As filed with the Securities and Exchange Commission on June 9, 1995
Registration No. 33-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
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)
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados, W.I.
(809) 436-4895
(Address and telephone number of
principal executive office)
RONALD W. JONES, Vice-President, Finance
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, L.L.P.
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)
If the registrant elects to deliver its latest annual report to security-
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(i)
of this form, check the following box.( )
CALCULATION OF REGISTRATION FEE
________________________________________________________________________________
Proposed Proposed
maximum maximum
Title of each offering aggregate Amount of
class of securities Amount to be price offering registration
to be registered registered per unit price fee
________________________________________________________________________________
Shares of Participating
Stock (no par value) 12,000 shs $75 $900,000 $310.34
________________________________________________________________________________
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that the registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to section 8(a), may
determine.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
Cross reference sheet between
Items of Form S-2 and Prospectus
Pursuant to Item 501(b)
of Regulation S-K
FORM S-2 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; Use of
Proceeds; Business of the Company;
Capitalization;
Management
12. Incorporation of Certain Information Incorporation of Certain
by Reference Information by Reference
13. 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
12,000 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, a Barbados company, is engaged
in the business of assuming risks in respect of certain insurance policies
covering motor vehicle mechanical repairs. (See "Business of the Company.")
The shares of Participating Stock of the Company offered by this Prospectus (the
"Shares") are divided into 120 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 12,000 shares $900,000 None $900,000
The date of this Prospectus is , 1995.
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..................................................
ELIGIBILITY TO PURCHASE THE SHARES ................................
USE OF PROCEEDS ...................................................
DETERMINATION OF OFFERING PRICE ...................................
DIVIDENDS .........................................................
BUSINESS OF THE COMPANY ...........................................
SELECTED FINANCIAL DATA............................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .............................
MANAGEMENT ........................................................
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 ...........................................................
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE .................
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, provided, that fleet coverages,
medium duty truck business and maintenance plans are not reinsured.
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 is
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
"Business of the Company.")
THE OFFERING
Securities Being
Offered ........... Participating Stock, not to exceed 12,000 shares, in
series of 100 shares each, without nominal or par
value. (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 as of the date of this
Prospectus 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 of Participating Stock 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, 1995, 23,100 shares of Participating
Stock representing 231 series were issued and
outstanding and were held by 394 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 employes 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.") 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 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.
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. 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. The instruments that may be used to hedge non-U.S. dollar
denominated investments could involve, to varying degrees, elements of credit
risk in the event a counterparty should default on its obligation under the
hedge instrument. Such credit risk is managed through the selection of
financially sound counterparties and periodic monitoring of counterparty
financial condition.
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 Internal Revenue
Code, 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, the Company has received a guarantee
from the Barbados Minister of Finance exempting it from Barbados taxes for a
period ending December 31, 2001, and although the Company has recently initiated
steps to have the guarantee extended, there is no assurance that an extension
will be granted.
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 its subsidiaries, including MIC, 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.
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.")
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
Participating Stock or the other capital stock of the Company, and none is
expected to develop. In addition, the Participating Stock is 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 Participating Stock 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.")
ELIGIBILITY TO PURCHASE THE SHARES
Shares of a series may be purchased only by an individual or entity certified by
all 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. Franchise owner(s) have complete discretion
with respect to whom they choose to certify (including themselves), provided
that all beneficial owners of the dealership operating under the Franchise
consent to such designation. In addition, 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 and representing that all beneficial owners of the dealership
operating under the Franchise have consented to such designation. 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. 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. 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 recorded 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 "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 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. In April 1995, the
Company declared a dividend on the Shares aggregating $1,188,614. This dividend
was declared as a varying percentage applicable to each series varying from 15%
to 40% 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
The business of the Company is the assumption of risks arising under mechanical
breakdown protection plans sold to purchasers of automobiles. These plans
provide coverage against specific automobile mechanical breakdowns during the
manufacturer's 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) beyond the period covered by
the manufacturer's warranty. The risk of loss under these plans is covered by
insurance policies that are issued either to General Motors Corporation ("GM")
or to automobile dealers, reinsured by MIC, and retroceded to the Company to the
extent that such policies are attributable to an MIC Agency Account in respect
of which a series of Shares is issued and outstanding.
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.
Under the terms of the Retrocession Agreement, the Company assumes 100% of each
risk retroceded to it by MIC in return for which it receives 75% of the gross
premium with respect to the risk, reduced by related agents' or brokers'
commission if any.
A major source of income to the 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.
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 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.
The Company has entered into an Insurance Management Agreement (the "Management
Agreement") with Alexander Insurance Managers (Barbados) Ltd. (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. 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, 1994, the Company paid
fees to the Manager in the amount of $176,154.
SELECTED FINANCIAL DATA
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.<F1>
The following selected financial data for the years ended December 31, 1994,
1993, 1992 and 1991, and the eleven month period ended December 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, 1994 and 1993 and for each of the three
years in the period ended December 31, 1994 is included elsewhere in this
Prospectus. The data presented for the three month periods ended March 31, 1995
and 1994 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,
1995 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.
