Registration No. _______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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. | | _______________
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. | | ______________
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. | | ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. | | ______________
CALCULATION OF REGISTRATION FEE
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Title of each Amount to be Proposed Proposed Amount of
class of securities registered maximum maximum registration
to be registered offering aggregate fee
price offering
per unit price
Shares of Participating 30,000 shs $250 $7,500,000 $1,980
Stock (no par value)
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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.
The participating shares being offered by this prospectus are divided into 300
series, and the authorized number of participating shares of each series is 100.
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 ...............................................................8
OUR BUSINESS............................................................8
THE OFFERING ...........................................................8
RISK FACTORS...........................................................11
OUR COMPANY............................................................16
ELIGIBILITY TO PURCHASE THE SHARES.....................................16
USE OF PROCEEDS........................................................17
DETERMINATION OF OFFERING PRICE........................................18
DIVIDENDS..............................................................18
OUR BUSINESS...........................................................19
INTRODUCTION...........................................................19
REINSURANCE............................................................19
General Considerations............................................19
The Retrocession Agreement........................................20
Reallocation/Retention of Losses..................................21
INVESTMENT INCOME......................................................21
INSURANCE MANAGEMENT AGREEMENT.........................................23
EMPLOYEES..............................................................23
COMPETITION............................................................24
BARBADOS REGULATION AND TAXES..........................................24
Insurance Regulation..............................................24
Taxes.............................................................24
Exchange Control..................................................25
AVAILABLE INFORMATION..................................................25
REPORTS TO STOCKHOLDERS................................................25
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST
OUR DIRECTORS, US AND OTHERS.........................................25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......................26
Capital Resources and Liquidity...................................26
Market Risk ......................................................26
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MANAGEMENT.............................................................26
DIRECTORS AND OFFICERS ................................................26
COMMITTEES OF THE BOARD................................................27
REMUNERATION...........................................................28
PRINCIPAL SHAREHOLDER..................................................28
CERTAIN TRANSACTIONS...................................................28
DESCRIPTION OF CAPITAL STOCK...........................................28
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS.............................28
VOTING RIGHTS..........................................................32
Election of Directors.............................................32
Proxies...........................................................33
Liquidation.......................................................33
Changes in Articles and By-Laws...................................33
Other Matters.....................................................33
REDEMPTION.............................................................33
LIQUIDATION............................................................34
RESTRICTIONS ON TRANSFER...............................................34
Transfers of Less Than All Shares of a Series.....................34
Right of First Refusal............................................34
Exceptions for Certain Transfers..................................35
Provisions Applicable to All Transfers............................35
COMMON STOCK...........................................................35
BARBADOS CORPORATE LAW PROVISIONS......................................35
Dividends and Distributions.......................................36
Repurchase........................................................36
Shareholders' Remedies............................................36
Enforcement of United States Judgments............................36
Indemnification...................................................36
Inspection of Corporate Records...................................36
PLAN OF DISTRIBUTION OFFERING PROCEDURE................................37
PURCHASE PROCEDURES....................................................37
TERMS OF SALE..........................................................37
CONDITIONS OF SALE.....................................................38
Approval of Purchase..............................................38
Minimum Sales.....................................................39
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TERMINATION OF OFFERING................................................39
UNITED STATES FEDERAL TAX CONSIDERATIONS...............................39
UNITED STATES -- BARBADOS INCOME TAX TREATY............................40
UNITED STATES PREMIUM EXCISE TAX.......................................40
UNITED STATES FEDERAL INCOME TAX RISKS AND CONSEQUENCES TO US..........40
Risks and Consequences of Carrying on a United States
Reinsurance Business Through a Permanent Establishment..........40
United States Withholding Tax Applicable to Certain Investment
