Registration No.333-34088
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTEGON RE (BARBADOS), LIMITED
(Exact name of registrant as specified in charter)
Barbados Application Pending
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
One Financial Place
Collymore Rock
St. Michael, Barbados, W.I.
(246) 436-4895
(Address, including zip code, and telephone number, including
area code, of principal executive office)
RONALD W. JONES, Vice-President, Finance
Integon Re (Barbados), Limited
One Financial Place
Collymore Rock
St. Michael, Barbados, W.I.
(246) 436-4895
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
George R. Abramowitz, Esq.
Douglas N. Beck, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
1875 Connecticut Avenue, N.W.
Washington, D.C. 20009
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration becomes effective.
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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)
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o _______________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o _______________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. o ______________
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that the registrant statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to section 8(a), may
determine.
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P R O S P E C T U S
Integon Re (Barbados), Limited
30,000 Shares of Participating Stock
We are a Barbados company engaged in the business of reinsuring property and
casualty insurance risks including primarily automobile and motorcycle insurance
policies.
By this prospectus, we are offering 300 series of participating shares of our
stock with each series consisting of 100 shares. The offering price is $250.00
per participating share. All Amounts Of Money Shown In This Prospectus Are
Stated In U.S. Dollars.
We will issue participating shares only to persons or entities certified by
independent insurance agencies and only if we receive stock purchase agreements
executed by such persons or entities that are acceptable to us in our sole
discretion.
No underwriting discounts or commissions will be paid in connection with the
offering of participating shares. The participating shares are not listed on any
national securities exchange or the Nasdaq Stock Market.
Investing in our participating shares involves risks. See "Risk Factors" (page
__).
Neither The Securities And Exchange Commission Nor Any State Securities
Commission Has Approved Or Disapproved These Securities Or Passed Upon The
Accuracy Or Adequacy Of This Prospectus. Any Representation To The Contrary Is A
Criminal Offense.
The date of this Prospectus is , 2000.
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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.
FOR ARIZONA INVESTORS
NO SHARES MAY BE OFFERED TO OR PURCHASED BY RESIDENTS OF ARIZONA UNLESS THE
PURCHASER IS (I) AN OWNER OF THE ENTITY WITH RESPECT TO WHICH THE PARTICIPATING
SHARES ARE ISSUED, (II) A MEMBER OF THE FAMILY OF THE ENTITY WITH RESPECT TO
WHICH THE PARTICIPATING SHARES ARE ISSUED, (III) A TRUST FOR THE BENEFIT OF
PERSONS OTHERWISE ELIGIBLE TO PURCHASE SHARES, (IV) A CORPORATION OR PARTNERSHIP
CONTROLLED BY THE OWNER OF THE ENTITY WITH RESPECT TO WHICH THE PARTICIPATING
SHARES ARE ISSUED, OR (V) A KEY EMPLOYEE WITH RESPECT TO SUCH ENTITY.
FOR FLORIDA INVESTORS
THE SECURITIES BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE FLORIDA
DIVISION OF SECURITIES. ANY SALE MADE PURSUANT TO THIS PROSPECTUS MAY BE VOIDED
BY THE PURCHASER WITHIN THREE DAYS OF THE FIRST TENDERING OF CONSIDERATION.
FOR MISSISSIPPI INVESTORS
THE COMMISSIONER OF INSURANCE OF THE STATE OF MISSISSIPPI (THE "MISSISSIPPI
INSURANCE COMMISSIONER") HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS
THE MISSISSIPPI INSURANCE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS.
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TABLE OF CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OUR BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
OUR COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ELIGIBILITY TO PURCHASE THE SHARES . . . . . . . . . . . . . . . . . . . . .10
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
DETERMINATION OF OFFERING PRICE . . . . . . . . . . . . . . . . . . . . . . .11
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
OUR BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
REINSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
General Considerations . . . . . . . . . . . . . . . . . . . . . . .13
The Retrocession Agreement . . . . . . . . . . . . . . . . . . . . .14
Reallocation of Insurance Losses; Retention of
Insurance Losses by MIC. . . . . . . . . . . . . . . . . . . . . .15
INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
INSURANCE MANAGEMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . .17
EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
BARBADOS REGULATION AND TAXES . . . . . . . . . . . . . . . . . . . . . . . .18
Insurance Regulation . . . . . . . . . . . . . . . . . . . . . . . .18
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Exchange Control . . . . . . . . . . . . . . . . . . . . . . . . . .19
FACILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
REPORTS TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . .20
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST OUR DIRECTORS, US AND OTHERS. . .20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Capital Resources and Liquidity. . . . . . . . . . . . . . . . . . .20
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Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Year 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
COMMITTEES OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . .23
REMUNERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
PRINCIPAL SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
CERTAIN TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
DESCRIPTION OF CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . .24
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS. . . . . . . . . . . . . . . . . .24
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Election of Directors. . . . . . . . . . . . . . . . . . . . . . . .28
Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Changes in Articles and By-Laws. . . . . . . . . . . . . . . . . . .28
Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . .28
REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
LIQUIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . .29
Transfers of Less Than All Shares of a Series. . . . . . . . . . . .29
Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . .29
Exceptions to Restrictions on Transfers. . . . . . . . . . . . . . .30
Provisions Applicable to All Transfers . . . . . . . . . . . . . . .30
COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
BARBADOS CORPORATE LAW PROVISIONS . . . . . . . . . . . . . . . . . . . . . .31
Dividends and Distributions. . . . . . . . . . . . . . . . . . . . .31
Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Shareholders' Remedies . . . . . . . . . . . . . . . . . . . . . . .31
Enforcement of United States Judgments . . . . . . . . . . . . . . .31
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . .32
Inspection of Corporate Records. . . . . . . . . . . . . . . . . . .32
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
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OFFERING PROCEDURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
PURCHASE PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
TERMS OF SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
CONDITIONS OF SALE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Approval of Purchase . . . . . . . . . . . . . . . . . . . . . . . .33
Minimum Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . .34
TERMINATION OF OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . .34
UNITED STATES FEDERAL TAX CONSIDERATIONS. . . . . . . . . . . . . . . . . . .35
UNITED STATES -- BARBADOS INCOME TAX TREATY . . . . . . . . . . . . . . . . .35
UNITED STATES PREMIUM EXCISE TAX. . . . . . . . . . . . . . . . . . . . . . .35
UNITED STATES FEDERAL INCOME TAX RISKS AND CONSEQUENCES TO US . . . . . . . .36
Risks and Consequences of Carrying on a United States
Reinsurance Business Through a Permanent Establishment. . . . . .36
United States Withholding Tax Applicable to Certain
Investment Income Not Attributable to a United
States Permanent Establishment. . . . . . . . . . . . . . . . . .36
Reallocations By Internal Revenue Service. . . . . . . . . . . . . .37
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES -- THE SHAREHOLDERS . . . . . .37
Taxation of Our Income to Shareholders Under
Subpart F of the Code . . . . . . . . . . . . . . . . . . . . . .37
Risk of Recharacterization of Reinsurance Profits on Business
Retroceded to Us. . . . . . . . . . . . . . . . . . . . . . . . .38
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .39
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
iii
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SCHEDULE A - Articles of Incorporation . . . . . . . . . . . . . . . . . . . 48
SCHEDULE B - Stock Purchase Agreement. . . . . . . . . . . . . . . . . . . . 56
SCHEDULE C - Certification Form. . . . . . . . . . . . . . . . . . . . . . . 57
iv
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SUMMARY
The following summary highlights important information about our business and
about this offering. Because it is a summary, it does not contain all the
information you should consider before investing in our participating shares.
You should read the entire prospectus before you decide to buy participating
shares.
OUR BUSINESS
We are a Barbados reinsurance company. We will assume risks under property and
casualty insurance policies, including primarily automobile and motorcycle
insurance policies, sold to consumers in the United States through independent
insurance agencies. Insurance companies owned by or affiliated with Integon
Corporation issue these policies which Motors Insurance Corporation reinsures.
We assume the risks under these policies from Motors Insurance Corporation. (See
"Our Business.")
THE OFFERING
Securities Being
Offered ................ Shares of participating stock, not
to exceed 30,000 shares, in series
of 100 shares each, without nominal
or par value. (See "Description of
Capital Stock.")
Offering Price ......... $250.00 per share, or $25,000 per
series.
Terms of Offering ..... We will issue series
of participating shares for specific
Integon Accounts. An "Integon
Account" means the record maintained
by Integon Corporation for insurance
policies sold by one or more
independent insurance agencies. We
will issue only one series of
participating shares for each
Integon Account.
You must be certified to purchase
participating shares by the
insurance agency for which the
Integon Account is maintained. We
will issue only complete series of
participating shares to one or more
certified purchasers. (See
"Eligibility to Purchase the
Shares.")
Potential Value of
Securities
Being Offered ........... We will
establish a record keeping account
for each series of participating
shares that we issue. We will
allocate to this account premium we
receive and losses we pay on
insurance policies sold by the
insurance agencies that are
associated with the series. We will
also apportion our investment
income, operating expenses, and
other items of income and expense,
including net losses from other
series of participating shares,
among these accounts in accordance
in rules contained in our articles
of incorporation. The amount of
dividends we pay on a series of
participating shares and the
redemption value of those shares
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will depend on the amounts that are
allocated to the account for that
series.
Offering Period ........ This offering will begin on the date
of this prospectus. We will offer
and sell participating shares on a
continuous basis unless we terminate
the offering. Barclays Bank PLC in
Bridgetown, Barbados will hold all
funds paid by purchasers of
participating shares in an escrow
account until we have received and
accepted stock purchase agreements
for all of the shares of at least
5 series of participating shares.
After we have issued the first 5
series of participating shares,
Barclays Bank will hold funds paid
by prospective purchasers of
a series of participating shares
until we accept the purchaser's
stock purchase agreement. If we
have not received and accepted
stock purchase agreements for at
least 5 series by December 31, 2001,
we will terminate this offering
and Barclays Bank will refund all
funds submitted by purchasers,
together with any interest earned
on such funds while held in the
escrow account.
Purchase Procedure...... To purchase participating shares,
you must send the following to us:
(1) two executed stock purchase
agreements; (2) a certified or
cashier's check in the amount of
the purchase price of the
participating shares payable to
"Integon Re (Barbados), Limited
-- Escrow Account"; and (3) a
certification of eligibility. (See
"Eligibility to Purchase the
Shares.")
Restrictions on
Transfer ............... Generally, you will not be able to
transfer participating shares un-
less you have first offered us the
opportunity to purchase the shares.
In addition, in most situations,
you will need to obtain our prior
written consent to transfer less
than all of the shares of a series.
(See "Description of Capital Stock
-- Restrictions on Transfer.")
Voting Rights .......... As a holder of participating shares,
you and the other holders of
participating shares will be
entitled to elect one member of our
board of directors. Your right to
vote on other matters will be
limited. (See "Description of
Capital Stock -- Voting Rights.")
Risk Factors ........... This investment is subject to
significant risks. (See "Risk
Factors.")
Capital Structure....... In addition to the participating
shares, we have issued 1,000,000
shares of our common stock to
Integon Corporation, all of which
are outstanding as of the date of
this Prospectus.
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Use of Proceeds ........ We will add the proceeds of this
offering to our general funds and
use these funds in our reinsurance
business. Integon Corporation will
pay any cost we incur prior to
the issuance of any participating
shares that are incidental to our
formation and organization or
related to compliance with United
States Federal and state securities
laws and we will not reimburse
Integon Corporation for these
amounts. (See "Use of Proceeds.")
Plan of
Distribution ........... Registered representatives of GMAC
Securities Corporation, a broker-
dealer affiliate of Integon
Corporation will offer the
participating shares on a
continuous basis. GMAC Securities
Corporation will not charge or be
paid any commissions in
connection with the sale of the
participating shares. The
registered representatives will
deliver this prospectus in printed
form only by hand or mail delivery.
(See "Plan of Distribution -
Offering Procedure.")
RISK FACTORS
An investment in our participating shares is subject to significant risk. Before
you decide to purchase participating shares, please carefully consider the
following risk factors:
We Are Controlled by Integon Corporation and Holders of the Participating Shares
Will Not Control Us.
