Registration No. 33-6534
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post Effective Amendment No. 11 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
(Exact name of registrant as specified in charter)
Barbados Not Applicable
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
6331 Financial Services Centre
(Primary standard industrial Bishops Court Hill
classification number) St. Michael, Barbados, W.I.
(809) 436-4895
(Address and telephone number
of principal executive office)
RONALD W. JONES, Vice President
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados, W.I.
(809) 436-4895
(Name, address and telephone number of agent for service)
Copy to:
David R. Woodward, Esq.
LeBoeuf, Lamb, Greene & MacRae
1875 Connecticut Avenue, N.W.
Washington, D.C. 20009
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, please check the following box.
(X)
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
Cross reference sheet between
Items of Form S-1 and Prospectus
Pursuant to Item 501(b)
of Regulation S-K
FORM S-1 ITEM NO. CAPTION OR
AND CAPTION LOCATION IN PROSPECTUS
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus ....................... Front Cover
2. Inside Front Page and Outside Back
Cover Pages of Prospectus ........ Inside Front
Cover; Outside
Back Cover
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges .......................... Summary; Risk
Factors
4. Use of Proceeds .................. Use of Proceeds
5. Determination of Offering Price .. Determination
of Offering
Price
6. Dilution ......................... Not Applicable
7. Selling Security Holdings ........ Not Applicable
8. Plan of Distribution ............. Plan of
Distribution
9. Description of Securities to be
Registered ....................... Description of
Capital Stock
10. Interests of Named Experts and
Counsel .......................... Not Applicable
11. Information With Respect to the
Registrant ....................... Summary; The
Company; Use of
Proceeds;
Capitalization;
Business of the
Company;
Management;
Principal
Shareholder
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities .................. Not Applicable
P R O S P E C T U S
Motors Mechanical Reinsurance Company, Limited
26,500 Shares of Participating Stock
THE SECURITIES OFFERED HEREBY INVOLVE SIGNIFICANT RISK, ARE
SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFER, AND WILL NOT BE
READILY MARKETABLE. OFFEREES SHOULD REFER TO THE SECTION
CAPTIONED "RISK FACTORS".
Motors Mechanical Reinsurance Company, Limited (the "Company"), a
Barbados company, is engaged in the business of assuming risks in
respect of certain insurance policies covering motor vehicle
mechanical repairs. (See "The Company.")
The shares of Participating Stock of the Company offered by this
Prospectus (the "Shares") are divided into 265 series, and the
authorized number of Shares of each series is 100 Shares. The
offering price is $75.00 per Share. (See "Description of Capital
Stock.") ALL AMOUNTS OF MONEY SHOWN IN THIS PROSPECTUS ARE
STATED IN U.S. DOLLARS.
The Company is offering Shares of a series only to persons
certified by the owners of motor vehicle franchises to be
identified with that series and only if it receives Stock
Purchase Agreements executed by such persons which are acceptable
to the Company in its sole discretion.
The Shares are being sold, on a continuous basis, by certain
employes of Motors Insurance Corporation ("MIC"), who are not
compensated specifically for their services in this regard. (See
"Plan of Distribution.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Underwriting
Price to discounts and Proceeds
public commissions to issuer
Per Share $75.00 None $75.00
Total 26,500 shares* $1,987,500 None $1,987,500
* Of this number, 20,400 shares had been issued and sold as of
the date of this Prospectus.
The date of this Prospectus is , 1994.
The Company, certain of its directors, and certain experts named
herein are residents of Barbados, and all or a substantial
portion of the assets of the Company and of such persons are or
may be located outside the United States. As a result, it may
not be possible for investors to effect service of process within
the United States upon the Company or such persons, or to enforce
against them judgments obtained in United States courts
predicated upon the civil liability provisions of the Securities
Act of 1933, as amended (the "1933 Act"). The Company has been
advised by its Barbados counsel, Evelyn, Gittens & Farmer, that
there is doubt as to whether Barbados courts would (1) enforce
judgments of United States courts obtained against the Company or
such persons predicated upon the civil liability provisions of
the 1933 Act, or (2) impose, in original actions in Barbados,
liabilities against the Company or such persons predicated upon
the 1933 Act.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the
offices of the Commission, at Room 1024, 450 Fifth Street,
N.W., Washington, D.C.; Room 1204, Kluczynski Federal Building,
230 South Dearborn Street, Chicago, Illinois; and Room 1102,
Jacob K. Javits Building, 26 Federal Plaza, New York, New York.
Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates.
The Company furnishes to its stockholders annual reports
containing financial statements that reflect the Company's
overall results and condition and that have been audited and
reported upon by independent public accountants, and quarterly
reports for each of the first three quarters of each fiscal year
containing unaudited financial information. In addition, the
Company furnishes to each holder of Shares of a series a
quarterly statement containing unaudited financial information
relating to such series. The reports furnished by the Company
contain information prepared in accordance with accounting
principles generally accepted in the United States.
TABLE OF CONTENTS
Page
DEFINITIONS...............................................
SUMMARY...................................................
RISK FACTORS..............................................
Relationship with MIC....................................
Restrictions Applicable to Certain Retrocessions.........
Extension of New Vehicle Warranties......................
Risk of Underwriting Losses..............................
Investment Experience....................................
United States Tax Considerations.........................
Risks Related to Foreign Business Operations.............
Competition and Loss of Business.........................
Barbados Regulatory Limitations..........................
Reliance on Outside Consultants .........................
Dividends................................................
No Public Market; Restrictions on Transfers..............
Share Redemption.........................................
THE COMPANY...............................................
ELIGIBILITY TO PURCHASE THE SHARES........................
USE OF PROCEEDS...........................................
DETERMINATION OF OFFERING PRICE...........................
DIVIDENDS.................................................
BUSINESS OF THE COMPANY...................................
Introduction.............................................
The Retrocessions........................................
General Considerations..................................
The Retroceding Company.................................
Types of Risks Subject to Retrocession..................
The Retrocession Agreement -- Principal Agreement.......
The Retrocession Agreement -- Supplemental Agreement....
Loss Reserves...........................................
Investment Income........................................
Employes.................................................
Competition..............................................
Insurance Management Agreement...........................
Barbados Regulation and Taxes............................
Insurance Regulation....................................
Taxes...................................................
Exchange Control .......................................
Facilities................................................
SELECTED FINANCIAL DATA...................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................
MANAGEMENT................................................
Directors and Officers...................................
Alternate Directors......................................
Committees of the Board..................................
Remuneration.............................................
PRINCIPAL SHAREHOLDER.....................................
DESCRIPTION OF CAPITAL STOCK..............................
Allocations to Subsidiary Capital Accounts...............
Voting Rights............................................
Election of Directors...................................
Proxies.................................................
Liquidation.............................................
Changes in Articles and By-Laws.........................
Other Matters...........................................
Redemption...............................................
Liquidation..............................................
Restrictions on Transfer.................................
Transfers of Less Than All Shares of a Series...........
Right of First Refusal..................................
Exceptions for Certain Transfers........................
Provisions Applicable to All Transfers..................
Common Stock.............................................
Barbados Corporate Law Provisions........................
Dividends and Distributions.............................
Repurchase..............................................
Shareholders' Remedies..................................
Enforcement of United States Judgments..................
Indemnification.........................................
Inspection of Corporate Records.........................
PLAN OF DISTRIBUTION......................................
Purchase Procedures......................................
Terms of Sale............................................
Conditions of Sale.......................................
Approval of Purchase....................................
Termination of Offering..................................
UNITED STATES FEDERAL TAX CONSIDERATIONS..................
United States - Barbados Income Tax Treaty...............
United States Premium Excise Tax.........................
United States Federal Income Tax Risks and
Consequences -- the Company.............................
United States Federal Income Tax Consequences -- the
Shareholders............................................
LEGAL MATTERS.............................................
EXPERTS...................................................
ADDITIONAL INFORMATION....................................
INDEPENDENT AUDITORS' REPORT..............................
FINANCIAL STATEMENTS......................................
APPENDIX A (Restated Articles of Incorporation of the
Company).......................................
APPENDIX B (Stock Purchase Agreement)...................
APPENDIX C (Certification Form).........................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO
DEALER, SALESMAN, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON.
DEFINITIONS
As used in this Prospectus, the following terms have the
particular meanings set forth below.
Common Stock -- The class of shares held by MIC.
Company -- Motors Mechanical Reinsurance Company, Limited.
Eligible Purchaser -- An individual or entity certified, by the
owner(s) of the Franchise(s) for which an MIC Agency Account is
maintained, as a purchaser of all or part of a series of Shares
in respect of such MIC Agency Account.
Franchise -- A right conferred by a motor vehicle manufacturer
pursuant to a written agreement which permits the grantee to sell
the manufacturer's new motor vehicles.
MIC -- Motors Insurance Corporation.
MIC Agency Account -- The separate business record maintained by
MIC or any of its subsidiaries to track volume, experience, and
commissions with respect to insurance business related to any one
or more particular Franchises.
Policies -- Insurance policies issued by any MIC subsidiary and
reinsured by MIC that cover motor vehicle mechanical repair
risks, to the extent that risks under such policies are
attributable to an MIC Agency Account in respect of which a
series of Shares is issued and outstanding.
Premium Income -- As used in the context of Barbados insurance
laws, net premiums after deducting any premiums paid by the
Company for reinsurance.
Retrocession Agreement -- The agreement or agreements entered
into between the Company and MIC pursuant to which a specified
portion of the risks arising under the Policies is transferred to
the Company.
Shares -- Shares of the Participating Stock of the Company.
Stock Purchase Agreement -- The agreement entered into between
the Company
and a purchaser of Shares, in the form approved by the Company's
Board of Directors.
Subsidiary Capital Account -- The subsidiary bookkeeping record
established by the Company for a particular series of shares or
class of stock and maintained for the purpose of accounting for
items of income and expense, gains and losses, capital
contributions, and shareholder distributions which are allocated
to the particular series of shares or class of stock.
SUMMARY
The following summary is qualified in its entirety by the
detailed information and financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
The Company was incorporated under the laws of Barbados on June
12, 1986 and has registered as a licensee under the Barbados
Exempt Insurance Act, 1983 to carry on the business of an Exempt
Insurance Company from within Barbados. Its registered and
principal offices are located in St. Michael, Barbados. The
Company is engaged in the business of assuming insurance risks
with respect to motor vehicle mechanical breakdowns insured under
policies that are reinsured by MIC. The Company conducts its
operations within or from Barbados. (See "The Company.")
THE OFFERING
Securities Being
Offered ........... Participating Stock, not to exceed
26,500 shares, in series of 100 shares
each, without nominal or par value. As
of the date of this Prospectus, 20,400
shares had been sold, leaving 6,100
remaining to be offered. (See
"Description of Capital Stock.")
Offering Price .... $75.00 per Share, or $7,500 per series.
Terms of Offering . Shares of a series of Participating
Stock will be issued with respect to a
specific MIC Agency Account. Only one
series of Shares will be issued with
respect to each MIC Agency Account. An
entire series must be purchased by one
or more Eligible Purchasers. (See
"Eligibility to Purchase the Shares.")
Offering Period ... This offering commenced on June 1, 1987
and, subject to termination by the Board
of Directors of the Company (the
"Board"), will be continuous in
accordance with Rule 415 under the 1933
Act. All funds paid by an Eligible
Purchaser will be held for the benefit
of the Company in an escrow account at
Barclays Bank PLC in Bridgetown,
Barbados until such time as the related
Stock Purchase Agreement has been
accepted by the Company. Upon
acceptance by the Company of a Stock
Purchase Agreement, funds will be paid
to the Company and Shares will be
issued.
Purchase Procedure.. Eligible Purchasers who wish to purchase
Shares will be required to submit to the
Company in Barbados the following: (1)
two executed Stock Purchase Agreements;
(2) a certified or cashier's check in
the amount of the purchase price of the
Shares payable to "Motors Mechanical
Reinsurance Company, Limited -- Escrow
Account"; and (3) certification of
eligibility. (See "Eligibility to
Purchase the Shares.")
Restrictions on
Transfer .......... Subject to certain exceptions, the
transfer of Shares is subject to the
Company's right of first refusal. In
addition, the transfer of less than all
of the Shares of a series requires prior
written consent of the Company. (See
"Description of Capital Stock --
Restrictions on Transfer.")
Voting Rights ..... Holders of Shares as a class are
entitled to elect one out of six members
of the Board. Their right to vote on
other matters is limited. (See
"Description of Capital Stock -- Voting
Rights.")
Risk Factors ...... This investment is subject to
significant risks. (See "Risk
Factors.")
Capital Structure.. As of March 31, 1994, 19,900 Shares
representing 199 series were issued and
outstanding and were held by 338
shareholders. In addition to the
Shares, the Company has authorized 2,000
shares of Common Stock without nominal
or par value, all of which have been
issued to MIC and are outstanding.
Use of Proceeds ... The proceeds of this offering are added
to general funds of the Company and
utilized in its insurance business.
(See "Use of Proceeds.")
Plan of
Distribution ...... The Shares are being sold by employes of
MIC on a continuous basis. Neither MIC
nor its employees are compensated
specifically for their services in that
regard, and no commissions are charged
or paid in connection with sales of the
Shares. (See "Plan of Distribution.")
RISK FACTORS
Investment in the Company is subject to significant risk.
Prospective investors should carefully consider, together with
the information contained elsewhere in this Prospectus, the
following:
Relationship with MIC. MIC owns all of the Common Stock of the
Company, which permits it to control the Board and determine,
among other things, the selection of the Company's officers,
outside insurance management company and outside investment
adviser. (See "Description of Capital Stock," "Business of the
Company -- Investment Income," "Business of the Company --
Insurance Management Agreement," and "Management.") The Company
has entered into a Retrocession Agreement with MIC pursuant to
which risks that MIC reinsures under Policies are "retroceded" to
the Company. (See "Business of the Company -- The
Retrocessions.") The Company relies entirely on the Retrocession
Agreement and, thus, on MIC for its business. Therefore, any
matters adversely affecting MIC may have an adverse impact on the
insurance business of the Company. In addition, it should be
noted that, under the Retrocession Agreement, only business
identified with certain MIC Agency Accounts is retroceded. MIC
and its subsidiaries have the power to terminate agency
agreements and otherwise limit the Company's insurance business
with respect to MIC Agency Accounts.
Pursuant to the Retrocession Agreement, the Company must pay to
MIC the amounts of any and all claims paid by MIC in respect of
the Policies. Although the Company may, at its own expense, be
associated with MIC in the defense of any claim, MIC or its
subsidiaries generally have full authority to investigate and
settle, or defend, all claims. (See "Business of the Company --
The Retrocessions.")
The Retrocession Agreement extends for an indefinite term. It
generally may be terminated at any time by MIC or the Company
upon 30 days written notice. (See "Business of the Company --
The Retrocessions.") In the event that the Retrocession
Agreement were terminated, there is no assurance that the Company
could make arrangements which would allow it to continue to
operate in the manner described in this Prospectus.
Restrictions Applicable to Certain Retrocessions. At the present
time, MIC believes that there is no federal or state law or
regulation that impairs its ability to retrocede its risks under
the Policies to the Company. However, certain state insurance
laws and regulations are imprecise and subject to varied
interpretations, and it is possible that some state
administrators could seek to limit retrocession arrangements with
a non-United States insurance company or with an insurance
company that is affiliated with the ceding company or its agents.
Moreover, from time to time, there are legislative and regulatory
proposals that could, if adopted, affect the MIC retrocession.
Extension of New Vehicle Warranties. Sales of mechanical
breakdown coverages, and thus the business of the Company, may be
adversely affected by changes in warranties provided by
manufacturers for new motor vehicles. If such warranties are
expanded, there could be an adverse effect on the sales of
mechanical breakdown insurance coverage, and thus on the
retrocession business of the Company. Beginning with 1989
models, GM's basic warranty was modified to cover defects in
material and workmanship on all components of new vehicles for 36
months or 50,000 miles subject to a $100 deductible after the
first 12 months or 12,000 miles. Beginning with 1992 models,
GM's basic warranty was modified to apply for 36 months or 36,000
miles; however, the previously existing $100 deductible was
eliminated.
Risk of Underwriting Losses. Mechanical breakdown risks are
unpredictable and highly volatile. If losses and expenses
incurred by the Company were to exceed its premium and investment
income, the Company would incur net losses.
Each series of Shares bears 90% of the losses incurred (to the
extent of its respective Subsidiary Capital Account balance) with
respect to business attributable to the MIC Agency Account
related to such series (as well as a pro rata share of 10% of all
losses incurred by the Company). To the extent such losses are
substantial, a holder of Shares might sustain a loss of all or a
portion of his or her investment even if other holders of Shares
are not similarly affected. In addition, underwriting losses
allocable to a particular series may, under certain
circumstances, be allocated to the other series. (See
"Description of Capital Stock -- Allocations to Subsidiary
Capital Accounts.")
Investment Experience. The profitability of the Company depends
in part on the amount of income that the Company earns on its
investments. There can be no assurance that the Company will
earn a net investment return which, when added to its
underwriting income, will be sufficient to offset its liability
for claims and expenses. In addition, the Company could suffer
investment losses due to declines in the market values of
securities in which it invests which may be caused by, among
other things, volatile interest rates. Substantially all of the
Company's assets are currently invested in U.S.
dollar-denominated securities issued outside of the United States
by non-United States private or governmental issuers and U.S.
dollar-denominated bank certificates of deposit issued by foreign
banks and foreign branches of U.S. banks. Investing in such
securities subjects the Company to certain risks not generally
associated with securities issued in the United States.
Moreover, the Company has recently been authorized to invest in
non-dollar denominated bonds on a fully currency-hedged basis.
When effectively implemented, such forward foreign currency
transactions will minimize the risk of loss resulting from a
decline in the value of the foreign currency relative to the
dollar, but may also limit the potential for gain in the event
the foreign currency's value increases in relation to the value
of the dollar. (See "Business of the Company -- Investment
Income.")
United States Tax Considerations. As discussed elsewhere herein,
the Company conducts a reinsurance business in Barbados and
executes and administers its reinsurance agreements and manages
its business affairs from Barbados. On this basis, the Company
believes that it should not be deemed to be engaged in business
within the United States through a permanent establishment, and,
therefore, the Company believes it should not be subject to
United States income tax. However, given the factual nature of
the questions involved and certain aspects of the Company's
treaty reinsurance program related to the United States, there
can be no assurance that for tax purposes the Company ultimately
will not be deemed to be engaged in business within the United
States through a permanent establishment. In such event, the
Company would be subject to United States income tax on business
profits attributable to such permanent establishment, as well as
an additional 5% branch profits tax.
Under captive insurance company provisions contained in the Tax
Reform Act of 1986, each holder of Shares generally will be
subject to United States income tax currently on his or her pro
rata share of the earnings of the Company, whether or not such
earnings are distributed. To the extent that the Company were
subject to United States income tax on its business profits, the
holders of Shares would not be subject to current tax on such
profits, but the holders of Shares would be subject to tax on
actual distributions of the Company with respect to such profits.
(See "United States Federal Tax Considerations -- United States
Federal Income Tax Consequences -- the Shareholders.")
No representation is made as to the effect that any change in
United States tax laws or the interpretation thereof may have on
the Company or holders of Shares.
Risks Related to Foreign Business Operations. The Company's
business is conducted outside of the United States and may,
consequently, be affected by changes in foreign governments and
by other political and economic conditions. As a Barbados
corporation, the Company is subject to the provisions of the
Barbados Companies Act, 1982. (See "Description of Capital Stock
- -- Barbados Corporate Law Provisions.") In addition, although
the Company has received a guarantee from the Barbados Minister
of Finance exempting it from Barbados taxes for a period ending
December 31, 2001, there is no assurance that the guarantee will
be extended beyond that date.
Competition and Loss of Business. The business of insuring motor
vehicle mechanical breakdown risks is highly competitive, with
many companies seeking the business produced by motor vehicle
dealers. Since all of the Company's business is currently
derived from the Retrocession Agreement, the volume of the
Company's business is dependent, to some extent, upon the
marketability of agreements and plans developed by GM and MIC
subsidiaries and offered through motor vehicle dealers. In
addition, GM may choose not to insure its liability under
mechanical repair plans with MIC or its subsidiaries. MIC
management believes that at present, MIC and its subsidiaries
underwrite approximately 20% of the mechanical breakdown
insurance in the United States on new GM vehicles. (See
"Business of the Company -- Competition.")
Barbados Regulatory Limitations. To the extent that the net
asset value of the Company does not meet the minimum requirements
for the Company as a whole under Barbados insurance laws and to
the extent that a Subsidiary Capital Account does not support the
business related to such account, the Company may reduce the
amount of its business attributable to such deficient Subsidiary
Capital Account.
Reliance on Outside Consultants. The Company does not have any
full-time officers or employes. The Company relies on outside
consultants for insurance management, day-to-day administrative
services, and investment advice. (See "Business of the Company
- -- Insurance Management Agreement," and "Business of the Company
- -- Investment Income.")
Dividends. Although the Company's Restated Articles of
Incorporation (the "Articles") (see Appendix A) provide for a
minimum annual dividend to holders of Shares under certain
circumstances, the ability of the Company to pay any dividend is
subject to compliance with Barbados insurance regulatory
requirements, the Barbados Companies Act and other limitations
provided in the Company's Articles. (See "Dividends.")
No Public Market; Restrictions on Transfers. There is no public
market for the Shares or the other capital stock of the Company,
and none is expected to develop. In addition, the Shares are
subject to substantial restrictions on transfer. Except for
transfers to certain members of a transferor's family, certain
trusts, certain business affiliates, or estates, a transfer of
any series of Shares is subject to the Company's right of first
refusal, and a transfer of less than all of the Shares of a
series cannot be made without the express written consent of the
Company. All transferees must agree to be bound by the
provisions of a Stock Purchase Agreement, including, among other
things, restrictions on the transfer of their Shares. (See
"Description of Capital
Stock -- Restrictions on Transfer," "Eligibility to Purchase
the Shares," and "Plan of Distribution.")
Share Redemption. The Board of Directors of the Company has the
right to cause a redemption of the Shares of any series at any
time and for any reason. This permits, among other things, the
Board of Directors to redeem, at its discretion, shareholders who
produce unsatisfactory business on a continuing basis. The Board
also may reject a request for redemption by a shareholder. (See
"Description of Capital Stock -- Redemption.")
THE COMPANY
Motors Mechanical Reinsurance Company, Limited (the "Company")
was incorporated in Barbados on June 12, 1986, and became
registered in Barbados as an insurer on June 30, 1986. The
Company's registered and principal offices are located at
Financial Services Centre, Bishops Court Hill, St. Michael,
Barbados and its telephone number is (809) 436-4895. The Company
was organized by MIC.
Pursuant to the Retrocession Agreement, the Company engages in
the business of assuming risks with respect to motor vehicle
mechanical breakdowns arising under insurance policies that are
reinsured by MIC and that are attributable to MIC Agency Accounts
in respect of which Shares are issued and outstanding. Under
the Retrocession Agreement, the Company has agreed to indemnify
MIC for losses that may be incurred by MIC under the Policies.
As consideration for the retrocession, the Company receives a
portion of the premiums paid to MIC in respect of the Policies.
The Retrocession Agreement constitutes the sole source of the
Company's insurance business. (See "Business of the Company.")
Barbados is an island nation located in the Atlantic Ocean. It
is the eastern-most island of the West Indies. Formerly a
British colony, Barbados gained its independence in 1966 and
maintains a parliamentary form of government. The currency of
Barbados currently is linked by law to the U.S. dollar at a fixed
exchange rate, which at present is two Barbadian dollars to one
U.S. dollar.
The Company conducts all of its business from Barbados and does
not conduct any of its business within the United States. It is
subject to general corporate and insurance regulation under the
laws of Barbados, including minimum net asset value and reporting
requirements. (See "Business of the Company -- Barbados
Regulation and Taxes.")
ELIGIBILITY TO PURCHASE THE SHARES
Shares of a series may be purchased only by an individual or
entity certified by the owner(s) of the Franchise(s) for which an
MIC Agency Account is maintained, as a purchaser of all or part
of a series of Shares in respect of such MIC Agency Account
("Eligible Purchaser"). There are no formal eligibility
requirements for certification; however, Franchise owner(s) have
complete discretion with respect to whom they choose to certify
(including themselves) and the Company has complete discretion to
accept or reject any offer to purchase Shares. No more than one
series of Shares is issued with respect to each MIC Agency
Account. No Shares of a series are issued unless executed Stock
Purchase Agreements (see Appendix B) for all Shares of that
series have been received and accepted by the Company.
A prospective purchaser is considered to be properly certified if
the Company has received a certificate in the form furnished by
the Company (see Appendix C) from each owner of the particular
Franchise(s) stating that the prospective purchaser has been
designated by such owner(s) to be eligible to purchase the
particular Shares. In addition, the prospective purchaser must
execute a Stock Purchase Agreement and forward that agreement,
together with payment for the Shares purchased, to the Company.
Stock Purchase Agreements are subject to acceptance by the
Company. (See "Plan of Distribution.")
Transfer of Shares is subject to certain restrictions. If less
than all the Shares of a series are transferred, the Company
must give its consent. In addition, the Company has a right of
first refusal to purchase any Shares which the holder attempts
to transfer. However, a transfer is not subject to either of the
foregoing restrictions if the transferee falls into one of the
categories of designated transferees set forth in the Articles.
(See "Description of Capital Stock -- Restrictions on Transfer.")
USE OF PROCEEDS
The offering of the Shares pursuant to this Prospectus is being
made on a continuous basis. This means that it is not possible
to predict how many series of Shares will ultimately be purchased
or the maximum net proceeds to be derived by the Company from
this offering.
The proceeds derived from this offering are added to the general
funds of the Company to provide capital to support its insurance
business. Under Barbados law, the Company is required to have
minimum net assets, determined by reference to the annual earned
premium, described more fully under "Business of the Company --
Barbados Regulation and Taxes." All of the Company's available
capital, including the proceeds of this offering, is invested by
its investment advisor in accordance with guidelines established
by the Board. (See "Business of the Company -- Investment
Income.") The Company believes that the proceeds derived from
this offering will be sufficient, together with its other
capital, to support the Company's insurance operations for the
foreseeable future.
DETERMINATION OF OFFERING PRICE
There is no public trading market for the Shares nor is one
expected to develop. The price per Share reflects the projected
capital needs of the Company and bears no relationship to any
valuation criteria.
DIVIDENDS
Dividends may be declared and paid at the discretion of the
Board, provided that each holder of Shares of a series will be
entitled to receive a minimum dividend, payable annually, equal
to 20% of the annual net income attributable to the Subsidiary
Capital Account associated with that series of Shares. In all
events, however, dividends are subject to the restrictions
described in the following paragraphs.
Pursuant to the general corporate laws of Barbados, dividends on
the Shares are payable only if after the payment: (a) the Company
would be able to pay its liabilities as they come due; and (b)
the realizable value of the Company's assets exceeds its
liabilities and stated capital of all classes. Dividends may not
be paid out of unrealized gains. Further, under Barbados
insurance law, the Company is required to maintain a minimum
capitalization of $125,000 and, in addition, the value of its
assets must exceed its liabilities by: (a) $125,000 where the
earned premium in the preceding financial year did not exceed
$750,000; (b) an amount equal to 20% of the earned premium for
the preceding financial year, where such income exceeded $750,000
but did not exceed $5,000,000; and (c) an amount equal to the
aggregate of $1,000,000 and 10% of the amount by which the earned
premium for the preceding financial year exceeded $5,000,000.
(See "Business of the Company -- Barbados Regulation and Taxes,"
and "Description of Capital Stock -- Barbados Corporate Law
Provisions.")
In addition to the provisions of Barbados law, the Articles place
limitations on the payment of dividends. Dividends may be
declared and paid only out of the earned surplus of the Company
and only if the Company, after giving effect to the distribution,
meets the Barbados margin of solvency requirements without regard
to any letters of credit. Further, dividends with respect to any
series of Shares may be paid only out of earned surplus
attributable to the Subsidiary Capital Account identified with
those Shares, and only to the extent that, after giving effect to
the dividend, the capital and surplus identified with that
Subsidiary Capital Account (without regard to any guarantee or
letter of credit) would meet its pro rata share, based on
allocable Premium Income, of the minimum margin of solvency
required of the Company under Barbados law, as described in the
preceding paragraph. To the extent a dividend, other than a
minimum dividend, is declared on the Shares, it will be declared
and paid subject to the foregoing limitations on all series of
Shares as a percentage of the net income and/or earned surplus
attributable to each series, provided that such percentage may
vary with the level of net income and/or earned surplus.
In May of 1990 and June of 1991, the Company declared minimum
dividends on the Shares in total amounts of $114,376 and
$150,317, respectively. In April of 1992, the Company declared a
dividend on the Shares aggregating $1,021,705 which was equal to
35% of earned surplus attributable to each series of Shares
meeting the above requirements. In April of 1993, the Company
declared a dividend on the Shares aggregating $2,021,504. This
dividend was declared as a varying percentage of earned surplus
attributable to each series of Shares with the percentage
applicable to each series varying from 30% to 50% depending on
the amount of earned surplus attributable to such series. In
April of 1994, the Company declared a dividend on the Shares
aggregating $2,156,304. This dividend was declared as a varying
percentage applicable to each series varying from 20% to 55%
depending on the amount of earned surplus attributable to such
series.
Dividends on the Common Stock are also subject to the
restrictions under Barbados law and the Articles described above.
In addition, the Articles provide that dividends may not be
declared or paid on the Common Stock unless and until each holder
of Shares of a series has received any minimum dividend to which
he is entitled for the current period and may be declared and
paid only to the extent that the earned surplus attributable to
the Common Stock exceeds Restricted Earned Surplus. (See
"Description of Capital Stock -- Allocations to Subsidiary
Capital Accounts.")
BUSINESS OF THE COMPANY
INTRODUCTION
The Company was incorporated in Barbados on June 12, 1986. It
became
registered in Barbados as an insurer on June 30, 1986 and
commenced insurance operations in December, 1987.
The business of the Company is the assumption of motor vehicle
mechanical breakdown insurance risks arising under insurance
policies reinsured by MIC to the extent such policies are
attributable to an MIC Agency Account in respect of which a
series of shares is issued and outstanding. These policies are
issued either to General Motors Corporation ("GM") or to
automobile dealers, reinsured by MIC, and retroceded to the
Company. Shares of the Company's Participating Stock (the
"Shares") are sold to persons designated by owners of motor
vehicle sales franchises with respect to which MIC maintains an
MIC Agency Account. A separate series is created for Shares
relating to each MIC Agency Account, and a separate "Subsidiary
Capital Account" is maintained for each such series. The
profitability of the Company reflects both underwriting and
investment experience, which is allocated among the Subsidiary
Capital Accounts.
THE RETROCESSIONS
General Considerations. Reinsurance is a means of transferring
the risk of loss arising under a contract of insurance from the
company that initially insured the risk to the reinsurer.
Retrocession is the transfer of the risk borne by the reinsurer
(the "retroceding company") to another company which, in turn,
assumes such risk (the "retrocessionaire"). Retrocession
agreements are of numerous different types and may be
individually negotiated by the parties to meet particular needs.
Under a "quota share" indemnity retrocession agreement, such as
the Retrocession Agreement between MIC and the Company, the
retrocessionaire (the Company) is paid ("ceded") a certain
percentage of the premiums collected by the retroceding company
(MIC) and, in return, agrees to indemnify the retroceding company
for a certain percentage of the losses in respect of those risks.
Further, a "treaty" arrangement, such as is involved here, covers
all risks of a defined class.
The Retroceding Company. MIC, the retroceding company under the
Retrocession Agreement, is a stock insurance company organized
under the laws of New York. All of MIC's outstanding stock is
owned by General Motors Acceptance Corporation which, in turn, is
a wholly owned subsidiary of GM. MIC, directly and through its
subsidiaries, offers property and casualty coverages in all 50
states and the District of Columbia, as well as in Canada and
Europe. MIC consistently has been awarded A.M. Best Company's
insurance financial rating of A + (Superior), one of the highest
possible ratings.
MIC maintains MIC Agency Accounts in respect of Franchises to
which the risks to be retroceded can be attributed. (A single
MIC Agency Account may be established either for a single
Franchise or in respect of a group of Franchises treated as a
single business unit by MIC and its subsidiaries.) Currently,
there are more than 6,800 MIC Agency Accounts in respect of
Franchises through which mechanical insurance business is
produced.
Types of Risks Subject to Retrocession. Included in the base
price of the vehicle, automobile manufacturers traditionally
provide a limited warranty to purchasers of new vehicles, which
is designed to protect the purchaser against failures resulting
from defects in the materials used or workmanship during the
manufacturing process. These manufacturers warranties have
varied from year to year in scope and duration. Beginning with
1989 models, GM's basic warranty was modified to cover all
components of new vehicles for 36 months or 50,000 miles subject
to a $100 deductible after the first 12 months or 12,000 miles.
Beginning with 1992 models, GM's basic warranty was modified to
apply for 36 months or 36,000 miles, with no deductible.
Automobile manufacturers, dealers and others also may make
available to automobile purchasers service contracts or insurance
policies (both of which are commonly referred to as "service
contracts") that provide coverage against specific automobile
mechanical breakdowns during the new vehicle warranty period that
are not attributed to manufacturing defects and coverage for
certain specified mechanical breakdowns (whether or not caused by
manufacturing defects) well beyond such period. Such service
contracts often provide additional services, such as towing and
rental allowances.
MIC reinsures the following service contracts insured by its
subsidiaries for new and used vehicles:
1. GM offers a variety of service contract options under
the General Motors Protection Plan ("GMPP") to purchasers of new
GM motor vehicles and certain used GM vehicles. In the United
States, GM currently insures its liability under this plan with a
subsidiary of MIC.
2. Certain dealers offer automobile purchasers a dealer service
contract called the Value Guard Mechanical Repair Plan ("MRP"),
generally with respect to used cars and new non-GM cars that
provide protection against certain automobile mechanical
breakdowns. These service contracts provide varying degrees of
protection, depending upon the particular plan involved. Such
dealers obtain insurance covering their liability under these
plans from a subsidiary of MIC.
MIC also writes some mechanical insurance business on a direct
basis, none of which will be subject to reinsurance with the
Company and none of which is included in the definition of
"Policies."
The Retrocession Agreement -- Principal Agreement. The Company
has entered into a "quota share" retrocession agreement (the
"Agreement") which became effective as of December 11, 1987, the
date Shares were first issued. Pursuant to the Agreement, MIC is
obligated to retrocede to the Company, and the Company is
obligated to assume, MIC's risks in respect of policies issued by
any MIC subsidiary and reinsured by MIC that cover mechanical
breakdown risks, to the extent that risks under such policies are
attributable to an MIC Agency Account in respect of which a
series of Shares is issued and outstanding (the "Policies"), and
such risks are insured on or after the effective date of the
Agreement. Under the Agreement, MIC is not obligated to
retrocede any risk to the Company in excess of the amount allowed
under applicable state laws concerning the retrocession of risks
located in the particular state. (See "Risk Factors --
Restrictions Applicable to Certain Retrocessions.")
Pursuant to the Agreement, MIC retrocedes to the Company 75% of
MIC's risk in respect of each Policy at the time it is written.
Such retrocession remains in effect for the duration of the
underlying Policy. With respect to this cession of 75% of the
risk, MIC pays the Company 56.25% of the gross premiums it
receives, reduced by any related agents' or brokers' commissions.
MIC retrocedes the remaining 25% of its risk in respect of each
such Policy on a monthly basis. In connection with this
retrocession of 25% of the risk, MIC pays the Company 18.75% of
the original gross premium, reduced by any related agents' or
brokers' commissions, as earned.
Thus, for assuming 100% of each risk the Company receives, in the
aggregate, 75% of the original gross premium with respect to the
risk, reduced by related agents' or brokers' commissions, if any.
The remaining 25% of the premium is retained by MIC as a ceding
commission. The Company generally is not otherwise required to
reimburse MIC for expenses incurred by MIC with respect to the
Policies. Settlements between the Company and MIC are made on a
quarterly basis.
Pursuant to the Agreement, the Company, at its own expense, to
the extent permitted by the underlying reinsurance agreement, may
join MIC or its ceding company in the defense or control of any
claim, loss, or legal proceeding that results in, or is likely to
result in liability for the Company. However, because MIC
controls the Company, MIC will indirectly control any
determination by the Company whether it will take such action.
The Company will not be liable for any damages assessed against
MIC arising out of its conduct in investigating, negotiating,
defending, or handling any claims or suits or in dealing with its
policyholders.
The Agreement requires that, as security for the amount of the
Company's liability to MIC thereunder, the Company furnish, to
the extent requested by MIC, collateral in the form of an
irrevocable letter of credit of at least 12 months duration equal
in amount to the unearned premium in respect of risks retroceded
and unpaid loss reserves (including reserves for losses incurred
but not reported) otherwise required to be maintained by MIC in
respect of the Policies. This letter of credit must be issued by
a bank acceptable to MIC. As of December 31, 1993, the Company
provided MIC with such a letter in the amount of $32,250,000.
The Agreement may be terminated at any time by mutual consent of
the parties, or by either party upon 30 days written notice.
Upon termination of the Agreement, MIC and the Company will
remain bound by their respective obligations under the Agreement
with respect to risks retroceded prior to the close of business
on the date of termination. However, risks not yet retroceded to
the Company under the Agreement shall remain risks of MIC.
The Retrocession Agreement -- Supplemental Agreement. MIC from
time to time, enters into agreements with Franchise owners for
which an MIC Agency Account is established, pursuant to which
MIC, acting for itself and on behalf of certain of its
subsidiaries, agrees to cede or retrocede to another insurance
company mutually satisfactory to MIC and the respective Franchise
owners the unexpired liability with respect to service contracts,
insured under the Policies, sold after the date specified in each
such agreement. This liability can be ceded or retroceded to
dealer-owned companies organized specifically with respect to a
particular Franchise or, if a series of Shares is issued which
relates to the Franchise, pursuant to an agreement between MIC
and the Company (the "Supplemental Retrocession Agreement"). For
this purpose, unexpired liability means MIC's liability in
respect of the remaining period of coverage under the Policy as
of the effective date of the cession. Under the Supplemental
Retrocession Agreement, unexpired liability in respect of the
Policies is assumed on the same basis as risks retroceded to the
Company under the principal Retrocession Agreement.
Loss Reserves. Reserves are balance sheet liabilities
representing estimates of amounts needed in the future to pay
claims with respect to insured events which have occurred as of
the balance sheet dates.
For purposes of establishing loss reserves, the Company relies
upon the advice of MIC. Loss reserves are established after an
annual actuarial review, based on judgments of the effects of
technological change, manufacturer's warranties, and MIC's
historical experience with automotive mechanical breakdown risks.
Consequently, the determination of loss reserves is a process
inherently subject to a number of highly variable factors. Any
adjustments to reserves are reflected in the operating results
for the periods in which they become known.
The Company's incurred loss ratios (losses incurred as a
percentage of net premium earned) on all mechanical business for
the fiscal years ended December 31, 1993, 1992, and 1991 were
70.7%, 62.8%, and 68.2%, respectively.
The following table sets forth an analysis of changes in the loss
reserves for the fiscal years ended December 31, 1993, 1992 and
1991:
Period Ended
12/31/91 12/31/92 12/31/93
Beginning balance in
reserves for losses..... $1,075,123 $1,396,542 $1,622,855
Add-provision for losses
incurred related to:
Current claim year... 7,301,654 8,461,984 11,046,932
Prior claim years.... (282,726) (297,535) (134,249)
Total............. 7,018,928 8,164,449 10,912,683
Deduct-paid losses
attributable to:
Current claim
year.................. 5,948,952 7,025,671 9,363,720
Prior claim
years................. 748,557 912,465 1,261,788
Total................. 6,697,509 7,938,136 10,625,508
Ending balance in reserves
for losses..............$1,396,542 $1,622,855 $1,910,030
The following table analyzes the development of loss and loss
adjustment expense, from February 1, 1989 through December 31,
1993.
1/31/90 12/31/90 12/31/91 12/31/92 12/31/93
Liability for
unpaid claims
and claims
adjustment
expense $ 766,912 $1,075,123 $1,396,542 $1,622,855 $1,910,030
Paid (cumulative)
in subsequent
year(s) $ 666,866 $ 748,557 $ 912,465 $1,261,788
Estimated unpaid
liability as of
year end* 2,393 43,840 186,542 226,818
Cumulative
Deficiency
(Redundancy)$ (97,653)$ (282,726)$ (297,535)$ (134,249)
*/ Because mechanical breakdown claims are generally paid within
90 days of when they are incurred, liability for unpaid claims
incurred in prior years is negligible. Accordingly, liability
for unpaid claims incurred in all prior years has been combined
at each year end.
The table shows initial estimated reserves at December 31, 1993,
1992, 1991 and 1990 and January 31, 1990 and amounts paid on
claims unsettled at each prior period end. Claims are typically
processed for payment at the time the claim is reported.
Therefore, the recorded claim liability at each year end
represents the estimated incurred but not reported claims and
claims in the process of payment. The cumulative deficiency or
redundancy represents the total change in reserve estimates
covering prior years.
It should be noted that the policies reinsured by the Company are
written for multiple years (up to six years) and losses do not
occur equally over the period for which the policy is written but
tend to be clustered in the later years. Therefore, loss
experience for prior years may not be indicative of that for
future years.
INVESTMENT INCOME
A major source of income to an insurance company is income earned
on the investment of amounts not currently required to meet
claims or expenses. The principal funds available for investment
by the Company come from accumulated capital, and the cumulative
excess of premiums collected over losses and operating expenses
paid.
The Company's funds are invested in a manner consistent with
investment guidelines that are established by the Board. Under
the guidelines in effect prior to April, 1994, the Company was
permitted to invest only in U.S. dollar-denominated securities
issued outside of the United States by non-United States private
or governmental issuers, and U.S. dollar-denominated bank
certificates of deposit issued by foreign banks and foreign
branches of U.S. banks. Subject to the satisfaction of certain
conditions, the Board authorized, in April, 1994, limited
investments in non-dollar denominated bonds, on a fully currency-
hedged basis. The Company may invest only in securities and
certificates which are rated at least Aa3 by Moody's or AA- by
Standard & Poor's or the equivalent, or are guaranteed by such an
issuer. As of April, 1994, certain unrated securities may also
be held if, in the opinion of the investment manager, they have
at least equivalent credit standing to the above rating standard.
The Board reviews on a regular basis and, where appropriate,
revises the investment objectives and guidelines for the
Company's funds. There can be no assurance, however, as to
whether a particular investment objective, once adopted, can be
achieved or that adverse factors would not cause a decrease in
the overall value of the Company's investment portfolio.
Investments in non-U.S. securities, particularly those of
non-governmental issuers, may involve considerations not
ordinarily associated with investments in domestic issuers.
These considerations include, but are not limited to, the
possibility of expropriation, the unavailability of financial
information or difficulty in interpreting such information when
it is prepared under foreign accounting or regulatory standards,
the possible negative impact of political, social or diplomatic
developments, and the possible imposition of withholding taxes by
foreign taxing authorities.
Changes in interest rates in the quarter ended March 31, 1994
adversely affected the market values of the Company's investment
portfolio at that date and its investment income in the quarter
then ended as compared with the quarter ended March 31, 1993.
Realized losses on the sale of investment securities in the
quarter ended March 31, 1994 were $303,389 compared to realized
gains of $378,444 in the quarter ended March 31, 1993.
Unrealized losses on investment securities held at March 31, 1994
were $1,163,467 compared to unrealized gains at December 31, 1993
of $99,886.
Rothschild Asset Management Limited ("Rothschild") manages the
investment and reinvestment of the Company's funds in accordance
with the investment policies and guidelines established by the
Board. Rothschild, which is one of the leading institutions
engaged in the management of offshore fixed-income portfolios,
and which has been providing this service since 1974, is an
affiliate of NM Rothschild and Sons Limited, a prominent merchant
bank in London which has been in the investment management
business worldwide for more than 100 years. Rothschild charges a
management fee of 0.3% per annum on the first $20,000,000 of
assets under management based on the market value of the
Company's investment portfolio at the end of each calendar
quarter, and 0.15% per annum on the excess thereof.
EMPLOYES
The Company does not have any full-time employes. Rather, the
Company relies on Alexander Insurance Managers (Barbados) Ltd.
(the "Manager"), to handle its day-to-day operations. (See
"Business of the Company -- Insurance Management Agreement,"
below.) In addition, corporate secretarial services for the
Company are provided by Colybrand Company Services Limited of St.
Michael, Barbados. The Board and the committees thereof,
however, remain responsible for the establishment and
implementation of policy decisions.
COMPETITION
The insurance business is extremely competitive. MIC management
believes that at present, MIC and its subsidiaries are, as a
group, one of the largest mechanical breakdown insurers of new GM
vehicles in the United States. There are other major companies
offering similar coverage. Because the insurance business of the
Company is limited to the assumption of certain mechanical
breakdown insurance business ceded by MIC, the profitability of
the Company depends to a large degree on the success experienced
by MIC and its affiliates in competing with those other insurers.
Many commercial insurance groups are seeking to capture
additional mechanical insurance business by offering to assist
automobile dealers in the formation of their own dealer-owned
reinsurance companies. MIC itself has assisted in the
establishment of such companies for a number of qualified GM
dealers. However, MIC believes that participation in the Company
represents a more practical alternative for dealers who do not
have the available capital, insurance management expertise or
time for the personal involvement necessary for their own
reinsurance company.
INSURANCE MANAGEMENT AGREEMENT
The Company has entered into an Insurance Management Agreement
(the "Management Agreement") with the Manager, pursuant to which
the Manager collects and disburses funds on behalf of the
Company, provides bookkeeping, clerical, telephone, telex, and
other services for the Company, and advises and consults with the
Company in regard to all aspects of the Company's retrocession
activities.
Pursuant to the Management Agreement, the Manager has undertaken
to maintain an office in Barbados to perform its duties.
Further, during the term of the Management Agreement and
generally for a period of one year thereafter, the Manager has
agreed not to provide management or accounting services for any
other company which, by the nature of its operations, is
offering, insuring or reinsuring mechanical breakdown and/or
extended warranty or related coverages on a multi-state basis in
the United States or Canada with respect to motor vehicles sold
by franchised GM dealerships. Under the terms of the Management
Agreement, the Company pays the Manager a fee based on hourly
rates for services performed. For the year ended December 31,
1993, the Company paid fees to the Manager in the amount of
$180,135.
The Manager is responsible for the payment of the salaries of its
officers and employes and all office and staff overhead and other
costs attributable to its services on the Company's behalf.
However, out-of-pocket expenses, such as telephone, telex,
postage, travel, and other items are borne by the Company on an
expense reimbursement basis.
The Manager was incorporated in Barbados in 1984, and is an
affiliate of Alexander and Alexander, an international insurance
brokerage and insurance consulting firm. The Manager performs
services similar to those performed for the Company for several
other entities. The Manager has nine employes. In addition, the
Manager may draw upon the resources of its affiliates as needed
to provide the services contemplated under the Management
Agreement. No employe of the Manager devotes all of his or her
time to the business of the Company. However, the Manager is
obligated to devote all employe time necessary to ensure the
performance of the Manager's duties under the Management
Agreement. The Manager is subject to the control and direction
of the Board.
The Manager has served in that capacity since 1986. The current
Management Agreement became effective on March 19, 1992 and may
be terminated by either party as of the end of the then current
fiscal year by the giving of written notice to the other party by
September 1 of that year.
BARBADOS REGULATION AND TAXES
Insurance Regulation. The Company is subject to regulation under
the Barbados Exempt Insurance Act, 1983, as amended (the "Exempt
Insurance Act"). The Exempt Insurance Act and related
regulations set forth a number of requirements applicable to
insurers doing business in Barbados. The principal requirements
are as follows:
(1) the Company is required to maintain a principal office in
Barbados, appoint an auditor, and have a resident citizen of
Barbados as one of its directors;
(2) the Company must maintain assets that exceed its liabilities
by:
(a) $125,000, where the earned premium in the preceding
financial year did not exceed $750,000;
(b) an amount equal to 20% of the earned premium for the
preceding financial year where the earned premium
exceeded $750,000 but did not exceed $5,000,000; and
(c) an amount equal to the aggregate of $1,000,000 and 10%
of the amount by which the earned premium for the
preceding financial year exceeded $5,000,000.
(3) the Company must have audited financial statements prepared
in the prescribed form ("Statutory Financial Statements") in
respect of its insurance business for each year;
(4) the Company must submit its Statutory Financial Statements
to the Barbados Supervisor of Insurance ("Supervisor")
within six months after the end of the relevant financial
year; and
(5) the Company must submit to the Supervisor on an annual basis
a certificate of its auditor that the Company is in
compliance with the requirements of the Insurance Act as at
the balance sheet date.
Taxes. Under the Exempt Insurance Act, no income tax, capital
gains tax or other direct tax or impost is levied in Barbados on
(1) the profits or gains of the Company, (2) the transfer of the
securities of the Company to any person who is not a resident of
Barbados, (3) the Company, its shareholders or transferees in
respect of the transfer of all or any part of the Company's
securities or other assets to another licensee under the Exempt
Insurance Act or to any person who is not a resident of Barbados,
or (4) any portion of any dividend, interest, or other return
payable to any person in respect of his or her holding any Shares
or other securities of the Company. The Company has received a
guarantee from the Minister of Finance of Barbados that such
benefits and exemptions will be available for a period ending
December 31, 2001.
Exchange Control. Pursuant to the Exempt Insurance Act, the
Company is exempt from the Barbados Exchange Control Act.
Accordingly, the Company may hold any non-Barbadian currency and
convert that currency into any other currency without
restriction.
FACILITIES
The Company neither owns nor maintains any office space or
facilities. Rather, the business office for the Company is
provided by the Manager and is located at Financial Services
Centre, Bishops Court Hill, St. Michael, Barbados. The Company
believes that these facilities are adequate for its current and
anticipated future needs. In addition, the Manager supplies all
equipment for the Company, and maintains all insurance records
for the Company.
SELECTED FINANCIAL DATA
The following selected financial data for the years ended
December 31, 1993, 1992 and 1991, the eleven month period ended
December 31, 1990 and the fiscal year ended January 31, 1990 have
been derived from financial statements audited by Deloitte &
Touche, independent chartered accountants, whose report with
respect to their audits of the financial statements as of
December 31, 1993 and 1992 and for each of the three years in the
period ended December 31, 1993 is included elsewhere in this
Prospectus. The data presented for the three month periods ended
March 31, 1994 and 1993 are derived from unaudited financial
statements presented elsewhere in this Prospectus and, in the
opinion of management, include all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the
data for such periods. The results for the three month period
ended March 31, 1994 are not necessarily indicative of the
results to be expected for the full fiscal year. This
information should be read in conjunction with the information
under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements
and related notes included elsewhere in this Prospectus.
Three Months Ended March 31,
1994 1993
Premiums Assumed $8,816,331 $5,389,885
Premiums Earned 4,571,906 3,572,828
Net Investment Income 267,303 839,973
Total Income 4,839,209 4,412,801
Less Losses and
Expenses 4,516,391 3,679,676
Net Income* 322,818 733,125
Dividends Per Common
Share 0 0
Total Assets 53,984,124 39,843,550
Total Policy Reserves
and Other Liabilities46,920,295 31,646,894
Stockholders' Equity 7,063,829 8,196,656
Dividends Paid on
Participating Shares 0 0
Periods Ended December 31,**
January 31
1993 1992 1991 1990 1990
Premiums
Assumed $27,779,063$19,386,455$16,784,405$12,957,759 $10,032,140
Premiums
Earned 15,429,611 13,005,184 10,292,788 8,177,525 5,183,768
Net Investment
Income 2,700,242 2,522,712 1,792,947 843,021 727,844
Total Income 18,129,853 15,527,896 12,085,735 9,020,546 5,911,612
Less Losses and
Expenses 15,425,14 12,020,682 10,165,350 8,280,612 5,297,836
Net Income* 2,704,707 3,507,214 1,920,385 739,934 613,776
Dividends Per
Common Share 0 0 0 0 0
Total Assets 50,359,633 36,847,490 28,124,056 18,759,382 12,507,645
Total Policy
Reserves and
Other
Liabilities 42,430,269 29,777,783 23,148,003 16,347,245 11,238,143
Stockholders'
Equity 7,929,364 7,069,707 4,976,053 2,412,137 1,269,502
Dividends Paid on
Participating
Shares 2,021,504 1,021,705 150,317 114,376 0
*/ Information as to earnings per share is not provided
inasmuch as the results for each series of stock will vary with
the underwriting experience attributable to each Subsidiary
Capital Account established with respect to that series. See
Note 2(f) to the financial statements.
**/ In May of 1990, the Company changed its fiscal year end from
January 31 to December 31.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity. The Company expects to generate sufficient funds from
operations to cover current liquidity needs. The Company's
liquidity requirements are related to payment of insurance
losses, administrative expenses, and dividends. Premiums
generated by the Company's reinsurance business, combined with
investment earnings plus proceeds from the sale of Shares, will
continue to be the principal sources of funds for the Company.
Although losses are expected to increase due to the increased
level of premiums assumed in each preceeding year and the
anticipated incidence of claims following the expiration of
manufacturers' warranties, available funds from the sources
identified above have also grown. Net cash provided by operating
activities has increased from $5,386,977 in 1991 and $7,598,500
in 1992 to $12,422,648 in 1993. The Company believes that such
funds will be sufficient to meet its liquidity requirements in
1994 and in future years to which its reinsurance liabilities
extend. No capital expenditures are expected during the next few
years.
See "Dividends" for a discussion of dividends paid and legal
restrictions on the payment of dividends.
On April 8, 1994, the Board of Directors authorized the payment
of dividends to eligible holders of Participating Shares
aggregating $2,156,304.
Capital Resources. Capitalization of the Company, as of
December 31, 1993, was comprised of paid-in capital with respect
to the Common Stock of $200,000, paid-in capital with respect to
the Shares of $1,417,500 (compared with $1,072,500 and $817,500
as of December 31, 1992 and 1991, respectively), and earnings
retained for use in the business. As of March 31, 1994, the
share capital of the Company was $1,692,500, comprised of paid-in
capital with respect to the Common Stock of $200,000 and paid-in
capital with respect to Participating Shares of $1,492,500. In
addition, the Company had surplus from retained earnings in the
amount of $6,534,796 and unrealized depreciation on marketable
securities of ($1,163,467).
Barbados law requires that the Company's net assets equal at
least the aggregate of $1,000,000 and 10% of the amount by which
the earned premium exceeded $5,000,000 in the previous fiscal
year. If the Company's net asset ratio is less than mandated by
Barbados law, the Company has the right to reduce the business
related to a Subsidiary Capital Account by retrocession or any
other means to the extent necessary to permit the Subsidiary
Capital Account to meet its pro rata share of the Company's
required capital and surplus. At January 1, 1994, the Company's
required minimum net assets computed in accordance with Barbados
law was approximately $2,042,961, compared to total capital and
retained earnings of $7,929,364.
First Quarter Ending March 31, 1994. Net premium volume
continues to increase as additional participants are added to the
program. During the quarter ended March 31, 1994, 10 new series
of Shares were added bringing the total number of series approved
to 199. Premiums earned increased by $999,078 over the
comparable period of 1993. The ratio of losses incurred to
premiums earned for the quarter under review is 69.8% as compared
to 73.1% for the quarter ended March 31, 1993.
Expenses increased by $836,715 to $4,516,391 in the quarter ended
March 31, 1994 from $3,679,676 in the first quarter of 1993. Net
underwriting income in the quarter ended March 31, 1994 increased
$162,363 to $55,515 compared with an underwriting loss of
$106,848 in the 1993 quarter. The increase in net underwriting
income, however, was offset by a decline in investment income of
$572,670, from $839,973 in the first quarter of 1993 to $267,303
in the comparable period of 1994, due to realized losses on the
sale of invested assets. The Company has reported net income for
the three month period ended March 31, 1994 of $322,818 compared
to net income of $733,125 for the three month period ended March
31, 1993.
Changes in interest rates in the quarter ended March 31, 1994
adversely affected the market values of the Company's investment
portfolio at that date and its investment income in the quarter
then ended as compared with the quarter ended March 31, 1993.
Realized losses on the sale of investment securities in the
quarter ended March 31, 1994 were $303,389 compared to realized
gains of $378,444 in the quarter ended March 31, 1993.
Unrealized losses on investment securities held at March 31, 1994
were $1,163,467 compared to unrealized gains at December 31, 1993
of $99,886. The Company's investment guidelines do not permit
the use of financial instrument derivatives in managing interest
rate risk.
Cash, cash equivalents and investments valued at market have
increased from $36,671,259 at the beginning of the year to
$37,946,767 at March 31, 1994.
FASB Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" is effective for years beginning
after December 15, 1993 and will require the Company to classify
its securities holdings into three categories (trading, available
for sale, and held to maturity). The Company adopted Statement
No. 115 in 1994 and classified its securities portfolio as
available for sale. Adoption of the statement did not have a
material effect on the Company's financial position and results
of operations.
Results of Operations - Year Ended December 31, 1993. The
Company became operational during the fiscal year ended January
31, 1988. The Company's first year of full operation was the
fiscal year ended January 31, 1989. In May of 1990, the Company
changed its fiscal year end from January 31 to December 31. A
full 12 months of underwriting activity are reflected in the
financial statements for all periods presented. The results of
operations for the 11-month period ended December 31, 1990,
however, include only 11 months' investment income and
administrative expense. Accordingly, results for the 11-month
period ended December 31, 1990 are not fully comparable with
results for full fiscal years.
During the fiscal year ended December 31, 1993, the Company had
net income of $2,704,707 compared to $3,507,214 and $1,920,385
for the fiscal years ended December 31, 1992 and 1991,
respectively. The reduction in net income during 1993 compared
to the previous year is the result primarily of an increase in
losses incurred as discussed below. The Company had earned
premiums of $15,429,611 compared to $13,005,184 and $10,292,788
for the fiscal years ended December 31, 1992 and 1991,
respectively. Increased premium income has been generated by the
addition of 46 new series during the year ended December 31,
1993, and the continuing flow of reinsurance premiums from series
issued in prior fiscal years. There were 189 series of Shares
outstanding at December 31, 1993 compared to 143 and 109 series
of Shares outstanding at December 31, 1992 and 1991,
respectively. Investment income during the period totaled
$2,700,242 compared to $2,522,712 and $1,792,947 for the fiscal
years ended December 31, 1992 and 1991, respectively. These
gains are attributable to an increase in assets under management
which were partially offset by lower interest rates. At present,
the Company's investments are comprised entirely of U.S.-dollar
denominated fixed-income securities. In the future, the Company
may also invest in foreign-denominated bonds in situations where
the investment manager anticipates a higher rate of return (net
of hedging costs) than would be available in the market for
similarly rated U.S.-dollar denominated bonds. (See "Business of
the Company -- Investment Income.")