Income Not Attributable to a United States Permanent
Establishment..................................................41
Reallocations By Internal Revenue Service.........................41
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES -- THE SHAREHOLDERS......42
Taxation of Our Income to Shareholders Under Subpart F
of the Code.....................................................42
Risk of Recharacterization of Reinsurance Profits on
Business Retroceded to Us.......................................43
Deductibility of Premiums Paid By Entities Selling
Insurance Reinsured by Us.......................................43
LEGAL MATTERS..........................................................43
EXPERTS................................................................44
ADDITIONAL INFORMATION.................................................44
INDEPENDENT AUDITORS' REPORT...........................................45
FINANCIAL STATEMENTS...................................................45
APPENDIX A (Articles of Incorporation).................................46
APPENDIX B (Stock Purchase Agreement)..................................58
APPENDIX C (Certification Form)........................................64
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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 assume risks with respect to property
and casualty insurance policies, including primarily automobile and motorcycle
insurance policies, sold to consumers in the United States through independent
insurance agencies. These risks are initially insured under policies that are
issued by insurance companies owned by or affiliated with Integon Corporation,
and reinsured by Motors Insurance Corporation. We then 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 issue series of participating shares with
respect to specific Integon Accounts. An
"Integon Account" refers to the record
maintained by Integon Corporation with respect
to insurance policies sold by one or more
independent insurance agencies. Only one series
of participating shares will be issued with
respect to each Integon Account. To be eligible
to purchase participating shares, you must be
certified to purchase shares by the insurance
agency for which the Integon Account is
maintained. We will not issue any participating
shares of a series unless all shares of that
series are purchased contemporaneously by one or
more eligible persons. (See "Eligibility to
Purchase the Shares.")
Offering Period ... This offering will commence as of the date of
this prospectus. Participating shares will be
offered and sold on a continuous basis unless we
terminate the offering. All funds paid by
purchasers of participating shares will be held
in an escrow account at Barclays Bank PLC in
Bridgetown, Barbados until such time as we have
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received and accepted stock purchase
agreements for all of the shares of
at least 5 series of participating
shares. When we have received and
accepted stock purchase agreements
for all of the shares of at least 5
series of participating shares,
funds submitted with the stock
purchase agreements, together with
any interest earned on such funds
while held in the escrow account,
will be paid to us and we will issue
shares pursuant to those agreements.
Thereafter, funds paid by new
purchasers of participating shares
will be held in escrow pending our
acceptance of the purchaser's stock
purchase agreement. If we have not
received and accepted stock purchase
agreements for all of the shares of
at least 5 series by [May 1, 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.
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 unless you have first
offered us the opportunity to purchase the
shares. In addition, generally 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 are
authorized to issue an unlimited number of
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shares of our common stock, 1,000,000 of
which have been issued to Integon
Corporation and are outstanding.
Use of Proceeds ... We will add the proceeds of this offering to our
general funds and utilize 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 ...... The participating shares will be offered, on a
continuous basis, by registered representatives
of GMAC Securities Corporation, a broker-dealer
affiliate of Integon Corporation. No
commissions will be charged or paid in
connection with the sale of the participating
shares. (See "Plan of Distribution - Offering
Procedure.")
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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 Do Not Have An Operating History.
We were only recently established and will commence business with no operating
history. Our proposed operations are subject to all of the risks inherent in the
establishment of a new business enterprise, including the absence of an
operating history. We have no experience of our own from which to project our
performance. In addition, the chances of our success must be considered in light
of the expenses, complications, and delays frequently encountered in connection
with the formation of a new business, including the competitive and regulatory
environment in which we will operate.
We Are Controlled By Integon Corporation.
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 adviser. (See
"Our Business;" and "Description of Capital Stock.")
We Are Dependent Upon Motors Insurance Corporation and Integon Corporation.
We have entered into a retrocession agreement with Motors Insurance Corporation,
an affiliate of Integon Corporation. Under this agreement, we 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, any matters adversely affecting these
entities may have an adverse impact on our business.
The retrocession agreement does not specify a date upon which it will terminate.
The agreement may generally be terminated at any time by either Motors Insurance
Corporation or by us upon 30 days written notice. If the retrocession agreement
were terminated, we may not be able to continue to operate in the manner
described in this prospectus. (See "Our Business;" and "Description of Capital
Stock.")
Restrictions Applicable to Motors Insurance Corporation's Ability to Retrocede
Risks to Us.