<TABLE>
<CAPTION>
December 31<F3>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Premiums Assumed $38,371,896 $27,779,063 $19,386,455 $16,784,405 $12,957,759
___________ ___________ ___________ ___________ ___________
Premiums Earned 21,316,685 15,429,611 13,005,184 10,292,788 8,177,525
Net Investment
Income 1,227,816 2,700,242 2,522,712 1,792,947 843,021
__________ ___________ ___________ ___________ __________
Total Income 22,544,501 18,129,853 15,527,896 12,085,735 9,020,546
Less Losses and
Expenses 20,825,943 15,425,146 12,020,682 10,165,350 8,280,612
Net Income<F2> 1,718,558 2,704,707 3,507,214 1,920,385 739,934
___________ ___________ ___________ ___________ __________
Dividends Per
Common Share 0 0 0 0 0
Total Assets 66,012,284 50,359,633 36,847,490 28,124,056 18,759,382
Total Policy
Reserves and
Other Liabilities 60,246,641 42,430,269 29,777,783 23,148,003 16,347,245
Stockholders' Equity 5,765,643 7,929,364 7,069,707 4,976,053 2,412,137
Dividends Paid on
Participating
Shares 2,156,304 2,021,504 1,021,705 150,317 114,376
</TABLE>
Three Months Ended March 31
1995 1994
____ ____
Premiums Assumed $9,642,726 $8,816,331
__________ __________
Premiums Earned 6,312,389 4,571,906
Net Investment Income 369,281 267,303
__________ __________
Total Income 6,681,670 4,839,209
Less Losses and Expenses 6,191,253 4,516,391
__________ __________
Net Income 490,417 322,818
__________ __________
March 31, 1995
Total Assets 71,980,863
Total Policy Reserves and
Other Liabilities 63,782,688
Stockholders' Equity 8,198,175
Dividends Paid on Participating Shares 0
<F1> For the 11-month period ended December 31, 1989, the Company had $5,183,768
of earned premium, $673,785 of investment income and incurred $5,278,717 of
losses and expenses. The net income of the Company for the period was $578,836.
<F2> 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.
<F3> 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 preceding 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
$6,734,218 in 1992 and $11,550,335 in 1993 to $14,960,494 in 1994. The Company
believes that such funds will be sufficient to meet its liquidity requirements
in 1995 and in future years to which its reinsurance liabilities extend. No
capital expenditures are expected during the next few years.
The Company had unearned premium reserves of $60,798,606 as of March 31, 1995,
$57,468,269 as of December 31, 1994, and $40,413,058 as of December 31, 1993.
These amounts are attributable to the long-term nature of the contracts sold.
Such contracts may extend for up to 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. For new vehicles, the warranty
generally covers 36 months or 36,000 miles. For used vehicles, the applicable
warranty period depends on the unexpired portion of the original manufacturer's
warranty at the time of purchase of the vehicle. Because the Company has little
risk of loss prior to expiration of the underlying manufacturer's warranty, most
premium is not recognized as earned until such expiration. 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.
See "Dividends" for a discussion of dividends paid and legal restrictions on the
payment of dividends.
On April 6, 1995, the Board of Directors authorized the payment of dividends to
eligible holders of Participating Shares aggregating $1,188,614.
Capital Resources. Capitalization of the Company, as of December 31, 1994, is
comprised of paid-in capital with respect to the Common Stock of $200,000,
paid-in capital with respect to the Shares of $1,665,000 (compared with
$1,417,500 and $1,072,500 as of December 31, 1993 and 1992, respectively), and
earnings retained for use in the business of $5,796,732. As of March 31, 1995,
the capitalization of the Company was $1,932,500, comprised of paid-in capital
with respect to the Common Stock of $200,000 and paid in capital with respect to
Participating Shares of $1,732,500, and earnings retained for use in business of
$6,287,149.
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 assets are 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, 1995,
the Company's required minimum net assets computed in accordance with Barbados
law was approximately $2,631,669, compared to total capital and retained
earnings computed for purposes of Barbados law of $7,661,732.
Results of Operations.
Quarter Ending March 31, 1995. During the quarter ended March 31, 1995,
the Company had net income of $490,417, compared to net income of $322,818 for
the quarter ended March 31, 1994.
Net Premium volume continues to increase as additional participants are added to
the program. During the quarter ended March 31, 1995, 9 new series of Shares
were added bringing the total number of series issued and outstanding to 231 as
of the end of the quarter. Premiums earned during the quarter ended March 31,
1995 increased by $1,740,483 over the comparable period of 1994 to a total of
$6,312,389.
Expenses incurred during the quarter ended March 31, 1995 were $6,191,253
compared to $4,516,391 for the comparable quarter of 1994. Net underwriting
income for the quarter ended March 31, 1995 was $121,136 compared to $55,515 for
the comparable period in 1994. The ratio of losses incurred to premiums earned
for the quarter was 69.2% as compared to 69.8% for the comparable period in
1994.
Investment income for the quarter was $369,281 compared to $267,303 for the
quarter ended March 31, 1994. Interest income increased from $570,692 for the
quarter ended March 31, 1994 to $898,990 for the quarter ended March 31, 1995.
The increase in interest income was partially offset by an increase in losses
realized on the sale of investments which amounted to $529,709 for the quarter
compared to $303,389 for the comparable quarter in 1994. These losses were
largely attributable to the sale of investment securities the value of which had
been adversely affected by increases in prevailing interest rates. Unrealized
losses on investment securities decreased from $1,896,089 as of December 31,
1994 to $21,474 as of March 31, 1995 due to sales of securities and decreases in
long term interest rates on U.S. dollar denominated investments.