The Company incurred losses and expenses during the fiscal year
ended December 31, 1993 of $15,425,146 compared with $12,020,682
and $10,165,350 for the fiscal years ended December 31, 1992 and
1991, respectively. This was comprised of provisions for losses
incurred during the period of $10,912,683, ceding commissions and
excise taxes of $4,009,285 and operating expenses of $503,178.
Losses incurred in 1992 and 1991 were $8,164,449 and $7,018,928,
respectively. The ratio of losses incurred to premiums earned
for the fiscal year ended December 31, 1993 was 70.7% compared to
62.8% and 68.2% for the fiscal years ended December 31, 1992 and
1991, respectively. Management believes the Company's increased
loss experience in 1993 reflects the effects of changes in
underlying manufacturer's warranties. The expiration during 1992
of certain unlimited mileage mechanical plans that had been
retroceded to the Company and the elimination of certain
deductibles under warranties for certain 1992 model vehicles had
a favorable impact on 1992 loss experience. On the other hand,
the reduction of warranties from 50,000 to 36,000 miles for
certain 1992 model vehicles adversely affected 1993 losses.
Management does not believe that the level of losses will
continue to rise. The loss ratio in the first quarter of 1994
was 69.8%, as compared to 73.1% for the quarter ended March 31,
1993.
The Company incurred operating expenses during the fiscal year
ended December 31, 1993 of $503,178 compared to $478,475 for the
fiscal year ended December 31, 1992 and $307,301 in 1991. In
1993 and 1992, the Company paid share issuance costs and
allocated such costs to the Subsidiary Capital Account for the
Common Stock. In previous years, these expenses had been paid by
MIC pursuant to an agreement by which MIC agreed to pay the costs
of issuing shares until such costs could be allocated to the
Subsidiary Capital Account for the Common Stock. Share issuance
costs for the fiscal year ended December 31, 1993, which were
paid by the Company and charged to the Subsidiary Capital Account
for the Common Stock, were $74,461 compared to $80,298 for the
fiscal year ended December 31, 1992.
Pursuant to the Retrocession Agreement, the Company must furnish
to MIC collateral in the form of an irrevocable letter of credit
of at least 12 months duration generally equal in amount to the
unearned premium in respect of risks retroceded and unpaid loss
reserves (including reserves for losses incurred but not
reported) otherwise required to be maintained by MIC in respect
of the Policies. As of December 31, 1993, the Company had
furnished such a letter of credit in the amount of $32,250,000.
The Company had unearned premium reserves of $44,657,483 as of
March 31, 1994, $40,413,058 as of December 31, 1993, and
$28,063,606 as of December 31, 1992. These amounts are
attributable to the long-term nature of the contracts sold. Such
contracts may extend for 48 months, 60 months, or 72 months from
date of issue. In addition, the risk of loss to the Company
under the contract arises primarily after the underlying
manufacturer's warranty expires -- usually after 36 months or
36,000 miles, whichever comes first. Because the Company has
little risk of loss during that period, most premium is not
recognized until the expiration of the underlying manufacturer's
warranty. Since very little premium is recognized as earned
until the expiration of the underlying warranty, most of the
premium written in any year is recorded as unearned.
MANAGEMENT
DIRECTORS AND OFFICERS
Five of the current directors of the Company were elected by MIC
through its ownership of the Common Stock. One director was
elected by the holders of the Shares at the Annual Shareholders
Meeting held on April 8, 1994. The directors and officers of the
Company are as follows:
POSITION WITH THE COMPANY
(AND OTHER EMPLOYMENT DURING
NAME AGE PAST FIVE YEARS)
Joseph J. Pero ............ 54 President and Director
(President and Director, MIC).
Mr. Pero has been a Director
since 1986. He served as
Vice-President from 1986 until
1987 when he was appointed
President.
Vincent K. Quinn .......... 63 Executive Vice-President and
Director (Executive
Vice-President and Director,
MIC).
Mr. Quinn has been a Director
since 1986. He was appointed
Executive Vice-President in
April of 1992.
Louis S. Carrio, Jr. ...... 50 Vice-President and Director
(Vice-President, MIC).
Mr. Carrio became a Director
and was appointed Vice-
President in June of 1991.
Peter R. P. Evelyn ........ 52 Director (Attorney, Evelyn,
Gittens & Farmer, a Barbados
law firm).
Mr. Evelyn has been a Director
since 1986.
Donald C. Mealey........... 58 Director (President, Don
Mealey Chevrolet, Inc.).
Mr. Mealey became a Director
in April of 1994.
Ronald W. Jones ........... 41 Vice-President, Finance
(Managing Director, Alexander
Insurance Managers (Barbados)
Ltd.).
Mr. Jones has served as Vice-
President, Finance since 1987.
Michael R. Boyce ........... 54 Secretary (Principal,
Colybrand Company Services,
Limited, Barbados, since 1993;
previously principal, Price
Waterhouse, Eastern
Caribbean).
Mr. Boyce was elected
Secretary in 1994. Mr. Boyce
served previously as Assistant
Secretary to the Company.
The directors and officers named above serve in those capacities
until the annual meeting of shareholders next following their
election.
ALTERNATE DIRECTORS
The By-Laws allow for the election of an alternate director for
each director. The holders of the Common Stock may elect up to
five alternate directors and the holders of the Shares may elect
one alternate director. An alternate director may attend
meetings of directors and vote in respect of any matter presented
if the director for whom he is an alternate is not present.
Alternate directors shall not otherwise be deemed directors of
the Company for any purpose. At the Annual Shareholders Meeting
held on April 8, 1994, alternate directors were elected for
Messrs. Quinn and Carrio.
COMMITTEES OF THE BOARD
The By-Laws authorize the Board to delegate any of its powers to
committees of two or more directors. The only currently existing
committee of the Board is the Nominating Committee which consists
of three directors, including one elected by the holders of
Shares and two elected by the holders of the Common Stock. The
duties of the Nominating Committee are limited to the nomination
of one person, who may not be an incumbent director but may be an
incumbent alternate director, to stand for election as a director
representing the holders of Shares at the next following annual
meeting and the nomination of one person, who may not be an
incumbent director, to stand for election as an alternate
director by the holders of Shares at the next following annual
meeting.
REMUNERATION
No director or officer of the Company is compensated directly by
the Company for his services as such. However, each director and
officer of the Company is reimbursed for expenses incurred for
attendance at Board, committee, and shareholder meetings. In
addition, Mr. Jones is an officer of the Manager, which receives
management fees and compensation for data processing services;
Mr. Evelyn is a member of the law firm of Evelyn, Gittens &
Farmer, which serves as the Company's Barbados counsel; and Mr.
Boyce is affiliated with Colybrand Company Services Limited, St.
Michael, Barbados, which provides corporate secretarial services
to the Company.
PRINCIPAL SHAREHOLDER
MIC owns all of the issued and outstanding shares of the Common
Stock of the Company, which consist of 2,000 shares. Donald C.
Mealey, a director, owns 140 shares in three series of
Participating Stock.
DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized to issue 2,000 shares of
Common Stock, without nominal or par value per share, all of
which have been issued to MIC and are outstanding. In addition,
the Company is currently authorized to issue 100,000 shares of
Participating Stock (the "Shares"), also without nominal or par
value per share (collectively, the Shares and the Common Stock
are referred to as the "Capital Stock"). The Shares are issued
in series of 100 shares. As of March 31, 1994, 19,900 Shares
representing 199 series had been issued and were outstanding and
were held of record by 338 shareholders. Subsequently three
series totalling 300 shares were redeemed due to unsatisfactory
performance. All of the Capital Stock is, when issued and
outstanding, fully paid and nonassessable. No shares of Capital
Stock have conversion, preemptive or sinking-fund rights.
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company has established a Subsidiary Capital Account with
respect to the Common Stock as a class, and establishes such an
account with respect to each series of Shares at the time a
series is issued. Subsidiary Capital Accounts are maintained
solely for the purpose of the allocations described below, and do
not serve any other legal or accounting function. None of the
Company's assets are segregated or earmarked with respect to
those accounts.
The consideration received by the Company upon the issuance of a
particular series of Shares and the Common Stock as a class are
allocated to the Subsidiary Capital Account for that series or
class. Items of income and expense, and losses, attributable to
insurance underwriting activities are determined and allocated to
the Subsidiary Capital Accounts as of the end of each quarter.
Investment experience, and other items of income and expense,
gains and losses and distributions with respect to the Capital
Stock, are determined and allocated to the Subsidiary Capital
Accounts as of the end of each quarter. All such accounting
determinations are made using United States generally accepted
accounting principles, unless otherwise required by the Articles.
For purposes of the following discussion, items shall be
"related" to the Subsidiary Capital Account for the series
identified with the MIC Agency Account to which such items can be
attributed.
(1) Allocations with respect to underwriting activities are made
as follows:
(a) With respect to premiums ceded by MIC to the Company,
100% to the related Subsidiary Capital Account;
provided, however, that an amount equal to 1-1/3% of
those premiums, net of related ceding commissions, are
subtracted from such Subsidiary Capital Account and
allocated to the Subsidiary Capital Account for the
Common Stock.
(b) With respect to any agents' or brokers' commissions,
commissions recaptured, unearned premiums, reinsurance
premiums ceded, and any United States excise tax, 100%
to the related Subsidiary Capital Account.
(c) With respect to losses incurred, and any amount of
losses recovered through salvage, subrogation,
reimbursement or otherwise,
(i) Ninety percent (90%) to the related Subsidiary
Capital Account; and
(ii) The remainder among all Subsidiary Capital
Accounts of the Shares pro rata in accordance with
the relative earned premiums attributable to those
accounts for the calendar quarter in which the
losses are incurred.
(d) With respect to return premiums, 98-2/3% to the related
Subsidiary Capital Account and 1-1/3% to the Subsidiary
Capital Account for the Common Stock.
(2) Any expenses or liabilities attributable to day-to-day
Company operations, excluding any United States Federal
income taxes, are allocated among all Subsidiary Capital
Accounts for the Shares pro rata in accordance with the
relative earned premiums allocated to those accounts for the
quarter in which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any
interest thereon or any penalties related thereto) is
allocated among the Subsidiary Capital Accounts based upon
the relative contribution of each of those accounts to the
taxable income of the Company upon which the tax (or any
interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the sale and
issuance of Shares, including but not limited to the costs
of compliance with regulations and requirements of the
Securities and Exchange Commission and state securities laws
(but not including ongoing periodic reporting costs), are
allocated to the Subsidiary Capital Account for the Common
Stock; however, MIC may undertake to pay such expenses.
(5) Any expenses or liabilities of the Company not allocable in
the manner described in paragraphs 2 through 4 above are
allocated among the Subsidiary Capital Accounts on the basis
of the relative balances of those accounts as of the end of
the quarter preceding the date on which the expense or
liability is incurred.
(6) (a) Investment income, net of any direct investment
expense, is allocated among the Subsidiary Capital
Accounts pro rata based upon the relative Investment
Asset Balance (as defined in subparagraph (b) below) of
each of those accounts as of the last day of the
quarter preceding the quarter for which the investment
income is being allocated. For these purposes, net
investment income includes realized (but not
unrealized) gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital
Account is equal to the capital and surplus of each
account, increased by:
(i) the unearned portions of the written premiums that
have been collected by the Company attributable to
those accounts as of the last day of the quarter
preceding the quarter for which the income is
being allocated, net of any applicable commissions
and taxes;
(ii) the outstanding loss reserves attributable to each
of those accounts as of the last day of the
quarter preceding the quarter for which the income
is being allocated; and
(iii) any other outstanding liability that has been
charged to the account as of the last day of
the quarter preceding the quarter or which
the income is being allocated.
(7) (a) If, after the credits and charges described in
paragraphs 1-6 above are made to the Subsidiary Capital
Accounts there exists a deficit in one or more of the
accounts, then each such deficit is allocated to and
charged against:
(i) first, the Subsidiary Capital Account for the
Common Stock to the extent of Restricted Earned
Surplus (the phrase "Restricted Earned Surplus"
refers to the portion of the earned surplus, if
any, in the Subsidiary Capital Account for the
Common Stock equal to that 1-1/3% of the premiums
ceded to the Company during the immediately
preceding five-year period which was subtracted
from the Subsidiary Capital Accounts for the
Shares pursuant to paragraph 1(a) above, net of
losses allocated to that account during such
period pursuant to the allocation procedure
described in this paragraph 7 and net of return
premiums allocated to that Account during such
period pursuant to the allocation procedure
described in paragraph (1)(d) above);
(ii) then, the Subsidiary Capital Accounts for the
Shares, pro rata, based upon the relative earned
premiums allocated to each such account for the
quarter for which the allocation is being made,
provided, however, that only accounts which have
positive balances are taken into account for
purposes of this allocation;
(iii) then, the remaining Subsidiary Capital Accounts
for the Shares with positive balances as of the
last day of the quarter for which the allocation
is being made, pro rata, based upon such balances;
and
(iv) then, to the extent necessary, the Subsidiary
Capital Account for the Common Stock.
(b) If, as a result of an allocation of a deficit as
described in subparagraph (ii) or (iii) of paragraph
(a) above, a deficit is created in one or more of the
Subsidiary Capital Accounts, then the resulting
deficit(s) are further allocated in the manner provided
in that subparagraph before applying a subsequent
subparagraph.
(c) Notwithstanding the foregoing, if any Subsidiary
Capital Account for a series of Shares had a deficit
that was allocated to and charged against the
Restricted Earned Surplus, then at the end of any
succeeding quarter for which that account otherwise
would show an account balance greater than zero, the
balance is reallocated to the Restricted Earned Surplus
until all reductions of that surplus attributable to
that Subsidiary Capital Account have been restored.
Thus, a loss in a Subsidiary Capital Account which
exceeds the balance in that account is absorbed by
other Subsidiary Capital Accounts, in general, as
follows: The amount of such excess losses is charged
first to the Restricted Earned Surplus portion of the
Subsidiary Capital Account of the Common Stock. Any
remaining losses, should the Restricted Earned Surplus
be exhausted, are allocated among the Subsidiary
Capital Accounts of other participating series. Any
then unabsorbed losses are charged to the Subsidiary
Capital Account of the Common Stock.
Funds drawn from the Restricted Earned Surplus in the
manner described above must be restored from the
Subsidiary Capital Account that drew the funds if at
any time it returns to a positive balance. Funds drawn
from the Subsidiary Capital Accounts of other series
are not, however, restored.
(8) (a) Dividends, payments upon redemption or liquidation
(described below), and any other distributions with
respect to the Capital Stock are allocated to the
Subsidiary Capital Account for the class or series with
respect to which the dividend, payment or distribution
was made.
(b) Where all Shares of a series are repurchased by the
Company pursuant to its right of first refusal or
redeemed in accordance with the Company's procedures
for redemption, the Subsidiary Capital Account for that
series is terminated. Thereafter, all income,
expenses, gains and losses that would have been
allocated to the terminated account, will be allocated
among the Subsidiary Capital Accounts of the existing
series of Shares pro rata based upon relative earned
premiums attributable to such accounts for the calendar
quarter in which the item was earned or incurred;
provided, however, that a net deficit for any such
period shall be allocated in accordance with the
provisions described above
Using the procedures described above, the Company has allocated
items of gain and loss to the Subsidiary Capital Account for each
series. Initially each Account had a balance of $7,500
representing the amount paid for the Shares of that series.
During the fiscal year ended December 31, 1993, $507,643 of net
underwriting gains were allocated among the 189 series of Shares
outstanding as of December 31, 1993 and $2,700,242 of net
investment income and $503,178 of administrative expenses were
allocated among the 189 series of Shares outstanding as of
December 31, 1993 and the Common Stock.
As of December 31, 1993, 163 such series had balances greater
than $7,500 (ranging from $7,537 to $187,718) and 26 series had
balances less than $7,500 (ranging from $6,904 to zero). (It
should be noted that the amounts in the Subsidiary Capital
Accounts can fluctuate substantially and therefore may not be
indicative of future results.) At December 31, 1993, an
aggregate of $901,758 had been advanced from the Restricted
Earned Surplus (which forms a portion of the Account established
for the Common Stock owned by MIC) to 15 Subsidiary Capital
Accounts and remained outstanding at that date. Aggregate
deficits reallocated among the Subsidiary Capital Accounts of the
Shares through December 31, 1993 were $369,711.
The Subsidiary Capital Account for the Common Stock had, at the
time it was established, a balance of approximately $200,000,
representing the capital paid in by MIC for the 2,000 shares of
the Common Stock issued to it. That Subsidiary Capital Account
is not affected directly by underwriting gains and losses
attributable to the various Subsidiary Capital Accounts related
to series of Shares, but is affected by those gains and losses
indirectly to the extent that one of the Subsidiary Capital
Accounts for a series of Shares incurs a deficit, in which case
resort to the Subsidiary Capital Account for the Common Stock
will result, in the manner described above.
The allocations of income and expense, gains and losses, and
distributions described above are subject to approval by the
Board, and when finally so approved are considered final and
conclusive and will be binding on all holders of Shares for all
purposes including without limitation any redemption of Shares
pursuant to the Company's procedures for redemption. (See
"Description of Capital Stock -- Redemption.")
The Company is currently in compliance with net asset value
requirements of Barbados insurance law. However, in the event
that the Company is unable to comply with such requirements in
the future, it has the right to reduce the business related to a
Subsidiary Capital Account by retrocession or any other means to
the extent necessary to permit the Subsidiary Capital Account to
meet its pro rata share of the Company's required capital and
surplus.
VOTING RIGHTS
Subject to the following, holders of Capital Stock are entitled
to one vote for each share held on any question on which the
holder is entitled to vote. The matters on which holders of
Capital Stock are entitled to vote, and the relative voting
rights of each class of stock, are set forth below.
Election of Directors. The holders of Shares as a class are
entitled to elect one director of the Company and one alternate
director, and the holders of Common Stock as a class are entitled
to elect five directors and up to five alternate directors. At
least one of the directors must be resident in Barbados.
Cumulative voting is not permitted.
Proxies. Any shareholder of the Company may appoint another
person as his or her proxy to act on behalf of the appointing
shareholder at any annual meeting of the Company. The
appointment of a person as proxy for a shareholder must be in
writing.
Liquidation. The Company may be liquidated upon the vote of at
least 75% of the outstanding Shares. (See "Description of
Capital Stock -- Redemption," and "Description of Capital Stock
- -- Liquidation.")
Changes in Articles and By-Laws. No change may be made in the
Articles or By-Laws unless a majority of the Shares, and a
majority of the Common Stock, present in person or by proxy and
voting at a meeting at which a vote on that issue is put forth
for a vote, approve the change. In addition, no amendment may
vary the rights associated with any one series unless either the
rights associated with all other series are similarly changed or
a majority of the holders of the Shares of each series present in
person or by proxy at a meeting vote in favor of the amendment.
Other Matters. Any matters other than those described above
which call for a shareholder vote require only approval by a
majority of the outstanding shares of Common Stock.
REDEMPTION
Pursuant to the Articles, the Capital Stock may be redeemed as
follows: The Company may redeem outstanding Shares of a series
at any time for any reason if the redemption of such Shares is
approved by a majority of the Board of Directors, provided that
the Director representing the Shares must vote in favor of the
action being taken. The Common Stock is nonredeemable in all
circumstances.
A redemption of Shares is effective as of the date specified by
the Board of Directors but no later than the end of the calendar
year in which the redemption was approved by the Board. This
date is referred to hereinafter as the "Redemption Date." The
consideration payable to the holders of redeemed shares of
Capital Stock will be the Subsidiary Capital Account balance
("Account Balance") of those shares as of the Redemption Date, as
adjusted by the Board to reflect unrealized gains and losses on
investments held by the Company and any contingent liabilities
allocable to such account. Each holder of redeemed Shares will
receive the pro rata portion of the Account Balance that
corresponds to the proportionate number of Shares of the series
owned. The Account Balance will be paid within five months of
the Redemption Date and bear interest from the Redemption Date
until the date of payment at a rate equal to the yield on 26-week
U.S. Treasury Bills for the issue immediately following the
Redemption Date.
Upon the redemption of Shares on the Redemption Date, the
redeemed Shares will be cancelled and the holders thereof will no
longer have any interest in the Shares redeemed or in the
Subsidiary Capital Account with respect to the redeemed Shares.
LIQUIDATION
Subject to Barbados regulatory and judicial approvals, the
Company may be liquidated upon the vote of 75% of the
outstanding Shares. (See "Description of Capital Stock --
Redemption.") In the event of the liquidation of the Company,
after payment of all liabilities of the Company, each holder of
Shares of a series is entitled to receive his pro rata share of
his respective Account Balance before any distribution of the
assets of the Company is made to the holder(s) of Common Stock.
Thereafter, the holders of Shares are not entitled to participate
further in the distribution of the assets of the Company. Each
holder of Common Stock will be entitled to receive his pro rata
share of the remaining assets of the Company, if any.
RESTRICTIONS ON TRANSFER
There is no existing public market for the Shares, and it is not
anticipated that one will develop in the future. In addition,
the Articles set forth a number of restrictions on the manner in
which the Shares may be transferred. These restrictions and
certain exceptions thereto are described below.
Transfers of Less Than All Shares of a Series. Subject to the
exceptions described below, transfers of less than all Shares of
a series may not be made unless the transfer is to the Company,
or the holder(s) of the Shares sought to be transferred has
received the written consent of the Company. A request for
consent must be made in writing and set forth the name(s) and
address(es) of the intended transferee(s), the desired date of
the transfer and the consideration to be paid. No transfer may
otherwise be made by a shareholder of less than all of the Shares
of a particular series that he owns. If the Company fails to
give its written consent, any subsequent transfer is void and of
no effect.
Right of First Refusal. Subject to the exceptions described
below, transfers of Shares of a series may not in any event be
made unless the holder(s) has received a bona fide written offer
to purchase such Shares, a copy of that offer has been furnished
to the Company, and the Company is thereafter offered the
opportunity to purchase the Shares. The Company will have 60
days during which to exercise its right to purchase the Shares
sought to be transferred. If the Company accepts the offer to
purchase, the price will be the lesser of the Account Balance for
the series of Shares sought to be transferred as of the last day
of the quarter immediately preceding the date on which the offer
to
purchase was accepted by the Company, or the bona fide offering
price. A purchase made by the Company pursuant to this "right of
first refusal" will be deemed effective upon acceptance by the
Company of the offer to purchase, although payment by the Company
may be deferred until the end of the quarter in which the offer
to purchase is accepted by the Company. Shares purchased by the
Company pursuant to its right of first refusal will be cancelled.
Exceptions for Certain Transfers. A transfer of either all or a
portion of the Shares of a series is not subject to either the
consent or right of first refusal of the Company where the Board
determines that the transferee of the shares is: (1) a member of
the transferring shareholder's immediate family; (2) a trust for
the benefit of the transferring shareholder or for the benefit of
other exempted transferees described in this paragraph; (3) if
the transferor is a corporation, any of its shareholders; (4) if
the transferor is a partnership, any of its partners; (5) a
corporation which is controlled by or under common control with
the transferor; (6) the estate of a deceased shareholder and
legatees or heirs of a deceased shareholder; (7) a charitable or
other qualifying organization described in section 170(c)(2) of
the United States Internal Revenue Code of 1986, or any successor
provision thereto; (8) in the case of a transfer of less than all
the Shares of a series, a person who immediately prior to such
transfer is a holder of Shares of that series; or (9) a key
employe of an owner of a Franchise previously designated in the
Stock Purchase Agreement entered into by the transferor.
Provisions Applicable to All Transfers. No Shares may be
transferred unless and until the Board has received, from the
holder of the Shares sought to be transferred, assurances of
compliance with all applicable laws and regulations. Further,
transferees of Shares must agree to abide by the requirements set
forth in the Stock Purchase Agreement entered into by the
transferor.
Certificates representing the Shares will bear a legend noting
the applicable limitations on transfers.
COMMON STOCK
On June 13, 1986 and January 16, 1987, the Company issued to MIC
1,250 shares and 750 shares, respectively, of Common Stock of the
Company, without nominal or par value.
A Subsidiary Capital Account has been established for this class
of stock, and allocations of various items to such account are
described above. (See "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts.")
Holders of Common Stock as a class are entitled to elect five
directors, at least one of whom must be resident in Barbados, and
up to five alternate directors. As a class, these holders
generally have the sole right to vote on matters not specifically
reserved to the Shares. (See "Description of Capital Stock --
Voting Rights.")
BARBADOS CORPORATE LAW PROVISIONS
The corporate law of Barbados was derived historically from that
of England prior to the coming into force in 1985 of the
Companies Act Cap. 308 of the Laws of Barbados, which is similar
to the Canada Corporations Act. Barbados law may differ in
certain respects from comparable law in the United States. The
following is a summary of certain provisions of Barbados
corporate law as prepared by Evelyn, Gittens & Farmer, the
Company's Barbados counsel. The summary does not purport to
contain all applicable provisions and does not purport to be
complete or cover all respects in which Barbados corporate law
may differ from laws generally applicable to United States
corporations and their shareholders.
Dividends and Distributions. Under Barbados law, a company may
pay dividends only if there are reasonable grounds for believing
that (a) the company would be able, after the payment of the
dividends, to pay its liabilities as they become due, and (b) the
realizable value of the company's assets would be greater than
the aggregate of its liabilities and stated capital of all
classes. Dividends may not be paid out of unrealized gains.
Repurchase. The Company is authorized by the Articles, subject
to certain approvals, to repurchase its own shares. Such
purchases may only be effected if the Company can satisfy a
similar solvency test as that described above under "Dividends
and Distributions."
Shareholders' Remedies. Barbados corporate law contains wide
protection for minority shareholders and investors generally. A
statutory right of action is conferred on subscribers to shares
of a Barbados company against the directors and officers
responsible for the issue of a prospectus, in respect of damages
suffered by reason of untrue statements therein. In addition,
the Company may take action against directors and officers for
breach of their statutory duty to act honestly and in good faith
with a view to the best interests of the Company.
Enforcement of United States Judgments. Except as mentioned
below, a judgment of a court in the United States, under which a
sum of money is payable, will under most circumstances be
enforced as a debt by the courts of Barbados without
reexamination of the merits of the case. This will not apply
where the judgment is for payment of taxes, fines or penalties.
There is also doubt as to whether a Barbados court would enforce
judgments of United States courts obtained against the Company,
or its directors and officers resident in Barbados, predicated on
the civil liability provisions of the 1933 Act or, in original
actions, impose liabilities against the Company or such persons
predicated upon that Act.
Indemnification. The By-Laws of the Company provide for the
indemnification of its directors and officers against liabilities
incurred in their capacities as such, but the indemnity does not
extend to any liability incurred in respect of wilful negligence,
wilful default, fraud or dishonesty in relation to the Company.
Inspection of Corporate Records. Shareholders have the right to
inspect and copy the Articles and By-Laws, corporate register,
security register, minutes of shareholders meetings, any
unanimous shareholder agreement, as well as audited financial
statements of the Company, which must be presented to the annual
meeting of shareholders.
PLAN OF DISTRIBUTION
The Shares are being offered by full-time employes of MIC or its
affiliates ("Salespersons") who have other duties in connection
with the business of MIC or its affiliates and who are not
engaged in the sale of securities other than those of the Company
and MIC Life Reinsurance Company, Limited. Salespersons receive
no commissions or other compensation related directly to their
sale of the Shares. In addition, MIC receives no compensation in
connection with its distribution of the Shares. Salespersons are
licensed as agents of MIC in certain states in which they offer
the Shares for sale and their activities in selling the Shares
are subject to the regulation of state securities regulators.
All sales of the Shares are subject to approval by the Company.
(See "Eligibility to Purchase the Shares.")
PURCHASE PROCEDURES
In order to purchase the Shares, the following documents must be
sent to the Company in Barbados:
(1) two duly executed Stock Purchase Agreements (see Appendix
B);
(2) all necessary certifications of the eligibility of
prospective purchasers by the owner(s) of the Franchise(s)
related to the MIC Agency Account with respect to which the
Shares will be issued (see "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts," and Appendix
C); and
(3) a certified or cashier's check payable to "Motors Mechanical
Reinsurance Company, Limited -- Escrow Account" in the
amount of the aggregate cost of the Shares to be purchased,
based on the offering price of $75.00 per Share ("Purchase
Payment").
NONE OF THE FOREGOING DOCUMENTS IS TO BE EXECUTED OR DELIVERED
UNTIL AFTER A FINAL PROSPECTUS HAS BEEN DELIVERED TO THE OFFEREE.
Once it is executed by a prospective purchaser, a Stock Purchase
Agreement is, in effect, an offer to purchase the Shares
described therein. That offer will be deemed accepted only if
the Company approves the offer and executes the agreement. (See
"Plan of Distribution--Conditions of Sale.")
Following execution of the Stock Purchase Agreement by the
Company, the prospective purchaser has no right to withdraw the
amount of the purchase Payment or any interest earned thereon.
Amounts remain in the Escrow Account pending satisfaction of the
conditions set forth below under "Conditions of Sale."
TERMS OF SALE
Shares are sold only to eligible purchasers who have executed a
Stock Purchase Agreement and returned it to the Company. Shares
must be purchased by series, although more than one person may
buy the Shares of one series. Pursuant to the Stock Purchase
Agreement, the purchaser must accept and agree to be bound by the
Articles and By-Laws of the Company, including the restrictions
on transfer. (See "Description of Capital Stock -- Restrictions
on Transfer.") The Stock Purchase Agreement further provides
that the Company may place on a certificate issued with respect
to Shares a legend stating that the transfer or other disposition
of the Shares evidenced thereby is restricted pursuant to the
Articles and By-Laws.
Once it is accepted by the Company, a Stock Purchase Agreement
remains in effect as long as the Shares purchased pursuant
thereto remain outstanding. A Stock Purchase Agreement
terminates only upon the redemption of the Shares or the
liquidation of the Company. Upon a transfer of Shares, the
transferor is relieved of all restrictions and obligations under
the Stock Purchase Agreement which the transferor had entered
into upon the purchase of those Shares and the transferee, as a
condition of the transfer, is required to agree to abide by all
of the provisions of the Stock Purchase Agreement.
CONDITIONS OF SALE
The Company maintains an Escrow Account at Barclays Bank PLC in
Bridgetown, Barbados (the "Escrow Account"), into which checks
from prospective purchasers are deposited pending satisfaction of
the conditions described below. This account bears interest at
prevailing rates but is not subject to investment guidelines
discussed above. (See "Business of the Company -- Investment
Income.") If the conditions are not satisfied, the Purchase
Payment is returned together with any interest earned.
Approval of Purchase. Each purchase of Shares must be accepted
by the Company within 120 days from the date of execution of the
Stock Purchase Agreement by the Purchaser. If the Company
determines to accept an offer to purchase Shares from an Eligible
Purchaser, it executes both copies of the Stock Purchase
Agreement remitted by such person and returns one copy to such
person. If it determines not to approve an offer to purchase, it
returns the Stock Purchase Agreement without having executed it.
Pending approval of offers, each check for the purchase of Shares
(which ordinarily is received together with a Stock Purchase
Agreement) is deposited in the Escrow Account. If a request to
purchase is approved, Shares are issued and the Eligible
Purchaser receives a certificate evidencing ownership of the
Shares. Where the Company determines not to approve a sale of
Shares to a prospective purchaser, the Purchase Payment is
returned, together with any interest earned thereon. The Company
has the right to reject any prospective purchaser for any reason
whatsoever.
TERMINATION OF OFFERING
Unless terminated sooner by the Board, this offering will
terminate on the date on which all of the Shares offered hereby
have been sold.
UNITED STATES FEDERAL TAX CONSIDERATIONS
It is impractical to comment here on all aspects of the Federal,
state, and local tax laws that may affect the United States
taxation of the Company and its shareholders. The following is a
discussion, based on the facts set forth herein and existing law,
of the material Federal tax consequences which, in the opinion of
the Company's U.S. tax counsel, LeBoeuf, Lamb, Greene & MacRae,
are associated with an investment in the Company.
United States taxation of the Company and its shareholders
involves a number of complex questions of fact and law with
respect to some of which there is no statutory, administrative,
or judicial authority directly on point. Advance rulings on
these questions have not been requested by the Company from the
Internal Revenue Service (the "Service") and, at least as to
certain matters, there is no assurance that favorable rulings
could be obtained. There is also no assurance that the laws in
existence as of the date of this Prospectus will not be modified
so as to alter the tax consequences described below.
This 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. EACH PROSPECTIVE INVESTOR IN THE
COMPANY SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE
TAX IMPLICATIONS OF HIS OR HER INVESTMENT IN THE COMPANY.
UNITED STATES -- BARBADOS INCOME TAX TREATY
The United States and Barbados have entered into an income tax
treaty (the "Treaty") that offers certain tax benefits (some of
which are discussed below) to those persons who qualify for its
protection. As a Barbados corporation that ultimately is owned
more than 50% by U.S. persons, the Company is entitled to the
benefits of the Treaty provided that it is "resident" (that is,
"managed and controlled") in Barbados. The Company attempts to
conduct its business in such a manner that it will be considered
to be "managed and controlled" in Barbados in order to qualify
for the benefits of the Treaty. As discussed below, legislation
has eliminated the premium excise tax exemption under the Treaty.
(See "United States Federal Tax Considerations -- United States
Premium Excise Tax.")
UNITED STATES PREMIUM EXCISE TAX
The United States imposes an excise tax at the rate of one
percent of the gross premiums paid to foreign insurance companies
for reinsurance covering risks located within the United States.
Reinsurance premiums paid to the Company are subject to this
excise tax. Although there have been legislative proposals from
time to time that would increase the rate of excise tax on
reinsurance premiums from one to four percent, in recent trade
negotiations (NAFTA and GATT) the U.S. has indicated agreement
not to raise its tax on reinsurance premiums paid to foreign
companies, and legislative action has become less likely.
UNITED STATES FEDERAL INCOME TAX RISKS AND CONSEQUENCES -- THE
COMPANY
Risks and Consequences of Carrying on a United States Reinsurance
Business Through a Permanent Establishment. As a "resident" of
Barbados, if the Company engages in business within the United
States through a permanent establishment, it will be subject to
United States Federal income tax at normal corporate tax rates on
its business profits that are attributable to such permanent
establishment. Insofar as is relevant hereto, all of the
Company's underwriting income and investment income (such as
dividends and interest) generally would be treated as business
profits attributable to such a permanent establishment. In
addition, a Barbadian resident corporation engaged in business in
the United States through a permanent establishment would be
subject to a branch-level tax at the rate of 5% (reduced by the
Treaty from a 30% statutory rate that would apply generally to
foreign corporations engaged in business in the United States) on
its after-tax earnings attributable to its United States
permanent establishment that are considered remitted to the head
office of the corporation.
All relevant facts and circumstances must be taken into account
in any particular case in determining whether a person is engaged
in business within the United States and, if so, whether the
business is carried on through a permanent establishment within
the meaning of the Treaty. Under the Treaty, the activities of
both dependent and independent agents in some circumstances may
be deemed to create a permanent establishment of the principal
that they represent. As discussed elsewhere herein, the Company
conducts reinsurance business in Barbados and in that regard
executes and administers its reinsurance agreements and manages
its business affairs from Barbados. On this basis, the Company
believes that it should not be deemed to be engaged in business
within the United States through a permanent establishment, and
therefore the Company believes it should not be subject to United
States income tax. However, given the factual nature of the
questions involved and certain aspects of the Company's treaty
reinsurance program related to the United States, and given the
absence of any clear legal interpretation of the application of
the agency provisions of the permanent establishment standard
under the circumstances, there can be no assurance that for tax
purposes the Company ultimately will not be deemed to be engaged
in business within the United States through a permanent
establishment.
United States Withholding Tax Applicable to Certain Investment
Income Not Attributable to a United States Permanent
Establishment. If the Company does not engage in business within
the United States through a permanent establishment, it generally
will be subject to a United States withholding tax on interest,
dividends, and certain other investment income derived from
sources within the United States. (The 30% rate of United States
withholding tax provided by statute is reduced by the Treaty to
5% in the case of interest and 15% in the case of dividends
derived from portfolio investments.) An exemption from the
United States withholding tax is provided for interest earned on
amounts on deposit in a bank, savings and loan association, or
insurance company, and interest income, termed "portfolio
interest," on certain debt obligations of United States issuers.
Although the Company could, in the circumstances described above,
invest its funds in the United States without incurring a
withholding tax, the Company currently invests its funds outside
of the United States. (See "Business of the Company --
Investment Income.")
Reallocations By Internal Revenue Service. Under section 482 of
the Internal Revenue Code (the "Code"), the Service may allocate
gross income, deductions, and credits between or among two or
more businesses, owned or controlled directly or indirectly by
the same interests, in order to prevent evasion of taxes or to
reflect clearly the true taxable income of such businesses. As
described elsewhere herein, MIC elects five of the Company's six
directors through its ownership of all of the Company's issued
and outstanding Common Stock. Thus, if transactions between MIC
and the Company were determined not to reflect the true taxable
income of the parties, a reallocation of income or deductions
between such entities could result. However, as long as the
transactions between MIC and the Company are conducted on an
"arm's-length" basis in a manner consistent with industry
standards and practices, section 482 should not provide a basis
for reallocations by the Service between MIC and the Company.
In addition, section 845 of the Code, adopted as part of the Tax
Reform Act of 1984, grants broad authority to the Service to
adjust items arising under certain reinsurance agreements
(including retrocession agreements), whether or not they involve
related parties. If two or more "related" parties enter into a
reinsurance contract, the Service in general may make any
adjustment necessary to reflect the "proper source and character"
of the taxable income of each such party. The Service also has
broad authority to make proper adjustments where any reinsurance
contract between unrelated parties has a "significant tax
avoidance effect" on any party to the contract.
Because MIC is entitled to elect five of the Company's six
directors, MIC and the Company may be considered "related"
parties within the meaning of section 845 of the Code. To date,
there are no regulations under section 845 of the Code to aid in
its interpretation. However, the legislative history of section
845 suggests that certain types of reinsurance transactions --
such as a coinsurance reinsurance transaction that covers new
business of the ceding company and that allocates expenses and
income items between the ceding company and the reinsurer in the
same proportion as the allocation of the risk reinsured --
generally should not be subject to reallocations or adjustments.
The ongoing quota share Retrocession Agreement between MIC and
the Company, in general, would seem to be similar to such
transactions for which adjustments generally should not be made,
but there is substantial uncertainty at the present time
concerning the scope of section 845.
If the Service were successful in an effort to reallocate to MIC
business retroceded to the Company by MIC, MIC would likely be
subject to tax on such business. Since the Company has no
obligation to indemnify MIC against such adverse tax
consequences, a reallocation of business to MIC should not
directly affect the Company. However, any such reallocation
might contribute to the early termination of the Retrocession
Agreement between MIC and the Company.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES --- THE
SHAREHOLDERS
Taxation of Income of the Company to Shareholders Under Subpart F
of the Code. Under the so-called "Subpart F" provisions
(sections 951-964) of the Code, current United States income tax
is imposed on each United States person who owns stock in any
twenty-five percent (25%) or more U.S.-owned foreign insurance
company with respect to "related person insurance income,"
whatever the degree of ownership of the United States
shareholder. For this purpose, the term "related person
insurance income" means underwriting and investment income of a
foreign insurer attributable to a policy of insurance or
reinsurance with respect to which the insured is a United States
shareholder of the foreign insurer or a person related to such a
shareholder. Under this provision, all of the Company's income
(as determined for tax purposes) will be treated as "related
person insurance income," and, as such, will be passed through
and taxed currently to all of the shareholders of the Company
("Shareholders") under Subpart F of the Code.
The basis of the stock of a Shareholder will be increased by the
amount required to be included in the Shareholder's income with
respect to such stock under Subpart F. Further, a distribution
from earnings and profits of the Company attributable to amounts
that have been included in gross income of the Shareholders under
Subpart F would not be included again in gross income of the
Shareholders but would reduce the adjusted tax basis of the stock
with respect to which the distribution is made. It should be
noted that Subpart F income will be computed for the Company as a
single entity. The amount of Subpart F income attributable to
one series of Shares in these circumstances may be affected by
results with respect to other series. It also should be noted
that the Subpart F income of the Company generally will be
computed under the same rules that govern the computation of
taxable income of domestic property and casualty insurance
companies.
As a result of differences between financial and tax accounting
rules applicable to the computation of income of the Company, the
amount of income subject to pass-through to Shareholders of the
Company for United States tax purposes may in any year differ
from the amount of book income allocable to a Shareholder's
subsidiary capital account. Since the consideration payable to
the holders of a series of Shares upon redemption is based
substantially on book income previously allocated to the Shares
being redeemed, such consideration may not reflect the amount of
income previously passed through and taxed to the holders of
those Shares.
To the extent that the Company were subject to United States
income tax on its business profits, the Shareholders generally
would not be subject to current tax on such profits under Subpart
F, but would be taxed when profits were distributed by the
Company. (See "United States Federal Tax Considerations --
United States Federal Income Tax Consequences -- the Company.")
Risk of Recharacterization of Reinsurance Profits on Business
Retroceded to the Company. As described elsewhere herein, a
portion of the underwriting experience in respect of insurance
business retroceded to the Company is allocated to the series of
Shares issued in respect of the Franchise that is the source of
such business. In this connection, the Service could question
whether profits on such business should be treated as being
related to equity ownership for tax purposes, or whether the
Shares should be treated, in whole or in part, as a means by
which the direct insurer pays additional income to certain of its
business producers or pays return premiums to certain
policyholders, such that the producers or policyholders (rather
than the Shareholders) should be subject to ordinary income tax
on all or some of such profits. Although the issue is not free
from doubt, given, among other things, the significance of the
Shareholders' "at-risk" investment in the Company relative to the
volume of business projected for the Company, the degree of
pooling of risks among all series of Shares, the fact that
distributions with respect to Shares are, subject to certain
"minimum dividends," within the discretion of the Board, and the
vote accompanying each Share, there should be substantial
arguments against the recharacterization of profits with respect
to the Shares.
Deductibility of Premiums Paid By Franchises for Certain
Coverages Reinsured by the Company. As discussed elsewhere
herein, risks arising under mechanical service agreements entered
into with respect to a particular Franchise ultimately may be
retroceded to the Company and allocated in part to a series of
Shares owned by the owner(s) of such Franchise or by persons
closely related to such owner(s). The Service conceivably could
seek to deny any deductions taken by the obligor under the
mechanical service agreements for premiums paid by it with
respect to its obligations ultimately retroceded to the Company,
relying on the theory, developed in cases dealing with
transactions involving wholly-owned insurance companies, that no
insurance risk has been shifted in respect of such premiums.
However, although the matter is not free from doubt, given the
degree of risk pooling within the Company, there should be
substantial arguments in support of the treatment of such
premiums as deductible insurance premiums for tax purposes.
LEGAL MATTERS
The legality of the securities offered hereby is passed upon for
the Company by its Barbados counsel, Evelyn, Gittens & Farmer,
Heritage House, Pinfold Street, Bridgetown, Barbados, West
Indies. LeBoeuf, Lamb, Greene & MacRae, 1875 Connecticut Avenue,
N.W., Washington, D.C. 20009, will advise the Company as to
certain matters pertaining to the laws of the United States.
EXPERTS
The financial statements included elsewhere in this Prospectus
have been audited by Deloitte & Touche, Bridgetown, Barbados,
independent chartered accountants as set forth in their report
included in this Prospectus. Such financial statements have been
so included in this Prospectus in reliance upon such report given
upon the authority of that firm as experts in accounting and
auditing.
The matters of Barbados law referred to in this Prospectus are
set forth in reliance upon the opinion of Evelyn, Gittens &
Farmer and upon their authority as experts in Barbados law.
LeBoeuf, Lamb, Greene & MacRae has passed upon the statements
concerning United States tax laws contained in the discussion
under "United States Federal Tax Considerations," which is
included herein in reliance upon their authority as experts with
respect to such matters.
ADDITIONAL INFORMATION
A registration statement under the 1933 Act has been filed with
the Securities and Exchange Commission, Washington, D.C. (the
"Commission") with respect to the Shares offered hereby. This
Prospectus does not contain all of the information set forth in
such registration statement, certain parts having been omitted
pursuant to the rules and regulations of the Commission. The
omitted information may be examined at the Commission's principal
office at 450 5th Street, N.W., Washington, D.C., or at the
following regional offices: New York City, 26 Federal Plaza, Room
1102; Chicago, 219 South Dearborn Street, Room 1204; and Los
Angeles, 5757 Wilshire Boulevard, Suite 500 East. Copies may be
obtained upon payment of the fees prescribed from the public
reference section of the Commission, Washington, D.C. 20549.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, in
each instance, reference is hereby made to the copy of the
contract or other document filed as an exhibit to the
registration statement, of which this Prospectus is a part, for a
full statement of the provisions, and each such statement in this
Prospectus is qualified in all respects by such reference.
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados
We have audited the accompanying balance sheet of Motors
Mechanical Reinsurance Company, Limited as of December 31, 1993
and 1992 and the related statements of income and retained
earnings and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Motors Mechanical Reinsurance Company, Limited as of December
31, 1993 and 1992 and the results of its operations and its cash
flows for each of the three years in the period ended December
31, 1993 in accordance with the accounting principles generally
accepted in the United States of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
March 11, 1994
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992, AND MARCH 31, 1994
(Expressed in U.S. Dollars)
March 31
December 31 December 31
1994
Notes 1992 1993
(unaudited)
ASSETS
Investments 2(c),3,6$24,382,923$29,882,488$34,903,388
Cash and cash
equivalents 2(c),6 1,710,738 6,788,771 3,043,379
Accrued investment
income 1,115,367 861,190 901,057
Due from ceding
company 2,356,608 2,331,978 3,535,158
Deferred acquisition
costs 2(b) 7,281,854 10,495,20611,599,267
Prepaid expenses 0 0 1,875
Total Assets $36,847,490 $50,359,633$53,984,124
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums 2(b) 28,063,606 40,413,05844,657,483
Loss reserves 2(d) 1,622,855 1,910,030 2,097,239
Accrued liabilities 91,322 107,181 165,573
Total Liabilities 29,777,783 42,430,26946,920,295
COMMITMENTS AND
CONTINGENCIES 6
STOCKHOLDERS' EQUITY
Share capital
Common stock - no par
value;
Authorized - 2,000
shares; issued
and outstanding -
2,000 shares 200,000 200,000 200,000
Participating - no
par value;
Authorized -
100,000 shares;
issued and out-
standing - 18,900
shares at
December 31,
1993 and 14,300
shares at
December 31, 1992 4 1,072,500 1,417,500
1,492,500
1,272,500 1,617,500 1,692,500
Retained earnings 7 5,528,775 6,211,978 6,534,796
Unrealized appreciation
(depreciation) on
investments 3 268,432 99,886(1,163,467)
Total Stockholders' Equity 7,069,707 7,929,364
7,063,829
Total Liabilities and
Stockholders' Equity $36,847,490 $50,359,633$53,984,124
The accompanying notes form an integral part of these financial
statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993,
AND THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Expressed in U.S. Dollars)
Periods Ended
December 31,
Notes 1993 1992
1991
INCOME
Reinsurance
premiums assumed 2(b),5$27,779,063$19,386,455$16,784,405
Increase in
unearned premiums (12,349,452) (6,381,271)(6,491,617)
Premiums earned 15,429,611 13,005,18410,292,788
Investment income:
Interest earned 1,827,955 1,658,430 1,300,603
Realized gains
on investments 872,287 864,282 492,344
Investment income - net 2,700,242 2,522,712
1,792,947
TOTAL INCOME 18,129,853 15,527,89612,085,735
EXPENSES
Acquisition costs 2(b) 4,009,285 3,377,758 2,839,121
Losses paid 10,625,508 7,938,136 6,697,509
Increase in loss
reserves 287,175 226,313 321,419
Administrative expenses 503,178 478,475
307,301
TOTAL EXPENSES 15,425,146 12,020,68210,165,350
NET INCOME 2,704,707 3,507,214 1,920,385
RETAINED EARNINGS,
beginning of period 5,528,775 3,043,266 1,273,198
DIVIDENDS (2,021,504) (1,021,705) (150,317)
RETAINED EARNINGS,
end of period $ 6,211,978 $ 5,528,775$ 3,043,266
Three Month Periods Ended
March 31,
(unaudited)
Notes 1994
1993
INCOME
Reinsurance
premiums assumed 2(b),5 $8,816,331 $5,389,885
Increase in
unearned premiums 4,244,425 1,817,057
Premiums earned 4,571,906 3,572,828
Investment income:
Interest earned 570,692 461,529
Realized gains (losses)
on investments (303,389) 378,444
Investment income - net 267,303 839,973
TOTAL INCOME 4,839,209 4,412,801
EXPENSES
Acquisition costs 2(b) 1,188,209 928,266
Losses paid 3,001,850 2,627,016
Increase (decrease) in
loss reserves 187,209 (15,861)
Administrative expenses 139,123 140,255
TOTAL EXPENSES 4,516,391 3,679,676
NET INCOME 322,818 733,125
RETAINED EARNINGS,
beginning of period 6,211,978 5,528,775
DIVIDENDS 0 0
RETAINED EARNINGS,
end of period $6,534,796 $6,261,900
The accompanying notes form an integral part of these financial
statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993
AND THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(Expressed in U.S. dollars)
Periods Ended December
31,
1993 1992
1991
Cash flows from
operating activities:
Reinsurance premiums collected$26,933,330$17,624,088$14,709,039
Losses and underwriting expenses
paid (16,977,784)(11,898,682)(10,575,830)
Administrative expenses paid (490,616) (429,735) (288,593)
Investment income received 2,957,718 2,302,829
1,542,361
Net cash provided by operating
activities 12,422,648 7,598,500 5,386,977
Cash flows from investing
activities:
Purchases of investment
securities (49,834,608)(60,877,408)(32,306,550)
Sales of investment securities44,166,49752,166,91830,252,467
Net cash invested (5,668,111) (8,710,490)(2,054,083)
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 345,000 255,000 120,000
Dividends paid (2,021,504) (1,021,705) (150,317)
Net cash used in financing
activities (1,676,504) (766,705) (30,317)
Increase (decrease) in cash
and cash equivalents 5,078,033 (1,878,695)3,302,577
Cash and cash equivalents,
beginning of period 1,710,738 3,589,433 286,856
Cash and cash equivalents, end of
period $ 6,788,771 $ 1,710,738$ 3,589,433
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 2,704,707 $ 3,507,214$ 1,920,385
Change in:
Accrued investment income 254,177 (222,446) (277,412)
Due from ceding company 24,630 (653,270)
(1,529,537)
Deferred acquisition costs(3,213,352) (1,662,778)(1,527,217)
Unearned premiums 12,349,452 6,381,271 6,491,617
Loss reserves 287,175 226,313 321,419
Accrued liabilities 15,859 22,196 (12,278)
Net cash provided by operating
activities $12,422,648 $ 7,598,500$ 5,386,977
Three Month Periods
Ended
March 31,
(unaudited)
1994
1993
Cash flows from operating activities:
Reinsurance premiums collected $7,062,145
$6,216,413
Losses and underwriting expenses
paid (4,730,167)
(3,859,806)
Administrative expenses paid (95,553)
(75,302)
Investment income received 227,436
1,333,671
Net cash provided by operating
activities 2,463,861
3,614,976
Cash flows from investing activities:
Purchases of investment securities (25,508,046)
(23,807,944)
Sales and maturities
of investment securities 19,223,793
22,461,238
Net cash invested (6,284,253)
(1,346,706)
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 75,000
52,500
Dividends paid 0
0
Net cash provided by financing
activities 75,000
52,500
Increase (decrease) in cash and cash
equivalents (3,745,392)
2,320,770
Cash and cash equivalents, beginning
of period 6,788,771
1,710,738
Cash and cash equivalents, end of
period $ 3,043,379 $
4,031,508
Reconciliation of net income to
net cash provided by operating
activities:
Net income 322,818
733,125
Change in:
Accrued investment income (39,867)
492,399
Due from ceding company (1,203,180)
995,342
Deferred acquisition costs (1,104,061)
(473,126)
Prepaid expenses (1,875)
(1,875)
Unearned premiums 4,244,425
1,817,057
Loss reserves 187,209
(15,861)
Accrued liabilities 58,392
67,915
Net cash provided by operating
activities $ 2,463,861 $
3,614,976
The accompanying notes form an integral part of these financial
statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 1. OPERATIONS
The Company is incorporated under the laws of Barbados
and is a licensed insurer under the Exempt Insurance
Act, 1983.
All of the common stock of the Company is owned by
Motors Insurance Corporation ("MIC"). MIC is an
indirect wholly-owned subsidiary of General Motors
Corporation. The principal activity of the
Company is the assumption of certain automobile
mechanical breakdown risks arising under insurance
policies reinsured by MIC and attributable to an
MIC Agency Account in respect of which shares of
Participating Stock are issued and outstanding.
All premiums received were derived from MIC.
MIC has agreed that all expenses incurred by or on
behalf of the Company with respect to the issuance of
the Company's Participating Stock will be borne by MIC,
either through charges to its shareholder account in
the Company, or by direct reimbursement.
Note 2. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of Presentation
The financial statements are stated in United States
dollars and are prepared generally in conformity with
accounting principles generally accepted within the
United States of America. Reinsurance premiums assumed
by the Company represent policies ceded by MIC during
the twelve months ended December 31 of each fiscal
year.
(b) Premium Income and Acquisition Costs
Reinsurance premiums are based on the Company assuming
(after ceding commission) 75% of the original policy
premium written by the direct insurer. Of these
reinsurance premiums, 75% is retroceded to the Company
when written and 25% when earned.
Premiums are taken into income on the basis of
quarterly cessions and are related to anticipated loss
exposures. Acquisition costs, consisting of ceding
commissions and excise taxes, are taken into income on
the basis of premiums earned.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)
(c) Investments
Investments are comprised of interest-bearing
marketable securities which are carried at fair value,
based on quoted market prices and dealer quotes
obtained from an external pricing service. Investments
with original maturities of less than 90 days are
classified as cash equivalents. Unrealized
appreciation (depreciation) is included in
stockholders' equity.
Realized gains and losses on the sale of investments
are included as investment income. During 1991, the
basis of determining the cost of securities sold was
changed from the specific identification method to the
average cost method. The effect of the change was not
material.
(d) Loss Reserves
The Company provides for unsettled, reported losses
based on estimates of the final settlement, with an
experience factor added to provide for losses incurred
but not reported. The final settlement may be greater
or less than the amounts provided. Any such
differences, when they become known, are recognized in
current operations.
(e) Taxation
The Company has received an undertaking from the
Barbados Government exempting it from all local income,
profits and capital gains taxes for a period ending
December 31, 2001.
Stockholders who are United States residents are taxed
on their share of the Company's income on a deemed
distribution basis.
(f) Earnings Per Share
No amount has been reported as earnings per share as
the earnings applicable to the Participating
Stockholders vary with the underwriting results of each
series. Retained earnings applicable to the Common
Stockholder include allocated investment income and
operating expenses and amounts restricted for advances
to Participating Stockholders (see Note 7).
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS
The cost and estimated fair value of investments in
debt securities are as follows:
Gross Gross
Estimated
Unrealized Unrealized
Fair
Cost Appreciation Depreciation
Value
March 31, 1994
(unaudited):
Debt securities
issued by
foreign
governments
and their
agencies $18,003,450 $35,891 $471,546$17,567,795
Debt securities
issued by
supra-nationals 15,234,561 6,588 598,742 14,642,407
Corporate
securities 2,828,844 - 135,658 2,693,186
Total $36,066,855 $42,479 $1,205,946$34,903,388
December 31, 1993:
Debt securities
issued by
foreign
governments
and their
agencies $16,327,184 $72,332 $(135,761)$16,263,755
Debt securities
issued by
supra-nationals 7,182,454 103,034 (25,925) 7,259,563
Corporate
securities 6,272,964 109,193 (22,987) 6,359,170
Total $29,782,602 $284,559 $(184,673)$29,882,488
December 31, 1992:
Debt securities
issued by
foreign
governments
and their
agencies $ 14,080,561 $204,554 $(43,057)$14,242,058
Debt securities
issued by
supra-nationals 9,826,630 107,771 (5,087) 9,929,314
Corporate
securities 207,300 4,251 - 211,551
Total $24,114,491 $316,576 $(48,144)$24,382,923
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS (Cont'd)
The cost and estimated fair value of debt securities at
December 31, 1993, by contractual maturity, are shown
below. Expected maturities will differ from
contractual maturities because borrowers may have the
right to call or prepay obligations with or without
call or prepayment penalties.
Estimated
Fair
Cost Value
Due after one year
through five years $15,463,270
$15,575,893
Due after five years
through ten years 14,319,332
14,306,595
$29,782,602
$29,882,488
Proceeds from sales of investments in debt securities
during the years ended December 31, 1993 and 1992 were
$44,166,497 and $52,166,918, respectively. In 1993,
gross gains of $964,613 and gross losses of $92,326
were realized. In 1992, gross gains of $1,008,932 and
gross losses of $144,650 were realized. In 1991, gross
gains of $538,996 and gross losses of $46,652 were
realized.
The following summarizes net unrealized appreciation
(depreciation) on investments:
Balance, December 31, 1990 $ 241,439
Net appreciation 673,848
Balance, December 31, 1991 $ 915,287
Net depreciation (646,855)
Balance, December 31, 1992 $ 268,432
Net depreciation (168,546)
Balance, December 31, 1993 $ 99,886
Net depreciation (unaudited) (1,263,353)
Balance, March 31, 1994
(unaudited) $(1,163,467)
The investment portfolio is comprised of diverse U.S.
dollar-denominated debt securities which do not result
in any concentration in credit risks.
FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" is effective
for years beginning December 15, 1993 and requires that
the Company classify its securities holdings into three
categories (trading, available for sale, and held to
maturity). The Company adopted Statement No. 115
effective January 1, 1994 and classified its securities
portfolio as available for sale. Adoption of the
Statement did not have a material effect on the
Company's financial position and results of operations.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 4. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. An
offering of 26,500 shares of Participating Stock is
being made to persons certified by owners of certain
motor vehicle franchises. The offering consists of 265
series of 100 shares each at a price of $75 per share.