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 with
respect to the insurance policies that are reinsured by it from subsidiaries and
affiliates of Integon Corporation. However, certain state insurance laws and
regulations are imprecise and subject to varied interpretations. Accordingly, it
is possible that 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
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affiliated with the ceding company (i.e. Motors Insurance Corporation) or the
entities selling the insurance policies. In addition, from time to time, there
are legislative and regulatory proposals that could, if adopted, affect the
ability of Motors Insurance Corporation to retrocede its liability under the
insurance policies to us.
Under the retrocession agreement, Motors Insurance Corporation has the ability
to limit our reinsurance with respect to particular Integon Accounts to the
extent necessary to comply with applicable state law. This could adversely
affect the value of your participating shares. (See "Our Business --
Reinsurance.")
Losses Incurred With Respect to Policies May Exceed Our Income.
The amount of losses that are incurred under automobile and motorcycle insurance
policies are unpredictable and volatile. If the amount of losses and expenses we
incur exceeds the amount of premium we earn and our investment income, we would
incur net losses.
Each series of participating shares will generally bear 100% of the losses
incurred on insurance policies sold by the insurance agency with respect to
which the shares are issued. To the extent losses incurred on insurance policies
sold by the insurance agency with respect to which your shares are issued 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. In addition,
under certain circumstances, losses incurred with respect to insurance policies
sold by insurance agencies other than the agency with respect to which your
shares are issued, may be allocated to the account maintained for your shares.
(See "Description of Capital Stock -- Allocations to Subsidiary Capital
Accounts.")
We May Not Have Sufficient Investment Return.
Our profitability 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.
(See "Our Business -- Investment Income.")
United States Tax Risks.
We will conduct a reinsurance business in Barbados. We execute our retrocession
agreement and amendments thereto in Barbados. We also will administer our
retrocession agreement 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
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States, 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. In such event, we would be subject to United States income tax on
business profits attributable to such permanent establishment, as well as an
additional 5% branch profits tax.
Under captive insurance company provisions contained in the 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
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.")
No representation is made as to the effect that any change in United States tax
laws or the interpretation thereof may have on us or holders of participating
shares.
United States Insurance Laws and Regulations May Affect Our Business
As a Barbados reinsurance company, we are not directly subject to the insurance
laws and regulations applicable in the United States. However, to the extent
that we reinsure insurance policies issued by U.S. insurance companies, such as
the subsidiaries and affiliates of Integon Corporation, we may be affected by
such laws and regulations. At present, one or more subsidiaries or affiliates of
Integon Corporation are licensed to write insurance in all fifty states in the
U.S. and the District of Columbia. These entities are currently actively writing
insurance for Integon Accounts in approximately 33 states. The insurance laws
and regulations, as well as the level of supervisory authority that may be
exercised by the various state insurance departments, vary by jurisdiction, and
may restrict an insurer's underwriting discretion, such as the ability to
terminate policies, terminate agents or reject insurance coverage applications.
In addition, the property and casualty insurance business, including the
automobile insurance industry, has been the subject of much legislative activity
in various states seeking to address the issues of affordability and
availability of different lines of insurance. In particular, private passenger
automobile insurance has, from time to time, received attention from
legislatures in an effort to stem premium increases for such coverage. The
enactment of such legislation in the states in which subsidiaries or affiliates
of Integon Corporation conduct their business, or any changes in existing laws
or regulations in such states, may adversely affect our business and results of
operations.
Risks Related to Foreign Business Operations.
We are a Barbados corporation and will conduct our business outside of the
United States. Consequently, we may be affected by changes in foreign
governments and by other political and economic conditions. As a Barbados
corporation, we will be subject to the provisions of the Barbados Companies Act,
CAP. 308 1982-1991. (See "Description of Capital Stock -- Barbados Corporate Law
Provisions.")
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Competition and Loss of Business.