Integon Corporation owns all of our common stock. This permits Integon
Corporation to control our board of directors and determine, among other things,
the selection of our officers, management company and investment guidelines, and
other business matters such as the terms of our reinsurance arrangements. As a
result, holders of participating shares will have no ability to control these
matters. (See "Our Business;" and "Description of Capital Stock.")
If Integon Corporation Is Unable to Sell Insurance Polices In Sufficient
Quantities Or With Adequate Premium Rates, We May Not Be Able to Operate
Profitably.
We have entered into a retrocession agreement with Motors Insurance Corporation,
an affiliate of Integon Corporation. Under this agreement, we will assume
(reinsure) risks under property and casualty insurance policies issued by
subsidiaries and affiliates of Integon Corporation covering primarily
automobiles and motorcycles. We rely exclusively on this retrocession agreement
and, thus, on Motors Insurance Corporation and subsidiaries and affiliates of
Integon Corporation for our business. Therefore, if subsidiaries and affiliates
of Integon Corporation are unable to sell insurance policies in sufficient
quantities or with adequate premium rates, we could be unprofitable and you
could lose the money you have invested in the participating shares.
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If Motors Insurance Corporation Terminates or Seeks to Modify the Retrocession
Agreement, We May Not Be Able To Operate as Described in This Prospectus.
The retrocession agreement does not have a specific termination date. Motors
Insurance Corporation may generally terminate the agreement at any time upon 30
days written notice. If Motors Insurance Corporation terminates the retrocession
agreement, we may not be able to enter into a similar arrangement with another
company and therefore may not be able to continue to operate in the manner
described in this prospectus. Likewise, if Motors Insurance Corporation seeks to
modify the retrocession agreement, we may not be able to continue to operate in
the manner described in this prospectus. (See "Our Business;" and "Description
of Capital Stock.")
New Interpretations of Existing Laws or the Adoption of New Laws Could Limit the
Ability of Motors Insurance Corporation to Retrocede Risks to Us.
Insurance and reinsurance are highly regulated by states. Motors Insurance
Corporation believes that there is no federal or state law or regulation that
limits its ability to retrocede (assign) to us its risks under to the insurance
policies that it reinsures from subsidiaries and affiliates of Integon
Corporation. However, the application to us and our business of some state
insurance laws and regulations is uncertain, and a state administrator could
attempt to limit the retrocession arrangement between Motors Insurance
Corporation and us on the grounds that we are a non-United States company or a
company that is affiliated with the ceding company (because Motors Insurance
Corporation controls us) or the entities selling the insurance policies. In
addition, from time to time, there are legislative and regulatory proposals that
could, if adopted, limit the ability of Motors Insurance Corporation to
retrocede its liability under the insurance policies to us.
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If Motors Insurance Corporation Limits the Reinsurance of Policies Sold by the
Agencies Associated With Your Shares, the Value of Your Shares May be Reduced.
Under the retrocession agreement, Motors Insurance Corporation has the ability
to limit our reinsurance of policies sold by particular agencies if necessary to
comply with applicable law. If we have to limit reinsurance of polices sold by
the agencies associated with your shares, the potential value of your shares may
be reduced. (See "Our Business -- Reinsurance.")
The Value of Your Shares May be Reduced by Bad Underwriting or Investment
Experience.
Each series of participating shares will generally bear 100% of the losses
incurred on insurance policies sold by the insurance agency associated with the
shares. To the extent losses incurred on insurance policies sold by the
insurance agency associated with your shares are substantial, you might lose all
or a portion of your investment even if other holders of participating shares do
not experience a similar loss. (See "Description of Capital Stock -- Allocations
to Subsidiary Capital Accounts.")
Our profitability also will depend in part on the amount of income we earn on
our investments. We will invest primarily in debt instruments that are not
subject to U.S. withholding tax. There is a risk that we will not earn a net
investment return which, when added to our earned premium, will be sufficient to
offset our liability for claims and expenses. In addition, we could suffer
investment losses due to declines in the market values of securities in which we
invest which may be caused by, among other things, volatile interest rates. If
either of these occur, the value of your shares could be reduced. (See "Our
Business -- Investment Income.")
The Value of Your Shares May be Reduced by Bad Underwriting Experience On
Insurance Policies Sold by Other Insurance Agencies.
Under circumstances specified in our articles, losses incurred with respect to
insurance policies sold by insurance agencies other than the agency associated
with your shares, may be allocated to the account maintained for your shares,
and reduce the value of your shares. (See "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts.")
If We Are Treated As Being Engaged In A Business In The United States, We Could
be Subject to United States Taxes.
We executed our retrocession agreement in Barbados. We also will administer our
retrocession agreement and manage our business affairs from Barbados.
Accordingly, we believe that we should not be treated for U.S. tax purposes as
being engaged in business within the United States and therefore, should not be
subject to United States income tax. However, this is a factual question and it
is possible that we could be treated as being engaged in business within the
United States. In such event, we would be subject to United States income tax on
business profits earned on our U.S. business, as well as an additional 5% branch
profits tax.
Under captive insurance company provisions contained in the Internal Revenue
Code, each holder of participating shares generally will be subject to United
States income tax currently on their pro rata share of our earnings, whether or
not such earnings are distributed. To the extent that we were subject to United
States income tax on our business profits, the holders of participating shares
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would not be subject to current tax on such profits, but the holders of
participating shares would be subject to tax on our actual distributions with
respect to such profits. (See "United States Federal Tax Considerations --
United States Federal Income Tax Consequences -- The Shareholders.")
Changes in Political Conditions In Barbados Could Limit Our Ability to Operate
Profitably.
We are a Barbados corporation and therefore changes in the Barbados government
and other political and economic conditions in Barbados could limit our ability
to operate as described in this prospectus.
If We Are Unable to Maintain Adequate Levels of Capital and Surplus, We May Have
to Limit the Amount of Our Business.
Barbados insurance law requires that we maintain specified levels of capital and
surplus in relation to the amount of premium we earn. This may limit the amount
of business that we will be able to reinsure. To the extent that our net asset
value does not meet these minimum requirements and to the extent that the
capital and surplus for a particular series of participating shares does not
support the business attributable to such series, we may reduce the amount of
our business attributable to such deficient series.
There Are Restrictions on our Ability to Pay Dividends.
Although our articles of incorporation require that we pay a minimum annual
dividend to holders of participating shares, we will not be able to pay any
dividend unless such payment is in compliance with Barbados insurance regulatory
requirements, the Barbados Companies Act and other limitations provided in our
articles. We may not be able to pay dividends in our early years of operation.
(See Appendix A; and "Dividends.")
There Is No Public Market For Our Stock and There are Restrictions on Transfers.
There is no public market for the participating shares, and we do not expect one
to develop. In addition, our articles impose substantial restrictions on
transfers of participating shares. Except for transfers to persons or entities
in one of the categories specified in our articles, a transfer of any series of
shares is subject to our right of first refusal, and a transfer of less than all
of the shares of a series cannot be made without our express written consent.
Any person acquiring shares from another shareholder must agree to be bound by
the provisions of a stock purchase agreement, including restrictions on the
transfer of the shares. (See "Description of Capital Stock -- Restrictions on
Transfer," "Eligibility to Purchase the Shares," and "Plan of Distribution.")
The Price of Our Shares Has Been Arbitrarily Determined
We have set the price for the participating shares arbitrarily. Accordingly, the
price bears no relationship to our assets, prospective earnings, book value or
other recognized criteria of value. You May not be Able to Enforce Judgements
Obtained In the United States Against Us or Our Directors
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We are a resident of Barbados, as are some of our directors, and some of the
experts named herein, and all or a substantial portion of our assets and the
assets of such persons are or may be located outside the United States. As a
result, it may not be possible for you to enforce judgments obtained in courts
in the United States against us or our directors.
We May Hold Your Money For As Long As One Year Before We Issue Shares Or Return
The Money To You
All funds paid by purchasers of participating shares will be held in an escrow
account until the earlier of:
(i) the date we have received and accepted stock purchase agreements for
all of the shares of at least 5 series of participating shares, and
(ii) December 31, 2001.
If we have not received and accepted stock purchase agreements for all of the
shares of at least 5 series by December 31, 2001, we will terminate this
offering and funds submitted by purchasers will be refunded to purchasers,
together with any interest earned on such funds while held in the escrow
account. Once we have accepted your stock purchase agreement, you have no right
to the return of your money unless we do not make the minimum sales by December
31, 2001.
We Have An Absolute Right to Terminate Reinsurance and Redeem Shares.
We have the right to redeem participating shares of any series at any time and
for any reason, provided that the director that is elected by the holders of the
participating shares approves the redemption. Therefore, participation in our
company on an ongoing basis is not assured. In addition, we may, for any reason,
stop the assumption of insurance business, on a prospective basis, with respect
to any particular series of shares. Moreover, in these circumstances, we are not
required to redeem the shares of such series, and any value of these shares
could be lost if we experience negative operating results. (See "Description of
Capital Stock -- Redemption.")
OUR COMPANY
We were incorporated in Barbados on January 10, 2000 and became licensed to
carry on the business of an Exempt Insurance Company in Barbados on March 31,
2000. Our registered and principal offices are located at One Financial Place,
Collymore Rock, St. Michael, Barbados and our telephone number is (246)
436-4895. We are subject to general corporate and insurance regulation under the
laws of Barbados, which include minimum net asset value and reporting
requirements. (See "Our Business -- Barbados Regulation and Taxes.")
As of the date of this prospectus, we have not begun our reinsurance business.
Under the terms of the retrocession agreement (the "Retrocession Agreement")
that we have entered into with Motors Insurance Corporation ("MIC"), we intend
to engage in the business of assuming risks with respect to property and
casualty insurance policies, including primarily automobile and motorcycle
insurance policies, that are reinsured by MIC from subsidiaries and affiliates
of Integon Corporation and that are sold by an independent insurance agency or
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agencies with respect to which a series of our participating shares ("Shares")
is issued and outstanding.
We were organized by Integon Corporation ("Integon"). All of Integon's
outstanding stock is owned by GMAC Insurance Holdings, Inc., a subsidiary of
General Motors Acceptance Corporation which, in turn, is a wholly owned
subsidiary of General Motors Corporation ("GM"). MIC, a stock insurance company
organized under the laws of Michigan, is also a wholly owned subsidiary of GMAC
Insurance Holdings, Inc. The following chart provides a simplified illustration
of this structure:
--------------
General Motors
Corporation
--------------
|
|
-----------------------------
GMAC Insurance Holdings, Inc.
-----------------------------
| |
| |
------------------- ----------------
Integon Corporation Motors Insurance
Corporation
------------------- ----------------
|
| 100%
| Common Stock
|
|
---------------------------
Integon Re (Barbados), Ltd.
---------------------------
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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 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.
ELIGIBILITY TO PURCHASE THE SHARES
Shares of a series may be purchased only by an Eligible Purchaser. An "Eligible
Purchaser" is an individual or entity certified by the insurance agency or
agencies for which an Integon Account is maintained, as a purchaser of all or
part of a series of Shares to be associated with such Integon Account. An
"Integon Account" is the separate business record maintained by Integon or any
of its subsidiaries or affiliates to track volume, experience, and commissions
with respect to insurance policies sold by one or more particular insurance
agencies. There are no formal eligibility requirements for certification. The
insurance agency or agencies for which an Integon Account is maintained have
complete discretion with respect to whom they choose to certify as Eligible
Purchasers. In addition, we have complete discretion to accept or reject any
offer to purchase Shares. No more than one series of Shares is issued with
respect to each Integon 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 us.
A prospective purchaser is considered to be properly certified when we have
received a certificate in the form of Appendix C from the agency for which an
Integon Account is maintained. This form certifies that the prospective
purchaser has been designated by such agency to be eligible to purchase the
particular Shares and represents that all necessary corporate or other actions
have been taken with respect to such certification. If the Integon Account with
respect to which the Shares are to be issued relates to multiple agencies, each
agency must make this certification. In situations where the certifying
insurance agency is a sole proprietor, the individual proprietor must make the
certification; where the agency is an entity (i.e. corporation, partnership,
limited liability company), a duly authorized officer or other duly authorized
representative of such entity must make this certification. In addition to being
certified by the relevant agency, the prospective purchaser must execute a stock
purchase agreement, in the form approved by us (see Appendix B) and forward that
agreement, together with payment for the Shares to be purchased, to us. Stock
purchase agreements are subject to acceptance by us. (See "Plan of
Distribution.")