During the quarter ended March 31, 1994, 10 additional
series of 100 shares were added (unaudited). During
1993, 46 additional series of 100 shares of Participat-
ing Stock were issued as compared with 34 and 16 series
for the years ended December 31, 1992 and 1991, respec-
tively.
In the years ended December 31, 1993 and 1992, costs in
the amount of $74,461 and $80,298, respectively, were
incurred in the sale of Participating Stock and were
charged to the account of the Common Stockholder. In
1991, $74,589 of costs incurred in the sale of
Participating Stock were paid by MIC.
The holders of Common Stock as a class are entitled to
elect five directors, at least one of whom must be a
resident of Barbados. They generally have no right to
vote with respect to liquidation of the Company. As a
class, these holders generally have the sole right to
vote on matters not specifically reserved to Partici-
pating Stock. The Common Stock is nonredeemable.
The holders of Participating Stock as a class are
entitled to elect one director. Generally, liquidation
of the Company requires approval by at least 75% of the
outstanding shares of this class. Any redemption of a
series of shares requires a vote of the Board provided
that the director representing holders of the
Participating Stock votes in favor of the redemption.
Any changes in the Company's Articles or By-Laws
requires the approval of a majority of the holders of
Participating Stock present and voting together with a
majority of the holders of Common Stock.
From time to time, funds are held in escrow on account
of Participating Stock applications. Such amounts are
not included in cash and cash equivalents in the
accompanying financial statements. At December 31,
1993 and 1992, there were no amounts held in escrow.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 5. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement, the
Company will receive additional cessions of $13,471,019
($9,354,534 at December 31, 1992) relating to premiums
written by the ceding insurer but unearned at the
respective period ends. The amounts will be received
as the premiums are earned, net of related acquisition
costs.
Note 6. LETTERS OF CREDIT
The Company has provided an irrevocable letter of
credit to MIC, in the sum of $32,250,000 which is
secured by cash equivalents and investments to secure
the amounts recoverable from the Company related to the
business ceded.
Note 7. RETAINED EARNINGS
Items of income or loss and expenses attributable to
insurance underwriting activities are determined as of
the end of each calendar quarter and are allocated to
the Participating Stockholders' capital accounts as of
the end of the fiscal quarter of the Company in which
the respective calendar quarter ends.
An amount equal to 1-1/3 percent of written ceded
premiums (net of related ceding commissions) is
allocated to the capital account of the Common
Stockholder. Such allocations accumulate as restricted
retained earnings and may be used to advance capital to
any Participating Stockholders who incur a deficit in
their capital accounts; any such advances are repayable
out of future profitable operations of the respective
Participating Stockholder. Amounts allocated to the
Common Stockholder, net of advances to Participating
Stockholders are presented in the table below as "net
transfers."
Dividends may be declared and paid at the discretion of
the Company's Board of Directors, except that dividends
may not be paid out of unrealized investment gains.
Barbados law requires that the Company maintain a
minimum capitalization based generally on the amount of
premiums earned in the preceding fiscal year. On
January 1, 1994 the Company's required minimum capital
computed in accordance with Barbados law was
approximately $2,042,961.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 7. RETAINED EARNINGS (Cont'd)
Amounts of retained earnings applicable to the Common
and Participating Stockholders are comprised of the
following:
Common Participating
Total
Balance, December 31, 1990 $14,944 $1,258,254 $1,273,198
Net income for the year 23,911 1,896,474 1,920,385
Net transfers 38,702 (38,702) -
Dividends paid - (150,317) (150,317)
Balance, December 31, 1991 77,557 2,965,709 3,043,266
Net income (loss) for the year(42,631) 3,549,845 3,507,214
Net transfers 173,954 (173,954) -
Dividends paid - (1,021,705) (1,021,705)
Balance, December 31, 1992 208,880 5,319,895 5,528,775
Net income (loss) for the year(41,909) 2,746,616 2,704,707
Net transfers (175,245) 175,245 -
Dividends paid - (2,021,504) (2,021,504)
Balance (Deficit),
December 31, 1993 (8,274) 6,220,252 6,211,978
Net income (loss) for the
quarter ended March 31, 1994
(unaudited) (27,055) 349,873 322,818
Net transfers for the quarter
ended March 31, 1994
(unaudited) (104,396) 104,396 -
Balance (deficit),
March 31, 1994 (unaudited)$ (139,725)$6,674,521 $6,534,796
COMPANIES ACT OF BARBADOS APPENDIX A
(Section 205)
RESTATED ARTICLES OF INCORPORATION FORM 13
1. Name of Company
Motors Mechanical Reinsurance Company, Limited
2. Company No.
1485
3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE
COMPANY IS AUTHORIZED TO ISSUE
The annexed Schedule is incorporated in this form.
4. RESTRICTION IF ANY ON SHARE TRANSFERS
The annexed Schedule is incorporated in this form.
5. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS
There shall be a minimum of 5 and a maximum of 6 directors.
6. RESTRICTIONS IF ANY ON BUSINESS THE COMPANY MAY CARRY ON
The principal object and activity of the Company is to engage in
Exempt Insurance business within the meaning of the Exempt
Insurance Act, 1983 of Barbados and the business of the Company
shall be restricted accordingly.
7. OTHER PROVISIONS IF ANY
The annexed Schedule is incorporated in this form.
8. Date Signatures Title
January 29, 1987 Peter Evelyn Director
FOR MINISTRY USE ONLY
COMPANY NO. FILED
COMPANIES ACT OF BARBADOS SCHEDULE TO ARTICLES OF INCORPORATION
3. The classes and any maximum number of shares that the
Company is authorized to issue:
The Company is authorized to issue:
(a) 2,000 shares of one class without nominal or par value to be
designated Common shares; and
(b) 100,000 shares of one class without nominal or par value to
be designated Participating shares which shall be divided into
1,000 series and issued in series of 100 shares.
The rights, preferences and limitations of the said classes of
shares are as follows:
DEFINITIONS
In these Articles and any amendment thereto and in the Company's
By-Laws the following terms shall mean:
Board -- The Company's Board of Directors.
Company -- Motors Mechanical Reinsurance Company, Limited.
Franchise -- A right conferred by a motor vehicle manufacturer
pursuant to a written agreement which permits the grantee to sell
the manufacturer's new motor vehicles.
MIC -- Motors Insurance Corporation, a New York corporation with
its administrative offices in Detroit, Michigan.
MIC Agency Account -- The separate business record maintained by
MIC or any of its subsidiaries to track volume, experience, and
commissions with respect to insurance business related to any one
or more particular Franchises.
Restricted Earned Surplus -- At any point in time, that portion
of the earned surplus, if any, in the Subsidiary Capital Account
for the Common shares equal to one and one-third percent (1-1/3%)
of the premiums paid to the Company during the immediately
preceding five-year period, net of deficits allocated to such
account pursuant to paragraph 3(1)(7)(a)(i) hereof during such
five-year period to the extent not restored to such account
pursuant to paragraph 3(1)(7)(c) hereof and net of return
premiums allocated to such account during such period pursuant to
paragraph 3(1)(1)(d) hereof.
Shares -- Shares of the Participating Stock of the Company.
Stock Purchase Agreement -- The agreement entered into between
the Company and the purchaser of Shares, in the form approved by
the Board.
Subsidiary Capital Account -- The subsidiary bookkeeping record
established by the Company for a particular series or class of
shares and maintained for the purpose of accounting for items of
income and expense, gains and losses, capital contributions, and
shareholder distributions which are allocated to the
particular series or class of shares.
(1) ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company will establish a Subsidiary Capital Account with
respect to the Common shares as a class, and to each series of
Shares of the Company at the time a series is issued.
The consideration received by the Company upon the issuance of a
particular series of Shares and the Common shares as a class will
be allocated to the Subsidiary Capital Account for that series or
class. Items of income and expense, and losses, attributable to
insurance underwriting activities shall be determined as of the
end of each calendar quarter and shall be allocated to the
Subsidiary Capital Accounts as of the end of the fiscal quarter
of the Company in which the respective calendar quarter ends.
Investment experience, and other items of income and expense,
gains and losses and distributions with respect to shares of the
Company will be determined and allocated to the Subsidiary
Capital Accounts as of the end of each fiscal quarter of the
Company. All such accounting determinations shall be made using
United States generally accepted accounting principles, unless
otherwise required by these Articles. For purposes of such
allocations, items shall be "related" to a Subsidiary Capital
Account which is identified with the same MIC Agency Account to
which such items can be attributed.
(1) Items of income and expense, and losses, attributable to
insurance underwriting activities shall be allocated to the
Subsidiary Capital Accounts in accordance with the following
paragraphs:
(a) With respect to premiums ceded to the Company, one
hundred percent (100%) shall be allocated to the related
Subsidiary Capital Account; provided, however, that an
amount equal to one and one-third percent (1-1/3%) of such
premiums shall be subtracted from such Subsidiary Capital
Account and allocated to the Subsidiary Capital Account of
the Common shares.
(b) With respect to any agents' or brokers' commissions,
any commissions recaptured, unearned premiums, reinsurance
premiums ceded by the Company, and any United States excise
tax, one hundred percent (100%) shall be allocated to the
related Subsidiary Capital Account.
(c) With respect to losses incurred, and any amount of
losses recovered through salvage, subrogation, reimbursement
or otherwise:
(i) ninety percent (90%) shall be allocated to the
related Subsidiary Capital Account; and
(ii) the remainder shall be allocated among all
Subsidiary Capital Accounts of the Shares pro rata in
accordance with the relative earned premiums
attributable to such accounts for the calendar quarter
in which the losses are incurred. For this purpose,
losses incurred includes both paid and unpaid (reported
and unreported) losses.
(d) With respect to return premiums, ninety-eight and
two-thirds percent (98-2/3%) shall be allocated to the
related Subsidiary Capital Account and one and one-third
percent (1-1/3%) shall be allocated to the Subsidiary
Capital Account for the Common shares.
(2) Any expenses or liabilities attributable to ordinary
day-to-day Company operations, excluding any United States
Federal income taxes, shall be allocated among all Subsidiary
Capital Accounts for the Shares pro rata in accordance with the
relative earned premiums allocated to such accounts for the
fiscal quarter in which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any
interest thereon or any penalties related thereto) incurred by
the Company shall be allocated among the Subsidiary Capital
Accounts based upon the relative contribution of each of those
accounts to the taxable income of the Company upon which the tax
(and any interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the organization
of the Company or to the offer, sale or issuance of Shares,
including but not limited to the costs of compliance with
regulations and requirements of the United States Securities and
Exchange Commission and the various states and other
jurisdictions of the United States as they pertain thereto, shall
be allocated to the Subsidiary Capital Account for the Common
shares.
(5) Any expenses or liabilities of the Company not allocable in
the manner described in paragraphs (2) through (4) above shall be
allocated among the Subsidiary Capital Accounts on the basis of
the relative balances of such accounts as of the end of the
fiscal quarter preceding the date on which the expense or
liability is incurred.
(6) (a) Investment income, net of any direct investment
expense, shall be allocated among the Subsidiary Capital
Accounts pro rata based upon the relative Investment Asset
Balance (as defined in subparagraph (b) below) of each such
account as of the last day of the fiscal quarter preceding
the quarter for which the investment income is being
allocated. For these purposes, net investment income will
include realized (but not unrealized) gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital
Account shall be equal to the capital and surplus allocated
to such account, increased by:
(i) the unearned portions of the written premiums that
have been collected by the Company and allocated to
such account as of the last day of the fiscal quarter
preceding the quarter for which the income is being
allocated, net of any applicable commissions and taxes;
(ii) the outstanding loss reserves attributable to such
account as of the last day of the fiscal quarter
preceding the quarter for which the income is being
allocated; and
(iii) any other outstanding liability that has been
charged to such account as of the last day of the
fiscal quarter preceding the quarter for which the
income is being allocated.
(7) (a) If, after the credits and charges described in
paragraphs (1) through (6) above are made to the Subsidiary
Capital Accounts there exists a deficit in one or more of
such accounts, then each such deficit will be allocated to
and charged against:
(i) first, the Subsidiary Capital Account for the
Common shares to the extent of Restricted Earned
Surplus;
(ii) then, any remaining unallocated deficit to the
Subsidiary Capital Accounts for the Shares, pro rata,
based upon the relative earned premiums allocated to
each such account for the fiscal quarter for which the
allocation is being made; provided, however, that only
accounts which have positive balances will be taken
into account for the purposes of this allocation;
(iii) then, any remaining unallocated deficit to the
remaining Subsidiary Capital Accounts for the Shares
with positive balances as of the last day of the fiscal
quarter for which the allocation is being made, pro
rata, based upon such balances; and
(iv) finally, to the extent necessary, the Subsidiary
Capital Account for the Common shares.
(b) If, as a result of an allocation of a deficit as
described in subparagraph (ii) or (iii) of paragraph (a)
above, a deficit is created in one or more of the Subsidiary
Capital Accounts, then the resulting deficit(s) will be
further allocated in the manner provided in that
subparagraph.
(c) Although this paragraph (7) shall be applied in a
manner that does not result in a balance in any Subsidiary
Capital Account for a series of Shares that is less than
zero, if any such account had a deficit that was allocated
to and charged against the Subsidiary Capital Account of the
Common shares pursuant to section 3(1)(7)(a)(i) hereof, then
at the end of any succeeding fiscal quarter for which that
account otherwise would show an account balance greater than
zero, such balance will be reallocated to the Subsidiary
Capital Account of the Common shares until all reductions of
such Subsidiary Capital Account for the Common shares under
section 3(1)(7)(a)(i) hereof for the series of Shares have
been restored.
(8) (a) Dividends, payments upon redemption or liquidation
(described below), and any other distributions with respect
to shares of the Company will be allocated to the Subsidiary
Capital Account for the class or series with respect to
which the dividend, payment or distribution was made.
(b) Where all shares of a series of Shares are repurchased
by the Company pursuant to Section 4 below, or redeemed in
accordance with the Company's procedures for redemption set
forth in Section 3(6) below, the Subsidiary Capital Account
for such series shall be terminated as of the Repurchase
Date or Redemption Date (as those terms are defined in
Sections 4 and 3(6), respectively). Thereafter, all income,
expenses, gains and losses that would have been allocated to
the terminated account will be allocated among the
Subsidiary Capital Accounts of the existing series of Shares
pro rata based upon relative earned premiums attributable to
such accounts for the calendar quarter in which the item was
earned or incurred; provided, however, that a net deficit
for any such period shall be allocated in accordance with
the provisions of Section 3(1)(7).
The allocations to the Subsidiary Capital Accounts described
above shall be approved by the Board, and when finally so
approved all calculations, allocations and determinations shall
be final and conclusive and shall be binding on all holders of
shares of the Company for all purposes, including without
limitation any redemption of shares of the Company pursuant to
the Company's procedures for redemption. The Board is authorized
to interpret and apply the provisions of these Articles and to
promulgate such additional rules and guidelines as the Board
deems appropriate to carry out the intent of these Articles and
such interpretations, rules and guidelines shall be binding on
all shareholders.
(2) PARTICIPATING SHARES
(a) If any Share shall be redeemed, repurchased or otherwise
retired, it shall return to the status of an authorized but
unissued share of such class.
(b) A series of Shares shall be issued with respect to a
specific MIC Agency Account. Only one series of Shares shall be
issued with respect to an MIC Agency Account. A series of Shares
shall be issued only to persons or entities acceptable to the
Board and certified by the owner(s) of the Franchise(s) to which
the MIC Agency Account relates. Certification will be effected
in accordance with procedures adopted by the Board from time to
time. No share of any particular series of Shares shall be
issued unless all shares of such series are issued.
(c) Each outstanding Share shall entitle the registered holder
of record of such Share to dividends in accordance with the rules
set forth in Section 3(5) of these Articles.
(d) The holders of Shares shall among them have the right to
elect one director of the Company and shall otherwise have only
such voting rights as are specifically provided herein. On all
such matters each share shall entitle the registered holder
thereof to one vote.
(e) The rights associated with any Shares of a series shall be
identical to the rights associated with all other Shares of the
same series.
(3) COMMON SHARES
(a) Each outstanding Common share shall entitle the registered
holder of such shares to dividends in accordance with the rules
set forth in Section 3(5) of these Articles.
(b) Each outstanding Common share shall entitle the registered
holder thereof to one vote per share on all resolutions of the
Company other than as specifically provided herein.
(c) The holders of the Common shares shall be entitled to elect
five directors of the Company, one of whom must be a resident
citizen of Barbados.
(4) LIQUIDATION
The Company may be liquidated upon the vote of the holders of at
least seventy-five percent (75%) of the Shares. In the event of
any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, after payment of all
liabilities of the Company, each holder of Shares of a series
shall be entitled to receive an amount equal to his share (based
on his proportionate ownership of such series) of the Subsidiary
Capital Account balance related to his series of Shares before
any distribution of the assets of the Company shall be made to
holders of the Common shares. After such payment shall have been
made in full to the holders of the outstanding Shares, or funds
necessary for such payment shall have been set aside in trust for
the account of the holders of the outstanding Shares so as to be
available therefor, the holders of the outstanding Shares shall
be entitled to no further participation in the distribution of
the assets of the Company, and the remaining assets of the
Company, if any, shall be divided and distributed among the
holders of the Common shares then outstanding pro rata based on
their respective shares. A consolidation or merger of the
Company, or sale or transfer of all or substantially all its
assets, or any purchase or redemption of shares of the Company of
any class or series, shall not be regarded as a "liquidation,
dissolution, or winding up" within the meaning of this paragraph.
(5) DIVIDENDS
(a) Subject to the following paragraphs, dividends may be paid
at the discretion of the Board.
(b) Dividends, payable in cash or such other property as the
Board may determine, on a series of Shares or on Common shares,
shall be declared and payable only if the Company shall have,
after giving effect to the dividend, sufficient net assets,
without regard to any Letter of Credit or Guarantee, to meet the
general business solvency margin prescribed by the Exempt
Insurance Act and Section 51 of the Act; provided that dividends
with respect to any series of Shares may be paid only out of
earned surplus attributable to the Subsidiary Capital Account
identified with those Shares, and only to the extent that, after
giving effect to the dividend, the capital and surplus identified
with that Subsidiary Capital Account (without regard to any
Guarantee or Letter of Credit) would meet its pro rata share,
based on allocable premium income, of the minimum net assets
required of the Company under the Exempt Insurance Act. Subject
to the right of the holders of Shares to receive minimum
dividends pursuant to the following paragraph, to the extent a
dividend is declared on the Shares, it shall be declared and paid
subject to the foregoing limitations for each series of Shares as
a percentage of the net income for the preceding calendar year
and/or earned surplus as of the end of the preceding calendar
year, attributable to each series, provided that such percentage
may vary among series of Shares with the level of net income
and/or earned surplus. Dividends shall only be declared and paid
on Common shares to the extent that the earned surplus
attributable to Common shares exceeds Restricted Earned Surplus.
(c) Subject to the preceding paragraph, the holders of the
Shares of each series shall be entitled to receive minimum annual
dividends, payable annually within the first 120 days of each
fiscal year, in cash or such other property as the Board may
determine. The minimum annual dividend payable on each Share
shall be such Share's pro rata portion of an amount equal to
twenty percent (20%) of the net income, if any, for the preceding
fiscal year attributable to the Subsidiary Capital Account
associated with the series of which that Share is a part. If a
holder of Shares receives no dividend or a limited dividend in
any annual period as a result of the limitations set forth in the
preceding paragraph, any unpaid portion of the minimum dividend
otherwise payable pursuant to this paragraph shall not become
payable pursuant to this paragraph in any subsequent year.
(d) In no event shall any dividend whatever be paid upon or
declared or set apart for the Common shares, unless and until all
minimum annual dividends required to be paid on the then
outstanding Shares for the then current period shall have been
paid or declared and set apart for payment.
(6) REDEMPTION
The common shares are non-redeemable. Subject to compliance with
any applicable statute or act, the Company may redeem any of its
issued and outstanding Shares if all Shares of the series
involved are redeemed and the redemption of such Shares is
approved by a majority of the Board, provided that the Director
representing holders of the Shares votes in favor of the
redemption.
The redemption of Shares shall be effective on such future date
as determined by the Board, which shall be no later than the last
business day of the calendar year in which the redemption was
approved by the Board, and in the case of a redemption of Common
Shares, by holders of the Shares. Such date is herein called the
"Redemption Date."
The consideration payable to the holders of redeemed Shares shall
be the Subsidiary Capital Account balance for the series of such
Shares as of the Redemption Date, as adjusted by the Board to
reflect unrealized gains and losses on investments held by the
Company and any contingent liabilities allocable to such account.
Such consideration shall be paid within five (5) months of the
Redemption Date, provided that the holder(s) of the redeemed
Shares shall have delivered to the Company, certificates
representing the Shares being redeemed duly endorsed and
accompanied by such other documents as the Company may require.
Such consideration shall bear interest from the Redemption Date
until the earlier of the date of payment or the date that is five
(5) months from the Redemption Date, at a rate equal to the rate
of interest paid on 26-week United States Treasury Bills for the
issue following the Redemption Date.
Upon redemption of the Shares as aforesaid, the holder(s) thereof
shall cease to have any further interest in the shares being
redeemed. Shares redeemed pursuant to this Section 3(6) shall
return to the status of authorized but unissued Shares.
4. Restrictions, if any, on share transfers:
(a) Subject to the exceptions listed below, Shares (whether
owned by the original or any subsequent holder thereof)
shall not be transferred in any manner unless the holder(s)
has received a bona fide written offer to purchase such
Shares, a copy of which has been furnished to the Company,
and the Company is thereafter offered the opportunity to
purchase such Shares. The Company shall have sixty (60)
days during which to exercise the rights conferred upon it
by this paragraph. If the Company accepts such offer, the
price will be the lesser of the balance of the Subsidiary
Capital Account related to such series of Shares as of the
last day of the fiscal quarter immediately preceding the
date on which the offer to purchase was accepted by the
Company (the "Repurchase Date") (or if less than all such
Shares are offered, then the pro rata portion of such
account attributable to the Shares offered), or the bona
fide offering price. Payment by the Company may be deferred
until the end of the fiscal quarter in which the offer to
purchase was accepted by the Company. Shares purchased by
the Company pursuant to this paragraph shall return to the
status of authorized but unissued shares of such class. If
the Company does not elect to purchase the Shares pursuant
to this paragraph, they may be sold in accordance with the
bona fide written offer referred to above within the
following sixty (60) days, subject to the requirements of
the following paragraphs. After such further sixty (60)
days, any attempted sale or transfer of the Shares shall be
subject to all the requirements of this paragraph.
(b) In addition to the requirements of the preceding
paragraph and except as provided in paragraph (d) below,
transfers of less than all Shares of a series shall not be
made unless the holder(s) has received the written consent
of the Company thereto. A request for such consent must be
made in writing and set forth the name(s) and address(es) of
the intended transferee(s), the desired date of the
transfer, and the consideration to be paid. The Company
shall have sixty (60) days from receipt of such request to
grant or withhold its consent to the intended transfer. If
the Company fails to give its written consent, any
subsequent transfer shall be void and of no effect.
(c) Shares may not be transferred unless and until the
Board has received such assurances of compliance with all
applicable laws and regulations as it may deem necessary and
the transferee has agreed to abide by the requirements set
forth in the Stock Purchase Agreement entered into by the
transferor. Certificates representing shares of any class
of the Company's shares shall bear a legend substantially to
the effect of this Section 4 of these Articles.
(d) A sale, gift, assignment, pledge or other transfer of
Shares shall be exempt from the requirements of paragraphs
(a) and (b) of this Section 4 if the Board determines that
the transferee or assignee of the shares is: (i) a member of
the transferring shareholder's immediate family; (ii) a
trust for the benefit of the transferring shareholder, or
for the benefit of other exempted transferees described in
this paragraph; (iii) if the transferor is a corporation,
any shareholder of the transferor; (iv) if the transferor is
a partnership, any of its partners; (v) a corporation which
is controlled by or under common control with the
transferor; (vi) the estate of a deceased shareholder or
legatees and heirs of such deceased shareholder; (vii) a
charitable or other qualifying organization described in
Section 170(c)(2) of the United States Internal Revenue Code
of 1986; (viii) in the case of a transfer of less than all
of the Shares of a series, a person who immediately prior to
such transfer is a holder of Shares of that series; or (ix)
a key employe with respect to a Franchise previously
designated in the Stock Purchase Agreement entered into by
the transferor.
7. Other provisions if any:
No holder of shares of the Company of any class, now or hereafter
authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive any shares of the Company of
any class, now or hereafter authorized, or any options or
warrants for such shares, or any rights to subscribe for or
purchase such shares, or any securities convertible into or
exchangeable for such shares, which may at any time be issued,
sold or offered for sale by the Company.
Amendment of Articles and By-Laws:
The Company's Articles and By-Laws shall not be altered, amended
or repealed and no provision inconsistent therewith shall be
adopted, without the affirmative vote of the holders of a
majority of the Common shares and of the Shares present; provided
that the rights associated with any series of Shares shall not be
varied, unless the rights associated with all other series are
similarly changed, without the affirmative vote of the holders of
a majority of the Shares of each series present.
APPENDIX B
STOCK PURCHASE AGREEMENT
BETWEEN
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
AND
(Certified Purchaser)
_________ , 19
Motors Mechanical Reinsurance
Company, Limited
Financial Services Centre
Bishops Court Hill
St Michael, Barbados
Gentlemen:
The undersigned Shareholder (as more fully described below)
hereby offers to purchase certain shares of stock of Motors
Mechanical Reinsurance Company, Limited, a Barbados Corporation
(the "Company"), upon the terms and conditions set forth herein.
The Shareholder hereby tenders a check in the amount of the
Purchase Payment (as defined herein), to be held in an escrow
account with Barclays Bank PLC (the "Escrow Account"). This
offer shall expire on the 120th day after the date hereof if the
Company has not accepted it prior to such expiration date. The
Shareholder acknowledges receipt of a prospectus dated
with respect to the stock described herein.
1. DEFINITIONS
1.1 Franchisee. The term "Franchisee" means (insert name(s) and
address(es) of Franchisee(s) of the automobile sales franchise(s)
related to the applicable MIC Agency Account).
1.2 MIC. The term "MIC" means Motors Insurance Corporation, a
New York corporation.
1.3 MIC Agency Account. The term "MIC Agency Account" means the
separate business record maintained by MIC or any of its
subsidiaries or affiliates to track volume, experience and
commissions with respect to insurance business related to the
automobile sales franchise(s) owned by the Franchisee.
1.4 Purchase Payment. The term "Purchase Payment" means the $
($75 (U.S.) x number of shares) paid hereunder as consideration
for the purchase of the Shares.
1.5 Shareholder. The term "Shareholder" means ,
taxpayer identification number , who is a citizen of
,
and who resides at .
1.6 Shares. The term "Shares" means shares (number
of shares) of the authorized shares of a series of the
participating stock of the Company, which series consists of 100
shares, and which is issued in respect of the MIC Agency Account.
1.7 The masculine gender is to be construed to include a female
or an entity where the context of this Agreement so requires.
2. REPRESENTATIONS
2.1 Representation of Shareholder. The Shareholder represents
that he has been duly certified (on the form furnished by the
Company and attached hereto) by the Franchisee and meets the
requirements for this purchase and sale as set forth in the
Articles of Incorporation of the Company (the "Articles"), copies
of which are attached to the prospectus. (It is understood that,
if the Franchisee consists of more than one person, all such
persons must join in the certification of the Shareholder.)
2.2 Representation of Company. The Company represents that the
issuance and sale of the Shares pursuant to this Agreement has
been duly authorized by the Board in accordance with the
Articles, and is consistent with the applicable provisions of
Barbados law.
3. PURCHASE AND SALE OF SHARES
Upon acceptance of this Agreement by the Company, the Company
agrees to sell and issue to the Shareholder, and the Shareholder
agrees to purchase, the Shares in consideration of the Purchase
Payment.
4. ESCROW OF PURCHASE PAYMENT
Subject to the following sentence, the Purchase Payment will
remain on deposit in the Escrow Account until the Shares are
issued by the Company. If this Agreement is not executed by the
Company within 120 days of the date hereof, the Purchase Payment
shall be refunded promptly together with any interest earned
thereon. Following execution by the Company, the Shareholder
shall have no right to withdraw the amount of the Purchase
Payment or any interest earned thereon.
5. COVENANTS OF THE COMPANY
5.1 Series of Participating Stock. No more than 100 shares of
the same series of participating stock as the Shares shall be
issued by the Company, and no other series of such stock shall be
issued with respect to the MIC Agency Account.
5.2 Reinsurance Business. The business of the Company shall be
limited to the reinsurance of mechanical breakdown risks
underwritten by MIC or its subsidiaries or affiliates and
identified with the MIC Agency Account and similar MIC accounts
maintained with respect to automobile franchises for which series
of participating stock of the Company are issued and outstanding.
6. LIMITATIONS BASED ON INADEQUATE CAPITAL
The Shareholder and the Company agree that if the Company cannot
meet the minimum margin of solvency requirements under Barbados
insurance law, then, to the extent the net asset value
attributable to the Subsidiary Capital Account (the "Account")
for the shares issued pursuant to this Agreement is less than its
pro rata share (based on proportionate earned premium) of the
Company's required net asset value, the Company shall reduce the
business attributable to the Account, on a pro rata basis with
such other accounts that are similarly deficient, by retrocession
or some other means acceptable to the Company, to the extent
necessary to permit the Company to meet the Company's required
minimum margin of solvency.
7. RESTRICTIONS ON TRANSFER
The Shareholder agrees to be bound by and shall be subject to all
provisions in the Articles (including without limitation those
with respect to the ownership and transfer of the Shares) that
are in effect as of the date of this Agreement or that may be
added in the future, and any amendments to such provisions. It
is understood that the Company may place on the certificate for
the Shares a legend stating in substance:
The sale, transfer, or other disposition of the shares
evidenced by this certificate is restricted pursuant to
provisions of the Articles of Motors Mechanical Reinsurance
Company, Limited ("Company"), and the Stock Purchase
Agreement ("Agreement") between the Company and the
Shareholder, dated , 19 , pursuant to which the
shares were issued. Copies of the Articles and the
Agreement may be examined at the registered office of the
Company.
8. MISCELLANEOUS
8.1 Severability. If for any reason any provision of this
Agreement shall be invalid or unenforceable, the validity of any
or all of the remaining provisions shall not be affected thereby;
provided, however, that the absence of such illegal or invalid
provisions does not so materially alter the purpose of this
Agreement such that the continuation of the arrangement
contemplated by this Agreement would no longer be mutually
beneficial to the Shareholder and the Company.
8.2 No Waiver. The failure of any party to insist upon strict
performance of any obligation hereunder shall not be a waiver of
the party's right to demand strict compliance therewith in the
future.
8.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Barbados.
8.4 Counterparts. This Agreement has been executed in multiple
copies, each of which shall for all purposes constitute one
Agreement, binding on the parties.
8.5 Assignment. This Agreement is personal to the parties and,
except as contemplated herein and in the Articles, no party shall
have any right to assign any right or to delegate any duty
hereunder, either voluntarily or involuntarily, or by operation
of law.
8.6 Term of Agreement. Except as herein expressly provided,
this Agreement shall remain in force as long as the Shares remain
outstanding. If not terminated sooner, this Agreement shall
terminate upon the earlier of the redemption of the Shares or the
liquidation of the Company.
8.7 Effect of Transfer. The Shareholder shall be relieved of
all restrictions and obligations and shall not be entitled to any
further benefits under this Agreement upon transfer of all the
Shares and upon the agreement of the transferee to be bound by
the terms and conditions of this Agreement.
8.8 Amendment. No change, modification, or amendment to this
Agreement shall be valid or binding upon the parties hereto
unless such change, modification, or amendment shall be in
writing signed by all of the parties.
8.9 Integration. This Agreement constitutes the full and
complete agreement between the Shareholder and the Company.
8.10 Captions. Titles or captions of sections, paragraphs or
exhibits contained in or made a part of this Agreement are
inserted only as a matter of convenience and for reference, and
in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof.
8.11 Notices. Any and all notifications permitted or required to
be made under this Agreement shall be in writing, signed by the
party giving such notification, and shall be sent by registered
or certified mail, postage prepaid (1) if to the Shareholder, at
the address set forth in Section 1.5 of this Agreement or at such
other address as may have been furnished by the Shareholder to
the Company in writing; or (2) if to the Company, in care of
Alexander Insurance Managers (Barbados) Limited, Financial
Services Centre, Bishops Court Hill, St. Michael, Barbados, W.I.
For purposes of computing a time period, the date of mailing
shall be the date of notification.
8.12 Survival of Representations and Warranties. All agreements,
representations, and warranties contained herein or made in
writing by the Shareholder or the Company in connection with the
transactions contemplated hereby shall survive the execution and
delivery of this Agreement, and the sale and purchase of the
Shares under this Agreement.
8.13 Relationship to Articles. The provisions of the Articles
are incorporated herein to the extent relevant to this Agreement.
If the authorized representative of the Company executes this
Agreement on its behalf, then this Agreement shall become a
binding contract, subject to the terms and conditions set forth
herein, between the Company and the Shareholder as of the date of
the execution on behalf of the Company.
Very truly yours,
______________________________
__________________________________
Date Signature of Shareholder
_________________________________
Print Name of Shareholder
The foregoing Agreement is hereby accepted and agreed to as of
the date set forth below. Series P- is hereby designated for
the Shares described in this Agreement.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
By ___________________________ Dated:
__________________________
Title ________________________
Note: Upon acceptance by the Company, a duly signed copy of
this Agreement shall be sent to the Shareholder.
APPENDIX C
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
CERTIFICATION FORM
The undersigned represent(s) that he (she)(they) is (are) the
owner(s) of an automobile sales franchise doing business as
______________________ (name of dealership), with respect to
which MIC Agency Account___ is maintained. The undersigned
hereby designate(s) ___________________________________ (name of
purchaser), who resides at ____________________________ (address
of purchaser), to be deemed eligible to purchase shares of a
series of the participating stock of Motors Mechanical
Reinsurance Company, Limited (the "Company") pursuant to the
Articles of Incorporation of the Company.
______________________________
__________________________________
Date Signature of Franchise
Owner
____________________________________
Print Name of Franchise
Owner
(Names of Co-Owners, if any)
______________________________
__________________________________
Date Signature of Co-
Owner
__________________________________
Print Name of Co-
Owner
______________________________
__________________________________
Date Signature of Co-
Owner
__________________________________
Print Name of Co-
Owner
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, all of
which were paid by Motors Insurance Corporation, in connection
with the initial offering described in the Registration
Statement:
Registration Fee -- Securities
and Exchange Commission ................ $ 1,500
State "Blue Sky" fees ................... $ 15,000
Accountants Fees and Expenses ........... $ 10,000
Legal Fees and Expenses ................. $150,000
Printing and Engraving .................. $ 37,000
Miscellaneous ........................... $ 10,000
--------
Total Expenses ..................... $223,500
--------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Paragraph 10 of Registrant's By-Laws provides for the
indemnification of Registrant's officers and directors (and such
persons' heirs, executors and administrators) against any and all
judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees, incurred by such person in
connection with any claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the
fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company as a
director, officer, employe, fiduciary or member of any other
corporation, partnership, joint venture, trust, enterprise or
organization, except with respect to any matter for which
indemnification would be void pursuant to the Companies Act, 1982
of Barbados (the "Companies Act").
Under the Companies Act, indemnification of Registrant's officers
and directors against any liability which would attach by reason
of any contract entered into or act or thing done or omitted to
be done by them in performance of their office or in any way in
the discharge of their duties, if the same happens through their
not acting in good faith and in the best interest of the
Registrant is void.
The position of the Securities and Exchange Commission regarding
indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") is set forth under Item 17, paragraph 5
of this Part II.
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES
No securities which were not registered under the Act have been
issued or sold by Registrant within the past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
3 (a) Restated Articles of Incorporation (filed as
Appendix A to the Prospectus).
(b) By-Laws of Registrant, as amended.*
4 Specimen Participating Stock Certificate.*
5 Opinion of Evelyn, Gittens & Farmer.*
10 (a) Form of Principal Retrocession Agreement between
Motors Insurance Corporation and
Registrant.*
(b) Form of Supplemental Retrocession Agreement
between Motors Insurance Corporation and
Registrant.*
(c) Specimen Stock Purchase Agreement (filed as
Appendix B to the Prospectus).
(d) Amended and Restated Stock Purchase Agreement
between Registrant and Motors Insurance
Corporation.*
(e) Insurance Management Agreement between Registrant
and Alexander Insurance Managers (Barbados) Ltd.**
23 (a) Consent of Evelyn, Gittens & Farmer.
(b) Consent of LeBoeuf, Lamb, Greene & MacRae.
(c) Consent of Deloitte & Touche, Independent
Chartered Accountants.
99 (a) Certification Form (filed as Appendix C to the
Prospectus).
(b) Guarantee issued by the Minister of Finance of
Barbados.*
(c) Certificate of Barbados Residency.*
* Filed previously,
** Filed as Exhibit 19(f) to Form 10-K on March 30, 1994, File
No. 33-6534, and incorporated herein by reference.
B. Financial Statement Schedules:
No financial statement schedules are submitted herewith because
the information is included elsewhere in the financial statements
or the notes thereto or such schedules are not applicable.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which offers or sales of the
securities being registered are being made, a post-effective
amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
Registration Statement, and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
1933 Act, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering; and
(4) To file a post-effective amendment to the registration
statement to include any financial statements required throughout
a continuous offering.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post Effective Amendment to this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St.
Michael, Barbados, on July 7, 1994.
MOTORS MECHANICAL
REINSURANCE COMPANY, LIMITED
By s/Ronald W. Jones
Ronald W. Jones,
Vice-President,
Finance
Pursuant to the requirements of the Securities Act of 1933, this
Post Effective Amendment to this Registration Statement has been
signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
s/Joseph J. Pero President and Director July 7, 1994
Joseph J. Pero (Principal Executive Officer)
s/Ronald W. Jones Vice-President (Principal July 7, 1994
Ronald W. Jones Financial and Accounting
Officer)
s/Vincent K. Quinn Executive
Vincent K. Quinn and Director July 7, 1994
s/Louis S. Carrio, Jr. Vice-President and Director July 7, 1994
Louis S. Carrio, Jr.
s/Peter R. P. Evelyn Director July 7, 1994
Peter R. P. Evelyn
<PAGE>
Registration No. 33-6534
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post Effective Amendment No. 11 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
(Exact name of registrant as specified in charter)
Barbados Not Applicable
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
6331 Financial Services Centre
(Primary standard industrial Bishops Court Hill
classification number) St. Michael, Barbados, W.I.
(809) 436-4895
(Address and telephone number
of principal executive office)
RONALD W. JONES, Vice President
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados, W.I.
(809) 436-4895
(Name, address and telephone number of agent for service)
Copy to:
David R. Woodward, Esq.
LeBoeuf, Lamb, Greene & MacRae
1875 Connecticut Avenue, N.W.
Washington, D.C. 20009
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, please check the following box.
(X)
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
Cross reference sheet between
Items of Form S-1 and Prospectus
Pursuant to Item 501(b)
of Regulation S-K
FORM S-1 ITEM NO. CAPTION OR
AND CAPTION LOCATION IN PROSPECTUS
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus ....................... Front Cover
2. Inside Front Page and Outside Back
Cover Pages of Prospectus ........ Inside Front
Cover; Outside
Back Cover
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges .......................... Summary; Risk
Factors
4. Use of Proceeds .................. Use of Proceeds
5. Determination of Offering Price .. Determination
of Offering
Price
6. Dilution ......................... Not Applicable
7. Selling Security Holdings ........ Not Applicable
8. Plan of Distribution ............. Plan of
Distribution
9. Description of Securities to be
Registered ....................... Description of
Capital Stock
10. Interests of Named Experts and
Counsel .......................... Not Applicable
11. Information With Respect to the
Registrant ....................... Summary; The
Company; Use of
Proceeds;
Capitalization;
Business of the
Company;
Management;
Principal
Shareholder
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities .................. Not Applicable
P R O S P E C T U S
Motors Mechanical Reinsurance Company, Limited
26,500 Shares of Participating Stock
THE SECURITIES OFFERED HEREBY INVOLVE SIGNIFICANT RISK, ARE
SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFER, AND WILL NOT BE
READILY MARKETABLE. OFFEREES SHOULD REFER TO THE SECTION
CAPTIONED "RISK FACTORS".
Motors Mechanical Reinsurance Company, Limited (the "Company"), a
Barbados company, is engaged in the business of assuming risks in
respect of certain insurance policies covering motor vehicle
mechanical repairs. (See "The Company.")
The shares of Participating Stock of the Company offered by this
Prospectus (the "Shares") are divided into 265 series, and the
authorized number of Shares of each series is 100 Shares. The
offering price is $75.00 per Share. (See "Description of Capital
Stock.") ALL AMOUNTS OF MONEY SHOWN IN THIS PROSPECTUS ARE
STATED IN U.S. DOLLARS.
The Company is offering Shares of a series only to persons
certified by the owners of motor vehicle franchises to be
identified with that series and only if it receives Stock
Purchase Agreements executed by such persons which are acceptable
to the Company in its sole discretion.
The Shares are being sold, on a continuous basis, by certain
employes of Motors Insurance Corporation ("MIC"), who are not
compensated specifically for their services in this regard. (See
"Plan of Distribution.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Underwriting
Price to discounts and Proceeds
public commissions to issuer
Per Share $75.00 None $75.00
Total 26,500 shares* $1,987,500 None $1,987,500
* Of this number, 20,400 shares had been issued and sold as of
the date of this Prospectus.
The date of this Prospectus is , 1994.
The Company, certain of its directors, and certain experts named
herein are residents of Barbados, and all or a substantial
portion of the assets of the Company and of such persons are or
may be located outside the United States. As a result, it may
not be possible for investors to effect service of process within
the United States upon the Company or such persons, or to enforce
against them judgments obtained in United States courts
predicated upon the civil liability provisions of the Securities
Act of 1933, as amended (the "1933 Act"). The Company has been
advised by its Barbados counsel, Evelyn, Gittens & Farmer, that
there is doubt as to whether Barbados courts would (1) enforce
judgments of United States courts obtained against the Company or
such persons predicated upon the civil liability provisions of
the 1933 Act, or (2) impose, in original actions in Barbados,
liabilities against the Company or such persons predicated upon
the 1933 Act.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the
offices of the Commission, at Room 1024, 450 Fifth Street,
N.W., Washington, D.C.; Room 1204, Kluczynski Federal Building,
230 South Dearborn Street, Chicago, Illinois; and Room 1102,
Jacob K. Javits Building, 26 Federal Plaza, New York, New York.
Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates.
The Company furnishes to its stockholders annual reports
containing financial statements that reflect the Company's
overall results and condition and that have been audited and
reported upon by independent public accountants, and quarterly
reports for each of the first three quarters of each fiscal year
containing unaudited financial information. In addition, the
Company furnishes to each holder of Shares of a series a
quarterly statement containing unaudited financial information
relating to such series. The reports furnished by the Company
contain information prepared in accordance with accounting
principles generally accepted in the United States.
TABLE OF CONTENTS
Page
DEFINITIONS...............................................
SUMMARY...................................................
RISK FACTORS..............................................
Relationship with MIC....................................
Restrictions Applicable to Certain Retrocessions.........
Extension of New Vehicle Warranties......................
Risk of Underwriting Losses..............................
Investment Experience....................................
United States Tax Considerations.........................
Risks Related to Foreign Business Operations.............
Competition and Loss of Business.........................
Barbados Regulatory Limitations..........................
Reliance on Outside Consultants .........................
Dividends................................................
No Public Market; Restrictions on Transfers..............
Share Redemption.........................................
THE COMPANY...............................................
ELIGIBILITY TO PURCHASE THE SHARES........................
USE OF PROCEEDS...........................................
DETERMINATION OF OFFERING PRICE...........................
DIVIDENDS.................................................
BUSINESS OF THE COMPANY...................................
Introduction.............................................
The Retrocessions........................................
General Considerations..................................
The Retroceding Company.................................
Types of Risks Subject to Retrocession..................
The Retrocession Agreement -- Principal Agreement.......
The Retrocession Agreement -- Supplemental Agreement....
Loss Reserves...........................................
Investment Income........................................
Employes.................................................
Competition..............................................
Insurance Management Agreement...........................
Barbados Regulation and Taxes............................
Insurance Regulation....................................
Taxes...................................................
Exchange Control .......................................
Facilities................................................
SELECTED FINANCIAL DATA...................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................
MANAGEMENT................................................
Directors and Officers...................................
Alternate Directors......................................
Committees of the Board..................................
Remuneration.............................................
PRINCIPAL SHAREHOLDER.....................................
DESCRIPTION OF CAPITAL STOCK..............................
Allocations to Subsidiary Capital Accounts...............
Voting Rights............................................
Election of Directors...................................
Proxies.................................................
Liquidation.............................................
Changes in Articles and By-Laws.........................
Other Matters...........................................
Redemption...............................................
Liquidation..............................................
Restrictions on Transfer.................................
Transfers of Less Than All Shares of a Series...........
Right of First Refusal..................................
Exceptions for Certain Transfers........................
Provisions Applicable to All Transfers..................
Common Stock.............................................
Barbados Corporate Law Provisions........................
Dividends and Distributions.............................
Repurchase..............................................
Shareholders' Remedies..................................
Enforcement of United States Judgments..................
Indemnification.........................................
Inspection of Corporate Records.........................
PLAN OF DISTRIBUTION......................................
Purchase Procedures......................................
Terms of Sale............................................
Conditions of Sale.......................................
Approval of Purchase....................................
Termination of Offering..................................
UNITED STATES FEDERAL TAX CONSIDERATIONS..................
United States - Barbados Income Tax Treaty...............
United States Premium Excise Tax.........................
United States Federal Income Tax Risks and
Consequences -- the Company.............................
United States Federal Income Tax Consequences -- the
Shareholders............................................
LEGAL MATTERS.............................................
EXPERTS...................................................
ADDITIONAL INFORMATION....................................
INDEPENDENT AUDITORS' REPORT..............................
FINANCIAL STATEMENTS......................................
APPENDIX A (Restated Articles of Incorporation of the
Company).......................................
APPENDIX B (Stock Purchase Agreement)...................
APPENDIX C (Certification Form).........................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO
DEALER, SALESMAN, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON.
DEFINITIONS
As used in this Prospectus, the following terms have the
particular meanings set forth below.
Common Stock -- The class of shares held by MIC.
Company -- Motors Mechanical Reinsurance Company, Limited.
Eligible Purchaser -- An individual or entity certified, by the
owner(s) of the Franchise(s) for which an MIC Agency Account is
maintained, as a purchaser of all or part of a series of Shares
in respect of such MIC Agency Account.
Franchise -- A right conferred by a motor vehicle manufacturer
pursuant to a written agreement which permits the grantee to sell
the manufacturer's new motor vehicles.
MIC -- Motors Insurance Corporation.
MIC Agency Account -- The separate business record maintained by
MIC or any of its subsidiaries to track volume, experience, and
commissions with respect to insurance business related to any one
or more particular Franchises.
Policies -- Insurance policies issued by any MIC subsidiary and
reinsured by MIC that cover motor vehicle mechanical repair
risks, to the extent that risks under such policies are
attributable to an MIC Agency Account in respect of which a
series of Shares is issued and outstanding.
Premium Income -- As used in the context of Barbados insurance
laws, net premiums after deducting any premiums paid by the
Company for reinsurance.
Retrocession Agreement -- The agreement or agreements entered
into between the Company and MIC pursuant to which a specified
portion of the risks arising under the Policies is transferred to
the Company.
Shares -- Shares of the Participating Stock of the Company.
Stock Purchase Agreement -- The agreement entered into between
the Company
and a purchaser of Shares, in the form approved by the Company's
Board of Directors.
Subsidiary Capital Account -- The subsidiary bookkeeping record
established by the Company for a particular series of shares or
class of stock and maintained for the purpose of accounting for
items of income and expense, gains and losses, capital
contributions, and shareholder distributions which are allocated
to the particular series of shares or class of stock.
SUMMARY
The following summary is qualified in its entirety by the
detailed information and financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
The Company was incorporated under the laws of Barbados on June
12, 1986 and has registered as a licensee under the Barbados
Exempt Insurance Act, 1983 to carry on the business of an Exempt
Insurance Company from within Barbados. Its registered and
principal offices are located in St. Michael, Barbados. The
Company is engaged in the business of assuming insurance risks
with respect to motor vehicle mechanical breakdowns insured under
policies that are reinsured by MIC. The Company conducts its
operations within or from Barbados. (See "The Company.")
THE OFFERING
Securities Being
Offered ........... Participating Stock, not to exceed
26,500 shares, in series of 100 shares
each, without nominal or par value. As
of the date of this Prospectus, 20,400
shares had been sold, leaving 6,100
remaining to be offered. (See
"Description of Capital Stock.")
Offering Price .... $75.00 per Share, or $7,500 per series.
Terms of Offering . Shares of a series of Participating
Stock will be issued with respect to a
specific MIC Agency Account. Only one
series of Shares will be issued with
respect to each MIC Agency Account. An
entire series must be purchased by one
or more Eligible Purchasers. (See
"Eligibility to Purchase the Shares.")
Offering Period ... This offering commenced on June 1, 1987
and, subject to termination by the Board
of Directors of the Company (the
"Board"), will be continuous in
accordance with Rule 415 under the 1933
Act. All funds paid by an Eligible
Purchaser will be held for the benefit
of the Company in an escrow account at
Barclays Bank PLC in Bridgetown,
Barbados until such time as the related
Stock Purchase Agreement has been
accepted by the Company. Upon
acceptance by the Company of a Stock
Purchase Agreement, funds will be paid
to the Company and Shares will be
issued.
Purchase Procedure.. Eligible Purchasers who wish to purchase
Shares will be required to submit to the
Company in Barbados the following: (1)
two executed Stock Purchase Agreements;
(2) a certified or cashier's check in
the amount of the purchase price of the
Shares payable to "Motors Mechanical
Reinsurance Company, Limited -- Escrow
Account"; and (3) certification of
eligibility. (See "Eligibility to
Purchase the Shares.")
Restrictions on
Transfer .......... Subject to certain exceptions, the
transfer of Shares is subject to the
Company's right of first refusal. In
addition, the transfer of less than all
of the Shares of a series requires prior
written consent of the Company. (See
"Description of Capital Stock --
Restrictions on Transfer.")
Voting Rights ..... Holders of Shares as a class are
entitled to elect one out of six members
of the Board. Their right to vote on
other matters is limited. (See
"Description of Capital Stock -- Voting
Rights.")
Risk Factors ...... This investment is subject to
significant risks. (See "Risk
Factors.")
Capital Structure.. As of March 31, 1994, 19,900 Shares
representing 199 series were issued and
outstanding and were held by 338
shareholders. In addition to the
Shares, the Company has authorized 2,000
shares of Common Stock without nominal
or par value, all of which have been
issued to MIC and are outstanding.
Use of Proceeds ... The proceeds of this offering are added
to general funds of the Company and
utilized in its insurance business.
(See "Use of Proceeds.")
Plan of
Distribution ...... The Shares are being sold by employes of
MIC on a continuous basis. Neither MIC
nor its employees are compensated
specifically for their services in that
regard, and no commissions are charged
or paid in connection with sales of the
Shares. (See "Plan of Distribution.")
RISK FACTORS
Investment in the Company is subject to significant risk.
Prospective investors should carefully consider, together with
the information contained elsewhere in this Prospectus, the
following:
Relationship with MIC. MIC owns all of the Common Stock of the
Company, which permits it to control the Board and determine,
among other things, the selection of the Company's officers,
outside insurance management company and outside investment
adviser. (See "Description of Capital Stock," "Business of the
Company -- Investment Income," "Business of the Company --
Insurance Management Agreement," and "Management.") The Company
has entered into a Retrocession Agreement with MIC pursuant to
which risks that MIC reinsures under Policies are "retroceded" to
the Company. (See "Business of the Company -- The
Retrocessions.") The Company relies entirely on the Retrocession
Agreement and, thus, on MIC for its business. Therefore, any
matters adversely affecting MIC may have an adverse impact on the
insurance business of the Company. In addition, it should be
noted that, under the Retrocession Agreement, only business
identified with certain MIC Agency Accounts is retroceded. MIC
and its subsidiaries have the power to terminate agency
agreements and otherwise limit the Company's insurance business
with respect to MIC Agency Accounts.
Pursuant to the Retrocession Agreement, the Company must pay to
MIC the amounts of any and all claims paid by MIC in respect of
the Policies. Although the Company may, at its own expense, be
associated with MIC in the defense of any claim, MIC or its
subsidiaries generally have full authority to investigate and
settle, or defend, all claims. (See "Business of the Company --
The Retrocessions.")
The Retrocession Agreement extends for an indefinite term. It
generally may be terminated at any time by MIC or the Company
upon 30 days written notice. (See "Business of the Company --
The Retrocessions.") In the event that the Retrocession
Agreement were terminated, there is no assurance that the Company
could make arrangements which would allow it to continue to
operate in the manner described in this Prospectus.
Restrictions Applicable to Certain Retrocessions. At the present
time, MIC believes that there is no federal or state law or
regulation that impairs its ability to retrocede its risks under
the Policies to the Company. However, certain state insurance
laws and regulations are imprecise and subject to varied
interpretations, and it is possible that some state
administrators could seek to limit retrocession arrangements with
a non-United States insurance company or with an insurance
company that is affiliated with the ceding company or its agents.
Moreover, from time to time, there are legislative and regulatory
proposals that could, if adopted, affect the MIC retrocession.
Extension of New Vehicle Warranties. Sales of mechanical
breakdown coverages, and thus the business of the Company, may be
adversely affected by changes in warranties provided by
manufacturers for new motor vehicles. If such warranties are
expanded, there could be an adverse effect on the sales of
mechanical breakdown insurance coverage, and thus on the
retrocession business of the Company. Beginning with 1989
models, GM's basic warranty was modified to cover defects in
material and workmanship on all components of new vehicles for 36
months or 50,000 miles subject to a $100 deductible after the
first 12 months or 12,000 miles. Beginning with 1992 models,
GM's basic warranty was modified to apply for 36 months or 36,000
miles; however, the previously existing $100 deductible was
eliminated.
Risk of Underwriting Losses. Mechanical breakdown risks are
unpredictable and highly volatile. If losses and expenses
incurred by the Company were to exceed its premium and investment
income, the Company would incur net losses.
Each series of Shares bears 90% of the losses incurred (to the
extent of its respective Subsidiary Capital Account balance) with
respect to business attributable to the MIC Agency Account
related to such series (as well as a pro rata share of 10% of all
losses incurred by the Company). To the extent such losses are
substantial, a holder of Shares might sustain a loss of all or a
portion of his or her investment even if other holders of Shares
are not similarly affected. In addition, underwriting losses
allocable to a particular series may, under certain
circumstances, be allocated to the other series. (See
"Description of Capital Stock -- Allocations to Subsidiary
Capital Accounts.")
Investment Experience. The profitability of the Company depends
in part on the amount of income that the Company earns on its
investments. There can be no assurance that the Company will
earn a net investment return which, when added to its
underwriting income, will be sufficient to offset its liability
for claims and expenses. In addition, the Company could suffer
investment losses due to declines in the market values of
securities in which it invests which may be caused by, among
other things, volatile interest rates. Substantially all of the
Company's assets are currently invested in U.S.
dollar-denominated securities issued outside of the United States
by non-United States private or governmental issuers and U.S.
dollar-denominated bank certificates of deposit issued by foreign
banks and foreign branches of U.S. banks. Investing in such
securities subjects the Company to certain risks not generally
associated with securities issued in the United States.
Moreover, the Company has recently been authorized to invest in
non-dollar denominated bonds on a fully currency-hedged basis.
When effectively implemented, such forward foreign currency
transactions will minimize the risk of loss resulting from a
decline in the value of the foreign currency relative to the
dollar, but may also limit the potential for gain in the event
the foreign currency's value increases in relation to the value
of the dollar. (See "Business of the Company -- Investment
Income.")
United States Tax Considerations. As discussed elsewhere herein,
the Company conducts a reinsurance business in Barbados and
executes and administers its reinsurance agreements and manages
its business affairs from Barbados. On this basis, the Company
believes that it should not be deemed to be engaged in business
within the United States through a permanent establishment, and,
therefore, the Company believes it should not be subject to
United States income tax. However, given the factual nature of
the questions involved and certain aspects of the Company's
treaty reinsurance program related to the United States, there
can be no assurance that for tax purposes the Company ultimately
will not be deemed to be engaged in business within the United
States through a permanent establishment. In such event, the
Company would be subject to United States income tax on business
profits attributable to such permanent establishment, as well as
an additional 5% branch profits tax.
Under captive insurance company provisions contained in the Tax
Reform Act of 1986, each holder of Shares generally will be
subject to United States income tax currently on his or her pro
rata share of the earnings of the Company, whether or not such
earnings are distributed. To the extent that the Company were
subject to United States income tax on its business profits, the
holders of Shares would not be subject to current tax on such
profits, but the holders of Shares would be subject to tax on
actual distributions of the Company with respect to such profits.
(See "United States Federal Tax Considerations -- United States
Federal Income Tax Consequences -- the Shareholders.")
No representation is made as to the effect that any change in
United States tax laws or the interpretation thereof may have on
the Company or holders of Shares.
Risks Related to Foreign Business Operations. The Company's
business is conducted outside of the United States and may,
consequently, be affected by changes in foreign governments and
by other political and economic conditions. As a Barbados
corporation, the Company is subject to the provisions of the
Barbados Companies Act, 1982. (See "Description of Capital Stock
- -- Barbados Corporate Law Provisions.") In addition, although
the Company has received a guarantee from the Barbados Minister
of Finance exempting it from Barbados taxes for a period ending
December 31, 2001, there is no assurance that the guarantee will
be extended beyond that date.