Due to continuous declines in long term interest rates, the Company realized
gains of $76,365 on sales of investment securities in April 1995. At April 30,
1995, the Company had unrealized gains of $277,697 on its investment securities
compared to unrealized losses of $21,474 at March 31, 1995.
Fiscal Years Ended December 31, 1994 and 1993. During the fiscal year
ended December 31, 1994, the Company had net income of $1,718,558 compared to
$2,704,707 and $3,507,214 for the fiscal years ended December 31, 1993 and 1992,
respectively. The reduction in net income during 1994 compared to the previous
year is the result primarily of realized losses on the sale of investments as
discussed below. 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 net underwriting income of approximately $490,742 in 1994
compared to $4,465 and $984,502 during 1993 and 1992 respectively. During 1994,
the Company had earned premiums of $21,316,685 compared to $15,429,611 and
$13,005,184 for the fiscal years ended December 31, 1993 and 1992, respectively.
Increased premium income has been generated by the issuance of additional series
of Shares during the year ended December 31, 1994, and the continuing flow of
reinsurance premiums from series issued in prior fiscal years. During 1994, the
Company issued 36 new series of Shares and redeemed 3 series of Shares for a net
increase of 33 series. There were 222 series of Shares outstanding at
December 31, 1994 compared to 189 and 143 series of Shares outstanding at
December 31, 1993 and 1992, respectively.
The Company incurred losses and expenses during the fiscal year ended
December 31, 1994 of $20,825,943 compared with $15,425,146 and $12,020,682 for
the fiscal years ended December 31, 1993 and 1992, respectively. This was
comprised of losses incurred during the period of $14,830,166, ceding
commissions and excise taxes of $5,540,539 and operating expenses of $455,238.
Losses incurred in 1993 and 1992 were $10,912,683 and $8,164,449, respectively.
The ratio of losses incurred to premiums earned for the fiscal year ended
December 31, 1994 was 69.6% compared to 70.7% and 62.8% for the fiscal years
ended December 31, 1993 and 1992, respectively. Management believes the
Company's increased loss experience in 1994 and 1993 compared to 1992, and the
reduction in the Company's net income during 1993 compared to 1992, 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 the
manufacturers' warranties for certain 1992 model vehicles had a favorable impact
on 1992 loss experience. On the other hand, the reduction of the manufacturer's
warranties from 50,000 to 36,000 miles for certain vehicles beginning with the
1992 model year adversely affected 1993 and 1994 losses.
The Company incurred operating expenses during the fiscal year ended December
31, 1994 of $455,238 compared to $503,178 and $478,475 for the years ended
December 31, 1993 and 1992. MIC has agreed to pay certain costs of issuing
shares if such costs could not be allocated to the Subsidiary Capital Account
for the Common Stock. In 1994, MIC paid directly $162,989 of costs to register
and issue shares. For fiscal years ended December 31, 1993 and 1992, share
issuance costs which totalled $74,461 and $80,298, respectively, were paid by
the Company and allocated to the Subsidiary Capital Account for the Common
Stock.
The increase of net underwriting income during the year ended December 31, 1994
was offset by a decrease in investment income which declined in 1994 to
$1,227,816 compared to $2,700,242 and $2,522,712 for the fiscal years ended
December 31, 1993 and 1992, respectively. The reduction in investment income
during 1994 compared to prior periods is primarily attributable to changes in
interest rates which adversely affected the market values of the Company's
investment portfolio and resulted in realized losses on the sale of investment
securities. These losses offset interest earnings which increased approximately
52% during 1994 over the prior year, largely as a result of an increase in the
amount of assets under management.
Realized losses on the sale of investment securities in the year ended December
31, 1994 were $1,543,358 compared to realized gains of $872,313 and $864,282 for
the years ended December 31, 1993 and 1992, respectively. The realized losses
during 1994 resulted in large part from a repositioning of the Company's
investment portfolio away from longer term issues toward medium term
investments. Unrealized losses on investment securities held at December 31,
1994 were $1,896,089 compared to unrealized gains at December 31, 1993 of
$99,886. Unrealized losses as of December 31, 1994 include amounts attributable
to decreases in value of securities purchased at a premium.
At present, the Company's investments are comprised entirely of U.S.-dollar
denominated fixed-income securities. In the future, the Company may invest in
foreign denominated bonds, on a fully U.S. dollar-hedged basis, 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. The Company's investment guidelines do not permit the use of
financial instrument derivatives in managing interest rate risk. The
instruments that may be used to hedge non-U.S. dollar denominated investments
could involve, to varying degrees, elements of credit risk in the event a
counterparty should default on its obligation under the hedge instrument. Such
credit risk is managed through the selection of financially sound counterparties
and periodic monitoring of counterparty financial condition.
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 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, 1994, the Company had furnished such a letter of credit in
the amount of $42,900,000.
Accounting Change. FASB Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" is effective for years beginning after December
15, 1993 and requires 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.
MANAGEMENT
DIRECTORS AND OFFICERS
Five of the current directors of the Company were elected by MIC through its
ownership of the Common Stock the Annual Shareholders Meeting held on April 6,
1995 and one director was elected by the holders of the Shares at such meeting.
The directors and officers of the Company are as follows:
POSITION WITH THE COMPANY
(AND OTHER EMPLOYMENT DURING PAST FIVE
YEARS)
NAME AGE
John D. Finnegan ........... 46 Chairman and Chief Executive Officer and
Director (Executive Vice President &
Chief Financial Officer, General Motors
Acceptance Corporation ("GMAC") June
1992; Assistant Treasurer and Funds
Officer, GMAC, 1987-1992).