The business of insuring automobile and motorcycle risks is highly competitive,
with many companies seeking to underwrite this type of insurance. All of our
business is currently derived from our retrocession agreement with Motors
Insurance Corporation pursuant to which we reinsure insurance policies issued by
subsidiaries and affiliates of Integon Corporation. Accordingly, the volume of
our business is dependent on their ability to market insurance products. Integon
Corporation's subsidiaries and affiliates compete with both large national
writers and smaller regional companies in each state in which they operate.
Certain of these competitors have, from time to time, decreased prices in order
to gain market share. (See "Our Business -- Competition.")
Certain Factors Could Adversely Effect Our Business
In addition to competitive conditions, our results of operation will also be
impacted by other factors affecting Integon Corporation's business. These
include:
(i) economic downturns in the states where subsidiaries and affiliates of
Integon Corporation write business which could result in fewer new car
sales, less demand for automobile insurance and lower policy amounts;
and
(ii) severe adverse weather conditions.
Finally, Integon's subsidiaries and affiliates may choose not to reinsure
liability under automobile and motorcycle insurance policies with Motors
Insurance Corporation or its subsidiaries which would eliminate our sole source
of business. If this were to happen, we may not be able to continue to operate
in the manner described in this prospectus.
Barbados Regulatory Limitations May Restrict The Amount of Our Business.
Barbados insurance law requires that we maintain certain 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 conduct. To the extent that our net asset
value does not meet these minimum requirements and to the extent that the
capital and surplus attributable to 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.
We Rely on Outside Consultants.
We do not have any full-time officers or employees. We will rely on outside
consultants for insurance management, day-to-day administrative services, and
investment advice. (See "Our Business.")
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Our Ability to Pay Dividends is Subject to Certain Restrictions.
Although our articles of incorporation require that we pay a minimum annual
dividend to holders of participating shares under certain circumstances, 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, the participating shares are subject to substantial
restrictions on transfer. Except for transfers to certain members of a
transferor's family, certain trusts, certain business affiliates, or estates, a
transfer of any series of shares is subject to 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. All transferees must agree to be bound by the
provisions of a stock purchase agreement, including, among other things,
restrictions on the transfer of their shares. (See "Description of Capital Stock
- -- Restrictions on Transfer," "Eligibility to Purchase the Shares," and "Plan of
Distribution.")
We Have the Right to Terminate Reinsurance and Redeem Shares.
We have the right to cause a redemption of participating shares of any series at
any time and for any reason. This would permit us, among other things, to redeem
your shares, at our discretion, if loss experience with respect to insurance
policies sold by the insurance agency with respect to which your participating
shares are issued is unsatisfactory. 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, even though the shares may have
value which could be lost if we experience negative operating results. (See
"Description of Capital Stock -- Redemption.")
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OUR COMPANY
We were incorporated in Barbados on January 10, 2000 and became licensed to
carry on the business of an Exempt Insurance Company from within 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.")
Pursuant to 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 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.
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 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 in respect of such Integon
Account ("Eligible Purchaser"). 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.
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A prospective purchaser is considered to be properly certified when we have
received a certificate in the form furnished by us (see Appendix C) from the
agency for which an Integon Account is maintained stating that the prospective
purchaser has been designated by such agency to be eligible to purchase the
particular Shares and representing 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, the
foregoing certification must be made by each agency. 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), the certification must be made by a
duly authorized officer or other duly authorized representative of such entity.
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
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.")
USE OF PROCEEDS
The offering of the Shares pursuant to this prospectus is being made on a
continuous basis. This means that it is not possible to predict how many series
of Shares will ultimately be purchased or the maximum net proceeds to be derived
by 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. Under Barbados law, we are
required to have minimum net assets, determined by reference to 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"). The consideration we receive upon
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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.
Subsequent to the issuances of Shares, it is not expected that any public
trading market will develop. 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, subject to the restrictions described in the following
paragraphs, each holder of Shares of a series will be entitled to receive a
minimum dividend, payable annually, equal to 20% of the annual net income
attributable to the Subsidiary Capital Account associated with that series of
Shares. As a result of the restrictions, we may not be able to pay dividends in
our early years of operation.