Competition and Loss of Business. The business of insuring motor
vehicle mechanical breakdown risks is highly competitive, with
many companies seeking the business produced by motor vehicle
dealers. Since all of the Company's business is currently
derived from the Retrocession Agreement, the volume of the
Company's business is dependent, to some extent, upon the
marketability of agreements and plans developed by GM and MIC
subsidiaries and offered through motor vehicle dealers. In
addition, GM may choose not to insure its liability under
mechanical repair plans with MIC or its subsidiaries. MIC
management believes that at present, MIC and its subsidiaries
underwrite approximately 20% of the mechanical breakdown
insurance in the United States on new GM vehicles. (See
"Business of the Company -- Competition.")
Barbados Regulatory Limitations. To the extent that the net
asset value of the Company does not meet the minimum requirements
for the Company as a whole under Barbados insurance laws and to
the extent that a Subsidiary Capital Account does not support the
business related to such account, the Company may reduce the
amount of its business attributable to such deficient Subsidiary
Capital Account.
Reliance on Outside Consultants. The Company does not have any
full-time officers or employes. The Company relies on outside
consultants for insurance management, day-to-day administrative
services, and investment advice. (See "Business of the Company
- -- Insurance Management Agreement," and "Business of the Company
- -- Investment Income.")
Dividends. Although the Company's Restated Articles of
Incorporation (the "Articles") (see Appendix A) provide for a
minimum annual dividend to holders of Shares under certain
circumstances, the ability of the Company to pay any dividend is
subject to compliance with Barbados insurance regulatory
requirements, the Barbados Companies Act and other limitations
provided in the Company's Articles. (See "Dividends.")
No Public Market; Restrictions on Transfers. There is no public
market for the Shares or the other capital stock of the Company,
and none is expected to develop. In addition, the Shares are
subject to substantial restrictions on transfer. Except for
transfers to certain members of a transferor's family, certain
trusts, certain business affiliates, or estates, a transfer of
any series of Shares is subject to the Company's right of first
refusal, and a transfer of less than all of the Shares of a
series cannot be made without the express written consent of the
Company. All transferees must agree to be bound by the
provisions of a Stock Purchase Agreement, including, among other
things, restrictions on the transfer of their Shares. (See
"Description of Capital
Stock -- Restrictions on Transfer," "Eligibility to Purchase
the Shares," and "Plan of Distribution.")
Share Redemption. The Board of Directors of the Company has the
right to cause a redemption of the Shares of any series at any
time and for any reason. This permits, among other things, the
Board of Directors to redeem, at its discretion, shareholders who
produce unsatisfactory business on a continuing basis. The Board
also may reject a request for redemption by a shareholder. (See
"Description of Capital Stock -- Redemption.")
THE COMPANY
Motors Mechanical Reinsurance Company, Limited (the "Company")
was incorporated in Barbados on June 12, 1986, and became
registered in Barbados as an insurer on June 30, 1986. The
Company's registered and principal offices are located at
Financial Services Centre, Bishops Court Hill, St. Michael,
Barbados and its telephone number is (809) 436-4895. The Company
was organized by MIC.
Pursuant to the Retrocession Agreement, the Company engages in
the business of assuming risks with respect to motor vehicle
mechanical breakdowns arising under insurance policies that are
reinsured by MIC and that are attributable to MIC Agency Accounts
in respect of which Shares are issued and outstanding. Under
the Retrocession Agreement, the Company has agreed to indemnify
MIC for losses that may be incurred by MIC under the Policies.
As consideration for the retrocession, the Company receives a
portion of the premiums paid to MIC in respect of the Policies.
The Retrocession Agreement constitutes the sole source of the
Company's insurance business. (See "Business of the Company.")
Barbados is an island nation located in the Atlantic Ocean. It
is the eastern-most island of the West Indies. Formerly a
British colony, Barbados gained its independence in 1966 and
maintains a parliamentary form of government. The currency of
Barbados currently is linked by law to the U.S. dollar at a fixed
exchange rate, which at present is two Barbadian dollars to one
U.S. dollar.
The Company conducts all of its business from Barbados and does
not conduct any of its business within the United States. It is
subject to general corporate and insurance regulation under the
laws of Barbados, including minimum net asset value and reporting
requirements. (See "Business of the Company -- Barbados
Regulation and Taxes.")
ELIGIBILITY TO PURCHASE THE SHARES
Shares of a series may be purchased only by an individual or
entity certified by the owner(s) of the Franchise(s) for which an
MIC Agency Account is maintained, as a purchaser of all or part
of a series of Shares in respect of such MIC Agency Account
("Eligible Purchaser"). There are no formal eligibility
requirements for certification; however, Franchise owner(s) have
complete discretion with respect to whom they choose to certify
(including themselves) and the Company has complete discretion to
accept or reject any offer to purchase Shares. No more than one
series of Shares is issued with respect to each MIC Agency
Account. No Shares of a series are issued unless executed Stock
Purchase Agreements (see Appendix B) for all Shares of that
series have been received and accepted by the Company.
A prospective purchaser is considered to be properly certified if
the Company has received a certificate in the form furnished by
the Company (see Appendix C) from each owner of the particular
Franchise(s) stating that the prospective purchaser has been
designated by such owner(s) to be eligible to purchase the
particular Shares. In addition, the prospective purchaser must
execute a Stock Purchase Agreement and forward that agreement,
together with payment for the Shares purchased, to the Company.
Stock Purchase Agreements are subject to acceptance by the
Company. (See "Plan of Distribution.")
Transfer of Shares is subject to certain restrictions. If less
than all the Shares of a series are transferred, the Company
must give its consent. In addition, the Company has a right of
first refusal to purchase any Shares which the holder attempts
to transfer. However, a transfer is not subject to either of the
foregoing restrictions if the transferee falls into one of the
categories of designated transferees set forth in the Articles.
(See "Description of Capital Stock -- Restrictions on Transfer.")
USE OF PROCEEDS
The offering of the Shares pursuant to this Prospectus is being
made on a continuous basis. This means that it is not possible
to predict how many series of Shares will ultimately be purchased
or the maximum net proceeds to be derived by the Company from
this offering.
The proceeds derived from this offering are added to the general
funds of the Company to provide capital to support its insurance
business. Under Barbados law, the Company is required to have
minimum net assets, determined by reference to the annual earned
premium, described more fully under "Business of the Company --
Barbados Regulation and Taxes." All of the Company's available
capital, including the proceeds of this offering, is invested by
its investment advisor in accordance with guidelines established
by the Board. (See "Business of the Company -- Investment
Income.") The Company believes that the proceeds derived from
this offering will be sufficient, together with its other
capital, to support the Company's insurance operations for the
foreseeable future.
DETERMINATION OF OFFERING PRICE
There is no public trading market for the Shares nor is one
expected to develop. The price per Share reflects the projected
capital needs of the Company and bears no relationship to any
valuation criteria.
DIVIDENDS
Dividends may be declared and paid at the discretion of the
Board, provided that each holder of Shares of a series will be
entitled to receive a minimum dividend, payable annually, equal
to 20% of the annual net income attributable to the Subsidiary
Capital Account associated with that series of Shares. In all
events, however, dividends are subject to the restrictions
described in the following paragraphs.
Pursuant to the general corporate laws of Barbados, dividends on
the Shares are payable only if after the payment: (a) the Company
would be able to pay its liabilities as they come due; and (b)
the realizable value of the Company's assets exceeds its
liabilities and stated capital of all classes. Dividends may not
be paid out of unrealized gains. Further, under Barbados
insurance law, the Company is required to maintain a minimum
capitalization of $125,000 and, in addition, the value of its
assets must exceed its liabilities by: (a) $125,000 where the
earned premium in the preceding financial year did not exceed
$750,000; (b) an amount equal to 20% of the earned premium for
the preceding financial year, where such income exceeded $750,000
but did not exceed $5,000,000; and (c) an amount equal to the
aggregate of $1,000,000 and 10% of the amount by which the earned
premium for the preceding financial year exceeded $5,000,000.
(See "Business of the Company -- Barbados Regulation and Taxes,"
and "Description of Capital Stock -- Barbados Corporate Law
Provisions.")
In addition to the provisions of Barbados law, the Articles place
limitations on the payment of dividends. Dividends may be
declared and paid only out of the earned surplus of the Company
and only if the Company, after giving effect to the distribution,
meets the Barbados margin of solvency requirements without regard
to any letters of credit. Further, dividends with respect to any
series of Shares may be paid only out of earned surplus
attributable to the Subsidiary Capital Account identified with
those Shares, and only to the extent that, after giving effect to
the dividend, the capital and surplus identified with that
Subsidiary Capital Account (without regard to any guarantee or
letter of credit) would meet its pro rata share, based on
allocable Premium Income, of the minimum margin of solvency
required of the Company under Barbados law, as described in the
preceding paragraph. To the extent a dividend, other than a
minimum dividend, is declared on the Shares, it will be declared
and paid subject to the foregoing limitations on all series of
Shares as a percentage of the net income and/or earned surplus
attributable to each series, provided that such percentage may
vary with the level of net income and/or earned surplus.
In May of 1990 and June of 1991, the Company declared minimum
dividends on the Shares in total amounts of $114,376 and
$150,317, respectively. In April of 1992, the Company declared a
dividend on the Shares aggregating $1,021,705 which was equal to
35% of earned surplus attributable to each series of Shares
meeting the above requirements. In April of 1993, the Company
declared a dividend on the Shares aggregating $2,021,504. This
dividend was declared as a varying percentage of earned surplus
attributable to each series of Shares with the percentage
applicable to each series varying from 30% to 50% depending on
the amount of earned surplus attributable to such series. In
April of 1994, the Company declared a dividend on the Shares
aggregating $2,156,304. This dividend was declared as a varying
percentage applicable to each series varying from 20% to 55%
depending on the amount of earned surplus attributable to such
series.
Dividends on the Common Stock are also subject to the
restrictions under Barbados law and the Articles described above.
In addition, the Articles provide that dividends may not be
declared or paid on the Common Stock unless and until each holder
of Shares of a series has received any minimum dividend to which
he is entitled for the current period and may be declared and
paid only to the extent that the earned surplus attributable to
the Common Stock exceeds Restricted Earned Surplus. (See
"Description of Capital Stock -- Allocations to Subsidiary
Capital Accounts.")
BUSINESS OF THE COMPANY
INTRODUCTION
The Company was incorporated in Barbados on June 12, 1986.
It became registered in Barbados as an insurer on June 30, 1986 and
commenced insurance operations in December, 1987.
The business of the Company is the assumption of motor vehicle
mechanical breakdown insurance risks arising under insurance
policies reinsured by MIC to the extent such policies are
attributable to an MIC Agency Account in respect of which a
series of shares is issued and outstanding. These policies are
issued either to General Motors Corporation ("GM") or to
automobile dealers, reinsured by MIC, and retroceded to the
Company. Shares of the Company's Participating Stock (the
"Shares") are sold to persons designated by owners of motor
vehicle sales franchises with respect to which MIC maintains an
MIC Agency Account. A separate series is created for Shares
relating to each MIC Agency Account, and a separate "Subsidiary
Capital Account" is maintained for each such series. The
profitability of the Company reflects both underwriting and
investment experience, which is allocated among the Subsidiary
Capital Accounts.
THE RETROCESSIONS
General Considerations. Reinsurance is a means of transferring
the risk of loss arising under a contract of insurance from the
company that initially insured the risk to the reinsurer.
Retrocession is the transfer of the risk borne by the reinsurer
(the "retroceding company") to another company which, in turn,
assumes such risk (the "retrocessionaire"). Retrocession
agreements are of numerous different types and may be
individually negotiated by the parties to meet particular needs.
Under a "quota share" indemnity retrocession agreement, such as
the Retrocession Agreement between MIC and the Company, the
retrocessionaire (the Company) is paid ("ceded") a certain
percentage of the premiums collected by the retroceding company
(MIC) and, in return, agrees to indemnify the retroceding company
for a certain percentage of the losses in respect of those risks.
Further, a "treaty" arrangement, such as is involved here, covers
all risks of a defined class.
The Retroceding Company. MIC, the retroceding company under the
Retrocession Agreement, is a stock insurance company organized
under the laws of New York. All of MIC's outstanding stock is
owned by General Motors Acceptance Corporation which, in turn, is
a wholly owned subsidiary of GM. MIC, directly and through its
subsidiaries, offers property and casualty coverages in all 50
states and the District of Columbia, as well as in Canada and
Europe. MIC consistently has been awarded A.M. Best Company's
insurance financial rating of A + (Superior), one of the highest
possible ratings.
MIC maintains MIC Agency Accounts in respect of Franchises to
which the risks to be retroceded can be attributed. (A single
MIC Agency Account may be established either for a single
Franchise or in respect of a group of Franchises treated as a
single business unit by MIC and its subsidiaries.) Currently,
there are more than 6,800 MIC Agency Accounts in respect of
Franchises through which mechanical insurance business is
produced.
Types of Risks Subject to Retrocession. Included in the base
price of the vehicle, automobile manufacturers traditionally
provide a limited warranty to purchasers of new vehicles, which
is designed to protect the purchaser against failures resulting
from defects in the materials used or workmanship during the
manufacturing process. These manufacturers warranties have
varied from year to year in scope and duration. Beginning with
1989 models, GM's basic warranty was modified to cover all
components of new vehicles for 36 months or 50,000 miles subject
to a $100 deductible after the first 12 months or 12,000 miles.
Beginning with 1992 models, GM's basic warranty was modified to
apply for 36 months or 36,000 miles, with no deductible.
Automobile manufacturers, dealers and others also may make
available to automobile purchasers service contracts or insurance
policies (both of which are commonly referred to as "service
contracts") that provide coverage against specific automobile
mechanical breakdowns during the new vehicle warranty period that
are not attributed to manufacturing defects and coverage for
certain specified mechanical breakdowns (whether or not caused by
manufacturing defects) well beyond such period. Such service
contracts often provide additional services, such as towing and
rental allowances.
MIC reinsures the following service contracts insured by its
subsidiaries for new and used vehicles:
1. GM offers a variety of service contract options under
the General Motors Protection Plan ("GMPP") to purchasers of new
GM motor vehicles and certain used GM vehicles. In the United
States, GM currently insures its liability under this plan with a
subsidiary of MIC.
2. Certain dealers offer automobile purchasers a dealer service
contract called the Value Guard Mechanical Repair Plan ("MRP"),
generally with respect to used cars and new non-GM cars that
provide protection against certain automobile mechanical
breakdowns. These service contracts provide varying degrees of
protection, depending upon the particular plan involved. Such
dealers obtain insurance covering their liability under these
plans from a subsidiary of MIC.
MIC also writes some mechanical insurance business on a direct
basis, none of which will be subject to reinsurance with the
Company and none of which is included in the definition of
"Policies."
The Retrocession Agreement -- Principal Agreement. The Company
has entered into a "quota share" retrocession agreement (the
"Agreement") which became effective as of December 11, 1987, the
date Shares were first issued. Pursuant to the Agreement, MIC is
obligated to retrocede to the Company, and the Company is
obligated to assume, MIC's risks in respect of policies issued by
any MIC subsidiary and reinsured by MIC that cover mechanical
breakdown risks, to the extent that risks under such policies are
attributable to an MIC Agency Account in respect of which a
series of Shares is issued and outstanding (the "Policies"), and
such risks are insured on or after the effective date of the
Agreement. Under the Agreement, MIC is not obligated to
retrocede any risk to the Company in excess of the amount allowed
under applicable state laws concerning the retrocession of risks
located in the particular state. (See "Risk Factors --
Restrictions Applicable to Certain Retrocessions.")
Pursuant to the Agreement, MIC retrocedes to the Company 75% of
MIC's risk in respect of each Policy at the time it is written.
Such retrocession remains in effect for the duration of the
underlying Policy. With respect to this cession of 75% of the
risk, MIC pays the Company 56.25% of the gross premiums it
receives, reduced by any related agents' or brokers' commissions.
MIC retrocedes the remaining 25% of its risk in respect of each
such Policy on a monthly basis. In connection with this
retrocession of 25% of the risk, MIC pays the Company 18.75% of
the original gross premium, reduced by any related agents' or
brokers' commissions, as earned.
Thus, for assuming 100% of each risk the Company receives, in the
aggregate, 75% of the original gross premium with respect to the
risk, reduced by related agents' or brokers' commissions, if any.
The remaining 25% of the premium is retained by MIC as a ceding
commission. The Company generally is not otherwise required to
reimburse MIC for expenses incurred by MIC with respect to the
Policies. Settlements between the Company and MIC are made on a
quarterly basis.
Pursuant to the Agreement, the Company, at its own expense, to
the extent permitted by the underlying reinsurance agreement, may
join MIC or its ceding company in the defense or control of any
claim, loss, or legal proceeding that results in, or is likely to
result in liability for the Company. However, because MIC
controls the Company, MIC will indirectly control any
determination by the Company whether it will take such action.
The Company will not be liable for any damages assessed against
MIC arising out of its conduct in investigating, negotiating,
defending, or handling any claims or suits or in dealing with its
policyholders.
The Agreement requires that, as security for the amount of the
Company's liability to MIC thereunder, the Company furnish, to
the extent requested by MIC, collateral in the form of an
irrevocable letter of credit of at least 12 months duration equal
in amount to the unearned premium in respect of risks retroceded
and unpaid loss reserves (including reserves for losses incurred
but not reported) otherwise required to be maintained by MIC in
respect of the Policies. This letter of credit must be issued by
a bank acceptable to MIC. As of December 31, 1993, the Company
provided MIC with such a letter in the amount of $32,250,000.
The Agreement may be terminated at any time by mutual consent of
the parties, or by either party upon 30 days written notice.
Upon termination of the Agreement, MIC and the Company will
remain bound by their respective obligations under the Agreement
with respect to risks retroceded prior to the close of business
on the date of termination. However, risks not yet retroceded to
the Company under the Agreement shall remain risks of MIC.
The Retrocession Agreement -- Supplemental Agreement. MIC from
time to time, enters into agreements with Franchise owners for
which an MIC Agency Account is established, pursuant to which
MIC, acting for itself and on behalf of certain of its
subsidiaries, agrees to cede or retrocede to another insurance
company mutually satisfactory to MIC and the respective Franchise
owners the unexpired liability with respect to service contracts,
insured under the Policies, sold after the date specified in each
such agreement. This liability can be ceded or retroceded to
dealer-owned companies organized specifically with respect to a
particular Franchise or, if a series of Shares is issued which
relates to the Franchise, pursuant to an agreement between MIC
and the Company (the "Supplemental Retrocession Agreement"). For
this purpose, unexpired liability means MIC's liability in
respect of the remaining period of coverage under the Policy as
of the effective date of the cession. Under the Supplemental
Retrocession Agreement, unexpired liability in respect of the
Policies is assumed on the same basis as risks retroceded to the
Company under the principal Retrocession Agreement.
Loss Reserves. Reserves are balance sheet liabilities
representing estimates of amounts needed in the future to pay
claims with respect to insured events which have occurred as of
the balance sheet dates.
For purposes of establishing loss reserves, the Company relies
upon the advice of MIC. Loss reserves are established after an
annual actuarial review, based on judgments of the effects of
technological change, manufacturer's warranties, and MIC's
historical experience with automotive mechanical breakdown risks.
Consequently, the determination of loss reserves is a process
inherently subject to a number of highly variable factors. Any
adjustments to reserves are reflected in the operating results
for the periods in which they become known.
The Company's incurred loss ratios (losses incurred as a
percentage of net premium earned) on all mechanical business for
the fiscal years ended December 31, 1993, 1992, and 1991 were
70.7%, 62.8%, and 68.2%, respectively.
The following table sets forth an analysis of changes in the loss
reserves for the fiscal years ended December 31, 1993, 1992 and
1991:
Period Ended
12/31/91 12/31/92 12/31/93
Beginning balance in
reserves for losses..... $1,075,123 $1,396,542 $1,622,855
Add-provision for losses
incurred related to:
Current claim year... 7,301,654 8,461,984 11,046,932
Prior claim years.... (282,726) (297,535) (134,249)
Total............. 7,018,928 8,164,449 10,912,683
Deduct-paid losses
attributable to:
Current claim
year.................. 5,948,952 7,025,671 9,363,720
Prior claim
years................. 748,557 912,465 1,261,788
Total................. 6,697,509 7,938,136 10,625,508
Ending balance in reserves
for losses..............$1,396,542 $1,622,855 $1,910,030
The following table analyzes the development of loss and loss
adjustment expense, from February 1, 1989 through December 31,
1993.
1/31/90 12/31/90 12/31/91 12/31/92 12/31/93
Liability for
unpaid claims
and claims
adjustment
expense $ 766,912 $1,075,123 $1,396,542 $1,622,855 $1,910,030
Paid (cumulative)
in subsequent
year(s) $ 666,866 $ 748,557 $ 912,465 $1,261,788
Estimated unpaid
liability as of
year end* 2,393 43,840 186,542 226,818
Cumulative
Deficiency
(Redundancy)$ (97,653)$ (282,726)$ (297,535)$ (134,249)
*/ Because mechanical breakdown claims are generally paid within
90 days of when they are incurred, liability for unpaid claims
incurred in prior years is negligible. Accordingly, liability
for unpaid claims incurred in all prior years has been combined
at each year end.
The table shows initial estimated reserves at December 31, 1993,
1992, 1991 and 1990 and January 31, 1990 and amounts paid on
claims unsettled at each prior period end. Claims are typically
processed for payment at the time the claim is reported.
Therefore, the recorded claim liability at each year end
represents the estimated incurred but not reported claims and
claims in the process of payment. The cumulative deficiency or
redundancy represents the total change in reserve estimates
covering prior years.
It should be noted that the policies reinsured by the Company are
written for multiple years (up to six years) and losses do not
occur equally over the period for which the policy is written but
tend to be clustered in the later years. Therefore, loss
experience for prior years may not be indicative of that for
future years.
INVESTMENT INCOME
A major source of income to an insurance company is income earned
on the investment of amounts not currently required to meet
claims or expenses. The principal funds available for investment
by the Company come from accumulated capital, and the cumulative
excess of premiums collected over losses and operating expenses
paid.
The Company's funds are invested in a manner consistent with
investment guidelines that are established by the Board. Under
the guidelines in effect prior to April, 1994, the Company was
permitted to invest only in U.S. dollar-denominated securities
issued outside of the United States by non-United States private
or governmental issuers, and U.S. dollar-denominated bank
certificates of deposit issued by foreign banks and foreign
branches of U.S. banks. Subject to the satisfaction of certain
conditions, the Board authorized, in April, 1994, limited
investments in non-dollar denominated bonds, on a fully currency-
hedged basis. The Company may invest only in securities and
certificates which are rated at least Aa3 by Moody's or AA- by
Standard & Poor's or the equivalent, or are guaranteed by such an
issuer. As of April, 1994, certain unrated securities may also
be held if, in the opinion of the investment manager, they have
at least equivalent credit standing to the above rating standard.
The Board reviews on a regular basis and, where appropriate,
revises the investment objectives and guidelines for the
Company's funds. There can be no assurance, however, as to
whether a particular investment objective, once adopted, can be
achieved or that adverse factors would not cause a decrease in
the overall value of the Company's investment portfolio.
Investments in non-U.S. securities, particularly those of
non-governmental issuers, may involve considerations not
ordinarily associated with investments in domestic issuers.
These considerations include, but are not limited to, the
possibility of expropriation, the unavailability of financial
information or difficulty in interpreting such information when
it is prepared under foreign accounting or regulatory standards,
the possible negative impact of political, social or diplomatic
developments, and the possible imposition of withholding taxes by
foreign taxing authorities.
Changes in interest rates in the quarter ended March 31, 1994
adversely affected the market values of the Company's investment
portfolio at that date and its investment income in the quarter
then ended as compared with the quarter ended March 31, 1993.
Realized losses on the sale of investment securities in the
quarter ended March 31, 1994 were $303,389 compared to realized
gains of $378,444 in the quarter ended March 31, 1993.
Unrealized losses on investment securities held at March 31, 1994
were $1,163,467 compared to unrealized gains at December 31, 1993
of $99,886.
Rothschild Asset Management Limited ("Rothschild") manages the
investment and reinvestment of the Company's funds in accordance
with the investment policies and guidelines established by the
Board. Rothschild, which is one of the leading institutions
engaged in the management of offshore fixed-income portfolios,
and which has been providing this service since 1974, is an
affiliate of NM Rothschild and Sons Limited, a prominent merchant
bank in London which has been in the investment management
business worldwide for more than 100 years. Rothschild charges a
management fee of 0.3% per annum on the first $20,000,000 of
assets under management based on the market value of the
Company's investment portfolio at the end of each calendar
quarter, and 0.15% per annum on the excess thereof.
EMPLOYES
The Company does not have any full-time employes. Rather, the
Company relies on Alexander Insurance Managers (Barbados) Ltd.
(the "Manager"), to handle its day-to-day operations. (See
"Business of the Company -- Insurance Management Agreement,"
below.) In addition, corporate secretarial services for the
Company are provided by Colybrand Company Services Limited of St.
Michael, Barbados. The Board and the committees thereof,
however, remain responsible for the establishment and
implementation of policy decisions.
COMPETITION
The insurance business is extremely competitive. MIC management
believes that at present, MIC and its subsidiaries are, as a
group, one of the largest mechanical breakdown insurers of new GM
vehicles in the United States. There are other major companies
offering similar coverage. Because the insurance business of the
Company is limited to the assumption of certain mechanical
breakdown insurance business ceded by MIC, the profitability of
the Company depends to a large degree on the success experienced
by MIC and its affiliates in competing with those other insurers.
Many commercial insurance groups are seeking to capture
additional mechanical insurance business by offering to assist
automobile dealers in the formation of their own dealer-owned
reinsurance companies. MIC itself has assisted in the
establishment of such companies for a number of qualified GM
dealers. However, MIC believes that participation in the Company
represents a more practical alternative for dealers who do not
have the available capital, insurance management expertise or
time for the personal involvement necessary for their own
reinsurance company.
INSURANCE MANAGEMENT AGREEMENT
The Company has entered into an Insurance Management Agreement
(the "Management Agreement") with the Manager, pursuant to which
the Manager collects and disburses funds on behalf of the
Company, provides bookkeeping, clerical, telephone, telex, and
other services for the Company, and advises and consults with the
Company in regard to all aspects of the Company's retrocession
activities.
Pursuant to the Management Agreement, the Manager has undertaken
to maintain an office in Barbados to perform its duties.
Further, during the term of the Management Agreement and
generally for a period of one year thereafter, the Manager has
agreed not to provide management or accounting services for any
other company which, by the nature of its operations, is
offering, insuring or reinsuring mechanical breakdown and/or
extended warranty or related coverages on a multi-state basis in
the United States or Canada with respect to motor vehicles sold
by franchised GM dealerships. Under the terms of the Management
Agreement, the Company pays the Manager a fee based on hourly
rates for services performed. For the year ended December 31,
1993, the Company paid fees to the Manager in the amount of $180,135.
The Manager is responsible for the payment of the salaries of its
officers and employes and all office and staff overhead and other
costs attributable to its services on the Company's behalf.
However, out-of-pocket expenses, such as telephone, telex,
postage, travel, and other items are borne by the Company on an
expense reimbursement basis.
The Manager was incorporated in Barbados in 1984, and is an
affiliate of Alexander and Alexander, an international insurance
brokerage and insurance consulting firm. The Manager performs
services similar to those performed for the Company for several
other entities. The Manager has nine employes. In addition, the
Manager may draw upon the resources of its affiliates as needed
to provide the services contemplated under the Management
Agreement. No employe of the Manager devotes all of his or her
time to the business of the Company. However, the Manager is
obligated to devote all employe time necessary to ensure the
performance of the Manager's duties under the Management
Agreement. The Manager is subject to the control and direction
of the Board.
The Manager has served in that capacity since 1986. The current
Management Agreement became effective on March 19, 1992 and may
be terminated by either party as of the end of the then current
fiscal year by the giving of written notice to the other party by
September 1 of that year.
BARBADOS REGULATION AND TAXES
Insurance Regulation. The Company is subject to regulation under
the Barbados Exempt Insurance Act, 1983, as amended (the "Exempt
Insurance Act"). The Exempt Insurance Act and related
regulations set forth a number of requirements applicable to
insurers doing business in Barbados. The principal requirements
are as follows:
(1) the Company is required to maintain a principal office in
Barbados, appoint an auditor, and have a resident citizen of
Barbados as one of its directors;
(2) the Company must maintain assets that exceed its liabilities
by:
(a) $125,000, where the earned premium in the preceding
financial year did not exceed $750,000;
(b) an amount equal to 20% of the earned premium for the
preceding financial year where the earned premium
exceeded $750,000 but did not exceed $5,000,000; and
(c) an amount equal to the aggregate of $1,000,000 and 10%
of the amount by which the earned premium for the
preceding financial year exceeded $5,000,000.
(3) the Company must have audited financial statements prepared
in the prescribed form ("Statutory Financial Statements") in
respect of its insurance business for each year;
(4) the Company must submit its Statutory Financial Statements
to the Barbados Supervisor of Insurance ("Supervisor")
within six months after the end of the relevant financial
year; and
(5) the Company must submit to the Supervisor on an annual basis
a certificate of its auditor that the Company is in
compliance with the requirements of the Insurance Act as at
the balance sheet date.
Taxes. Under the Exempt Insurance Act, no income tax, capital
gains tax or other direct tax or impost is levied in Barbados on
(1) the profits or gains of the Company, (2) the transfer of the
securities of the Company to any person who is not a resident of
Barbados, (3) the Company, its shareholders or transferees in
respect of the transfer of all or any part of the Company's
securities or other assets to another licensee under the Exempt
Insurance Act or to any person who is not a resident of Barbados,
or (4) any portion of any dividend, interest, or other return
payable to any person in respect of his or her holding any Shares
or other securities of the Company. The Company has received a
guarantee from the Minister of Finance of Barbados that such
benefits and exemptions will be available for a period ending
December 31, 2001.
Exchange Control. Pursuant to the Exempt Insurance Act, the
Company is exempt from the Barbados Exchange Control Act.
Accordingly, the Company may hold any non-Barbadian currency and
convert that currency into any other currency without
restriction.
FACILITIES
The Company neither owns nor maintains any office space or
facilities. Rather, the business office for the Company is
provided by the Manager and is located at Financial Services
Centre, Bishops Court Hill, St. Michael, Barbados. The Company
believes that these facilities are adequate for its current and
anticipated future needs. In addition, the Manager supplies all
equipment for the Company, and maintains all insurance records
for the Company.
SELECTED FINANCIAL DATA
The following selected financial data for the years ended
December 31, 1993, 1992 and 1991, the eleven month period ended
December 31, 1990 and the fiscal year ended January 31, 1990 have
been derived from financial statements audited by Deloitte &
Touche, independent chartered accountants, whose report with
respect to their audits of the financial statements as of
December 31, 1993 and 1992 and for each of the three years in the
period ended December 31, 1993 is included elsewhere in this
Prospectus. The data presented for the three month periods ended
March 31, 1994 and 1993 are derived from unaudited financial
statements presented elsewhere in this Prospectus and, in the
opinion of management, include all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the
data for such periods. The results for the three month period
ended March 31, 1994 are not necessarily indicative of the
results to be expected for the full fiscal year. This
information should be read in conjunction with the information
under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements
and related notes included elsewhere in this Prospectus.
Three Months Ended March 31,
1994 1993
Premiums Assumed $8,816,331 $5,389,885
Premiums Earned 4,571,906 3,572,828
Net Investment Income 267,303 839,973
Total Income 4,839,209 4,412,801
Less Losses and
Expenses 4,516,391 3,679,676
Net Income* 322,818 733,125
Dividends Per Common
Share 0 0
Total Assets 53,984,124 39,843,550
Total Policy Reserves
and Other Liabilities46,920,295 31,646,894
Stockholders' Equity 7,063,829 8,196,656
Dividends Paid on
Participating Shares 0 0
Periods Ended December 31,**
January 31
1993 1992 1991 1990 1990
Premiums
Assumed $27,779,063$19,386,455$16,784,405$12,957,759 $10,032,140
Premiums
Earned 15,429,611 13,005,184 10,292,788 8,177,525 5,183,768
Net Investment
Income 2,700,242 2,522,712 1,792,947 843,021 727,844
Total Income 18,129,853 15,527,896 12,085,735 9,020,546 5,911,612
Less Losses and
Expenses 15,425,14 12,020,682 10,165,350 8,280,612 5,297,836
Net Income* 2,704,707 3,507,214 1,920,385 739,934 613,776
Dividends Per
Common Share 0 0 0 0 0
Total Assets 50,359,633 36,847,490 28,124,056 18,759,382 12,507,645
Total Policy
Reserves and
Other
Liabilities 42,430,269 29,777,783 23,148,003 16,347,245 11,238,143
Stockholders'
Equity 7,929,364 7,069,707 4,976,053 2,412,137 1,269,502
Dividends Paid on
Participating
Shares 2,021,504 1,021,705 150,317 114,376 0
*/ Information as to earnings per share is not provided
inasmuch as the results for each series of stock will vary with
the underwriting experience attributable to each Subsidiary
Capital Account established with respect to that series. See
Note 2(f) to the financial statements.
**/ In May of 1990, the Company changed its fiscal year end from
January 31 to December 31.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity. The Company expects to generate sufficient funds from
operations to cover current liquidity needs. The Company's
liquidity requirements are related to payment of insurance
losses, administrative expenses, and dividends. Premiums
generated by the Company's reinsurance business, combined with
investment earnings plus proceeds from the sale of Shares, will
continue to be the principal sources of funds for the Company.
Although losses are expected to increase due to the increased
level of premiums assumed in each preceeding year and the
anticipated incidence of claims following the expiration of
manufacturers' warranties, available funds from the sources
identified above have also grown. Net cash provided by operating
activities has increased from $5,386,977 in 1991 and $7,598,500
in 1992 to $12,422,648 in 1993. The Company believes that such
funds will be sufficient to meet its liquidity requirements in
1994 and in future years to which its reinsurance liabilities
extend. No capital expenditures are expected during the next few
years.
See "Dividends" for a discussion of dividends paid and legal
restrictions on the payment of dividends.
On April 8, 1994, the Board of Directors authorized the payment
of dividends to eligible holders of Participating Shares
aggregating $2,156,304.
Capital Resources. Capitalization of the Company, as of
December 31, 1993, was comprised of paid-in capital with respect
to the Common Stock of $200,000, paid-in capital with respect to
the Shares of $1,417,500 (compared with $1,072,500 and $817,500
as of December 31, 1992 and 1991, respectively), and earnings
retained for use in the business. As of March 31, 1994, the
share capital of the Company was $1,692,500, comprised of paid-in
capital with respect to the Common Stock of $200,000 and paid-in
capital with respect to Participating Shares of $1,492,500. In
addition, the Company had surplus from retained earnings in the
amount of $6,534,796 and unrealized depreciation on marketable
securities of ($1,163,467).
Barbados law requires that the Company's net assets equal at
least the aggregate of $1,000,000 and 10% of the amount by which
the earned premium exceeded $5,000,000 in the previous fiscal
year. If the Company's net asset ratio is less than mandated by
Barbados law, the Company has the right to reduce the business
related to a Subsidiary Capital Account by retrocession or any
other means to the extent necessary to permit the Subsidiary
Capital Account to meet its pro rata share of the Company's
required capital and surplus. At January 1, 1994, the Company's
required minimum net assets computed in accordance with Barbados
law was approximately $2,042,961, compared to total capital and
retained earnings of $7,929,364.
First Quarter Ending March 31, 1994. Net premium volume
continues to increase as additional participants are added to the
program. During the quarter ended March 31, 1994, 10 new series
of Shares were added bringing the total number of series approved
to 199. Premiums earned increased by $999,078 over the
comparable period of 1993. The ratio of losses incurred to
premiums earned for the quarter under review is 69.8% as compared
to 73.1% for the quarter ended March 31, 1993.
Expenses increased by $836,715 to $4,516,391 in the quarter ended
March 31, 1994 from $3,679,676 in the first quarter of 1993. Net
underwriting income in the quarter ended March 31, 1994 increased
$162,363 to $55,515 compared with an underwriting loss of
$106,848 in the 1993 quarter. The increase in net underwriting
income, however, was offset by a decline in investment income of
$572,670, from $839,973 in the first quarter of 1993 to $267,303
in the comparable period of 1994, due to realized losses on the
sale of invested assets. The Company has reported net income for
the three month period ended March 31, 1994 of $322,818 compared
to net income of $733,125 for the three month period ended March
31, 1993.
Changes in interest rates in the quarter ended March 31, 1994
adversely affected the market values of the Company's investment
portfolio at that date and its investment income in the quarter
then ended as compared with the quarter ended March 31, 1993.
Realized losses on the sale of investment securities in the
quarter ended March 31, 1994 were $303,389 compared to realized
gains of $378,444 in the quarter ended March 31, 1993.
Unrealized losses on investment securities held at March 31, 1994
were $1,163,467 compared to unrealized gains at December 31, 1993
of $99,886. The Company's investment guidelines do not permit
the use of financial instrument derivatives in managing interest
rate risk.
Cash, cash equivalents and investments valued at market have
increased from $36,671,259 at the beginning of the year to
$37,946,767 at March 31, 1994.
FASB Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" is effective for years beginning
after December 15, 1993 and will require the Company to classify
its securities holdings into three categories (trading, available
for sale, and held to maturity). The Company adopted Statement
No. 115 in 1994 and classified its securities portfolio as
available for sale. Adoption of the statement did not have a
material effect on the Company's financial position and results
of operations.
Results of Operations - Year Ended December 31, 1993. The
Company became operational during the fiscal year ended January
31, 1988. The Company's first year of full operation was the
fiscal year ended January 31, 1989. In May of 1990, the Company
changed its fiscal year end from January 31 to December 31. A
full 12 months of underwriting activity are reflected in the
financial statements for all periods presented. The results of
operations for the 11-month period ended December 31, 1990,
however, include only 11 months' investment income and
administrative expense. Accordingly, results for the 11-month
period ended December 31, 1990 are not fully comparable with
results for full fiscal years.
During the fiscal year ended December 31, 1993, the Company had
net income of $2,704,707 compared to $3,507,214 and $1,920,385
for the fiscal years ended December 31, 1992 and 1991,
respectively. The reduction in net income during 1993 compared
to the previous year is the result primarily of an increase in
losses incurred as discussed below. The Company had earned
premiums of $15,429,611 compared to $13,005,184 and $10,292,788
for the fiscal years ended December 31, 1992 and 1991,
respectively. Increased premium income has been generated by the
addition of 46 new series during the year ended December 31,
1993, and the continuing flow of reinsurance premiums from series
issued in prior fiscal years. There were 189 series of Shares
outstanding at December 31, 1993 compared to 143 and 109 series
of Shares outstanding at December 31, 1992 and 1991,
respectively. Investment income during the period totaled
$2,700,242 compared to $2,522,712 and $1,792,947 for the fiscal
years ended December 31, 1992 and 1991, respectively. These
gains are attributable to an increase in assets under management
which were partially offset by lower interest rates. At present,
the Company's investments are comprised entirely of U.S.-dollar
denominated fixed-income securities. In the future, the Company
may also invest in foreign-denominated bonds in situations where
the investment manager anticipates a higher rate of return (net
of hedging costs) than would be available in the market for
similarly rated U.S.-dollar denominated bonds. (See "Business of
the Company -- Investment Income.")
The Company incurred losses and expenses during the fiscal year
ended December 31, 1993 of $15,425,146 compared with $12,020,682
and $10,165,350 for the fiscal years ended December 31, 1992 and
1991, respectively. This was comprised of provisions for losses
incurred during the period of $10,912,683, ceding commissions and
excise taxes of $4,009,285 and operating expenses of $503,178.
Losses incurred in 1992 and 1991 were $8,164,449 and $7,018,928,
respectively. The ratio of losses incurred to premiums earned
for the fiscal year ended December 31, 1993 was 70.7% compared to
62.8% and 68.2% for the fiscal years ended December 31, 1992 and
1991, respectively. Management believes the Company's increased
loss experience in 1993 reflects the effects of changes in
underlying manufacturer's warranties. The expiration during 1992
of certain unlimited mileage mechanical plans that had been
retroceded to the Company and the elimination of certain
deductibles under warranties for certain 1992 model vehicles had
a favorable impact on 1992 loss experience. On the other hand,
the reduction of warranties from 50,000 to 36,000 miles for
certain 1992 model vehicles adversely affected 1993 losses.
Management does not believe that the level of losses will
continue to rise. The loss ratio in the first quarter of 1994
was 69.8%, as compared to 73.1% for the quarter ended March 31,
1993.
The Company incurred operating expenses during the fiscal year
ended December 31, 1993 of $503,178 compared to $478,475 for the
fiscal year ended December 31, 1992 and $307,301 in 1991. In
1993 and 1992, the Company paid share issuance costs and
allocated such costs to the Subsidiary Capital Account for the
Common Stock. In previous years, these expenses had been paid by
MIC pursuant to an agreement by which MIC agreed to pay the costs
of issuing shares until such costs could be allocated to the
Subsidiary Capital Account for the Common Stock. Share issuance
costs for the fiscal year ended December 31, 1993, which were
paid by the Company and charged to the Subsidiary Capital Account
for the Common Stock, were $74,461 compared to $80,298 for the
fiscal year ended December 31, 1992.
Pursuant to the Retrocession Agreement, the Company must furnish
to MIC collateral in the form of an irrevocable letter of credit
of at least 12 months duration generally equal in amount to the
unearned premium in respect of risks retroceded and unpaid loss
reserves (including reserves for losses incurred but not
reported) otherwise required to be maintained by MIC in respect
of the Policies. As of December 31, 1993, the Company had
furnished such a letter of credit in the amount of $32,250,000.
The Company had unearned premium reserves of $44,657,483 as of
March 31, 1994, $40,413,058 as of December 31, 1993, and
$28,063,606 as of December 31, 1992. These amounts are
attributable to the long-term nature of the contracts sold. Such
contracts may extend for 48 months, 60 months, or 72 months from
date of issue. In addition, the risk of loss to the Company
under the contract arises primarily after the underlying
manufacturer's warranty expires -- usually after 36 months or
36,000 miles, whichever comes first. Because the Company has
little risk of loss during that period, most premium is not
recognized until the expiration of the underlying manufacturer's
warranty. Since very little premium is recognized as earned
until the expiration of the underlying warranty, most of the
premium in any year is recorded as unearned.
MANAGEMENT
DIRECTORS AND OFFICERS
Five of the current directors of the Company were elected by MIC
through its ownership of the Common Stock. One director was
elected by the holders of the Shares at the Annual Shareholders
Meeting held on April 8, 1994. The directors and officers of the
Company are as follows:
POSITION WITH THE COMPANY
(AND OTHER EMPLOYMENT
DURING
NAME AGE PAST FIVE YEARS)
Joseph J. Pero ............ 54 President and Director
(President and Director,
MIC).
Mr. Pero has been a Director
since 1986. He served as
Vice-President from 1986 until
1987 when he was appointed
President.
Vincent K. Quinn .......... 63 Executive Vice-President
and Director (Executive
Vice-President and
Director, MIC).
Mr. Quinn has been a Director
since 1986. He was appointed
Executive Vice-President in
April of 1992.
Louis S. Carrio, Jr. ...... 50 Vice-President and
Director (Vice-President,
MIC).
Mr. Carrio became a Director
and was appointed Vice-
President in June of 1991.
Peter R. P. Evelyn ........ 52 Director (Attorney,
Evelyn, Gittens & Farmer,
a Barbados law firm).
Mr. Evelyn has been a Director
since 1986.
Donald C. Mealey........... 58 Director (President, Don
Mealey Chevrolet, Inc.).
Mr. Mealey became a Director
in April of 1994.
Ronald W. Jones ........... 41 Vice-President, Finance
(Managing Director,
Alexander Insurance
Managers (Barbados)
Ltd.).
Mr. Jones has served as Vice-
President, Finance since 1987.
Michael R. Boyce ........... 54 Secretary (Principal,
Colybrand Company
Services, Limited,
Barbados, since 1993;
previously principal,
Price Waterhouse, Eastern
Caribbean).
Mr. Boyce was elected
Secretary in 1994. Mr. Boyce
served previously as Assistant
Secretary to the Company.
The directors and officers named above serve in those capacities
until the annual meeting of shareholders next following their
election.
ALTERNATE DIRECTORS
The By-Laws allow for the election of an alternate director for
each director. The holders of the Common Stock may elect up to
five alternate directors and the holders of the Shares may elect
one alternate director. An alternate director may attend
meetings of directors and vote in respect of any matter presented
if the director for whom he is an alternate is not present.
Alternate directors shall not otherwise be deemed directors of
the Company for any purpose. At the Annual Shareholders Meeting
held on April 8, 1994, alternate directors were elected for
Messrs. Quinn and Carrio.
COMMITTEES OF THE BOARD
The By-Laws authorize the Board to delegate any of its powers to
committees of two or more directors. The only currently existing
committee of the Board is the Nominating Committee which consists
of three directors, including one elected by the holders of
Shares and two elected by the holders of the Common Stock. The
duties of the Nominating Committee are limited to the nomination
of one person, who may not be an incumbent director but may be an
incumbent alternate director, to stand for election as a director
representing the holders of Shares at the next following annual
meeting and the nomination of one person, who may not be an
incumbent director, to stand for election as an alternate
director by the holders of Shares at the next following annual
meeting.
REMUNERATION
No director or officer of the Company is compensated directly by
the Company for his services as such. However, each director and
officer of the Company is reimbursed for expenses incurred for
attendance at Board, committee, and shareholder meetings. In
addition, Mr. Jones is an officer of the Manager, which receives
management fees and compensation for data processing services;
Mr. Evelyn is a member of the law firm of Evelyn, Gittens &
Farmer, which serves as the Company's Barbados counsel; and Mr.
Boyce is affiliated with Colybrand Company Services Limited, St.
Michael, Barbados, which provides corporate secretarial services
to the Company.
PRINCIPAL SHAREHOLDER
MIC owns all of the issued and outstanding shares of the Common
Stock of the Company, which consist of 2,000 shares. Donald C.
Mealey, a director, owns 140 shares in three series of
Participating Stock.
DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized to issue 2,000 shares of
Common Stock, without nominal or par value per share, all of
which have been issued to MIC and are outstanding. In addition,
the Company is currently authorized to issue 100,000 shares of
Participating Stock (the "Shares"), also without nominal or par
value per share (collectively, the Shares and the Common Stock
are referred to as the "Capital Stock"). The Shares are issued
in series of 100 shares. As of March 31, 1994, 19,900 Shares
representing 199 series had been issued and were outstanding and
were held of record by 338 shareholders. Subsequently three
series totalling 300 shares were redeemed due to unsatisfactory
performance. All of the Capital Stock is, when issued and
outstanding, fully paid and nonassessable. No shares of Capital
Stock have conversion, preemptive or sinking-fund rights.
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company has established a Subsidiary Capital Account with
respect to the Common Stock as a class, and establishes such an
account with respect to each series of Shares at the time a
series is issued. Subsidiary Capital Accounts are maintained
solely for the purpose of the allocations described below, and do
not serve any other legal or accounting function. None of the
Company's assets are segregated or earmarked with respect to
those accounts.
The consideration received by the Company upon the issuance of a
particular series of Shares and the Common Stock as a class are
allocated to the Subsidiary Capital Account for that series or
class. Items of income and expense, and losses, attributable to
insurance underwriting activities are determined and allocated to
the Subsidiary Capital Accounts as of the end of each quarter.
Investment experience, and other items of income and expense,
gains and losses and distributions with respect to the Capital
Stock, are determined and allocated to the Subsidiary Capital
Accounts as of the end of each quarter. All such accounting
determinations are made using United States generally accepted
accounting principles, unless otherwise required by the Articles.
For purposes of the following discussion, items shall be
"related" to the Subsidiary Capital Account for the series
identified with the MIC Agency Account to which such items can be
attributed.
(1) Allocations with respect to underwriting activities are made
as follows:
(a) With respect to premiums ceded by MIC to the Company,
100% to the related Subsidiary Capital Account;
provided, however, that an amount equal to 1-1/3% of
those premiums, net of related ceding commissions, are
subtracted from such Subsidiary Capital Account and
allocated to the Subsidiary Capital Account for the
Common Stock.
(b) With respect to any agents' or brokers' commissions,
commissions recaptured, unearned premiums, reinsurance
premiums ceded, and any United States excise tax, 100%
to the related Subsidiary Capital Account.
(c) With respect to losses incurred, and any amount of
losses recovered through salvage, subrogation,
reimbursement or otherwise,
(i) Ninety percent (90%) to the related Subsidiary
Capital Account; and
(ii) The remainder among all Subsidiary Capital
Accounts of the Shares pro rata in accordance with
the relative earned premiums attributable to those
accounts for the calendar quarter in which the
losses are incurred.
(d) With respect to return premiums, 98-2/3% to the related
Subsidiary Capital Account and 1-1/3% to the Subsidiary
Capital Account for the Common Stock.
(2) Any expenses or liabilities attributable to day-to-day
Company operations, excluding any United States Federal
income taxes, are allocated among all Subsidiary Capital
Accounts for the Shares pro rata in accordance with the
relative earned premiums allocated to those accounts for the
quarter in which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any
interest thereon or any penalties related thereto) is
allocated among the Subsidiary Capital Accounts based upon
the relative contribution of each of those accounts to the
taxable income of the Company upon which the tax (or any
interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the sale and
issuance of Shares, including but not limited to the costs
of compliance with regulations and requirements of the
Securities and Exchange Commission and state securities laws
(but not including ongoing periodic reporting costs), are
allocated to the Subsidiary Capital Account for the Common
Stock; however, MIC may undertake to pay such expenses.
(5) Any expenses or liabilities of the Company not allocable in
the manner described in paragraphs 2 through 4 above are
allocated among the Subsidiary Capital Accounts on the basis
of the relative balances of those accounts as of the end of
the quarter preceding the date on which the expense or
liability is incurred.
(6) (a) Investment income, net of any direct investment
expense, is allocated among the Subsidiary Capital
Accounts pro rata based upon the relative Investment
Asset Balance (as defined in subparagraph (b) below) of
each of those accounts as of the last day of the
quarter preceding the quarter for which the investment
income is being allocated. For these purposes, net
investment income includes realized (but not
unrealized) gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital
Account is equal to the capital and surplus of each
account, increased by:
(i) the unearned portions of the written premiums that
have been collected by the Company attributable to
those accounts as of the last day of the quarter
preceding the quarter for which the income is
being allocated, net of any applicable commissions
and taxes;
(ii) the outstanding loss reserves attributable to each
of those accounts as of the last day of the
quarter preceding the quarter for which the income
is being allocated; and
(iii) any other outstanding liability that has been
charged to the account as of the last day of
the quarter preceding the quarter or which
the income is being allocated.
(7) (a) If, after the credits and charges described in
paragraphs 1-6 above are made to the Subsidiary Capital
Accounts there exists a deficit in one or more of the
accounts, then each such deficit is allocated to and
charged against:
(i) first, the Subsidiary Capital Account for the
Common Stock to the extent of Restricted Earned
Surplus (the phrase "Restricted Earned Surplus"
refers to the portion of the earned surplus, if
any, in the Subsidiary Capital Account for the
Common Stock equal to that 1-1/3% of the premiums
ceded to the Company during the immediately
preceding five-year period which was subtracted
from the Subsidiary Capital Accounts for the
Shares pursuant to paragraph 1(a) above, net of
losses allocated to that account during such
period pursuant to the allocation procedure
described in this paragraph 7 and net of return
premiums allocated to that Account during such
period pursuant to the allocation procedure
described in paragraph (1)(d) above);
(ii) then, the Subsidiary Capital Accounts for the
Shares, pro rata, based upon the relative earned
premiums allocated to each such account for the
quarter for which the allocation is being made,
provided, however, that only accounts which have
positive balances are taken into account for
purposes of this allocation;
(iii) then, the remaining Subsidiary Capital Accounts
for the Shares with positive balances as of the
last day of the quarter for which the allocation
is being made, pro rata, based upon such balances;
and
(iv) then, to the extent necessary, the Subsidiary
Capital Account for the Common Stock.
(b) If, as a result of an allocation of a deficit as
described in subparagraph (ii) or (iii) of paragraph
(a) above, a deficit is created in one or more of the
Subsidiary Capital Accounts, then the resulting
deficit(s) are further allocated in the manner provided
in that subparagraph before applying a subsequent
subparagraph.
(c) Notwithstanding the foregoing, if any Subsidiary
Capital Account for a series of Shares had a deficit
that was allocated to and charged against the
Restricted Earned Surplus, then at the end of any
succeeding quarter for which that account otherwise
would show an account balance greater than zero, the
balance is reallocated to the Restricted Earned Surplus
until all reductions of that surplus attributable to
that Subsidiary Capital Account have been restored.
Thus, a loss in a Subsidiary Capital Account which
exceeds the balance in that account is absorbed by
other Subsidiary Capital Accounts, in general, as
follows: The amount of such excess losses is charged
first to the Restricted Earned Surplus portion of the
Subsidiary Capital Account of the Common Stock. Any
remaining losses, should the Restricted Earned Surplus
be exhausted, are allocated among the Subsidiary
Capital Accounts of other participating series. Any
then unabsorbed losses are charged to the Subsidiary
Capital Account of the Common Stock.
Funds drawn from the Restricted Earned Surplus in the
manner described above must be restored from the
Subsidiary Capital Account that drew the funds if at
any time it returns to a positive balance. Funds drawn
from the Subsidiary Capital Accounts of other series
are not, however, restored.
(8) (a) Dividends, payments upon redemption or liquidation
(described below), and any other distributions with
respect to the Capital Stock are allocated to the
Subsidiary Capital Account for the class or series with
respect to which the dividend, payment or distribution
was made.
(b) Where all Shares of a series are repurchased by the
Company pursuant to its right of first refusal or
redeemed in accordance with the Company's procedures
for redemption, the Subsidiary Capital Account for that
series is terminated. Thereafter, all income,
expenses, gains and losses that would have been
allocated to the terminated account, will be allocated
among the Subsidiary Capital Accounts of the existing
series of Shares pro rata based upon relative earned
premiums attributable to such accounts for the calendar
quarter in which the item was earned or incurred;
provided, however, that a net deficit for any such
period shall be allocated in accordance with the
provisions described above
Using the procedures described above, the Company has allocated
items of gain and loss to the Subsidiary Capital Account for each
series. Initially each Account had a balance of $7,500
representing the amount paid for the Shares of that series.
During the fiscal year ended December 31, 1993, $507,643 of net
underwriting gains were allocated among the 189 series of Shares
outstanding as of December 31, 1993 and $2,700,242 of net
investment income and $503,178 of administrative expenses were
allocated among the 189 series of Shares outstanding as of
December 31, 1993 and the Common Stock.
As of December 31, 1993, 163 such series had balances greater
than $7,500 (ranging from $7,537 to $187,718) and 26 series had
balances less than $7,500 (ranging from $6,904 to zero). (It
should be noted that the amounts in the Subsidiary Capital
Accounts can fluctuate substantially and therefore may not be
indicative of future results.) At December 31, 1993, an
aggregate of $901,758 had been advanced from the Restricted
Earned Surplus (which forms a portion of the Account established
for the Common Stock owned by MIC) to 15 Subsidiary Capital
Accounts and remained outstanding at that date. Aggregate
deficits reallocated among the Subsidiary Capital Accounts of the
Shares through December 31, 1993 were $369,711.
The Subsidiary Capital Account for the Common Stock had, at the
time it was established, a balance of approximately $200,000,
representing the capital paid in by MIC for the 2,000 shares of
the Common Stock issued to it. That Subsidiary Capital Account
is not affected directly by underwriting gains and losses
attributable to the various Subsidiary Capital Accounts related
to series of Shares, but is affected by those gains and losses
indirectly to the extent that one of the Subsidiary Capital
Accounts for a series of Shares incurs a deficit, in which case
resort to the Subsidiary Capital Account for the Common Stock
will result, in the manner described above.
The allocations of income and expense, gains and losses, and
distributions described above are subject to approval by the
Board, and when finally so approved are considered final and
conclusive and will be binding on all holders of Shares for all
purposes including without limitation any redemption of Shares
pursuant to the Company's procedures for redemption. (See
"Description of Capital Stock -- Redemption.")
The Company is currently in compliance with net asset value
requirements of Barbados insurance law. However, in the event
that the Company is unable to comply with such requirements in
the future, it has the right to reduce the business related to a
Subsidiary Capital Account by retrocession or any other means to
the extent necessary to permit the Subsidiary Capital Account to
meet its pro rata share of the Company's required capital and
surplus.
VOTING RIGHTS
Subject to the following, holders of Capital Stock are entitled
to one vote for each share held on any question on which the
holder is entitled to vote. The matters on which holders of
Capital Stock are entitled to vote, and the relative voting
rights of each class of stock, are set forth below.
Election of Directors. The holders of Shares as a class are
entitled to elect one director of the Company and one alternate
director, and the holders of Common Stock as a class are entitled
to elect five directors and up to five alternate directors. At
least one of the directors must be resident in Barbados.
Cumulative voting is not permitted.
Proxies. Any shareholder of the Company may appoint another
person as his or her proxy to act on behalf of the appointing
shareholder at any annual meeting of the Company. The
appointment of a person as proxy for a shareholder must be in
writing.
Liquidation. The Company may be liquidated upon the vote of at
least 75% of the outstanding Shares. (See "Description of
Capital Stock -- Redemption," and "Description of Capital Stock
- -- Liquidation.")
Changes in Articles and By-Laws. No change may be made in the
Articles or By-Laws unless a majority of the Shares, and a
majority of the Common Stock, present in person or by proxy and
voting at a meeting at which a vote on that issue is put forth
for a vote, approve the change. In addition, no amendment may
vary the rights associated with any one series unless either the
rights associated with all other series are similarly changed or
a majority of the holders of the Shares of each series present in
person or by proxy at a meeting vote in favor of the amendment.
Other Matters. Any matters other than those described above
which call for a shareholder vote require only approval by a
majority of the outstanding shares of Common Stock.
REDEMPTION
Pursuant to the Articles, the Capital Stock may be redeemed as
follows: The Company may redeem outstanding Shares of a series
at any time for any reason if the redemption of such Shares is
approved by a majority of the Board of Directors, provided that
the Director representing the Shares must vote in favor of the
action being taken. The Common Stock is nonredeemable in all
circumstances.