Transfer of Shares is subject to restrictions. If less than all the Shares of a
series are transferred, we must give our consent. In addition, we have 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 our articles of incorporation. (See "Description of Capital Stock --
Restrictions on Transfer.")
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USE OF PROCEEDS
The offering of the Shares 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 us from this offering.
Integon will pay all expenses of this offering. Accordingly, all proceeds
derived from this offering will be added to our general funds to provide a pool
of funds for the payment of future claims and expenses in the event premiums
prove insufficient to cover such claims and expenses. Barbados law requires that
we maintain minimum net assets in an amount that is calculated based on our
annual earned premium. Although such amounts may initially be invested by our
insurance manager in short term instruments, we intend for all of our available
capital, including the proceeds of this offering, to be invested in accordance
with guidelines established by our board of directors. We believe that the
proceeds derived from this offering will be sufficient, together with our other
capital, to support our insurance operations for the foreseeable future and
therefore we do not anticipate that we will need to raise additional funds,
other than those derived from this offering, for at least six months from the
date of this prospectus.
We establish a bookkeeping record for each particular series of Shares or class
of stock which we maintain 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
("Subsidiary Capital Account"). Subsidiary Capital Accounts are maintained
solely for the purpose of maintaining a record of these allocations, and have no
legal or accounting significance. None of our assets are segregated or earmarked
with respect to the accounts. The consideration we receive upon issuance of a
series of Shares is allocated to the Subsidiary Capital Account established with
respect to that series of Shares. (See "Description of Capital Stock -
Allocations to Subsidiary Capital Accounts.")
DETERMINATION OF OFFERING PRICE
Prior to this offering, there was no public trading market for the Shares and
there will be no public trading market after the issuance of Shares. The price
per Share reflects our projected capital needs and bears no relationship to any
valuation criteria.
DIVIDENDS
Dividends may be declared and paid at the discretion of our board of directors,
provided that our articles of incorporation provide for a minimum dividend,
payable annually, equal to 20% of the annual net income attributable to the
Subsidiary Capital Account associated with a series of Shares. Apart from the
minimum dividend, we may declare dividends based on the net income or earned
surplus attributable to each series of Shares. All dividend payments are subject
to the restrictions described below. These restrictions may prevent us from
being able to pay dividends (including minimum dividends) in our early years of
operation.
Under the general corporate laws of Barbados, dividends on the Shares are
payable only if after the payment: (a) we would be able to pay our liabilities
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as they come due; and (b) the realizable value of our assets would exceed our
liabilities and stated capital. Dividends may not be paid out of unrealized
profits. Further, under Barbados insurance law, we are required to maintain a
minimum capitalization of $125,000 and, in addition, the recorded value of our
assets must exceed our liabilities by: (a) $125,000 where our earned premium in
the preceding financial year did not exceed $750,000; (b) an amount equal to 20%
of our 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 our earned premium for
the preceding financial year exceeded $5,000,000. (See "Description of Capital
Stock -- Barbados Corporate Law Provisions.")
In addition to the provisions of Barbados law, our articles of incorporation
place limitations on the payment of dividends. Dividends may be declared and
paid only out of our earned surplus and only if, after giving effect to the
distribution, we meet 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 earned premium, of the minimum
margin of solvency required of us under Barbados law, as described in the
preceding paragraph. To the extent that we declare a dividend, other than a
minimum dividend, 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.
The payment of dividends on our common stock (the "Common Stock"), all of the
outstanding shares of which are held by Integon, is also subject to the
restrictions under Barbados law and our articles of incorporation. In addition,
our 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.
OUR BUSINESS
INTRODUCTION
As of the date of this prospectus, we have not begun our reinsurance business
operations. When we do (upon the issuance of 5 series of Shares), our business
will be the assumption of risks under insurance policies, including primarily
automobile and motorcycle insurance policies, sold through independent insurance
agencies. These policies provide liability, physical damage, and/or other types
of insurance coverage that a consumer may elect. These policies of insurance are
issued by subsidiaries or affiliates of Integon, reinsured by MIC, and
retroceded to us to the extent that such policies relate to an Integon Account
in respect of which a series of Shares is issued and outstanding. The amount MIC
retrocedes to us cannot exceed 50% of the risk associated with such policies and
cannot be less than 20% of the risk associated with such policies, subject to
compliance with applicable state law restrictions. However, the portion of the
risk we retain may be reduced to less than 20% if necessary in order to comply
with applicable capital and surplus requirements under Barbados law.
We will sell Shares to persons or entities designated by the insurance agency or
agencies for which Integon maintains an Integon Account. We will issue a
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separate series of Shares with respect to each Integon Account, and we will
establish a separate "Subsidiary Capital Account" for each series of Shares. Our
profitability will reflect both our underwriting and investment experience which
we will allocate among the Subsidiary Capital Accounts as described elsewhere in
this prospectus.
REINSURANCE
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, the retrocessionaire (us) is paid ("ceded")
a certain percentage of the premiums assumed 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.
Under the Retrocession Agreement, all business is ceded to us at the time the
policy covering the risk is written.
Integon, through its subsidiaries and affiliates, markets and underwrites
various automobile insurance products, all of which it reinsures with MIC. These
products provide primarily physical damage and liability coverages. Integon also
offers specialty automobile insurance products including business vehicle
insurance designed primarily for tradespeople and artisans who have small fleets
or lightweight single vehicles, as well as motorcycle insurance. Integon
currently markets its products in approximately 33 states through approximately
15,000 independent agencies. A.M. Best Company, Inc. has assigned a consolidated
rating of "A+" (Superior) to the GMAC Insurance Group, which includes the
subsidiaries and affiliates of Integon that issue the policies that we will
reinsure.
Integon maintains Integon Accounts in respect of independent insurance agencies
that sell insurance products of Integon's subsidiaries and affiliates. These
insurance agencies consist of sole proprietorships as well as corporations,
partnerships, and limited liability companies.
The Retrocession Agreement. The Retrocession Agreement will become
effective as of the date on which Shares are first issued. Under the
Retrocession Agreement, MIC is obligated to transfer (or retrocede) to us, and
we are obligated to assume, a portion of MIC's risks in respect of automobile
and motorcycle insurance policies reinsured by MIC, to the extent that such
policies are attributable to an Integon Account in respect of which a series of
Shares is issued, outstanding and in good-standing (the "Policies"), and such
Policies are issued or renewed on or after the effective date of the
Retrocession Agreement. Under the Retrocession Agreement, we will not assume
liability with respect to any losses resulting from events occurring prior to
the effective date of the Retrocession Agreement. We may terminate prospectively
the assumption of risks related to a particular series of Shares at any time for
any reason by a vote of our board of directors.
Under the Retrocession Agreement, MIC retrocedes to us a portion (the
"Retrocession Percentage") of MIC's risk in respect of each Policy. Our
liability under the Retrocession Agreement with respect to each Policy takes
effect at the time MIC becomes liable with respect to such Policy and remains in
effect as long as the Policy remains in force. The amount of our liability for
any loss paid on a Policy is equal to the Retrocession Percentage multiplied by
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the amount of the loss. Except as discussed below under "Reallocation of
Insurance Losses; Retention of Insurance Loses by MIC," our loss exposure is not
capped. The Retrocession Percentage, which can be either 20%, 30%, 40% or 50%,
is established for each Integon Account with respect to which a series of Shares
is issued, outstanding and in good standing. For each such Integon Account, the
applicable Retrocession Percentage is designated in the stock purchase
agreements submitted to us by prospective purchasers of Shares, provided that if
there is more than one purchaser of the Shares of a series and all of the
purchasers do not designate the same Retrocession Percentage, then the
Retrocession Percentage for that series will be the lowest available
Retrocession Percentage designated by any of the purchasers. (See "Plan of
Distribution - Purchase Procedures.") Subject to our approval, the Retrocession
Percentage for a series of Shares may be changed for a subsequent calendar year
provided that the owners of all Shares of the series submit a written request to
us at least thirty days prior to the end of the calender year requesting such
change.
In return for our assuming the risk retroceded to us by MIC under the
Retrocession Agreement, MIC pays us an amount equal to the Retrocession
Percentage multiplied by the gross premiums MIC receives with respect to the
retroceded business, after cancellations, reduced by:
(i) a ceding commission which is equal to the amount of such premiums
multiplied by 26.5%, reduced by the amount of certain service
fees paid to MIC;
(ii) any related agents' or brokers' commissions; and
(iii) any U.S. premium excise tax imposed on such premiums.
Settlements between MIC and us with respect to all amounts under the
Retrocession Agreement will be made on a quarterly basis.
As explained more fully below under "-Reallocation of Insurance Losses;
Retention of Insurance Losses by MIC," the Retrocession Agreement provides that
losses will be retained (reinsured) by MIC to the extent that losses allocated
to a Subsidiary Capital Account exceed a specified amount. Except for this
arrangement, we currently do not intend to seek reinsurance protection for any
of our obligations under the Retrocession Agreement.
The Retrocession Agreement requires that we furnish an irrevocable letter of
credit of at least 12 months duration in an amount equal to the lesser of:
(i) the amount of unearned retroceded premiums plus unpaid loss
reserves (including reserves for losses incurred but not
reported) otherwise required to be maintained by MIC in respect
of the Policies, less deferred acquisition costs; and
(ii) the maximum amount that we can provide based on our net assets.
This letter of credit must be issued by a bank acceptable to regulatory
authorities having jurisdiction over MIC.
The Retrocession Agreement provides that in the event that we redeem or
repurchase a series of Shares, MIC will retrocede no further risks to us with
respect to new or renewal Policies attributable to the Integon Account related
to the redeemed or repurchased Shares that become effective on or after the
effective date of redemption or repurchase. In addition, MIC will recapture, as
of that date, the business retroceded to us with respect to the Integon Account
related to such Shares. In consideration of that recapture, we will pay a
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termination premium to MIC in an amount equal to the unearned premiums and
unpaid losses (discounted under applicable U.S. tax rules) less deferred
acquisition costs ("Termination Premium") on the recaptured business. This
recapture will relieve us of any obligations in respect of risks retroceded to
us with respect to the Subsidiary Capital Account related to the Shares before
the date of the repurchase or redemption.
The Retrocession Agreement may be terminated as of the beginning of any month by
either party upon not less than 30 days written notice. Upon termination of the
Retrocession Agreement, MIC will not retrocede any further risks to us with
respect to new or renewal Policies that become effective on or after the
effective date of termination, and MIC will recapture the retroceded business as
of that date. In consideration of that recapture, we will pay a Termination
Premium to MIC on the recaptured business. Termination of the Retrocession
Agreement will relieve us of any obligations in respect of risks retroceded to
us before the date that the Reinsurance Agreement terminated.
Reallocation of Insurance Losses; Retention of Insurance Losses by MIC. Our
articles of incorporation generally provide that losses we incur on the business
we reinsure that are attributable to an Integon Account will be allocated to the
Subsidiary Capital Account for the Shares issued with respect to that Integon
Account and therefore will reduce the value of such Shares. However, losses on
the business are not always allocated in this manner. Under our articles, to the
extent that the allocation of losses incurred under the Retrocession Agreement
would result in a "Combined Ratio" for a Subsidiary Capital Account in excess of
108% for any calendar year, such losses are not allocated to such Account.
Instead, such losses will be reallocated among the other Subsidiary Capital
Accounts ("Unrelated Accounts"), pro rata, based on relative earned premium. The
Combined Ratio for a Subsidiary Capital Account is equal to the sum of losses
incurred, commission expense, ceding fee and U.S. premium excise taxes divided
by earned premium, to the extent that such amounts are attributable to the
business allocated to the Subsidiary Capital Account. In the event that the
Combined Ratio for each Subsidiary Capital Account for each series of Shares
issued and outstanding is 108% after reallocation of losses, any additional
losses will be reallocated to the Subsidiary Capital Account for the Common
Stock. (See "Description of Capital Stock -- Allocations to Subsidiary Capital
Accounts"). The Retrocession Agreement provides that MIC will retain losses that
would otherwise be reallocated to a Unrelated Account pursuant to such
reallocation provisions to the extent that the reallocation of losses would
increase the Combined Ratio for the Unrelated Account for any calendar year by
more than 5 percentage points.