Pursuant to 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
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
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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
Our business is the assumption of risks arising with respect to property and
casualty 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 are attributable 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% in certain situations if necessary in
order to comply with applicable capital and surplus requirements under Barbados
law.
Shares of Participating Stock are sold to persons or entities designated by the
insurance agency or agencies for which Integon maintains an Integon Account. A
separate series of Shares is issued with respect to each Integon Account, and a
separate "Subsidiary Capital Account" is established for each series of Shares.
Our profitability will reflect both our underwriting and investment experience
which is allocated 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,
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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. Pursuant to 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. We may terminate prospectively the assumption by us 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 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 Retrocession Percentage designated by any of the
purchasers down to 20%. (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.
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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.
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, no further risks will be retroceded 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
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, no further risks will be retroceded 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.
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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, in certain
situations, losses on the business will not be 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 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
guidelines pursuant to which our funds will be invested. 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") pursuant to which BlackRock will provide
day-to-day investment management for us. 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.
Pursuant to the management agreement, BlackRock will charge a management fee
calculated as a percentage of the net asset
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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"),
pursuant to which 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 in regard to all aspects
of our reinsurance activities. Pursuant to the Management Agreement, the Manager
maintains 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.
During the period that the Management Agreement is in effect and generally for a
period of one year thereafter, the Manager has agreed not to provide management
or accounting services for any company which, by the nature of its operations,
is offering, insuring or reinsuring automobile insurance policies on a
multi-state basis in the United States of America.
Under the terms of the Management Agreement, we will pay the Manager a fixed
annual fee plus a monthly variable fee based on the number of 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, out-of-pocket expenses,
such as telephone, facsimile, postage, travel, and other items will be borne by
us 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 several
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
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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 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 pursuant to which 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. Certain 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 set forth a number of requirements
applicable to insurers doing business in Barbados.
The principal requirements are as follows:
(1) we are required to 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;
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(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 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 expect
to receive a guarantee from the Minister of Finance of Barbados that such
benefits and exemptions effectively will be available at least through the year
2029.
Exchange Control. Pursuant to the Exempt Insurance Act, we are exempt from the
Barbados Exchange Control Act. Accordingly, we may hold any non-Barbadian
currency and convert that currency into any other currency without restriction.
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. The reports to be
furnished by us 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
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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 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 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 expense 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 adverse 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 ........... 52 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).
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Ronald W. Jones ........... 47 Vice-President, Finance (Managing
Director, Aon Insurance Managers
(Barbados) Ltd.).
Michael R. Boyce ........... 60 Secretary (Principal, Colybrand
Company Services, Limited, Barbados,
since 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 it is expected that our board will 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.
CERTAIN TRANSACTIONS
It is our policy not to make loans to any of our officers, directors, control
persons or other affiliates.
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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 independent 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
We are currently authorized 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. In addition, we are currently authorized
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.
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.
The consideration 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. Except as otherwise set forth below, items of income and
expense, and losses, attributable to insurance underwriting activities are
determined and allocated to the Subsidiary Capital Accounts as of the end of
each quarter. Investment experience, and other items of income and expense,
gains and losses and distributions with respect to the Capital Stock, are
determined and allocated to the Subsidiary Capital Accounts as of the end of
each quarter. All such accounting determinations are made using United States
generally accepted accounting principles, unless otherwise required by the
articles of incorporation.
For purposes of the following discussion, items shall be "related" to the
Subsidiary Capital Account for the series identified with the Integon Account to
which such items can be attributed.
(1) Allocations with respect to underwriting activities are made as follows:
(a) With respect to premiums ceded to us, 100% to the related Subsidiary
Capital Account.
(b) With respect to any agents' or brokers' commissions, ceding fees and
commissions, commissions recaptured, unearned premiums,
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reinsurance premiums ceded, and any United States excise tax, 100% to
the related Subsidiary Capital Account.
(c) With respect to losses incurred and any amount of losses recovered
through salvage, subrogation, reinsurance recoveries, reimbursement or
otherwise, 100% to the related Subsidiary Capital Account.
(d) With respect to return premiums, 100% to the related Subsidiary
Capital Account.