A redemption of Shares is effective as of the date specified by
the Board of Directors but no later than the end of the calendar
year in which the redemption was approved by the Board. This
date is referred to hereinafter as the "Redemption Date." The
consideration payable to the holders of redeemed shares of
Capital Stock will be the Subsidiary Capital Account balance
("Account Balance") of those shares as of the Redemption Date, as
adjusted by the Board to reflect unrealized gains and losses on
investments held by the Company and any contingent liabilities
allocable to such account. Each holder of redeemed Shares will
receive the pro rata portion of the Account Balance that
corresponds to the proportionate number of Shares of the series
owned. The Account Balance will be paid within five months of
the Redemption Date and bear interest from the Redemption Date
until the date of payment at a rate equal to the yield on 26-week
U.S. Treasury Bills for the issue immediately following the
Redemption Date.
Upon the redemption of Shares on the Redemption Date, the
redeemed Shares will be cancelled and the holders thereof will no
longer have any interest in the Shares redeemed or in the
Subsidiary Capital Account with respect to the redeemed Shares.
LIQUIDATION
Subject to Barbados regulatory and judicial approvals, the
Company may be liquidated upon the vote of 75% of the
outstanding Shares. (See "Description of Capital Stock --
Redemption.") In the event of the liquidation of the Company,
after payment of all liabilities of the Company, each holder of
Shares of a series is entitled to receive his pro rata share of
his respective Account Balance before any distribution of the
assets of the Company is made to the holder(s) of Common Stock.
Thereafter, the holders of Shares are not entitled to participate
further in the distribution of the assets of the Company. Each
holder of Common Stock will be entitled to receive his pro rata
share of the remaining assets of the Company, if any.
RESTRICTIONS ON TRANSFER
There is no existing public market for the Shares, and it is not
anticipated that one will develop in the future. In addition,
the Articles set forth a number of restrictions on the manner in
which the Shares may be transferred. These restrictions and
certain exceptions thereto are described below.
Transfers of Less Than All Shares of a Series. Subject to the
exceptions described below, transfers of less than all Shares of
a series may not be made unless the transfer is to the Company,
or the holder(s) of the Shares sought to be transferred has
received the written consent of the Company. A request for
consent must be made in writing and set forth the name(s) and
address(es) of the intended transferee(s), the desired date of
the transfer and the consideration to be paid. No transfer may
otherwise be made by a shareholder of less than all of the Shares
of a particular series that he owns. If the Company fails to
give its written consent, any subsequent transfer is void and of
no effect.
Right of First Refusal. Subject to the exceptions described
below, transfers of Shares of a series may not in any event be
made unless the holder(s) has received a bona fide written offer
to purchase such Shares, a copy of that offer has been furnished
to the Company, and the Company is thereafter offered the
opportunity to purchase the Shares. The Company will have 60
days during which to exercise its right to purchase the Shares
sought to be transferred. If the Company accepts the offer to
purchase, the price will be the lesser of the Account Balance for
the series of Shares sought to be transferred as of the last day
of the quarter immediately preceding the date on which the offer
to purchase was accepted by the Company, or the bona fide offering
price. A purchase made by the Company pursuant to this "right of
first refusal" will be deemed effective upon acceptance by the
Company of the offer to purchase, although payment by the Company
may be deferred until the end of the quarter in which the offer
to purchase is accepted by the Company. Shares purchased by the
Company pursuant to its right of first refusal will be cancelled.
Exceptions for Certain Transfers. A transfer of either all or a
portion of the Shares of a series is not subject to either the
consent or right of first refusal of the Company where the Board
determines that the transferee of the shares is: (1) a member of
the transferring shareholder's immediate family; (2) a trust for
the benefit of the transferring shareholder or for the benefit of
other exempted transferees described in this paragraph; (3) if
the transferor is a corporation, any of its shareholders; (4) if
the transferor is a partnership, any of its partners; (5) a
corporation which is controlled by or under common control with
the transferor; (6) the estate of a deceased shareholder and
legatees or heirs of a deceased shareholder; (7) a charitable or
other qualifying organization described in section 170(c)(2) of
the United States Internal Revenue Code of 1986, or any successor
provision thereto; (8) in the case of a transfer of less than all
the Shares of a series, a person who immediately prior to such
transfer is a holder of Shares of that series; or (9) a key
employe of an owner of a Franchise previously designated in the
Stock Purchase Agreement entered into by the transferor.
Provisions Applicable to All Transfers. No Shares may be
transferred unless and until the Board has received, from the
holder of the Shares sought to be transferred, assurances of
compliance with all applicable laws and regulations. Further,
transferees of Shares must agree to abide by the requirements set
forth in the Stock Purchase Agreement entered into by the
transferor.
Certificates representing the Shares will bear a legend noting
the applicable limitations on transfers.
COMMON STOCK
On June 13, 1986 and January 16, 1987, the Company issued to MIC
1,250 shares and 750 shares, respectively, of Common Stock of the
Company, without nominal or par value.
A Subsidiary Capital Account has been established for this class
of stock, and allocations of various items to such account are
described above. (See "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts.")
Holders of Common Stock as a class are entitled to elect five
directors, at least one of whom must be resident in Barbados, and
up to five alternate directors. As a class, these holders
generally have the sole right to vote on matters not specifically
reserved to the Shares. (See "Description of Capital Stock --
Voting Rights.")
BARBADOS CORPORATE LAW PROVISIONS
The corporate law of Barbados was derived historically from that
of England prior to the coming into force in 1985 of the
Companies Act Cap. 308 of the Laws of Barbados, which is similar
to the Canada Corporations Act. Barbados law may differ in
certain respects from comparable law in the United States. The
following is a summary of certain provisions of Barbados
corporate law as prepared by Evelyn, Gittens & Farmer, the
Company's Barbados counsel. The summary does not purport to
contain all applicable provisions and does not purport to be
complete or cover all respects in which Barbados corporate law
may differ from laws generally applicable to United States
corporations and their shareholders.
Dividends and Distributions. Under Barbados law, a company may
pay dividends only if there are reasonable grounds for believing
that (a) the company would be able, after the payment of the
dividends, to pay its liabilities as they become due, and (b) the
realizable value of the company's assets would be greater than
the aggregate of its liabilities and stated capital of all
classes. Dividends may not be paid out of unrealized gains.
Repurchase. The Company is authorized by the Articles, subject
to certain approvals, to repurchase its own shares. Such
purchases may only be effected if the Company can satisfy a
similar solvency test as that described above under "Dividends
and Distributions."
Shareholders' Remedies. Barbados corporate law contains wide
protection for minority shareholders and investors generally. A
statutory right of action is conferred on subscribers to shares
of a Barbados company against the directors and officers
responsible for the issue of a prospectus, in respect of damages
suffered by reason of untrue statements therein. In addition,
the Company may take action against directors and officers for
breach of their statutory duty to act honestly and in good faith
with a view to the best interests of the Company.
Enforcement of United States Judgments. Except as mentioned
below, a judgment of a court in the United States, under which a
sum of money is payable, will under most circumstances be
enforced as a debt by the courts of Barbados without
reexamination of the merits of the case. This will not apply
where the judgment is for payment of taxes, fines or penalties.
There is also doubt as to whether a Barbados court would enforce
judgments of United States courts obtained against the Company,
or its directors and officers resident in Barbados, predicated on
the civil liability provisions of the 1933 Act or, in original
actions, impose liabilities against the Company or such persons
predicated upon that Act.
Indemnification. The By-Laws of the Company provide for the
indemnification of its directors and officers against liabilities
incurred in their capacities as such, but the indemnity does not
extend to any liability incurred in respect of wilful negligence,
wilful default, fraud or dishonesty in relation to the Company.
Inspection of Corporate Records. Shareholders have the right to
inspect and copy the Articles and By-Laws, corporate register,
security register, minutes of shareholders meetings, any
unanimous shareholder agreement, as well as audited financial
statements of the Company, which must be presented to the annual
meeting of shareholders.
PLAN OF DISTRIBUTION
The Shares are being offered by full-time employes of MIC or its
affiliates ("Salespersons") who have other duties in connection
with the business of MIC or its affiliates and who are not
engaged in the sale of securities other than those of the Company
and MIC Life Reinsurance Company, Limited. Salespersons receive
no commissions or other compensation related directly to their
sale of the Shares. In addition, MIC receives no compensation in
connection with its distribution of the Shares. Salespersons are
licensed as agents of MIC in certain states in which they offer
the Shares for sale and their activities in selling the Shares
are subject to the regulation of state securities regulators.
All sales of the Shares are subject to approval by the Company.
(See "Eligibility to Purchase the Shares.")
PURCHASE PROCEDURES
In order to purchase the Shares, the following documents must be
sent to the Company in Barbados:
(1) two duly executed Stock Purchase Agreements (see Appendix
B);
(2) all necessary certifications of the eligibility of
prospective purchasers by the owner(s) of the Franchise(s)
related to the MIC Agency Account with respect to which the
Shares will be issued (see "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts," and Appendix
C); and
(3) a certified or cashier's check payable to "Motors Mechanical
Reinsurance Company, Limited -- Escrow Account" in the
amount of the aggregate cost of the Shares to be purchased,
based on the offering price of $75.00 per Share ("Purchase
Payment").
NONE OF THE FOREGOING DOCUMENTS IS TO BE EXECUTED OR DELIVERED
UNTIL AFTER A FINAL PROSPECTUS HAS BEEN DELIVERED TO THE OFFEREE.
Once it is executed by a prospective purchaser, a Stock Purchase
Agreement is, in effect, an offer to purchase the Shares
described therein. That offer will be deemed accepted only if
the Company approves the offer and executes the agreement. (See
"Plan of Distribution--Conditions of Sale.")
Following execution of the Stock Purchase Agreement by the
Company, the prospective purchaser has no right to withdraw the
amount of the purchase Payment or any interest earned thereon.
Amounts remain in the Escrow Account pending satisfaction of the
conditions set forth below under "Conditions of Sale."
TERMS OF SALE
Shares are sold only to eligible purchasers who have executed a
Stock Purchase Agreement and returned it to the Company. Shares
must be purchased by series, although more than one person may
buy the Shares of one series. Pursuant to the Stock Purchase
Agreement, the purchaser must accept and agree to be bound by the
Articles and By-Laws of the Company, including the restrictions
on transfer. (See "Description of Capital Stock -- Restrictions
on Transfer.") The Stock Purchase Agreement further provides
that the Company may place on a certificate issued with respect
to Shares a legend stating that the transfer or other disposition
of the Shares evidenced thereby is restricted pursuant to the
Articles and By-Laws.
Once it is accepted by the Company, a Stock Purchase Agreement
remains in effect as long as the Shares purchased pursuant
thereto remain outstanding. A Stock Purchase Agreement
terminates only upon the redemption of the Shares or the
liquidation of the Company. Upon a transfer of Shares, the
transferor is relieved of all restrictions and obligations under
the Stock Purchase Agreement which the transferor had entered
into upon the purchase of those Shares and the transferee, as a
condition of the transfer, is required to agree to abide by all
of the provisions of the Stock Purchase Agreement.
CONDITIONS OF SALE
The Company maintains an Escrow Account at Barclays Bank PLC in
Bridgetown, Barbados (the "Escrow Account"), into which checks
from prospective purchasers are deposited pending satisfaction of
the conditions described below. This account bears interest at
prevailing rates but is not subject to investment guidelines
discussed above. (See "Business of the Company -- Investment
Income.") If the conditions are not satisfied, the Purchase
Payment is returned together with any interest earned.
Approval of Purchase. Each purchase of Shares must be accepted
by the Company within 120 days from the date of execution of the
Stock Purchase Agreement by the Purchaser. If the Company
determines to accept an offer to purchase Shares from an Eligible
Purchaser, it executes both copies of the Stock Purchase
Agreement remitted by such person and returns one copy to such
person. If it determines not to approve an offer to purchase, it
returns the Stock Purchase Agreement without having executed it.
Pending approval of offers, each check for the purchase of Shares
(which ordinarily is received together with a Stock Purchase
Agreement) is deposited in the Escrow Account. If a request to
purchase is approved, Shares are issued and the Eligible
Purchaser receives a certificate evidencing ownership of the
Shares. Where the Company determines not to approve a sale of
Shares to a prospective purchaser, the Purchase Payment is
returned, together with any interest earned thereon. The Company
has the right to reject any prospective purchaser for any reason
whatsoever.
TERMINATION OF OFFERING
Unless terminated sooner by the Board, this offering will
terminate on the date on which all of the Shares offered hereby
have been sold.
UNITED STATES FEDERAL TAX CONSIDERATIONS
It is impractical to comment here on all aspects of the
Federal, state, and local tax laws that may affect the United
States taxation of the Company and its shareholders. The
following is a discussion, based on the facts set forth herein
and existing law, of the material Federal tax consequences which,
in the opinion of the Company's U.S. tax counsel, LeBoeuf, Lamb,
Greene & MacRae, are associated with an investment in the
Company.
United States taxation of the Company and its shareholders
involves a number of complex questions of fact and law with
respect to some of which there is no statutory, administrative,
or judicial authority directly on point. Advance rulings on
these questions have not been requested by the Company from the
Internal Revenue Service (the "Service") and, at least as to
certain matters, there is no assurance that favorable rulings
could be obtained. There is also no assurance that the laws in
existence as of the date of this Prospectus will not be modified
so as to alter the tax consequences described below.
This 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. EACH PROSPECTIVE INVESTOR IN THE
COMPANY SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE
TAX IMPLICATIONS OF HIS OR HER INVESTMENT IN THE COMPANY.
UNITED STATES -- BARBADOS INCOME TAX TREATY
The United States and Barbados have entered into an income tax
treaty (the "Treaty") that offers certain tax benefits (some of
which are discussed below) to those persons who qualify for its
protection. As a Barbados corporation that ultimately is owned
more than 50% by U.S. persons, the Company is entitled to the
benefits of the Treaty provided that it is "resident" (that is,
"managed and controlled") in Barbados. The Company attempts to
conduct its business in such a manner that it will be considered
to be "managed and controlled" in Barbados in order to qualify
for the benefits of the Treaty. As discussed below, legislation
has eliminated the premium excise tax exemption under the Treaty.
(See "United States Federal Tax Considerations -- United States
Premium Excise Tax.")
UNITED STATES PREMIUM EXCISE TAX
The United States imposes an excise tax at the rate of one
percent of the gross premiums paid to foreign insurance companies
for reinsurance covering risks located within the United States.
Reinsurance premiums paid to the Company are subject to this
excise tax. Although there have been legislative proposals from
time to time that would increase the rate of excise tax on
reinsurance premiums from one to four percent, in recent trade
negotiations (NAFTA and GATT) the U.S. has indicated agreement
not to raise its tax on reinsurance premiums paid to foreign
companies, and legislative action has become less likely.
UNITED STATES FEDERAL INCOME TAX RISKS AND CONSEQUENCES -- THE
COMPANY
Risks and Consequences of Carrying on a United States Reinsurance
Business Through a Permanent Establishment. As a "resident" of
Barbados, if the Company engages in business within the United
States through a permanent establishment, it will be subject to
United States Federal income tax at normal corporate tax rates on
its business profits that are attributable to such permanent
establishment. Insofar as is relevant hereto, all of the
Company's underwriting income and investment income (such as
dividends and interest) generally would be treated as business
profits attributable to such a permanent establishment. In
addition, a Barbadian resident corporation engaged in business in
the United States through a permanent establishment would be
subject to a branch-level tax at the rate of 5% (reduced by the
Treaty from a 30% statutory rate that would apply generally to
foreign corporations engaged in business in the United States) on
its after-tax earnings attributable to its United States
permanent establishment that are considered remitted to the head
office of the corporation.
All relevant facts and circumstances must be taken into account
in any particular case in determining whether a person is engaged
in business within the United States and, if so, whether the
business is carried on through a permanent establishment within
the meaning of the Treaty. Under the Treaty, the activities of
both dependent and independent agents in some circumstances may
be deemed to create a permanent establishment of the principal
that they represent. As discussed elsewhere herein, the Company
conducts reinsurance business in Barbados and in that regard
executes and administers its reinsurance agreements and manages
its business affairs from Barbados. On this basis, the Company
believes that it should not be deemed to be engaged in business
within the United States through a permanent establishment, and
therefore the Company believes it should not be subject to United
States income tax. However, given the factual nature of the
questions involved and certain aspects of the Company's treaty
reinsurance program related to the United States, and given the
absence of any clear legal interpretation of the application of
the agency provisions of the permanent establishment standard
under the circumstances, there can be no assurance that for tax
purposes the Company ultimately will not be deemed to be engaged
in business within the United States through a permanent
establishment.
United States Withholding Tax Applicable to Certain Investment
Income Not Attributable to a United States Permanent
Establishment. If the Company does not engage in business within
the United States through a permanent establishment, it generally
will be subject to a United States withholding tax on interest,
dividends, and certain other investment income derived from
sources within the United States. (The 30% rate of United States
withholding tax provided by statute is reduced by the Treaty to
5% in the case of interest and 15% in the case of dividends
derived from portfolio investments.) An exemption from the
United States withholding tax is provided for interest earned on
amounts on deposit in a bank, savings and loan association, or
insurance company, and interest income, termed "portfolio
interest," on certain debt obligations of United States issuers.
Although the Company could, in the circumstances described above,
invest its funds in the United States without incurring a
withholding tax, the Company currently invests its funds outside
of the United States. (See "Business of the Company --
Investment Income.")
Reallocations By Internal Revenue Service. Under section 482 of
the Internal Revenue Code (the "Code"), the Service may allocate
gross income, deductions, and credits between or among two or
more businesses, owned or controlled directly or indirectly by
the same interests, in order to prevent evasion of taxes or to
reflect clearly the true taxable income of such businesses. As
described elsewhere herein, MIC elects five of the Company's six
directors through its ownership of all of the Company's issued
and outstanding Common Stock. Thus, if transactions between MIC
and the Company were determined not to reflect the true taxable
income of the parties, a reallocation of income or deductions
between such entities could result. However, as long as the
transactions between MIC and the Company are conducted on an
"arm's-length" basis in a manner consistent with industry
standards and practices, section 482 should not provide a basis
for reallocations by the Service between MIC and the Company.
In addition, section 845 of the Code, adopted as part of the Tax
Reform Act of 1984, grants broad authority to the Service to
adjust items arising under certain reinsurance agreements
(including retrocession agreements), whether or not they involve
related parties. If two or more "related" parties enter into a
reinsurance contract, the Service in general may make any
adjustment necessary to reflect the "proper source and character"
of the taxable income of each such party. The Service also has
broad authority to make proper adjustments where any reinsurance
contract between unrelated parties has a "significant tax
avoidance effect" on any party to the contract.
Because MIC is entitled to elect five of the Company's six
directors, MIC and the Company may be considered "related"
parties within the meaning of section 845 of the Code. To date,
there are no regulations under section 845 of the Code to aid in
its interpretation. However, the legislative history of section
845 suggests that certain types of reinsurance transactions --
such as a coinsurance reinsurance transaction that covers new
business of the ceding company and that allocates expenses and
income items between the ceding company and the reinsurer in the
same proportion as the allocation of the risk reinsured --
generally should not be subject to reallocations or adjustments.
The ongoing quota share Retrocession Agreement between MIC and
the Company, in general, would seem to be similar to such
transactions for which adjustments generally should not be made,
but there is substantial uncertainty at the present time
concerning the scope of section 845.
If the Service were successful in an effort to reallocate to MIC
business retroceded to the Company by MIC, MIC would likely be
subject to tax on such business. Since the Company has no
obligation to indemnify MIC against such adverse tax
consequences, a reallocation of business to MIC should not
directly affect the Company. However, any such reallocation
might contribute to the early termination of the Retrocession
Agreement between MIC and the Company.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES --- THE
SHAREHOLDERS
Taxation of Income of the Company to Shareholders Under Subpart F
of the Code. Under the so-called "Subpart F" provisions
(sections 951-964) of the Code, current United States income tax
is imposed on each United States person who owns stock in any
twenty-five percent (25%) or more U.S.-owned foreign insurance
company with respect to "related person insurance income,"
whatever the degree of ownership of the United States
shareholder. For this purpose, the term "related person
insurance income" means underwriting and investment income of a
foreign insurer attributable to a policy of insurance or
reinsurance with respect to which the insured is a United States
shareholder of the foreign insurer or a person related to such a
shareholder. Under this provision, all of the Company's income
(as determined for tax purposes) will be treated as "related
person insurance income," and, as such, will be passed through
and taxed currently to all of the shareholders of the Company
("Shareholders") under Subpart F of the Code.
The basis of the stock of a Shareholder will be increased by the
amount required to be included in the Shareholder's income with
respect to such stock under Subpart F. Further, a distribution
from earnings and profits of the Company attributable to amounts
that have been included in gross income of the Shareholders under
Subpart F would not be included again in gross income of the
Shareholders but would reduce the adjusted tax basis of the stock
with respect to which the distribution is made. It should be
noted that Subpart F income will be computed for the Company as a
single entity. The amount of Subpart F income attributable to
one series of Shares in these circumstances may be affected by
results with respect to other series. It also should be noted
that the Subpart F income of the Company generally will be
computed under the same rules that govern the computation of
taxable income of domestic property and casualty insurance
companies.
As a result of differences between financial and tax accounting
rules applicable to the computation of income of the Company, the
amount of income subject to pass-through to Shareholders of the
Company for United States tax purposes may in any year differ
from the amount of book income allocable to a Shareholder's
subsidiary capital account. Since the consideration payable to
the holders of a series of Shares upon redemption is based
substantially on book income previously allocated to the Shares
being redeemed, such consideration may not reflect the amount of
income previously passed through and taxed to the holders of
those Shares.
To the extent that the Company were subject to United States
income tax on its business profits, the Shareholders generally
would not be subject to current tax on such profits under Subpart
F, but would be taxed when profits were distributed by the
Company. (See "United States Federal Tax Considerations --
United States Federal Income Tax Consequences -- the Company.")
Risk of Recharacterization of Reinsurance Profits on Business
Retroceded to the Company. As described elsewhere herein, a
portion of the underwriting experience in respect of insurance
business retroceded to the Company is allocated to the series of
Shares issued in respect of the Franchise that is the source of
such business. In this connection, the Service could question
whether profits on such business should be treated as being
related to equity ownership for tax purposes, or whether the
Shares should be treated, in whole or in part, as a means by
which the direct insurer pays additional income to certain of its
business producers or pays return premiums to certain
policyholders, such that the producers or policyholders (rather
than the Shareholders) should be subject to ordinary income tax
on all or some of such profits. Although the issue is not free
from doubt, given, among other things, the significance of the
Shareholders' "at-risk" investment in the Company relative to the
volume of business projected for the Company, the degree of
pooling of risks among all series of Shares, the fact that
distributions with respect to Shares are, subject to certain
"minimum dividends," within the discretion of the Board, and the
vote accompanying each Share, there should be substantial
arguments against the recharacterization of profits with respect
to the Shares.
Deductibility of Premiums Paid By Franchises for Certain
Coverages Reinsured by the Company. As discussed elsewhere
herein, risks arising under mechanical service agreements entered
into with respect to a particular Franchise ultimately may be
retroceded to the Company and allocated in part to a series of
Shares owned by the owner(s) of such Franchise or by persons
closely related to such owner(s). The Service conceivably could
seek to deny any deductions taken by the obligor under the
mechanical service agreements for premiums paid by it with
respect to its obligations ultimately retroceded to the Company,
relying on the theory, developed in cases dealing with
transactions involving wholly-owned insurance companies, that no
insurance risk has been shifted in respect of such premiums.
However, although the matter is not free from doubt, given the
degree of risk pooling within the Company, there should be
substantial arguments in support of the treatment of such
premiums as deductible insurance premiums for tax purposes.
LEGAL MATTERS
The legality of the securities offered hereby is passed upon for
the Company by its Barbados counsel, Evelyn, Gittens & Farmer,
Heritage House, Pinfold Street, Bridgetown, Barbados, West
Indies. LeBoeuf, Lamb, Greene & MacRae, 1875 Connecticut Avenue,
N.W., Washington, D.C. 20009, will advise the Company as to
certain matters pertaining to the laws of the United States.
EXPERTS
The financial statements included elsewhere in this Prospectus
have been audited by Deloitte & Touche, Bridgetown, Barbados,
independent chartered accountants as set forth in their report
included in this Prospectus. Such financial statements have been
so included in this Prospectus in reliance upon such report given
upon the authority of that firm as experts in accounting and
auditing.
The matters of Barbados law referred to in this Prospectus are
set forth in reliance upon the opinion of Evelyn, Gittens &
Farmer and upon their authority as experts in Barbados law.
LeBoeuf, Lamb, Greene & MacRae has passed upon the statements
concerning United States tax laws contained in the discussion
under "United States Federal Tax Considerations," which is
included herein in reliance upon their authority as experts with
respect to such matters.
ADDITIONAL INFORMATION
A registration statement under the 1933 Act has been filed with
the Securities and Exchange Commission, Washington, D.C. (the
"Commission") with respect to the Shares offered hereby. This
Prospectus does not contain all of the information set forth in
such registration statement, certain parts having been omitted
pursuant to the rules and regulations of the Commission. The
omitted information may be examined at the Commission's principal
office at 450 5th Street, N.W., Washington, D.C., or at the
following regional offices: New York City, 26 Federal Plaza, Room
1102; Chicago, 219 South Dearborn Street, Room 1204; and Los
Angeles, 5757 Wilshire Boulevard, Suite 500 East. Copies may be
obtained upon payment of the fees prescribed from the public
reference section of the Commission, Washington, D.C. 20549.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, in
each instance, reference is hereby made to the copy of the
contract or other document filed as an exhibit to the
registration statement, of which this Prospectus is a part, for a
full statement of the provisions, and each such statement in this
Prospectus is qualified in all respects by such reference.
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados
We have audited the accompanying balance sheet of Motors
Mechanical Reinsurance Company, Limited as of December 31, 1993
and 1992 and the related statements of income and retained
earnings and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Motors Mechanical Reinsurance Company, Limited as of December
31, 1993 and 1992 and the results of its operations and its cash
flows for each of the three years in the period ended December
31, 1993 in accordance with the accounting principles generally
accepted in the United States of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
March 11, 1994
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992, AND MARCH 31, 1994
(Expressed in U.S. Dollars)
March 31
December 31 December 31 1994
Notes 1992 1993 (unaudited)
ASSETS
Investments 2(c),3,6 $24,382,923 $29,882,488 $34,903,388
Cash and cash
equivalents 2(c),6 1,710,738 6,788,771 3,043,379
Accrued investment
income 1,115,367 861,190 901,057
Due from ceding
company 2,356,608 2,331,978 3,535,158
Deferred acquisition
costs 2(b) 7,281,854 10,495,206 11,599,267
Prepaid expenses 0 0 1,875
Total Assets $36,847,490 $50,359,633 $53,984,124
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums 2(b) 28,063,606 40,413,058 44,657,483
Loss reserves 2(d) 1,622,855 1,910,030 2,097,239
Accrued liabilities 91,322 107,181 165,573
Total Liabilities 29,777,783 42,430,269 46,920,295
COMMITMENTS AND
CONTINGENCIES 6
STOCKHOLDERS' EQUITY
Share capital
Common stock - no par
value;
Authorized - 2,000
shares; issued
and outstanding -
2,000 shares 200,000 200,000 200,000
Participating - no
par value;
Authorized -
100,000 shares;
issued and out-
standing - 18,900
shares at
December 31,
1993 and 14,300
shares at
December
31, 1992 4 1,072,500 1,417,500 1,492,500
1,272,500 1,617,500 1,692,500
Retained earnings 7 5,528,775 6,211,978 6,534,796
Unrealized appreciation
(depreciation) on
investments 3 268,432 99,886 (1,163,467)
Total Stockholders' Equity 7,069,707 7,929,364 7,063,829
Total Liabilities and
Stockholders' Equity $36,847,490 $50,359,633 $53,984,124
The accompanying notes form an integral part of these financial
statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993,
AND THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Expressed in U.S. Dollars)
Periods Ended December 31,
Notes 1993 1992 1991
INCOME
Reinsurance
premiums assumed 2(b),5 $27,779,063 $19,386,455 $16,784,405
Increase in
unearned premiums (12,349,452) (6,381,271) (6,491,617)
Premiums earned 15,429,611 13,005,184 10,292,788
Investment income:
Interest earned 1,827,955 1,658,430 1,300,603
Realized gains
on investments 872,287 864,282 492,344
Investment income - net 2,700,242 2,522,712 1,792,947
TOTAL INCOME 18,129,853 15,527,896 12,085,735
EXPENSES
Acquisition costs 2(b) 4,009,285 3,377,758 2,839,121
Losses paid 10,625,508 7,938,136 6,697,509
Increase in loss
reserves 287,175 226,313 321,419
Administrative expenses 503,178 478,475 307,301
TOTAL EXPENSES 15,425,146 12,020,682 10,165,350
NET INCOME 2,704,707 3,507,214 1,920,385
RETAINED EARNINGS,
beginning of period 5,528,775 3,043,266 1,273,198
DIVIDENDS (2,021,504) (1,021,705) (150,317)
RETAINED EARNINGS,
end of period $ 6,211,978 $ 5,528,775 $ 3,043,266
Three Month Periods Ended
March 31,
(unaudited)
Notes 1994 1993
INCOME
Reinsurance
premiums assumed 2(b),5 $ 8,816,331 $5,389,885
Increase in
unearned premiums 4,244,425 1,817,057
Premiums earned 4,571,906 3,572,828
Investment income:
Interest earned 570,692 461,529
Realized gains (losses)
on investments (303,389) 378,444
Investment income - net 267,303 839,973
TOTAL INCOME 4,839,209 4,412,801
EXPENSES
Acquisition costs 2(b) 1,188,209 928,266
Losses paid 3,001,850 2,627,016
Increase (decrease) in
loss reserves 187,209 (15,861)
Administrative expenses 139,123 140,255
TOTAL EXPENSES 4,516,391 3,679,676
NET INCOME 322,818 733,125
RETAINED EARNINGS,
beginning of period 6,211,978 5,528,775
DIVIDENDS 0 0
RETAINED EARNINGS,
end of period $ 6,534,796 $ 6,261,900
The accompanying notes form an integral part of these financial
statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993
AND THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(Expressed in U.S. dollars)
Periods Ended December 31,
1993 1992 1991
Cash flows from
operating activities:
Reinsurance premiums collected $26,933,330 $17,624,088 $14,709,039
Losses and underwriting expenses
paid (16,977,784) (11,898,682) (10,575,830)
Administrative expenses paid (490,616) (429,735) (288,593)
Investment income received 2,957,718 2,302,829 1,542,361
Net cash provided by operating
activities 12,422,648 7,598,500 5,386,977
Cash flows from investing
activities:
Purchases of investment
securities (49,834,608) (60,877,408) (32,306,550)
Sales of investment securities 44,166,4975 2,166,918 30,252,467
Net cash invested (5,668,111) (8,710,490) (2,054,083)
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 345,000 255,000 120,000
Dividends paid (2,021,504) (1,021,705) (150,317)
Net cash used in financing
activities (1,676,504) (766,705) (30,317)
Increase (decrease) in cash
and cash equivalents 5,078,033 (1,878,695) 3,302,577
Cash and cash equivalents,
beginning of period 1,710,738 3,589,433 286,856
Cash and cash equivalents, end of
period $ 6,788,771 $ 1,710,738 $ 3,589,433
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 2,704,707 $ 3,507,214 $ 1,920,385
Change in:
Accrued investment income 254,177 (222,446) (277,412)
Due from ceding company 24,630 (653,270) (1,529,537)
Deferred acquisition costs (3,213,352) (1,662,778) (1,527,217)
Unearned premiums 12,349,452 6,381,271 6,491,617
Loss reserves 287,175 226,313 321,419
Accrued liabilities 15,859 22,196 (12,278)
Net cash provided by operating
activities $12,422,648 $ 7,598,500 $ 5,386,977
Three Month Periods Ended
March 31,
(unaudited)
1994 1993
Cash flows from operating activities:
Reinsurance premiums collected $7,062,145 $ 6,216,413
Losses and underwriting expenses
paid (4,730,167) (3,859,806)
Administrative expenses paid (95,553) (75,302)
Investment income received 227,436 1,333,671
Net cash provided by operating
activities 2,463,861 3,614,976
Cash flows from investing activities:
Purchases of investment securities (25,508,046) (23,807,944)
Sales and maturities
of investment securities 19,223,793 22,461,238
Net cash invested (6,284,253) (1,346,706)
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 75,000 52,500
Dividends paid 0 0
Net cash provided by financing
activities 75,000 52,500
Increase (decrease) in cash and cash
equivalents (3,745,392) 2,320,770
Cash and cash equivalents, beginning
of period 6,788,771 1,710,738
Cash and cash equivalents, end of
period $ 3,043,379 $ 4,031,508
Reconciliation of net income to
net cash provided by operating
activities:
Net income 322,818 733,125
Change in:
Accrued investment income (39,867) 492,399
Due from ceding company (1,203,180) 995,342
Deferred acquisition costs (1,104,061) (473,126)
Prepaid expenses (1,875) (1,875)
Unearned premiums 4,244,425 1,817,057
Loss reserves 187,209 (15,861)
Accrued liabilities 58,392 67,915
Net cash provided by operating
activities $ 2,463,861 $ 3,614,976
The accompanying notes form an integral part of these financial
statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 1. OPERATIONS
The Company is incorporated under the laws of Barbados
and is a licensed insurer under the Exempt Insurance
Act, 1983.
All of the common stock of the Company is owned by
Motors Insurance Corporation ("MIC"). MIC is an
indirect wholly-owned subsidiary of General Motors
Corporation. The principal activity of the
Company is the assumption of certain automobile
mechanical breakdown risks arising under insurance
policies reinsured by MIC and attributable to an
MIC Agency Account in respect of which shares of
Participating Stock are issued and outstanding.
All premiums received were derived from MIC.
MIC has agreed that all expenses incurred by or on
behalf of the Company with respect to the issuance of
the Company's Participating Stock will be borne by MIC,
either through charges to its shareholder account in
the Company, or by direct reimbursement.
Note 2. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of Presentation
The financial statements are stated in United States
dollars and are prepared generally in conformity with
accounting principles generally accepted within the
United States of America. Reinsurance premiums assumed
by the Company represent policies ceded by MIC during
the twelve months ended December 31 of each fiscal
year.
(b) Premium Income and Acquisition Costs
Reinsurance premiums are based on the Company assuming
(after ceding commission) 75% of the original policy
premium written by the direct insurer. Of these
reinsurance premiums, 75% is retroceded to the Company
when written and 25% when earned.
Premiums are taken into income on the basis of
quarterly cessions and are related to anticipated loss
exposures. Acquisition costs, consisting of ceding
commissions and excise taxes, are taken into income on
the basis of premiums earned.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)
(c) Investments
Investments are comprised of interest-bearing
marketable securities which are carried at fair value,
based on quoted market prices and dealer quotes
obtained from an external pricing service. Investments
with original maturities of less than 90 days are
classified as cash equivalents. Unrealized
appreciation (depreciation) is included in
stockholders' equity.
Realized gains and losses on the sale of investments
are included as investment income. During 1991, the
basis of determining the cost of securities sold was
changed from the specific identification method to the
average cost method. The effect of the change was not
material.
(d) Loss Reserves
The Company provides for unsettled, reported losses
based on estimates of the final settlement, with an
experience factor added to provide for losses incurred
but not reported. The final settlement may be greater
or less than the amounts provided. Any such
differences, when they become known, are recognized in
current operations.
(e) Taxation
The Company has received an undertaking from the
Barbados Government exempting it from all local income,
profits and capital gains taxes for a period ending
December 31, 2001.
Stockholders who are United States residents are taxed
on their share of the Company's income on a deemed
distribution basis.
(f) Earnings Per Share
No amount has been reported as earnings per share as
the earnings applicable to the Participating
Stockholders vary with the underwriting results of each
series. Retained earnings applicable to the Common
Stockholder include allocated investment income and
operating expenses and amounts restricted for advances
to Participating Stockholders (see Note 7).
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS
The cost and estimated fair value of investments in
debt securities are as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
March 31, 1994 (unaudited):
Debt securities
issued by
foreign
governments
and their
agencies $18,003,450 $35,891 $471,546 $17,567,795
Debt securities
issued by
supra-nationals 15,234,561 6,588 598,742 14,642,407
Corporate
securities 2,828,844 - 135,658 2,693,186
Total $36,066,855 $42,479 $1,205,946 $34,903,388
December 31, 1993:
Debt securities
issued by
foreign
governments
and their
agencies $16,327,184 $72,332 $(135,761) $16,263,755
Debt securities
issued by
supra-nationals 7,182,454 103,034 (25,925) 7,259,563
Corporate
securities 6,272,964 109,193 (22,987) 6,359,170
Total $29,782,602 $284,559 $(184,673) $29,882,488
December 31, 1992:
Debt securities
issued by
foreign
governments
and their
agencies $14,080,561 $204,554 $(43,057) $14,242,058
Debt securities
issued by
supra-nationals 9,826,630 107,771 (5,087) 9,929,314
Corporate
securities 207,300 4,251 - 211,551
Total $24,114,491 $316,576 $(48,144) $24,382,923
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS (Cont'd)
The cost and estimated fair value of debt securities at
December 31, 1993, by contractual maturity, are shown
below. Expected maturities will differ from
contractual maturities because borrowers may have the
right to call or prepay obligations with or without
call or prepayment penalties.
Estimated
Fair
Cost Value
Due after one year
through five years $15,463,270 $15,575,893
Due after five years
through ten years 14,319,332 14,306,595
$29,782,602 $29,882,488
Proceeds from sales of investments in debt securities
during the years ended December 31, 1993 and 1992 were
$44,166,497 and $52,166,918, respectively. In 1993,
gross gains of $964,613 and gross losses of $92,326
were realized. In 1992, gross gains of $1,008,932 and
gross losses of $144,650 were realized. In 1991, gross
gains of $538,996 and gross losses of $46,652 were
realized.
The following summarizes net unrealized appreciation
(depreciation) on investments:
Balance, December 31, 1990 $ 241,439
Net appreciation 673,848
Balance, December 31, 1991 $ 915,287
Net depreciation (646,855)
Balance, December 31, 1992 $ 268,432
Net depreciation (168,546)
Balance, December 31, 1993 $ 99,886
Net depreciation (unaudited) (1,263,353)
Balance, March 31, 1994
(unaudited) $(1,163,467)
The investment portfolio is comprised of diverse U.S.
dollar-denominated debt securities which do not result
in any concentration in credit risks.
FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" is effective
for years beginning December 15, 1993 and requires that
the Company classify its securities holdings into three
categories (trading, available for sale, and held to
maturity). The Company adopted Statement No. 115
effective January 1, 1994 and classified its securities
portfolio as available for sale. Adoption of the
Statement did not have a material effect on the
Company's financial position and results of operations.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 4. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. An
offering of 26,500 shares of Participating Stock is
being made to persons certified by owners of certain
motor vehicle franchises. The offering consists of 265
series of 100 shares each at a price of $75 per share.
During the quarter ended March 31, 1994, 10 additional
series of 100 shares were added (unaudited). During
1993, 46 additional series of 100 shares of Participat-
ing Stock were issued as compared with 34 and 16 series
for the years ended December 31, 1992 and 1991, respec-
tively.
In the years ended December 31, 1993 and 1992, costs in
the amount of $74,461 and $80,298, respectively, were
incurred in the sale of Participating Stock and were
charged to the account of the Common Stockholder. In
1991, $74,589 of costs incurred in the sale of
Participating Stock were paid by MIC.
The holders of Common Stock as a class are entitled to
elect five directors, at least one of whom must be a
resident of Barbados. They generally have no right to
vote with respect to liquidation of the Company. As a
class, these holders generally have the sole right to
vote on matters not specifically reserved to Partici-
pating Stock. The Common Stock is nonredeemable.
The holders of Participating Stock as a class are
entitled to elect one director. Generally, liquidation
of the Company requires approval by at least 75% of the
outstanding shares of this class. Any redemption of a
series of shares requires a vote of the Board provided
that the director representing holders of the
Participating Stock votes in favor of the redemption.
Any changes in the Company's Articles or By-Laws
requires the approval of a majority of the holders of
Participating Stock present and voting together with a
majority of the holders of Common Stock.
From time to time, funds are held in escrow on account
of Participating Stock applications. Such amounts are
not included in cash and cash equivalents in the
accompanying financial statements. At December 31,
1993 and 1992, there were no amounts held in escrow.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 5. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement, the
Company will receive additional cessions of $13,471,019
($9,354,534 at December 31, 1992) relating to premiums
written by the ceding insurer but unearned at the
respective period ends. The amounts will be received
as the premiums are earned, net of related acquisition
costs.
Note 6. LETTERS OF CREDIT
The Company has provided an irrevocable letter of
credit to MIC, in the sum of $32,250,000 which is
secured by cash equivalents and investments to secure
the amounts recoverable from the Company related to the
business ceded.
Note 7. RETAINED EARNINGS
Items of income or loss and expenses attributable to
insurance underwriting activities are determined as of
the end of each calendar quarter and are allocated to
the Participating Stockholders' capital accounts as of
the end of the fiscal quarter of the Company in which
the respective calendar quarter ends.
An amount equal to 1-1/3 percent of written ceded
premiums (net of related ceding commissions) is
allocated to the capital account of the Common
Stockholder. Such allocations accumulate as restricted
retained earnings and may be used to advance capital to
any Participating Stockholders who incur a deficit in
their capital accounts; any such advances are repayable
out of future profitable operations of the respective
Participating Stockholder. Amounts allocated to the
Common Stockholder, net of advances to Participating
Stockholders are presented in the table below as "net
transfers."
Dividends may be declared and paid at the discretion of
the Company's Board of Directors, except that dividends
may not be paid out of unrealized investment gains.
Barbados law requires that the Company maintain a
minimum capitalization based generally on the amount of
premiums earned in the preceding fiscal year. On
January 1, 1994 the Company's required minimum capital
computed in accordance with Barbados law was
approximately $2,042,961.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 7. RETAINED EARNINGS (Cont'd)
Amounts of retained earnings applicable to the Common
and Participating Stockholders are comprised of the
following:
Common Participating Total
Balance, December 31, 1990 $14,944 $1,258,254 $1,273,198
Net income for the year 23,911 1,896,474 1,920,385
Net transfers 38,702 (38,702) -
Dividends paid - (150,317) (150,317)
Balance, December 31, 1991 77,557 2,965,709 3,043,266
Net income (loss) for the year(42,631) 3,549,845 3,507,214
Net transfers 173,954 (173,954) -
Dividends paid - (1,021,705) (1,021,705)
Balance, December 31, 1992 208,880 5,319,895 5,528,775
Net income (loss) for the year(41,909) 2,746,616 2,704,707
Net transfers (175,245) 175,245 -
Dividends paid - (2,021,504) (2,021,504)
Balance (Deficit),
December 31, 1993 (8,274) 6,220,252 6,211,978
Net income (loss) for the
quarter ended March 31, 1994
(unaudited) (27,055) 349,873 322,818
Net transfers for the quarter
ended March 31, 1994
(unaudited) (104,396) 104,396 -
Balance (deficit),
March 31, 1994 (unaudited)$(139,725) $6,674,521 $6,534,796
COMPANIES ACT OF BARBADOS APPENDIX A
(Section 205)
RESTATED ARTICLES OF INCORPORATION FORM 13
1. Name of Company
Motors Mechanical Reinsurance Company, Limited
2. Company No.
1485
3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE
COMPANY IS AUTHORIZED TO ISSUE
The annexed Schedule is incorporated in this form.
4. RESTRICTION IF ANY ON SHARE TRANSFERS
The annexed Schedule is incorporated in this form.
5. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS
There shall be a minimum of 5 and a maximum of 6 directors.
6. RESTRICTIONS IF ANY ON BUSINESS THE COMPANY MAY CARRY ON
The principal object and activity of the Company is to engage in
Exempt Insurance business within the meaning of the Exempt
Insurance Act, 1983 of Barbados and the business of the Company
shall be restricted accordingly.
7. OTHER PROVISIONS IF ANY
The annexed Schedule is incorporated in this form.
8. Date Signatures Title
January 29, 1987 Peter Evelyn Director
FOR MINISTRY USE ONLY
COMPANY NO. FILED
COMPANIES ACT OF BARBADOS SCHEDULE TO ARTICLES OF INCORPORATION
3. The classes and any maximum number of shares that the
Company is authorized to issue:
The Company is authorized to issue:
(a) 2,000 shares of one class without nominal or par value to be
designated Common shares; and
(b) 100,000 shares of one class without nominal or par value to
be designated Participating shares which shall be divided into
1,000 series and issued in series of 100 shares.
The rights, preferences and limitations of the said classes of
shares are as follows:
DEFINITIONS
In these Articles and any amendment thereto and in the Company's
By-Laws the following terms shall mean:
Board -- The Company's Board of Directors.
Company -- Motors Mechanical Reinsurance Company, Limited.
Franchise -- A right conferred by a motor vehicle manufacturer
pursuant to a written agreement which permits the grantee to sell
the manufacturer's new motor vehicles.
MIC -- Motors Insurance Corporation, a New York corporation with
its administrative offices in Detroit, Michigan.
MIC Agency Account -- The separate business record maintained by
MIC or any of its subsidiaries to track volume, experience, and
commissions with respect to insurance business related to any one
or more particular Franchises.
Restricted Earned Surplus -- At any point in time, that portion
of the earned surplus, if any, in the Subsidiary Capital Account
for the Common shares equal to one and one-third percent (1-1/3%)
of the premiums paid to the Company during the immediately
preceding five-year period, net of deficits allocated to such
account pursuant to paragraph 3(1)(7)(a)(i) hereof during such
five-year period to the extent not restored to such account
pursuant to paragraph 3(1)(7)(c) hereof and net of return
premiums allocated to such account during such period pursuant to
paragraph 3(1)(1)(d) hereof.
Shares -- Shares of the Participating Stock of the Company.
Stock Purchase Agreement -- The agreement entered into between
the Company and the purchaser of Shares, in the form approved by
the Board.
Subsidiary Capital Account -- The subsidiary bookkeeping record
established by the Company for a particular series or class of
shares and maintained for the purpose of accounting for items of
income and expense, gains and losses, capital contributions, and
shareholder distributions which are allocated to the
particular series or class of shares.
(1) ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company will establish a Subsidiary Capital Account with
respect to the Common shares as a class, and to each series of
Shares of the Company at the time a series is issued.
The consideration received by the Company upon the issuance of a
particular series of Shares and the Common shares as a class will
be allocated to the Subsidiary Capital Account for that series or
class. Items of income and expense, and losses, attributable to
insurance underwriting activities shall be determined as of the
end of each calendar quarter and shall be allocated to the
Subsidiary Capital Accounts as of the end of the fiscal quarter
of the Company in which the respective calendar quarter ends.
Investment experience, and other items of income and expense,
gains and losses and distributions with respect to shares of the
Company will be determined and allocated to the Subsidiary
Capital Accounts as of the end of each fiscal quarter of the
Company. All such accounting determinations shall be made using
United States generally accepted accounting principles, unless
otherwise required by these Articles. For purposes of such
allocations, items shall be "related" to a Subsidiary Capital
Account which is identified with the same MIC Agency Account to
which such items can be attributed.
(1) Items of income and expense, and losses, attributable to
insurance underwriting activities shall be allocated to the
Subsidiary Capital Accounts in accordance with the following
paragraphs:
(a) With respect to premiums ceded to the Company, one
hundred percent (100%) shall be allocated to the related
Subsidiary Capital Account; provided, however, that an
amount equal to one and one-third percent (1-1/3%) of such
premiums shall be subtracted from such Subsidiary Capital
Account and allocated to the Subsidiary Capital Account of
the Common shares.
(b) With respect to any agents' or brokers' commissions,
any commissions recaptured, unearned premiums, reinsurance
premiums ceded by the Company, and any United States excise
tax, one hundred percent (100%) shall be allocated to the
related Subsidiary Capital Account.
(c) With respect to losses incurred, and any amount of
losses recovered through salvage, subrogation, reimbursement
or otherwise:
(i) ninety percent (90%) shall be allocated to the
related Subsidiary Capital Account; and
(ii) the remainder shall be allocated among all
Subsidiary Capital Accounts of the Shares pro rata in
accordance with the relative earned premiums
attributable to such accounts for the calendar quarter
in which the losses are incurred. For this purpose,
losses incurred includes both paid and unpaid (reported
and unreported) losses.
(d) With respect to return premiums, ninety-eight and
two-thirds percent (98-2/3%) shall be allocated to the
related Subsidiary Capital Account and one and one-third
percent (1-1/3%) shall be allocated to the Subsidiary
Capital Account for the Common shares.
(2) Any expenses or liabilities attributable to ordinary
day-to-day Company operations, excluding any United States
Federal income taxes, shall be allocated among all Subsidiary
Capital Accounts for the Shares pro rata in accordance with the
relative earned premiums allocated to such accounts for the
fiscal quarter in which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any
interest thereon or any penalties related thereto) incurred by
the Company shall be allocated among the Subsidiary Capital
Accounts based upon the relative contribution of each of those
accounts to the taxable income of the Company upon which the tax
(and any interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the organization
of the Company or to the offer, sale or issuance of Shares,
including but not limited to the costs of compliance with
regulations and requirements of the United States Securities and
Exchange Commission and the various states and other
jurisdictions of the United States as they pertain thereto, shall
be allocated to the Subsidiary Capital Account for the Common
shares.
(5) Any expenses or liabilities of the Company not allocable in
the manner described in paragraphs (2) through (4) above shall be
allocated among the Subsidiary Capital Accounts on the basis of
the relative balances of such accounts as of the end of the
fiscal quarter preceding the date on which the expense or
liability is incurred.
(6) (a) Investment income, net of any direct investment
expense, shall be allocated among the Subsidiary Capital
Accounts pro rata based upon the relative Investment Asset
Balance (as defined in subparagraph (b) below) of each such
account as of the last day of the fiscal quarter preceding
the quarter for which the investment income is being
allocated. For these purposes, net investment income will
include realized (but not unrealized) gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital
Account shall be equal to the capital and surplus allocated
to such account, increased by:
(i) the unearned portions of the written premiums that
have been collected by the Company and allocated to
such account as of the last day of the fiscal quarter
preceding the quarter for which the income is being
allocated, net of any applicable commissions and taxes;
(ii) the outstanding loss reserves attributable to such
account as of the last day of the fiscal quarter
preceding the quarter for which the income is being
allocated; and
(iii) any other outstanding liability that has been
charged to such account as of the last day of the
fiscal quarter preceding the quarter for which the
income is being allocated.
(7) (a) If, after the credits and charges described in
paragraphs (1) through (6) above are made to the Subsidiary
Capital Accounts there exists a deficit in one or more of
such accounts, then each such deficit will be allocated to
and charged against:
(i) first, the Subsidiary Capital Account for the
Common shares to the extent of Restricted Earned
Surplus;
(ii) then, any remaining unallocated deficit to the
Subsidiary Capital Accounts for the Shares, pro rata,
based upon the relative earned premiums allocated to
each such account for the fiscal quarter for which the
allocation is being made; provided, however, that only
accounts which have positive balances will be taken
into account for the purposes of this allocation;
(iii) then, any remaining unallocated deficit to the
remaining Subsidiary Capital Accounts for the Shares
with positive balances as of the last day of the fiscal
quarter for which the allocation is being made, pro
rata, based upon such balances; and
(iv) finally, to the extent necessary, the Subsidiary
Capital Account for the Common shares.
(b) If, as a result of an allocation of a deficit as
described in subparagraph (ii) or (iii) of paragraph (a)
above, a deficit is created in one or more of the Subsidiary
Capital Accounts, then the resulting deficit(s) will be
further allocated in the manner provided in that
subparagraph.
(c) Although this paragraph (7) shall be applied in a
manner that does not result in a balance in any Subsidiary
Capital Account for a series of Shares that is less than
zero, if any such account had a deficit that was allocated
to and charged against the Subsidiary Capital Account of the
Common shares pursuant to section 3(1)(7)(a)(i) hereof, then
at the end of any succeeding fiscal quarter for which that
account otherwise would show an account balance greater than
zero, such balance will be reallocated to the Subsidiary
Capital Account of the Common shares until all reductions of
such Subsidiary Capital Account for the Common shares under
section 3(1)(7)(a)(i) hereof for the series of Shares have
been restored.
(8) (a) Dividends, payments upon redemption or liquidation
(described below), and any other distributions with respect
to shares of the Company will be allocated to the Subsidiary
Capital Account for the class or series with respect to
which the dividend, payment or distribution was made.
(b) Where all shares of a series of Shares are repurchased
by the Company pursuant to Section 4 below, or redeemed in
accordance with the Company's procedures for redemption set
forth in Section 3(6) below, the Subsidiary Capital Account
for such series shall be terminated as of the Repurchase
Date or Redemption Date (as those terms are defined in
Sections 4 and 3(6), respectively). Thereafter, all income,
expenses, gains and losses that would have been allocated to
the terminated account will be allocated among the
Subsidiary Capital Accounts of the existing series of Shares
pro rata based upon relative earned premiums attributable to
such accounts for the calendar quarter in which the item was
earned or incurred; provided, however, that a net deficit
for any such period shall be allocated in accordance with
the provisions of Section 3(1)(7).
The allocations to the Subsidiary Capital Accounts described
above shall be approved by the Board, and when finally so
approved all calculations, allocations and determinations shall
be final and conclusive and shall be binding on all holders of
shares of the Company for all purposes, including without
limitation any redemption of shares of the Company pursuant to
the Company's procedures for redemption. The Board is authorized
to interpret and apply the provisions of these Articles and to
promulgate such additional rules and guidelines as the Board
deems appropriate to carry out the intent of these Articles and
such interpretations, rules and guidelines shall be binding on
all shareholders.
(2) PARTICIPATING SHARES
(a) If any Share shall be redeemed, repurchased or otherwise
retired, it shall return to the status of an authorized but
unissued share of such class.
(b) A series of Shares shall be issued with respect to a
specific MIC Agency Account. Only one series of Shares shall be
issued with respect to an MIC Agency Account. A series of Shares
shall be issued only to persons or entities acceptable to the
Board and certified by the owner(s) of the Franchise(s) to which
the MIC Agency Account relates. Certification will be effected
in accordance with procedures adopted by the Board from time to
time. No share of any particular series of Shares shall be
issued unless all shares of such series are issued.
(c) Each outstanding Share shall entitle the registered holder
of record of such Share to dividends in accordance with the rules
set forth in Section 3(5) of these Articles.
(d) The holders of Shares shall among them have the right to
elect one director of the Company and shall otherwise have only
such voting rights as are specifically provided herein. On all
such matters each share shall entitle the registered holder
thereof to one vote.
(e) The rights associated with any Shares of a series shall be
identical to the rights associated with all other Shares of the
same series.
(3) COMMON SHARES
(a) Each outstanding Common share shall entitle the registered
holder of such shares to dividends in accordance with the rules
set forth in Section 3(5) of these Articles.
(b) Each outstanding Common share shall entitle the registered
holder thereof to one vote per share on all resolutions of the
Company other than as specifically provided herein.
(c) The holders of the Common shares shall be entitled to elect
five directors of the Company, one of whom must be a resident
citizen of Barbados.
(4) LIQUIDATION
The Company may be liquidated upon the vote of the holders of at
least seventy-five percent (75%) of the Shares. In the event of
any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, after payment of all
liabilities of the Company, each holder of Shares of a series
shall be entitled to receive an amount equal to his share (based
on his proportionate ownership of such series) of the Subsidiary
Capital Account balance related to his series of Shares before
any distribution of the assets of the Company shall be made to
holders of the Common shares. After such payment shall have been
made in full to the holders of the outstanding Shares, or funds
necessary for such payment shall have been set aside in trust for
the account of the holders of the outstanding Shares so as to be
available therefor, the holders of the outstanding Shares shall
be entitled to no further participation in the distribution of
the assets of the Company, and the remaining assets of the
Company, if any, shall be divided and distributed among the
holders of the Common shares then outstanding pro rata based on
their respective shares. A consolidation or merger of the
Company, or sale or transfer of all or substantially all its
assets, or any purchase or redemption of shares of the Company of
any class or series, shall not be regarded as a "liquidation,
dissolution, or winding up" within the meaning of this paragraph.
(5) DIVIDENDS
(a) Subject to the following paragraphs, dividends may be paid
at the discretion of the Board.
(b) Dividends, payable in cash or such other property as the
Board may determine, on a series of Shares or on Common shares,
shall be declared and payable only if the Company shall have,
after giving effect to the dividend, sufficient net assets,
without regard to any Letter of Credit or Guarantee, to meet the
general business solvency margin prescribed by the Exempt
Insurance Act and Section 51 of the Act; provided that dividends
with respect to any series of Shares may be paid only out of
earned surplus attributable to the Subsidiary Capital Account
identified with those Shares, and only to the extent that, after
giving effect to the dividend, the capital and surplus identified
with that Subsidiary Capital Account (without regard to any
Guarantee or Letter of Credit) would meet its pro rata share,
based on allocable premium income, of the minimum net assets
required of the Company under the Exempt Insurance Act. Subject
to the right of the holders of Shares to receive minimum
dividends pursuant to the following paragraph, to the extent a
dividend is declared on the Shares, it shall be declared and paid
subject to the foregoing limitations for each series of Shares as
a percentage of the net income for the preceding calendar year
and/or earned surplus as of the end of the preceding calendar
year, attributable to each series, provided that such percentage
may vary among series of Shares with the level of net income
and/or earned surplus. Dividends shall only be declared and paid
on Common shares to the extent that the earned surplus
attributable to Common shares exceeds Restricted Earned Surplus.
(c) Subject to the preceding paragraph, the holders of the
Shares of each series shall be entitled to receive minimum annual
dividends, payable annually within the first 120 days of each
fiscal year, in cash or such other property as the Board may
determine. The minimum annual dividend payable on each Share
shall be such Share's pro rata portion of an amount equal to
twenty percent (20%) of the net income, if any, for the preceding
fiscal year attributable to the Subsidiary Capital Account
associated with the series of which that Share is a part. If a
holder of Shares receives no dividend or a limited dividend in
any annual period as a result of the limitations set forth in the
preceding paragraph, any unpaid portion of the minimum dividend
otherwise payable pursuant to this paragraph shall not become
payable pursuant to this paragraph in any subsequent year.
(d) In no event shall any dividend whatever be paid upon or
declared or set apart for the Common shares, unless and until all
minimum annual dividends required to be paid on the then
outstanding Shares for the then current period shall have been
paid or declared and set apart for payment.