INVESTMENT INCOME
A major source of income to us will be income earned on the investment of
amounts not currently required to meet claims or expenses. The funds available
for investment by us will come primarily from capital and accumulated earnings
and from unearned premiums and unpaid losses.
Our funds will be invested in a manner consistent with investment guidelines
established by our board of directors. We are currently permitted to invest in
investment grade debt instruments that are not subject to U.S. withholding tax,
including U.S. Treasury and agency securities, mortgage-backed securities,
obligations of domestic and foreign corporations, asset-backed securities,
municipal securities and money market instruments. Our board will review on a
regular basis and, where appropriate, revise the investment objectives and
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guidelines for the investment of our funds. There can be no assurance, however,
concerning whether a particular investment objective, once adopted, can be
achieved or that adverse factors would not cause a decrease in the overall value
of our portfolio.
We have entered into an investment management agreement with BlackRock
International, Ltd. ("BlackRock"). BlackRock is a subsidiary of BlackRock, Inc.
which had approximately $164.5 billion of assets under management as of December
31, 1999. BlackRock, Inc. manages assets on behalf of more than 3,000
institutions and 150,000 individuals through a variety of equity, fixed income,
liquidity and alternative investment separate accounts and mutual funds. The
management agreement provides that BlackRock will charge a management fee
calculated as a percentage of the net asset value of our portfolio managed by
BlackRock with the applicable percentage based on the aggregate amount of assets
managed by BlackRock on behalf of us and certain other related entities. The
applicable percentage is tiered on the first $50 million of aggregate assets
under management and lower on all assets in excess of $50 million.
INSURANCE MANAGEMENT AGREEMENT
We have entered into an Insurance Management Agreement (the "Management
Agreement") with Aon Insurance Managers (Barbados) Ltd. (the "Manager"). Under
the Management Agreement, the Manager collects and disburses funds on our
behalf, provides accounting, clerical, telephone, facsimile, information
management, and other services for us, and advises and consults with us about
all aspects of our reinsurance activities. The Management Agreement also
requires that the Manager maintain an office in Barbados to perform its duties.
This office serves as our business office. Except for the Manager's office, we
have no other office facilities.
Under the terms of the Management Agreement, we will pay the Manager a fixed
annual fee of $70,000 and a variable monthly fee of approximately $44 per series
of Shares outstanding. The Manager is responsible for the payment of the
salaries of its officers and employees and all office and staff overhead and
other costs attributable to its services on our behalf. However, we will pay all
out-of-pocket expenses, such as telephone, facsimile, postage, travel, and other
items on an expense reimbursement basis.
The Manager was incorporated in Barbados in 1984, and is an affiliate of Aon
Corporation Group, an international insurance brokerage and consulting firm. The
Manager performs services similar to those performed for the Company for other
entities. The Manager currently has thirteen employees. In addition, the Manager
may draw upon the resources of its affiliates as needed to provide the services
contemplated under the Management Agreement. No employee of the Manager devotes
all of his or her time to our business. However, the Manager is obligated to
devote all employee 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 our board of directors. The Managing Director of the Manager serves
as one of our officers.
The Management Agreement may be terminated by either party upon 90 days advance
written notice.
EMPLOYEES
We currently anticipate that we will not have any full-time employees. Rather,
we will rely on the Manager to handle day-to-day operations. (See "Our Business
-- Insurance Management Agreement.") In addition, Colybrand Company
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Services Limited of St. Michael, Barbados will provide our corporate secretarial
services. However, our board of directors will remain responsible for the
establishment and implementation of policy decisions.
COMPETITION
The business of insuring automobile and motorcycle risks is highly competitive,
with many companies seeking to underwrite automobile and motorcycle insurance.
All of our business is currently derived from our retrocession agreement with
MIC. Under this agreement, we reinsure insurance policies issued by subsidiaries
and affiliates of Integon Corporation. Accordingly, the volume of our business
is dependent on the ability of those companies to market insurance products.
Integon, through its subsidiaries and affiliates, competes with both large
national writers and smaller regional companies in each state in which they
operate. Some of these competitors have, from time to time, decreased prices in
order to gain market share.
BARBADOS REGULATION AND TAXES
Insurance Regulation. We are subject to regulation under the Barbados Exempt
Insurance (Amendment) Act, 1995-22, as amended (the "Exempt Insurance Act"). The
Exempt Insurance Act and related regulations impose a number of requirements on
us.
The principal requirements are as follows:
(1) we must maintain a principal office in Barbados, appoint an auditor, and
have a resident citizen of Barbados as one of our directors;
(2) we must, during our first financial year, maintain capital of $125,000;
(3) additionally, we must, after our first financial year, maintain assets that
exceed our liabilities by:
(a) $125,000, where the premium income (which has been deemed to be the same as
earned premium) in the preceding financial year did not exceed $750,000;
(b) an amount equal to 20% of the premium income 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 premium income for the preceding financial year exceeded $5,000,000;
(4) we must have audited financial statements ("Financial Statements") in
respect of our operations for each year that are currently required to be
prepared in accordance with Generally Accepted Accounting Principles;
(5) we must submit our Financial Statements to the Barbados Supervisor of
Insurance ("Supervisor") and the Barbados Commissioner of Inland Revenue within
six months after the end of the relevant financial year; and
(6) we must submit to the Supervisor on an annual basis a certificate of our
auditor that we are in compliance with the solvency requirements of the Exempt
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) our profits or gains, (2) the
transfer of our securities to any person who is not a resident of Barbados, (3)
us, our shareholders or transferees in respect of the transfer of all or any
part of our securities or other assets to another licensee under
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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 of our securities. We have
received a guarantee from the Minister of Finance of Barbados that such benefits
and exemptions effectively will be available through the year 2029.
Exchange Control. The Exempt Insurance Act exempts us from the Barbados Exchange
Control Act. Accordingly, we may hold any non-Barbadian currency and convert
that currency into any other currency without restriction.
FACILITIES
We do not own or maintain any office space or facilities. Instead, the Manager
provides our business office which is located at Collymore Rock, Barbados. We
believe that these facilities are adequate for our current and anticipated
future needs. The Manager also supplies all equipment used in our business and
maintains all of our records.
LEGAL PROCEEDINGS
As of the date of this prospectus, we are not subject to any material legal
proceedings, and none of our property is subject to any material legal
proceedings.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934 (the "Exchange Act"), and in accordance therewith will file 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 information we file with the Commission is also
available through the Commission's Internet site at "http://www.sec.gov."
REPORTS TO STOCKHOLDERS
We will furnish to our stockholders annual reports containing financial
statements that reflect our overall results and condition and that have been
audited and reported upon by independent public accountants. These reports will
contain information prepared in accordance with accounting principles generally
accepted in the United States.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST OUR DIRECTORS, US AND OTHERS
We are a resident of Barbados, as are certain of our directors, and certain
experts named herein, and all or a substantial portion of our assets and the
assets 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 us 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 "Securities Act"). We have been
advised by our Barbados counsel, Evelyn, Gittens & Farmer, that there is doubt
as to whether Barbados courts would (1) enforce judgments of
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United States courts obtained against us or such persons predicated upon the
civil liability provisions of the Securities Act, or (2) impose, in original
actions in Barbados, liabilities against us or such persons predicated upon the
Securities Act.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Capital Resources and Liquidity.
Our capitalization will consist of paid in capital with respect to the Common
Stock of $1,000,000, paid in capital with respect to the Shares which will range
from $125,000 to $7,500,000 (depending on the number of Shares sold), and
earnings retained for use in our business. Our liquidity requirements will
relate to payment of insurance losses, administrative expenses, and dividends.
Premiums generated by our reinsurance business, combined with investment
earnings plus proceeds from the sale of Shares, will be our principal sources of
funds. We believe that such funds will be sufficient to meet our liquidity
requirements in 2000 and in future years to which our reinsurance liabilities
extend. No capital expenditures are expected during the next few years.
The foregoing Management Discussion and Analysis of Financial Condition and
Results of Operations contains various forward looking statements within the
meaning of applicable federal securities laws and are based upon our current
expectations and assumptions concerning future events, which are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those anticipated.
Market Risk
As of March 20, 2000, all of our assets were in the form of cash and
accordingly, our exposure to risk of loss from changes in interest rates or
equity prices was not material.
Year 2000
We were not incorporated until 2000. In addition, we do not separately own or
license any computers or computer software applications. Accordingly, we had no
exposure with respect to the transition to Year 2000 on our computerized systems
and microprocessors and we did not incur any expenses with respect to
remediation of Year 2000. To date, we have not experienced any material adverse
effects on our business or financial condition as a result of the Year 2000
issue. We will continue to monitor our own operations, and the operations of
third parties that are critical to our operations, for potential Year
2000-related problems. However, we do not anticipate that we will discover any
future Year 2000 issues that will have a material effect on our business,
results of operations, or financial condition.
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MANAGEMENT
DIRECTORS AND OFFICERS
The following is a list of our current officers and directors:
NAME AGE POSITION WITH US (AND OTHER
EMPLOYMENT DURING PAST FIVE YEARS)
Gary Y. Kusumi ........... 53 Chairman and Chief Executive
Officer, President and Director
(Director, Integon, March 1998;
President Windsor Insurance, 1996-
1998; President Leader National
Insurance, 1993-1996).
Pamela H. Godwin ....... 51 Vice-President and Director
(President and Chief Operating
Officer, Integon, September 1999;
President, Forum Of Executive Women,
1998-1999; Acting President, Women's
Way, 1998-1999; Senior Vice
President, Advanta Corporation,
1996-1998; President, Change
Partners, Inc., 1995-1996; President
& Chief Operating Officer, Providian
Corporation, 1993-1994).
Bernard J. Buselmeier..... 44 Vice-President and Director
(Executive Vice-President and Chief
Financial Officer, Integon, April
1998; Vice-President and Treasurer,
MIC, 1993-1998, Treasurer, MIC 1989-
1993).
Kenneth J. Jakubowski..... 43 Vice-President and Director
(Vice-President, Integon, May 1997;
Assistant Treasurer, Alexander &
Alexander 1992-1997).
Peter R. P. Evelyn ....... 58 Director (Attorney, Evelyn, Gittens
& Farmer, a
Barbados law firm, 1987).
Ronald W. Jones .......... 47 Vice-President, Finance (Managing
Director, Aon Insurance Managers
(Barbados) Ltd. (previously
Alexander Insurance Managers),
1987).
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Michael R. Boyce ......... 60 Secretary (Principal, Colybrand
Company Services, Limited, Barbados,
1993; previously principal, Price
Waterhouse, Eastern Caribbean).
The directors and officers named above will serve in those capacities until the
annual meeting of shareholders following the initial issuance of Shares. After
Shares are first issued, and prior to such meeting, the directors named above
may, but are not obligated to, select an additional director from among the
holders of Shares. Thereafter, all directors will serve until the annual meeting
of shareholders following their election.
COMMITTEES OF THE BOARD
Our By-Laws authorize our board of directors to establish committees consisting
of two or more directors. Subject to Barbados law, our board may delegate any of
its powers to such committees. The By-laws provide that non- directors may serve
on such committees. Currently, no committees of our board have been formed,
although our board will likely establish certain committees, including a
nominating committee which will consist of three directors, one elected by the
holders of Shares and two elected by holders of our Common Stock.
REMUNERATION
It is not anticipated that any of our directors or officers will be compensated
directly by us for his or her services as such. However, each of our directors
and officers 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; Mr. Evelyn is a member of the law firm
of Evelyn, Gittens & Farmer, which serves as our Barbados counsel; and Mr. Boyce
is affiliated with Colybrand Company Services Limited, St. Michael, Barbados,
which provides our corporate secretarial services.
PRINCIPAL SHAREHOLDER
Integon owns all of the issued and outstanding shares of the our common stock
which consists of 1,000,000 shares.
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CERTAIN TRANSACTIONS
It is our policy not to make loans to any of our officers, directors, control
persons or other affiliates.
All transactions between us and our officers, directors, employees and
affiliates, will be on terms no less favorable to us than can be obtained from
unaffiliated third parties. Any such transactions will be subject to the
approval of a majority of the members of our board of directors who do not have
an interest in the transaction and who have had access, at our expense, to our
counsel or to independent counsel.