Mr. Finnegan became Chairman and Chief
Executive Officer and Director in April
of 1995.
William B. Noll ............ 52 President and Director (Executive Vice
President & Chief Financial Officer,
Motors Insurance Corporation ("MIC")
March 1993; Group Vice-President, MIC,
1991-1993; Vice President, MIC, 1989-
1990).
Mr. Noll became President and Director
in April of 1995.
Louis S. Carrio, Jr. ...... 51 Vice-President and Director
(Vice-President, MIC).
Mr. Carrio became a Director and was
appointed Vice-President in June of
1991.
Bernard J. Buselmeier ...... 39 Vice-President and Director
(Vice-President and Treasurer, MIC,
March 1993; Treasurer, MIC, 1989-1993).
Mr. Buselmeier became Vice-President and
Director in April of 1995.
Peter R. P. Evelyn ........ 53 Director (Attorney, Evelyn, Gittens &
Farmer, a Barbados law firm).
Mr. Evelyn has been a Director since
1986.
Henry Faulkner, III ....... 45 Director (President, Faulkner Saturn of
Trevose)
Mr. Faulkner became a Director in April
of 1995.
Ronald W. Jones ........... 42 Vice-President, Finance (Managing
Director, Alexander Insurance Managers
(Barbados) Ltd.).
Mr. Jones has served as Vice-President,
Finance since 1987.
Michael R. Boyce ........... 56 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.
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, 1995, 23,100 Shares representing 231 series had been issued and
were outstanding and were held of record by 394 shareholders. 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 or, after January 1, 1995, to
the Subsidiary Capital Account for any series of shares, 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 and
thereafter, to the Subsidiary Capital Accounts for the Shares, pro
rata based on the relative amount of deficits allocated to such
accounts, until all reductions of such Subsidiary Capital Accounts
after January 1, 1995 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 or the Subsidiary
Capital Accounts for the shares 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.
(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 is allocated to the Subsidiary Capital
Account for the Common Stock (to the extent of Restricted Earned
Surplus) before allocating any remaining deficits to the Subsidiary
Capital Accounts for the participating series.
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, 1994, $945,980 of net
underwriting gains and $455,238 of administrative expenses were allocated among
the 222 series of Shares outstanding as of December 31, 1994, and $1,227,816 of
net investment income was allocated among such series of Shares and the Common
Stock.
As of December 31, 1994, 189 such series had balances greater than $7,500
(ranging from $7,501 to $182,943) and 33 series had balances less than $7,500
(ranging from $7,351 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, 1994, an aggregate of $943,252
had been advanced from the Restricted Earned Surplus (which forms a portion of
the Account established for the Common Stock owned by MIC) to 23 Subsidiary
Capital Accounts and remained outstanding at that date. In addition, at
December 31, 1994, net deficits of $379,636 associated with 3 series of Shares
that have been redeemed had been charged against Restricted Earned Surplus and
remained outstanding at that date. Aggregate deficits reallocated among the
Subsidiary Capital Accounts of the Shares through December 31, 1994 were
$697,448.
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.")
Barbados insurance law requires that the Company maintain certain levels of net
assets, which for this purpose are calculated without taking into account
unrealized gains or losses. The Company is currently in compliance with these
requirements. 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 -- 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
The Company is currently authorized to issue 2,000 shares of Common Stock,
without nominal or par value, all of which have been issued to MIC and are
outstanding.
A Subsidiary Capital Account has been established for this class of stock, and
allocations of various items to such account are described above. (See
"Description of Capital Stock -- Allocations to Subsidiary Capital Accounts.")
Holders of Common Stock as a class are entitled to elect five directors, at
least one of whom must be resident in Barbados, 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. 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 all 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. 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,
L.L.P., 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.
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, legislative action has become less likely as a result
of recent trade negotiations (NAFTA and GATT).
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.")
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, L.L.P., 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, independent chartered accountants, Bridgetown, Barbados 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, L.L.P. has passed
upon the statements concerning United States tax laws contained in the
discussion under "United States Federal Tax Considerations," which is included
herein in reliance upon their authority as experts with respect to such matters.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, and the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31 1995, File No. 33-6534, each as filed by the Company with the
Securities and Exchange Commission, Washington, D.C. (the "Commission"), are
incorporated in this Prospectus by reference. Any statement contained in such
Annual Report or Quarterly Report shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement.
ADDITIONAL INFORMATION
A registration statement under the 1933 Act has been filed with the Commission
with respect to the Shares offered hereby. This Prospectus does not contain all
of the information set forth in such registration statement, certain parts
having been omitted pursuant to the rules and regulations of the Commission.