(6) REDEMPTION
The common shares are non-redeemable. Subject to compliance with
any applicable statute or act, the Company may redeem any of its
issued and outstanding Shares if all Shares of the series
involved are redeemed and the redemption of such Shares is
approved by a majority of the Board, provided that the Director
representing holders of the Shares votes in favor of the
redemption.
The redemption of Shares shall be effective on such future date
as determined by the Board, which shall be no later than the last
business day of the calendar year in which the redemption was
approved by the Board, and in the case of a redemption of Common
Shares, by holders of the Shares. Such date is herein called the
"Redemption Date."
The consideration payable to the holders of redeemed Shares shall
be the Subsidiary Capital Account balance for the series of such
Shares as of the Redemption Date, as adjusted by the Board to
reflect unrealized gains and losses on investments held by the
Company and any contingent liabilities allocable to such account.
Such consideration shall be paid within five (5) months of the
Redemption Date, provided that the holder(s) of the redeemed
Shares shall have delivered to the Company, certificates
representing the Shares being redeemed duly endorsed and
accompanied by such other documents as the Company may require.
Such consideration shall bear interest from the Redemption Date
until the earlier of the date of payment or the date that is five
(5) months from the Redemption Date, at a rate equal to the rate
of interest paid on 26-week United States Treasury Bills for the
issue following the Redemption Date.
Upon redemption of the Shares as aforesaid, the holder(s) thereof
shall cease to have any further interest in the shares being
redeemed. Shares redeemed pursuant to this Section 3(6) shall
return to the status of authorized but unissued Shares.
4. Restrictions, if any, on share transfers:
(a) Subject to the exceptions listed below, Shares (whether
owned by the original or any subsequent holder thereof)
shall not be transferred in any manner unless the holder(s)
has received a bona fide written offer to purchase such
Shares, a copy of which has been furnished to the Company,
and the Company is thereafter offered the opportunity to
purchase such Shares. The Company shall have sixty (60)
days during which to exercise the rights conferred upon it
by this paragraph. If the Company accepts such offer, the
price will be the lesser of the balance of the Subsidiary
Capital Account related to such series of Shares as of the
last day of the fiscal quarter immediately preceding the
date on which the offer to purchase was accepted by the
Company (the "Repurchase Date") (or if less than all such
Shares are offered, then the pro rata portion of such
account attributable to the Shares offered), or the bona
fide offering price. Payment by the Company may be deferred
until the end of the fiscal quarter in which the offer to
purchase was accepted by the Company. Shares purchased by
the Company pursuant to this paragraph shall return to the
status of authorized but unissued shares of such class. If
the Company does not elect to purchase the Shares pursuant
to this paragraph, they may be sold in accordance with the
bona fide written offer referred to above within the
following sixty (60) days, subject to the requirements of
the following paragraphs. After such further sixty (60)
days, any attempted sale or transfer of the Shares shall be
subject to all the requirements of this paragraph.
(b) In addition to the requirements of the preceding
paragraph and except as provided in paragraph (d) below,
transfers of less than all Shares of a series shall not be
made unless the holder(s) has received the written consent
of the Company thereto. A request for such consent must be
made in writing and set forth the name(s) and address(es) of
the intended transferee(s), the desired date of the
transfer, and the consideration to be paid. The Company
shall have sixty (60) days from receipt of such request to
grant or withhold its consent to the intended transfer. If
the Company fails to give its written consent, any
subsequent transfer shall be void and of no effect.
(c) Shares may not be transferred unless and until the
Board has received such assurances of compliance with all
applicable laws and regulations as it may deem necessary and
the transferee has agreed to abide by the requirements set
forth in the Stock Purchase Agreement entered into by the
transferor. Certificates representing shares of any class
of the Company's shares shall bear a legend substantially to
the effect of this Section 4 of these Articles.
(d) A sale, gift, assignment, pledge or other transfer of
Shares shall be exempt from the requirements of paragraphs
(a) and (b) of this Section 4 if the Board determines that
the transferee or assignee of the shares is: (i) a member of
the transferring shareholder's immediate family; (ii) a
trust for the benefit of the transferring shareholder, or
for the benefit of other exempted transferees described in
this paragraph; (iii) if the transferor is a corporation,
any shareholder of the transferor; (iv) if the transferor is
a partnership, any of its partners; (v) a corporation which
is controlled by or under common control with the
transferor; (vi) the estate of a deceased shareholder or
legatees and heirs of such deceased shareholder; (vii) a
charitable or other qualifying organization described in
Section 170(c)(2) of the United States Internal Revenue Code
of 1986; (viii) in the case of a transfer of less than all
of the Shares of a series, a person who immediately prior to
such transfer is a holder of Shares of that series; or (ix)
a key employe with respect to a Franchise previously
designated in the Stock Purchase Agreement entered into by
the transferor.
7. Other provisions if any:
No holder of shares of the Company of any class, now or hereafter
authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive any shares of the Company of
any class, now or hereafter authorized, or any options or
warrants for such shares, or any rights to subscribe for or
purchase such shares, or any securities convertible into or
exchangeable for such shares, which may at any time be issued,
sold or offered for sale by the Company.
Amendment of Articles and By-Laws:
The Company's Articles and By-Laws shall not be altered, amended
or repealed and no provision inconsistent therewith shall be
adopted, without the affirmative vote of the holders of a
majority of the Common shares and of the Shares present; provided
that the rights associated with any series of Shares shall not be
varied, unless the rights associated with all other series are
similarly changed, without the affirmative vote of the holders of
a majority of the Shares of each series present.
APPENDIX B
STOCK PURCHASE AGREEMENT
BETWEEN
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
AND
(Certified Purchaser)
_________ , 19
Motors Mechanical Reinsurance
Company, Limited
Financial Services Centre
Bishops Court Hill
St Michael, Barbados
Gentlemen:
The undersigned Shareholder (as more fully described below)
hereby offers to purchase certain shares of stock of Motors
Mechanical Reinsurance Company, Limited, a Barbados Corporation
(the "Company"), upon the terms and conditions set forth herein.
The Shareholder hereby tenders a check in the amount of the
Purchase Payment (as defined herein), to be held in an escrow
account with Barclays Bank PLC (the "Escrow Account"). This
offer shall expire on the 120th day after the date hereof if the
Company has not accepted it prior to such expiration date. The
Shareholder acknowledges receipt of a prospectus dated
with respect to the stock described herein.
1. DEFINITIONS
1.1 Franchisee. The term "Franchisee" means (insert name(s) and
address(es) of Franchisee(s) of the automobile sales franchise(s)
related to the applicable MIC Agency Account).
1.2 MIC. The term "MIC" means Motors Insurance Corporation, a
New York corporation.
1.3 MIC Agency Account. The term "MIC Agency Account" means the
separate business record maintained by MIC or any of its
subsidiaries or affiliates to track volume, experience and
commissions with respect to insurance business related to the
automobile sales franchise(s) owned by the Franchisee.
1.4 Purchase Payment. The term "Purchase Payment" means the $
($75 (U.S.) x number of shares) paid hereunder as consideration
for the purchase of the Shares.
1.5 Shareholder. The term "Shareholder" means ,
taxpayer identification number , who is a citizen of
,
and who resides at .
1.6 Shares. The term "Shares" means shares (number
of shares) of the authorized shares of a series of the
participating stock of the Company, which series consists of 100
shares, and which is issued in respect of the MIC Agency Account.
1.7 The masculine gender is to be construed to include a female
or an entity where the context of this Agreement so requires.
2. REPRESENTATIONS
2.1 Representation of Shareholder. The Shareholder represents
that he has been duly certified (on the form furnished by the
Company and attached hereto) by the Franchisee and meets the
requirements for this purchase and sale as set forth in the
Articles of Incorporation of the Company (the "Articles"), copies
of which are attached to the prospectus. (It is understood that,
if the Franchisee consists of more than one person, all such
persons must join in the certification of the Shareholder.)
2.2 Representation of Company. The Company represents that the
issuance and sale of the Shares pursuant to this Agreement has
been duly authorized by the Board in accordance with the
Articles, and is consistent with the applicable provisions of
Barbados law.
3. PURCHASE AND SALE OF SHARES
Upon acceptance of this Agreement by the Company, the Company
agrees to sell and issue to the Shareholder, and the Shareholder
agrees to purchase, the Shares in consideration of the Purchase
Payment.
4. ESCROW OF PURCHASE PAYMENT
Subject to the following sentence, the Purchase Payment will
remain on deposit in the Escrow Account until the Shares are
issued by the Company. If this Agreement is not executed by the
Company within 120 days of the date hereof, the Purchase Payment
shall be refunded promptly together with any interest earned
thereon. Following execution by the Company, the Shareholder
shall have no right to withdraw the amount of the Purchase
Payment or any interest earned thereon.
5. COVENANTS OF THE COMPANY
5.1 Series of Participating Stock. No more than 100 shares of
the same series of participating stock as the Shares shall be
issued by the Company, and no other series of such stock shall be
issued with respect to the MIC Agency Account.
5.2 Reinsurance Business. The business of the Company shall be
limited to the reinsurance of mechanical breakdown risks
underwritten by MIC or its subsidiaries or affiliates and
identified with the MIC Agency Account and similar MIC accounts
maintained with respect to automobile franchises for which series
of participating stock of the Company are issued and outstanding.
6. LIMITATIONS BASED ON INADEQUATE CAPITAL
The Shareholder and the Company agree that if the Company cannot
meet the minimum margin of solvency requirements under Barbados
insurance law, then, to the extent the net asset value
attributable to the Subsidiary Capital Account (the "Account")
for the shares issued pursuant to this Agreement is less than its
pro rata share (based on proportionate earned premium) of the
Company's required net asset value, the Company shall reduce the
business attributable to the Account, on a pro rata basis with
such other accounts that are similarly deficient, by retrocession
or some other means acceptable to the Company, to the extent
necessary to permit the Company to meet the Company's required
minimum margin of solvency.
7. RESTRICTIONS ON TRANSFER
The Shareholder agrees to be bound by and shall be subject to all
provisions in the Articles (including without limitation those
with respect to the ownership and transfer of the Shares) that
are in effect as of the date of this Agreement or that may be
added in the future, and any amendments to such provisions. It
is understood that the Company may place on the certificate for
the Shares a legend stating in substance:
The sale, transfer, or other disposition of the shares
evidenced by this certificate is restricted pursuant to
provisions of the Articles of Motors Mechanical Reinsurance
Company, Limited ("Company"), and the Stock Purchase
Agreement ("Agreement") between the Company and the
Shareholder, dated , 19 , pursuant to which the
shares were issued. Copies of the Articles and the
Agreement may be examined at the registered office of the
Company.
8. MISCELLANEOUS
8.1 Severability. If for any reason any provision of this
Agreement shall be invalid or unenforceable, the validity of any
or all of the remaining provisions shall not be affected thereby;
provided, however, that the absence of such illegal or invalid
provisions does not so materially alter the purpose of this
Agreement such that the continuation of the arrangement
contemplated by this Agreement would no longer be mutually
beneficial to the Shareholder and the Company.
8.2 No Waiver. The failure of any party to insist upon strict
performance of any obligation hereunder shall not be a waiver of
the party's right to demand strict compliance therewith in the
future.
8.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Barbados.
8.4 Counterparts. This Agreement has been executed in multiple
copies, each of which shall for all purposes constitute one
Agreement, binding on the parties.
8.5 Assignment. This Agreement is personal to the parties and,
except as contemplated herein and in the Articles, no party shall
have any right to assign any right or to delegate any duty
hereunder, either voluntarily or involuntarily, or by operation
of law.
8.6 Term of Agreement. Except as herein expressly provided,
this Agreement shall remain in force as long as the Shares remain
outstanding. If not terminated sooner, this Agreement shall
terminate upon the earlier of the redemption of the Shares or the
liquidation of the Company.
8.7 Effect of Transfer. The Shareholder shall be relieved of
all restrictions and obligations and shall not be entitled to any
further benefits under this Agreement upon transfer of all the
Shares and upon the agreement of the transferee to be bound by
the terms and conditions of this Agreement.
8.8 Amendment. No change, modification, or amendment to this
Agreement shall be valid or binding upon the parties hereto
unless such change, modification, or amendment shall be in
writing signed by all of the parties.
8.9 Integration. This Agreement constitutes the full and
complete agreement between the Shareholder and the Company.
8.10 Captions. Titles or captions of sections, paragraphs or
exhibits contained in or made a part of this Agreement are
inserted only as a matter of convenience and for reference, and
in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof.
8.11 Notices. Any and all notifications permitted or required to
be made under this Agreement shall be in writing, signed by the
party giving such notification, and shall be sent by registered
or certified mail, postage prepaid (1) if to the Shareholder, at
the address set forth in Section 1.5 of this Agreement or at such
other address as may have been furnished by the Shareholder to
the Company in writing; or (2) if to the Company, in care of
Alexander Insurance Managers (Barbados) Limited, Financial
Services Centre, Bishops Court Hill, St. Michael, Barbados, W.I.
For purposes of computing a time period, the date of mailing
shall be the date of notification.
8.12 Survival of Representations and Warranties. All agreements,
representations, and warranties contained herein or made in
writing by the Shareholder or the Company in connection with the
transactions contemplated hereby shall survive the execution and
delivery of this Agreement, and the sale and purchase of the
Shares under this Agreement.
8.13 Relationship to Articles. The provisions of the Articles
are incorporated herein to the extent relevant to this Agreement.
If the authorized representative of the Company executes this
Agreement on its behalf, then this Agreement shall become a
binding contract, subject to the terms and conditions set forth
herein, between the Company and the Shareholder as of the date of
the execution on behalf of the Company.
Very truly yours,
______________________________ __________________________________
Date Signature of Shareholder
_________________________________
Print Name of Shareholder
The foregoing Agreement is hereby accepted and agreed to as of
the date set forth below. Series P- is hereby designated for
the Shares described in this Agreement.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
By ___________________________ Dated:
__________________________
Title ________________________
Note: Upon acceptance by the Company, a duly signed copy of
this Agreement shall be sent to the Shareholder.
APPENDIX C
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
CERTIFICATION FORM
The undersigned represent(s) that he (she)(they) is (are) the
owner(s) of an automobile sales franchise doing business as
______________________ (name of dealership), with respect to
which MIC Agency Account___ is maintained. The undersigned
hereby designate(s) ___________________________________ (name of
purchaser), who resides at ____________________________ (address
of purchaser), to be deemed eligible to purchase shares of a
series of the participating stock of Motors Mechanical
Reinsurance Company, Limited (the "Company") pursuant to the
Articles of Incorporation of the Company.
______________________________ _________________________________
Date Signature of Franchise
Owner
__________________________________
Print Name of Franchise Owner
(Names of Co-Owners, if any)
______________________________ __________________________________
Date Signature of Co-Owner
__________________________________
Print Name of Co-Owner
______________________________ __________________________________
Date Signature of Co-Owner
__________________________________
Print Name of Co-Owner
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, all of
which were paid by Motors Insurance Corporation, in connection
with the initial offering described in the Registration
Statement:
Registration Fee -- Securities
and Exchange Commission ................ $ 1,500
State "Blue Sky" fees ................... $ 15,000
Accountants Fees and Expenses ........... $ 10,000
Legal Fees and Expenses ................. $150,000
Printing and Engraving .................. $ 37,000
Miscellaneous ........................... $ 10,000
--------
Total Expenses ..................... $223,500
--------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Paragraph 10 of Registrant's By-Laws provides for the
indemnification of Registrant's officers and directors (and such
persons' heirs, executors and administrators) against any and all
judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees, incurred by such person in
connection with any claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the
fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company as a
director, officer, employe, fiduciary or member of any other
corporation, partnership, joint venture, trust, enterprise or
organization, except with respect to any matter for which
indemnification would be void pursuant to the Companies Act, 1982
of Barbados (the "Companies Act").
Under the Companies Act, indemnification of Registrant's officers
and directors against any liability which would attach by reason
of any contract entered into or act or thing done or omitted to
be done by them in performance of their office or in any way in
the discharge of their duties, if the same happens through their
not acting in good faith and in the best interest of the
Registrant is void.
The position of the Securities and Exchange Commission regarding
indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") is set forth under Item 17, paragraph 5
of this Part II.
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES
No securities which were not registered under the Act have been
issued or sold by Registrant within the past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
3 (a) Restated Articles of Incorporation (filed as
Appendix A to the Prospectus).
(b) By-Laws of Registrant, as amended.*
4 Specimen Participating Stock Certificate.*
5 Opinion of Evelyn, Gittens & Farmer.*
10 (a) Form of Principal Retrocession Agreement between
Motors Insurance Corporation and
Registrant.*
(b) Form of Supplemental Retrocession Agreement
between Motors Insurance Corporation and
Registrant.*
(c) Specimen Stock Purchase Agreement (filed as
Appendix B to the Prospectus).
(d) Amended and Restated Stock Purchase Agreement
between Registrant and Motors Insurance
Corporation.*
(e) Insurance Management Agreement between Registrant
and Alexander Insurance Managers (Barbados) Ltd.**
23 (a) Consent of Evelyn, Gittens & Farmer.
(b) Consent of LeBoeuf, Lamb, Greene & MacRae.
(c) Consent of Deloitte & Touche, Independent
Chartered Accountants.
99 (a) Certification Form (filed as Appendix C to the
Prospectus).
(b) Guarantee issued by the Minister of Finance of
Barbados.*
(c) Certificate of Barbados Residency.*
* Filed previously,
** Filed as Exhibit 19(f) to Form 10-K on March 30, 1994, File
No. 33-6534, and incorporated herein by reference.
B. Financial Statement Schedules:
No financial statement schedules are submitted herewith because
the information is included elsewhere in the financial statements
or the notes thereto or such schedules are not applicable.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which offers or sales of the
securities being registered are being made, a post-effective
amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
Registration Statement, and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
1933 Act, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering; and
(4) To file a post-effective amendment to the registration
statement to include any financial statements required throughout
a continuous offering.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post Effective Amendment to this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St.
Michael, Barbados, on July 7, 1994.
MOTORS MECHANICAL
REINSURANCE COMPANY, LIMITED
By s/Ronald W. Jones
Ronald W. Jones,
Vice-President,
Finance
Pursuant to the requirements of the Securities Act of 1933, this
Post Effective Amendment to this Registration Statement has been
signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
s/Joseph J. Pero President and Director July 7, 1994
Joseph J. Pero (Principal Executive Officer)
s/Ronald W. Jones Vice-President (Principal July 7, 1994
Ronald W. Jones Financial and Accounting
Officer)
s/Vincent K. Quinn Executive Vice-President
Vincent K. Quinn and Director July 7, 1994
s/Louis S. Carrio, Jr. Vice-President and Director July 7, 1994
Louis S. Carrio, Jr.
s/Peter R. P. Evelyn Director July 7, 1994
Peter R. P. Evelyn
Post Effective Amendment No. 11 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
(Exact name of registrant as specified in charter)
Barbados Not Applicable
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
6331 Financial Services Centre
(Primary standard industrial Bishops Court Hill
classification number) St. Michael, Barbados, W.I.
(809) 436-4895
(Address and telephone number
of principal executive office)
RONALD W. JONES, Vice President
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados, W.I.
(809) 436-4895
(Name, address and telephone number of agent for service)
Copy to:
David R. Woodward, Esq.
LeBoeuf, Lamb, Greene & MacRae
1875 Connecticut Avenue, N.W.
Washington, D.C. 20009
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, please check the following box.
(X)
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
Cross reference sheet between
Items of Form S-1 and Prospectus
Pursuant to Item 501(b)
of Regulation S-K
FORM S-1 ITEM NO. CAPTION OR
AND CAPTION LOCATION IN PROSPECTUS
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus ....................... Front Cover
2. Inside Front Page and Outside Back
Cover Pages of Prospectus ........ Inside Front
Cover; Outside
Back Cover
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges .......................... Summary; Risk
Factors
4. Use of Proceeds .................. Use of Proceeds
5. Determination of Offering Price .. Determination
of Offering
Price
6. Dilution ......................... Not Applicable
7. Selling Security Holdings ........ Not Applicable
8. Plan of Distribution ............. Plan of
Distribution
9. Description of Securities to be
Registered ....................... Description of
Capital Stock
10. Interests of Named Experts and
Counsel .......................... Not Applicable
11. Information With Respect to the
Registrant ....................... Summary; The
Company; Use of
Proceeds;
Capitalization;
Business of the
Company;
Management;
Principal
Shareholder
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities .................. Not Applicable
P R O S P E C T U S
Motors Mechanical Reinsurance Company, Limited
26,500 Shares of Participating Stock
THE SECURITIES OFFERED HEREBY INVOLVE SIGNIFICANT RISK, ARE
SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFER, AND WILL NOT BE
READILY MARKETABLE. OFFEREES SHOULD REFER TO THE SECTION
CAPTIONED "RISK FACTORS".
Motors Mechanical Reinsurance Company, Limited (the "Company"), a
Barbados company, is engaged in the business of assuming risks in
respect of certain insurance policies covering motor vehicle
mechanical repairs. (See "The Company.")
The shares of Participating Stock of the Company offered by this
Prospectus (the "Shares") are divided into 265 series, and the
authorized number of Shares of each series is 100 Shares. The
offering price is $75.00 per Share. (See "Description of Capital
Stock.") ALL AMOUNTS OF MONEY SHOWN IN THIS PROSPECTUS ARE
STATED IN U.S. DOLLARS.
The Company is offering Shares of a series only to persons
certified by the owners of motor vehicle franchises to be
identified with that series and only if it receives Stock
Purchase Agreements executed by such persons which are acceptable
to the Company in its sole discretion.
The Shares are being sold, on a continuous basis, by certain
employes of Motors Insurance Corporation ("MIC"), who are not
compensated specifically for their services in this regard. (See
"Plan of Distribution.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Underwriting
Price to discounts and Proceeds
public commissions to issuer
Per Share $75.00 None $75.00
Total 26,500 shares* $1,987,500 None $1,987,500
* Of this number, 20,400 shares had been issued and sold as of
the date of this Prospectus.
The date of this Prospectus is , 1994.
The Company, certain of its directors, and certain experts named
herein are residents of Barbados, and all or a substantial
portion of the assets of the Company and of such persons are or
may be located outside the United States. As a result, it may
not be possible for investors to effect service of process within
the United States upon the Company or such persons, or to enforce
against them judgments obtained in United States courts
predicated upon the civil liability provisions of the Securities
Act of 1933, as amended (the "1933 Act"). The Company has been
advised by its Barbados counsel, Evelyn, Gittens & Farmer, that
there is doubt as to whether Barbados courts would (1) enforce
judgments of United States courts obtained against the Company or
such persons predicated upon the civil liability provisions of
the 1933 Act, or (2) impose, in original actions in Barbados,
liabilities against the Company or such persons predicated upon
the 1933 Act.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the
offices of the Commission, at Room 1024, 450 Fifth Street,
N.W., Washington, D.C.; Room 1204, Kluczynski Federal Building,
230 South Dearborn Street, Chicago, Illinois; and Room 1102,
Jacob K. Javits Building, 26 Federal Plaza, New York, New York.
Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates.
The Company furnishes to its stockholders annual reports
containing financial statements that reflect the Company's
overall results and condition and that have been audited and
reported upon by independent public accountants, and quarterly
reports for each of the first three quarters of each fiscal year
containing unaudited financial information. In addition, the
Company furnishes to each holder of Shares of a series a
quarterly statement containing unaudited financial information
relating to such series. The reports furnished by the Company
contain information prepared in accordance with accounting
principles generally accepted in the United States.
TABLE OF CONTENTS
Page
DEFINITIONS...............................................
SUMMARY...................................................
RISK FACTORS..............................................
Relationship with MIC....................................
Restrictions Applicable to Certain Retrocessions.........
Extension of New Vehicle Warranties......................
Risk of Underwriting Losses..............................
Investment Experience....................................
United States Tax Considerations.........................
Risks Related to Foreign Business Operations.............
Competition and Loss of Business.........................
Barbados Regulatory Limitations..........................
Reliance on Outside Consultants .........................
Dividends................................................
No Public Market; Restrictions on Transfers..............
Share Redemption.........................................
THE COMPANY...............................................
ELIGIBILITY TO PURCHASE THE SHARES........................
USE OF PROCEEDS...........................................
DETERMINATION OF OFFERING PRICE...........................
DIVIDENDS.................................................
BUSINESS OF THE COMPANY...................................
Introduction.............................................
The Retrocessions........................................
General Considerations..................................
The Retroceding Company.................................
Types of Risks Subject to Retrocession..................
The Retrocession Agreement -- Principal Agreement.......
The Retrocession Agreement -- Supplemental Agreement....
Loss Reserves...........................................
Investment Income........................................
Employes.................................................
Competition..............................................
Insurance Management Agreement...........................
Barbados Regulation and Taxes............................
Insurance Regulation....................................
Taxes...................................................
Exchange Control .......................................
Facilities................................................
SELECTED FINANCIAL DATA...................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................
MANAGEMENT................................................
Directors and Officers...................................
Alternate Directors......................................
Committees of the Board..................................
Remuneration.............................................
PRINCIPAL SHAREHOLDER.....................................
DESCRIPTION OF CAPITAL STOCK..............................
Allocations to Subsidiary Capital Accounts...............
Voting Rights............................................
Election of Directors...................................
Proxies.................................................
Liquidation.............................................
Changes in Articles and By-Laws.........................
Other Matters...........................................
Redemption...............................................
Liquidation..............................................
Restrictions on Transfer.................................
Transfers of Less Than All Shares of a Series...........
Right of First Refusal..................................
Exceptions for Certain Transfers........................
Provisions Applicable to All Transfers..................
Common Stock.............................................
Barbados Corporate Law Provisions........................
Dividends and Distributions.............................
Repurchase..............................................
Shareholders' Remedies..................................
Enforcement of United States Judgments..................
Indemnification.........................................
Inspection of Corporate Records.........................
PLAN OF DISTRIBUTION......................................
Purchase Procedures......................................
Terms of Sale............................................
Conditions of Sale.......................................
Approval of Purchase....................................
Termination of Offering..................................
UNITED STATES FEDERAL TAX CONSIDERATIONS..................
United States - Barbados Income Tax Treaty...............
United States Premium Excise Tax.........................
United States Federal Income Tax Risks and
Consequences -- the Company.............................
United States Federal Income Tax Consequences -- the
Shareholders............................................
LEGAL MATTERS.............................................
EXPERTS...................................................
ADDITIONAL INFORMATION....................................
INDEPENDENT AUDITORS' REPORT..............................
FINANCIAL STATEMENTS......................................
APPENDIX A (Restated Articles of Incorporation of the
Company).......................................
APPENDIX B (Stock Purchase Agreement)...................
APPENDIX C (Certification Form).........................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO
DEALER, SALESMAN, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON.
DEFINITIONS
As used in this Prospectus, the following terms have the
particular meanings set forth below.
Common Stock -- The class of shares held by MIC.
Company -- Motors Mechanical Reinsurance Company, Limited.
Eligible Purchaser -- An individual or entity certified, by the
owner(s) of the Franchise(s) for which an MIC Agency Account is
maintained, as a purchaser of all or part of a series of Shares
in respect of such MIC Agency Account.
Franchise -- A right conferred by a motor vehicle manufacturer
pursuant to a written agreement which permits the grantee to sell
the manufacturer's new motor vehicles.
MIC -- Motors Insurance Corporation.
MIC Agency Account -- The separate business record maintained by
MIC or any of its subsidiaries to track volume, experience, and
commissions with respect to insurance business related to any one
or more particular Franchises.
Policies -- Insurance policies issued by any MIC subsidiary and
reinsured by MIC that cover motor vehicle mechanical repair
risks, to the extent that risks under such policies are
attributable to an MIC Agency Account in respect of which a
series of Shares is issued and outstanding.
Premium Income -- As used in the context of Barbados insurance
laws, net premiums after deducting any premiums paid by the
Company for reinsurance.
Retrocession Agreement -- The agreement or agreements entered
into between the Company and MIC pursuant to which a specified
portion of the risks arising under the Policies is transferred to
the Company.
Shares -- Shares of the Participating Stock of the Company.
Stock Purchase Agreement -- The agreement entered into between
the Company
and a purchaser of Shares, in the form approved by the Company's
Board of Directors.
Subsidiary Capital Account -- The subsidiary bookkeeping record
established by the Company for a particular series of shares or
class of stock and maintained for the purpose of accounting for
items of income and expense, gains and losses, capital
contributions, and shareholder distributions which are allocated
to the particular series of shares or class of stock.
SUMMARY
The following summary is qualified in its entirety by the
detailed information and financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
The Company was incorporated under the laws of Barbados on June
12, 1986 and has registered as a licensee under the Barbados
Exempt Insurance Act, 1983 to carry on the business of an Exempt
Insurance Company from within Barbados. Its registered and
principal offices are located in St. Michael, Barbados. The
Company is engaged in the business of assuming insurance risks
with respect to motor vehicle mechanical breakdowns insured under
policies that are reinsured by MIC. The Company conducts its
operations within or from Barbados. (See "The Company.")
THE OFFERING
Securities Being
Offered ........... Participating Stock, not to exceed
26,500 shares, in series of 100 shares
each, without nominal or par value. As
of the date of this Prospectus, 20,400
shares had been sold, leaving 6,100
remaining to be offered. (See
"Description of Capital Stock.")
Offering Price .... $75.00 per Share, or $7,500 per series.
Terms of Offering . Shares of a series of Participating
Stock will be issued with respect to a
specific MIC Agency Account. Only one
series of Shares will be issued with
respect to each MIC Agency Account. An
entire series must be purchased by one
or more Eligible Purchasers. (See
"Eligibility to Purchase the Shares.")
Offering Period ... This offering commenced on June 1, 1987
and, subject to termination by the Board
of Directors of the Company (the
"Board"), will be continuous in
accordance with Rule 415 under the 1933
Act. All funds paid by an Eligible
Purchaser will be held for the benefit
of the Company in an escrow account at
Barclays Bank PLC in Bridgetown,
Barbados until such time as the related
Stock Purchase Agreement has been
accepted by the Company. Upon
acceptance by the Company of a Stock
Purchase Agreement, funds will be paid
to the Company and Shares will be
issued.
Purchase Procedure.. Eligible Purchasers who wish to purchase
Shares will be required to submit to the
Company in Barbados the following: (1)
two executed Stock Purchase Agreements;
(2) a certified or cashier's check in
the amount of the purchase price of the
Shares payable to "Motors Mechanical
Reinsurance Company, Limited -- Escrow
Account"; and (3) certification of
eligibility. (See "Eligibility to
Purchase the Shares.")
Restrictions on
Transfer .......... Subject to certain exceptions, the
transfer of Shares is subject to the
Company's right of first refusal. In
addition, the transfer of less than all
of the Shares of a series requires prior
written consent of the Company. (See
"Description of Capital Stock --
Restrictions on Transfer.")
Voting Rights ..... Holders of Shares as a class are
entitled to elect one out of six members
of the Board. Their right to vote on
other matters is limited. (See
"Description of Capital Stock -- Voting
Rights.")
Risk Factors ...... This investment is subject to
significant risks. (See "Risk
Factors.")
Capital Structure.. As of March 31, 1994, 19,900 Shares
representing 199 series were issued and
outstanding and were held by 338
shareholders. In addition to the
Shares, the Company has authorized 2,000
shares of Common Stock without nominal
or par value, all of which have been
issued to MIC and are outstanding.
Use of Proceeds ... The proceeds of this offering are added
to general funds of the Company and
utilized in its insurance business.
(See "Use of Proceeds.")
Plan of
Distribution ...... The Shares are being sold by employes of
MIC on a continuous basis. Neither MIC
nor its employees are compensated
specifically for their services in that
regard, and no commissions are charged
or paid in connection with sales of the
Shares. (See "Plan of Distribution.")
RISK FACTORS
Investment in the Company is subject to significant risk.
Prospective investors should carefully consider, together with
the information contained elsewhere in this Prospectus, the
following:
Relationship with MIC. MIC owns all of the Common Stock of the
Company, which permits it to control the Board and determine,
among other things, the selection of the Company's officers,
outside insurance management company and outside investment
adviser. (See "Description of Capital Stock," "Business of the
Company -- Investment Income," "Business of the Company --
Insurance Management Agreement," and "Management.") The Company
has entered into a Retrocession Agreement with MIC pursuant to
which risks that MIC reinsures under Policies are "retroceded" to
the Company. (See "Business of the Company -- The
Retrocessions.") The Company relies entirely on the Retrocession
Agreement and, thus, on MIC for its business. Therefore, any
matters adversely affecting MIC may have an adverse impact on the
insurance business of the Company. In addition, it should be
noted that, under the Retrocession Agreement, only business
identified with certain MIC Agency Accounts is retroceded. MIC
and its subsidiaries have the power to terminate agency
agreements and otherwise limit the Company's insurance business
with respect to MIC Agency Accounts.
Pursuant to the Retrocession Agreement, the Company must pay to
MIC the amounts of any and all claims paid by MIC in respect of
the Policies. Although the Company may, at its own expense, be
associated with MIC in the defense of any claim, MIC or its
subsidiaries generally have full authority to investigate and
settle, or defend, all claims. (See "Business of the Company --
The Retrocessions.")
The Retrocession Agreement extends for an indefinite term. It
generally may be terminated at any time by MIC or the Company
upon 30 days written notice. (See "Business of the Company --
The Retrocessions.") In the event that the Retrocession
Agreement were terminated, there is no assurance that the Company
could make arrangements which would allow it to continue to
operate in the manner described in this Prospectus.
Restrictions Applicable to Certain Retrocessions. At the present
time, MIC believes that there is no federal or state law or
regulation that impairs its ability to retrocede its risks under
the Policies to the Company. However, certain state insurance
laws and regulations are imprecise and subject to varied
interpretations, and it is possible that some state
administrators could seek to limit retrocession arrangements with
a non-United States insurance company or with an insurance
company that is affiliated with the ceding company or its agents.
Moreover, from time to time, there are legislative and regulatory
proposals that could, if adopted, affect the MIC retrocession.
Extension of New Vehicle Warranties. Sales of mechanical
breakdown coverages, and thus the business of the Company, may be
adversely affected by changes in warranties provided by
manufacturers for new motor vehicles. If such warranties are
expanded, there could be an adverse effect on the sales of
mechanical breakdown insurance coverage, and thus on the
retrocession business of the Company. Beginning with 1989
models, GM's basic warranty was modified to cover defects in
material and workmanship on all components of new vehicles for 36
months or 50,000 miles subject to a $100 deductible after the
first 12 months or 12,000 miles. Beginning with 1992 models,
GM's basic warranty was modified to apply for 36 months or 36,000
miles; however, the previously existing $100 deductible was
eliminated.
Risk of Underwriting Losses. Mechanical breakdown risks are
unpredictable and highly volatile. If losses and expenses
incurred by the Company were to exceed its premium and investment
income, the Company would incur net losses.
Each series of Shares bears 90% of the losses incurred (to the
extent of its respective Subsidiary Capital Account balance) with
respect to business attributable to the MIC Agency Account
related to such series (as well as a pro rata share of 10% of all
losses incurred by the Company). To the extent such losses are
substantial, a holder of Shares might sustain a loss of all or a
portion of his or her investment even if other holders of Shares
are not similarly affected. In addition, underwriting losses
allocable to a particular series may, under certain
circumstances, be allocated to the other series. (See
"Description of Capital Stock -- Allocations to Subsidiary
Capital Accounts.")
Investment Experience. The profitability of the Company depends
in part on the amount of income that the Company earns on its
investments. There can be no assurance that the Company will
earn a net investment return which, when added to its
underwriting income, will be sufficient to offset its liability
for claims and expenses. In addition, the Company could suffer
investment losses due to declines in the market values of
securities in which it invests which may be caused by, among
other things, volatile interest rates. Substantially all of the
Company's assets are currently invested in U.S.
dollar-denominated securities issued outside of the United States
by non-United States private or governmental issuers and U.S.
dollar-denominated bank certificates of deposit issued by foreign
banks and foreign branches of U.S. banks. Investing in such
securities subjects the Company to certain risks not generally
associated with securities issued in the United States.
Moreover, the Company has recently been authorized to invest in
non-dollar denominated bonds on a fully currency-hedged basis.
When effectively implemented, such forward foreign currency
transactions will minimize the risk of loss resulting from a
decline in the value of the foreign currency relative to the
dollar, but may also limit the potential for gain in the event
the foreign currency's value increases in relation to the value
of the dollar. (See "Business of the Company -- Investment
Income.")
United States Tax Considerations. As discussed elsewhere herein,
the Company conducts a reinsurance business in Barbados and
executes and administers its reinsurance agreements and manages
its business affairs from Barbados. On this basis, the Company
believes that it should not be deemed to be engaged in business
within the United States through a permanent establishment, and,
therefore, the Company believes it should not be subject to
United States income tax. However, given the factual nature of
the questions involved and certain aspects of the Company's
treaty reinsurance program related to the United States, there
can be no assurance that for tax purposes the Company ultimately
will not be deemed to be engaged in business within the United
States through a permanent establishment. In such event, the
Company would be subject to United States income tax on business
profits attributable to such permanent establishment, as well as
an additional 5% branch profits tax.
Under captive insurance company provisions contained in the Tax
Reform Act of 1986, each holder of Shares generally will be
subject to United States income tax currently on his or her pro
rata share of the earnings of the Company, whether or not such
earnings are distributed. To the extent that the Company were
subject to United States income tax on its business profits, the
holders of Shares would not be subject to current tax on such
profits, but the holders of Shares would be subject to tax on
actual distributions of the Company with respect to such profits.
(See "United States Federal Tax Considerations -- United States
Federal Income Tax Consequences -- the Shareholders.")
No representation is made as to the effect that any change in
United States tax laws or the interpretation thereof may have on
the Company or holders of Shares.
Risks Related to Foreign Business Operations. The Company's
business is conducted outside of the United States and may,
consequently, be affected by changes in foreign governments and
by other political and economic conditions. As a Barbados
corporation, the Company is subject to the provisions of the
Barbados Companies Act, 1982. (See "Description of Capital Stock
- -- Barbados Corporate Law Provisions.") In addition, although
the Company has received a guarantee from the Barbados Minister
of Finance exempting it from Barbados taxes for a period ending
December 31, 2001, there is no assurance that the guarantee will
be extended beyond that date.
Competition and Loss of Business. The business of insuring motor
vehicle mechanical breakdown risks is highly competitive, with
many companies seeking the business produced by motor vehicle
dealers. Since all of the Company's business is currently
derived from the Retrocession Agreement, the volume of the
Company's business is dependent, to some extent, upon the
marketability of agreements and plans developed by GM and MIC
subsidiaries and offered through motor vehicle dealers. In
addition, GM may choose not to insure its liability under
mechanical repair plans with MIC or its subsidiaries. MIC
management believes that at present, MIC and its subsidiaries
underwrite approximately 20% of the mechanical breakdown
insurance in the United States on new GM vehicles. (See
"Business of the Company -- Competition.")
Barbados Regulatory Limitations. To the extent that the net
asset value of the Company does not meet the minimum requirements
for the Company as a whole under Barbados insurance laws and to
the extent that a Subsidiary Capital Account does not support the
business related to such account, the Company may reduce the
amount of its business attributable to such deficient Subsidiary
Capital Account.
Reliance on Outside Consultants. The Company does not have any
full-time officers or employes. The Company relies on outside
consultants for insurance management, day-to-day administrative
services, and investment advice. (See "Business of the Company
- -- Insurance Management Agreement," and "Business of the Company
- -- Investment Income.")
Dividends. Although the Company's Restated Articles of
Incorporation (the "Articles") (see Appendix A) provide for a
minimum annual dividend to holders of Shares under certain
circumstances, the ability of the Company to pay any dividend is
subject to compliance with Barbados insurance regulatory
requirements, the Barbados Companies Act and other limitations
provided in the Company's Articles. (See "Dividends.")
No Public Market; Restrictions on Transfers. There is no public
market for the Shares or the other capital stock of the Company,
and none is expected to develop. In addition, the Shares are
subject to substantial restrictions on transfer. Except for
transfers to certain members of a transferor's family, certain
trusts, certain business affiliates, or estates, a transfer of
any series of Shares is subject to the Company's right of first
refusal, and a transfer of less than all of the Shares of a
series cannot be made without the express written consent of the
Company. All transferees must agree to be bound by the
provisions of a Stock Purchase Agreement, including, among other
things, restrictions on the transfer of their Shares. (See
"Description of Capital
Stock -- Restrictions on Transfer," "Eligibility to Purchase
the Shares," and "Plan of Distribution.")
Share Redemption. The Board of Directors of the Company has the
right to cause a redemption of the Shares of any series at any
time and for any reason. This permits, among other things, the
Board of Directors to redeem, at its discretion, shareholders who
produce unsatisfactory business on a continuing basis. The Board
also may reject a request for redemption by a shareholder. (See
"Description of Capital Stock -- Redemption.")
THE COMPANY
Motors Mechanical Reinsurance Company, Limited (the "Company")
was incorporated in Barbados on June 12, 1986, and became
registered in Barbados as an insurer on June 30, 1986. The
Company's registered and principal offices are located at
Financial Services Centre, Bishops Court Hill, St. Michael,
Barbados and its telephone number is (809) 436-4895. The Company
was organized by MIC.
Pursuant to the Retrocession Agreement, the Company engages in
the business of assuming risks with respect to motor vehicle
mechanical breakdowns arising under insurance policies that are
reinsured by MIC and that are attributable to MIC Agency Accounts
in respect of which Shares are issued and outstanding. Under
the Retrocession Agreement, the Company has agreed to indemnify
MIC for losses that may be incurred by MIC under the Policies.
As consideration for the retrocession, the Company receives a
portion of the premiums paid to MIC in respect of the Policies.
The Retrocession Agreement constitutes the sole source of the
Company's insurance business. (See "Business of the Company.")
Barbados is an island nation located in the Atlantic Ocean. It
is the eastern-most island of the West Indies. Formerly a
British colony, Barbados gained its independence in 1966 and
maintains a parliamentary form of government. The currency of
Barbados currently is linked by law to the U.S. dollar at a fixed
exchange rate, which at present is two Barbadian dollars to one
U.S. dollar.
The Company conducts all of its business from Barbados and does
not conduct any of its business within the United States. It is
subject to general corporate and insurance regulation under the
laws of Barbados, including minimum net asset value and reporting
requirements. (See "Business of the Company -- Barbados
Regulation and Taxes.")
ELIGIBILITY TO PURCHASE THE SHARES
Shares of a series may be purchased only by an individual or
entity certified by the owner(s) of the Franchise(s) for which an
MIC Agency Account is maintained, as a purchaser of all or part
of a series of Shares in respect of such MIC Agency Account
("Eligible Purchaser"). There are no formal eligibility
requirements for certification; however, Franchise owner(s) have
complete discretion with respect to whom they choose to certify
(including themselves) and the Company has complete discretion to
accept or reject any offer to purchase Shares. No more than one
series of Shares is issued with respect to each MIC Agency
Account. No Shares of a series are issued unless executed Stock
Purchase Agreements (see Appendix B) for all Shares of that
series have been received and accepted by the Company.
A prospective purchaser is considered to be properly certified if
the Company has received a certificate in the form furnished by
the Company (see Appendix C) from each owner of the particular
Franchise(s) stating that the prospective purchaser has been
designated by such owner(s) to be eligible to purchase the
particular Shares. In addition, the prospective purchaser must
execute a Stock Purchase Agreement and forward that agreement,
together with payment for the Shares purchased, to the Company.
Stock Purchase Agreements are subject to acceptance by the
Company. (See "Plan of Distribution.")
Transfer of Shares is subject to certain restrictions. If less
than all the Shares of a series are transferred, the Company
must give its consent. In addition, the Company has a right of
first refusal to purchase any Shares which the holder attempts
to transfer. However, a transfer is not subject to either of the
foregoing restrictions if the transferee falls into one of the
categories of designated transferees set forth in the Articles.
(See "Description of Capital Stock -- Restrictions on Transfer.")
USE OF PROCEEDS
The offering of the Shares pursuant to this Prospectus is being
made on a continuous basis. This means that it is not possible
to predict how many series of Shares will ultimately be purchased
or the maximum net proceeds to be derived by the Company from
this offering.
The proceeds derived from this offering are added to the general
funds of the Company to provide capital to support its insurance
business. Under Barbados law, the Company is required to have
minimum net assets, determined by reference to the annual earned
premium, described more fully under "Business of the Company --
Barbados Regulation and Taxes." All of the Company's available
capital, including the proceeds of this offering, is invested by
its investment advisor in accordance with guidelines established
by the Board. (See "Business of the Company -- Investment
Income.") The Company believes that the proceeds derived from
this offering will be sufficient, together with its other
capital, to support the Company's insurance operations for the
foreseeable future.
DETERMINATION OF OFFERING PRICE
There is no public trading market for the Shares nor is one
expected to develop. The price per Share reflects the projected
capital needs of the Company and bears no relationship to any
valuation criteria.
DIVIDENDS
Dividends may be declared and paid at the discretion of the
Board, provided that each holder of Shares of a series will be
entitled to receive a minimum dividend, payable annually, equal
to 20% of the annual net income attributable to the Subsidiary
Capital Account associated with that series of Shares. In all
events, however, dividends are subject to the restrictions
described in the following paragraphs.
Pursuant to the general corporate laws of Barbados, dividends on
the Shares are payable only if after the payment: (a) the Company
would be able to pay its liabilities as they come due; and (b)
the realizable value of the Company's assets exceeds its
liabilities and stated capital of all classes. Dividends may not
be paid out of unrealized gains. Further, under Barbados
insurance law, the Company is required to maintain a minimum
capitalization of $125,000 and, in addition, the value of its
assets must exceed its liabilities by: (a) $125,000 where the
earned premium in the preceding financial year did not exceed
$750,000; (b) an amount equal to 20% of the earned premium for
the preceding financial year, where such income exceeded $750,000
but did not exceed $5,000,000; and (c) an amount equal to the
aggregate of $1,000,000 and 10% of the amount by which the earned
premium for the preceding financial year exceeded $5,000,000.
(See "Business of the Company -- Barbados Regulation and Taxes,"
and "Description of Capital Stock -- Barbados Corporate Law
Provisions.")
In addition to the provisions of Barbados law, the Articles place
limitations on the payment of dividends. Dividends may be
declared and paid only out of the earned surplus of the Company
and only if the Company, after giving effect to the distribution,
meets the Barbados margin of solvency requirements without regard
to any letters of credit. Further, dividends with respect to any
series of Shares may be paid only out of earned surplus
attributable to the Subsidiary Capital Account identified with
those Shares, and only to the extent that, after giving effect to
the dividend, the capital and surplus identified with that
Subsidiary Capital Account (without regard to any guarantee or
letter of credit) would meet its pro rata share, based on
allocable Premium Income, of the minimum margin of solvency
required of the Company under Barbados law, as described in the
preceding paragraph. To the extent a dividend, other than a
minimum dividend, is declared on the Shares, it will be declared
and paid subject to the foregoing limitations on all series of
Shares as a percentage of the net income and/or earned surplus
attributable to each series, provided that such percentage may
vary with the level of net income and/or earned surplus.
In May of 1990 and June of 1991, the Company declared minimum
dividends on the Shares in total amounts of $114,376 and
$150,317, respectively. In April of 1992, the Company declared a
dividend on the Shares aggregating $1,021,705 which was equal to
35% of earned surplus attributable to each series of Shares
meeting the above requirements. In April of 1993, the Company
declared a dividend on the Shares aggregating $2,021,504. This
dividend was declared as a varying percentage of earned surplus
attributable to each series of Shares with the percentage
applicable to each series varying from 30% to 50% depending on
the amount of earned surplus attributable to such series. In
April of 1994, the Company declared a dividend on the Shares
aggregating $2,156,304. This dividend was declared as a varying
percentage applicable to each series varying from 20% to 55%
depending on the amount of earned surplus attributable to such
series.
Dividends on the Common Stock are also subject to the
restrictions under Barbados law and the Articles described above.
In addition, the Articles provide that dividends may not be
declared or paid on the Common Stock unless and until each holder
of Shares of a series has received any minimum dividend to which
he is entitled for the current period and may be declared and
paid only to the extent that the earned surplus attributable to
the Common Stock exceeds Restricted Earned Surplus. (See
"Description of Capital Stock -- Allocations to Subsidiary
Capital Accounts.")
BUSINESS OF THE COMPANY
INTRODUCTION
The Company was incorporated in Barbados on June 12, 1986. It
became
registered in Barbados as an insurer on June 30, 1986 and
commenced insurance operations in December, 1987.
The business of the Company is the assumption of motor vehicle
mechanical breakdown insurance risks arising under insurance
policies reinsured by MIC to the extent such policies are
attributable to an MIC Agency Account in respect of which a
series of shares is issued and outstanding. These policies are
issued either to General Motors Corporation ("GM") or to
automobile dealers, reinsured by MIC, and retroceded to the
Company. Shares of the Company's Participating Stock (the
"Shares") are sold to persons designated by owners of motor
vehicle sales franchises with respect to which MIC maintains an
MIC Agency Account. A separate series is created for Shares
relating to each MIC Agency Account, and a separate "Subsidiary
Capital Account" is maintained for each such series. The
profitability of the Company reflects both underwriting and
investment experience, which is allocated among the Subsidiary
Capital Accounts.
THE RETROCESSIONS
General Considerations. Reinsurance is a means of transferring
the risk of loss arising under a contract of insurance from the
company that initially insured the risk to the reinsurer.
Retrocession is the transfer of the risk borne by the reinsurer
(the "retroceding company") to another company which, in turn,
assumes such risk (the "retrocessionaire"). Retrocession
agreements are of numerous different types and may be
individually negotiated by the parties to meet particular needs.
Under a "quota share" indemnity retrocession agreement, such as
the Retrocession Agreement between MIC and the Company, the
retrocessionaire (the Company) is paid ("ceded") a certain
percentage of the premiums collected by the retroceding company
(MIC) and, in return, agrees to indemnify the retroceding company
for a certain percentage of the losses in respect of those risks.
Further, a "treaty" arrangement, such as is involved here, covers
all risks of a defined class.
The Retroceding Company. MIC, the retroceding company under the
Retrocession Agreement, is a stock insurance company organized
under the laws of New York. All of MIC's outstanding stock is
owned by General Motors Acceptance Corporation which, in turn, is
a wholly owned subsidiary of GM. MIC, directly and through its
subsidiaries, offers property and casualty coverages in all 50
states and the District of Columbia, as well as in Canada and
Europe. MIC consistently has been awarded A.M. Best Company's
insurance financial rating of A + (Superior), one of the highest
possible ratings.
MIC maintains MIC Agency Accounts in respect of Franchises to
which the risks to be retroceded can be attributed. (A single
MIC Agency Account may be established either for a single
Franchise or in respect of a group of Franchises treated as a
single business unit by MIC and its subsidiaries.) Currently,
there are more than 6,800 MIC Agency Accounts in respect of
Franchises through which mechanical insurance business is
produced.
Types of Risks Subject to Retrocession. Included in the base
price of the vehicle, automobile manufacturers traditionally
provide a limited warranty to purchasers of new vehicles, which
is designed to protect the purchaser against failures resulting
from defects in the materials used or workmanship during the
manufacturing process. These manufacturers warranties have
varied from year to year in scope and duration. Beginning with
1989 models, GM's basic warranty was modified to cover all
components of new vehicles for 36 months or 50,000 miles subject
to a $100 deductible after the first 12 months or 12,000 miles.
Beginning with 1992 models, GM's basic warranty was modified to
apply for 36 months or 36,000 miles, with no deductible.
Automobile manufacturers, dealers and others also may make
available to automobile purchasers service contracts or insurance
policies (both of which are commonly referred to as "service
contracts") that provide coverage against specific automobile
mechanical breakdowns during the new vehicle warranty period that
are not attributed to manufacturing defects and coverage for
certain specified mechanical breakdowns (whether or not caused by
manufacturing defects) well beyond such period. Such service
contracts often provide additional services, such as towing and
rental allowances.
MIC reinsures the following service contracts insured by its
subsidiaries for new and used vehicles:
1. GM offers a variety of service contract options under
the General Motors Protection Plan ("GMPP") to purchasers of new
GM motor vehicles and certain used GM vehicles. In the United
States, GM currently insures its liability under this plan with a
subsidiary of MIC.
2. Certain dealers offer automobile purchasers a dealer service
contract called the Value Guard Mechanical Repair Plan ("MRP"),
generally with respect to used cars and new non-GM cars that
provide protection against certain automobile mechanical
breakdowns. These service contracts provide varying degrees of
protection, depending upon the particular plan involved. Such
dealers obtain insurance covering their liability under these
plans from a subsidiary of MIC.
MIC also writes some mechanical insurance business on a direct
basis, none of which will be subject to reinsurance with the
Company and none of which is included in the definition of
"Policies."
The Retrocession Agreement -- Principal Agreement. The Company
has entered into a "quota share" retrocession agreement (the
"Agreement") which became effective as of December 11, 1987, the
date Shares were first issued. Pursuant to the Agreement, MIC is
obligated to retrocede to the Company, and the Company is
obligated to assume, MIC's risks in respect of policies issued by
any MIC subsidiary and reinsured by MIC that cover mechanical
breakdown risks, to the extent that risks under such policies are
attributable to an MIC Agency Account in respect of which a
series of Shares is issued and outstanding (the "Policies"), and
such risks are insured on or after the effective date of the
Agreement. Under the Agreement, MIC is not obligated to
retrocede any risk to the Company in excess of the amount allowed
under applicable state laws concerning the retrocession of risks
located in the particular state. (See "Risk Factors --
Restrictions Applicable to Certain Retrocessions.")
Pursuant to the Agreement, MIC retrocedes to the Company 75% of
MIC's risk in respect of each Policy at the time it is written.
Such retrocession remains in effect for the duration of the
underlying Policy. With respect to this cession of 75% of the
risk, MIC pays the Company 56.25% of the gross premiums it
receives, reduced by any related agents' or brokers' commissions.
MIC retrocedes the remaining 25% of its risk in respect of each
such Policy on a monthly basis. In connection with this
retrocession of 25% of the risk, MIC pays the Company 18.75% of
the original gross premium, reduced by any related agents' or
brokers' commissions, as earned.
Thus, for assuming 100% of each risk the Company receives, in the
aggregate, 75% of the original gross premium with respect to the
risk, reduced by related agents' or brokers' commissions, if any.
The remaining 25% of the premium is retained by MIC as a ceding
commission. The Company generally is not otherwise required to
reimburse MIC for expenses incurred by MIC with respect to the
Policies. Settlements between the Company and MIC are made on a
quarterly basis.
Pursuant to the Agreement, the Company, at its own expense, to
the extent permitted by the underlying reinsurance agreement, may
join MIC or its ceding company in the defense or control of any
claim, loss, or legal proceeding that results in, or is likely to
result in liability for the Company. However, because MIC
controls the Company, MIC will indirectly control any
determination by the Company whether it will take such action.
The Company will not be liable for any damages assessed against
MIC arising out of its conduct in investigating, negotiating,
defending, or handling any claims or suits or in dealing with its
policyholders.
The Agreement requires that, as security for the amount of the
Company's liability to MIC thereunder, the Company furnish, to
the extent requested by MIC, collateral in the form of an
irrevocable letter of credit of at least 12 months duration equal
in amount to the unearned premium in respect of risks retroceded
and unpaid loss reserves (including reserves for losses incurred
but not reported) otherwise required to be maintained by MIC in
respect of the Policies. This letter of credit must be issued by
a bank acceptable to MIC. As of December 31, 1993, the Company
provided MIC with such a letter in the amount of $32,250,000.
The Agreement may be terminated at any time by mutual consent of
the parties, or by either party upon 30 days written notice.
Upon termination of the Agreement, MIC and the Company will
remain bound by their respective obligations under the Agreement
with respect to risks retroceded prior to the close of business
on the date of termination. However, risks not yet retroceded to
the Company under the Agreement shall remain risks of MIC.
The Retrocession Agreement -- Supplemental Agreement. MIC from
time to time, enters into agreements with Franchise owners for
which an MIC Agency Account is established, pursuant to which
MIC, acting for itself and on behalf of certain of its
subsidiaries, agrees to cede or retrocede to another insurance
company mutually satisfactory to MIC and the respective Franchise
owners the unexpired liability with respect to service contracts,
insured under the Policies, sold after the date specified in each
such agreement. This liability can be ceded or retroceded to
dealer-owned companies organized specifically with respect to a
particular Franchise or, if a series of Shares is issued which
relates to the Franchise, pursuant to an agreement between MIC
and the Company (the "Supplemental Retrocession Agreement"). For
this purpose, unexpired liability means MIC's liability in
respect of the remaining period of coverage under the Policy as
of the effective date of the cession. Under the Supplemental
Retrocession Agreement, unexpired liability in respect of the
Policies is assumed on the same basis as risks retroceded to the
Company under the principal Retrocession Agreement.
Loss Reserves. Reserves are balance sheet liabilities
representing estimates of amounts needed in the future to pay
claims with respect to insured events which have occurred as of
the balance sheet dates.
For purposes of establishing loss reserves, the Company relies
upon the advice of MIC. Loss reserves are established after an
annual actuarial review, based on judgments of the effects of
technological change, manufacturer's warranties, and MIC's
historical experience with automotive mechanical breakdown risks.
Consequently, the determination of loss reserves is a process
inherently subject to a number of highly variable factors. Any
adjustments to reserves are reflected in the operating results
for the periods in which they become known.
The Company's incurred loss ratios (losses incurred as a
percentage of net premium earned) on all mechanical business for
the fiscal years ended December 31, 1993, 1992, and 1991 were
70.7%, 62.8%, and 68.2%, respectively.
The following table sets forth an analysis of changes in the loss
reserves for the fiscal years ended December 31, 1993, 1992 and
1991:
Period Ended
12/31/91 12/31/92 12/31/93
Beginning balance in
reserves for losses..... $1,075,123 $1,396,542 $1,622,855
Add-provision for losses
incurred related to:
Current claim year... 7,301,654 8,461,984 11,046,932
Prior claim years.... (282,726) (297,535) (134,249)
Total............. 7,018,928 8,164,449 10,912,683
Deduct-paid losses
attributable to:
Current claim
year.................. 5,948,952 7,025,671 9,363,720
Prior claim
years................. 748,557 912,465 1,261,788
Total................. 6,697,509 7,938,136 10,625,508
Ending balance in reserves
for losses..............$1,396,542 $1,622,855 $1,910,030
The following table analyzes the development of loss and loss
adjustment expense, from February 1, 1989 through December 31,
1993.
