsurance Business. The business of the Company shall be limited to the
reinsurance of mechanical breakdown risks underwritten by MIC or its
subsidiaries or affiliates and identified with the MIC Agency Account and
similar MIC accounts maintained with respect to automobile franchises for which
series of participating stock of the Company are issued and outstanding.
6. LIMITATIONS BASED ON INADEQUATE CAPITAL
The Shareholder and the Company agree that if the Company cannot meet the
minimum margin of solvency requirements under Barbados insurance law, then, to
the extent the net asset value attributable to the Subsidiary Capital Account
(the "Account") for the shares issued pursuant to this Agreement is less than
its pro rata share (based on proportionate earned premium) of the Company's
required net asset value, the Company shall reduce the business attributable to
the Account, on a pro rata basis with such other accounts that are similarly
deficient, by retrocession or some other means acceptable to the Company, to
the extent necessary to permit the Company to meet the Company's required
minimum margin of solvency.
7. RESTRICTIONS ON TRANSFER
The Shareholder agrees to be bound by and shall be subject to all provisions in
the Articles (including without limitation those with respect to the ownership
and transfer of the Shares) that are in effect as of the date of this Agreement
or that may be added in the future, and any amendments to such provisions. It
is understood that the Company may place on the certificate for the Shares a
legend stating in substance:
The sale, transfer, or other disposition of the shares evidenced by this
certificate is restricted pursuant to provisions of the Articles of Motors
Mechanical Reinsurance Company, Limited ("Company"), and the Stock
Purchase Agreement ("Agreement") between the Company and the Shareholder,
dated , 19 , pursuant to which the shares were issued. Copies
of the Articles and the Agreement may be examined at the registered office
of the Company.
8. MISCELLANEOUS
8.1 Severability. If for any reason any provision of this Agreement shall be
invalid or unenforceable, the validity of any or all of the remaining
provisions shall not be affected thereby; provided, however, that the absence
of such illegal or invalid provisions does not so materially alter the purpose
of this Agreement such that the continuation of the arrangement contemplated by
this Agreement would no longer be mutually beneficial to the Shareholder and
the Company.
8.2 No Waiver. The failure of any party to insist upon strict performance of
any obligation hereunder shall not be a waiver of the party's right to demand
strict compliance therewith in the future.
8.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Barbados.
8.4 Counterparts. This Agreement has been executed in multiple copies, each
of which shall for all purposes constitute one Agreement, binding on the
parties.
8.5 Assignment. This Agreement is personal to the parties and, except as
contemplated herein and in the Articles, no party shall have any right to
assign any right or to delegate any duty hereunder, either voluntarily or
involuntarily, or by operation of law.
8.6 Term of Agreement. Except as herein expressly provided, this Agreement
shall remain in force as long as the Shares remain outstanding. If not
terminated sooner, this Agreement shall terminate upon the earlier of the
redemption of the Shares or the liquidation of the Company.
8.7 Effect of Transfer. The Shareholder shall be relieved of all restrictions
and obligations and shall not be entitled to any further benefits under this
Agreement upon transfer of all the Shares and upon the agreement of the
transferee to be bound by the terms and conditions of this Agreement.
8.8 Amendment. No change, modification, or amendment to this Agreement shall
be valid or binding upon the parties hereto unless such change, modification,
or amendment shall be in writing signed by all of the parties.
8.9 Integration. This Agreement constitutes the full and complete agreement
between the Shareholder and the Company.
8.10 Captions. Titles or captions of sections, paragraphs or exhibits
contained in or made a part of this Agreement are inserted only as a matter of
convenience and for reference, and in no way define, limit, extend or describe
the scope of this Agreement or the intent of any provision hereof.