The omitted information may be examined at the Commission's 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 sheets of Motors Mechanical Reinsurance
Company, Limited as of December 31, 1994 and 1993 and the related statements of
income and retained earnings and cash flows for each of the three years in the
period ended December 31, 1994. 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 auditing standards generally accepted
in the United States of America. 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, 1994 and 1993 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with accounting principles generally accepted in
the United States of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
February 27, 1995
<TABLE>
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1993, 1994 AND MARCH 31, 1995
(Expressed in U.S. Dollars)
<CAPTION>
December 31, March 31
Notes 1993 1994 1995
_____ __________ __________ __________
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Investments 3,7 $29,882,488 $42,903,056 $43,864,591
Cash and cash equivalents 7 6,788,771 3,303,060 8,132,943
Accrued investment income 861,190 1,559,195 1,217,527
Due from ceding company 2,331,978 3,315,506 2,966,098
Deferred acquisition costs 10,495,206 14,931,467 15,797,829
Prepaid expense 0 0 1,875
___________ ___________ ___________
Total Assets $50,359,633 $66,012,284 $71,980,863
___________ ___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $40,413,058 $57,468,269 60,798,606
Loss reserves 4 1,910,030 2,660,270 2,756,429
Accrued liabilities 107,181 118,102 227,653
___________ ___________ ___________
Total Liabilities 42,430,269 60,246,641 63,782,688
___________ ___________ ___________
COMMITMENTS AND CONTINGENCIES 7
STOCKHOLDERS' EQUITY 5
Share capital
Common stock - no par value;
Authorized - 2,000 shares;
issued and outstanding -
2,000 shares 200,000 200,000 200,000
Participating stock - no par value;
Authorized - 100,000 shares;
issued and outstanding - 23,100 shares
at March 31, 1995 (unaudited);
22,200 shares at December 31,
1994; and 18,900 shares at
December 31, 1993 1,417,500 1,665,000 1,732,500
___________ ___________ ___________
1,617,500 1,865,000 1,932,500
Retained earnings 8 6,211,978 5,796,732 6,287,149
Unrealized appreciation
(depreciation) on investments 3 99,886 (1,896,089) (21,474)
___________ ___________ ___________
Total Stockholders' Equity 7,929,364 5,765,643 8,198,175
___________ ___________ ___________
Total Liabilities and
Stockholders' Equity $50,359,633 $66,012,284 $71,980,863
___________ ___________ ___________
</TABLE>
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 AND
THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
(Expressed in U.S. Dollars)
Years Ended December 31,
Notes 1992 1993 1994
_____ __________ __________ __________
INCOME
Reinsurance
premiums assumed 6 $19,386,455 $27,779,063 $38,371,896
Increase in
unearned premiums (6,381,271) (12,349,452) (17,055,211)
___________ ___________ ___________
Premiums earned 13,005,184 15,429,611 21,316,685
___________ ___________ ___________
Investment income:
Interest earned 1,658,430 1,827,929 2,771,174
Realized (losses) gains
on investments 864,282 872,313 (1,543,358)
___________ ___________ __________
Investment income - net 2,522,712 2,700,242 1,227,816
___________ ___________ __________
TOTAL INCOME 15,527,896 18,129,853 22,544,501
___________ ___________ __________
EXPENSES
Acquisition costs 3,377,758 4,009,285 5,540,539
Losses paid 7,938,136 10,625,508 14,079,926
Increase in loss
reserves 226,313 287,175 750,240
Administrative expenses:
Related Parties 160,858 168,933 171,135
Other 317,617 334,245 284,103
___________ ___________ __________
TOTAL EXPENSES 12,020,682 15,425,146 20,825,943
___________ ___________ __________
NET INCOME 3,507,214 2,704,707 1,718,558
RETAINED EARNINGS,
beginning of year 3,043,266 5,528,775 6,211,978
LESS: DIVIDENDS (1,021,705) (2,021,504) (2,156,304)
ADD: REDEMPTION OF PARTICIPATING
STOCK - - 22,500
___________ __________ __________
RETAINED EARNINGS, end of year $ 5,528,775 $6,211,978 $5,796,732
___________ __________ __________
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 AND
THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994 - (continued)
(Expressed in U.S. Dollars)
Three Month Periods Ended
March 31,
1995 1994
____________ _________
(Unaudited)
INCOME
Reinsurance premiums assumed $9,642,726 $8,816,331
Increase in unearned premiums 3,330,337 4,244,425
__________ __________
Premiums earned 6,312,389 4,571,906
__________ __________
Investment income
Interest earned 898,990 570,692
Realized losses
on investments (529,709) (303,389)
__________ __________
Investment income -
net 369,281 267,303
__________ __________
TOTAL INCOME 6,681,670 4,839,209
__________ __________
EXPENSES
Acquisition costs 1,640,774 1,188,209
Losses paid 4,271,649 3,001,850
Increase in loss reserves 96,159 187,209
Administrative expenses
Related Parties 69,517 53,446
Other 113,154 85,677
__________ _________
TOTAL EXPENSES 6,191,253 4,516,391
NET INCOME 490,417 322,818
RETAINED EARNINGS,
beginning of period 5,796,732 6,211,978
__________ __________
RETAINED EARNINGS,
end of period $6,287,149 $6,534,796
__________ __________
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993, AND 1994 AND
THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
(Expressed in U.S. dollars)
Year Ended December 31
1992 1993 1994
___________ ___________ ___________
CASH FLOWS FROM OPERATING ACTIVITIES:
Reinsurance premiums collected $17,624,088 $26,933,330 $35,580,944
Losses and underwriting expenses (11,898,682) (16,977,784) (22,168,851)
paid
Administrative expenses paid (429,735) (490,616) (527,767)
Investment income received 1,438,547 2,085,405 2,076,168
___________ ___________ __________
Net cash provided by operating
activities 6,734,218 11,550,335 14,960,494
___________ ___________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (60,877,408) (49,834,608) (70,748,944)
Sales of investment securities 53,031,200 45,038,810 54,189,043
___________ ___________ ___________
Net cash invested (7,846,208) (4,795,798) (16,559,901)
___________ ___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
Participating Stock 255,000 345,000 270,000
Dividends paid (1,021,705) (2,021,504) (2,156,304)