1/31/90 12/31/90 12/31/91 12/31/92 12/31/93
Liability for
unpaid claims
and claims
adjustment
expense $ 766,912 $1,075,123 $1,396,542 $1,622,855 $1,910,030
Paid (cumulative)
in subsequent
year(s) $ 666,866 $ 748,557 $ 912,465 $1,261,788
Estimated unpaid
liability as of
year end* 2,393 43,840 186,542 226,818
Cumulative
Deficiency
(Redundancy)$ (97,653)$ (282,726) $ (297,535) $ (134,249)
*/ Because mechanical breakdown claims are generally paid within
90 days of when they are incurred, liability for unpaid claims
incurred in prior years is negligible. Accordingly, liability
for unpaid claims incurred in all prior years has been combined
at each year end.
The table shows initial estimated reserves at December 31, 1993,
1992, 1991 and 1990 and January 31, 1990 and amounts paid on
claims unsettled at each prior period end. Claims are typically
processed for payment at the time the claim is reported.
Therefore, the recorded claim liability at each year end
represents the estimated incurred but not reported claims and
claims in the process of payment. The cumulative deficiency or
redundancy represents the total change in reserve estimates
covering prior years.
It should be noted that the policies reinsured by the Company are
written for multiple years (up to six years) and losses do not
occur equally over the period for which the policy is written but
tend to be clustered in the later years. Therefore, loss
experience for prior years may not be indicative of that for
future years.
INVESTMENT INCOME
A major source of income to an insurance company is income earned
on the investment of amounts not currently required to meet
claims or expenses. The principal funds available for investment
by the Company come from accumulated capital, and the cumulative
excess of premiums collected over losses and operating expenses
paid.
The Company's funds are invested in a manner consistent with
investment guidelines that are established by the Board. Under
the guidelines in effect prior to April, 1994, the Company was
permitted to invest only in U.S. dollar-denominated securities
issued outside of the United States by non-United States private
or governmental issuers, and U.S. dollar-denominated bank
certificates of deposit issued by foreign banks and foreign
branches of U.S. banks. Subject to the satisfaction of certain
conditions, the Board authorized, in April, 1994, limited
investments in non-dollar denominated bonds, on a fully currency-
hedged basis. The Company may invest only in securities and
certificates which are rated at least Aa3 by Moody's or AA- by
Standard & Poor's or the equivalent, or are guaranteed by such an
issuer. As of April, 1994, certain unrated securities may also
be held if, in the opinion of the investment manager, they have
at least equivalent credit standing to the above rating standard.
The Board reviews on a regular basis and, where appropriate,
revises the investment objectives and guidelines for the
Company's funds. There can be no assurance, however, as to
whether a particular investment objective, once adopted, can be
achieved or that adverse factors would not cause a decrease in
the overall value of the Company's investment portfolio.
Investments in non-U.S. securities, particularly those of
non-governmental issuers, may involve considerations not
ordinarily associated with investments in domestic issuers.
These considerations include, but are not limited to, the
possibility of expropriation, the unavailability of financial
information or difficulty in interpreting such information when
it is prepared under foreign accounting or regulatory standards,
the possible negative impact of political, social or diplomatic
developments, and the possible imposition of withholding taxes by
foreign taxing authorities.
Changes in interest rates in the quarter ended March 31, 1994
adversely affected the market values of the Company's investment
portfolio at that date and its investment income in the quarter
then ended as compared with the quarter ended March 31, 1993.
Realized losses on the sale of investment securities in the
quarter ended March 31, 1994 were $303,389 compared to realized
gains of $378,444 in the quarter ended March 31, 1993.
Unrealized losses on investment securities held at March 31, 1994
were $1,163,467 compared to unrealized gains at December 31, 1993
of $99,886.
Rothschild Asset Management Limited ("Rothschild") manages the
investment and reinvestment of the Company's funds in accordance
with the investment policies and guidelines established by the
Board. Rothschild, which is one of the leading institutions
engaged in the management of offshore fixed-income portfolios,
and which has been providing this service since 1974, is an
affiliate of NM Rothschild and Sons Limited, a prominent merchant
bank in London which has been in the investment management
business worldwide for more than 100 years. Rothschild charges a
management fee of 0.3% per annum on the first $20,000,000 of
assets under management based on the market value of the
Company's investment portfolio at the end of each calendar
quarter, and 0.15% per annum on the excess thereof.
EMPLOYES
The Company does not have any full-time employes. Rather, the
Company relies on Alexander Insurance Managers (Barbados) Ltd.
(the "Manager"), to handle its day-to-day operations. (See
"Business of the Company -- Insurance Management Agreement,"
below.) In addition, corporate secretarial services for the
Company are provided by Colybrand Company Services Limited of St.
Michael, Barbados. The Board and the committees thereof,
however, remain responsible for the establishment and
implementation of policy decisions.
COMPETITION
The insurance business is extremely competitive. MIC management
believes that at present, MIC and its subsidiaries are, as a
group, one of the largest mechanical breakdown insurers of new GM
vehicles in the United States. There are other major companies
offering similar coverage. Because the insurance business of the
Company is limited to the assumption of certain mechanical
breakdown insurance business ceded by MIC, the profitability of
the Company depends to a large degree on the success experienced
by MIC and its affiliates in competing with those other insurers.
Many commercial insurance groups are seeking to capture
additional mechanical insurance business by offering to assist
automobile dealers in the formation of their own dealer-owned
reinsurance companies. MIC itself has assisted in the
establishment of such companies for a number of qualified GM
dealers. However, MIC believes that participation in the Company
represents a more practical alternative for dealers who do not
have the available capital, insurance management expertise or
time for the personal involvement necessary for their own
reinsurance company.
INSURANCE MANAGEMENT AGREEMENT
The Company has entered into an Insurance Management Agreement
(the "Management Agreement") with the Manager, pursuant to which
the Manager collects and disburses funds on behalf of the
Company, provides bookkeeping, clerical, telephone, telex, and
other services for the Company, and advises and consults with the
Company in regard to all aspects of the Company's retrocession
activities.
Pursuant to the Management Agreement, the Manager has undertaken
to maintain an office in Barbados to perform its duties.
Further, during the term of the Management Agreement and
generally for a period of one year thereafter, the Manager has
agreed not to provide management or accounting services for any
other company which, by the nature of its operations, is
offering, insuring or reinsuring mechanical breakdown and/or
extended warranty or related coverages on a multi-state basis in
the United States or Canada with respect to motor vehicles sold
by franchised GM dealerships. Under the terms of the Management
Agreement, the Company pays the Manager a fee based on hourly
rates for services performed. For the year ended December 31,
1993, the Company paid
fees to the Manager in the amount of $180,135.
The Manager is responsible for the payment of the salaries of its
officers and employes and all office and staff overhead and other
costs attributable to its services on the Company's behalf.
However, out-of-pocket expenses, such as telephone, telex,
postage, travel, and other items are borne by the Company on an
expense reimbursement basis.
The Manager was incorporated in Barbados in 1984, and is an
affiliate of Alexander and Alexander, an international insurance
brokerage and insurance consulting firm. The Manager performs
services similar to those performed for the Company for several
other entities. The Manager has nine employes. In addition, the
Manager may draw upon the resources of its affiliates as needed
to provide the services contemplated under the Management
Agreement. No employe of the Manager devotes all of his or her
time to the business of the Company. However, the Manager is
obligated to devote all employe time necessary to ensure the
performance of the Manager's duties under the Management
Agreement. The Manager is subject to the control and direction
of the Board.
The Manager has served in that capacity since 1986. The current
Management Agreement became effective on March 19, 1992 and may
be terminated by either party as of the end of the then current
fiscal year by the giving of written notice to the other party by
September 1 of that year.
BARBADOS REGULATION AND TAXES
Insurance Regulation. The Company is subject to regulation under
the Barbados Exempt Insurance Act, 1983, as amended (the "Exempt
Insurance Act"). The Exempt Insurance Act and related
regulations set forth a number of requirements applicable to
insurers doing business in Barbados. The principal requirements
are as follows:
(1) the Company is required to maintain a principal office in
Barbados, appoint an auditor, and have a resident citizen of
Barbados as one of its directors;
(2) the Company must maintain assets that exceed its liabilities
by:
(a) $125,000, where the earned premium in the preceding
financial year did not exceed $750,000;
(b) an amount equal to 20% of the earned premium for the
preceding financial year where the earned premium
exceeded $750,000 but did not exceed $5,000,000; and
(c) an amount equal to the aggregate of $1,000,000 and 10%
of the amount by which the earned premium for the
preceding financial year exceeded $5,000,000.
(3) the Company must have audited financial statements prepared
in the prescribed form ("Statutory Financial Statements") in
respect of its insurance business for each year;
(4) the Company must submit its Statutory Financial Statements
to the Barbados Supervisor of Insurance ("Supervisor")
within six months after the end of the relevant financial
year; and
(5) the Company must submit to the Supervisor on an annual basis
a certificate of its auditor that the Company is in
compliance with the requirements of the Insurance Act as at
the balance sheet date.
Taxes. Under the Exempt Insurance Act, no income tax, capital
gains tax or other direct tax or impost is levied in Barbados on
(1) the profits or gains of the Company, (2) the transfer of the
securities of the Company to any person who is not a resident of
Barbados, (3) the Company, its shareholders or transferees in
respect of the transfer of all or any part of the Company's
securities or other assets to another licensee under the Exempt
Insurance Act or to any person who is not a resident of Barbados,
or (4) any portion of any dividend, interest, or other return
payable to any person in respect of his or her holding any Shares
or other securities of the Company. The Company has received a
guarantee from the Minister of Finance of Barbados that such
benefits and exemptions will be available for a period ending
December 31, 2001.
Exchange Control. Pursuant to the Exempt Insurance Act, the
Company is exempt from the Barbados Exchange Control Act.
Accordingly, the Company may hold any non-Barbadian currency and
convert that currency into any other currency without
restriction.
FACILITIES
The Company neither owns nor maintains any office space or
facilities. Rather, the business office for the Company is
provided by the Manager and is located at Financial Services
Centre, Bishops Court Hill, St. Michael, Barbados. The Company
believes that these facilities are adequate for its current and
anticipated future needs. In addition, the Manager supplies all
equipment for the Company, and maintains all insurance records
for the Company.
SELECTED FINANCIAL DATA
The following selected financial data for the years ended
December 31, 1993, 1992 and 1991, the eleven month period ended
December 31, 1990 and the fiscal year ended January 31, 1990 have
been derived from financial statements audited by Deloitte &
Touche, independent chartered accountants, whose report with
respect to their audits of the financial statements as of
December 31, 1993 and 1992 and for each of the three years in the
period ended December 31, 1993 is included elsewhere in this
Prospectus. The data presented for the three month periods ended
March 31, 1994 and 1993 are derived from unaudited financial
statements presented elsewhere in this Prospectus and, in the
opinion of management, include all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the
data for such periods. The results for the three month period
ended March 31, 1994 are not necessarily indicative of the
results to be expected for the full fiscal year. This
information should be read in conjunction with the information
under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements
and related notes included elsewhere in this Prospectus.
Three Months Ended March 31,
1994 1993
Premiums Assumed $8,816,331 $5,389,885
Premiums Earned 4,571,906 3,572,828
Net Investment Income 267,303 839,973
Total Income 4,839,209 4,412,801
Less Losses and
Expenses 4,516,391 3,679,676
Net Income* 322,818 733,125
Dividends Per Common
Share 0 0
Total Assets 53,984,124 39,843,550
Total Policy Reserves
and Other Liabilities46,920,295 31,646,894
Stockholders' Equity 7,063,829 8,196,656
Dividends Paid on
Participating Shares 0 0
Periods Ended December 31,** January 31
1993 1992 1991 1990 1990
Premiums
Assumed $27,779,063 $19,386,455 $16,784,405 $12,957,759 $10,032,140
Premiums
Earned 15,429,611 13,005,184 10,292,788 8,177,525 5,183,768
Net Investment
Income 2,700,242 2,522,712 1,792,947 843,021 727,844
Total Income 18,129,853 15,527,896 12,085,735 9,020,546 5,911,612
Less Losses and
Expenses 15,425,146 12,020,682 10,165,350 8,280,612 5,297,836
Net Income* 2,704,707 3,507,214 1,920,385 739,934 613,776
Dividends Per
Common Share 0 0 0 0 0
Total Assets 50,359,633 36,847,490 28,124,056 18,759,382 12,507,645
Total Policy
Reserves and
Other
Liabilities 42,430,269 29,777,783 23,148,003 16,347,245 11,238,143
Stockholders'
Equity 7,929,364 7,069,707 4,976,053 2,412,137 1,269,502
Dividends Paid on
Participating
Shares 2,021,504 1,021,705 150,317 114,376 0
*/ Information as to earnings per share is not provided
inasmuch as the results for each series of stock will vary with
the underwriting experience attributable to each Subsidiary
Capital Account established with respect to that series. See
Note 2(f) to the financial statements.
**/ In May of 1990, the Company changed its fiscal year end from
January 31 to December 31.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity. The Company expects to generate sufficient funds from
operations to cover current liquidity needs. The Company's
liquidity requirements are related to payment of insurance
losses, administrative expenses, and dividends. Premiums
generated by the Company's reinsurance business, combined with
investment earnings plus proceeds from the sale of Shares, will
continue to be the principal sources of funds for the Company.
Although losses are expected to increase due to the increased
level of premiums assumed in each preceeding year and the
anticipated incidence of claims following the expiration of
manufacturers' warranties, available funds from the sources
identified above have also grown. Net cash provided by operating
activities has increased from $5,386,977 in 1991 and $7,598,500
in 1992 to $12,422,648 in 1993. The Company believes that such
funds will be sufficient to meet its liquidity requirements in
1994 and in future years to which its reinsurance liabilities
extend. No capital expenditures are expected during the next few
years.
See "Dividends" for a discussion of dividends paid and legal
restrictions on the payment of dividends.
On April 8, 1994, the Board of Directors authorized the payment
of dividends to eligible holders of Participating Shares
aggregating $2,156,304.
Capital Resources. Capitalization of the Company, as of
December 31, 1993, was comprised of paid-in capital with respect
to the Common Stock of $200,000, paid-in capital with respect to
the Shares of $1,417,500 (compared with $1,072,500 and $817,500
as of December 31, 1992 and 1991, respectively), and earnings
retained for use in the business. As of March 31, 1994, the
share capital of the Company was $1,692,500, comprised of paid-in
capital with respect to the Common Stock of $200,000 and paid-in
capital with respect to Participating Shares of $1,492,500. In
addition, the Company had surplus from retained earnings in the
amount of $6,534,796 and unrealized depreciation on marketable
securities of ($1,163,467).
Barbados law requires that the Company's net assets equal at
least the aggregate of $1,000,000 and 10% of the amount by which
the earned premium exceeded $5,000,000 in the previous fiscal
year. If the Company's net asset ratio is less than mandated by
Barbados law, the Company has the right to reduce the business
related to a Subsidiary Capital Account by retrocession or any
other means to the extent necessary to permit the Subsidiary
Capital Account to meet its pro rata share of the Company's
required capital and surplus. At January 1, 1994, the Company's
required minimum net assets computed in accordance with Barbados
law was approximately $2,042,961, compared to total capital and
retained earnings of $7,929,364.
First Quarter Ending March 31, 1994. Net premium volume
continues to increase as additional participants are added to the
program. During the quarter ended March 31, 1994, 10 new series
of Shares were added bringing the total number of series approved
to 199. Premiums earned increased by $999,078 over the
comparable period of 1993. The ratio of losses incurred to
premiums earned for the quarter under review is 69.8% as compared
to 73.1% for the quarter ended March 31, 1993.
Expenses increased by $836,715 to $4,516,391 in the quarter ended
March 31, 1994 from $3,679,676 in the first quarter of 1993. Net
underwriting income in the quarter ended March 31, 1994 increased
$162,363 to $55,515 compared with an underwriting loss of
$106,848 in the 1993 quarter. The increase in net underwriting
income, however, was offset by a decline in investment income of
$572,670, from $839,973 in the first quarter of 1993 to $267,303
in the comparable period of 1994, due to realized losses on the
sale of invested assets. The Company has reported net income for
the three month period ended March 31, 1994 of $322,818 compared
to net income of $733,125 for the three month period ended March
31, 1993.
Changes in interest rates in the quarter ended March 31, 1994
adversely affected the market values of the Company's investment
portfolio at that date and its investment income in the quarter
then ended as compared with the quarter ended March 31, 1993.
Realized losses on the sale of investment securities in the
quarter ended March 31, 1994 were $303,389 compared to realized
gains of $378,444 in the quarter ended March 31, 1993.
Unrealized losses on investment securities held at March 31, 1994
were $1,163,467 compared to unrealized gains at December 31, 1993
of $99,886. The Company's investment guidelines do not permit
the use of financial instrument derivatives in managing interest
rate risk.
Cash, cash equivalents and investments valued at market have
increased from $36,671,259 at the beginning of the year to
$37,946,767 at March 31, 1994.
FASB Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" is effective for years beginning
after December 15, 1993 and will require the Company to classify
its securities holdings into three categories (trading, available
for sale, and held to maturity). The Company adopted Statement
No. 115 in 1994 and classified its securities portfolio as
available for sale. Adoption of the statement did not have a
material effect on the Company's financial position and results
of operations.
Results of Operations - Year Ended December 31, 1993. The
Company became operational during the fiscal year ended January
31, 1988. The Company's first year of full operation was the
fiscal year ended January 31, 1989. In May of 1990, the Company
changed its fiscal year end from January 31 to December 31. A
full 12 months of underwriting activity are reflected in the
financial statements for all periods presented. The results of
operations for the 11-month period ended December 31, 1990,
however, include only 11 months' investment income and
administrative expense. Accordingly, results for the 11-month
period ended December 31, 1990 are not fully comparable with
results for full fiscal years.
During the fiscal year ended December 31, 1993, the Company had
net income of $2,704,707 compared to $3,507,214 and $1,920,385
for the fiscal years ended December 31, 1992 and 1991,
respectively. The reduction in net income during 1993 compared
to the previous year is the result primarily of an increase in
losses incurred as discussed below. The Company had earned
premiums of $15,429,611 compared to $13,005,184 and $10,292,788
for the fiscal years ended December 31, 1992 and 1991,
respectively. Increased premium income has been generated by the
addition of 46 new series during the year ended December 31,
1993, and the continuing flow of reinsurance premiums from series
issued in prior fiscal years. There were 189 series of Shares
outstanding at December 31, 1993 compared to 143 and 109 series
of Shares outstanding at December 31, 1992 and 1991,
respectively. Investment income during the period totaled
$2,700,242 compared to $2,522,712 and $1,792,947 for the fiscal
years ended December 31, 1992 and 1991, respectively. These
gains are attributable to an increase in assets under management
which were partially offset by lower interest rates. At present,
the Company's investments are comprised entirely of U.S.-dollar
denominated fixed-income securities. In the future, the Company
may also invest in foreign-denominated bonds in situations where
the investment manager anticipates a higher rate of return (net
of hedging costs) than would be available in the market for
similarly rated U.S.-dollar denominated bonds. (See "Business of
the Company -- Investment Income.")
The Company incurred losses and expenses during the fiscal year
ended December 31, 1993 of $15,425,146 compared with $12,020,682
and $10,165,350 for the fiscal years ended December 31, 1992 and
1991, respectively. This was comprised of provisions for losses
incurred during the period of $10,912,683, ceding commissions and
excise taxes of $4,009,285 and operating expenses of $503,178.
Losses incurred in 1992 and 1991 were $8,164,449 and $7,018,928,
respectively. The ratio of losses incurred to premiums earned
for the fiscal year ended December 31, 1993 was 70.7% compared to
62.8% and 68.2% for the fiscal years ended December 31, 1992 and
1991, respectively. Management believes the Company's increased
loss experience in 1993 reflects the effects of changes in
underlying manufacturer's warranties. The expiration during 1992
of certain unlimited mileage mechanical plans that had been
retroceded to the Company and the elimination of certain
deductibles under warranties for certain 1992 model vehicles had
a favorable impact on 1992 loss experience. On the other hand,
the reduction of warranties from 50,000 to 36,000 miles for
certain 1992 model vehicles adversely affected 1993 losses.
Management does not believe that the level of losses will
continue to rise. The loss ratio in the first quarter of 1994
was 69.8%, as compared to 73.1% for the quarter ended March 31,
1993.
The Company incurred operating expenses during the fiscal year
ended December 31, 1993 of $503,178 compared to $478,475 for the
fiscal year ended December 31, 1992 and $307,301 in 1991. In
1993 and 1992, the Company paid share issuance costs and
allocated such costs to the Subsidiary Capital Account for the
Common Stock. In previous years, these expenses had been paid by
MIC pursuant to an agreement by which MIC agreed to pay the costs
of issuing shares until such costs could be allocated to the
Subsidiary Capital Account for the Common Stock. Share issuance
costs for the fiscal year ended December 31, 1993, which were
paid by the Company and charged to the Subsidiary Capital Account
for the Common Stock, were $74,461 compared to $80,298 for the
fiscal year ended December 31, 1992.
Pursuant to the Retrocession Agreement, the Company must furnish
to MIC collateral in the form of an irrevocable letter of credit
of at least 12 months duration generally equal in amount to the
unearned premium in respect of risks retroceded and unpaid loss
reserves (including reserves for losses incurred but not
reported) otherwise required to be maintained by MIC in respect
of the Policies. As of December 31, 1993, the Company had
furnished such a letter of credit in the amount of $32,250,000.
The Company had unearned premium reserves of $44,657,483 as of
March 31, 1994, $40,413,058 as of December 31, 1993, and
$28,063,606 as of December 31, 1992. These amounts are
attributable to the long-term nature of the contracts sold. Such
contracts may extend for 48 months, 60 months, or 72 months from
date of issue. In addition, the risk of loss to the Company
under the contract arises primarily after the underlying
manufacturer's warranty expires -- usually after 36 months or
36,000 miles, whichever comes first. Because the Company has
little risk of loss during that period, most premium is not
recognized until the expiration of the underlying manufacturer's
warranty. Since very little premium is recognized as earned
until the expiration of the underlying warranty, most of the
premium written in any year is recorded as unearned.
MANAGEMENT
DIRECTORS AND OFFICERS
Five of the current directors of the Company were elected by MIC
through its ownership of the Common Stock. One director was
elected by the holders of the Shares at the Annual Shareholders
Meeting held on April 8, 1994. The directors and officers of the
Company are as follows:
POSITION WITH THE COMPANY
(AND OTHER EMPLOYMENTDURING
NAME AGE PAST FIVE YEARS)
Joseph J. Pero ............ 54 President and Director
(President and Director,
MIC).
Mr. Pero has been a Director
since 1986. He served as
Vice-President from 1986 until
1987 when he was appointed
President.
Vincent K. Quinn .......... 63 Executive Vice-President
and Director (Executive
Vice-President and
Director, MIC).
Mr. Quinn has been a Director
since 1986. He was appointed
Executive Vice-President in
April of 1992.
Louis S. Carrio, Jr. ...... 50 Vice-President and
Director (Vice-President,
MIC).
Mr. Carrio became a Director
and was appointed Vice-
President in June of 1991.
Peter R. P. Evelyn ........ 52 Director (Attorney,
Evelyn, Gittens & Farmer,
a Barbados law firm).
Mr. Evelyn has been a Director
since 1986.
Donald C. Mealey........... 58 Director (President, Don
Mealey Chevrolet, Inc.).
Mr. Mealey became a Director
in April of 1994.
Ronald W. Jones ........... 41 Vice-President, Finance
(Managing Director,
Alexander Insurance
Managers (Barbados)
Ltd.).
Mr. Jones has served as Vice-
President, Finance since 1987.
Michael R. Boyce ........... 54 Secretary (Principal,
Colybrand Company
Services, Limited,
Barbados, since 1993;
previously principal,
Price Waterhouse, Eastern
Caribbean).
Mr. Boyce was elected
Secretary in 1994. Mr. Boyce
served previously as Assistant
Secretary to the Company.
The directors and officers named above serve in those capacities
until the annual meeting of shareholders next following their
election.
ALTERNATE DIRECTORS
The By-Laws allow for the election of an alternate director for
each director. The holders of the Common Stock may elect up to
five alternate directors and the holders of the Shares may elect
one alternate director. An alternate director may attend
meetings of directors and vote in respect of any matter presented
if the director for whom he is an alternate is not present.
Alternate directors shall not otherwise be deemed directors of
the Company for any purpose. At the Annual Shareholders Meeting
held on April 8, 1994, alternate directors were elected for
Messrs. Quinn and Carrio.
COMMITTEES OF THE BOARD
The By-Laws authorize the Board to delegate any of its powers to
committees of two or more directors. The only currently existing
committee of the Board is the Nominating Committee which consists
of three directors, including one elected by the holders of
Shares and two elected by the holders of the Common Stock. The
duties of the Nominating Committee are limited to the nomination
of one person, who may not be an incumbent director but may be an
incumbent alternate director, to stand for election as a director
representing the holders of Shares at the next following annual
meeting and the nomination of one person, who may not be an
incumbent director, to stand for election as an alternate
director by the holders of Shares at the next following annual
meeting.
REMUNERATION
No director or officer of the Company is compensated directly by
the Company for his services as such. However, each director and
officer of the Company is reimbursed for expenses incurred for
attendance at Board, committee, and shareholder meetings. In
addition, Mr. Jones is an officer of the Manager, which receives
management fees and compensation for data processing services;
Mr. Evelyn is a member of the law firm of Evelyn, Gittens &
Farmer, which serves as the Company's Barbados counsel; and Mr.
Boyce is affiliated with Colybrand Company Services Limited, St.
Michael, Barbados, which provides corporate secretarial services
to the Company.
PRINCIPAL SHAREHOLDER
MIC owns all of the issued and outstanding shares of the Common
Stock of the Company, which consist of 2,000 shares. Donald C.
Mealey, a director, owns 140 shares in three series of
Participating Stock.
DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized to issue 2,000 shares of
Common Stock, without nominal or par value per share, all of
which have been issued to MIC and are outstanding. In addition,
the Company is currently authorized to issue 100,000 shares of
Participating Stock (the "Shares"), also without nominal or par
value per share (collectively, the Shares and the Common Stock
are referred to as the "Capital Stock"). The Shares are issued
in series of 100 shares. As of March 31, 1994, 19,900 Shares
representing 199 series had been issued and were outstanding and
were held of record by 338 shareholders. Subsequently three
series totalling 300 shares were redeemed due to unsatisfactory
performance. All of the Capital Stock is, when issued and
outstanding, fully paid and nonassessable. No shares of Capital
Stock have conversion, preemptive or sinking-fund rights.
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company has established a Subsidiary Capital Account with
respect to the Common Stock as a class, and establishes such an
account with respect to each series of Shares at the time a
series is issued. Subsidiary Capital Accounts are maintained
solely for the purpose of the allocations described below, and do
not serve any other legal or accounting function. None of the
Company's assets are segregated or earmarked with respect to
those accounts.
The consideration received by the Company upon the issuance of a
particular series of Shares and the Common Stock as a class are
allocated to the Subsidiary Capital Account for that series or
class. Items of income and expense, and losses, attributable to
insurance underwriting activities are determined and allocated to
the Subsidiary Capital Accounts as of the end of each quarter.
Investment experience, and other items of income and expense,
gains and losses and distributions with respect to the Capital
Stock, are determined and allocated to the Subsidiary Capital
Accounts as of the end of each quarter. All such accounting
determinations are made using United States generally accepted
accounting principles, unless otherwise required by the Articles.
For purposes of the following discussion, items shall be
"related" to the Subsidiary Capital Account for the series
identified with the MIC Agency Account to which such items can be
attributed.
(1) Allocations with respect to underwriting activities are made
as follows:
(a) With respect to premiums ceded by MIC to the Company,
100% to the related Subsidiary Capital Account;
provided, however, that an amount equal to 1-1/3% of
those premiums, net of related ceding commissions, are
subtracted from such Subsidiary Capital Account and
allocated to the Subsidiary Capital Account for the
Common Stock.
(b) With respect to any agents' or brokers' commissions,
commissions recaptured, unearned premiums, reinsurance
premiums ceded, and any United States excise tax, 100%
to the related Subsidiary Capital Account.
(c) With respect to losses incurred, and any amount of
losses recovered through salvage, subrogation,
reimbursement or otherwise,
(i) Ninety percent (90%) to the related Subsidiary
Capital Account; and
(ii) The remainder among all Subsidiary Capital
Accounts of the Shares pro rata in accordance with
the relative earned premiums attributable to those
accounts for the calendar quarter in which the
losses are incurred.
(d) With respect to return premiums, 98-2/3% to the related
Subsidiary Capital Account and 1-1/3% to the Subsidiary
Capital Account for the Common Stock.
(2) Any expenses or liabilities attributable to day-to-day
Company operations, excluding any United States Federal
income taxes, are allocated among all Subsidiary Capital
Accounts for the Shares pro rata in accordance with the
relative earned premiums allocated to those accounts for the
quarter in which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any
interest thereon or any penalties related thereto) is
allocated among the Subsidiary Capital Accounts based upon
the relative contribution of each of those accounts to the
taxable income of the Company upon which the tax (or any
interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the sale and
issuance of Shares, including but not limited to the costs
of compliance with regulations and requirements of the
Securities and Exchange Commission and state securities laws
(but not including ongoing periodic reporting costs), are
allocated to the Subsidiary Capital Account for the Common
Stock; however, MIC may undertake to pay such expenses.
(5) Any expenses or liabilities of the Company not allocable in
the manner described in paragraphs 2 through 4 above are
allocated among the Subsidiary Capital Accounts on the basis
of the relative balances of those accounts as of the end of
the quarter preceding the date on which the expense or
liability is incurred.
(6) (a) Investment income, net of any direct investment
expense, is allocated among the Subsidiary Capital
Accounts pro rata based upon the relative Investment
Asset Balance (as defined in subparagraph (b) below) of
each of those accounts as of the last day of the
quarter preceding the quarter for which the investment
income is being allocated. For these purposes, net
investment income includes realized (but not
unrealized) gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital
Account is equal to the capital and surplus of each
account, increased by:
(i) the unearned portions of the written premiums that
have been collected by the Company attributable to
those accounts as of the last day of the quarter
preceding the quarter for which the income is
being allocated, net of any applicable commissions
and taxes;
(ii) the outstanding loss reserves attributable to each
of those accounts as of the last day of the
quarter preceding the quarter for which the income
is being allocated; and
(iii) any other outstanding liability that has been
charged to the account as of the last day of
the quarter preceding the quarter or which
the income is being allocated.
(7) (a) If, after the credits and charges described in
paragraphs 1-6 above are made to the Subsidiary Capital
Accounts there exists a deficit in one or more of the
accounts, then each such deficit is allocated to and
charged against:
(i) first, the Subsidiary Capital Account for the
Common Stock to the extent of Restricted Earned
Surplus (the phrase "Restricted Earned Surplus"
refers to the portion of the earned surplus, if
any, in the Subsidiary Capital Account for the
Common Stock equal to that 1-1/3% of the premiums
ceded to the Company during the immediately
preceding five-year period which was subtracted
from the Subsidiary Capital Accounts for the
Shares pursuant to paragraph 1(a) above, net of
losses allocated to that account during such
period pursuant to the allocation procedure
described in this paragraph 7 and net of return
premiums allocated to that Account during such
period pursuant to the allocation procedure
described in paragraph (1)(d) above);
(ii) then, the Subsidiary Capital Accounts for the
Shares, pro rata, based upon the relative earned
premiums allocated to each such account for the
quarter for which the allocation is being made,
provided, however, that only accounts which have
positive balances are taken into account for
purposes of this allocation;
(iii) then, the remaining Subsidiary Capital Accounts
for the Shares with positive balances as of the
last day of the quarter for which the allocation
is being made, pro rata, based upon such balances;
and
(iv) then, to the extent necessary, the Subsidiary
Capital Account for the Common Stock.
(b) If, as a result of an allocation of a deficit as
described in subparagraph (ii) or (iii) of paragraph
(a) above, a deficit is created in one or more of the
Subsidiary Capital Accounts, then the resulting
deficit(s) are further allocated in the manner provided
in that subparagraph before applying a subsequent
subparagraph.
(c) Notwithstanding the foregoing, if any Subsidiary
Capital Account for a series of Shares had a deficit
that was allocated to and charged against the
Restricted Earned Surplus, then at the end of any
succeeding quarter for which that account otherwise
would show an account balance greater than zero, the
balance is reallocated to the Restricted Earned Surplus
until all reductions of that surplus attributable to
that Subsidiary Capital Account have been restored.
Thus, a loss in a Subsidiary Capital Account which
exceeds the balance in that account is absorbed by
other Subsidiary Capital Accounts, in general, as
follows: The amount of such excess losses is charged
first to the Restricted Earned Surplus portion of the
Subsidiary Capital Account of the Common Stock. Any
remaining losses, should the Restricted Earned Surplus
be exhausted, are allocated among the Subsidiary
Capital Accounts of other participating series. Any
then unabsorbed losses are charged to the Subsidiary
Capital Account of the Common Stock.
Funds drawn from the Restricted Earned Surplus in the
manner described above must be restored from the
Subsidiary Capital Account that drew the funds if at
any time it returns to a positive balance. Funds drawn
from the Subsidiary Capital Accounts of other series
are not, however, restored.
(8) (a) Dividends, payments upon redemption or liquidation
(described below), and any other distributions with
respect to the Capital Stock are allocated to the
Subsidiary Capital Account for the class or series with
respect to which the dividend, payment or distribution
was made.
(b) Where all Shares of a series are repurchased by the
Company pursuant to its right of first refusal or
redeemed in accordance with the Company's procedures
for redemption, the Subsidiary Capital Account for that
series is terminated. Thereafter, all income,
expenses, gains and losses that would have been
allocated to the terminated account, will be allocated
among the Subsidiary Capital Accounts of the existing
series of Shares pro rata based upon relative earned
premiums attributable to such accounts for the calendar
quarter in which the item was earned or incurred;
provided, however, that a net deficit for any such
period shall be allocated in accordance with the
provisions described above
Using the procedures described above, the Company has allocated
items of gain and loss to the Subsidiary Capital Account for each
series. Initially each Account had a balance of $7,500
representing the amount paid for the Shares of that series.
During the fiscal year ended December 31, 1993, $507,643 of net
underwriting gains were allocated among the 189 series of Shares
outstanding as of December 31, 1993 and $2,700,242 of net
investment income and $503,178 of administrative expenses were
allocated among the 189 series of Shares outstanding as of
December 31, 1993 and the Common Stock.
As of December 31, 1993, 163 such series had balances greater
than $7,500 (ranging from $7,537 to $187,718) and 26 series had
balances less than $7,500 (ranging from $6,904 to zero). (It
should be noted that the amounts in the Subsidiary Capital
Accounts can fluctuate substantially and therefore may not be
indicative of future results.) At December 31, 1993, an
aggregate of $901,758 had been advanced from the Restricted
Earned Surplus (which forms a portion of the Account established
for the Common Stock owned by MIC) to 15 Subsidiary Capital
Accounts and remained outstanding at that date. Aggregate
deficits reallocated among the Subsidiary Capital Accounts of the
Shares through December 31, 1993 were $369,711.
The Subsidiary Capital Account for the Common Stock had, at the
time it was established, a balance of approximately $200,000,
representing the capital paid in by MIC for the 2,000 shares of
the Common Stock issued to it. That Subsidiary Capital Account
is not affected directly by underwriting gains and losses
attributable to the various Subsidiary Capital Accounts related
to series of Shares, but is affected by those gains and losses
indirectly to the extent that one of the Subsidiary Capital
Accounts for a series of Shares incurs a deficit, in which case
resort to the Subsidiary Capital Account for the Common Stock
will result, in the manner described above.
The allocations of income and expense, gains and losses, and
distributions described above are subject to approval by the
Board, and when finally so approved are considered final and
conclusive and will be binding on all holders of Shares for all
purposes including without limitation any redemption of Shares
pursuant to the Company's procedures for redemption. (See
"Description of Capital Stock -- Redemption.")
The Company is currently in compliance with net asset value
requirements of Barbados insurance law. However, in the event
that the Company is unable to comply with such requirements in
the future, it has the right to reduce the business related to a
Subsidiary Capital Account by retrocession or any other means to
the extent necessary to permit the Subsidiary Capital Account to
meet its pro rata share of the Company's required capital and
surplus.
VOTING RIGHTS
Subject to the following, holders of Capital Stock are entitled
to one vote for each share held on any question on which the
holder is entitled to vote. The matters on which holders of
Capital Stock are entitled to vote, and the relative voting
rights of each class of stock, are set forth below.
Election of Directors. The holders of Shares as a class are
entitled to elect one director of the Company and one alternate
director, and the holders of Common Stock as a class are entitled
to elect five directors and up to five alternate directors. At
least one of the directors must be resident in Barbados.
Cumulative voting is not permitted.
Proxies. Any shareholder of the Company may appoint another
person as his or her proxy to act on behalf of the appointing
shareholder at any annual meeting of the Company. The
appointment of a person as proxy for a shareholder must be in
writing.
Liquidation. The Company may be liquidated upon the vote of at
least 75% of the outstanding Shares. (See "Description of
Capital Stock -- Redemption," and "Description of Capital Stock
- -- Liquidation.")
Changes in Articles and By-Laws. No change may be made in the
Articles or By-Laws unless a majority of the Shares, and a
majority of the Common Stock, present in person or by proxy and
voting at a meeting at which a vote on that issue is put forth
for a vote, approve the change. In addition, no amendment may
vary the rights associated with any one series unless either the
rights associated with all other series are similarly changed or
a majority of the holders of the Shares of each series present in
person or by proxy at a meeting vote in favor of the amendment.
Other Matters. Any matters other than those described above
which call for a shareholder vote require only approval by a
majority of the outstanding shares of Common Stock.
REDEMPTION
Pursuant to the Articles, the Capital Stock may be redeemed as
follows: The Company may redeem outstanding Shares of a series
at any time for any reason if the redemption of such Shares is
approved by a majority of the Board of Directors, provided that
the Director representing the Shares must vote in favor of the
action being taken. The Common Stock is nonredeemable in all
circumstances.
A redemption of Shares is effective as of the date specified by
the Board of Directors but no later than the end of the calendar
year in which the redemption was approved by the Board. This
date is referred to hereinafter as the "Redemption Date." The
consideration payable to the holders of redeemed shares of
Capital Stock will be the Subsidiary Capital Account balance
("Account Balance") of those shares as of the Redemption Date, as
adjusted by the Board to reflect unrealized gains and losses on
investments held by the Company and any contingent liabilities
allocable to such account. Each holder of redeemed Shares will
receive the pro rata portion of the Account Balance that
corresponds to the proportionate number of Shares of the series
owned. The Account Balance will be paid within five months of
the Redemption Date and bear interest from the Redemption Date
until the date of payment at a rate equal to the yield on 26-week
U.S. Treasury Bills for the issue immediately following the
Redemption Date.
Upon the redemption of Shares on the Redemption Date, the
redeemed Shares will be cancelled and the holders thereof will no
longer have any interest in the Shares redeemed or in the
Subsidiary Capital Account with respect to the redeemed Shares.
LIQUIDATION
Subject to Barbados regulatory and judicial approvals, the
Company may be liquidated upon the vote of 75% of the
outstanding Shares. (See "Description of Capital Stock --
Redemption.") In the event of the liquidation of the Company,
after payment of all liabilities of the Company, each holder of
Shares of a series is entitled to receive his pro rata share of
his respective Account Balance before any distribution of the
assets of the Company is made to the holder(s) of Common Stock.
Thereafter, the holders of Shares are not entitled to participate
further in the distribution of the assets of the Company. Each
holder of Common Stock will be entitled to receive his pro rata
share of the remaining assets of the Company, if any.
RESTRICTIONS ON TRANSFER
There is no existing public market for the Shares, and it is not
anticipated that one will develop in the future. In addition,
the Articles set forth a number of restrictions on the manner in
which the Shares may be transferred. These restrictions and
certain exceptions thereto are described below.
Transfers of Less Than All Shares of a Series. Subject to the
exceptions described below, transfers of less than all Shares of
a series may not be made unless the transfer is to the Company,
or the holder(s) of the Shares sought to be transferred has
received the written consent of the Company. A request for
consent must be made in writing and set forth the name(s) and
address(es) of the intended transferee(s), the desired date of
the transfer and the consideration to be paid. No transfer may
otherwise be made by a shareholder of less than all of the Shares
of a particular series that he owns. If the Company fails to
give its written consent, any subsequent transfer is void and of
no effect.
Right of First Refusal. Subject to the exceptions described
below, transfers of Shares of a series may not in any event be
made unless the holder(s) has received a bona fide written offer
to purchase such Shares, a copy of that offer has been furnished
to the Company, and the Company is thereafter offered the
opportunity to purchase the Shares. The Company will have 60
days during which to exercise its right to purchase the Shares
sought to be transferred. If the Company accepts the offer to
purchase, the price will be the lesser of the Account Balance for
the series of Shares sought to be transferred as of the last day
of the quarter immediately preceding the date on which the offer
to
purchase was accepted by the Company, or the bona fide offering
price. A purchase made by the Company pursuant to this "right of
first refusal" will be deemed effective upon acceptance by the
Company of the offer to purchase, although payment by the Company
may be deferred until the end of the quarter in which the offer
to purchase is accepted by the Company. Shares purchased by the
Company pursuant to its right of first refusal will be cancelled.
Exceptions for Certain Transfers. A transfer of either all or a
portion of the Shares of a series is not subject to either the
consent or right of first refusal of the Company where the Board
determines that the transferee of the shares is: (1) a member of
the transferring shareholder's immediate family; (2) a trust for
the benefit of the transferring shareholder or for the benefit of
other exempted transferees described in this paragraph; (3) if
the transferor is a corporation, any of its shareholders; (4) if
the transferor is a partnership, any of its partners; (5) a
corporation which is controlled by or under common control with
the transferor; (6) the estate of a deceased shareholder and
legatees or heirs of a deceased shareholder; (7) a charitable or
other qualifying organization described in section 170(c)(2) of
the United States Internal Revenue Code of 1986, or any successor
provision thereto; (8) in the case of a transfer of less than all
the Shares of a series, a person who immediately prior to such
transfer is a holder of Shares of that series; or (9) a key
employe of an owner of a Franchise previously designated in the
Stock Purchase Agreement entered into by the transferor.
Provisions Applicable to All Transfers. No Shares may be
transferred unless and until the Board has received, from the
holder of the Shares sought to be transferred, assurances of
compliance with all applicable laws and regulations. Further,
transferees of Shares must agree to abide by the requirements set
forth in the Stock Purchase Agreement entered into by the
transferor.
Certificates representing the Shares will bear a legend noting
the applicable limitations on transfers.
COMMON STOCK
On June 13, 1986 and January 16, 1987, the Company issued to MIC
1,250 shares and 750 shares, respectively, of Common Stock of the
Company, without nominal or par value.
A Subsidiary Capital Account has been established for this class
of stock, and allocations of various items to such account are
described above. (See "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts.")
Holders of Common Stock as a class are entitled to elect five
directors, at least one of whom must be resident in Barbados, and
up to five alternate directors. As a class, these holders
generally have the sole right to vote on matters not specifically
reserved to the Shares. (See "Description of Capital Stock --
Voting Rights.")
BARBADOS CORPORATE LAW PROVISIONS
The corporate law of Barbados was derived historically from that
of England prior to the coming into force in 1985 of the
Companies Act Cap. 308 of the Laws of Barbados, which is similar
to the Canada Corporations Act. Barbados law may differ in
certain respects from comparable law in the United States. The
following is a summary of certain provisions of Barbados
corporate law as prepared by Evelyn, Gittens & Farmer, the
Company's Barbados counsel. The summary does not purport to
contain all applicable provisions and does not purport to be
complete or cover all respects in which Barbados corporate law
may differ from laws generally applicable to United States
corporations and their shareholders.
Dividends and Distributions. Under Barbados law, a company may
pay dividends only if there are reasonable grounds for believing
that (a) the company would be able, after the payment of the
dividends, to pay its liabilities as they become due, and (b) the
realizable value of the company's assets would be greater than
the aggregate of its liabilities and stated capital of all
classes. Dividends may not be paid out of unrealized gains.
Repurchase. The Company is authorized by the Articles, subject
to certain approvals, to repurchase its own shares. Such
purchases may only be effected if the Company can satisfy a
similar solvency test as that described above under "Dividends
and Distributions."
Shareholders' Remedies. Barbados corporate law contains wide
protection for minority shareholders and investors generally. A
statutory right of action is conferred on subscribers to shares
of a Barbados company against the directors and officers
responsible for the issue of a prospectus, in respect of damages
suffered by reason of untrue statements therein. In addition,
the Company may take action against directors and officers for
breach of their statutory duty to act honestly and in good faith
with a view to the best interests of the Company.
Enforcement of United States Judgments. Except as mentioned
below, a judgment of a court in the United States, under which a
sum of money is payable, will under most circumstances be
enforced as a debt by the courts of Barbados without
reexamination of the merits of the case. This will not apply
where the judgment is for payment of taxes, fines or penalties.
There is also doubt as to whether a Barbados court would enforce
judgments of United States courts obtained against the Company,
or its directors and officers resident in Barbados, predicated on
the civil liability provisions of the 1933 Act or, in original
actions, impose liabilities against the Company or such persons
predicated upon that Act.
Indemnification. The By-Laws of the Company provide for the
indemnification of its directors and officers against liabilities
incurred in their capacities as such, but the indemnity does not
extend to any liability incurred in respect of wilful negligence,
wilful default, fraud or dishonesty in relation to the Company.
Inspection of Corporate Records. Shareholders have the right to
inspect and copy the Articles and By-Laws, corporate register,
security register, minutes of shareholders meetings, any
unanimous shareholder agreement, as well as audited financial
statements of the Company, which must be presented to the annual
meeting of shareholders.
PLAN OF DISTRIBUTION
The Shares are being offered by full-time employes of MIC or its
affiliates ("Salespersons") who have other duties in connection
with the business of MIC or its affiliates and who are not
engaged in the sale of securities other than those of the Company
and MIC Life Reinsurance Company, Limited. Salespersons receive
no commissions or other compensation related directly to their
sale of the Shares. In addition, MIC receives no compensation in
connection with its distribution of the Shares. Salespersons are
licensed as agents of MIC in certain states in which they offer
the Shares for sale and their activities in selling the Shares
are subject to the regulation of state securities regulators.
All sales of the Shares are subject to approval by the Company.
(See "Eligibility to Purchase the Shares.")
PURCHASE PROCEDURES
In order to purchase the Shares, the following documents must be
sent to the Company in Barbados:
(1) two duly executed Stock Purchase Agreements (see Appendix
B);
(2) all necessary certifications of the eligibility of
prospective purchasers by the owner(s) of the Franchise(s)
related to the MIC Agency Account with respect to which the
Shares will be issued (see "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts," and Appendix
C); and
(3) a certified or cashier's check payable to "Motors Mechanical
Reinsurance Company, Limited -- Escrow Account" in the
amount of the aggregate cost of the Shares to be purchased,
based on the offering price of $75.00 per Share ("Purchase
Payment").
NONE OF THE FOREGOING DOCUMENTS IS TO BE EXECUTED OR DELIVERED
UNTIL AFTER A FINAL PROSPECTUS HAS BEEN DELIVERED TO THE OFFEREE.
Once it is executed by a prospective purchaser, a Stock Purchase
Agreement is, in effect, an offer to purchase the Shares
described therein. That offer will be deemed accepted only if
the Company approves the offer and executes the agreement. (See
"Plan of Distribution--Conditions of Sale.")
Following execution of the Stock Purchase Agreement by the
Company, the prospective purchaser has no right to withdraw the
amount of the purchase Payment or any interest earned thereon.
Amounts remain in the Escrow Account pending satisfaction of the
conditions set forth below under "Conditions of Sale."
TERMS OF SALE
Shares are sold only to eligible purchasers who have executed a
Stock Purchase Agreement and returned it to the Company. Shares
must be purchased by series, although more than one person may
buy the Shares of one series. Pursuant to the Stock Purchase
Agreement, the purchaser must accept and agree to be bound by the
Articles and By-Laws of the Company, including the restrictions
on transfer. (See "Description of Capital Stock -- Restrictions
on Transfer.") The Stock Purchase Agreement further provides
that the Company may place on a certificate issued with respect
to Shares a legend stating that the transfer or other disposition
of the Shares evidenced thereby is restricted pursuant to the
Articles and By-Laws.
Once it is accepted by the Company, a Stock Purchase Agreement
remains in effect as long as the Shares purchased pursuant
thereto remain outstanding. A Stock Purchase Agreement
terminates only upon the redemption of the Shares or the
liquidation of the Company. Upon a transfer of Shares, the
transferor is relieved of all restrictions and obligations under
the Stock Purchase Agreement which the transferor had entered
into upon the purchase of those Shares and the transferee, as a
condition of the transfer, is required to agree to abide by all
of the provisions of the Stock Purchase Agreement.
CONDITIONS OF SALE
The Company maintains an Escrow Account at Barclays Bank PLC in
Bridgetown, Barbados (the "Escrow Account"), into which checks
from prospective purchasers are deposited pending satisfaction of
the conditions described below. This account bears interest at
prevailing rates but is not subject to investment guidelines
discussed above. (See "Business of the Company -- Investment
Income.") If the conditions are not satisfied, the Purchase
Payment is returned together with any interest earned.
Approval of Purchase. Each purchase of Shares must be accepted
by the Company within 120 days from the date of execution of the
Stock Purchase Agreement by the Purchaser. If the Company
determines to accept an offer to purchase Shares from an Eligible
Purchaser, it executes both copies of the Stock Purchase
Agreement remitted by such person and returns one copy to such
person. If it determines not to approve an offer to purchase, it
returns the Stock Purchase Agreement without having executed it.
Pending approval of offers, each check for the purchase of Shares
(which ordinarily is received together with a Stock Purchase
Agreement) is deposited in the Escrow Account. If a request to
purchase is approved, Shares are issued and the Eligible
Purchaser receives a certificate evidencing ownership of the
Shares. Where the Company determines not to approve a sale of
Shares to a prospective purchaser, the Purchase Payment is
returned, together with any interest earned thereon. The Company
has the right to reject any prospective purchaser for any reason
whatsoever.
TERMINATION OF OFFERING
Unless terminated sooner by the Board, this offering will
terminate on the date on which all of the Shares offered hereby
have been sold.
UNITED STATES FEDERAL TAX CONSIDERATIONS
It is impractical to comment here on all aspects of the Federal,
state, and local tax laws that may affect the United States
taxation of the Company and its shareholders. The following is a
discussion, based on the facts set forth herein and existing law,
of the material Federal tax consequences which, in the opinion of
the Company's U.S. tax counsel, LeBoeuf, Lamb, Greene & MacRae,
are associated with an investment in the Company.
United States taxation of the Company and its shareholders
involves a number of complex questions of fact and law with
respect to some of which there is no statutory, administrative,
or judicial authority directly on point. Advance rulings on
these questions have not been requested by the Company from the
Internal Revenue Service (the "Service") and, at least as to
certain matters, there is no assurance that favorable rulings
could be obtained. There is also no assurance that the laws in
existence as of the date of this Prospectus will not be modified
so as to alter the tax consequences described below.
This 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. EACH PROSPECTIVE INVESTOR IN THE
COMPANY SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE
TAX IMPLICATIONS OF HIS OR HER INVESTMENT IN THE COMPANY.
UNITED STATES -- BARBADOS INCOME TAX TREATY
The United States and Barbados have entered into an income tax
treaty (the "Treaty") that offers certain tax benefits (some of
which are discussed below) to those persons who qualify for its
protection. As a Barbados corporation that ultimately is owned
more than 50% by U.S. persons, the Company is entitled to the
benefits of the Treaty provided that it is "resident" (that is,
"managed and controlled") in Barbados. The Company attempts to
conduct its business in such a manner that it will be considered
to be "managed and controlled" in Barbados in order to qualify
for the benefits of the Treaty. As discussed below, legislation
has eliminated the premium excise tax exemption under the Treaty.
(See "United States Federal Tax Considerations -- United States
Premium Excise Tax.")
UNITED STATES PREMIUM EXCISE TAX
The United States imposes an excise tax at the rate of one
percent of the gross premiums paid to foreign insurance companies
for reinsurance covering risks located within the United States.
Reinsurance premiums paid to the Company are subject to this
excise tax. Although there have been legislative proposals from
time to time that would increase the rate of excise tax on
reinsurance premiums from one to four percent, in recent trade
negotiations (NAFTA and GATT) the U.S. has indicated agreement
not to raise its tax on reinsurance premiums paid to foreign
companies, and legislative action has become less likely.
UNITED STATES FEDERAL INCOME TAX RISKS AND CONSEQUENCES -- THE
COMPANY
Risks and Consequences of Carrying on a United States Reinsurance
Business Through a Permanent Establishment. As a "resident" of
Barbados, if the Company engages in business within the United
States through a permanent establishment, it will be subject to
United States Federal income tax at normal corporate tax rates on
its business profits that are attributable to such permanent
establishment. Insofar as is relevant hereto, all of the
Company's underwriting income and investment income (such as
dividends and interest) generally would be treated as business
profits attributable to such a permanent establishment. In
addition, a Barbadian resident corporation engaged in business in
the United States through a permanent establishment would be
subject to a branch-level tax at the rate of 5% (reduced by the
Treaty from a 30% statutory rate that would apply generally to
foreign corporations engaged in business in the United States) on
its after-tax earnings attributable to its United States
permanent establishment that are considered remitted to the head
office of the corporation.
All relevant facts and circumstances must be taken into account
in any particular case in determining whether a person is engaged
in business within the United States and, if so, whether the
business is carried on through a permanent establishment within
the meaning of the Treaty. Under the Treaty, the activities of
both dependent and independent agents in some circumstances may
be deemed to create a permanent establishment of the principal
that they represent. As discussed elsewhere herein, the Company
conducts reinsurance business in Barbados and in that regard
executes and administers its reinsurance agreements and manages
its business affairs from Barbados. On this basis, the Company
believes that it should not be deemed to be engaged in business
within the United States through a permanent establishment, and
therefore the Company believes it should not be subject to United
States income tax. However, given the factual nature of the
questions involved and certain aspects of the Company's treaty
reinsurance program related to the United States, and given the
absence of any clear legal interpretation of the application of
the agency provisions of the permanent establishment standard
under the circumstances, there can be no assurance that for tax
purposes the Company ultimately will not be deemed to be engaged
in business within the United States through a permanent
establishment.
United States Withholding Tax Applicable to Certain Investment
Income Not Attributable to a United States Permanent
Establishment. If the Company does not engage in business within
the United States through a permanent establishment, it generally
will be subject to a United States withholding tax on interest,
dividends, and certain other investment income derived from
sources within the United States. (The 30% rate of United States
withholding tax provided by statute is reduced by the Treaty to
5% in the case of interest and 15% in the case of dividends
derived from portfolio investments.) An exemption from the
United States withholding tax is provided for interest earned on
amounts on deposit in a bank, savings and loan association, or
insurance company, and interest income, termed "portfolio
interest," on certain debt obligations of United States issuers.
Although the Company could, in the circumstances described above,
invest its funds in the United States without incurring a
withholding tax, the Company currently invests its funds outside
of the United States. (See "Business of the Company --
Investment Income.")
Reallocations By Internal Revenue Service. Under section 482 of
the Internal Revenue Code (the "Code"), the Service may allocate
gross income, deductions, and credits between or among two or
more businesses, owned or controlled directly or indirectly by
the same interests, in order to prevent evasion of taxes or to
reflect clearly the true taxable income of such businesses. As
described elsewhere herein, MIC elects five of the Company's six
directors through its ownership of all of the Company's issued
and outstanding Common Stock. Thus, if transactions between MIC
and the Company were determined not to reflect the true taxable
income of the parties, a reallocation of income or deductions
between such entities could result. However, as long as the
transactions between MIC and the Company are conducted on an
"arm's-length" basis in a manner consistent with industry
standards and practices, section 482 should not provide a basis
for reallocations by the Service between MIC and the Company.
In addition, section 845 of the Code, adopted as part of the Tax
Reform Act of 1984, grants broad authority to the Service to
adjust items arising under certain reinsurance agreements
(including retrocession agreements), whether or not they involve
related parties. If two or more "related" parties enter into a
reinsurance contract, the Service in general may make any
adjustment necessary to reflect the "proper source and character"
of the taxable income of each such party. The Service also has
broad authority to make proper adjustments where any reinsurance
contract between unrelated parties has a "significant tax
avoidance effect" on any party to the contract.
Because MIC is entitled to elect five of the Company's six
directors, MIC and the Company may be considered "related"
parties within the meaning of section 845 of the Code. To date,
there are no regulations under section 845 of the Code to aid in
its interpretation. However, the legislative history of section
845 suggests that certain types of reinsurance transactions --
such as a coinsurance reinsurance transaction that covers new
business of the ceding company and that allocates expenses and
income items between the ceding company and the reinsurer in the
same proportion as the allocation of the risk reinsured --
generally should not be subject to reallocations or adjustments.
The ongoing quota share Retrocession Agreement between MIC and
the Company, in general, would seem to be similar to such
transactions for which adjustments generally should not be made,
but there is substantial uncertainty at the present time
concerning the scope of section 845.
If the Service were successful in an effort to reallocate to MIC
business retroceded to the Company by MIC, MIC would likely be
subject to tax on such business. Since the Company has no
obligation to indemnify MIC against such adverse tax
consequences, a reallocation of business to MIC should not
directly affect the Company. However, any such reallocation
might contribute to the early termination of the Retrocession
Agreement between MIC and the Company.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES --- THE
SHAREHOLDERS
Taxation of Income of the Company to Shareholders Under Subpart F
of the Code. Under the so-called "Subpart F" provisions
(sections 951-964) of the Code, current United States income tax
is imposed on each United States person who owns stock in any
twenty-five percent (25%) or more U.S.-owned foreign insurance
company with respect to "related person insurance income,"
whatever the degree of ownership of the United States
shareholder. For this purpose, the term "related person
insurance income" means underwriting and investment income of a
foreign insurer attributable to a policy of insurance or
reinsurance with respect to which the insured is a United States
shareholder of the foreign insurer or a person related to such a
shareholder. Under this provision, all of the Company's income
(as determined for tax purposes) will be treated as "related
person insurance income," and, as such, will be passed through
and taxed currently to all of the shareholders of the Company
("Shareholders") under Subpart F of the Code.