8.11 Notices. Any and all notifications permitted or required to be made under
this Agreement shall be in writing, signed by the party giving such
notification, and shall be sent by registered or certified mail, postage
prepaid (1) if to the Shareholder, at the address set forth in Section 1.5 of
this Agreement or at such other address as may have been furnished by the
Shareholder to the Company in writing; or (2) if to the Company, in care of
Alexander Insurance Managers (Barbados) Limited, Financial Services Centre,
Bishops Court Hill, St. Michael, Barbados, W.I. For purposes of computing a
time period, the date of mailing shall be the date of notification.
8.12 Survival of Representations and Warranties. All agreements,
representations, and warranties contained herein or made in writing by the
Shareholder or the Company in connection with the transactions contemplated
hereby shall survive the execution and delivery of this Agreement, and the sale
and purchase of the Shares under this Agreement.
8.13 Relationship to Articles. The provisions of the Articles are incorporated
herein to the extent relevant to this Agreement.
If the authorized representative of the Company executes this Agreement on its
behalf, then this Agreement shall become a binding contract, subject to the
terms and conditions set forth herein, between the Company and the Shareholder
as of the date of the execution on behalf of the Company.
Very truly yours,
______________________________ __________________________________
Date Signature of Shareholder
_________________________________
Print Name of Shareholder
The foregoing Agreement is hereby accepted and agreed to as of the date set
forth below. Series P- is hereby designated for the Shares described in this
Agreement.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
By ___________________________ Dated: __________________________
Title ________________________
Note: Upon acceptance by the Company, a duly signed copy of this Agreement
shall be sent to the Shareholder.
APPENDIX C
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
CERTIFICATION FORM
The undersigned represent(s) that he (she)(they) is (are) the owner(s) of an
automobile sales franchise doing business as ______________________ (name of
dealership), with respect to which MIC Agency Account___ is maintained. The
undersigned hereby designate(s) ___________________________________ (name of
purchaser), who resides at ____________________________ (address of purchaser),
to be deemed eligible to purchase shares of a series of the participating stock
of Motors Mechanical Reinsurance Company, Limited (the "Company") pursuant to
the Articles of Incorporation of the Company.
______________________________ __________________________________
Date Signature of Franchise Owner
__________________________________
Print Name of Franchise Owner
(Names of Co-Owners, if any)
______________________________ __________________________________
Date Signature of Co-Owner
__________________________________
Print Name of Co-Owner
______________________________ __________________________________
Date Signature of Co-Owner
__________________________________
Print Name of Co-Owner
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, all of which were paid
by Motors Insurance Corporation, in connection with the initial offering
described in the Registration Statement:
Registration Fee -- Securities
and Exchange Commission ................ $ 1,500
State "Blue Sky" fees ................... $ 15,000
Accountants Fees and Expenses ........... $ 10,000
Legal Fees and Expenses ................. $150,000
Printing and Engraving .................. $ 37,000
Miscellaneous ........................... $ 10,000
--------
Total Expenses ..................... $223,500
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ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Paragraph 10 of Registrant's By-Laws provides for the indemnification of
Registrant's officers and directors (and such persons' heirs, executors and
administrators) against any and all judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees, incurred by such
person in connection with any claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that such
person is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director, officer, employe, fiduciary or member
of any other corporation, partnership, joint venture, trust, enterprise or
organization, except with respect to any matter for which indemnification would
be void pursuant to the Companies Act, 1982 of Barbados (the "Companies Act").
Under the Companies Act, indemnification of Registrant's officers and directors
against any liability which would attach by reason of any contract entered into
or act or thing done or omitted to be done by them in performance of their
office or in any way in the discharge of their duties, if the same happens
through their not acting in good faith and in the best interest of the
Registrant is void.
The position of the Securities and Exchange Commission regarding
indemnification for liabilities arising under the Securities Act of 1933 (the
"1933 Act") is set forth under Item 17, paragraph 5 of this Part II.
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES
No securities which were not registered under the Act have been issued or sold
by Registrant within the past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
3 (a) Restated Articles of Incorporation (filed as Appendix A to the
Prospectus).
(b) By-Laws of Registrant, as amended.