___________ ___________ ___________
Net cash used in financing
activities (766,705) (1,676,504) (1,886,304)
___________ ___________ __________
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,878,695) 5,078,033 (3,485,711)
CASH AND CASH EQUIVALENTS, beginning
of year 3,589,433 1,710,738 6,788,771
____________ ___________ __________
CASH AND CASH EQUIVALENTS, end of
year $ 1,710,738 $ 6,788,771 $3,303,060
___________ ___________ __________
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income $ 3,507,214 $ 2,704,707 $1,718,558
Realized losses (gains) on
investments (864,282) (872,313) 1,543,358
Change in:
Accrued investment income (222,446) 254,177 (698,005)
Due from ceding company (653,270) 24,630 (983,528)
Deferred acquisition costs (1,662,778) (3,213,352) (4,436,261)
Prepaid expenses - - -
Unearned premiums 6,381,271 12,349,452 17,055,211
Loss reserves 226,313 287,175 750,240
Accrued liabilities 22,196 15,859 10,921
___________ __________ _________
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 6,734,218 $11,550,335 $14,960,494
___________ ___________ ___________
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993, AND 1994 AND
THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994 - (continued)
(Expressed in U.S. dollars)
Three month periods ended
March 31,
1995 1994
___________ ________
(unaudited)
Cash flows from operating activities:
Reinsurance premiums collected $ 9,853,097 $7,062,145
Losses and underwriting
expenses paid (6,618,043) (4,730,167)
Administrative expenses paid (97,698) (95,553)
Investment income received 1,241,656 530,825
__________ __________
Net cash provided by
operating activities 4,379,012 2,767,250
__________ __________
Cash flows from investing activities:
Purchases of marketable securities (38,556,681) (25,508,046)
Sales and maturities of
marketable securities 38,940,052 19,223,793
__________ ___________
Net cash invested 383,371 (6,284,253)
__________ ___________
Cash flows from financing activities:
Proceeds from issuance of
Participating stock 67,500 75,000
__________ ___________
Net cash provided by financing
activities 67,500 75,000
__________ ___________
Increase (decrease)
in cash and cash equivalents 4,829,883 (3,442,003)
Cash and cash equivalents, beginning
of period 3,303,060 6,788,771
__________ __________
Cash and cash equivalents, end
of period $8,132,943 $3,346,768
__________ __________
Reconciliation of net income to net cash
provided by operating activities:
Net income 490,417 322,818
Realized losses on investments 529,709 303,389
Change in:
Accrued investment income 341,668 (39,867)
Due from ceding company 349,408 (1,203,180)
Deferred acquisition costs (866,362) (1,104,061)
Prepaid expenses (1,875) (1,875)
Unearned premiums 3,330,337 4,244,425
Loss reserves 96,159 187,209
Accrued liabilities 109,551 58,392
__________ _________
Net cash provided by
operating activities $4,379,012 $2,767,250
__________ __________
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, 1995
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994)
(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.
Note 2. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of Presentation
The financial statements are stated in United States dollars and are
prepared in conformity with accounting principles generally accepted
in 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.
Certain amounts in the 1993 and 1992 financial statements have been
reclassified to conform with the 1994 presentation.
(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.
(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 and are calculated based on average costs.
(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 8).
(g) Interim Financial Information
The financial statements as of March 31, 1995 and for the three month
periods ended March 31, 1995 and 1994, are unaudited, but in the
opinion of Management, reflect all adjustments, consisting of normal
recurring accruals, which are necessary for a fair presentation of the
results for the periods presented. Results for the three month period
ended March 31, 1995 are not necessarily indicative of the results to
be expected for the whole fiscal year.
Note 3. INVESTMENTS
Effective January 1, 1994, the Company adopted the requirements
of Financial Accounting Standards Board Statement No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" and the Company's investments have been classified as
available for sale. The Company had previously accounted for its
investment securities at market value, with the resulting
unrealized gains and losses included as a separate component of
stockholders' equity. Accordingly, the adoption of Statement No.
115 had no material effect on the Company's financial position
and results of operations.
The cost and estimated fair value of investments in debt
securities are as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
__________ ____________ ____________ _________
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, 1994:
Debt securities
issued by
foreign
governments
and their
agencies $31,233,934 $23,323 $(1,324,106) $29,933,151
Debt securities
issued by
supra-nationals 13,565,211 - (595,306) 12,969,905
___________ _______ ___________ __________
Total $44,799,145 $23,323 $(1,919,412) $42,903,056
___________ _______ ___________ ___________
The cost and estimated fair value of debt securities at December
31, 1994, 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 $18,203,680 $17,241,088
Due after five years
through ten years 26,595,465 25,661,968
___________ ___________
$44,799,145 $42,903,056
___________ ___________
In 1992, gross gains of $1,008,932 and gross losses of $144,650
were realized. In 1993, gross gains of $964,613 and gross losses
of $92,300 were realized. In 1994, gross gains of $150,704 and
gross losses of $1,694,062 were realized.
The following summarizes net unrealized appreciation
(depreciation) on investments:
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 (1,995,975)
___________
Balance, December 31, 1994 $(1,896,089)
Net appreciation (unaudited) $ 1,874,615
___________
Balance, March 31, 1995 $ (21,474)
(unaudited) ___________
The investment portfolio is comprised of diverse U.S. dollar-
denominated debt securities which do not result in any
concentration in credit risks.