The basis of the stock of a Shareholder will be increased by the
amount required to be included in the Shareholder's income with
respect to such stock under Subpart F. Further, a distribution
from earnings and profits of the Company attributable to amounts
that have been included in gross income of the Shareholders under
Subpart F would not be included again in gross income of the
Shareholders but would reduce the adjusted tax basis of the stock
with respect to which the distribution is made. It should be
noted that Subpart F income will be computed for the Company as a
single entity. The amount of Subpart F income attributable to
one series of Shares in these circumstances may be affected by
results with respect to other series. It also should be noted
that the Subpart F income of the Company generally will be
computed under the same rules that govern the computation of
taxable income of domestic property and casualty insurance
companies.
As a result of differences between financial and tax accounting
rules applicable to the computation of income of the Company, the
amount of income subject to pass-through to Shareholders of the
Company for United States tax purposes may in any year differ
from the amount of book income allocable to a Shareholder's
subsidiary capital account. Since the consideration payable to
the holders of a series of Shares upon redemption is based
substantially on book income previously allocated to the Shares
being redeemed, such consideration may not reflect the amount of
income previously passed through and taxed to the holders of
those Shares.
To the extent that the Company were subject to United States
income tax on its business profits, the Shareholders generally
would not be subject to current tax on such profits under Subpart
F, but would be taxed when profits were distributed by the
Company. (See "United States Federal Tax Considerations --
United States Federal Income Tax Consequences -- the Company.")
Risk of Recharacterization of Reinsurance Profits on Business
Retroceded to the Company. As described elsewhere herein, a
portion of the underwriting experience in respect of insurance
business retroceded to the Company is allocated to the series of
Shares issued in respect of the Franchise that is the source of
such business. In this connection, the Service could question
whether profits on such business should be treated as being
related to equity ownership for tax purposes, or whether the
Shares should be treated, in whole or in part, as a means by
which the direct insurer pays additional income to certain of its
business producers or pays return premiums to certain
policyholders, such that the producers or policyholders (rather
than the Shareholders) should be subject to ordinary income tax
on all or some of such profits. Although the issue is not free
from doubt, given, among other things, the significance of the
Shareholders' "at-risk" investment in the Company relative to the
volume of business projected for the Company, the degree of
pooling of risks among all series of Shares, the fact that
distributions with respect to Shares are, subject to certain
"minimum dividends," within the discretion of the Board, and the
vote accompanying each Share, there should be substantial
arguments against the recharacterization of profits with respect
to the Shares.
Deductibility of Premiums Paid By Franchises for Certain
Coverages Reinsured by the Company. As discussed elsewhere
herein, risks arising under mechanical service agreements entered
into with respect to a particular Franchise ultimately may be
retroceded to the Company and allocated in part to a series of
Shares owned by the owner(s) of such Franchise or by persons
closely related to such owner(s). The Service conceivably could
seek to deny any deductions taken by the obligor under the
mechanical service agreements for premiums paid by it with
respect to its obligations ultimately retroceded to the Company,
relying on the theory, developed in cases dealing with
transactions involving wholly-owned insurance companies, that no
insurance risk has been shifted in respect of such premiums.
However, although the matter is not free from doubt, given the
degree of risk pooling within the Company, there should be
substantial arguments in support of the treatment of such
premiums as deductible insurance premiums for tax purposes.
LEGAL MATTERS
The legality of the securities offered hereby is passed upon for
the Company by its Barbados counsel, Evelyn, Gittens & Farmer,
Heritage House, Pinfold Street, Bridgetown, Barbados, West
Indies. LeBoeuf, Lamb, Greene & MacRae, 1875 Connecticut Avenue,
N.W., Washington, D.C. 20009, will advise the Company as to
certain matters pertaining to the laws of the United States.
EXPERTS
The financial statements included elsewhere in this Prospectus
have been audited by Deloitte & Touche, Bridgetown, Barbados,
independent chartered accountants as set forth in their report
included in this Prospectus. Such financial statements have been
so included in this Prospectus in reliance upon such report given
upon the authority of that firm as experts in accounting and
auditing.
The matters of Barbados law referred to in this Prospectus are
set forth in reliance upon the opinion of Evelyn, Gittens &
Farmer and upon their authority as experts in Barbados law.
LeBoeuf, Lamb, Greene & MacRae has passed upon the statements
concerning United States tax laws contained in the discussion
under "United States Federal Tax Considerations," which is
included herein in reliance upon their authority as experts with
respect to such matters.
ADDITIONAL INFORMATION
A registration statement under the 1933 Act has been filed with
the Securities and Exchange Commission, Washington, D.C. (the
"Commission") with respect to the Shares offered hereby. This
Prospectus does not contain all of the information set forth in
such registration statement, certain parts having been omitted
pursuant to the rules and regulations of the Commission. The
omitted information may be examined at the Commission's principal
office at 450 5th Street, N.W., Washington, D.C., or at the
following regional offices: New York City, 26 Federal Plaza, Room
1102; Chicago, 219 South Dearborn Street, Room 1204; and Los
Angeles, 5757 Wilshire Boulevard, Suite 500 East. Copies may be
obtained upon payment of the fees prescribed from the public
reference section of the Commission, Washington, D.C. 20549.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, in
each instance, reference is hereby made to the copy of the
contract or other document filed as an exhibit to the
registration statement, of which this Prospectus is a part, for a
full statement of the provisions, and each such statement in this
Prospectus is qualified in all respects by such reference.
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados
We have audited the accompanying balance sheet of Motors
Mechanical Reinsurance Company, Limited as of December 31, 1993
and 1992 and the related statements of income and retained
earnings and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Motors Mechanical Reinsurance Company, Limited as of December
31, 1993 and 1992 and the results of its operations and its cash
flows for each of the three years in the period ended December
31, 1993 in accordance with the accounting principles generally
accepted in the United States of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
March 11, 1994
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992, AND MARCH 31, 1994
(Expressed in U.S. Dollars)
March 31
December 31 December 31 1994
Notes 1992 1993 (unaudited)
ASSETS
Investments 2(c),3,6 $24,382,923 $29,882,488 $34,903,388
Cash and cash
equivalents 2(c),6 1,710,738 6,788,771 3,043,379
Accrued investment
income 1,115,367 861,190 901,057
Due from ceding
company 2,356,608 2,331,978 3,535,158
Deferred acquisition
costs 2(b) 7,281,854 10,495,206 11,599,267
Prepaid expenses 0 0 1,875
Total Assets $36,847,490 $50,359,633 $53,984,124
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums 2(b) 28,063,606 40,413,058 44,657,483
Loss reserves 2(d) 1,622,855 1,910,030 2,097,239
Accrued liabilities 91,322 107,181 165,573
Total Liabilities 29,777,783 42,430,269 46,920,295
COMMITMENTS AND
CONTINGENCIES 6
STOCKHOLDERS' EQUITY
Share capital
Common stock - no par
value;
Authorized - 2,000
shares; issued
and outstanding -
2,000 shares 200,000 200,000 200,000
Participating - no
par value;
Authorized -
100,000 shares;
issued and out-
standing - 18,900
shares at
December 31,
1993 and 14,300
shares at
December 31, 1992 4 1,072,500 1,417,500 1,492,500
1,272,500 1,617,500 1,692,500
Retained earnings 7 5,528,775 6,211,978 6,534,796
Unrealized appreciation
(depreciation) on
investments 3 268,432 99,886 (1,163,467)
Total Stockholders' Equity 7,069,707 7,929,364 7,063,829
Total Liabilities and
Stockholders' Equity $36,847,490 $50,359,633 $53,984,124
The accompanying notes form an integral part of these financial
statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993,
AND THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Expressed in U.S. Dollars)
Periods Ended December 31,
Notes 1993 1992 1991
INCOME
Reinsurance
premiums assumed 2(b),5 $27,779,063 $19,386,455 $16,784,405
Increase in
unearned premiums (12,349,452) (6,381,271) (6,491,617)
Premiums earned 15,429,611 13,005,184 10,292,788
Investment income:
Interest earned 1,827,955 1,658,430 1,300,603
Realized gains
on investments 872,287 864,282 492,344
Investment income - net 2,700,242 2,522,712 1,792,947
TOTAL INCOME 18,129,853 15,527,896 12,085,735
EXPENSES
Acquisition costs 2(b) 4,009,285 3,377,758 2,839,121
Losses paid 10,625,508 7,938,136 6,697,509
Increase in loss
reserves 287,175 226,313 321,419
Administrative expenses 503,178 478,475 307,301
TOTAL EXPENSES 15,425,146 12,020,682 10,165,350
NET INCOME 2,704,707 3,507,214 1,920,385
RETAINED EARNINGS,
beginning of period 5,528,775 3,043,266 1,273,198
DIVIDENDS (2,021,504) (1,021,705) (150,317)
RETAINED EARNINGS,
end of period $ 6,211,978 $ 5,528,775 $ 3,043,266
Three Month Periods Ended
March 31,
(unaudited)
Notes 1994 1993
INCOME
Reinsurance
premiums assumed 2(b),5 $ 8,816,331 $ 5,389,885
Increase in
unearned premiums 4,244,425 1,817,057
Premiums earned 4,571,906 3,572,828
Investment income:
Interest earned 570,692 461,529
Realized gains (losses)
on investments (303,389) 378,444
Investment income - net 267,303 839,973
TOTAL INCOME 4,839,209 4,412,801
EXPENSES
Acquisition costs 2(b) 1,188,209 928,266
Losses paid 3,001,850 2,627,016
Increase (decrease) in
loss reserves 187,209 (15,861)
Administrative expenses 139,123 140,255
TOTAL EXPENSES 4,516,391 3,679,676
NET INCOME 322,818 733,125
RETAINED EARNINGS,
beginning of period 6,211,978 5,528,775
DIVIDENDS 0 0
RETAINED EARNINGS,
end of period $ 6,534,796 $ 6,261,900
The accompanying notes form an integral part of these financial
statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993
AND THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(Expressed in U.S. dollars)
Periods Ended December 31,
1993 1992 1991
Cash flows from
operating activities:
Reinsurance premiums collected$26,933,330 $17,624,088 $14,709,039
Losses and underwriting expenses
paid (16,977,784)(11,898,682)(10,575,830)
Administrative expenses paid (490,616) (429,735) (288,593)
Investment income received 2,957,718 2,302,829 1,542,361
Net cash provided by operating
activities 12,422,648 7,598,500 5,386,977
Cash flows from investing
activities:
Purchases of investment
securities (49,834,608)(60,877,408)(32,306,550)
Sales of investment securities 44,166,497 52,166,918 30,252,467
Net cash invested (5,668,111) (8,710,490) (2,054,083)
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 345,000 255,000 120,000
Dividends paid (2,021,504) (1,021,705) (150,317)
Net cash used in financing
activities (1,676,504) (766,705) (30,317)
Increase (decrease) in cash
and cash equivalents 5,078,033 (1,878,695) 3,302,577
Cash and cash equivalents,
beginning of period 1,710,738 3,589,433 286,856
Cash and cash equivalents, end of
period $ 6,788,771 $ 1,710,738 $ 3,589,433
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 2,704,707 $ 3,507,214 $ 1,920,385
Change in:
Accrued investment income 254,177 (222,446) (277,412)
Due from ceding company 24,630 (653,270) (1,529,537)
Deferred acquisition costs (3,213,352) (1,662,778) (1,527,217)
Unearned premiums 12,349,452 6,381,271 6,491,617
Loss reserves 287,175 226,313 321,419
Accrued liabilities 15,859 22,196 (12,278)
Net cash provided by operating
activities $12,422,648 $ 7,598,500 $ 5,386,977
Three Month Periods Ended
March 31,
(Unaudited)
1994 1993
Cash flows from operating activities:
Reinsurance premiums collected $7,062,145 $ 6,216,413
Losses and underwriting expenses
paid (4,730,167) (3,859,806)
Administrative expenses paid (95,553) (75,302)
Investment income received 227,436 1,333,671
Net cash provided by operating
activities 2,463,861 3,614,976
Cash flows from investing activities:
Purchases of investment securities (25,508,046) (23,807,944)
Sales and maturities
of investment securities 19,223,793 22,461,238
Net cash invested (6,284,253) (1,346,706)
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 75,000 52,500
Dividends paid 0 0
Net cash provided by financing
activities 75,000 52,500
Increase (decrease) in cash and cash
equivalents (3,745,392) 2,320,770
Cash and cash equivalents, beginning
of period 6,788,771 1,710,738
Cash and cash equivalents, end of
period $ 3,043,379 $ 4,031,508
Reconciliation of net income to
net cash provided by operating
activities:
Net income 322,818 733,125
Change in:
Accrued investment income (39,867) 492,399
Due from ceding company (1,203,180) 995,342
Deferred acquisition costs (1,104,061) (473,126)
Prepaid expenses (1,875) (1,875)
Unearned premiums 4,244,425 1,817,057
Loss reserves 187,209 (15,861)
Accrued liabilities 58,392 67,915
Net cash provided by operating
activities $ 2,463,861 $ 3,614,976
The accompanying notes form an integral part of these financial
statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 1. OPERATIONS
The Company is incorporated under the laws of Barbados
and is a licensed insurer under the Exempt Insurance
Act, 1983.
All of the common stock of the Company is owned by
Motors Insurance Corporation ("MIC"). MIC is an
indirect wholly-owned subsidiary of General Motors
Corporation. The principal activity of the
Company is the assumption of certain automobile
mechanical breakdown risks arising under insurance
policies reinsured by MIC and attributable to an
MIC Agency Account in respect of which shares of
Participating Stock are issued and outstanding.
All premiums received were derived from MIC.
MIC has agreed that all expenses incurred by or on
behalf of the Company with respect to the issuance of
the Company's Participating Stock will be borne by MIC,
either through charges to its shareholder account in
the Company, or by direct reimbursement.
Note 2. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of Presentation
The financial statements are stated in United States
dollars and are prepared generally in conformity with
accounting principles generally accepted within the
United States of America. Reinsurance premiums assumed
by the Company represent policies ceded by MIC during
the twelve months ended December 31 of each fiscal
year.
(b) Premium Income and Acquisition Costs
Reinsurance premiums are based on the Company assuming
(after ceding commission) 75% of the original policy
premium written by the direct insurer. Of these
reinsurance premiums, 75% is retroceded to the Company
when written and 25% when earned.
Premiums are taken into income on the basis of
quarterly cessions and are related to anticipated loss
exposures. Acquisition costs, consisting of ceding
commissions and excise taxes, are taken into income on
the basis of premiums earned.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)
(c) Investments
Investments are comprised of interest-bearing
marketable securities which are carried at fair value,
based on quoted market prices and dealer quotes
obtained from an external pricing service. Investments
with original maturities of less than 90 days are
classified as cash equivalents. Unrealized
appreciation (depreciation) is included in
stockholders' equity.
Realized gains and losses on the sale of investments
are included as investment income. During 1991, the
basis of determining the cost of securities sold was
changed from the specific identification method to the
average cost method. The effect of the change was not
material.
(d) Loss Reserves
The Company provides for unsettled, reported losses
based on estimates of the final settlement, with an
experience factor added to provide for losses incurred
but not reported. The final settlement may be greater
or less than the amounts provided. Any such
differences, when they become known, are recognized in
current operations.
(e) Taxation
The Company has received an undertaking from the
Barbados Government exempting it from all local income,
profits and capital gains taxes for a period ending
December 31, 2001.
Stockholders who are United States residents are taxed
on their share of the Company's income on a deemed
distribution basis.
(f) Earnings Per Share
No amount has been reported as earnings per share as
the earnings applicable to the Participating
Stockholders vary with the underwriting results of each
series. Retained earnings applicable to the Common
Stockholder include allocated investment income and
operating expenses and amounts restricted for advances
to Participating Stockholders (see Note 7).
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS
The cost and estimated fair value of investments in
debt securities are as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
March 31, 1994
(unaudited):
Debt securities
issued by
foreign
governments
and their
agencies $18,003,450 $35,891 $471,546 $17,567,795
Debt securities
issued by
supra-nationals 15,234,561 6,588 598,742 14,642,407
Corporate
securities 2,828,844 - 135,658 2,693,186
Total $36,066,855 $42,479 $1,205,946 $34,903,388
December 31, 1993:
Debt securities
issued by
foreign
governments
and their
agencies $16,327,184 $72,332 $(135,761) $16,263,755
Debt securities
issued by
supra-nationals 7,182,454 103,034 (25,925) 7,259,563
Corporate
securities 6,272,964 109,193 (22,987) 6,359,170
Total $29,782,602 $284,559 $(184,673) $29,882,488
December 31, 1992:
Debt securities
issued by
foreign
governments
and their
agencies $14,080,561 $204,554 $ (43,057) $14,242,058
Debt securities
issued by
supra-nationals 9,826,630 107,771 (5,087) 9,929,314
Corporate
securities 207,300 4,251 - 211,551
Total $24,114,491 $316,576 $(48,144) $24,382,923
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS (Cont'd)
The cost and estimated fair value of debt securities at
December 31, 1993, by contractual maturity, are shown
below. Expected maturities will differ from
contractual maturities because borrowers may have the
right to call or prepay obligations with or without
call or prepayment penalties.
Estimated
Fair
Cost Value
Due after one year
through five years $15,463,270 $15,575,893
Due after five years
through ten years 14,319,332 14,306,595
$29,782,602 $29,882,488
Proceeds from sales of investments in debt securities
during the years ended December 31, 1993 and 1992 were
$44,166,497 and $52,166,918, respectively. In 1993,
gross gains of $964,613 and gross losses of $92,326
were realized. In 1992, gross gains of $1,008,932 and
gross losses of $144,650 were realized. In 1991, gross
gains of $538,996 and gross losses of $46,652 were
realized.
The following summarizes net unrealized appreciation
(depreciation) on investments:
Balance, December 31, 1990 $ 241,439
Net appreciation 673,848
Balance, December 31, 1991 $ 915,287
Net depreciation (646,855)
Balance, December 31, 1992 $ 268,432
Net depreciation (168,546)
Balance, December 31, 1993 $ 99,886
Net depreciation (unaudited) (1,263,353)
Balance, March 31, 1994
(unaudited) $(1,163,467)
The investment portfolio is comprised of diverse U.S.
dollar-denominated debt securities which do not result
in any concentration in credit risks.
FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" is effective
for years beginning December 15, 1993 and requires that
the Company classify its securities holdings into three
categories (trading, available for sale, and held to
maturity). The Company adopted Statement No. 115
effective January 1, 1994 and classified its securities
portfolio as available for sale. Adoption of the
Statement did not have a material effect on the
Company's financial position and results of operations.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 4. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. An
offering of 26,500 shares of Participating Stock is
being made to persons certified by owners of certain
motor vehicle franchises. The offering consists of 265
series of 100 shares each at a price of $75 per share.
During the quarter ended March 31, 1994, 10 additional
series of 100 shares were added (unaudited). During
1993, 46 additional series of 100 shares of Participat-
ing Stock were issued as compared with 34 and 16 series
for the years ended December 31, 1992 and 1991, respec-
tively.
In the years ended December 31, 1993 and 1992, costs in
the amount of $74,461 and $80,298, respectively, were
incurred in the sale of Participating Stock and were
charged to the account of the Common Stockholder. In
1991, $74,589 of costs incurred in the sale of
Participating Stock were paid by MIC.
The holders of Common Stock as a class are entitled to
elect five directors, at least one of whom must be a
resident of Barbados. They generally have no right to
vote with respect to liquidation of the Company. As a
class, these holders generally have the sole right to
vote on matters not specifically reserved to Partici-
pating Stock. The Common Stock is nonredeemable.
The holders of Participating Stock as a class are
entitled to elect one director. Generally, liquidation
of the Company requires approval by at least 75% of the
outstanding shares of this class. Any redemption of a
series of shares requires a vote of the Board provided
that the director representing holders of the
Participating Stock votes in favor of the redemption.
Any changes in the Company's Articles or By-Laws
requires the approval of a majority of the holders of
Participating Stock present and voting together with a
majority of the holders of Common Stock.
From time to time, funds are held in escrow on account
of Participating Stock applications. Such amounts are
not included in cash and cash equivalents in the
accompanying financial statements. At December 31,
1993 and 1992, there were no amounts held in escrow.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 5. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement, the
Company will receive additional cessions of $13,471,019
($9,354,534 at December 31, 1992) relating to premiums
written by the ceding insurer but unearned at the
respective period ends. The amounts will be received
as the premiums are earned, net of related acquisition
costs.
Note 6. LETTERS OF CREDIT
The Company has provided an irrevocable letter of
credit to MIC, in the sum of $32,250,000 which is
secured by cash equivalents and investments to secure
the amounts recoverable from the Company related to the
business ceded.
Note 7. RETAINED EARNINGS
Items of income or loss and expenses attributable to
insurance underwriting activities are determined as of
the end of each calendar quarter and are allocated to
the Participating Stockholders' capital accounts as of
the end of the fiscal quarter of the Company in which
the respective calendar quarter ends.
An amount equal to 1-1/3 percent of written ceded
premiums (net of related ceding commissions) is
allocated to the capital account of the Common
Stockholder. Such allocations accumulate as restricted
retained earnings and may be used to advance capital to
any Participating Stockholders who incur a deficit in
their capital accounts; any such advances are repayable
out of future profitable operations of the respective
Participating Stockholder. Amounts allocated to the
Common Stockholder, net of advances to Participating
Stockholders are presented in the table below as "net
transfers."
Dividends may be declared and paid at the discretion of
the Company's Board of Directors, except that dividends
may not be paid out of unrealized investment gains.
Barbados law requires that the Company maintain a
minimum capitalization based generally on the amount of
premiums earned in the preceding fiscal year. On
January 1, 1994 the Company's required minimum capital
computed in accordance with Barbados law was
approximately $2,042,961.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1994
and for the three month periods ended March 31, 1994 and 1993)
(Expressed in U.S. Dollars)
Note 7. RETAINED EARNINGS (Cont'd)
Amounts of retained earnings applicable to the Common
and Participating Stockholders are comprised of the
following:
Common Participating Total
Balance, December 31, 1990 $14,944 $1,258,254 $1,273,198
Net income for the year 23,911 1,896,474 1,920,385
Net transfers 38,702 (38,702) -
Dividends paid - (150,317) (150,317)
Balance, December 31, 1991 77,557 2,965,709 3,043,266
Net income (loss) for the year (42,631) 3,549,845 3,507,214
Net transfers 173,954 (173,954) -
Dividends paid - (1,021,705) (1,021,705)
Balance, December 31, 1992 208,880 5,319,895 5,528,775
Net income (loss) for the year (41,909) 2,746,616 2,704,707
Net transfers (175,245) 175,245 -
Dividends paid - (2,021,504) (2,021,504)
Balance (Deficit),
December 31, 1993 (8,274) 6,220,252 6,211,978
Net income (loss) for the
quarter ended March 31, 1994
(unaudited) (27,055) 349,873 322,818
Net transfers for the quarter
ended March 31, 1994
(unaudited) (104,396) 104,396 -
Balance (deficit),
March 31, 1994 (unaudited) $(139,725) $6,674,521 $6,534,796
COMPANIES ACT OF BARBADOS APPENDIX A
(Section 205)
RESTATED ARTICLES OF INCORPORATION FORM 13
1. Name of Company
Motors Mechanical Reinsurance Company, Limited
2. Company No.
1485
3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE
COMPANY IS AUTHORIZED TO ISSUE
The annexed Schedule is incorporated in this form.
4. RESTRICTION IF ANY ON SHARE TRANSFERS
The annexed Schedule is incorporated in this form.
5. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS
There shall be a minimum of 5 and a maximum of 6 directors.
6. RESTRICTIONS IF ANY ON BUSINESS THE COMPANY MAY CARRY ON
The principal object and activity of the Company is to engage in
Exempt Insurance business within the meaning of the Exempt
Insurance Act, 1983 of Barbados and the business of the Company
shall be restricted accordingly.
7. OTHER PROVISIONS IF ANY
The annexed Schedule is incorporated in this form.
8. Date Signatures Title
January 29, 1987 Peter Evelyn Director
FOR MINISTRY USE ONLY
COMPANY NO. FILED
COMPANIES ACT OF BARBADOS SCHEDULE TO ARTICLES OF INCORPORATION
3. The classes and any maximum number of shares that the
Company is authorized to issue:
The Company is authorized to issue:
(a) 2,000 shares of one class without nominal or par value to be
designated Common shares; and
(b) 100,000 shares of one class without nominal or par value to
be designated Participating shares which shall be divided into
1,000 series and issued in series of 100 shares.
The rights, preferences and limitations of the said classes of
shares are as follows:
DEFINITIONS
In these Articles and any amendment thereto and in the Company's
By-Laws the following terms shall mean:
Board -- The Company's Board of Directors.
Company -- Motors Mechanical Reinsurance Company, Limited.
Franchise -- A right conferred by a motor vehicle manufacturer
pursuant to a written agreement which permits the grantee to sell
the manufacturer's new motor vehicles.
MIC -- Motors Insurance Corporation, a New York corporation with
its administrative offices in Detroit, Michigan.
MIC Agency Account -- The separate business record maintained by
MIC or any of its subsidiaries to track volume, experience, and
commissions with respect to insurance business related to any one
or more particular Franchises.
Restricted Earned Surplus -- At any point in time, that portion
of the earned surplus, if any, in the Subsidiary Capital Account
for the Common shares equal to one and one-third percent (1-1/3%)
of the premiums paid to the Company during the immediately
preceding five-year period, net of deficits allocated to such
account pursuant to paragraph 3(1)(7)(a)(i) hereof during such
five-year period to the extent not restored to such account
pursuant to paragraph 3(1)(7)(c) hereof and net of return
premiums allocated to such account during such period pursuant to
paragraph 3(1)(1)(d) hereof.
Shares -- Shares of the Participating Stock of the Company.
Stock Purchase Agreement -- The agreement entered into between
the Company and the purchaser of Shares, in the form approved by
the Board.
Subsidiary Capital Account -- The subsidiary bookkeeping record
established by the Company for a particular series or class of
shares and maintained for the purpose of accounting for items of
income and expense, gains and losses, capital contributions, and
shareholder distributions which are allocated to the
particular series or class of shares.
(1) ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company will establish a Subsidiary Capital Account with
respect to the Common shares as a class, and to each series of
Shares of the Company at the time a series is issued.
The consideration received by the Company upon the issuance of a
particular series of Shares and the Common shares as a class will
be allocated to the Subsidiary Capital Account for that series or
class. Items of income and expense, and losses, attributable to
insurance underwriting activities shall be determined as of the
end of each calendar quarter and shall be allocated to the
Subsidiary Capital Accounts as of the end of the fiscal quarter
of the Company in which the respective calendar quarter ends.
Investment experience, and other items of income and expense,
gains and losses and distributions with respect to shares of the
Company will be determined and allocated to the Subsidiary
Capital Accounts as of the end of each fiscal quarter of the
Company. All such accounting determinations shall be made using
United States generally accepted accounting principles, unless
otherwise required by these Articles. For purposes of such
allocations, items shall be "related" to a Subsidiary Capital
Account which is identified with the same MIC Agency Account to
which such items can be attributed.
(1) Items of income and expense, and losses, attributable to
insurance underwriting activities shall be allocated to the
Subsidiary Capital Accounts in accordance with the following
paragraphs:
(a) With respect to premiums ceded to the Company, one
hundred percent (100%) shall be allocated to the related
Subsidiary Capital Account; provided, however, that an
amount equal to one and one-third percent (1-1/3%) of such
premiums shall be subtracted from such Subsidiary Capital
Account and allocated to the Subsidiary Capital Account of
the Common shares.
(b) With respect to any agents' or brokers' commissions,
any commissions recaptured, unearned premiums, reinsurance
premiums ceded by the Company, and any United States excise
tax, one hundred percent (100%) shall be allocated to the
related Subsidiary Capital Account.
(c) With respect to losses incurred, and any amount of
losses recovered through salvage, subrogation, reimbursement
or otherwise:
(i) ninety percent (90%) shall be allocated to the
related Subsidiary Capital Account; and
(ii) the remainder shall be allocated among all
Subsidiary Capital Accounts of the Shares pro rata in
accordance with the relative earned premiums
attributable to such accounts for the calendar quarter
in which the losses are incurred. For this purpose,
losses incurred includes both paid and unpaid (reported
and unreported) losses.
(d) With respect to return premiums, ninety-eight and
two-thirds percent (98-2/3%) shall be allocated to the
related Subsidiary Capital Account and one and one-third
percent (1-1/3%) shall be allocated to the Subsidiary
Capital Account for the Common shares.
(2) Any expenses or liabilities attributable to ordinary
day-to-day Company operations, excluding any United States
Federal income taxes, shall be allocated among all Subsidiary
Capital Accounts for the Shares pro rata in accordance with the
relative earned premiums allocated to such accounts for the
fiscal quarter in which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any
interest thereon or any penalties related thereto) incurred by
the Company shall be allocated among the Subsidiary Capital
Accounts based upon the relative contribution of each of those
accounts to the taxable income of the Company upon which the tax
(and any interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the organization
of the Company or to the offer, sale or issuance of Shares,
including but not limited to the costs of compliance with
regulations and requirements of the United States Securities and
Exchange Commission and the various states and other
jurisdictions of the United States as they pertain thereto, shall
be allocated to the Subsidiary Capital Account for the Common
shares.
(5) Any expenses or liabilities of the Company not allocable in
the manner described in paragraphs (2) through (4) above shall be
allocated among the Subsidiary Capital Accounts on the basis of
the relative balances of such accounts as of the end of the
fiscal quarter preceding the date on which the expense or
liability is incurred.
(6) (a) Investment income, net of any direct investment
expense, shall be allocated among the Subsidiary Capital
Accounts pro rata based upon the relative Investment Asset
Balance (as defined in subparagraph (b) below) of each such
account as of the last day of the fiscal quarter preceding
the quarter for which the investment income is being
allocated. For these purposes, net investment income will
include realized (but not unrealized) gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital
Account shall be equal to the capital and surplus allocated
to such account, increased by:
(i) the unearned portions of the written premiums that
have been collected by the Company and allocated to
such account as of the last day of the fiscal quarter
preceding the quarter for which the income is being
allocated, net of any applicable commissions and taxes;
(ii) the outstanding loss reserves attributable to such
account as of the last day of the fiscal quarter
preceding the quarter for which the income is being
allocated; and
(iii) any other outstanding liability that has been
charged to such account as of the last day of the
fiscal quarter preceding the quarter for which the
income is being allocated.
(7) (a) If, after the credits and charges described in
paragraphs (1) through (6) above are made to the Subsidiary
Capital Accounts there exists a deficit in one or more of
such accounts, then each such deficit will be allocated to
and charged against:
(i) first, the Subsidiary Capital Account for the
Common shares to the extent of Restricted Earned
Surplus;
(ii) then, any remaining unallocated deficit to the
Subsidiary Capital Accounts for the Shares, pro rata,
based upon the relative earned premiums allocated to
each such account for the fiscal quarter for which the
allocation is being made; provided, however, that only
accounts which have positive balances will be taken
into account for the purposes of this allocation;
(iii) then, any remaining unallocated deficit to the
remaining Subsidiary Capital Accounts for the Shares
with positive balances as of the last day of the fiscal
quarter for which the allocation is being made, pro
rata, based upon such balances; and
(iv) finally, to the extent necessary, the Subsidiary
Capital Account for the Common shares.
(b) If, as a result of an allocation of a deficit as
described in subparagraph (ii) or (iii) of paragraph (a)
above, a deficit is created in one or more of the Subsidiary
Capital Accounts, then the resulting deficit(s) will be
further allocated in the manner provided in that
subparagraph.
(c) Although this paragraph (7) shall be applied in a
manner that does not result in a balance in any Subsidiary
Capital Account for a series of Shares that is less than
zero, if any such account had a deficit that was allocated
to and charged against the Subsidiary Capital Account of the
Common shares pursuant to section 3(1)(7)(a)(i) hereof, then
at the end of any succeeding fiscal quarter for which that
account otherwise would show an account balance greater than
zero, such balance will be reallocated to the Subsidiary
Capital Account of the Common shares until all reductions of
such Subsidiary Capital Account for the Common shares under
section 3(1)(7)(a)(i) hereof for the series of Shares have
been restored.
(8) (a) Dividends, payments upon redemption or liquidation
(described below), and any other distributions with respect
to shares of the Company will be allocated to the Subsidiary
Capital Account for the class or series with respect to
which the dividend, payment or distribution was made.
(b) Where all shares of a series of Shares are repurchased
by the Company pursuant to Section 4 below, or redeemed in
accordance with the Company's procedures for redemption set
forth in Section 3(6) below, the Subsidiary Capital Account
for such series shall be terminated as of the Repurchase
Date or Redemption Date (as those terms are defined in
Sections 4 and 3(6), respectively). Thereafter, all income,
expenses, gains and losses that would have been allocated to
the terminated account will be allocated among the
Subsidiary Capital Accounts of the existing series of Shares
pro rata based upon relative earned premiums attributable to
such accounts for the calendar quarter in which the item was
earned or incurred; provided, however, that a net deficit
for any such period shall be allocated in accordance with
the provisions of Section 3(1)(7).
The allocations to the Subsidiary Capital Accounts described
above shall be approved by the Board, and when finally so
approved all calculations, allocations and determinations shall
be final and conclusive and shall be binding on all holders of
shares of the Company for all purposes, including without
limitation any redemption of shares of the Company pursuant to
the Company's procedures for redemption. The Board is authorized
to interpret and apply the provisions of these Articles and to
promulgate such additional rules and guidelines as the Board
deems appropriate to carry out the intent of these Articles and
such interpretations, rules and guidelines shall be binding on
all shareholders.
(2) PARTICIPATING SHARES
(a) If any Share shall be redeemed, repurchased or otherwise
retired, it shall return to the status of an authorized but
unissued share of such class.
(b) A series of Shares shall be issued with respect to a
specific MIC Agency Account. Only one series of Shares shall be
issued with respect to an MIC Agency Account. A series of Shares
shall be issued only to persons or entities acceptable to the
Board and certified by the owner(s) of the Franchise(s) to which
the MIC Agency Account relates. Certification will be effected
in accordance with procedures adopted by the Board from time to
time. No share of any particular series of Shares shall be
issued unless all shares of such series are issued.
(c) Each outstanding Share shall entitle the registered holder
of record of such Share to dividends in accordance with the rules
set forth in Section 3(5) of these Articles.
(d) The holders of Shares shall among them have the right to
elect one director of the Company and shall otherwise have only
such voting rights as are specifically provided herein. On all
such matters each share shall entitle the registered holder
thereof to one vote.
(e) The rights associated with any Shares of a series shall be
identical to the rights associated with all other Shares of the
same series.
(3) COMMON SHARES
(a) Each outstanding Common share shall entitle the registered
holder of such shares to dividends in accordance with the rules
set forth in Section 3(5) of these Articles.
(b) Each outstanding Common share shall entitle the registered
holder thereof to one vote per share on all resolutions of the
Company other than as specifically provided herein.
(c) The holders of the Common shares shall be entitled to elect
five directors of the Company, one of whom must be a resident
citizen of Barbados.
(4) LIQUIDATION
The Company may be liquidated upon the vote of the holders of at
least seventy-five percent (75%) of the Shares. In the event of
any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, after payment of all
liabilities of the Company, each holder of Shares of a series
shall be entitled to receive an amount equal to his share (based
on his proportionate ownership of such series) of the Subsidiary
Capital Account balance related to his series of Shares before
any distribution of the assets of the Company shall be made to
holders of the Common shares. After such payment shall have been
made in full to the holders of the outstanding Shares, or funds
necessary for such payment shall have been set aside in trust for
the account of the holders of the outstanding Shares so as to be
available therefor, the holders of the outstanding Shares shall
be entitled to no further participation in the distribution of
the assets of the Company, and the remaining assets of the
Company, if any, shall be divided and distributed among the
holders of the Common shares then outstanding pro rata based on
their respective shares. A consolidation or merger of the
Company, or sale or transfer of all or substantially all its
assets, or any purchase or redemption of shares of the Company of
any class or series, shall not be regarded as a "liquidation,
dissolution, or winding up" within the meaning of this paragraph.
(5) DIVIDENDS
(a) Subject to the following paragraphs, dividends may be paid
at the discretion of the Board.
(b) Dividends, payable in cash or such other property as the
Board may determine, on a series of Shares or on Common shares,
shall be declared and payable only if the Company shall have,
after giving effect to the dividend, sufficient net assets,
without regard to any Letter of Credit or Guarantee, to meet the
general business solvency margin prescribed by the Exempt
Insurance Act and Section 51 of the Act; provided that dividends
with respect to any series of Shares may be paid only out of
earned surplus attributable to the Subsidiary Capital Account
identified with those Shares, and only to the extent that, after
giving effect to the dividend, the capital and surplus identified
with that Subsidiary Capital Account (without regard to any
Guarantee or Letter of Credit) would meet its pro rata share,
based on allocable premium income, of the minimum net assets
required of the Company under the Exempt Insurance Act. Subject
to the right of the holders of Shares to receive minimum
dividends pursuant to the following paragraph, to the extent a
dividend is declared on the Shares, it shall be declared and paid
subject to the foregoing limitations for each series of Shares as
a percentage of the net income for the preceding calendar year
and/or earned surplus as of the end of the preceding calendar
year, attributable to each series, provided that such percentage
may vary among series of Shares with the level of net income
and/or earned surplus. Dividends shall only be declared and paid
on Common shares to the extent that the earned surplus
attributable to Common shares exceeds Restricted Earned Surplus.
(c) Subject to the preceding paragraph, the holders of the
Shares of each series shall be entitled to receive minimum annual
dividends, payable annually within the first 120 days of each
fiscal year, in cash or such other property as the Board may
determine. The minimum annual dividend payable on each Share
shall be such Share's pro rata portion of an amount equal to
twenty percent (20%) of the net income, if any, for the preceding
fiscal year attributable to the Subsidiary Capital Account
associated with the series of which that Share is a part. If a
holder of Shares receives no dividend or a limited dividend in
any annual period as a result of the limitations set forth in the
preceding paragraph, any unpaid portion of the minimum dividend
otherwise payable pursuant to this paragraph shall not become
payable pursuant to this paragraph in any subsequent year.
(d) In no event shall any dividend whatever be paid upon or
declared or set apart for the Common shares, unless and until all
minimum annual dividends required to be paid on the then
outstanding Shares for the then current period shall have been
paid or declared and set apart for payment.
(6) REDEMPTION
The common shares are non-redeemable. Subject to compliance with
any applicable statute or act, the Company may redeem any of its
issued and outstanding Shares if all Shares of the series
involved are redeemed and the redemption of such Shares is
approved by a majority of the Board, provided that the Director
representing holders of the Shares votes in favor of the
redemption.
The redemption of Shares shall be effective on such future date
as determined by the Board, which shall be no later than the last
business day of the calendar year in which the redemption was
approved by the Board, and in the case of a redemption of Common
Shares, by holders of the Shares. Such date is herein called the
"Redemption Date."
The consideration payable to the holders of redeemed Shares shall
be the Subsidiary Capital Account balance for the series of such
Shares as of the Redemption Date, as adjusted by the Board to
reflect unrealized gains and losses on investments held by the
Company and any contingent liabilities allocable to such account.
Such consideration shall be paid within five (5) months of the
Redemption Date, provided that the holder(s) of the redeemed
Shares shall have delivered to the Company, certificates
representing the Shares being redeemed duly endorsed and
accompanied by such other documents as the Company may require.
Such consideration shall bear interest from the Redemption Date
until the earlier of the date of payment or the date that is five
(5) months from the Redemption Date, at a rate equal to the rate
of interest paid on 26-week United States Treasury Bills for the
issue following the Redemption Date.
Upon redemption of the Shares as aforesaid, the holder(s) thereof
shall cease to have any further interest in the shares being
redeemed. Shares redeemed pursuant to this Section 3(6) shall
return to the status of authorized but unissued Shares.
4. Restrictions, if any, on share transfers:
(a) Subject to the exceptions listed below, Shares (whether
owned by the original or any subsequent holder thereof)
shall not be transferred in any manner unless the holder(s)
has received a bona fide written offer to purchase such
Shares, a copy of which has been furnished to the Company,
and the Company is thereafter offered the opportunity to
purchase such Shares. The Company shall have sixty (60)
days during which to exercise the rights conferred upon it
by this paragraph. If the Company accepts such offer, the
price will be the lesser of the balance of the Subsidiary
Capital Account related to such series of Shares as of the
last day of the fiscal quarter immediately preceding the
date on which the offer to purchase was accepted by the
Company (the "Repurchase Date") (or if less than all such
Shares are offered, then the pro rata portion of such
account attributable to the Shares offered), or the bona
fide offering price. Payment by the Company may be deferred
until the end of the fiscal quarter in which the offer to
purchase was accepted by the Company. Shares purchased by
the Company pursuant to this paragraph shall return to the
status of authorized but unissued shares of such class. If
the Company does not elect to purchase the Shares pursuant
to this paragraph, they may be sold in accordance with the
bona fide written offer referred to above within the
following sixty (60) days, subject to the requirements of
the following paragraphs. After such further sixty (60)
days, any attempted sale or transfer of the Shares shall be
subject to all the requirements of this paragraph.
(b) In addition to the requirements of the preceding
paragraph and except as provided in paragraph (d) below,
transfers of less than all Shares of a series shall not be
made unless the holder(s) has received the written consent
of the Company thereto. A request for such consent must be
made in writing and set forth the name(s) and address(es) of
the intended transferee(s), the desired date of the
transfer, and the consideration to be paid. The Company
shall have sixty (60) days from receipt of such request to
grant or withhold its consent to the intended transfer. If
the Company fails to give its written consent, any
subsequent transfer shall be void and of no effect.
(c) Shares may not be transferred unless and until the
Board has received such assurances of compliance with all
applicable laws and regulations as it may deem necessary and
the transferee has agreed to abide by the requirements set
forth in the Stock Purchase Agreement entered into by the
transferor. Certificates representing shares of any class
of the Company's shares shall bear a legend substantially to
the effect of this Section 4 of these Articles.
(d) A sale, gift, assignment, pledge or other transfer of
Shares shall be exempt from the requirements of paragraphs
(a) and (b) of this Section 4 if the Board determines that
the transferee or assignee of the shares is: (i) a member of
the transferring shareholder's immediate family; (ii) a
trust for the benefit of the transferring shareholder, or
for the benefit of other exempted transferees described in
this paragraph; (iii) if the transferor is a corporation,
any shareholder of the transferor; (iv) if the transferor is
a partnership, any of its partners; (v) a corporation which
is controlled by or under common control with the
transferor; (vi) the estate of a deceased shareholder or
legatees and heirs of such deceased shareholder; (vii) a
charitable or other qualifying organization described in
Section 170(c)(2) of the United States Internal Revenue Code
of 1986; (viii) in the case of a transfer of less than all
of the Shares of a series, a person who immediately prior to
such transfer is a holder of Shares of that series; or (ix)
a key employe with respect to a Franchise previously
designated in the Stock Purchase Agreement entered into by
the transferor.
7. Other provisions if any:
No holder of shares of the Company of any class, now or hereafter
authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive any shares of the Company of
any class, now or hereafter authorized, or any options or
warrants for such shares, or any rights to subscribe for or
purchase such shares, or any securities convertible into or
exchangeable for such shares, which may at any time be issued,
sold or offered for sale by the Company.
Amendment of Articles and By-Laws:
The Company's Articles and By-Laws shall not be altered, amended
or repealed and no provision inconsistent therewith shall be
adopted, without the affirmative vote of the holders of a
majority of the Common shares and of the Shares present; provided
that the rights associated with any series of Shares shall not be
varied, unless the rights associated with all other series are
similarly changed, without the affirmative vote of the holders of
a majority of the Shares of each series present.
APPENDIX B
STOCK PURCHASE AGREEMENT
BETWEEN
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
AND
(Certified Purchaser)
_________ , 19
Motors Mechanical Reinsurance
Company, Limited
Financial Services Centre
Bishops Court Hill
St Michael, Barbados
Gentlemen:
The undersigned Shareholder (as more fully described below)
hereby offers to purchase certain shares of stock of Motors
Mechanical Reinsurance Company, Limited, a Barbados Corporation
(the "Company"), upon the terms and conditions set forth herein.
The Shareholder hereby tenders a check in the amount of the
Purchase Payment (as defined herein), to be held in an escrow
account with Barclays Bank PLC (the "Escrow Account"). This
offer shall expire on the 120th day after the date hereof if the
Company has not accepted it prior to such expiration date. The
Shareholder acknowledges receipt of a prospectus dated
with respect to the stock described herein.
1. DEFINITIONS
1.1 Franchisee. The term "Franchisee" means (insert name(s) and
address(es) of Franchisee(s) of the automobile sales franchise(s)
related to the applicable MIC Agency Account).
1.2 MIC. The term "MIC" means Motors Insurance Corporation, a
New York corporation.
1.3 MIC Agency Account. The term "MIC Agency Account" means the
separate business record maintained by MIC or any of its
subsidiaries or affiliates to track volume, experience and
commissions with respect to insurance business related to the
automobile sales franchise(s) owned by the Franchisee.
1.4 Purchase Payment. The term "Purchase Payment" means the $
($75 (U.S.) x number of shares) paid hereunder as consideration
for the purchase of the Shares.
1.5 Shareholder. The term "Shareholder" means ,
taxpayer identification number , who is a citizen of
,
and who resides at .
1.6 Shares. The term "Shares" means shares (number
of shares) of the authorized shares of a series of the
participating stock of the Company, which series consists of 100
shares, and which is issued in respect of the MIC Agency Account.
1.7 The masculine gender is to be construed to include a female
or an entity where the context of this Agreement so requires.
2. REPRESENTATIONS
2.1 Representation of Shareholder. The Shareholder represents
that he has been duly certified (on the form furnished by the
Company and attached hereto) by the Franchisee and meets the
requirements for this purchase and sale as set forth in the
Articles of Incorporation of the Company (the "Articles"), copies
of which are attached to the prospectus. (It is understood that,
if the Franchisee consists of more than one person, all such
persons must join in the certification of the Shareholder.)
2.2 Representation of Company. The Company represents that the
issuance and sale of the Shares pursuant to this Agreement has
been duly authorized by the Board in accordance with the
Articles, and is consistent with the applicable provisions of
Barbados law.
3. PURCHASE AND SALE OF SHARES
Upon acceptance of this Agreement by the Company, the Company
agrees to sell and issue to the Shareholder, and the Shareholder
agrees to purchase, the Shares in consideration of the Purchase
Payment.
4. ESCROW OF PURCHASE PAYMENT
Subject to the following sentence, the Purchase Payment will
remain on deposit in the Escrow Account until the Shares are
issued by the Company. If this Agreement is not executed by the
Company within 120 days of the date hereof, the Purchase Payment
shall be refunded promptly together with any interest earned
thereon. Following execution by the Company, the Shareholder
shall have no right to withdraw the amount of the Purchase
Payment or any interest earned thereon.
5. COVENANTS OF THE COMPANY
5.1 Series of Participating Stock. No more than 100 shares of
the same series of participating stock as the Shares shall be
issued by the Company, and no other series of such stock shall be
issued with respect to the MIC Agency Account.
5.2 Reinsurance Business. The business of the Company shall be
limited to the reinsurance of mechanical breakdown risks
underwritten by MIC or its subsidiaries or affiliates and
identified with the MIC Agency Account and similar MIC accounts
maintained with respect to automobile franchises for which series
of participating stock of the Company are issued and outstanding.
6. LIMITATIONS BASED ON INADEQUATE CAPITAL
The Shareholder and the Company agree that if the Company cannot
meet the minimum margin of solvency requirements under Barbados
insurance law, then, to the extent the net asset value
attributable to the Subsidiary Capital Account (the "Account")
for the shares issued pursuant to this Agreement is less than its
pro rata share (based on proportionate earned premium) of the
Company's required net asset value, the Company shall reduce the
business attributable to the Account, on a pro rata basis with
such other accounts that are similarly deficient, by retrocession
or some other means acceptable to the Company, to the extent
necessary to permit the Company to meet the Company's required
minimum margin of solvency.
7. RESTRICTIONS ON TRANSFER
The Shareholder agrees to be bound by and shall be subject to all
provisions in the Articles (including without limitation those
with respect to the ownership and transfer of the Shares) that
are in effect as of the date of this Agreement or that may be
added in the future, and any amendments to such provisions. It
is understood that the Company may place on the certificate for
the Shares a legend stating in substance:
The sale, transfer, or other disposition of the shares
evidenced by this certificate is restricted pursuant to
provisions of the Articles of Motors Mechanical Reinsurance
Company, Limited ("Company"), and the Stock Purchase
Agreement ("Agreement") between the Company and the
Shareholder, dated , 19 , pursuant to which the
shares were issued. Copies of the Articles and the
Agreement may be examined at the registered office of the
Company.
8. MISCELLANEOUS
8.1 Severability. If for any reason any provision of this
Agreement shall be invalid or unenforceable, the validity of any
or all of the remaining provisions shall not be affected thereby;
provided, however, that the absence of such illegal or invalid
provisions does not so materially alter the purpose of this
Agreement such that the continuation of the arrangement
contemplated by this Agreement would no longer be mutually
beneficial to the Shareholder and the Company.
8.2 No Waiver. The failure of any party to insist upon strict
performance of any obligation hereunder shall not be a waiver of
the party's right to demand strict compliance therewith in the
future.
8.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Barbados.
8.4 Counterparts. This Agreement has been executed in multiple
copies, each of which shall for all purposes constitute one
Agreement, binding on the parties.
8.5 Assignment. This Agreement is personal to the parties and,
except as contemplated herein and in the Articles, no party shall
have any right to assign any right or to delegate any duty
hereunder, either voluntarily or involuntarily, or by operation
of law.
8.6 Term of Agreement. Except as herein expressly provided,
this Agreement shall remain in force as long as the Shares remain
outstanding. If not terminated sooner, this Agreement shall
terminate upon the earlier of the redemption of the Shares or the
liquidation of the Company.
8.7 Effect of Transfer. The Shareholder shall be relieved of
all restrictions and obligations and shall not be entitled to any
further benefits under this Agreement upon transfer of all the
Shares and upon the agreement of the transferee to be bound by
the terms and conditions of this Agreement.
8.8 Amendment. No change, modification, or amendment to this
Agreement shall be valid or binding upon the parties hereto
unless such change, modification, or amendment shall be in
writing signed by all of the parties.
8.9 Integration. This Agreement constitutes the full and
complete agreement between the Shareholder and the Company.
8.10 Captions. Titles or captions of sections, paragraphs or
exhibits contained in or made a part of this Agreement are
inserted only as a matter of convenience and for reference, and
in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof.
8.11 Notices. Any and all notifications permitted or required to
be made under this Agreement shall be in writing, signed by the
party giving such notification, and shall be sent by registered
or certified mail, postage prepaid (1) if to the Shareholder, at
the address set forth in Section 1.5 of this Agreement or at such
other address as may have been furnished by the Shareholder to
the Company in writing; or (2) if to the Company, in care of
Alexander Insurance Managers (Barbados) Limited, Financial
Services Centre, Bishops Court Hill, St. Michael, Barbados, W.I.
For purposes of computing a time period, the date of mailing
shall be the date of notification.
8.12 Survival of Representations and Warranties. All agreements,
representations, and warranties contained herein or made in
writing by the Shareholder or the Company in connection with the
transactions contemplated hereby shall survive the execution and
delivery of this Agreement, and the sale and purchase of the
Shares under this Agreement.
8.13 Relationship to Articles. The provisions of the Articles
are incorporated herein to the extent relevant to this Agreement.
If the authorized representative of the Company executes this
Agreement on its behalf, then this Agreement shall become a
binding contract, subject to the terms and conditions set forth
herein, between the Company and the Shareholder as of the date of
the execution on behalf of the Company.
Very truly yours,
______________________________ _______________________________
Date Signature of Shareholder
_______________________________
Print Name of Shareholder
The foregoing Agreement is hereby accepted and agreed to as of
the date set forth below. Series P- is hereby designated for
the Shares described in this Agreement.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
By ___________________________ Dated:__________________________
Title ________________________
Note: Upon acceptance by the Company, a duly signed copy of
this Agreement shall be sent to the Shareholder.
APPENDIX C
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
CERTIFICATION FORM
The undersigned represent(s) that he (she)(they) is (are) the
owner(s) of an automobile sales franchise doing business as
______________________ (name of dealership), with respect to
which MIC Agency Account___ is maintained. The undersigned
hereby designate(s) ___________________________________ (name of
purchaser), who resides at ____________________________ (address
of purchaser), to be deemed eligible to purchase shares of a
series of the participating stock of Motors Mechanical
Reinsurance Company, Limited (the "Company") pursuant to the
Articles of Incorporation of the Company.
______________________________ ______________________________
Date Signature of Franchise
Owner
______________________________
Print Name of Franchise Owner
(Names of Co-Owners, if any)
______________________________ ______________________________
Date Signature of Co-Owner
______________________________
Print Name of Co-Owner
______________________________ ______________________________
Date Signature of Co-Owner
______________________________
Print Name of Co-Owner
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, all of
which were paid by Motors Insurance Corporation, in connection
with the initial offering described in the Registration
Statement:
Registration Fee -- Securities
and Exchange Commission ................ $ 1,500
State "Blue Sky" fees ................... $ 15,000
Accountants Fees and Expenses ........... $ 10,000
Legal Fees and Expenses ................. $150,000
Printing and Engraving .................. $ 37,000
Miscellaneous ........................... $ 10,000
--------
Total Expenses ..................... $223,500
--------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Paragraph 10 of Registrant's By-Laws provides for the
indemnification of Registrant's officers and directors (and such
persons' heirs, executors and administrators) against any and all
judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees, incurred by such person in
connection with any claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the
fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company as a
director, officer, employe, fiduciary or member of any other
corporation, partnership, joint venture, trust, enterprise or
organization, except with respect to any matter for which
indemnification would be void pursuant to the Companies Act, 1982
of Barbados (the "Companies Act").
Under the Companies Act, indemnification of Registrant's officers
and directors against any liability which would attach by reason
of any contract entered into or act or thing done or omitted to
be done by them in performance of their office or in any way in
the discharge of their duties, if the same happens through their
not acting in good faith and in the best interest of the
Registrant is void.
The position of the Securities and Exchange Commission regarding
indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") is set forth under Item 17, paragraph 5
of this Part II.
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES
No securities which were not registered under the Act have been
issued or sold by Registrant within the past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
3 (a) Restated Articles of Incorporation (filed as
Appendix A to the Prospectus).
(b) By-Laws of Registrant, as amended.*
4 Specimen Participating Stock Certificate.*
5 Opinion of Evelyn, Gittens & Farmer.*
10 (a) Form of Principal Retrocession Agreement between
Motors Insurance Corporation and
Registrant.*
(b) Form of Supplemental Retrocession Agreement
between Motors Insurance Corporation and
Registrant.*
(c) Specimen Stock Purchase Agreement (filed as
Appendix B to the Prospectus).
(d) Amended and Restated Stock Purchase Agreement
between Registrant and Motors Insurance
Corporation.*
(e) Insurance Management Agreement between Registrant
and Alexander Insurance Managers (Barbados) Ltd.**
23 (a) Consent of Evelyn, Gittens & Farmer.
(b) Consent of LeBoeuf, Lamb, Greene & MacRae.
(c) Consent of Deloitte & Touche, Independent
Chartered Accountants.
99 (a) Certification Form (filed as Appendix C to the
Prospectus).
(b) Guarantee issued by the Minister of Finance of
Barbados.*
(c) Certificate of Barbados Residency.*
* Filed previously,
** Filed as Exhibit 19(f) to Form 10-K on March 30, 1994, File
No. 33-6534, and incorporated herein by reference.
B. Financial Statement Schedules:
No financial statement schedules are submitted herewith because
the information is included elsewhere in the financial statements
or the notes thereto or such schedules are not applicable.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which offers or sales of the
securities being registered are being made, a post-effective
amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
Registration Statement, and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
1933 Act, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering; and
(4) To file a post-effective amendment to the registration
statement to include any financial statements required throughout
a continuous offering.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post Effective Amendment to this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St.
Michael, Barbados, on July 7, 1994.
MOTORS MECHANICAL
REINSURANCE COMPANY, LIMITED
By s/Ronald W. Jones
Ronald W. Jones, Vice-President,
Finance
Pursuant to the requirements of the Securities Act of 1933, this
Post Effective Amendment to this Registration Statement has been
signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
s/Joseph J. Pero President and Director July 7, 1994
Joseph J. Pero (Principal Executive Officer)
s/Ronald W. Jones Vice-President (Principal July 7, 1994
Ronald W. Jones Financial and Accounting
Officer)
s/Vincent K. Quinn Executive
Vincent K. Quinn and Director July 7, 1994
s/Louis S. Carrio, Jr. Vice-President and Director July 7, 1994
Louis S. Carrio, Jr.
s/Peter R. P. Evelyn Director July 7, 1994
Peter R. P. Evelyn
EXHIBIT 23(a)
CONSENT OF COUNSEL
Motors Mechanical Reinsurance Company, Limited:
We hereby consent to the reference to our name under the captions
"Barbados Corporate Laws Provisions," "Legal Matters" and
"Experts" in the Prospectus which is part of this Registration
Statement.
s/EVELYN, GITTENS & FARMER
Bridgetown, Barbados
July 7, 1994
EXHIBIT 23(b)
CONSENT OF COUNSEL
Motors Mechanical Reinsurance Company, Limited:
We hereby consent to the reference to our name under the captions
"United States Federal Tax Considerations," "Legal Matters," and
"Experts" in the Prospectus which is part of this Registration
Statement.
s/LeBOEUF, LAMB, GREENE & MacRAE
Washington, D.C.
July 7, 1994
EXHIBIT 23(c)
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
Motors Mechanical Reinsurance Company, Limited:
We consent to the use in this Post Effective Amendment No. 11 to
Registration Statement No. 33-6534 of Motors Mechanical
Reinsurance Company, Limited of our report dated March 11, 1994
appearing in the Prospectus, which is part of this Registration
Statement, and to the reference to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
s/DELOITTE & TOUCHE
Bridgetown, Barbados
July 7, 1994