DESCRIPTION OF CAPITAL STOCK
Our articles of incorporation authorize us to issue an unlimited number of
shares of Common Stock, without nominal or par value per share, 1,000,000 of
which have been issued to Integon and are outstanding. The Company is not
offering any shares of Common Stock in this offering. In addition to the Common
Stock, our articles authorize us to issue 30,000 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. 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. The financial interest of holders of shares of our Capital
Stock (including the Shares) is limited to our assets existing after we pay all
of our liabilities. (See "-- Liquidation.")
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
We have established a Subsidiary Capital Account with respect to the Common
Stock as a class, and we will establish 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 our assets are segregated
or earmarked with respect to those accounts.
In general, the allocation rules contained in our articles of incorporation are
designed to allocate to the Subsidiary Capital Account for a particular series
of Shares the underwriting results (which is generally equal to the premiums
earned less losses paid) on insurance policies sold by the insurance agency or
agencies associated with Shares. In addition, our articles generally allocate
our expenses and investment income among the Subsidiary Capital Accounts based
on the amount of our reinsurance business that is attributable to the insurance
agency or agencies associated with the series of Shares. However, our articles
contain detailed allocation rules that include some exceptions to the foregoing.
The following is a summary of the allocation rules contained in our articles of
incorporation which are included as appendix A to this prospectus. Because the
following is a summary, it does not include all of the allocation rules
contained in our articles.
Proceeds of Sale of Stock. The money we receive upon the issuance of a
particular series of Shares and the Common Stock as a class, including any
interest earned on funds while held in the Escrow Account (as described
under "Plan of Distribution -- Conditions of Sale") is allocated to the
Subsidiary Capital Account for that series or class.
Underwriting Income and Expenses. We allocate 100% of each of the
following items to the Subsidiary Capital Account for the series of
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Shares that are identified with the Integon Account associated with the
insurance agency (or agencies) that sold the insurance polices to which
such items can be attributed (the "related Subsidiary Capital Account"):
o premiums ceded to us;
o agents' or brokers' commissions, ceding fees and commissions,
commissions recaptured, unearned premiums, reinsurance premiums
ceded, and any United States excise tax;
o losses incurred and any amount of losses recovered through
salvage, subrogation, reinsurance recoveries, reimbursement or
otherwise;
o return premiums;
o any recapture premium or termination premium we pay to MIC upon
partial or complete termination of the Retrocession Agreement,
and any fees, expenses, or losses recaptured in connection with
such termination; and
o any recovery or offset for losses retained by MIC pursuant to the
terms of the Retrocession Agreement between MIC and us.
Reallocation of Losses. On an annual basis, we reallocate losses
incurred under the Retrocession Agreement that we would otherwise allocate
to a Subsidiary Capital Account based on the rules discussed above to the
extent such losses would result in a Combined Ratio for such Subsidiary
Capital Account exceeding 108%. We reallocate these losses among other
Subsidiary Capital Accounts, pro rata, based upon the relative earned
premiums of each Subsidiary Capital Account for the calendar year;
provided, however, that only those Subsidiary Capital Accounts for Shares
that each have a Combined Ratio of less than 108% for the year without this
reallocation will be taken into account for this purpose. If, as a result
of a reallocation of losses, a Combined Ratio in excess of 108% otherwise
would be created in one or more Subsidiary Capital Accounts, then the
losses incurred above a 108% Combined Ratio will be reallocated in the
manner provided in the preceding sentence until all losses incurred on the
business reinsured from MIC for the year have been allocated to Subsidiary
Capital Accounts for the Shares or until each Subsidiary Capital Account
for the Shares has a Combined Ratio for the year of 108%. In the event that
the Combined Ratio of each Subsidiary Capital Account for the Shares is
108% after the application of the preceding sentences of this paragraph,
the losses incurred above a Combined Ratio of 108% will be allocated to the
Subsidiary Capital Account of the Common shares.
Day-to-Day Operating Expenses. We allocate any expenses or liabilities
attributable to our day-to-day operations, excluding any United States
Federal income taxes, among all Subsidiary Capital Accounts for the Shares
pro rata in accordance with the relative earned premiums allocated to those
accounts for the fiscal quarter in which the expense or liability is
incurred. However, we generally do not allocate any expenses to a series of
Shares for approximately one year after they are issued or to a series of
Shares once all of the premium allocated to the Subsidiary Capital Account
for such series has been earned. (See Section 2(1)(2) of Articles.) Integon
has agreed to bear all of the
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expenses identified in this paragraph for a period of approximately one
year from the date that Shares are first issued.
United States Tax. We allocate any United States Federal income tax
liability (and any interest thereon or any penalties related thereto) among
the Subsidiary Capital Accounts based upon the relative contribution of
each of those accounts to our taxable income upon which the tax (or any
interest or penalties) is imposed.
Share Issuance Expenses. We allocate 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 U.S.
Securities and Exchange Commission and state securities laws (but not
including ongoing periodic reporting costs), to the Subsidiary Capital
Account for the Common Stock. However, Integon may pay such expenses
directly.
Miscellaneous Expenses. We allocate any of our expenses or liabilities
that are not covered by one of the foregoing rules among the Subsidiary
Capital Accounts on the basis of the relative amount of capital and surplus
attributable to those accounts as of the end of the quarter preceding the
date on which the expense or liability is incurred. For purposes of such
allocation, Subsidiary Capital Accounts with negative balances are
excluded.
Investment Income. We allocate investment income, net of any direct
investment expense, among the Subsidiary Capital Accounts, pro rata, based
upon the relative "Investment Asset Balance." For purposes of these
allocations, net investment income includes realized (but not unrealized)
gains and losses.
The "Investment Asset Balance" of each Subsidiary Capital Account is
equal to the sum of the beginning cash balance in a Subsidiary Capital
Account and the ending cash balance (excluding allocation of any investment
income for the quarter then ending) in such account for a quarter divided
by two. The cash balance in a Subsidiary Capital Account is equal to the
sum of the loss reserves, unearned premium reserves and capital and surplus
less deferred expenses.
Dividends, Redemptions and Liquidations. We allocate dividends,
payments upon redemption or liquidation (described below), and any other
distributions with respect to the Capital Stock to the Subsidiary Capital
Account for the class or series with respect to which the dividend, payment
or distribution was made.
Where all Shares of a series are redeemed in accordance with our procedures
for redemption, we allocate any deficit in the Subsidiary Capital Account
for that series first to the Subsidiary Capital Account for the Common
Shares and then allocate any remaining unallocated deficit among the
Subsidiary Capital Accounts for Shares with positive balances, pro rata,
based upon such balances.
Where all Shares of a series are repurchased by us pursuant to our right of
first refusal or redeemed in accordance with our procedures for redemption,
we terminate the Subsidiary Capital Account for that series and, under the
terms of the Retrocession Agreement, MIC recaptures the business previously
allocated to the Subsidiary Capital Account.
Our articles also provide that if we are liquidated, any deficit existing
in any Subsidiary Capital Account is allocated first to the
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Subsidiary Capital Account for the Common Stock and then, any remaining
unallocated deficit is allocated among the Subsidiary Capital Accounts for
Shares with positive balances, pro rata, based upon such balances.
The Subsidiary Capital Account for the Common Stock had, at the time it was
established, a balance of approximately $1,000,000, representing the capital
paid in by Integon for the 1,000,000 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.
After our board of directors approves the allocations of income and expense,
gains and losses, and distributions described above, they 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 our procedures
for redemption. (See "Description of Capital Stock -- Redemption.")
Our board of directors is authorized to interpret and apply the above allocation
provisions and to adopt additional rules and guidelines as the board deems
appropriate to carry out the intent of these provisions. The board's
interpretations and any additional rules and guidelines adopted will also be
binding on all shareholders.
Barbados insurance law requires that we maintain certain levels of net assets,
which for this purpose are calculated without taking into account unrealized
gains or losses. We are currently in compliance with these requirements.
However, in the event that we are unable to comply with such requirements in the
future, we have 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 our 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 member of our board of directors, and the holders of Common Stock as a class
are entitled to elect five directors. At least one of the directors must be
resident in Barbados. Cumulative voting is not permitted.
Proxies. Any shareholder may appoint another person as his or her proxy to act
on behalf of the appointing shareholder at any of our annual meetings. The
appointment of a person as proxy for a shareholder must be in writing.
Liquidation. We may be liquidated upon the vote of at least 75% of the
outstanding Shares. (See "Description of Capital Stock -- Liquidation.")
Changes in Articles and By-Laws. No change may be made to our articles of
incorporation 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
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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
We 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 our 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 last day of the calendar year in
which the redemption was approved by our board of directors. This date is
referred to hereinafter as the "Redemption Date." The consideration payable to
the holders of redeemed Shares will be the balance of the Subsidiary Capital
Account ("Account Balance") for those Shares as of the Redemption Date, as
adjusted by the board of directors to reflect:
(i) an appropriate share of the deficits in other Subsidiary
Capital Accounts as of the Redemption Date;
(ii) unrealized gains and losses on our investments; and
(iii) any contingent liabilities allocable to such account.
Each holder of redeemed Shares will receive the pro rata portion of the adjusted
Account Balance that corresponds to the proportionate number of Shares of the
series owned. The adjusted 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 canceled and the holders thereof will no longer have any interest in the
Shares redeemed or in the Subsidiary Capital Account with respect to the Shares
redeemed.
LIQUIDATION
Subject to Barbados regulatory and judicial approvals, we may be liquidated upon
the vote of 75% of the outstanding Shares. In the event of liquidation, the
interest of holders of shares of our Capital Stock is limited to our assets
existing after we pay all of our liabilities. After payment of all of our
liabilities, each holder of Shares of a series is entitled to receive his pro
rata share of his respective Account Balance before any distribution of our
assets is made to the holder(s) of Common Stock. Thereafter, the holders of
Shares are not entitled to participate further in the distribution of our
assets. Each holder of Common Stock will be entitled to receive his pro rata
share of our remaining assets, if any.
RESTRICTIONS ON TRANSFER
There is no existing public trading market for the Shares and none will develop
in the future. In addition, our articles of incorporation 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.
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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 us, or the holder(s) of the Shares sought to be
transferred has received our written consent. 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 we fail to give our 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 effective as of the
end of the calendar year (the "Repurchase Date"), a copy of that offer has been
furnished to us, and we are thereafter offered the opportunity to purchase the
Shares. We will have 60 days during which to exercise our right to purchase the
Shares sought to be transferred. If we accept the offer to purchase, the price
will be the lesser of the bona fide offering price and the Account Balance for
the series of Shares sought to be transferred as of the Repurchase Date,
provided that the Account Balance shall be adjusted to reflect:
(i) an appropriate share of the deficits in other Subsidiary
Capital Accounts as of the Repurchase Date;
(ii) unrealized gains and losses on our investments; and
(iii) any contingent liabilities allocable to such account.
A purchase made by us pursuant to this "right of first refusal" will be deemed
effective upon the Repurchase Date, although payment by us may be deferred until
the end of the quarter following the Repurchase Date. Shares purchased by us
pursuant to our right of first refusal will be canceled.
Exceptions to Restrictions on Transfers. A transfer of either all or a portion
of the Shares of a series is not subject to either our consent or right of first
refusal where our board of directors 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 employee of an insurance agency with respect to which the Shares held by
the transferor were issued.
Provisions Applicable to All Transfers. No Shares may be transferred unless and
until our board of directors has received, from the holder of the Shares sought
to be transferred, assurances of compliance with all applicable laws and
regulations. Further, persons to whom Shares are transferred must agree to abide
by the requirements set forth in the stock purchase agreement entered into by
the person transferring the Shares. In addition, all transfers of Shares require
the approval of the Barbados Supervisor of Insurance.
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Certificates representing the Shares will bear a legend noting the applicable
limitations on transfers.
COMMON STOCK
We are currently authorized to issue an unlimited number of shares of Common
Stock, without nominal or par value, 1,000,000 of which have been issued to
Integon and are outstanding.
We have established a Subsidiary Capital Account 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. 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, our 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. We are authorized by our articles, subject to certain approvals, to
repurchase Shares. Such purchases may only be effected if we 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, we may take action
against directors and officers for breach of their statutory duty to act
honestly and in good faith with a view to our best interests.