Note 4. RESERVES FOR UNPAID LOSSES
The following table sets forth an analysis of changes in the loss reserves for
the years ended December 31, 1992, 1993 and 1994:
1992 1993 1994
____ ____ ____
Beginning balance in
reserves for losses $ 1,396,542 $ 1,622,855 $ 1,910,030
____________ ____________ ___________
Add-provision for losses
incurred related to:
Current claim year $ 8,461,984 $ 11,046,932 $14,893,890
Prior claim years $ (297,535) $ (134,249) $ (63,724)
____________ ____________ ___________
Total $ 8,164,449 $ 10,912,683 $14,830,166
____________ ____________ ___________
Deduct-paid losses
attributable to:
Current claim year $ 7,025,671 $ 9,363,720 $12,527,026
Prior claim years $ 912,465 $ 1,261,788 $ 1,552,900
____________ ____________ ___________
Total $ 7,938,136 $ 10,625,508 $14,079,926
____________ ____________ ___________
Ending balance in reserves
for losses $ 1,622,855 $ 1,910,030 $ 2,660,270
____________ ____________ ___________
As a result of change in estimates of losses incurred in prior years, the
provisions for losses incurred in 1992, 1993 and 1994 decreased by $297,535,
$134,249, and $63,724, respectively, because of lower than expected claims.
Note 5. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. An offering of
12,000 shares of Participating Stock is being made to persons
certified by owners of certain motor vehicle franchises. The
offering consists of 120 series of 100 shares each at a price of
$75 per share.
During the quarter ended March 31, 1995, 9 additional series of 100
shares were added. During 1994, 36 additional series of 100 shares of
Participating Stock were issued as compared with 46 for the year ended
December 31, 1993. In addition, in 1994 the Board of Directors
redeemed 3 series of 100 shares each that had substantial accumulated
deficits. As a result of the redemption, $22,500 was transferred from
Participating Stock to retained earnings to eliminate the capital
accounts and accumulated deficits of those series.
In the years ended December 31, 1992, 1993 and 1994, costs in the
amount of $80,298, $74,461 and $162,989, respectively, were incurred
in the sale of Participating Stock. The Common Stockholder reimbursed
the Company directly for these expenses in 1994. During 1992 and
1993, these amounts were expensed by the Company and allocated to the
account of the Common Stockholder.
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
have no right to vote with respect to liquidation of the Company. As
a class, these holders generally have the sole right to vote on
matters not specifically reserved to Participating Stock.
The 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 require the approval
of a majority of the holders of Participating Stock present and
voting together with a majority of the holders of Common Stock.
From time to time, funds are held in escrow on account of Participat-
ing Stock applications. Such amounts are not included in cash and
cash equivalents in the accompanying financial statements. At
December 31, 1994, $7,500 was held in escrow and at December 31, 1993,
there were no amounts held in escrow.
Note 6. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement, the Company will
receive additional cessions of $19,156,090 ($13,471,019 at December
31, 1993) 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 7. LETTERS OF CREDIT
As of December 31, 1994, the Company has provided an irrevocable
letter of credit to MIC, in the amount of $42,900,000 to secure the
amounts recoverable from the Company related to the business ceded.
Cash equivalents and investments are assigned to secure the letter of
credit.
Note 8. 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.
An amount equal to 1-1/3 percent of assumed 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 subject to the right of holders of participating
stock to receive minimum dividends. The minimum annual dividend
payable on each share shall be such shares 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 part.
Barbados law requires that the Company maintain a minimum
capitalization based generally on the amount of premiums earned in the
preceding fiscal year. At January 1, 1995, the Company's required
minimum capital computed in accordance with Barbados law was
approximately $2,631,669.
Amounts of retained earnings applicable to the Common and
Participating Stockholders are comprised of the following:
Common Participating Total
______ _____________ _____
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 year (7,536) 1,726,094 1,718,558
Net transfers (37,410) 37,410 -
Dividends paid - (2,156,304) (2,156,304)
Redemption of participating
stock - 22,500 22,500
_________ _________ __________
Balance (deficit)
December 31, 1994 (53,220) 5,849,952 5,796,732
Net income for
the quarter end
March 31, 1995
(unaudited) 1,024 489,393 490,417
Balance (deficit)
March 31, 1995 (unaudited) (52,196) $6,339,345 $6,287,149
________ __________ __________
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, or to the
Subsidiary Capital Account for any series of Shares pursuant to Section
3(1)(7)(a)(ii) or (iii) hereof (after taking into account the provisions of
Section 3(1)(7)(b)) after January 1, 1995, 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 and
credited:
(i) first 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 with respect to said series
of Shares have been restored, and
(ii) then, with respect to any deficits charged against the
Subsidiary Capital Account for any series of Shares pursuant to
Section 3(1)(7)(a)(ii) or (iii) for periods after January 1, 1995, to
the Subsidiary Capital Accounts for the Shares, pro rata, based upon
the relative amounts, through the end of the fiscal quarter for which
the reallocation hereunder is being made, of deficits that were
allocated to those accounts (whether under Section 3(1)(7)(a)(ii) or
(iii)) from the Subsidiary Capital Account for the series of Shares
for which the reallocation hereunder is being made and that have not
previously been restored, until all reductions of such Subsidiary
Capital Accounts after January 1, 1995 under Section 3(1)(7)(a) with
respect to said 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. 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. The undersigned further
represent(s) that all beneficial owners of the dealership have consented to this
designation.