(e) With respect to any recapture premium or termination premium we pay to
MIC upon partial or complete termination of the Retrocession
Agreement, and with respect to any fees, expenses, or losses
recaptured in connection with such termination, 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 retroceded to us under the
Retrocession Agreement (the "Business") which losses would otherwise
be 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%. Any
losses incurred on the Business that would otherwise be allocable to a
Subsidiary Capital Account for a calendar year and would result in a
Combined Ratio for such Subsidiary Capital Account in excess of 108%
shall be allocated 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 Shares that each 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 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% will be allocated 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 allocation of losses
required pursuant to this provision, and any such
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allocation shall be taken into account solely through entries to the
Subsidiary Capital Accounts for the final quarter of the calendar
year. All allocations and reallocations pursuant to this paragraph
shall be made without giving effect to any allocations made pursuant
to paragraph (g).
(g) With respect to any recovery or offset for losses retained by MIC
pursuant to the terms of the Retrocession Agreement between MIC and
us, 100% shall be allocated to the related Subsidiary Capital Account.
(2) Any expenses or liabilities attributable to our day-to-day operations,
excluding any United States Federal income taxes, are allocated among all
Subsidiary Capital Accounts for the Shares pro rata in accordance with the
relative earned premiums allocated to those accounts for the 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 with respect to the which
unearned premium is zero as of such fiscal quarter end, shall be excluded.
The allocations set forth in this section of our articles will not be made
for a period of up to twelve months after we first issue Shares because
Integon has agreed to bear all of the expenses identified in this paragraph
for the period from the date that Shares are first issued (the "Issue
Date") until the last day of our fiscal quarter that immediately precedes
the twelve month anniversary of the Issue Date.
(3) Any United States Federal income tax liability (and any interest thereon or
any penalties related thereto) is allocated among the Subsidiary Capital
Accounts based upon the relative contribution of each of those accounts to
our taxable income upon which the tax (or any interest or penalties) is
imposed.
(4) Any expenses or liabilities attributable to the sale and issuance of
Shares, including but not limited to the costs of compliance with
regulations and requirements of the U.S. Securities and Exchange Commission
and state securities laws (but not including ongoing periodic reporting
costs), are allocated to the Subsidiary Capital Account for the Common
Stock; however, Integon may undertake to pay such expenses.
(5) Any of our expenses or liabilities not allocable in the manner described in
paragraphs 2 through 4 above are allocated among the Subsidiary Capital
Accounts on the basis of the relative 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, provided that for
purposes of such allocation, Subsidiary Capital Accounts with balances that
are less than zero as of the end of the preceding quarter shall be
excluded.
(6) (a) Investment income, net of any direct investment expense, is allocated
among the Subsidiary Capital Accounts, pro rata, based
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upon the relative Investment Asset Balance (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 purposes of these allocations, net
investment income includes realized (but not unrealized) gains and
losses.
(b) The Investment Asset Balance of each Subsidiary Capital Account is
equal to the 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.
(7) (a) Dividends, payments upon redemption or liquidation (described below),
and any other distributions with respect to the Capital Stock are
allocated to the Subsidiary Capital Account for the class or series
with respect to which the dividend, payment or distribution was made.
(b) Where all Shares of a series are redeemed in accordance with our
procedures for redemption, any deficit in the Subsidiary Capital
Account for that series is allocated first to the Subsidiary Capital
Account for the Common Shares and then, any remaining unallocated
deficit is allocated among the Subsidiary Capital Accounts for Shares
with positive balances, pro rata, based upon such balances.
(c) 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, the Subsidiary Capital Account for that series is
terminated and the business previously allocated to the Subsidiary
Capital Account is recaptured by MIC pursuant to the terms of the
Retrocession Agreement.
(8) Our articles also provide that if we are liquidated, any deficit existing
in any Subsidiary Capital Account is allocated first to the 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.
The allocations of income and expense, gains and losses, and distributions
described above are subject to approval by our board of directors, and when
finally so approved are considered final and conclusive and will be binding on
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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 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
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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, 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 it is not
anticipated that one 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.