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
us, or our directors and officers resident in Barbados,
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predicated on the civil liability provisions of the Securities Act or, in
original actions, impose liabilities against us or such persons predicated upon
that Act. (However, liability for violations of the Securities Act by us may be
imposed directly on Integon in a United States court as a result of Integon
being a "control person" with respect to us under the Securities Act.)
Indemnification. Our by-laws provide for the indemnification of our 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 us.
Inspection of Corporate Records. Shareholders have the right to inspect and copy
our articles and by-laws, corporate register, security register, minutes of
shareholders meetings, any unanimous shareholder agreement, as well as our
audited financial statements, which must be presented to the annual meeting of
shareholders.
PLAN OF DISTRIBUTION
OFFERING PROCEDURE
The Shares are being offered, on a continuous basis, by registered
representatives of GMAC Securities Corporation. GMAC Securities Corporation is
an affiliate of Integon and is registered as a broker-dealer under the Exchange
Act and in each of the states in which Shares are being offered. It is also a
member of the National Association of Securities Dealers, Inc. No commissions
are charged by or paid to GMAC Securities Corporation or the registered
representatives in connection with the sale of Shares. The registered
representatives will deliver this prospectus in printed form only by hand or
mail delivery. GMAC Securities Corporation will not be a market- maker for the
Shares. All sales of Shares are subject to our approval. (See "Eligibility to
Purchase the Shares.")
PURCHASE PROCEDURES
In order to purchase the Shares, the following documents must be sent to us in
Barbados:
(1) two duly executed stock purchase agreements (see Appendix B);
(2) all necessary certifications of the eligibility of prospective purchasers
by the insurance agency or agencies related to the Integon Account with
respect to which the Shares will be issued (see Appendix C); and
(3) a certified or cashier's check payable to "Integon Re (Barbados), Limited
-- Escrow Account" in the amount of the aggregate cost of the Shares to be
purchased, based on the offering price of $250.00 per Share ("Purchase
Payment").
None of these 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 we approve the offer and execute the agreement. (See
"Plan of Distribution--Conditions of Sale.")
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Following execution of the stock purchase agreement by us, 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 us. 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 our
articles and by-laws, including the restrictions on transfer. (See "Description
of Capital Stock -- Restrictions on Transfer.") The stock purchase agreement
further provides that we may place on a Share certificate a legend stating that
the transfer or other disposition is restricted pursuant to our articles and
by-laws.
Once it is accepted by us, a stock purchase agreement remains in effect as long
as the associated Shares remain outstanding. A stock purchase agreement
terminates only upon the redemption of the Shares or our liquidation. Upon a
transfer of Shares, the person transferring the Shares is relieved of all
restrictions and obligations and the person to whom the Shares are transferred,
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
We will maintain 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
will bear interest at prevailing rates but will not be subject to the investment
guidelines discussed above. If the conditions are not satisfied, the Purchase
Payment will be returned together with any interest earned.
Approval of Purchase. Each purchase of Shares must be accepted by us within 120
days from the date of execution of the stock purchase agreement by the
Purchaser. If we determine to accept an offer to purchase Shares from an
Eligible Purchaser, we will execute both copies of the stock purchase agreement
remitted by such person and return one copy to such person. If we determine not
to approve an offer to purchase, we will return 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) will be
deposited in the Escrow Account. If a request to purchase is approved:
(i) the Purchase Payment, together with any interest earned thereon in the
Escrow Account, will be released to us and allocated to the Subsidiary
Capital Account for the Shares; and
(ii) Shares will be issued and the Eligible Purchaser will receive a
certificate evidencing ownership of the Shares.
Where we determine not to approve a sale of Shares to a prospective purchaser,
the Purchase Payment will be returned, together with any interest earned
thereon. We have the right to reject any prospective purchaser for any reason
whatsoever.
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Minimum Sales. We will not issue any Shares unless executed Stock Purchase
Agreements for at least 5 series of Shares have been received and approved by
December 31, 2001. (The minimum number of sales necessary to satisfy this
condition is hereinafter referred to as the "Minimum Sales.") If, at the time we
execute a stock purchase agreement, the Minimum Sales have not been made, then
the Purchase Payment with respect to that Agreement will remain on deposit in
the Escrow Account until the earlier of (1) the date as of which the Minimum
Sales have been made, or (2) December 31, 2001. In the event that (1) occurs
first, the Shares will be issued and the Eligible Purchaser will receive a
certificate evidencing ownership of Shares. In the event (2) occurs first, the
Eligible Purchaser will promptly be sent the amount of the Purchase Payment,
together with any interest earned thereon in the Escrow Account.
After we have made the Minimum Sales, all funds paid to us with Stock Purchase
Agreements will be deposited in the Escrow Account. These funds will remain on
deposit in the Escrow Account until the Stock Purchase Agreement pursuant to
which the funds are sent is either approved or rejected by us. If it is
approved, the funds, including any interest earned thereon in the Escrow
Account, will be paid over to our general funds and allocated to the respective
Subsidiary Capital Account for the Shares; if it is rejected, the funds,
including any interest earned thereon in the Escrow Account, will be returned to
the Eligible Purchaser, together with any accumulated interest earned.
TERMINATION OF OFFERING
Unless terminated as a result of our failure to make the Minimum Sales by
December 31, 2001 or otherwise terminated sooner by our board of directors, this
offering will terminate on the date on which all of the Shares offered hereby
have been sold.
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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 us and our
shareholders. The following is a discussion, based on the facts set forth herein
and existing law, of the material Federal tax consequences which, in the opinion
of our U.S. tax counsel, LeBoeuf, Lamb, Greene & MacRae, L.L.P., are associated
with an investment in Shares.
United States taxation of us and our 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. We have not requested
advance rulings on these questions 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 discussion does not address 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. You Should Consult Your Own Tax Advisor
Concerning The Tax Implications Of Your Investment In Shares.
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, we are entitled to the
benefits of the Treaty provided that we are "resident" (that is, "managed and
controlled") in Barbados. We attempt to conduct our business in such a manner
that we will be considered to be "managed and controlled" in Barbados in order
to qualify for the benefits of the Treaty.
UNITED STATES PREMIUM EXCISE TAX
The United States imposes an excise tax at the rate of 1% of the gross premiums
paid to foreign insurance companies for reinsurance covering risks located
within the United States. Reinsurance premiums paid to us are subject to this
excise tax.
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UNITED STATES FEDERAL INCOME TAX RISKS AND CONSEQUENCES TO US
Risks and Consequences of Carrying on a United States Reinsurance Business
Through a Permanent Establishment. As a "resident" of Barbados, if we engage in
business within the United States through a permanent establishment, we will be
subject to United States Federal income tax at normal corporate tax rates on our
business profits that are attributable to such permanent establishment. Insofar
as is relevant hereto, all of our 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, we conduct reinsurance business in Barbados and
in that regard execute and administer our reinsurance agreements and manage our
business affairs from Barbados. On this basis, we believe that we should not be
deemed to be engaged in business within the United States through a permanent
establishment, and therefore we believe we should not be subject to United
States income tax. However, given the factual nature of the questions involved
and certain aspects of our treaty reinsurance program related to the United
States, and given the absence of any clear legal interpretation of the
application of the provisions of the permanent establishment standard under the
circumstances, there can be no assurance that for tax purposes we 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 we do not engage in
business within the United States through a permanent establishment, we
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.
Under our investment guidelines, we are only permitted to invest our funds in
assets that are not subject to U.S. withholding tax. (See "Our Business.")
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, Integon elects five of our six directors through its
ownership of all of our issued and outstanding Common Stock. Further,
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Integon and MIC are commonly controlled by their parent, GMAC Insurance
Holdings, Inc. Thus, if transactions between MIC and us were determined not to
reflect the true taxable income of the parties, a reallocation of income or
deductions between MIC and us could result. However, as long as the transactions
between MIC and us 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 Integon and us.
In addition, section 845 of the Code 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 Integon is entitled to elect five of our six directors and Integon and
MIC are owned by a common parent, we and MIC 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 us, 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 us by MIC, MIC would likely be subject to tax on such business.
Since we have no obligation to indemnify MIC against such adverse tax
consequences, a reallocation of business to MIC should not directly affect us.
However, any such reallocation might contribute to the early termination of the
retrocession agreement between MIC and us.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES -- THE SHAREHOLDERS
Taxation of Our Income 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
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 our 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 our shareholders ("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 our earnings and profits attributable to
amounts that have been included in gross income of the
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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 us 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 our Subpart F
income generally will be computed under the same rules that govern the
computation of taxable income of domestic property and casualty insurance
companies.
Although Subpart F income generally is allocated based on book income,
differences between the financial and tax accounting rules applicable to the
computation of our income may result in differences in any year between the
amount of income subject to pass-through to a Shareholder for United States tax
purposes and 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 we were subject to United States income tax on our 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 us.
(See "United States Federal Tax Considerations -- United States Federal Income
Tax Consequences To Us.")
Risk of Recharacterization of Reinsurance Profits on Business Retroceded to Us.
As described elsewhere herein, a portion of the business retroceded to us is
allocated to the Subsidiary Capital Account for the series of Shares identified
with the Integon Account to which such business is attributable. 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, such that
the producers (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 us relative to the volume of our business, 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 our board of directors, and the vote accompanying each Share,
there should be substantial arguments against the recharacterization of profits
with respect to the Shares.
LEGAL MATTERS
The legality of the securities offered hereby is passed upon for us by our
Barbados counsel, Evelyn, Gittens & Farmer, Heritage House, Pinfold Street,
Bridgetown, Barbados, West Indies. LeBoeuf, Lamb, Greene & MacRae, L.L.P., 1875
Connecticut Avenue, N.W., Washington, D.C. 20009, will advise us as to certain
matters pertaining to the laws of the United States.
EXPERTS
The financial statements as of March 20, 2000, included and incorporated by
reference in this prospectus, have been audited by Deloitte & Touche,
independent chartered accountants, Bridgetown, Barbados, as stated in their
report, which is included and incorporated by reference herein, and has been
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so included and incorporated in reliance upon the report of such firm given upon
their authority 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, L.L.P. 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 Securities Act has been filed with 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 Public
Reference Room located 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. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. 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.
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INDEPENDENT AUDITORS' REPORT
To the Shareholder of
INTEGON RE (BARBADOS) LIMITED
One Financial Place
Collymore Rock
St. Michael, Barbados
We have audited the accompanying balance sheet of Integon Re (Barbados) Limited
as at March 20, 2000. The balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance that the balance sheet is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, this balance sheet presents fairly, in all material respects,
the financial position of Integon Re (Barbados) Limited as at March 20, 2000 in
accordance with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
March 20, 2000
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INTEGON RE (BARBADOS), LIMITED
BALANCE SHEET
AS AT MARCH 20, 2000
(Expressed in United States Dollars)
Note
ASSETS
Cash at bank $1,000,000
==========
SHAREHOLDER'S EQUITY
Share capital 4 $1,000,000
==========
- Common Stock - no par value
Authorised - an unlimited
number of shares;
Issued and outstanding
- 1,000,000 shares at
March 20, 2000
The attached notes form an integral part of this balance sheet.
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INTEGON RE (BARBADOS), LIMITED
NOTES TO THE BALANCE SHEET
AS AT MARCH 20, 2000
(Expressed in United States Dollars)
Note 1. NATURE OF BUSINESS
The Company was incorporated on January 10, 2000 under the Laws of
Barbados and is licensed with the Supervisor of Insurance under the
Barbados Exempt Insurance Act. The Company's principal activity when
operations commence will be to assume risks with respect to property
and casualty insurance policies (primarily automobile and motorcycle)
sold to consumers in the United States through independent insurance
agencies.
All of the common stock of the Company is owned by Integon Corporation
(Integon). Integon is an indirect wholly-owned subsidiary of the
General Motors Corporation.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements are stated in United States dollars and
prepared in conformity with accounting principles generally accepted
in the United States of America.
Foreign Currency Translation
Foreign currency assets and liabilities are translated into United
States dollars at the rate of exchange prevailing at the balance sheet
date. The translation adjustments are included in stockholders equity
and transaction adjustments are included in net income.