______________________________ _________________________________
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 14. 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 ................ $ 310
State "Blue Sky" fees ................... $ 16,476
Accountants Fees and Expenses ........... $ 10,000
Legal Fees and Expenses ................. $ 30,000
Printing and Engraving .................. $ 8,000
Miscellaneous ........................... $ -
--------
Total Expenses ..................... $ 64,786
--------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Paragraph 10 of Registrant's By-Laws provides for the indemnification of
Registrant's officers and directors (and such persons' heirs, executors and
administrators) against any and all judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys' fees, incurred by such person in
connection with any claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that such person is or was
a director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, 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 is set forth under Item
17, paragraph 4 of this Part II.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
4 Restated Articles of Incorporation (filed as Appendix A to the
Prospectus).
5 Opinion of Evelyn, Gittens & Farmer.
10 (a) Form of Principal Retrocession Agreement between Motors Insurance
Corporation and Registrant filed by reference to Exhibit 10(a) of
the Registration Statement on Form S-1, File No. 33-6534, dated
June 18, 1986.
(b) Form of Supplemental Retrocession Agreement between Motors
Insurance Corporation and Registrant filed by reference to
Exhibit 10(b) of the Registration Statement on From S-1, File No.
33-6534 dated June 18, 1986.
(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 filed by reference to Exhibit
10(d) to Amendment No. 1 to Registration Statement on Form S-1,
File No. 33-6534, dated February 12, 1987.
(e) Insurance Management Agreement between Registrant and Alexander
Insurance Managers (Barbados) Ltd dated March 19, 1992, filed by
reference to Exhibit 10(f) to Annual Report on From 10-K, File
No. 33-6534, for the year ended December 31, 1993.
23 (a) Consent of Evelyn, Gittens & Farmer.
(b) Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
(c) Consent of Deloitte & Touche, Independent Chartered Accountants.
99 (a) Certification Form (filed as Appendix C to the Prospectus).
(b) Guarantee issued by the Minister of Finance of Barbados filed by
reference to Exhibit 28(b) of Amendment No. 1 to Registration
Statement on Form S-1, File No. 33-6534, dated February 12,
1987.
(c) Certificate of Barbados Residency filed by reference to Exhibit
28(c) of Amendment No. 1 to Registration Statement on Form S-1,
File No. 33-6534, dated February 12, 1987.
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.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "1933 Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Michael, Barbados, on
April 7, 1995
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 Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
s/John D. Finnegan Chairman and Chief May 1, 1995
___________________________
John D. Finnegan Executive Officer
s/William B. Noll President and Director May 1, 1995
__________________________
William B. Noll (Principal Executive Officer)
s/Ronald W. Jones Vice-President (Principal April 7, 1995
__________________________
Ronald W. Jones Financial and Accounting
Officer)
s/Louis S. Carrio, Jr. Vice-President and Director May 1, 1995
__________________________
Louis S. Carrio, Jr.
s/Bernard J. Buselmeier Vice-President and Director May 1, 1995
__________________________
Bernard J. Buselmeier
s/Peter R. P. Evelyn Director April 25, 1995
__________________________
Peter R. P. Evelyn
Director May 1, 1995
__________________________
Henry Faulkner, III
April 28, 1995
Board of Directors
Motors Mechanical Reinsurance
Company, Limited
Financial Services Centre
P.O. Box 1304
St. Michael
BARBADOS
Gentlemen,
Re: Participating Stock - Registration Statement on Form S-2
Reference is made to the Registration Statement on Form S-2 (the
"Registration Statement") of Motors Mechanical Reinsurance
Company, Limited, a Barbados corporation (the "Company"), to be
filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, in connection with the
proposed offer and sale by the Company of 12,000 shares of
Participating Stock, no par value (the "Shares").
As counsel to the Company, we have examined the corporate
proceedings and such other legal matters relating to the Shares
as we deemed relevant to the opinions expressed below.
Based on such examination, we are of the opinion that:-
1. The Company is a corporation duly organized and existing
under the laws of Barbados.
2. The Company has corporate power to authorize, issue and sell
the Shares.
3. Upon the issuance and sale, the Shares shall be duly and
validly issued and outstanding, fully paid and non-
assessable.
Yours faithfully,
s/Evelyn, Gittens & Farmer
EXHIBIT 23(a)
CONSENT OF COUNSEL
Motors Mechanical Reinsurance Company, Limited:
We hereby consent to (i) the filing of our opinion as Exhibit 5
to this Registration Statement, and (ii) the reference to our
name under the captions "Barbados Corporate Laws Provisions,"
"Legal Matters" and "Experts" in the Prospectus which is part of
this Registration Statement.
s/EVELYN, GITTENS & FARMER
Bridgetown, Barbados
April 19, 1995
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, L.L.P.
Washington, D.C.
May 31, 1995
EXHIBIT 23(c)
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
Motors Mechanical Reinsurance Company, Limited:
We hereby consent to the use in the Registration Statement of
Motors Mechanical Reinsurance Company, Limited on Form S-2
registering 12,000 shares of Participating Stock, of our report
dated February 27, 1995 appearing in the Prospectus included in
such Registration Statement, and reference to us under the
headings "Selected Financial Data" and "Experts" in such
Prospectus.
s/DELOITTE & TOUCHE
Bridgetown, Barbados
April 18, 1995