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
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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 for Certain 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, transferees of Shares must agree to abide by the
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requirements set forth in the stock purchase agreement entered into by the
transferor. In addition, all transfers of Shares require the approval of the
Barbados Supervisor of Insurance.
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.
A Subsidiary Capital Account has been established for this class of stock, and
allocations of various items to such account are described above. (See
"Description of Capital Stock -- Allocations to Subsidiary Capital Accounts.")
Holders of Common Stock as a class are entitled to elect five directors, at
least one of whom must be resident in Barbados. 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
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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, 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 or paid in connection with the sale of 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
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(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 the foregoing documents is to be executed or delivered until after a
final prospectus has been delivered to the offeree.
Once it is executed by a prospective purchaser, a stock purchase agreement is,
in effect, an offer to purchase the Shares described therein. That offer will be
deemed accepted only if we approve the offer and execute the agreement. (See
"Plan of Distribution--Conditions of Sale.")
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 certificate issued with respect to
Shares a legend stating that the transfer or other disposition of the Shares
evidenced thereby 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 Shares purchased pursuant thereto remain outstanding. A stock purchase
agreement terminates only upon the redemption of the Shares or our liquidation.
Upon a transfer of Shares, the transferor is relieved of all restrictions and
obligations under the stock purchase agreement which the transferor had entered
into upon the purchase of those Shares and the transferee, as a condition of the
transfer, is required to agree to abide by all of the provisions of the stock
purchase agreement.
CONDITIONS OF SALE
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
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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.
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
[May 1, 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) [May 1, 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 [May
1, 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.
UNITED STATES FEDERAL TAX CONSIDERATIONS
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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.")
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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, 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
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"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 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
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PAGE 43
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 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
The Financial Services Centre
Bishop's Court Hill
St. Michael, Barbados
We have audited the accompanying balance sheet of Integon Re (Barbados) Limited
as at March 20, 2000. This 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.
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
March 20, 2000
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PAGE 45
INTEGON RE (BARBADOS), LIMITED
BALANCE SHEET
AS AT MARCH 20, 2000
(Expressed in United States Dollars)
Note
----
ASSETS
Cash $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 seeking licensing with the Supervisor of Insurance
under the Barbados Exempt Insurance Act. Once received, 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
This balance sheet is 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 stockholder equity
and transaction adjustments are included in net income.
Note 3. FORMATION COSTS
All costs associated with the formation of the Company prior to
commencement of business are paid directly by Integon Corporation and
totalled $209,715, as of March 20, 2000.
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INTEGON RE (BARBADOS), LIMITED
NOTES TO THE BALANCE SHEET
AS AT MARCH 20, 2000
(Expressed in United States Dollars)
Note 4. SHARE CAPITAL
The Company is authorized to issue an unlimited number of common
shares of no par value, 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. Each common stock shall be entitled to dividends and one
vote per share.
The holder of the participating shares shall be entitled to elect one
director of the Company. Each share shall be entitled to dividends and
one vote per share.
Generally, liquidation of the Company requires approval by at least
75% of the shares issued and outstanding.
Note 5. REINSURANCE AGREEMENT
The Company has entered into a personal lines retrocession agreement
with Motors Insurance Corporaton ("MIC") to assume risks with respect
to property and casualty insurance policies (automobile) arising from
insurance policies that are reinsured by MIC and are attributable to
Integon. The agreement shall take effect on either the date on which
participating shares in the Company are first issued, or the Company
becomes licensed to transact reinsurance business in Barbados,
whichever is the latter.
Note 6. TAXATION
The Company will apply for an undertaking from the Barbados Government
exempting it from all local income profits and capital taxes for a
period of fifteen (15) years from the date of incorporation and
thereafter, for a further fifteen (15) years, to 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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PAGE 48
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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PAGE 49
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.
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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.
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:
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(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 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
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PAGE 52
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
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.
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(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.
(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.
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(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
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(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."
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
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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 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.
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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.
(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 May [ ], 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.
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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.
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 [May 1, 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 [May 1, 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.