The functional currency for the Company is U.S. dollars. Insurance
premiums are ceded to the Company in U.S. dollars and investments are
generally made in U.S. dollar denominated securities.
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INTEGON RE (BARBADOS) LIMITED
NOTES TO THE BALANCE SHEET AND
STATEMENT OF LOSS AND ACCUMULATED DEFICIT
AS AT MARCH 20, 2000
(Expressed in United States Dollars)
Note 3. FORMATION COSTS
All costs associated with the formation of the Company prior to the
commencement of business were paid directly by Integon Corporation and
totalled $208,715 as of March 20, 2000. The Company is not obligated
to repay these amounts to Integon Corporation.
Note 4. SHARE CAPITAL
The Company is authorized to issue an unlimited number of shares
without par value to be designated common shares and 30,000 shares of
one class without par value to be designated participating shares. At
the balance sheet date, the share capital account consisted of the
following shares which were issued and fully paid.
Issued and Outstanding
Number Amount
Common shares 1,000,000 $1,000,000
The holders of the common stock shall be entitled to elect five
directors of the Company, one of whom must be a resident citizen in
Barbados.
The holder of the participating shares shall be entitled to elect one
director of the Company.
Generally, liquidation of the Company requires approval by at least
75% of the shares issued and outstanding.
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INTEGON RE (BARBADOS) LIMITED
NOTES TO THE BALANCE SHEET AND
STATEMENT OF LOSS AND ACCUMULATED DEFICIT
AS AT MARCH 20, 2000
(Expressed in United States Dollars)
Note 5. SIGNIFICANT AGREEMENTS
Retrocession Agreement
Motor Insurance Corporation (MIC) and the Company are related parties.
All of the common stock of the Company is owned by Integon. Integon
and MIC are both wholly owned subsidiaries of GMAC Insurance Holdings,
Inc., which is a wholly owned subsidiary of General Motors Acceptance
Corporation (GMAC).
Under this Retrocession Agreement, MIC retrocedes to the Company a
portion (the "Retrocession Percentage") of MIC's risk in respect of
certain property and casualty insurance policies that are reinsured by
MIC. The amount of the Company's liability for any loss paid on a
policy is equal to the Retrocession Percentage multiplied by the
amount of the loss. The Retrocession Percentage, which can be either
20%, 30%, 40% or 50%, is established for each Integon Account with
respect to which a series of participating shares is issued,
outstanding and in good standing. In return for the Company assuming
the risk retroceded to the Company by MIC under the Retrocession
Agreement, MIC pays the Company an amount equal to the Retrocession
Percentage multiplied by the gross premiums MIC receives with respect
to the retroceded business, after cancellations, reduced by:
(i) a ceding commission which is equal to the amount of such
premiums multiplied by 26.5%, reduced by the amount of
certain service fees paid to MIC;
(ii) any related agents' or brokers' commissions; and
(iii) any U.S. premium excise tax imposed on such premiums.
The Retrocession Agreement may be terminated as of the beginning of
any month by either party upon not less than 30 days written notice.
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INTEGON RE (BARBADOS) LIMITED
NOTES TO THE BALANCE SHEET AND
STATEMENT OF LOSS AND ACCUMULATED DEFICIT
AS AT MARCH 20, 2000
(Expressed in United States Dollars)
Investment Management Agreement
The Company has entered into an investment management agreement with
BlackRock International, Ltd. ("BlackRock"). The management agreement
provides that BlackRock will charge a management fee calculated as a
percentage of the net asset value of the Company's portfolio managed by
BlackRock with the applicable percentage based on the aggregate amount of
assets managed by BlackRock on behalf of the Company and certain other
related entities. The applicable percentage is tiered on the first $50
million of aggregate assets under management and lower on all assets in
excess of $50 million.
Insurance Management Agreement
The Company has entered into an Insurance Management Agreement (the
"Management Agreement") with Aon Insurance Managers (Barbados) Ltd. (the
"Manager"). Under the Management Agreement, the Manager collects and
disburses funds on the Company's behalf, provides accounting, clerical,
telephone, facsimile, information management and other services for the
Company and advises and consults with the Company about all aspects of the
Company's insurance activities. Under the terms of the Management
Agreement, the Company will pay the Manager a fixed annual fee of $70,000
and a variable monthly fee of approximately $44 per series of Shares
outstanding. The Manager is responsible for the payment of salaries of its
officers and employees and all office and staff overhead and other costs
attributable to its services on the Company's behalf. However, the Company
will pay all out-of- pocket-expenses, such as telephone, facsimile,
postage, travel and other items on an expense reimbursement basis. The
Management Agreement may be terminated by either party upon 90 days advance
written notice.
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INTEGON RE (BARBADOS) LIMITED
NOTES TO THE BALANCE SHEET AND
STATEMENT OF LOSS AND ACCUMULATED DEFICIT
AS AT MARCH 20, 2000
(Expressed in United States Dollars)
Note 6. TAXATION
The Company has received an undertaking from Barbados Government
exempting it from all local income profits and capital taxes for a
period of fifteen (15) years from the date of incorporation.
Thereafter, for a further (15) years, the Company will be subject to
tax at a rate of 2% on its taxable income provided that the amount of
such tax will not exceed $2,500 per annum.
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COMPANIES ACT OF BARBADOS APPENDIX A
(Section 5)
ARTICLES OF INCORPORATION FORM 1
1. Name of Company
Integon Re (Barbados), Limited
2. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE COMPANY IS
AUTHORIZED TO ISSUE
The annexed Schedule A is incorporated in this form.
3. RESTRICTION IF ANY ON SHARE TRANSFERS
The annexed Schedule B is incorporated in this form.
4. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS
There shall be a minimum of 5 and a maximum of 6 directors.
5. 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 Cap. 308A of
Barbados and the business of the Company shall be restricted accordingly.
6. OTHER PROVISIONS IF ANY
The annexed Schedule C is incorporated in this form.
7. Date Signatures Title
, 2000 Peter Evelyn Director
FOR MINISTRY USE ONLY
COMPANY NO. FILED
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THE COMPANIES ACT OF BARBADOS
SCHEDULE TO ARTICLES OF INCORPORATION
SCHEDULE A
2. The classes and any maximum number of shares that the Company is
authorized to issue:
The Company is authorized to issue:
(a) an unlimited number of shares of one class without nominal or par
value to be designated Common shares; and
(b) 30,000 shares of one class without nominal or par value to be
designated Participating shares which shall be divided into 300 series
and issued in series of 100 shares, numbered consecutively from 1 to
300, and referred to collectively as the 300 Series.
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:
Average Cash Balance -- For any fiscal quarter, the sum of the beginning cash
balance in a Subsidiary Capital Account and the ending cash balance in such
account, excluding the allocation of any investment income for the quarter then
ending, divided by two. The cash balance in a Subsidiary Capital Account at any
time is equal to the sum of the capital and surplus allocated to such account
increased by the outstanding loss reserves in respect of losses incurred that
have been allocated to the account, outstanding unearned premiums in respect of
written premiums that have been allocated to the account, and any other
outstanding liability that has been charged to the account and reduced by any
expenditures allocable to the account that have been capitalized.
Board -- The Company's Board of Directors.
Business -- The business retroceded to the Company under the Retrocession
Agreement.
Combined Ratio -- The sum of losses incurred, commission expense, ceding fee and
United States premium excise taxes divided by earned premium, each as
attributable to the Retrocession Agreement for the relevant accounting period.
Company -- Integon Re (Barbados), Limited.
Integon - Integon Corporation, a Delaware corporation with administrative
offices in Winston-Salem, North Carolina.
Integon Agency Account -- The separate business record maintained by Integon or
any of its subsidiaries to track volume, experience, and commissions with
respect to insurance business related to any one or more particular individuals
or entities selling insurance policies.
MIC -- Motors Insurance Corporation, a Michigan corporation with its
administrative offices in Detroit, Michigan.
Retrocession Agreement -- The Personal Lines Retrocession Agreement between MIC
and the Company.
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Shares -- Shares of one of the 300 Series.
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.
300 Series -- The 300 series of Participating shares authorized by these
Articles.
(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 at the time a series of
Shares is issued.
The consideration received by the Company for a particular series of Shares and
the Common shares as a class will be allocated to the Subsidiary Capital Account
for that series of Shares or class. Unless otherwise indicated in these
Articles, 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 Integon 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, 100% shall be
allocated to the related Subsidiary Capital Account.
(b) With respect to any agents' or brokers' commissions, ceding fees
and commissions, any commissions recaptured, unearned premiums,
reinsurance premiums ceded by the Company, and any United States
excise tax, 100% shall be allocated to the related Subsidiary Capital
Account.
(c) With respect to losses incurred (after taking into account any
recovery or offset for losses retained by a ceding company pursuant to
its reinsurance or retrocession agreement with the Company), and any
amount of losses recovered through salvage, subrogation, reinsurance
recoveries, reimbursement or otherwise, 100% shall be allocated to the
related Subsidiary Capital Account. For purposes of these Articles,
losses incurred includes both paid and unpaid (reported and
unreported) losses.
(d) With respect to return premiums, 100% shall be allocated to the
related Subsidiary Capital Account.
(e) With respect to any recapture premium or any termination premium
the Company pays to a ceding company upon partial or complete
termination of the reinsurance between the Company and the ceding
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company, and with respect to any fees, expenses, or losses recaptured
in connection therewith, 100% shall be allocated to the related
Subsidiary Capital Account.
(f) Notwithstanding the foregoing, for any calendar year for which a
Subsidiary Capital Account has any earned premium, the amount of
losses incurred on the Business otherwise allocable to the Subsidiary
Capital Account in accordance with the preceding paragraphs for such
calendar year shall be allocated, or reallocated, to other Subsidiary
Capital Accounts in accordance with the terms of this paragraph so as
to prevent the Combined Ratio for such Subsidiary Capital Account for
such year from exceeding 108%. For purposes of this provision, if the
Retrocession Agreement is terminated, the period between January 1 of
the year of termination and the effective date of termination shall be
treated as a calendar year. Any losses incurred on the Business
allocable to a Subsidiary Capital Account for a calendar year above a
108% Combined Ratio shall be allocated, or reallocated, to other
Subsidiary Capital Accounts, pro rata, based upon the relative earned
premiums of each Subsidiary Capital Account for the calendar year;
provided, however, that only those Subsidiary Capital Accounts for the
Shares that have a Combined Ratio of less than 108% for the year
without regard to this paragraph will be taken into account for this
purpose. If, as a result of an allocation or reallocation of losses
incurred on the Business as described in the preceding sentence, a
Combined Ratio in excess of 108% otherwise would be created in one or
more Subsidiary Capital Accounts, then the losses incurred on the
Business above a 108% Combined Ratio will be reallocated in the manner
provided in the preceding sentence until all losses incurred on the
Business for the year have been allocated to Subsidiary Capital
Accounts for the Shares or until each Subsidiary Capital Account for
the Shares has a Combined Ratio for the year of 108%. In the event
that the Combined Ratio of each Subsidiary Capital for the Shares is
108% after the application of the preceding sentences of this
paragraph, the losses incurred on the Business for the calendar year
above a Combined Ratio of 108% for the Company shall be allocated or
reallocated to the Subsidiary Capital Account of the Common shares. No
adjustments will be made to the Subsidiary Capital Accounts rendered
for prior quarters during the calendar year to reflect any
reallocation of losses required pursuant to this provision, and any
such reallocation shall be taken into account solely through entries
to the Subsidiary Capital Accounts for the final quarter of the
calendar year.
(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, provided that for purposes of
such allocation, series of Shares issued at any time during the twelve calendar
months preceding the end of the fiscal quarter in which the expense or liability
is incurred, and series of Shares with respect to which the unearned premium is
zero as of such fiscal quarter end, shall be excluded.
(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
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to the Subsidiary Capital Account for the Common shares, to the extent not
borne by Integon.
(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, provided that for purposes of such allocation,
Subsidiary Capital Accounts with balances that are less than zero shall be
excluded.
(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 Balances (as defined in subparagraph (b)
below), provided that for purposes of such allocation, Subsidiary
Capital Accounts with Investment Asset Balances that are less than zero
shall be excluded. 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 Average Cash Balance allocated to such account
for the fiscal quarter for which the investment income is being
allocated.