4 Specimen Participating Stock Certificate.
5 Opinion of Evelyn, Gittens & Farmer.
10 (a) Form of Principal Retrocession Agreement between Motors
Insurance Corporation and Registrant.
(b) Form of Supplemental Retrocession Agreement between Motors
Insurance Corporation and Registrant.
(c) Specimen Stock Purchase Agreement (filed as Appendix B to the
Prospectus).
(d) Amended and Restated Stock Purchase Agreement between Registrant
and Motors Insurance Corporation.
(e) Insurance Management Agreement between Registrant and Alexander
Insurance Managers (Barbados) Ltd.
23 (a) Consent of Evelyn, Gittens & Farmer.
(b) Consent of LeBoeuf, Lamb, Greene & MacRae.
(c) Consent of Deloitte & Touche, Independent Chartered Accountants.
99 (a) Certification Form (filed as Appendix C to the Prospectus).
(b) Guarantee issued by the Minister of Finance of Barbados.
(c) Certificate of Barbados Residency.
Filed previously,
Filed as Exhibit 19(f) to Form 10-K on March 30, 1994, File No. 33-6534,
and incorporated herein by reference.
B. Financial Statement Schedules:
No financial statement schedules are submitted herewith because the information
is included elsewhere in the financial statements or the notes thereto or such
schedules are not applicable.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which offers or sales of the securities
being registered are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement, and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering; and
(4) To file a post-effective amendment to the registration statement to
include any financial statements required throughout a continuous offering.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Post Effective Amendment to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of St. Michael, Barbados, on June 30, 1994.
MOTORS MECHANICAL
REINSURANCE COMPANY, LIMITED
By s/Ronald W. Jones
Ronald W. Jones, Vice-President,
Finance
Pursuant to the requirements of the Securities Act of 1933, this Post Effective
Amendment to this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
s/Robert T. O'Connell Chairman and Chief June 30, 1994
Robert T. O'Connell Executive Officer and
Director (Principal
Executive Officer)
s/Ronald W. Jones Vice-President (Principal June 30, 1994
Ronald W. Jones Financial and Accounting
Officer)
s/Joseph J. Pero President and Director June 30, 1994
Joseph J. Pero
s/Vincent K. Quinn Executive Vice-President
Vincent K. Quinn and Director June 30, 1994
s/Louis S. Carrio, Jr. Vice-President and Director June 30, 1994
Louis S. Carrio, Jr.
s/Peter R. P. Evelyn Director June 30, 1994
Peter R. P. Evelyn
s/Donald C. Mealey Director June 30, 1994
Donald C. Mealey
EX-23
2
CONSENT OF EXPERT AND COUNSEL
EXHIBIT 23(a)
CONSENT OF COUNSEL
Motors Mechanical Reinsurance Company, Limited:
We hereby consent to the reference to our name under the captions
"Barbados Corporate Laws Provisions," "Legal Matters" and
"Experts" in the Prospectus which is part of this Registration
Statement.
s/EVELYN, GITTENS & FARMER
Bridgetown, Barbados
June --, 1994
EXHIBIT 23(b)
CONSENT OF COUNSEL
Motors Mechanical Reinsurance Company, Limited:
We hereby consent to the reference to our name under the captions
"United States Federal Tax Considerations," "Legal Matters," and
"Experts" in the Prospectus which is part of this Registration
Statement.
s/LeBOEUF, LAMB, GREENE & MacRAE
Washington, D.C.
June --, 1994
EXHIBIT 23(c)
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
Motors Mechanical Reinsurance Company, Limited:
We consent to the use in this Post Effective Amendment No. 9 to
Registration Statement No. 33-6534 of Motors Mechanical
Reinsurance Company, Limited of our report dated March 11, 1994
appearing in the Prospectus, which is part of this Registration
Statement, and to the reference to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
s/DELOITTE & TOUCHE
Bridgetown, Barbados
June --, 1994