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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), 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
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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.
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.
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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.
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If the authorized representative of the Company executes this Agreement on its
behalf, then this Agreement shall become a binding contract, subject to the
terms and conditions set forth herein, between the Company and the Shareholder
as of the date of the execution on behalf of the Company.
Very truly yours,
- -------- -----------------------------
Date Signature of Shareholder
-----------------------------
Print Name of Shareholder
The foregoing Agreement is hereby accepted and agreed to as of the date set
forth below. Series P- is hereby designated for the Shares described in this
Agreement.
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.
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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
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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.
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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.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
3 (a) Articles of Incorporation (filed as Appendix A to the
Prospectus).
(b) By-laws. (*)
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. (*)
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).
(*) To be provided by amendment.
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
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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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PAGE 71
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
April 3, 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 March 23, 2000
- ------------------------- Officer, President and Director
Gary Y. Kusumi (Principal Executive Officer)
s/Ronald W. Jones Vice-President, Finance (Principal April 3, 2000
- ------------------------- Financial and Accounting Officer)
Ronald W. Jones
s/Bernard J. Buselmeier Vice-President and Director March 23, 2000
- -------------------------
Bernard J. Buselmeier
s/Kenneth J. Jakubowski Vice-President and Director March 23, 2000
- -------------------------
Kenneth J. Jakubowski
s/Pamela H. Godwin Vice-President and Director March 23, 2000
- -------------------------
Pamela H. Godwin
s/Peter R. P. Evelyn Director March 23, 2000
- --------------------------
Peter R. P. Evelyn
EVELYN, GITTENS & FARMER
March 21, 2000
Board of Directors
Integon Re (Barbados), Limited
One Financial Place
Collymore Rock
St. Michael, Barbados
Re: Participating Stock-Registration Statement on Form S-1
Gentlemen,
Reference is made to the Registration Statement on Form S-1 (the
"Registration Statement") of Integon Re (Barbados), Limited, a Barbados
corporation (the "Company"), to be filed with the Securities and Exchange
Commission under the Securities Act of 1993, as amended, in connection with the
proposed offer and sale by the Company of up to 30,000 shares of Participating
Stock, no par value (the "Shares").
As counsel to the Company, we have examined the corporate proceedings and
such other legal matters relating to the Shares as we deemed relevant to the
opinions expressed below.
Based on such examination, we are of the opinion that:
1. The Company is a corporation duly organized and existing under the
laws of Barbados.
2. The Company has corporate power to authorize, issue and sell the
Shares.
3. Upon the issuance and sale, the Shares shall be duly and validly
issued and outstanding, fully paid and non-assessable.
Yours faithfully,
s/Peter R.P. Evelyn
EXHIBIT 23(a)
CONSENT OF COUNSEL
Motors Mechanical Reinsurance Company, Limited:
We hereby consent to (i) the filing of our opinion as Exhibit 5 to the
Registration Statement of Integon Re (Barbados), Limited (the "Company"), on
Form S-1 registering up to 30,000 shares of the Company's participating stock,
and (ii) the reference to our name under the captions "Barbados Corporate Laws
Provisions," "Legal Matters" and "Experts" in the Prospectus which is part of
such Registration Statement.
s/EVELYN, GITTENS & FARMER
Bridgetown, Barbados
March 23, 2000
EXHIBIT 23(b)
CONSENT OF COUNSEL
Integon (Re (Barbados), Limited:
We hereby consent to the reference to our name under the captions "United States
Federal Tax Considerations," "Legal Matters" and "Experts" in the Prospectus
which is part of this Registration Statement.
s/LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Washington, D.C.
March 23, 2000
EXHIBIT 23(c)
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
Integon Re (Barbados), Limited:
We consent to the use in this Registration Statement of Integon Re (Barbados),
Limited (the "Company"), on Form S-1 registering up to 30,000 shares of the
Company's participating stock of our report dated March 20, 2000, appearing in
the Prospectus, which is part of this Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
s/DELOITTE & TOUCHE
Bridgetown, Barbados
March 24, 2000