(7) (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 of Shares 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 3 below, or redeemed in accordance with the
Company's procedures for redemption set forth in Section 2(6) below,
the Subsidiary Capital Account for such series of Shares shall be
terminated as of the Repurchase Date or Redemption Date (as those terms
are defined in Sections 3 and 2(6), respectively).
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
Integon Agency Account. Only one series of Shares shall be issued with
respect to an Integon Agency Account. A series of Shares shall be
issued only to persons or entities acceptable to the Board and
certified by the persons or entities to which the Integon 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.
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(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 2(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 of Shares shall
be identical to the rights associated with all other Shares of the same
series of Shares.
(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 2(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 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 and after allocation of any deficits in the
Subsidiary Capital Accounts for the Shares as provided for in this Section 2(4),
each holder of Shares of a series of Shares 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. If at the time of liquidation, and before any payment in
liquidation is made to any holder of Shares, there exists a deficit in one or
more of the Subsidiary Capital Accounts for the Shares, then each such deficit
shall be allocated to and charged against: (i) first, the Subsidiary Capital
Account for the Common shares, and (ii) then, any remaining unallocated deficit
to the Subsidiary Capital Accounts for the Shares with positive balances, pro
rata, based upon such balances. After 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.
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(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 of Shares, provided that such percentage
may vary among series of Shares with the level of net income and/or
earned surplus.
(c) Subject to the preceding paragraph, the holders of the Shares of
each series of Shares 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 20% of the net income, if any, for
the preceding fiscal year attributable to the Subsidiary Capital
Account associated with the series of Shares 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 of Shares 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. In
addition to the foregoing restrictions, the Company shall not redeem any of its
issued and outstanding Shares if there are reasonable grounds for believing that
(a) the Company is unable to or would, after that payment, be unable to pay its
liabilities as they become due, or (b) the realizable value of the Company's
assets would after that payment, be less than the aggregate of (i) its
liabilities, and (ii) the amount that would be required to pay the holders of
Shares that have a right to be paid, on a redemption or in a liquidation,
rateably with or before the holders of the Shares to be redeemed.
The redemption of Shares shall be effective on the last day of the calendar year
in which the redemption was approved by the Board. Such date is herein called
the "Redemption Date."
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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 (i) an appropriate share of
any deficits in other Subsidiary Capital Accounts as of the Redemption Date,
(ii) unrealized gains and losses on investments held by the Company, and (iii)
any contingent liabilities allocable to such account. Such consideration shall
be paid within 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 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.
If the balance as of the Redemption Date of the Subsidiary Capital Account for
the redeemed series of Shares is less than zero, then such deficit shall be
allocated (i) first to the Subsidiary Capital Account for the Common shares, and
(ii) then, any remaining unallocated deficit to the Subsidiary Capital Accounts
for the Shares with positive balances, pro rata, based upon such balances.
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 2(6) shall return to the status of authorized but unissued
Shares.
SCHEDULE B
3. 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 effective as of the end of a calendar
year, a copy of which has been furnished to the Company, and the
Company is thereafter offered the opportunity to purchase such Shares
as of such date (the "Repurchase Date"). The Company shall have 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 Repurchase Date as adjusted to reflect (i)
an appropriate share of any deficits in other Subsidiary Capital
Accounts as of the Repurchase Date, (ii) unrealized gains and losses on
investments held by the Company, and (iii) any contingent liabilities
allocable to such account (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 following the
Repurchase Date. 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 60 days following
the Repurchase Date, subject to the requirements of the following
paragraphs. After such 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 of Shares 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
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transfer, and the consideration to be paid. The Company shall have 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 3 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 3 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 of Shares, a person
who immediately prior to such transfer is a holder of Shares of that
series of Shares; or (ix) a key employee with respect to any business
with respect to which the Shares held by the transferor were issued.
SCHEDULE C
6. Other provisions if any:
(1) Preferential/Preemptive Rights
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.
(2) 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 of Shares are similarly changed,
without the affirmative vote of the holders of a majority of the Shares
of each series of Shares present.
(3) Public Offerings of Shares or Security Interests
(a) Subject to the provisions of Section 2(2)(b), the Company is
permitted to invite applications or offers from the public
(outside of Barbados) to subscribe for or purchase shares,
debentures or other security interests.
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(b) It is the intention of the Company to register its shares with
the U.S. Securities and Exchange Commission.
(c) Copies of the prospectuses, statements in lieu of prospectuses
and similar instruments related to the public offering of the
Company's shares or securities shall be filed with the
Registrar and deposited with the Secretary of the Securities
and Exchange in accordance with the Companies Act Cap. 308 and
the Securities and Exchange Act Cap. 318A of the laws of
Barbados.
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APPENDIX B
STOCK PURCHASE AGREEMENT
BETWEEN
INTEGON RE (BARBADOS), LIMITED
AND
(Certified Purchaser)
-----------------
(Month/Date/Year)
Integon Re (Barbados), Limited
One Financial Place
Collymore Rock
St Michael, Barbados
Gentlemen:
The undersigned Shareholder (as more fully described below) hereby offers to
purchase certain shares of stock of Integon Re (Barbados), 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 ____ [ ], 2000 with
respect to the stock described herein.
1. DEFINITIONS
1.1. Integon. The term "Integon" means Integon Corporation, a Delaware
corporation.
1.2 Integon Account. The term "Integon Account" means the separate business
record maintained by Integon or any of its subsidiaries or affiliates to track
volume, experience and commissions with respect to Integon private passenger
automobile, commercial auto and/or motorcycle insurance policies sold by:
[insert name of agency or agencies].
1.3 Purchase Payment. The term "Purchase Payment" means the $
($250(U.S.) x number of shares) paid hereunder as consideration for the
purchase of the Shares.
1.4 Retrocession Percentage. The term "Retrocession Percentage" means ____%
(enter 20%, 30%, 40% or 50%) of the risk in respect of each insurance policy
sold by the insurance agency identified with the Integon Account and reinsured
by the Company.
1.5 Shareholder. The term "Shareholder" means , taxpayer
identification number , who is a citizen of, or an entity formed
under the laws of , and with a residence or business address
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 Integon 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.
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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
insurance agency or agency with respect to which the Integon Account is
maintained 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.
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
3.1 Purchase and Sale of Shares. Upon acceptance of this Agreement by the
Company, and subject to the satisfaction of the conditions set forth in Section
3.2 below, the Company agrees to sell and issue to the Shareholder, and the
Shareholder agrees to purchase, the Shares in consideration of the Purchase
Payment.
3.2 Condition of Purchase and Sale. It is a condition of this Agreement that the
Company must sell and issue at least 4 other series of participating stock
contemporaneous with or prior to the sale and issue of the Shares pursuant to
this Agreement. If the condition set forth in the preceding sentence is not
satisfied by December 31, 2001, then this Agreement shall terminate and the
Purchase Payment shall be refunded to the Shareholder in accordance with Section
4 of this Agreement.
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, or
if the Shares are not issued by December 31, 2001, 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 Articles. Prior to the date that any shares of participating stock are
issued and outstanding, the Company shall not amend its Articles in a manner
that has any effect on the relative rights of participating stock.
5.2 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 Integon Account.
5.3 Reinsurance Business. The business of the Company shall be limited to the
reinsurance of property and casualty insurance policies, including primarily
automobile and motorcycle insurance policies underwritten by Integon's
subsidiaries or affiliates and identified with the Integon Account and similar
Integon accounts maintained with respect to independent insurance agencies for
which series of participating stock of the Company are issued and outstanding.
Notwithstanding the foregoing, the Company will not reinsure any policies
identified with the Integon Account (or any similar Integon account),
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if the Company determines, in its sole discretion, that the Shares (or other
shares of the Company's participating stock in the case of other Integon
accounts), are not in good standing.
5.4 Retrocession Percentage. The Retrocession Percentage for the Shares shall be
equal to the lesser of (i) the percentage set forth in Section 1.4 of this
Agreement, or (ii) the lowest Retrocession Percentage set forth in any stock
purchase agreement pursuant to which any shares of participating stock are
issued with respect to the Integon Account. Notwithstanding the foregoing, the
Retrocession Percentage may be changed subsequent to the issuance of the Shares,
subject to the agreement of the Company and the holder(s) of the Shares and the
holders of all shares of participating stock issued with respect to the Integon
Account, and provided that the Retrocession Percentage may be changed only in
advance, upon written request received at least 30 days prior to the beginning
of such calender year, and as of the beginning of a calender year and may not be
changed to any percentage other than 20%, 30%, 40% or 50%.
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 Integon Re (Barbados), Limited ("Company"), and the Stock Purchase
Agreement ("Agreement") between the Company and the Shareholder,
[dated], 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.
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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 Integon Re
(Barbados), Limited, One Financial Place, Collymore Rock, 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,
----------------------
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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.
INTEGON RE (BARBADOS), LIMITED
By ___________________________ Dated:__________________________
Title ________________________
Note: Upon acceptance by the Company, a duly signed copy of this Agreement
shall be sent to the Shareholder.
57
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APPENDIX C
INTEGON RE (BARBADOS), LIMITED
CERTIFICATION FORM
The undersigned, doing business as ______________________ (name of independent
insurance agency) (the "Agency"), with respect to which Integon Account___ is
maintained, hereby designates __________________________ (name of purchaser),
who resides at ____________________________ (address of purchaser) (the
"Purchaser"), to be deemed eligible to purchase shares of a series of the
participating stock of Integon Re (Barbados), Limited (the "Company") pursuant
to the Articles of Incorporation of the Company. The undersigned represents that
(i) all necessary corporate or other actions have been taken by the Agency to
certify Purchase to purchase shares, and (ii) that the person signing this
certification is duly authorized to execute this certification on behalf of the
Agency.
------------------------ -----------------------------------
Date Signature
-----------------------------------
Print Name and Title
-----------------------------------
Print Name of Agency
58
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, all of which were paid by
Integon Corporation, in connection with the initial offering described in the
Registration Statement:
Registration Fee -- Securities
and Exchange Commission ................ $ *
State "Blue Sky" fees ................... $ *
Accountants Fees and Expenses ........... $ *
Legal Fees and Expenses ................. $ *
Printing and Engraving .................. $ *
Miscellaneous ........................... $ *
--------
Total Expenses ..................... $ *
--------
* To be provided by amendment.
ITEM 15. 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, employee, 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 is set forth under Item
17, paragraph 4 of this Part II.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
3 Articles of Incorporation (filed as Appendix A to the
Prospectus).
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5 Opinion of Evelyn, Gittens & Farmer.*
10 (a) Retrocession Agreement between Motors Insurance Corporation
and Registrant.
(b) Specimen Stock Purchase Agreement (filed as Appendix B to
the Prospectus).
(c) Stock Purchase Agreement between Registrant and Integon
Corporation.
(d) Insurance Management Agreement between Registrant and Aon
Insurance Managers (Barbados) Ltd.
(e) Investment Manager Agreement between Registrant and
BlackRock International, Ltd.
23 (a) Consent of Evelyn, Gittens & Farmer.
(b) Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
(c) Consent of Deloitte & Touche, Independent Chartered
Accountants.
99 (a) Certification Form (filed as Appendix C to the Prospectus).
* Previously filed.
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.
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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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(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 Securities Act
of 1933 (the "Securities 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.
(4) Insofar as indemnification for liabilities arising under the Securities Act
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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Michael, Barbados, on
October 6, 2000.
INTEGON RE (BARBADOS), LIMITED
By s/Ronald W. Jones
------------------
Ronald W. Jones, Vice-President,
Finance
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
s/Gary Y. Kusumi Chairman and Chief Executive October 6, 2000
------------------------- Officer, President and Director
Gary Y. Kusumi Principal Executive Officer)
s/Ronald W. Jones Vice-President, Finance (Principal October 6, 2000
------------------------- Financial and Accounting Officer)
Ronald W. Jones
s/Bernard J. Buselmeier Vice-President and Director August 21, 2000
-------------------------
Bernard J. Buselmeier
s/Kenneth J. Jakubowski Vice-President and Director August 24, 2000
-------------------------
Kenneth J. Jakubowski
s/Pamela H. Godwin Vice-President and Director October 6, 2000
-------------------------
Pamela H. Godwin
s/Peter R. P. Evelyn Director July 25, 2000
--------------------------
Peter R. P. Evelyn
62
